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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No 0-27070
VENTURE SEISMIC LTD.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
ALBERTA, CANADA N/A
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3110-80 AVENUE S.E.
CALGARY, ALBERTA T2C 1J3
(Address of principal executive offices) (Zip Code)
</TABLE>
ISSUER'S TELEPHONE NUMBER: (403) 777-9070
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of each class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best or registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $14,146,971.
As of December 18, 1996, there were outstanding 3,097,683 shares of the
registrant's common stock no par value, which is the only class of common or
voting stock of the registrant. As of that date, the aggregate market value of
the shares of common stock or voting stock held by non-affiliates of the
registrant (based on the last sales price for the common stock on the NASDAQ
National Market System on December 18, 1996) was approximately $7,580,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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DOCUMENTS INCORPORATED BY REFERENCE
PART III
<TABLE>
<S> <C> <C>
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act To be included in the Proxy
Item 10. Executive Compensation Statement to be filed pursuant
Item 11. Security Ownership of Certain to Regulation 14A not later than
Beneficial Owners and Management 120 days after the end of the
Item 12. Certain Relationships and Related Registrant's fiscal year.
Transactions
</TABLE>
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This report contains certain forward-looking statements that involve risks
and uncertainties. Actual results could differ from those anticipated due to a
number of factors including the capital intensive nature of the Company's
business and its need for additional funds for operations and debt service
requirements, fluctuations in operating results, dependence upon principal
customers and on the activity of the oil and gas industry, risks associated with
international operations and regulatory, competitive and contractual risks.
PART I
ITEM 1. BUSINESS
OVERVIEW
Venture Seismic Ltd. ("Venture" or "the Company") is a provider of seismic
data to oil and gas companies, primarily in North America. Seismic data enables
oil and gas companies to evaluate the earth's subsurface to determine the
potential of a hydrocarbon bearing structure and assist oil and gas companies in
determining the size and structure of previously identified oil and gas fields.
The seismic data is obtained by using an energy source, such as dynamite or
vibroseis units, to send acoustic energy deep into the earth's subsurface. As
these acoustic signals reflect off different subsurface structures their
reflection time can be measured by an array of small motion sensitive
transducers, called geophones, placed at specific intervals on the earth's
surface. The resulting electrical signals are then amplified, converted into
digital form and relayed to a central recording unit for storage on magnetic
tape. The data can then be processed by high powered computers to generate a
visual image of the earth's subsurface. Seismic data has been used historically
to determine drilling locations for potential oil and gas wells and more
recently it is being increasingly used in reservoir management for the
development and production of oil and gas reserves.
Until recently the majority of seismic data acquisition had been
2-dimensional ("2D") in nature, where a line of geophones captured information
to generate a 2-dimensional image of the earth's subsurface structure
immediately below the geophones. In recent years there has been a significant
increase in the demand for 3-dimensional ("3D") surveys. In a 3-dimensional
survey multiple lines of geophones are combined with multiple energy sources to
generate a 3-dimensional ("3D") image of the earth's subsurface structure. As
advances have occurred in computing power, surveying techniques, geophone
systems, recording technology and acquisition techniques the industry is
undergoing a dramatic shift from 2D data acquisition to 3D data acquisition.
More comprehensive information provided by 3D surveys allows oil and gas
companies to evaluate the potential for the existence of hydrocarbon reserves
with a much higher degree of accuracy. The use of 3D surveys can significantly
increase drilling success rates and reduce the occurrence of costly dry holes
thereby lowering the cost of exploring for oil and gas. While 3D provides more
comprehensive information the cost of a 3D survey is also much greater than 2D
surveys. As a result 2D surveys remain more cost efficient for preliminary,
reconnaissance type exploratory evaluations.
SEISMIC OPERATIONS
The Company currently operates nine land and transition zone crews in North
America; six crews in Western Canada and three crews in the Southern United
States. Channel capacity of its crews in Canada is approximately 3,100 channels
and channel capacity in the United States is approximately 1,900 channels. Three
of the Company's Canadian crews and one of the United States crews employ both
24 bit technology and telemetry transmission to transmit the seismic data from
the remote acquisition modules to the central recording unit. The telemetry
technology permit the Company to operate efficiently in marsh/swamp areas,
rivers/lakes and transition zones. The majority of data acquisition equipment
operated in North America uses cables to transmit data and these systems do not
operate as efficiently in wetland areas as do telemetry systems. Currently the
Company is the sole provider of telemetry technology in Western Canada.
During fiscal 1996 one of the Company's Canadian telemetry systems was
mobilized to Pakistan and the Company performed its first project outside
continental North America. This project was completed in September 1996 and the
equipment has been returned to the Canadian marketplace.
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Also in December 1996 the Company acquired a set of vibroseis units. This
gave the Company, for the first time the capability of performing vibroseis
projects. The Company estimates that vibroseis projects currently account for
approximately 25% of the seismic data acquisition market in Western Canada.
CONTRACTS AND SIGNIFICANT CUSTOMERS
Contracts for seismic data can be conducted on a turnkey or term basis or a
combination of the two. Turnkey projects are based on a fixed fee and the
Company bears substantially all of the risk of business interruption caused by
bad weather or other hazards. Turnkey projects can be more profitable to the
Company where the Company understands the cost variables associated with a
particular contract and is able to minimize productivity risk. Currently
approximately 70% of the Company's projects are conducted on a turnkey or
turnkey combined with term basis. Under the terms of the Company's contracts the
oil and gas company retain proprietary rights for the data collected by the
seismic survey.
The Company markets its services to approximately 100 oil and gas companies
in Canada and approximately 50 in the United States.
During fiscal 1994, 1995 and 1996, two, three and two customers each
accounted for in excess of 10% of the Company's revenues and in fiscal 1995 and
1996 the same customer accounted for 43% and 54% of the revenues respectively.
Although the projects performed by the Company were generally short term, the
inability to replace significant customers would cause the Company's revenues
and operating results to fluctuate significantly from period to period, and the
loss of certain customers would have a material adverse impact on its business.
Because of the limited number of data acquisition crews owned by the Company,
and thus the limited number of data acquisition crews that the Company is able
to deploy at any given time, the Company anticipates that a substantial portion
of future revenues will continue to be attributable to a few customers, who may
change from time to time.
COMPETITION
The seismic data acquisition industry is highly competitive and is
characterized by constantly evolving technology and significant capital
requirements for new equipment. There are approximately 50 to 60 data
acquisition companies in North America and contracts are generally awarded to
geophysical services companies on the basis of technology, price, performance,
safety record, dependability, reputation and crew availability. The seismic data
acquisition services industry is highly competitive and several of the Company's
competitors are substantially larger than the Company, have longer operating
histories, greater financial and technical resources and larger sales volumes
than the Company.
WEATHER, PRODUCTIVITY AND SEASONALITY OF OPERATIONS
The majority of the Company's operations are conducted under varied weather
conditions and difficult terrain, both of which could result in equipment
failures, accidents, or loss of productivity. Fixed costs, including costs
associated with operating leases, labor costs, depreciation and interest expense
account for a substantial portion of the Company's costs and expenses. As a
result downtime or low productivity resulting from reduced demand, equipment
failures, weather interruptions or otherwise, can result in significant
operating losses. The Company's operations have traditionally been highly
seasonal, with the majority of the demand for its services occurring from
November to March. The seasonality of the Company's operations is
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primarily because oil and gas companies prefer delaying exploration activities
in Western Canada until the ground is frozen.
The Company believes that the addition of telemetry technology has lessened
the risks associated with weather, low productivity and seasonality due to
diversified operating capabilities of the equipment. In addition the expansion
of operations into the United States will reduce the effect of the seasonality
associated with Canadian operations. On June 12, 1996 the Company completed the
acquisition of Boone Geophysical, Inc. ("Boone"). This acquisition consisted of
the operating assets of Boone, a seismic acquisition contractor operating in the
south eastern United States. This acquisition will assist the Company in
expanding its operations in the United States.
In 1996 the Company completed an international project in Pakistan however
as a result of a loss incurred from this project the Company is refocusing on
the Canadian and U.S. markets and is not currently marketing its services
internationally.
SUPPLIERS
The Company expects it will continue to be required to upgrade its seismic
data acquisition equipment to incorporate technological advances. The Company
obtains its seismic data acquisition equipment from a few select vendors, and in
the case of its telemetry based data acquisition systems, from a sole source
Sercel-Opseis Inc. The Company does not have long term supply contracts with any
of its suppliers and purchases its equipment on a purchase order basis. No
assurance can be given that shortages will not occur in the future or that the
sole or limited sources will be able to support the equipment requirements of
the Company. In addition there can be no assurance that the Company will not
experience delays or other supply problems that may materially adversely affect
the Company's operations or that the Company will be able to obtain suppliers in
a timely manner in the event of an increase in demand of its services. The
inability to obtain seismic data acquisition equipment as required, or to
develop alternative sources as required in the future, could materially
adversely affect the Company's business, operating results and financial
condition.
EMPLOYEES
The number of persons employed by the Company at any given time is highly
dependent upon the time of year and availability of seismic data acquisition
projects, and typically ranges from 40 to 250 people. Although the Company does
maintain a core staff of 15 to 20 people who perform a variety of administrative
and management services, the number of additional persons employed is a function
of on-going work.
None of the Company's employees are covered by collective bargaining
agreements. The Company has not experienced any work stoppages and considers its
relations with employees to be good. The Company has employment contracts with
five of its senior corporate executives.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- --------------------------------------------------
<S> <C> <C>
Brian W. Kozun................ 36 President and Chief Executive Officer
Gregory B. Wiebe.............. 39 Vice President Finance and Chief Financial Officer
P. Daniel McArthur............ 35 Chief Operating Officer
James W. Stenhouse............ 48 Vice President Operations
</TABLE>
Brian Kozun has been President and Chief Executive Officer of the Company
since April 1992. Mr. Kozun was one of the founding shareholders of the Company
and served as the Company's Vice President - Field Operations and Vice President
- - Survey Operations from 1985 to 1992. From 1983 to 1985 Mr. Kozun served in
various field positions with Sefel Geophysical Ltd., a geophysical company. Mr.
Kozun has been involved in the geophysical services industry for more than 16
years.
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Greg Wiebe joined the Company as Chief Financial Officer in August 1994.
From September 1991 to July 1994, Mr. Wiebe served as Vice President - Finance
and Chief Financial Officer of Dion Entertainment Corp., a gaming services
management company. From 1981 to 1991, Mr. Wiebe was a member of KPMG Peat
Marwick Thorne, a public accounting firm, progressing from a staff accountant to
a senior manager during this period. Mr. Wiebe is a chartered accountant.
Dan McArthur has served as Chief Operating Officer since August 1994. From
1989 to 1994, Mr. McArthur served as a marketing manager and operations
supervisor for Solid State Geophysical Inc., a geophysical company, and was
appointed Vice President, International Operations in June 1992. From 1981 to
1988, he was employed by Sonics Exploration Ltd., a geophysical company, in
various field management positions, onshore and offshore in Canada, the United
States and the Caribbean.
Jim Stenhouse has served as Vice President - Operations of the Company
since August 1994. From November 1987 until August 1994, he served as Marketing
Manager and crew supervisor of the Company. From April 1987 until November 1987,
Mr. Stenhouse served as Sales Manager of Vantage Inc. a company specializing in
van conversions and mobility products for the disabled. Mr. Stenhouse served as
both an observer and crew manager at Norcana Geophysical Services Ltd., a
geophysical company, from July 1980 until April 1987.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases administrative and warehouse facilities in Calgary,
Alberta, Canada and Huntsville, Texas. The corporate office facilities and
warehouse space in Calgary consist of approximately 13,000 square feet under a
five year lease expiring December 31, 2000 with a monthly rental of
approximately $5,000. The Company also leases approximately 3,000 square feet of
administrative and warehouse facilities in Huntsville, Texas at a monthly cost
of $1,500.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are defendants or
parties in lawsuits or other proceedings arising in the ordinary course of the
Company's business. The Company is not aware of any proceedings which it deems
to be potentially material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock began trading on the Nasdaq Stock Market under
the symbol "VSEIF" on November 7, 1995 and began trading on the Nasdaq National
Market on November 22, 1995. The following table sets forth, for the periods
indicated, the high and low closing sale prices for the Company's common stock
as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year ended September 30, 1996
November 7 through December 31............................................. $6.50 $4.50
January 1 through March 31................................................. $6.12 $3.75
April 1 through June 30.................................................... $6.00 $4.00
July 1 through September 30................................................ $4.62 $2.88
</TABLE>
On December 18, 1996 the last sales for the Common Stock was $3.69 and
there was approximately 35 record holders of the Company's Common Stock.
