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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
VENTURE SEISMIC LTD.
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(Name of Registrant as specified in its Charter)
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(Name of person(s) filing Proxy Statement, if other than Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Shares, no par value
(2) Aggregate number of securities to which transaction applies: 2,080,000
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined: $7.625 per
share, calculated in accordance with the average of the high and low
closing price of the Common Shares, as reported by Nasdaq, on June 8,
1998.
(4) Proposed maximum aggregate value of transaction: $15,860,000
(5) Total fee paid: $3,172
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
VENTURE SEISMIC LTD.
3110 80TH AVENUE, SE
CALGARY, ALBERTA T2C 1J3
CANADA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 1998
Dear Shareholders of Venture Seismic Ltd.:
You are cordially invited to attend a Special Meeting of Shareholders of
Venture Seismic Ltd., an Alberta, Canada corporation ("Venture"), to be held at
10:00 a.m., local time, on July 20, 1998, at 3100, 324 -- 8th Avenue S.W.,
Calgary, Alberta, Canada, T2P 2Z2 (together with any adjournments and
postponements thereof, the "Meeting"), at which shareholders of record (the
"Venture Holders") as of the close of business on June 19, 1998 (the "Record
Date") of Venture's outstanding common shares, no par value (the "Venture Common
Shares"), will be asked to consider and vote upon the approval and adoption of a
Securities Purchase Agreement (the "Purchase Agreement"), dated as of March 27,
1998, by and among Venture, Continental Holdings Ltd., an Alberta, Canada
corporation ("Continental") and the holders ("Continental Holders") of all of
the outstanding capital stock of Continental (the "Continental Capital Stock")
pursuant to which, among other things, Venture would acquire all of the
Continental Capital Stock (the "Acquisition").
In the Acquisition, Venture will acquire the Continental Capital Stock
(including Class B Common Shares, no par value per share (the "Continental
Common Shares"), and Class C, Series I Preferred Shares, no par value per share
(the "Continental Preferred Shares"), which is collectively referred to herein
as "Continental Capital Stock"), in exchange for consideration payable by
Venture to the Continental Holders on the closing (the "Closing") of an
aggregate of (i) $500,000 (the "Closing Cash Installment"); (ii) negotiable
promissory notes (the "Notes") in the aggregate principal amount of $1,000,000,
due and payable on or before January 1, 1999, bearing interest at the prime rate
of the Royal Bank of Canada (Calgary) ("Royal Bank") plus 1% (the "Note
Installment" and together with the Closing Cash Installment, the "Cash
Consideration") and (iii) 2,080,000 Venture Common Shares (each, an "Acquisition
Common Share" and collectively, the "Share Consideration" and together with the
Cash Consideration, the "Purchase Price"). The closing sales price of Venture
Common Shares on June 19, 1998, was $6.625, as reported by the Nasdaq Stock
Market.
In connection with the Acquisition, (i) in April 1998, Venture loaned
Continental $4,000,000 (the "Venture Advance") to assist in equipping and
refurbishing (the "Refurbishment") a second marine seismic data acquisition
vessel which Continental has agreed in principle to lease; (ii) in December
1997, Continental (a) declared management bonuses aggregating $721,500 (the
"Management Bonuses") to be paid to certain Continental Holders on or before
June 25, 1998; and (b) called for redemption, and paid to one Continental Holder
(who is proposed to be a director of Venture), $524,000 (including the issuance
of a $489,000 note to be paid the earlier of (i) June 25, 1998 or (ii) the
Closing) for the redemption (the "Preferred Share Redemption," and together with
the Management Bonuses, the "Bonus Transactions") of, all of its outstanding
Class C, Series II Preferred Shares, no par value (the "Redeemed Shares"), and
(iii) in June 1998, Continental accepted an offer to finance from a third party
for a term loan of approximately $3,100,000 (the "Titan Loan"), the net proceeds
of which will be used to fund a portion of the Refurbishment, for which Venture
has agreed to replace certain Continental Holders as a guarantor, upon
consummation, if ever, of the Acquisition.