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DIVIDENDS
The Company did not pay any dividends during 1996 or 1995 and it intends to
retain all earnings, if any, for use in the expansion of the Company's business.
The declaration and payment of future dividends, if any, will be at the sole
discretion of the Board of Directors and will depend upon the Company's
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenue for the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER
30,
-----------------------------
1996 1995 1994
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<S> <C> <C> <C>
Revenue......................................................... 100% 100% 100%
---- ---- ----
Direct expenses................................................. 84.8 71.0 77.9
Gross margin.................................................... 15.2 29.0 22.1
General and administrative...................................... 9.5 8.7 6.1
Depreciation and amortization................................... 10.7 9.5 2.9
Interest........................................................ 2.2 3.1 0.6
Other income (expense).......................................... -- 0.3 1.2
Income (loss) before income taxes............................... (7.2) 8.0 13.7
Income taxes.................................................... 2.5 3.4 6.3
Net income (loss)............................................... (4.7) 4.6 7.4
</TABLE>
RESULTS OF OPERATIONS
Revenue increased by 50% to $14,146,971 in fiscal 1996 from $9,458,452 in
1995 which represents a 36% increase over revenues of $6,972,345 in 1994. The
increase in revenue between 1996 and 1995 was due to the following factors: a
greater number of seismic crews utilized (six in 1996 compared to five in 1995);
the acquisition of vibroseis units which enabled Venture to participate in this
segment of the industry for the first time, the acquisition of Boone
Geophysical, Inc. ("Boone") in June 1996, and the Company's participation in its
first foreign contract ("the Pakistan project") outside of North America. The
acquisition of Boone and the Pakistan project generated revenue of $1,178,367
and $1,593,825, respectively, in fiscal 1996 representing 59% of the increase.
Comparing fiscal 1994 and 1995, higher revenue resulted from the acquisition of
new equipment and the commensurate increase in the number of seismic data
acquisition systems owned or leased by the Company from four to five.
Venture's direct expenses, which consist primarily of labor, drilling and
surveying costs, totaled $11,991,236 in fiscal 1996, $6,713,181 in 1995 and
$5,428,108 in 1994. These amounts reflect the Company's increasing level of
activity over the past three years, and significant costs associated with the
Pakistan operation in 1996. Overall gross margins were 15.2% in 1996, 29.0% in
1995 and 22.1% in 1994. The decrease in gross margin between 1996 and 1995 is
primarily due to a loss on the Pakistan project of $703,851, reduced margins on
Canadian based operations due to poor weather conditions in the first and second
quarters of fiscal 1996 and the temporary leasing of equipment to ensure
customer demands were met during the second quarter of fiscal 1996. The increase
in gross margin percentage between 1995 and 1994 resulted from increased
activity which diminished the effect of the fixed cost component of direct
costs, as well as a greater number of three-dimensional seismic projects which
generate higher margins than two-dimensional projects. Also 1994 direct expenses
included the cost of leasing a data acquisition system.
The write down for impairment in capital assets of $100,000 in fiscal 1996
relates to the estimated realizable value on sale of capital equipment purchased
locally for the Pakistan project. With completion of
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the project, and a determination by the Company not to pursue additional
contracts in Pakistan at this time, certain of the equipment purchased will be
sold locally since transport of the equipment to the Company's North American
markets is not economical.
General and administrative expenses totaled $1,342,082 in fiscal 1996,
$825,193 in 1995 and $428,169 in 1994. The 1996 amount includes the Company's
increased marketing activities outside of Western Canada, additional personnel
costs related to the expansion of operations and the costs associated with
Venture's public company status. The increase in fiscal 1995 is mainly
attributable to the addition of management personnel to direct the Company's
expansion in North America and other international areas, as well as general
costs associated with structuring and preparing the Company for its initial
public offering early in fiscal 1996. The amount recorded in fiscal 1995 does
not reflect a compensation charge of $212,692 or $0.15 per share in connection
with the estimated fair value on transfer of common shares from an officer and
principal shareholder to another officer of the Company. The compensation charge
would have been required to comply with generally accepted accounting principles
in the United States.
In fiscal 1996, 1995 and 1994 respectively, depreciation and amortization
totaled $1,513,247, $901,896 and $200,635. The increase between 1995 and 1996
reflects substantial additions to fixed assets that occurred during the period
July 1994 to July 1996. During this time, four digital telemetry data
acquisition systems, one set of vibroseis units and additional auxiliary
equipment were purchased. In the fiscal 1996 total, Venture amortized $51,440 of
goodwill related to the acquisition of Boone Geophysical, Inc. in June 1996.
Annual amortization of goodwill is expected to be approximately $154,000.
Interest expense has increased from $44,742 in fiscal 1994 to $290,115 in
1995 and $327,931 in 1996. These costs have risen due to increased debt
associated with the Company's equipment purchases.
The loss before income taxes of $1,022,158 has resulted in a recovery of
previously paid income taxes and a reduction in deferred income taxes. A
reconciliation of actual income tax expense as compared to expected income taxes
is provided in Note 11 of the consolidated financial statements.
In fiscal 1996 the Company recorded a loss of $664,699 or $0.23 per share
as compared to net income of $436,306 or $0.31 per share in fiscal 1995 and
$515,617, or $0.38 per share, in fiscal 1994. The loss in 1996 primarily
reflects a loss on the Company's Pakistan project, costs incurred to expand its
North American operations and reduced margins associated with its Canadian based
operations. The Company has refocused its marketing and operational efforts to
the North American market and has increased personnel and equipment in
anticipation of increased demand. The decrease between fiscal 1994 and 1995
occurred due to higher general and administrative expenses, interest and
depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996 the Company had a working capital deficit of $700,720
which included an aggregate of $1,684,630 relating to the current portion of
long term debt and amounts outstanding under the Company's operating line of
credit. The Company maintains an operating line of credit which provides for an
aggregate of approximately $900,000 in advances, subject to the Company's
overall working capital position and accounts receivable. Borrowings under the
operating line are payable on demand and bear interest at the bank's prime rate
plus 0.75%. As at September 30, 1996 the Company was not in compliance with the
covenant relating to the maintenance of a working capital ratio of not less than
1:1 however the Company has subsequently requested and received a waiver from
the bank provided the Company is in compliance with the working capital covenant
by March 31, 1997.
In addition to the operating line of credit and the current portion of long
term debt the Company had long term debt consisting of a capital loan and
equipment financing of $2,356,060 at September 30, 1996. Subsequent to September
30, 1996 the Company entered into an agreement whereby approximately $1,265,000
in additional funding was provided for the acquisition of additional equipment
and the Company's existing capital loan and equipment financing was refinanced
under a new capital loan (the "new capital loan"). This refinancing, which was
completed on December 20, 1996 resulted in a new capital loan of approximately
$5,140,000 ($7,000,000 Canadian). The
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new capital loan bears interest at the lender's cost of funds plus 3.00% (which,
based on the lender's cost of funds at December 15, 1996 was 6.522% and is
repayable in monthly installments of approximately $103,000 plus interest over a
four year period beginning January 1997. The new capital loan is secured by all
of the Company's equipment. Subsequent to September 30, 1996 the Company entered
into an agreement to purchase one telemetry data acquisition system, one set of
vibroseis units and additional auxiliary equipment with an aggregate purchase
price of approximately $1,300,000. In addition the Company has entered into a
"lease to purchase" agreement for a second telemetry data acquisition system
whereby the Company can exercise a purchase option on April 30, 1997 with credit
being given for a portion of the lease payments incurred during the period
November 1, 1996 to April 30, 1997. The Company expects that additional
financing will have to be obtained to exercise the purchase option for the
equipment. No other significant capital expenditures are expected at this time
in fiscal 1997.
In November and December 1995 the Company received net proceeds of
approximately $6,900,000 in connection with the Company's initial public
offering. These funds were primarily used to acquire additional capital
equipment and to fund the acquisition of Boone in June 1996. Capital
expenditures and the cost of the Boone acquisition aggregated approximately
$7,600,000. In accordance with the terms of the Boone acquisition agreement the
payment of $50,000 in cash and the issuance of $100,000 of common shares has
been deferred with payment to occur in three installments in fiscal 1997.
Net operating cash flows provided by operating activities amounted to
$192,292, $1,960,267 and $564,005 in fiscal 1996, 1995 and 1994, respectively.
The decrease in operating cash flow in fiscal 1996 from fiscal 1995 is primarily
attributable to the loss incurred in 1996 and the reduction in non-cash working
capital. The increase in operating cash in fiscal 1995 as compared to fiscal
1994 reflects increased activity in fiscal 1995 which resulted in increased cash
generated from operations and increases in non-cash working capital.
Net cash provided by financing activities in fiscal 1996 of $7,455,317 is
primarily attributable to proceeds from the Company's initial public offering
and increased debt levels. Net cash from financing activities in fiscal 1995 of
$509,306 and $2,809,263 in fiscal 1994 is primarily attributable to increased
debt levels.
Cash used in investing activities of $7,647,609 in fiscal 1996 results from
capital equipment expenditures of $5,891,181 and the acquisition of Boone at a
cost of $1,756,428. Capital equipment purchases in fiscal 1996 include a set of
vibroseis units and three data acquisition systems. Cash used in investing
activities of $2,469,573 in fiscal 1995 and $3,373,268 in fiscal 1994 is
primarily attributable to the purchase of capital equipment.
The Company will require satisfactory operating cash flows to continue
operations, complete capital expenditures and meet its principal and interest
obligations with respect to the new capital loan. The Company anticipates, based
on its current plans and assumptions, that the funds provided by the refinancing
and the funds expected to be generated from operations will be sufficient to
satisfy the Company's existing cash requirements in fiscal 1997. However, the
Company's ability to meet its debt service and other obligations depends on its
future performance which is subject to general economic conditions, oil and gas
commodity prices and other business factors beyond the Company's control. If the
Company is unable to generate sufficient cash flow from operations or to comply
with the terms of the new capital loan it may be required to refinance all or a
portion of its existing debt or to obtain additional financing, although there
can be no assurance that the Company will be able to obtain such refinancing or
additional financing.
IMPACT OF INFLATION AND CHANGING PRICES
The general availability of seismic equipment and crews and the level of
exploration activity in the oil and gas industry directly affects the cost of
providing seismic data. The pricing of the Company's services is primarily a
function of these factors. The Company does not believe inflationary trends have
had any significant impact on its financial operating results for the three
years ended September 30, 1996.
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ITEM 7. FINANCIAL STATEMENTS
The response to this item is included in a separate section of this report.
See Index to Consolidated Financial Statements on Page F-1.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
Item 9 "Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act"; Item 10 "Executive
Compensation"; item 11 "Security Ownership of Certain Beneficial Owners and
Management"; Item 12 "Certain Relationships and Related Transactions" will be
included in and incorporated by reference from the Registrant's proxy statement
for its fiscal year ended September 30, 1996 to be filed pursuant to Regulation
14A within 120 days after the end of its fiscal year.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<C> <S>
3.1 Articles of Incorporation of the Registrant and Certificates of Amendment
thereto(1)
3.2 By-laws of the Registrant(1)
4.1 Revised Form of Warrant Agreement(1)
4.2 Revised Form of Underwriter's Warrant(1)
10.1 Debenture issued by Registrant to Roynat Inc. dated July 19, 1995 and the
amendments thereto dated September 6, 1995 and September 19, 1995.(1)
10.3 Priorities Agreement between Province of Alberta Treasury Branches, Roynat Inc.,
and Registrant, dated July 25, 1995.(1)
10.4 Buy-Back Agreement between Opseis Inc., Roynat Inc. and Registrant, dated July 25,
1995.(1)
10.5 Agreement to Assign Life Insurance between Brian Kozun, Registrant and Roynat Inc.
dated July 19, 1995.(1)
10.6 Outline of Credit between Registrant and Province of Alberta Treasury Branches,
dated June 21, 1995.(1)
10.7 Waiver letter from Alberta Treasury Branches, dated August 18, 1995.(1)
10.8 Representative Agreement between Registrant and S. Antonio Velarde, dated July 1,
1995.(1)
10.9 Joint Venture Agreement, and amendment thereto, between Registrant and Aguasuelos
Ingenieria, C.A. dated March 17, 1995 and English translation thereto.(1)
10.10 1995 Stock Option Plan(1)
10.11 Employment Agreement between Registrant and Brian Kozun dated September 14,
1995(1)
10.12 Employment Agreement between Registrant and P. Daniel McArthur dated July 11,
1994, Clarification and Amendment Agreement effective as of July 11, 1994,
Novation Agreement, dated June 28, 1995 and Waiver letter dated September 8,
1995(1)
10.13 Form of Indemnity Agreement(1)
10.14 Lease between Registrant and BRL Corporation, dated September 2, 1994(1)
10.15 Revised Form of Consulting Agreement between the Registrant and the Underwriter(1)
10.16 Representative Agreement between the Registrant and Geotrex, dated July 1, 1995(1)
10.17 Memorandum of Understanding between Registrant and Shiv-Vani Drilling Limited,
dated February 28, 1995(1)
10.18 Lease between Registrant and Opseis, Inc. dated September 27, 1995(1)
10.20 Securities Purchase Agreement dated as of May 31, 1996 between Registrant, Boone
Geophysical, Inc. and Lynn Boone(2)
10.21 Promissory note dated as of June 20, 1996 between the Registrant and Opseis,
Inc.(3)
10.22 Debenture issued by the Registrant dated December 6, 1996
27 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference from Registrant's Registration Statement on Form
SB-2 (File No. 33-97132) declared effective on November 6, 1995
(2) Incorporated by reference to the Registrant's Form 8-K dated June 12, 1996
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996
(B) REPORTS ON FORM 8-K
A Form 8-K report was filed on June 12, 1996 with respect to the
acquisition of Boone Geophysical, Inc. effective June 1, 1996.
11
<PAGE> 12
VENTURE SEISMIC LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Chartered Accountants........................................... F-2
Consolidated Balance Sheets, September 30, 1996 and September 30, 1995................ F-3
Consolidated Statements of Income and Retained Earnings for the Years Ended
September 30, 1996, September 30, 1995 and September 30, 1994....................... F-4
Consolidated Statements of Cash Flows for the Years Ended September 30,1996,
September 30, 1995 and September 30, 1994........................................... F-5
Notes to Consolidated Financial Statements............................................ F-6
</TABLE>
F-1
<PAGE> 13
AUDITORS' REPORT
To the Shareholders of
VENTURE SEISMIC LTD.
We have audited the consolidated balance sheets of Venture Seismic Ltd. as
at September 30, 1996 and 1995 and the consolidated statements of income and
retained earnings and cash flows for each of the years in the three year period
ended September 30, 1996. 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 out audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at September 30,
1996 and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended September 30, 1996
in accordance with accounting principles generally accepted in Canada.
Calgary, Canada /s/ ERNST & YOUNG
December 4, 1996 Chartered Accountants
F-2
<PAGE> 14
VENTURE SEISMIC LTD.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
(INCORPORATED UNDER THE ALBERTA BUSINESS CORPORATIONS ACT)
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT
Accounts receivable (note 6)...................................... $2,644,659 $1,420,599
Other receivables................................................. 127,706 35,712
Income taxes recoverable.......................................... 430,975 --
Work-in-progress.................................................. 381,273 58,760
Current portion of advances to shareholders (note 2).............. 7,342 7,399
Prepaid expenses and deposits..................................... 156,678 385,442
----------- -----------
3,748,633 1,907,912
ADVANCES TO SHAREHOLDERS (note 2)................................. 14,684 22,197
DEFERRED INCOME TAXES............................................. 63,875 --
CAPITAL ASSETS (notes 4, 7 and 16(a))............................. 9,614,265 5,071,686
INTANGIBLE ASSETS (note 5)........................................ 1,491,783 --
----------- -----------
14,933,240 7,001,795
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness (note 6)........................................ 164,630 373,081
Accounts payable and accrued liabilities.......................... 2,764,723 1,598,435
Income taxes payable.............................................. -- 7,374
Current portion of long term debt (note 7)........................ 1,520,000 836,775
----------- -----------
4,449,353 2,815,665
----------- -----------
LONG TERM DEBT (note 7)........................................... 2,356,060 2,440,594
----------- -----------
DEFERRED INCOME TAXES............................................. -- 454,323
----------- -----------
COMMITMENTS (note 8)
SHAREHOLDERS' EQUITY
Share capital (note 9)............................................ 7,539,902 131,671
Retained earnings................................................. 494,843 1,159,542
Cumulative translation adjustment................................. 93,082 --
----------- -----------
8,127,827 1,291,213
----------- -----------
14,933,240 7,001,795
=========== ===========
</TABLE>
On behalf of the Board:
<TABLE>
<S> <C>
/s/ BRIAN KOZUN /s/ DAN MCARTHUR
Director Director
</TABLE>
See accompanying notes
F-3
<PAGE> 15
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE............................................. $14,146,971 $9,458,452 $6,972,345
DIRECT EXPENSES (note 3)............................ 11,991,236 6,713,181 5,428,108
----------- ---------- ----------
GROSS MARGIN........................................ 2,155,735 2,745,271 1,544,237
----------- ---------- ----------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of capital assets............... -- 9,466 89,714
Write-down for impairment of assets................. (100,000) -- --
Interest and other.................................. 105,367 18,510 (4,820)
----------- ---------- ----------
5,367 27,976 84,894
----------- ---------- ----------
2,161,102 2,773,247 1,629,131
----------- ---------- ----------
OTHER EXPENSES
General and administrative.......................... 1,342,082 825,193 428,169
Depreciation and amortization....................... 1,513,247 901,896 200,635
Interest (note 10).................................. 327,931 290,115 44,742
----------- ---------- ----------
3,183,260 2,017,204 673,546
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES................... (1,022,158) 756,043 955,585
----------- ---------- ----------
INCOME TAXES (note 11)
Current (recovery)................................ (293,732) 174,317 227,366
Deferred.......................................... (63,727) 145,420 212,602
----------- ---------- ----------
(357,459) 319,737 439,968
----------- ---------- ----------
NET INCOME (LOSS) FOR THE YEAR...................... (664,699) 436,306 515,617
RETAINED EARNINGS, BEGINNING OF YEAR................ 1,159,542 723,236 207,619
----------- ---------- ----------
RETAINED EARNINGS, END OF YEAR...................... 494,843 1,159,542 723,236
=========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE (note 9)
Basic............................................. (.23) .31 .38
Fully diluted..................................... (.23) .31 .37
</TABLE>
See accompanying notes
F-4
<PAGE> 16
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year...................... $ (664,699) $ 436,306 $ 515,617
Items not involving cash
Depreciation and amortization..................... 1,513,247 901,896 200,635
Deferred income taxes............................. (63,727) 145,420 212,602
Gain on sale of capital assets.................... -- (9,466) (89,714)
Write-down for impairment of assets............... 100,000 -- --
Cumulative translation adjustment................... 139,335 -- --
Net change in non-cash working capital (note 13).... (831,864) 486,111 (275,135)
----------- ----------- -----------
192,292 1,960,267 564,005
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds on issuance of shares...................... 6,907,507 -- 49,856
Increase in long term debt.......................... 598,691 1,042,440 2,216,370
Advance from related company........................ -- -- 59,849
Advance to shareholders............................. 7,570 7,334 (36,930)
Increase (decrease) in bank indebtedness............ (208,451) (309,015) 520,118
Net change in non-cash working capital (note 13).... 150,000 (231,453) --
----------- ----------- -----------
7,455,317 509,306 2,809,263
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets.......................... (5,891,181) (2,479,039) (3,789,518)
Acquisition of Boone Geophysical, Inc. (note 5)..... (1,756,428) -- --
Proceeds on sale of fixed assets.................... -- 9,466 416,250
----------- ----------- -----------
(7,647,609) (2,469,573) (3,373,268)
=========== =========== ===========
INCREASE IN CASH FOR THE YEAR....................... -- -- --
=========== =========== ===========
CASH, BEGINNING AND END OF YEAR..................... -- -- --
=========== =========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE> 17
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements of the Company are expressed in
U.S. dollars and have been prepared in accordance with accounting principles
generally accepted in Canada, consistently applied. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates and approximations which have been made using careful judgment.
The consolidated financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below.
CONSOLIDATION
The consolidated financial statements include the accounts of Venture
Seismic Ltd. and its wholly-owned U.S. subsidiaries, Venture Seismic Inc.
(Texas) and Boone Geophysical, Inc. All significant intercompany transactions
have been eliminated.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is provided on a
declining balance basis to amortize the cost of the assets over their estimated
economic useful lives as follows:
<TABLE>
<S> <C>
Recording equipment................................. 15% - 30%
Equipment and radios................................ 25%
Computer equipment.................................. 30%
Automotive equipment................................ 30%
Furniture and fixtures.............................. 20%
</TABLE>
When capital assets are sold or scrapped, the cost of the asset and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss on disposal is reflected in income.
INTANGIBLE ASSETS
Intangible assets consist of the excess purchase of net assets acquired and
is amortized on a straight-line basis over ten years from the date of
acquisition.
REVENUE RECOGNITION
The Company recognizes revenue on contracts using the
percentage-of-completion method, based primarily on contract costs incurred to
date compared with total estimated contract costs to be incurred. Changes to
total estimated contract costs and full provision for losses, if any, are
recognized in the period they are determined.
INCOME TAXES
The Company follows the deferral method of tax allocation in accounting for
income taxes under which the income tax provision is based on the income
reported in the accounts. Under this method, provision is made for income taxes
deferred principally as a result of claiming depreciation and recognizing
revenue for tax purposes at amounts that differ from those provided in the
accounts.
F-6
<PAGE> 18
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
FOREIGN CURRENCY TRANSLATION
The Company's functional (measurement) currency is the Canadian dollar. It
translates foreign currency transactions into Canadian dollars using average
exchange rates for the year for items included in the consolidated income
statement, year end exchange rates for monetary assets and liabilities and
historical rates for non-monetary assets and liabilities. Translation gains or
losses are included in income for the year.
The Company has selected U.S. dollars as its currency for financial
reporting and display purposes and accordingly applies the current rate method
to translate its accounts measured in Canadian dollars to U.S. dollars. Under
this method, average exchange rates are used for items included in the
consolidated income statement and year end exchange rates for the assets and
liabilities. Any significant gains or losses are included in a cumulative
translation adjustment account as a separate component of shareholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 establishing standards for the impairment
of long-lived assets. This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not realizable. The Company adopted Statement No.
121 effective September 30, 1996 and determined that there was no material
effect from this change in accounting method.
In October 1995 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 which provides for alternative methods
for recording stock-based compensation and requires additional disclosure of the
effect on net income and earnings per share of accounting for the value of stock
options as compensation expense. The Company is required to adopt Statement No.
123 for its fiscal year ending September 30, 1997 but has not yet determined the
effect, if any, adoption will have on its financial statement disclosure.
2. ADVANCES TO SHAREHOLDERS
Advances to shareholders are non-interest bearing and are repayable in
annual instalments of $7,342 ($10,000 Canadian) with 18,462 common shares of the
Company pledged as collateral against the advances.
3. RELATED PARTY TRANSACTIONS
During fiscal 1994 the Company rented seismic equipment and purchased
equipment from 300498 Alberta Ltd. ("300498"), a company owned 50% by the
President of the Company, for $100,395 and for $326,536, respectively.