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The Board of Directors of Venture (the "Venture Board") has unanimously
determined that the Acquisition is fair to and in the best interests of the
Venture Holders and recommends that Venture Holders vote for approval of the
Purchase Agreement. See "Proposal No. 1 - The Acquisition - Recommendation of
the Venture Board" for a discussion of the factors considered by the Venture
Board. As of June 19, 1998 the directors and executive officers of Venture and
their affiliates have the right to vote, in the aggregate, 928,779 Venture
Common Shares (approximately 20% of the outstanding Venture Common Shares).
Venture's directors and executive officers have advised that they intend to vote
their Venture Common Shares for approval of the Purchase Agreement. See "Voting
and Proxy Information" and "Certain Information Regarding Venture - Principal
Shareholders".
A copy of the Purchase Agreement (without exhibits or schedules) is
attached to the accompanying Proxy Statement as Annex A. The Proxy Statement
forms a part of this Notice.
Venture Holders are also being asked to consider and vote upon the
following matters (the "Other Special Meeting Matters"): (i) to fix the number
of members of the Venture Board until the next annual meeting of shareholders at
six (6); (ii) to elect a nominee of the Continental Holders as an additional
director to the Venture Board; (iii) to approve an amendment to Venture's 1995
Stock Option Plan, as amended (the "1995 Plan"), to increase the number of
Venture Common Shares reserved for issuance thereunder from 450,000 to 750,000;
and (iv) to act upon any other matter as may properly come before the Meeting or
any adjournment thereof.
Only Venture Holders of record at the close of business on June 19, 1998
are entitled to notice of and to vote at the Meeting or any postponements or
adjournments thereof. The stock transfer books of Venture will not be closed.
All Venture Holders, whether or not they expect to attend the Meeting in
person, are requested to complete, sign, date and return the enclosed form of
proxy in the accompanying envelope (which requires no additional postage if
mailed in the United States). The proxy of a Venture Holder will be revocable,
either in writing or by voting in person at the Meeting, at any time prior to
its exercise. See "Revocation of Proxies."
The enclosed Proxy Statement should be consulted for further details on
the matters to be acted upon.
DATED at Calgary, Alberta, this 23rd day of June, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
(Signed) BRIAN W. KOZUN, CHAIRMAN
IMPORTANT
Proxies, to be valid, must be deposited at the office of American Stock Transfer
& Trust Company, 40 Wall Street, New York, New York, 10005, not less than 48
hours, excluding Saturdays and holidays, preceding the Meeting or adjournment of
the Meeting.
June 23, 1998
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VENTURE SEISMIC LTD.
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
SPECIAL MEETING TO BE HELD JULY 20, 1998
THIS PROXY STATEMENT (THE "PROXY STATEMENT") IS BEING FURNISHED TO THE
SHAREHOLDERS OF RECORD AS OF JUNE 19, 1998 (THE "RECORD DATE") OF VENTURE
SEISMIC LTD., AN ALBERTA, CANADA CORPORATION ("VENTURE"), IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF VENTURE (THE "VENTURE
BOARD") FROM HOLDERS (THE "VENTURE HOLDERS") OF VENTURE'S OUTSTANDING COMMON
SHARES, NO PAR VALUE PER SHARE (THE "VENTURE COMMON SHARES"), FOR USE AT THE
SPECIAL MEETING OF SHAREHOLDERS (TOGETHER WITH ANY ADJOURNMENTS AND
POSTPONEMENTS THEREOF, THE "MEETING"). At the Meeting, the Venture Holders will
be asked to consider and vote upon a proposal to approve that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated as of March 27, 1998 (as
the same may be amended, supplemented or modified) by and among Venture,
Continental Holdings Ltd., an Alberta, Canada corporation ("Continental") and
the shareholders (the "Continental Holders") of all of the outstanding capital
stock of Continental (the "Continental Capital Stock"), providing for the
proposed acquisition (the "Acquisition") by Venture of all of the Continental
Capital Stock in exchange for consideration payable by Venture to the
Continental Holders on the closing (the "Closing") of an aggregate of (i) (a)
$500,000 (the "Closing Cash Installment") and (b) negotiable promissory notes
(the "Notes") in the aggregate principal amount of $1,000,000, due and payable
on or before January 1, 1999, bearing interest at the prime rate of the Royal
Bank of Canada (Calgary) ("Royal Bank") plus 1% (the "Note Installment," and
together with the Closing Cash Installment, the "Cash Consideration") and (ii)
2,080,000 Venture Common Shares (each, an "Acquisition Common Share" and
collectively, the "Share Consideration" and together with the Cash
Consideration, the "Purchase Price"). The closing sales price of Venture Common
Shares on June 19, 1998, was $6.625, as reported by the Nasdaq Stock Market
("Nasdaq").