F-7
<PAGE> 19
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Recording equipment............... $11,124,043 $ 2,302,653 $5,572,338 $ 1,152,545
Equipment and radios.............. 778,577 388,862 644,596 284,037
Automotive equipment.............. 733,338 389,848 557,586 295,846
Computer equipment................ 57,929 30,408 34,480 19,821
Furniture and fixtures............ 50,502 18,353 30,018 15,083
----------- ----------- ----------- -----------
12,744,389 3,130,124 6,839,018 1,767,332
----------- ----------- ----------- -----------
Net Book Value.................... 9,614,265 5,071,686
---------- ----------
---------- ----------
</TABLE>
5. ACQUISITION OF BOONE GEOPHYSICAL, INC.
Effective June 1, 1996 the Company acquired all of the outstanding shares
of Boone Geophysical, Inc. for an aggregate purchase price of $1,806,428
consisting of $1,250,000 in cash, $500,000 of Venture common shares and $56,428
of direct acquisition costs. The payment of $50,000 in cash and the issuance of
$100,000 of common shares has, in accordance with the term of the acquisition
agreement, been deferred with payment to occur in three instalments by June 1,
1997. The assigned fair value of net assets acquired is:
<TABLE>
<S> <C>
Capital assets............................................................... $ 213,205
Excess of cost over net tangible assets acquired, assigned to goodwill....... 1,543,223
----------
1,756,428
Cash......................................................................... 50,000
----------
1,806,428
==========
</TABLE>
The following unaudited condensed proforma statement of operations presents
the consolidated results of operations for the year ended September 30, 1996 as
if the purchase had occurred on October 1, 1995. The proforma results are not
necessarily indicative of the financial results that might have occurred had the
transaction actually taken place on October 1, 1995, or the future results of
operations.
<TABLE>
<S> <C>
Revenue..................................................................... $16,400,000
Net loss for the year....................................................... (634,000)
Net loss per common share................................................... (.22)
</TABLE>
6. BANK INDEBTEDNESS
The bank operating loan is repayable on demand, with interest payable at
the Alberta Treasury Branch prime rate plus .75% per annum.
A general assignment of book debts has been pledged as collateral for the
bank operating loan.
The loan agreement between Venture Seismic Ltd. and the bank contains
certain restrictive covenants with respect to maintenance of certain financial
ratios and to changes in share ownership. As at September 30,
F-8
<PAGE> 20
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
1996, the Company was not in compliance with the covenant relating to the
maintenance of certain financial ratios. However, the Company has subsequently
requested and received a waiver from the bank.
7. LONG TERM DEBT
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Capital loan, bearing interest at the lender's cost of funds plus
3.25% and repayable in monthly instalments of $68,831 ($93,750
Canadian), due September 15, 1999............................... $2,409,094 $3,277,369
Equipment purchase contract, bearing interest at 8%, repayable in
monthly instalments of $91,000, comprised of principal and
interest, due June 15, 1997..................................... 795,528 --
Equipment lease purchase contracts, bearing interest at 22%,
repayable in monthly instalments of $71,613, comprised of
principal and interest, due December 31, 1996................... 671,438 --
---------- ----------
3,876,060 3,277,369
Less current portion.............................................. (1,520,000) (836,775)
---------- ----------
2,356,060 2,440,594
========== ==========
</TABLE>
A general security agreement on equipment and a fixed charge on certain
equipment have been pledged as collateral for the capital loan. Specific seismic
equipment has been pledged as collateral for the equipment purchase contract and
the equipment lease purchase contract (see note 16(a)).
Principal repayments, based on the refinancing as described in note 16(a),
are as follows:
<TABLE>
<S> <C>
1997..................................................... $1,520,000
1998..................................................... 1,236,000
1999..................................................... 1,120,060
---------
3,876,060
=========
</TABLE>
8. COMMITMENTS
The Company has entered into several operating lease agreements for
automotive equipment and office premises, with the following required payments:
<TABLE>
<S> <C>
1997.................................................. $224,000
1998.................................................. 123,000
1999.................................................. 47,000
2000.................................................. 10,000
-------
404,000
=======
</TABLE>
The Company had lease expenses of $300,000, $316,368, and $221,067 included
in income for the years ended September 30, 1996, 1995 and 1994, respectively.
F-9
<PAGE> 21
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
9. SHARE CAPITAL
A) SHARE REORGANIZATION
On August 23, 1995, at the special annual meeting of the shareholders of
the Company, the shareholders approved a share consolidation of the existing
share capital from 4,550,000 common shares to 1,400,000 common shares. These
financial statements reflect the effect of the share reorganization as though it
had occurred at the Company's inception.
B) AUTHORIZED
The Company's authorized share capital consists of an unlimited number of
common and preferred shares.
C) ISSUED
<TABLE>
<CAPTION>
COMMON
----------------------
NUMBER AMOUNT
-------- ---------
<S> <C> <C>
Balance at September 30, 1994 and September 30, 1995................. 1,400,000 $ 131,671
Issued for cash...................................................... 1,604,050 7,008,231
Issued on acquisition of Boone Geophysical, Inc. (see note 5)........ 93,633 400,000
--------- ----------
Balance at September 30, 1996........................................ 3,097,683 7,539,902
========= ==========
</TABLE>
The shares issued for cash are net of share issue costs totalling
$1,640,148. Of the $731,500 of income tax benefit associated with these share
issue costs, $500,724 has been recorded in the share capital account. The
remaining benefit of $230,776 will be recognized in the accounts when realized.
D) STOCK OPTIONS (NOTE 16(B))
In fiscal 1995, the Company established the 1995 Stock Option Plan ("the
Option Plan") whereby up to 250,000 common shares are available for purchase by
directors, officers, employees and consultants.
Under the option plan, the options granted are contingent upon continued
employment and are exercisable on a cumulative basis over a vesting period of
three years. There are 198,500 options outstanding to purchase common shares at
an exercise price of $5.00, of which 99,250 options are fully vested. These
options expire on September 14, 2005.
E) WARRANTS AND UNDERWRITER OPTION
In fiscal 1996 the Company completed its initial public offering. As part
of this public offering the Company issued 1,610,000 warrants. The warrants,
which expire on November 7, 2000, unless redeemed earlier by the Company,
entitle the holder to purchase one common share at a price of $6.00. The Company
also granted the Underwriter an option to purchase 140,000 common shares at
$8.25 per share and 140,000 warrants ("Underwriter warrants") at $0.165 per
warrant. The Underwriter warrants expire on November 7, 2000 and entitle the
holder to purchase one common share at $7.00. As part of an investor relations
service agreement, the Company has agreed to issue 100,000 warrants to purchase
100,000 common shares at an exercise price of $5.25. Of these warrants 60,000
are exercisable over a four year period commencing October 27, 1996 and 40,000
are exercisable over a three year period commencing October 27, 1997.
F-10
<PAGE> 22
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
10. INTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Short-term bank indebtedness............................ $ 72,965 $ 68,940 $27,240
Long-term debt.......................................... 254,966 221,175 17,502
-------- -------- -------
327,931 290,115 44,742
======== ======== =======
</TABLE>
11. INCOME TAXES
Income tax expense varies from the amounts that would be computed by
applying the combined Canadian federal and provincial income tax rate for each
of the periods due to the following differences:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Corporate tax rate........................................ 44.6% 44.48% 44.34%
--------- -------- --------
Provision for income taxes at statutory tax rate.......... $(455,882) $336,290 $423,706
Increase (decrease) in income taxes due to:
Difference between rate of accumulation on deferred
income taxes and statutory rate...................... -- -- 30,000
Small business deduction................................ -- (37,000) (37,000)
Loss of subsidiary company not recognized............... 47,000 -- --
Non-taxable portion of capital gain..................... -- -- (14,000)
Non-deductible expenses................................. 39,000 22,000 41,000
Other................................................... 12,423 (1,553) (3,738)
--------- -------- --------
(357,459) 319,737 439,968
========= ======== ========
</TABLE>
12. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in only one business segment, contract seismic data
acquisition services. Revenue from individual customers representing 10% or more
of revenue were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer A......................................................... 54% 43% --
Customer B......................................................... 11% -- --
Customer C......................................................... -- 15% 12%
Customer D......................................................... -- 13% 14%
--- --- ---
65% 71% 26%
=== === ===
</TABLE>
The Company's sales are to customers in the oil and gas industry for the
acquisition of seismic data, which results in a concentration of credit risk.
The Company generally extends unsecured credit to these customers and,
therefore, the collection of these receivables may be affected by changes in
economic or other conditions and may accordingly impact the Company's overall
credit risk. Management believes the risk is mitigated by the size, reputation
and diversified nature of the companies to which they extend credit. The Company
has not previously experienced any material credit losses on the collection of
receivables.
F-11
<PAGE> 23
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
Approximately 84% and 77% of accounts receivable at September 30, 1996 and
1995, respectively, were represented by three customers.
The following table provides information by geographic area for the year
ended September 30, 1996. Prior to the year ended September 30, 1996 primarily
all the Company's operations were conducted in Canada.
<TABLE>
<CAPTION>
CANADA UNITED STATES INTERNATIONAL CORPORATE TOTAL
---------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue................. $11,024,777 $ 1,528,369 $ 1,593,825 $ -- $14,146,971
Gross margin............ 2,506,193 353,393 (703,851) -- 2,155,735
General and
administrative
costs................. -- -- -- -- (1,342,082)
Depreciation and
amortization.......... -- -- -- -- (1,513,247)
Interest expense........ -- -- -- -- (327,931)
Other................... -- -- -- -- 5,367
Income taxes............ -- -- -- -- 357,459
-----------
Net loss for the year... (664,699)
-----------
Identifiable assets..... 9,234,928 3,597,148 609,381 1,491,783 14,933,240
=========== =========== =========== =========== ===========
</TABLE>
13. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable................................. $(1,224,060) $ 69,094 $(1,264,399)
Other receivables................................... (91,994) 225,181 (228,797)
Income taxes recoverable............................ (430,975) -- --
Work-in-progress.................................... (322,513) 85,988 (23,676)
Advances from (to) shareholder...................... -- -- 10,018
Prepaid expenses and deposits....................... 228,764 (214,020) (135,125)
Accounts payable and accrued liabilities............ 1,166,288 314,368 1,147,809
Income taxes payable................................ (7,374) (225,953) 219,035
----------- ----------- -----------
(681,864) 254,658 (275,135)
----------- ----------- -----------
Comprised of:
Operating........................................... (831,864) 486,111 (275,135)
Financing........................................... 150,000 (231,453) --
----------- ----------- -----------
(681,864) 254,658 (275,135)
=========== =========== ===========
</TABLE>
F-12
<PAGE> 24
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
14. UNITED STATES ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) using Canadian basis.............. $ 664,699 $ 436,306 $ 515,617
Compensation expense(1)............................. -- 212,692 --
----------- ----------- -----------
Net income (loss) using U.S. basis.................. 664,699 223,614 515,617
=========== =========== ===========
</TABLE>
- ---------------
(1) Compensation expense represents the difference between the estimated fair
market value of $3.50 per share and the consideration given for shares
received from a principal shareholder by a member of senior management as
part of an employment contract. The employment contract was entered into in
July, 1994 and contains a clause whereby the employee would receive a
certain number of shares should certain events not occur on or before July
1, 1995. As at September 30, 1994, management was of the opinion that these
events would occur. In April, 1995, it became evident that these events
would not occur and that it was probable that the employee would become
entitled to the shares and the associated compensation expense was
recognized in the accounts for U.S. accounting purposes.
The Company paid interest of $331,970, $290,607 and $30,118 in the years
ended September 30, 1996, 1995 and 1994, respectively.
The Company paid income taxes of $Nil, $400,270 and $8,331 in the years
ended September 30, 1996, 1995 and 1994, respectively.
Included in Acquisition of Boone Geophysical, Inc. of $1,756,428 on the
Statement of Cash Flows, is $500,000 relating to the issuance of Venture common
shares.
For the United States basis of accounting the Company has adopted FAS 109
"Accounting for Income Taxes" on a prospective basis, effective September 1,
1993. FAS 109 requires companies to recognize deferred tax assets and
liabilities for the expected future tax consequences, based on enacted rates, of
existing differences between financial reporting and tax reporting basis of
assets and liabilities. These provision also require the Company to establish a
valuation allowance for deferred tax assets where the recovery of these assets
are uncertain.