In connection with the Acquisition, (i) in April 1998, Venture loaned
Continental $4,000,000 (the "Venture Advance") to assist in equipping and
refurbishing (the "Refurbishment") a second marine seismic data acquisition
vessel which Continental has agreed in principle to lease; (ii) in December
1997, Continental (a) declared management bonuses aggregating $721,500 (the
"Management Bonuses") to be paid to certain Continental Holders on or before
June 25, 1998; and (b) called for redemption and paid to one Continental Holder
(who is proposed to be a director of Venture), $524,000 (including the issuance
of a $489,000 note to be paid the earlier of (i) June 25, 1998 or (ii) the
Closing) for the redemption (the "Preferred Share Redemption," and together with
the Management Bonuses, the "Bonus Transactions") of all of its outstanding
Class C, Series II Preferred Shares, no par value (the "Redeemed Shares") and
(iii) in June 1998, Continental accepted an offer to finance from a third party
for a term loan of approximately $3,100,000 (the "Titan Loan"), the net proceeds
of which will be used to fund a portion of the Refurbishment, for which Venture
has agreed to replace certain Continental Holders as a guarantor, upon
consummation, if ever, of the Acquisition. A copy of the Purchase Agreement
(without exhibits or schedules) is attached hereto as Annex A and incorporated
herein by reference.
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Venture Holders are also being asked to consider and vote upon the
following matters (the "Other Special Meeting Matters"): (i) to fix the number
of members of the Venture Board until the next annual meeting of shareholders at
six (6); (ii) to elect a nominee of the Continental Holders as an additional
director to the Venture Board; (iii) to approve an amendment to Venture's 1995
Stock Option Plan, as amended (the "1995 Plan"), to increase the number of
Venture Common Shares reserved for issuance thereunder from 450,000 to 750,000;
and (iv) to act upon any other matter as may properly come before the Meeting or
any adjournment thereof.
This Proxy Statement has been filed with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). See "Risk Factors" beginning on page 17 for a discussion
of certain factors to be considered by Venture Holders in connection with their
vote.
Upon the Closing, the number of Acquisition Common Shares to be issued
to each of the five Continental Holders will equal the product of the Share
Consideration multiplied by the percentage (the "Applicable Percentage") of
Continental Capital Stock held by each such Continental Holder. After the
Acquisition, the Continental Holders will own in the aggregate 2,080,000 Venture
Common Shares or approximately 31% of the outstanding Venture Common Shares,
based on the number of Venture Common Shares outstanding on the Record Date. The
percentage of the Closing Cash Installment and the Note Installment to be paid
to each Continental Holder will equal the product obtained by multiplying each
such installment by the Applicable Percentage for such Continental Holder.
The Venture Common Shares are listed on Nasdaq under the symbol "VSEIF".
As of February 17, 1998, the date immediately preceding the date of the
announcement of the Letter of Intent, as amended, the closing sales price of
Venture's Common Shares was $6.00. As of March 27, 1998, the first business date
immediately prior to the date of the announcement of the execution of the
Purchase Agreement, the closing sales price of Venture's Common Shares was
$7.0625. On June 19, 1998, the closing sales price of Venture Common Shares as
reported by Nasdaq was $6.625.
AFTER CAREFUL CONSIDERATION, THE VENTURE BOARD HAS UNANIMOUSLY
DETERMINED THAT THE ACQUISITION IS FAIR TO AND IN THE BEST INTERESTS OF THE
VENTURE HOLDERS AND RECOMMENDS THAT THEY VOTE THEIR VENTURE COMMON SHARES FOR
APPROVAL OF THE PURCHASE AGREEMENT.
The Purchase Agreement may be terminated by Venture or Continental under
certain conditions, as set forth under "Proposal No. 1 -- The Acquisition --
Purchase Agreement -- Termination".
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CURRENCY TRANSLATION
Venture has selected United States dollars as its currency for financial
reporting and display purposes. Continental uses United States dollars as its
functional (measurement) currency for financial reporting and display purposes.
This Proxy Statement contains the translation of certain Canadian dollar amounts
into United States dollars. These translations should not be construed as
representations that the United States dollars actually represent Canadian
dollar amounts or could be converted into Canadian dollars at the rate
indicated.
NEITHER THE ACQUISITION NOR THE SECURITIES TO BE ISSUED IN CONNECTION
WITH THE ACQUISITION HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement is being first mailed to Venture Holders on or
about June 19, 1998.
VOTING OF PROXIES
All Venture Common Shares represented at the Meeting by properly
executed proxies will be voted and where a choice with respect to any matter to
be acted upon has been specified in the instrument of proxy, the Venture Common
Shares represented by the proxy will be voted in accordance with such
specifications. IN THE ABSENCE OF ANY SUCH SPECIFICATIONS, THE MANAGEMENT
DESIGNEES, IF NAMED AS PROXY, WILL VOTE IN FAVOR OF ALL THE MATTERS SET OUT
HEREIN, INCLUDING THE APPROVAL OF THE PURCHASE AGREEMENT, FIXING THE NUMBER OF
MEMBERS OF THE VENTURE BOARD AT SIX(6), THE ELECTION OF THE NOMINEE SET FORTH
UNDER THE CAPTION "ELECTION OF DIRECTOR", AND THE APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN, AS AMENDED.
THE ENCLOSED INSTRUMENT OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON
THE MANAGEMENT DESIGNEES, OR OTHER PERSONS NAMED AS PROXY, WITH RESPECT TO
AMENDMENTS TO OR VARIATIONS OF MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND
ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. AT THE DATE OF
THIS PROXY STATEMENT, VENTURE IS NOT AWARE OF ANY AMENDMENTS TO, OR VARIATIONS
OF, OR OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. IN THE EVENT THAT OTHER
MATTERS COME BEFORE THE MEETING, THEN THE MANAGEMENT DESIGNEES INTEND TO VOTE IN
ACCORDANCE WITH THE JUDGMENT OF THE MANAGEMENT OF VENTURE.
Proxies, to be valid, must be deposited at the offices of American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York, 10005 not less
than 48 hours, excluding Saturdays and statutory holidays, preceding the Meeting
or an adjournment of the Meeting.
Your vote is important. Accordingly, you are urged to sign and return
the accompanying proxy card whether or not you plan to attend the Meeting.
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APPOINTMENT OF PROXY
A VENTURE HOLDER HAS THE RIGHT TO DESIGNATE A PERSON (WHO NEED NOT
BE A VENTURE HOLDER) OTHER THAN BRIAN W. KOZUN AND P. DANIEL MCARTHUR,
THE MANAGEMENT DESIGNEES, TO ATTEND AND ACT FOR HIM AT THE MEETING. Such
right may be exercised by inserting in the blank space provided on the
instrument of proxy, the name of the person to be designated and deleting
therefrom, the names of the management designees, or by completing another
proper instrument of proxy and, in either case, depositing the instrument of
proxy at the offices of American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York, 10005 not less than 48 hours, excluding Saturdays and
statutory holidays, preceding the Meeting or adjournment of the Meeting.