The deferred tax liabilities (assets) relate to the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Fixed assets..................................................... $ 133,800 $ 348,550
Work in progress................................................. 103,200 26,947
Share issue costs................................................ (480,975) --
Benefit of unrecognized loss carryforward........................ (40,000) --
Other............................................................ -- 78,826
--------- ---------
(283,975) 454,323
Valuation allowance.............................................. 220,100 --
--------- ---------
(63,875) 454,323
========= =========
</TABLE>
F-13
<PAGE> 25
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
SEPTEMBER 30, 1996
The Company's net income (loss) per share amounts using United States
generally accepted accounting principles, after giving affect to the share
reorganization, are:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Net income (loss) per common share using U.S. basis
Primary and fully diluted(1)...................................... $(.23) $ .16 $ .37
</TABLE>
- ---------------
(1) Under U.S. generally accepted accounting principles the calculation of
primary income per share is based on the number of issued and outstanding
shares plus common share equivalents, including stock options, if they
would have a dilutive effect. Under U.S. GAAP outstanding shares would be
2,857,000 for 1996 and 1,400,000 for 1995 and 1994.
15. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
current year's presentation.
16. SUBSEQUENT EVENTS
A) CAPITAL LOAN
Subsequent to September 30, 1996 the Company was advanced $5.1 million ($7
million Canadian) by Roynat Inc. with the proceeds used to repay the Company's
outstanding balances on its capital loan and equipment purchase contracts and to
fund the acquisition of certain capital assets. The capital loan bears interest
at the lender's cost of funds plus 3.00% and is repayable in monthly principal
instalments of $103,000 ($140,000 Canadian), commencing January 1997.
A general security agreement on equipment and a fixed charge on certain
equipment have been pledged as collateral for the capital loan.
The principal repayments after the refinancing are as follows:
<TABLE>
<S> <C>
Remainder of fiscal 1997............................. $ 927,000
1998................................................. 1,236,000
1999................................................. 1,236,000
2000................................................. 1,236,000
2001................................................. 465,000
---------
5,100,000
=========
</TABLE>
B) STOCK OPTIONS
The Company has granted certain officers and employees options to purchase
a total of 51,500 shares at $5.00 per share. These options expire November 15,
2001 and must be fully paid upon exercise of the stock option.
F-14
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 20, 1996
VENTURE SEISMIC LTD.
/s/ BRIAN KOZUN
By:
Brian Kozun, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BRIAN KOZUN President, Chief Executive Officer, December 20, 1996
- ------------------------------------- Director (Principal Executive
Brian Kozun Officer)
/S/ GREG WIEBE Vice President, Finance and December 20, 1996
- ------------------------------------- Chief Financial Officer (Principal
Greg Wiebe Financial Officer)
/S/ DAN MCARTHUR Chief Operating Officer, Director December 20, 1996
- -------------------------------------
Dan McArthur
/S/ MICHAEL BENINGER Director December 20, 1996
- -------------------------------------
Michael Beninger
/S/ JOSEPH CIAVARRA Director December 20, 1996
- -------------------------------------
Joseph Ciavarra
</TABLE>
<PAGE> 1
EXHIBIT 10.22
DATED: December 6, l996
----------------------
VENTURE SEISMIC LTD.
- to -
ROYNAT INC.
----------------------
$7,000,000.00
DEBENTURE
----------------------
Ballem MacInnes
Barristers and Solicitors
18th Floor
First Canadian Centre
350 - 7th Avenue S.W.
CALGARY, Alberta
T2P 3N9
File Number: 10057-107
<PAGE> 2
DEBENTURE - FLOATING RATE
Issued to: RoyNat Inc.
4500 Canterra Tower
400 - 3rd Avenue S.W.
Calgary, Alberta T2P 4H2
Facsimile No. 269-7701
Venture Seismic Ltd.
3110 - 80th Avenue S.E.
Calgary, Alberta
T2C 1J3
DEBENTURE
$7,000,000.00 December 6, l996
1. Venture Seismic Ltd. (the "Company") for value received hereby promises to
pay to RoyNat Inc. ("RoyNat"), at its address specified above, the principal
amount of Seven Million Dollars ($7,000,000.00) in the manner hereinafter
provided, together with all other moneys which may from time to time be owing
hereunder or pursuant hereto.
2. Principal Payments. Subject to the provisions of this Debenture, the
principal amount of this Debenture shall become due and payable by 50 monthly
instalments, each in the amount of $140,000.00, payable on the 15th day of each
month from and including January 15, l997 to and including February 15, 2001
and the balance of the said principal amount, together with interest thereon
and all other moneys owing hereunder, shall become due and payable on the 15th
day of February, 2001.
3. Interest. Interest shall be payable on the 15th day of each month on the
balance from time to time outstanding of the principal amount of this
Debenture, any overdue interest and any other moneys due and payable hereunder,
both before and after maturity, default or judgment, at the rate of interest
per annum (the "Loan Rate") which is 2.75% greater than RoyNat's Floating Base
Rate for the Applicable Period calculated and compounded monthly, computed from
the respective dates of advance of the moneys by RoyNat to the Company until
payment in full of all moneys owing hereunder. RoyNat shall notify the Company
at least five days prior to each interest payment date of RoyNat's Floating
Base Rate for the Applicable Period but the non-receipt of any such notice by
the Company or the failure of RoyNat to give such notice shall in no way limit
or negate the obligation of the Company to pay interest on such payment date.
The first interest payment date shall be January 15, l997.
4. Redemption. The Company may redeem this Debenture prior to maturity either
in whole at any time or, when not in default hereunder, in part from time to
time on not less than 30 days' written notice at a price equal to the principal
amount being redeemed plus an additional amount equal to three months' interest
on such principal amount at the Loan Rate in effect on the date fixed by the
Company for redemption and together in each case with accrued and unpaid
interest on such principal amount to the date fixed for redemption and, in the
case of redemption in whole, all other moneys owing hereunder. The Company
shall have no other right of prepayment.
<PAGE> 3
- 2 -
Notwithstanding the foregoing paragraph, the Company may, when not in
default hereunder, on not less than 10 days' written notice, redeem up to 15% of
the principal amount outstanding on the date fixed by the Company for redemption
at a price equal to the principal amount being redeemed, together with accrued
and unpaid interest on such principal amount to the date fixed for redemption.
This right may be exercised once during each 12 month period following the date
of the initial advance of funds hereunder, and shall be non-cumulative.
4A. Conversion to Fixed Interest Rate. The Company may at any time request
that RoyNat provide a quotation as to the availability of fixed interest rates
on the principal of this Debenture. Within 60 days after receipt of such
request, RoyNat shall provide a written offer to the Company, offering
specified rates of interest for a selection of fixed interest periods as RoyNat
may then be able to provide and specifying a date from which the conversion
would be effective (the "Conversion Date"). Such rates of interest shall be
2.75% above RoyNat's Term Base Rate for the relevant periods. The offer shall
stipulate any extensions of the term of this Debenture that RoyNat may require.
If the Company accepts such offer by selecting the applicable interest rate and
fixed interest period, the rate so specified and accepted shall be the "Loan
Rate" for all purposes of this Debenture from and after the Conversion Date for
the fixed interest period selected. If such period expires before the end of
the agreed extended term, the rate of interest on this Debenture shall revert
to the variable rate, provided in Section 3 hereof for the balance of the
agreed extended term, but the Company may thereafter avail itself again of the
provisions of this Section 4A. The Company shall forthwith execute and deliver
such documentation, if any, as RoyNat shall request to give effect to any
interest rate conversion or extension of the term of this Debenture. The
Company shall have no right to redeem this Debenture after conversion to a
constant interest rate except as may be specified in the offer from RoyNat
accepted by the Company, notwithstanding the provisions of Section 4 hereof.
For the purposes of this Section:
(a) "RoyNat's Term Base Rate", when set, shall be equal to the then
existing Government of Canada Bond Yield for terms of 1 or 2 years plus
.55%, and for terms of 3, 4 or 5 years plus .75%, as the case may be,
for the fixed term selected; and
(b) "Government of Canada Bond Yield" on any date means the yield to
maturity, assuming semi-annual compounding, which a non-callable
Government of Canada bond would carry if issued, in Canadian dollars in
Canada at 100% of its principal amount on such date with a term to
maturity equal to the fixed interest rate period being
offered by RoyNat, as quoted to RoyNat by a money market dealer or
Canadian Charter Bank.
5. Partial Payments. In case less than the total principal amount of this
Debenture is redeemed at any time, the principal amount so redeemed shall be
credited against the principal payable hereunder in inverse order of maturity.
6. Security. As security for the payment of the principal, interest and all
other moneys from time to time payable under this Debenture, and the
performance by the Company of all its obligations hereunder, but subject to
Permitted Encumbrances and to the exception as to leaseholds hereinafter
contained, the Company hereby grants a security interest in and grants,
assigns, mortgages and charges,
<PAGE> 4
- 3 -
as and by way of a first, fixed and specific mortgage and charge to and in
favour of RoyNat all furniture, machinery, equipment, vehicles, accessories and
other tangible personal property (other than Inventory) now owned or hereafter
acquired by the Company, together with any proceeds of sale or disposition
thereof, and including without limitation the property described in Schedule
"B" hereto.
And for the same consideration and purposes and subject to the same
exceptions, the Company hereby charges as and by way of a first floating charge
to and in favour of RoyNat the undertaking of the Company and all its property
and assets for the time being, both present and future, and of whatsoever
nature and wherever situate (other than property and assets from time to time
effectively subjected to the fixed and specific mortgages and charges created
hereby or by any instrument supplemental hereto).
Provided that such floating charge shall not prevent the Company from time
to time until the security hereby constituted shall have become enforceable
from selling, leasing or otherwise disposing of the property, rights and assets
included in such floating charge or from making expenditures with a view to the
expansion of its business or from giving security constituting Permitted
Encumbrances, all in the ordinary course of its business and subject to the
provisions of this Debenture. In particular, the Company may give security to
its bankers on its Inventory or by way of assignment of its accounts receivable
(except to the extent such accounts receivable represent proceeds of the sale
or disposition of property specifically mortgaged or charged hereunder or under
any instrument supplemental hereto) and such security if validly perfected
shall rank prior to the lien hereof on such assets without further action by
RoyNat. Notwithstanding any other provision of this Debenture except as
provided in the foregoing sentence, the security interests constituted hereby
and by any supplemental security granted to RoyNat shall not be subordinate to,
nor is there any intention to subordinate such security interests to, any
Permitted Encumbrances or security interests held by others.
All security interests created by this Debenture attach immediately upon
execution of the Debenture. The attachment of the floating charge has not been
postponed and the floating charge shall attach to any particular property
intended to be subject to it as soon as the Company has rights in such
property.
All property and assets of the Company whether specifically charged or
subjected to the floating charge are hereinafter referred to as the "Mortgaged
Premises".
7. Exception as to Leaseholds. It is hereby declared that the last day of any
term of years reserved by any lease or sublease, verbal or written, or any
agreement therefor, now held or hereafter acquired by the Company is excepted
out of the Mortgaged Premises, but the Company shall stand possessed of any
such reversion upon trust to assign and dispose thereof as RoyNat may direct.
8. Payments and Notice. Any payments not received by RoyNat by two o'clock
p.m. on a Business Day shall be deemed to have been received on the next
Business Day. Any notice required or desired to be given hereunder or under
any instrument supplemental hereto shall be in writing and may be given by
personal delivery, by facsimile or other means of electronic communication or
by sending the same by registered mail, postage prepaid, to RoyNat or to the
Company at their respective addresses set out above and, in the case of
electronic communication, to the facsimile numbers set out above. Any
<PAGE> 5
- 4 -
notice so delivered shall be conclusively deemed given when personally
delivered and any notice sent by facsimile or other means of electronic
transmission shall be deemed to have been delivered on the Business Day
following the sending of the notice, and any notice so mailed shall be
conclusively deemed given on the third Business Day following the day of
mailing, provided that in the event of a known disruption of postal service,
notice shall not be given by mail. Any address for notice or payments herein
referred to may be changed by notice in writing given pursuant hereto.
9. Covenants. (a) This Debenture is issued subject to and with the benefit of
all the covenants, terms and conditions in Schedule "A" hereto which Schedule
forms a part hereof.
(b) In addition to such covenants, terms and conditions, the Company
covenants with RoyNat that so long as this Debenture remains
outstanding the Company shall:
(i) execute and deliver all such documents as may be
necessary to maintain in force the pre-authorized payment
system specified in the Offer of Finance; and
(ii) not permit Consolidated Working Capital to fall below a
ratio of 1:1 excluding the current portion of term debt.
10. Offer of Finance. This Debenture is being issued by the Company to RoyNat
pursuant to the terms of a certain letter agreement between the Company and
RoyNat dated November 22, l996 (such letter agreement including any amendments
thereto being herein called the "Offer of Finance"). All terms and conditions
of the Offer of Finance shall remain in full force and effect, except to the
extent inconsistent with the provisions of this Debenture.
11. Maximum Recovery. If any amounts, whether on account of interest, fees,
bonus or additional consideration, becomes payable to or is received by RoyNat
pursuant to this Debenture, the Offer of Finance, any other security document
or other agreement which would exceed the maximum amount recoverable under
applicable law on moneys advanced by RoyNat:
(a) any amounts so payable shall be reduced and are hereby limited to
the maximum amount recoverable under applicable law;
(b) any amounts so received by RoyNat shall, at RoyNat's option,
either be returned to the Company or, notwithstanding Section 4
hereof, be deemed to have been received by RoyNat as a partial
redemption of this Debenture and shall be credited against
principal payable hereunder in inverse order of maturity; and
(c) if paragraph (a) requires the reduction in an amount or amounts
payable to RoyNat, RoyNat in its sole discretion shall determine
which amount or amounts shall be reduced to ensure compliance with
this Section 11.
12. Extensions and Amendments. Any agreement for the extension of the time of
<PAGE> 6
- 5 -
payment of the moneys hereby secured or any part thereof made at, before or
after maturity, and prior to the execution of a discharge or release of this
Debenture, or any agreement for altering the term, rate of interest (whether
increased or decreased), the amount of the principal payments hereunder or any
other covenant or condition hereof, need not be registered in any office of
public record but shall be effectual and binding upon the Company and upon
every subsequent mortgagee, chargee, encumbrancer or other person claiming an
interest in the Mortgaged Premises or any part thereof when executed by the
Company and delivered to RoyNat.
13. Receipt and Waiver. The Company hereby acknowledges receipt of a true copy
of this Debenture and, to the extent permitted by law, waives all rights to
receive from RoyNat a copy of any financing statement or financing change
statement filed, or any verification statement received, at any time in respect
of this Debenture or any supplemental or collateral security granted to RoyNat.
14. Binding Effect, Governing Law and Headings. These presents are binding
upon the parties hereto and their respective successors and assigns. This
Debenture shall be governed by and construed in accordance with the laws of the
Province of Alberta and the laws of Canada applicable therein. The division of
this Debenture into sections and the insertion of headings are for convenience
of reference only and shall not affect the construction or interpretation of
this Debenture.
15. Invalidity, etc. Each of the provisions contained in this Debenture is
distinct and severable and a declaration of invalidity, illegality or
unenforceability of any such provision or part thereof by a court of competent
jurisdiction shall not affect the validity or enforceability of any other
provision of Debenture.
16. Waiver of Certain Legislation. The Company hereby declares and covenants
that:
(a) THE LAND CONTRACTS (ACTIONS) ACT (Saskatchewan) shall have no
application to any action as defined in THE LAND CONTRACTS
(ACTIONS) ACT with respect to this Debenture, any of the Mortgaged
Premises or any supplemental or collateral security granted to
RoyNat; and
(b) THE LIMITATION OF CIVIL RIGHTS ACT (Saskatchewan) shall have no
application to: (i) this Debenture; (ii) any indenture, instrument
or agreement entered into by the Company, at any time hereafter,
supplemental, collateral or ancillary hereto or in
implementation of this Debenture or the Offer of Finance and
involving the payment by the Company of money or the liability
of the Company to pay money; (iii) any mortgage, charge or
other security for the payment of the money made, given or
created by this Debenture; (iv) any instrument or agreement
entered into by the Company at any time hereafter, renewing or
extending or collateral to this Debenture or any other
security given to RoyNat by the Company; or (v) the rights,
powers or remedies of RoyNat or a Receiver or any other person
under this Debenture or under any other security granted by
the Company to RoyNat or instrument or agreement collateral,
supplemental or ancillary hereto or referred to in this
Debenture; and
<PAGE> 7
- 6 -
17. (a) Right of Consolidation. The right of consolidation shall apply to
this Debenture notwithstanding Section 27 of the PROPERTY LAW ACT
of British Columbia or any similar statutory provision in force
from time to time.
(b) For the purposes of Section 198.1 of the LAND TITLE ACT (British
Columbia), the floating charge hereby created over the Borrower's
real and immovable property, both freehold and leasehold, shall
become a fixed charge thereon upon the earlier of:
(i) the occurrence of an event described in clause 9(e), (f)
or (g) of Schedule "A" hereto; or
(ii) RoyNat taking any action pursuant to clause 10 of
Schedule "A" hereto to enforce and realize on the
security hereby constituted.
IN WITNESS WHEREOF the Company has executed this Debenture.
VENTURE SEISMIC LTD.
By: /s/ GREG WIEBE
----------------------------------
Name: Greg Wiebe
Title: VP Finance & CFO
c/s
By:___________________________________
Name:
Title:
49690
<PAGE> 8
SCHEDULE "A"
1. THE COMPANY HEREBY DECLARES, COVENANTS AND AGREES THAT IT:
(a) As to Title - is the sole legal and beneficial owner of the
Mortgaged Premises and owns the same free of all encumbrances other
than Permitted Encumbrances;
(b) Future Acquisitions - shall at its expense on the request of
RoyNat, execute and deliver to RoyNat such further assurances and
documents as RoyNat may require to perfect RoyNat's security on all
or any part of the Mortgaged Premises, or to specifically charge any
or all of the property then subject to the floating charge created
hereby;
(c) Pay Costs - shall pay all costs and expenses (including legal fees
on a solicitor and own client basis) of RoyNat incidental to or
which in any way relates to this Debenture or its enforcement
including:
(i) the preparation, execution and filing of this Debenture and any
instruments postponing, discharging, amending, extending or
supplemental to this Debenture or any security required by the
Offer of Finance ("RoyNat's Security");
(ii) perfecting and keeping perfected RoyNat's Security;
(iii) maintaining the intended priority of RoyNat's Security on all
or any part of the Mortgaged Premises;
(iv) taking, recovering or possessing the Mortgaged Premises;
(v) taking any actions or other proceedings to enforce the remedies
provided herein or otherwise in relation to this Debenture or
the Mortgaged Premises, or by reason of a default hereunder or
the non-payment of the moneys hereby secured;
(vi) taking proceedings, giving notices and giving responses
required under any applicable law concerning or relating to
RoyNat's Security, including compliance with the provisions of
applicable bankruptcy, insolvency, personal property security
and mortgage enforcement legislation;
(vii) any inspections required to be made to the Mortgaged Premises,
or the review of any plans, specifications or other
documentation which may require the approval or consent of
RoyNat;
(viii) obtaining the advice of counsel and other advisors in relation
to the foregoing; all such costs and expenses and other monies
payable hereunder, together with interest at the Loan Rate,
shall be payable on demand and shall upon being incurred by
RoyNat be secured hereby and constitute a charge on
<PAGE> 9
- 2 -
the Mortgaged Premises and any proceeds of realization;
(d) To Pay Rents and Taxes - shall pay all rents, taxes and assessments
lawfully imposed upon the Mortgaged Premises or any part thereof and
upon the income and profits of the Company when the same become due
and payable, shall show to RoyNat on request receipts for such
payment, and shall not suffer any builders', construction, statutory
or other liens or rights of retention, other than Permitted
Encumbrances, to remain outstanding upon any of the Mortgaged
Premises;
(e) To Maintain Corporate Existence and Security - shall maintain its
corporate existence, shall keep the Mortgaged Premises in good
condition and repair, shall maintain the security hereby created as
a valid and effective security at all times so long as any moneys
are outstanding hereunder, shall carry on and conduct its business
in a proper and efficient manner and in accordance with all
applicable law, shall not materially alter the kind of business
carried on by it, shall advise RoyNat promptly in writing of any
proposed change in its name, shall observe and perform all of its
obligations under leases, licences and other agreements to which it
is a party so as to preserve and protect the Mortgaged Premises and
the income therefrom, and shall keep proper books of accounts with
correct entries of all transactions in relation to its business;
(f) Not to Sell - shall not, except as otherwise permitted hereunder,
remove, destroy, lease, sell or otherwise dispose of any of the
Mortgaged Premises; provided that the Company may sell or otherwise
dispose of furniture, machinery, equipment, vehicles and accessories
which have become worn out or damaged or otherwise unsuitable for
their purposes on condition that it shall substitute therefor,
subject to the lien hereof and free from prior liens or charges,
property of equal value so that the security hereby constituted
shall not thereby be in any way reduced or impaired;
(g) To Hold Proceeds of Unauthorized Sale in Trust - in the event the
Mortgaged Premises or any part thereof are sold or disposed of prior
to the full discharge of this Debenture by RoyNat, in any manner not
authorized by this Debenture, shall hold all proceeds of such sale
or disposition received by the Company as trustee for RoyNat until
the Company has been fully released from this Debenture by RoyNat;
(h) To Insure - shall keep insured the Mortgaged Premises with
reputable insurers approved by RoyNat in such amounts against loss
or damage by fire and other causes or perils as RoyNat may
reasonably require and shall pay all premiums necessary for such
purposes as the same shall become due. All policies of insurance
issued in respect of the Mortgaged Premises and all proceeds thereof
are hereby assigned to RoyNat as security for the Company's
obligations hereunder. Each policy of insurance shall show RoyNat
as loss payee, as its interest may appear, shall contain such
mortgage clauses as RoyNat may require, shall be in terms
satisfactory to RoyNat and, at the request of RoyNat, shall be
delivered to and held by RoyNat;
<PAGE> 10
- 3 -
(i) To Furnish Proofs - shall forthwith on the happening of any loss or
damage furnish at its expense all necessary proofs and do all
necessary acts to enable RoyNat to obtain payment of the insurance
moneys;
(j) Inspection by RoyNat - shall allow any employees or authorized
agents of RoyNat at any reasonable time to enter the premises of the
Company to inspect the Mortgaged Premises, including without
limitation the right to undertake soil, ground water, environmental
or other tests, measurements or surveys in, on or below the
Mortgaged Premises, and to inspect the books and records of the
Company and make extracts therefrom, and shall permit RoyNat prompt
access to such other persons as RoyNat may deem necessary or
desirable for the purposes of inspecting or verifying any matters
relating to any part of the Mortgaged Premises or the books and
records of the Company, provided that any information so obtained
shall be kept confidential, save as required by RoyNat in exercising
its rights hereunder. The Company shall pay all costs and expenses
of agents retained by RoyNat for purposes of inspection under this
clause (j);
(k) Deliver Financial Statements - shall deliver to RoyNat within 90
days of the close of each financial year of the Company one copy of
the audited annual financial statements for that year, including the
balance sheet and statements of income, retained earnings and
changes in financial position accompanied by the report of the
Company's auditors, and such other statements or reports as may be
required by RoyNat in the Offer of Finance, and within 45 days after
the first half of each of the Company's financial years, one copy of
the interim financial statements signed by an authorized officer of
the Company, all of which financial statements shall be prepared in
accordance with generally accepted accounting principles; and shall
at the same time deliver to RoyNat copies of all management reports
prepared by the auditors of the Company together with any other
statements stipulated in the Offer of Finance;
(l) Not to Create Certain Charges - without the prior written consent
of RoyNat, which consent shalln ot be unreasonably withheld, shall
not create or suffer to exist any charge or encumbrance over all or
any portion of the Mortgaged Premises ranking or purporting to rank
prior to or pari passu with the charges hereof, other than Permitted
Encumbrances, and shall not permit any subsidiary to mortgage,
charge or otherwise encumber any of its property or assets or issue
any bonds, debentures, shares or other securities, except to the
Company;
(m) Not to Remove - prior to the removal of any of the Mortgaged
Premises from the province in which it is situated at the date of
this Debenture or to leasehold property, the Company shall effect
such further registrations and obtain such other consents and give
such other security, at the sole cost and expense of the Company, as
may be required or desirable to protect or preserve the security
hereby created, and the Company shall forthwith notify RoyNat of the
intended removal and the action proposed to be taken;
<PAGE> 11
- 4 -
(n) No Actions - has received no notice of and has no knowledge of any
pending, potential or threatened litigation or claim for judicial or
administrative action which would adversely affect the Mortgaged
Premises or their use or market value;
(o) Compliance with Environmental Laws -
(i) shall conduct and maintain its business, operations and the
Mortgaged Premises so as to comply in all respects with all
applicable Environmental Laws, including obtaining all
necessary licenses, permits, consents and approvals required to
own or operate the Mortgaged Premises and the business carried
out on, at or from the Mortgaged Premises;
(ii) except as specifically permitted by RoyNat in writing, the
Company shall not permit or suffer to exist, Contaminants or
dangerous or potentially dangerous conditions in, on or below
the Mortgaged Premises including, without limitation, any
polychlorinated biphenyls, radio-active substances, underground
storage tanks, asbestos or urea formaldehyde foam insulation;
(iii) has no knowledge of the existence of Contaminants or dangerous
or potentially dangerous conditions at, on or under the
Mortgaged Premises or any properties in the vicinity of the
Mortgaged Premises which could affect the Mortgaged Premises or
the market value thereof;
(iv) has not given or received, nor does it have an obligation to
give, any notice, claim, communication or information regarding
any past, present, planned or threatened treatment, storage,
disposal, presence, release or spill of any Contaminant at, on,
under or from the Mortgaged Premises or any property in the
vicinity of the Mortgaged Premises, including any notice
pursuant to any Environmental Laws or any environmental report
or audit. The Company shall notify RoyNat promptly and in
reasonable detail upon receipt of any such claim, notice,
communication or information or if the Company becomes aware of
any violation or potential violation of the Company of any
Environmental Laws and shall describe therein the action which
the Company intends to take with respect to such matter;
(v) upon the request of RoyNat shall establish and maintain a
system to assure and monitor continued compliance with, and to
prevent the contravention of, Environmental Laws, which system
shall include periodic reviews of such compliance system;
(vi) shall at the Company's expense, if reasonably requested by
RoyNat in writing, retain an environmental consultant
acceptable to RoyNat, acting reasonably, to undertake
environmental tests and to prepare a report or audit with
respect to the Mortgaged Premises and deliver same to RoyNat
for its
<PAGE> 12
- 5 -
review; and
(vii) shall indemnify and save harmless RoyNat, its officers,
directors, employees, agents and shareholders from and against
all losses, damages or costs suffered by RoyNat arising from or
relating to any breach by the Company of the foregoing
covenants in this clause 1(o) and any breach by the Company or
any other person now or hereafter having an interest in the
Mortgaged Premises which is asserted or claimed against RoyNat.