REVOCATION OF PROXIES
A Venture Holder who has given a proxy may revoke it as to any matter
upon which a vote has not already been cast pursuant to the authority conferred
by the proxy.
A Venture Holder may revoke a proxy by depositing an instrument in
writing, executed by him or his attorney authorized in writing:
(a) at the offices of American Stock Transfer & Trust Company, 40
Wall Street, New York, New York, 10005 at any time, not less than 48
hours, excluding Saturdays and statutory holidays, preceding the Meeting
or adjournment of the Meeting at which the proxy is to be used;
(b) at the registered office of Venture, 3100, 324 -- 8th Avenue
S.W., Calgary, Alberta, T2P 2Z2, at any time up to and including the
last business day preceding the day of the Meeting at which the proxy is
to be used; or
(c) with the Chairman of the Meeting on the day of the Meeting
or an adjournment of the Meeting.
In addition, a proxy may be revoked by the Venture Holder executing
another form of proxy bearing a later date and depositing same at the offices of
the registrar and transfer agent of Venture within the time period set out under
the heading "Voting of Proxies", or by the Venture Holder personally attending
the Meeting and voting his Venture Common Shares.
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AVAILABLE INFORMATION
Venture is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements, and other
information with the Securities and Exchange Commission ("SEC"). Reports, proxy
statements and other information filed by Venture with the SEC pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be
available for inspection and copying at the regional offices of the SEC located
at the 14th Floor, 75 Park Place, New York, New York 10007, and Room 3190, 230
South Dearborn Street, Chicago, Illinois 60604. Copies of such material may also
be obtained from the Public Reference Section of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the SEC's web site is http://www.sec.gov. Reports, proxy
statements and other information concerning Venture may also be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
Continental is not subject to the reporting requirements of the Exchange
Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VENTURE OR CONTINENTAL. NEITHER
THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
PROXY STATEMENT IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS
PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY STATEMENT OR A SOLICITATION OF
A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION.
This Proxy Statement contains trademarks of Venture and Continental, as
well as trademarks of other companies.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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GLOSSARY OF TERMS............................................................................1
SUMMARY......................................................................................4
The Parties..............................................................................4
The Meeting; Purpose of the Meeting......................................................4
Principal Terms of the Acquisition.......................................................5
Related Transactions.....................................................................6
Background of the Acquisition............................................................8
Recommendation of the Venture Board......................................................8
Board of Directors and Management of Venture After the Acquisition.......................8
Interests of Certain Persons in the Merger...............................................8
Conditions to Consummation of the Acquisition............................................8
Closing of the Acquisition...............................................................9
Termination..............................................................................9
Certain Canadian Income Tax Consequences.................................................9
Accounting Treatment.....................................................................9
Independent Auditors.....................................................................9
Regulatory Approvals.....................................................................9
Market Prices and Dividend Policies.....................................................10
Comparative Per Share Data..............................................................11
Selected Historical and Unaudited Pro Forma Consolidated Financial Data.................12
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA....................................16
NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................................17
RISK FACTORS................................................................................17
INTRODUCTION................................................................................24
VOTING AND PROXY INFORMATION................................................................25
PROPOSAL NO. 1 THE ACQUISITION..............................................................26
General.................................................................................26
Background of the Acquisition...........................................................26
Recommendations of the Venture Board....................................................29
The Purchase Agreement..................................................................31
Certain Canadian Income Tax Consequences................................................42
Accounting Treatment....................................................................43
Restrictions on Resales of Venture Common Shares........................................43
Interests of Certain Persons in the Acquisition.........................................43
Regulatory and Other Legal Matters......................................................45
Other Agreements........................................................................45
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<TABLE>
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PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).....................................47
CERTAIN INFORMATION REGARDING VENTURE.......................................................53
Summary.................................................................................53
Overview................................................................................54
Seismic Operations......................................................................54
Contracts and Significant