This indemnity shall survive the payment in full of all amounts
secured hereunder and the discharge of this Debenture. RoyNat
shall hold the benefit of this indemnity in trust for those
indemnified persons who are not parties to this Debenture.
2. Waiver of Covenants. RoyNat may waive any breach by the Company of any of
the provisions contained in this Debenture or any default by the Company in the
observance or performance of any covenant or condition required to be observed
or performed by the Company hereunder, provided that no such waiver or any
other act, failure to act or omission by RoyNat shall extend to or be taken in
any manner to affect any subsequent breach or default or the rights of RoyNat
resulting therefrom.
3. Performance of Covenants by RoyNat. If the Company shall fail to perform
any covenant on its part herein contained, RoyNat may in its absolute
discretion perform any such covenant capable of being performed by it. If any
such covenant requires the payment of money or if the Mortgaged Premises or any
part thereof shall become subject to any charge ranking in priority to the lien
hereof, RoyNat may make such payment and/or pay or discharge such charge, but
shall be under no obligation to do so. All sums so paid by RoyNat, together
with interest at the Loan Rate, shall be payable on demand and shall constitute
a charge upon the Mortgaged Premises. No such performance or payment shall
relieve the Company from any default hereunder or any consequences of such
default.
4. Appointment of Monitor. If in the opinion of RoyNat, acting reasonably, a
material adverse change has occurred in the financial condition of the Company,
or if RoyNat in good faith believes that the ability of the Company to pay any
of its obligations to RoyNat or to perform any other covenant contained herein
has become impaired or if an event of default has occurred, RoyNat may by
written notice to the Company, appoint a monitor (the "Monitor") to investigate
any or a particular aspect of the business and affairs of the Company for the
purpose of reporting to RoyNat. The Company shall give the Monitor its full
co-operation, including full access to facilities, assets and records of the
Company and to its creditors, customers, contractors, officers, directors,
employees, auditors and agents. The Monitor shall not exercise any decision
making or other management responsibilities in connection with the affairs of
the Company. The Monitor shall have no responsibility for the affairs of the
Company nor shall it participate in the management of the Company's affairs.
The Monitor shall act solely on behalf of RoyNat and shall have no contractual
relationship with the Company as a consultant or otherwise. The appointment
of a Monitor shall not be regarded as an act of enforcement of this Debenture.
All reasonable fees and expenses of the
<PAGE> 13
- 6 -
Monitor shall be paid by the Company upon submission to it of a written invoice
therefor.
5. Application of Insurance Proceeds. Any insurance moneys received by RoyNat
pursuant to clause 1(i) above may at the option of RoyNat be applied to
rebuilding or repairing the Mortgaged Premises, or be paid to the Company, or
any such moneys or any insurance moneys received by RoyNat upon the death of
any person whose life is insured under any policy of insurance assigned to
RoyNat as security for the obligations of the Company hereunder may be applied
in the sole discretion of RoyNat, in whole or in part, to the repayment of the
principal amount hereby secured or any part thereof whether then due or not,
with any partial payments to be credited against principal instalments payable
hereunder in inverse order of their maturity dates.
6. No Merger or Novation. The taking of any judgment or the exercise of any
power of seizure or sale shall not operate to extinguish the liability of the
Company to perform its obligations hereunder or to pay the moneys hereby
secured, shall not operate as a merger of any covenant herein contained or
affect the right of RoyNat to interest at the Loan Rate in effect from time to
time hereunder, and the acceptance of any payment or other security shall not
constitute or create any novation. The execution and delivery of this
Debenture or of any instruments or documents supplemental hereto shall not
operate as a merger of any representation, warranty, term, condition or other
provision contained in any other obligation or indebtedness of the Company to
RoyNat or under the Offer of Finance.
7. Security in Addition. The security hereby constituted is in addition to any
other security now or hereafter held by RoyNat. The taking of any action or
proceedings or refraining from so doing, or any other dealings with any other
security for the moneys secured hereby, shall not release or affect the charges
created hereby.
8. Partial Discharges. RoyNat may in its sole discretion grant partial
discharges in respect of any of the Mortgaged Premises on such terms and
conditions as it shall deem fit and no such partial discharges shall affect the
remainder of the security constituted hereby nor shall it alter the obligations
of the Company hereunder.
9. Events of Default. The whole of the principal balance remaining unpaid
together with interest and all other moneys secured by this Debenture shall, at
the option of RoyNat, become immediately due and payable and the security
hereby created shall become enforceable in each of the following events (each
event being herein called an "event of default"):
(a) if the Company defaults in payment of the principal of or interest on
this Debenture or on any other indebtedness of the Company to RoyNat
when the same becomes due;
(b) if the Company defaults in the performance or observance of any of the
covenants contained in clause 9(b) of the Debenture or in clauses 1(f),
1(j), 1(l) or 1(m) of this Schedule or section 4 of this Schedule;
(c) if the Company defaults in the performance or observance of any other
covenant or
<PAGE> 14
- 7 -
condition herein contained and such default shall continue for 15 days
after written notice thereof to the Company by RoyNat;
(d) if there is any material misrepresentation or misstatement contained in
any certificate or document delivered by an officer or director of the
Company in connection with this Debenture;
(e) if the Company institutes any proceeding or takes any corporate action
or executes any agreement or notice of intention to authorize its
participation in or commencement of any proceeding (i) seeking to
adjudicate it a bankrupt or insolvent, or (ii) seeking liquidation,
dissolution, winding up, reorganization, arrangement, protection,
relief or composition of it or any of its property or debt or making a
proposal with respect to it under any law relating to bankruptcy,
insolvency, reorganization or compromise of debts or other similar laws
(including, without limitation, any application under the COMPANIES'
CREDITORS ARRANGEMENT ACT or any reorganization, arrangement or
compromise of debt under the laws of its jurisdiction of
incorporation);
(f) if any proceeding is commenced against or affecting the Company:
(i) seeking to adjudicate it a bankrupt or insolvent;
(ii) seeking liquidation, dissolution, winding up, reorganization,
arrangement, protection, relief or composition of it or any of its
property or debt or making a proposal with respect to it under any
law relating to bankruptcy, insolvency, reorganization or
compromise of debts or other similar laws (including, without
limitation, any reorganization, arrangement or compromise of debt
under the laws of its jurisdiction of incorporation); or
(iii) seeking appointment of a receiver, trustee, agent, custodian or
other similar official for it or for any part of its properties
and assets, including the Mortgaged Premises or any part thereof;
(g) if an encumbrancer or secured creditor shall appoint a receiver or
agent over any part of the Mortgaged Premises, or take possession of
any part of the Mortgaged Premises or if any execution, distress or
other process of any court becomes enforceable against any of the
property of the Company, or a distress or like process is levied upon
any of such property unless suchdistress or process is being diligently
and with merit defended;
(h) if the Company takes any corporate proceedings for its dissolution,
liquidation or amalgamation with another company or if the corporate
existence of the Company shall be terminated by expiration, forfeiture
or otherwise;
(i) if a default occurs under any agreement supplemental hereto or under
any other security previously, now or hereafter granted to RoyNat by
the Company or any guarantor of the
<PAGE> 15
- 8 -
obligations of the Company or should any party to any agreement
supplemental or collateral hereto fail to carry out or observe any
covenant or condition on its part to be observed or performed and such
default continues for 15 days after written notice thereof to the
Company by RoyNat;
(j) if Voting Control of the Company shall change without the prior written
consent of RoyNat.
10. Enforcement. Upon the happening of any event of default, RoyNat shall have
the following rights, powers and remedies in addition to any other rights,
powers and remedies which otherwise may be available to it in law:
(a) to enter upon and take possession of all or any part of the Mortgaged
Premises;
(b) to preserve and maintain the Mortgaged Premises and make such
replacements thereof and additions thereto as it shall deem advisable;
(c) to exercise all powers necessary to the performance of all functions
provided for herein including without limitation the powers to purchase
on credit, to borrow money in the Company's name or in its own name and
to advance its own money to the Company at such rates of interest as it
may deem reasonable;
(d) to sell, for cash or credit or part cash and part credit, lease or
dispose of all or any part of the Mortgaged Premises whether by public
auction or by private sale or lease in such manner as RoyNat may
determine, provided that it shall not be incumbent on RoyNat to sell,
lease or dispose of the said property but that it shall be lawful for
RoyNat peaceably to use and possess the same without hindrance or
interruption by the Company, or any other person or persons whomsoever,
and to receive income from such property and to convey, transfer and
assign to a purchaser or purchasers the title to any undertaking,
property and assets so sold and provided further that in the case of a
sale on credit RoyNat shall only be liable to account to the Company,
any subsequent encumbrancers and others for moneys actually received by
RoyNat; and
(e) to appoint by instrument any person or persons to be a Receiver of all
or any portion of the undertaking, property and assets hereby charged,
to fix the Receiver's remuneration and to remove any Receiver so
appointed and appoint another or others in his stead.
11. Powers of Receiver.
(1) Any Receiver shall have all of the powers of RoyNat set out in Section 10
of this Schedule and, in addition, shall have the following powers:
(a) to carry on the business of the Company and to enter into any
compromise or arrangement on behalf of the Company; and
<PAGE> 16
- 9 -
(b) with the prior written consent of RoyNat to borrow money in his name or
in the Company's name, for the purpose of carrying on the business of
the Company and for the preservation and realization of the
undertaking, property and assets of the Company including, without
limitation, the right to pay persons having prior charges or
encumbrances on properties on which the Company may hold charges or
encumbrances, with any amount so borrowed and any interest thereon to
be a charge upon the Mortgaged Premises in priority to this Debenture;
(2) Any Receiver appointed pursuant to the provisions hereof shall be deemed
to be an agent of the Company for the purposes of:
(a) carrying on and managing the business and affairs of the Company, and
(b) establishing liability for all of the acts or omissions of the Receiver
while acting in any capacity hereunder and RoyNat shall not be liable
for such acts or omissions,
provided that, without restricting the generality of the foregoing, the Company
irrevocably authorizes RoyNat to give instructions to the Receiver relating to
the performance of its duties as set out herein.
12. Application of Moneys. All moneys actually received by RoyNat or by the
Receiver pursuant to Sections 10 and 11 of this Schedule shall be applied:
(a) first, in payment of claims, if any, of secured creditors of the
Company, including any claim of the Receiver pursuant to clause 11(1),
ranking in priority to the charges created by this Debenture;
(b) second, in payment of all costs, charges and expenses of and incidental
to the appointment of the Receiver (including legal fees on a solicitor
and its own client basis) and the exercise by the Receiver or RoyNat of
all or any of the powers granted to them under this Debenture,
including the reasonable remuneration of the Receiver or any agent or
employee of the Receiver or any agent of RoyNat and all outgoings
properly paid by the Receiver or RoyNat in exercising their powers as
aforesaid;
(c) third, in or towards the payment to RoyNat of all moneys due to it by
the Company in such order as RoyNat in its sole discretion may
determine; and
(d) fourth, subject to applicable law, any surplus shall be paid to the
Company.
13. Restriction on Company and its Officers and Directors. Upon the Company
receiving notice from RoyNat of the taking of possession of the Mortgaged
Premises or the appointment of a Receiver, all the powers, functions, rights
and privileges of each of the directors and officers of the Company with
respect to the properties, business and undertaking of the Company shall cease
unless specifically continued by the written consent of RoyNat.
<PAGE> 17
- 10 -
14. Discharge and Satisfaction. Upon payment by the Company to RoyNat of all
moneys hereby secured, these presents shall cease and become null and void and
the Mortgaged Premises shall revest in the Company without any acknowledgement
or formality, but RoyNat shall upon the request and at the expense of the
Company, execute and deliver to the Company a full release and discharge.
15. No Obligation to Advance. Neither the issue and delivery of this Debenture
nor the advance of any funds hereunder shall obligate RoyNat to advance any
further funds hereunder.
16. Limited Power of Attorney. The Company hereby appoints RoyNat as the
Company's attorney, with full power of substitution, in the name and on behalf
of the Company, to execute, deliver and do all such acts, deeds, leases,
documents, transfers, demands, conveyances, assignments, contracts, assurances,
consents, financing statements and things as the Company has agreed to execute,
deliver and do hereunder, under the Offer of Finance or otherwise, or as may be
required by RoyNat or any Receiver to give effect to this Debenture or in the
exercise of any rights, powers or remedies hereby conferred on RoyNat or any
Receiver, and generally to use the name of the Company in the exercise of all
or any of the rights, powers or remedies hereby conferred on RoyNat or any
Receiver. This appointment, being coupled with an interest, shall not be
revoked by the insolvency, bankruptcy, dissolution, liquidation or other
termination of the existence of the Company or for any other reason.
17. Interpretation. As used herein the following expressions shall have the
following meanings:
(a) "Applicable Period", with respect to any Interest Period, means the
period commencing on the 8th day of the month in which such Interest
Period commences and ending on the 7th day of the following month,
except that if the rate of interest hereunder is being determined:
(i) for the purpose of redemption by the Company, the Applicable
Period shall end on the 7th day preceding the redemption date; or
(ii) for any other purpose, other than the payment of interest on the
day following an Interest Period, the Applicable Period shall end
on the day preceding the day on which the rate is being determined
and the following Applicable Period shall commence on such day.
(b) "Business Day" means any day except Saturday, Sunday or a statutory
holiday.
(c) "Contaminant" means any solid, liquid, gas, odour, heat, sound, smoke,
waste, vibration, radiation or combination of any of them resulting
directly or indirectly from human activities that may cause: (i)
impairment of the quality of the natural environment for any use that
can be made of it, (ii) injury or damage to property or to plant or
animal life, (iii) harm or material discomfort to any person, (iv) an
adverse affect on the health of any
<PAGE> 18
- 11 -
person, (v) impairment of the safety of any person, (vi) rendering any
property or plant or animal life unfit for use by man, (vii) loss of
enjoyment of normal use of property, or (viii) interference with the
normal conduct of business, and includes any pollutant or contaminant
as defined in any applicable Environmental Laws and any biological,
chemical or physical agent which is regulated, prohibited, restricted
or controlled.
(d) "Environmental Laws" means the common law and all applicable federal,
provincial, local, municipal, governmental or quasi-governmental laws,
rules, regulations, licences, orders, permits, decisions or
requirements concerning Contaminants, occupational or public health and
safety or the environment and any other order, injunction, judgment,
declaration, notice or demand issued thereunder;
(e) "Interest Period" means each monthly period commencing on the 15th day
of a month and ending on the 14th day of the following month.
(f) "Inventory" means property of the Company held for sale including
products purchased for resale, finished goods, work in process and raw
materials but not including any property not intended to be directly
incorporated in finished goods or products to be sold.
(g) "Loan Rate" means the rate of interest specified in Section 3 of the
Debenture.
(h) "Receiver" shall include one or more of a receiver, receiver-manager or
receiver and manager of all or a portion of the undertaking, property
and assets of the Company appointed by RoyNat pursuant to this
Debenture.
(i) "RoyNat" means RoyNat Inc., its successors and assigns and, where
applicable, includes those for whom it acts as nominee or agent.
(j) "RoyNat's Floating Base Rate for the Applicable Period" means, with
respect to any Applicable Period, the arithmetic average (rounded to
three decimal places) of the annual rate of interest which is the rate
determined as being the arithmetic average of the "BA 1 month" rate
applicable to Canadian Dollar bankers' acceptances displayed and
identified as such on the "Reuters' Screen CDOR Page" (as defined in
the International Swap Dealer Association, Inc. definitions, as
modified and amended from time to time) as at approximately 10:00 a.m.
on each Business Day during such Applicable Period, plus .50%;
provided, however, if such rate does not appear on the Reuters' Screen
CDOR Page as contemplated on any Business Day during such Applicable
Period, then the rate on such Business Day shall be the prime lending
rate of The Bank of Nova Scotia as at approximately 10:00 a.m. on
such Business Day.
(k) "Voting Control" means the ownership of a sufficient number of
outstanding shares of a corporation to elect a majority of its
directors; and "Voting Control of the Company" means the Voting Control
of the Company stated in the Offer of Finance or such different Voting
Control as shall have been effected with the prior written consent of
RoyNat.
<PAGE> 19
- 12 -
(l) "Working Capital" of a company means the excess of its current assets
over its current liabilities calculated in accordance with generally
accepted accounting principles with any dissent as to the calculation
thereof being conclusively resolved by RoyNat; and "Consolidated Working
Capital" means the Working Capital of the Company and all its
subsidiaries calculated on a consolidated basis.
(m) "Permitted Encumbrances" means any of the following:
(i) liens for taxes, assessments, governmental charges or levies not
at the time due;
(ii) easements, rights of way or other similar rights in land existing
at the date of this Debenture which in the aggregate do not
materially impair the usefulness in the business of the Company of
the property subject thereto;
(iii) rights reserved to or vested in any municipality or governmental
or other public authority by the terms of any lease, licence,
franchise, grant or permit, or by any statutory provision, to
terminate the same or to require annual or other periodic payments
as a condition to the continuance thereof;
(iv) any lien or encumbrance the validity of which is being contested
by the Company in good faith and in respect of which either there
shall have been deposited with RoyNat cash in an amount sufficient
to satisfy the same or RoyNat shall be otherwise satisfied that
its interests are not prejudiced thereby;
(v) any reservations, limitations, provisos and conditions expressed
in any original grant from the Crown;
(vi) title defects or irregularities which, in the opinion of counsel
to RoyNat, are of a minor nature and in the aggregate shall not
materially impair the usefulness in the business of the Company of
the property subject thereto; and
(vii) validly perfected security given by the Company to its bankers on
its Inventory or under assignments of its accounts receivable,
except to the extent that such accounts receivable represent
proceeds of the sale or disposition of property specifically
charged, mortgaged or assigned under this Debenture or any
security supplemental hereto;
(viii) builder's carrier's, warehouseman's mechanic's or other similar
liens incidental to construction or operations which have not at
such time been filed pursuant to law and relate to obligations not
due or delinquent or related to obligations being contested at the
time in good faith by the Borrower, provided that the Borrower has
posted security therefor with the Lender or with the lienholder in
an amount sufficient to discharge same;
<PAGE> 20
- 13 -
(ix) purchase money Security Interests, upon or in any property
acquired or held by the Borrower in the ordinary course of
business, to secure the purchase price of such property or to
secure indebtedness incurred solely for the purpose of financing
the acquisition of such property and Security Interests existing
on such property at the time of its acquisition (other than any
such Security interest created in contemplation of such
acquisition); provided, however, that the aggregate principal
amount of the indebtedness secured by the Security Interests
referred to in this paragraph (ix) shall not exceed $500,000 in
the aggregate in any fiscal year.
(x) Security Interests incurred or, trusts or deposits arising in
connection with workers' compensation, unemployment insurance
pension, employment or other social benefit laws or regulations or
any judgment under such laws or regulations; provided however, (i)
the Borrower' obligations thereunder are not at the time due or
delinquent, or (ii) the validity of which is being contested by
the Borrower in good faith and by appropriate proceedings,
provided that no execution in respect of such Security Interest,
trust or deposit has been initiated or, if initiated, such
execution has been stayed, and (iii) all such failures in the
aggregate have no material adverse effect on the financial
condition of the Borrower;
(xi) Security Interests securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed
money), statutory obligations, surety and appeal bonds and
performance bonds and other obligations of like nature, incurred
as an incident to and in the ordinary course of business, and
judgment liens, provided, however, that all such Security
Interests (i) in the aggregate have no material adverse effect on
the financial condition of the Borrower and (ii) do not secure
directly or indirectly judgments in excess of $50,000;
49694
<PAGE> 21
CONFIDENTIAL
============
December 20, 1996
Venture Seismic Ltd.
3110 - 80th Avenue S.E.
Calgary, Alberta
T2C 1J3
Attention: Mr. Brian Kozun, President
Dear Sir:
Re: Debenture in the amount of $7,000,000
Authorized November 22, 1996
(In Favour of RoyNat Inc.)
- ------------------------------------------
We are pleased to advise the following change to the above noted Debenture
has been authorized:
1. Change the interest rate on the superseding loan as follows:
FROM: C+2.75%
TO: C+3.00%
2. The interest rate will be reduced to RoyNat's floating cost of funds plus
2.75% if the Company substantially achieves its 1997 forecast as evidenced
by receipt of the September 30, 1997 audited year end financial statements
which are to be satisfactory to RoyNat.
<PAGE> 22
Venture Seismic Ltd. -2- December 20, 1996
All other terms and conditions of the RoyNat security relating to the
above noted Debenture shall remain unchanged or as subsequently amended.
Please acknowledge your acceptance of the foregoing by signing and
returning the enclosed duplicate copy of this letter on or before December 20,
1996.
Yours truly,
RoyNat Inc. Per:
/s/ BLAIN CLOW /s/ R.A. KELLINGTON
- ---------------------- --------------------------
Blain Clow R.A. Kellington
Senior Account Manager Manager, Corporate Lending
BC/sa
ACCEPTED this 20 day of December, 1996.
For: Venture Seismic Ltd.
Per: /s/ BRIAN KOZUN
------------------------------
------------------------------
CORPORATE GUARANTOR:
Date: December 20/96
---------------------------------
For: Boone Geophysical Inc.
Per: /s/ BRIAN KOZUN
---------------------------------
Per:
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,644,659
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,748,633
<PP&E> 12,744,389
<DEPRECIATION> 3,130,124
<TOTAL-ASSETS> 14,933,240
<CURRENT-LIABILITIES> 4,449,353
<BONDS> 2,356,060
<COMMON> 7,539,902
0
0
<OTHER-SE> 587,925
<TOTAL-LIABILITY-AND-EQUITY> 14,933,240
<SALES> 0
<TOTAL-REVENUES> 14,146,971
<CGS> 0
<TOTAL-COSTS> 11,991,236
<OTHER-EXPENSES> 2,855,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327,931
<INCOME-PRETAX> (1,022,158)
<INCOME-TAX> (357,459)
<INCOME-CONTINUING> (664,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664,699)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
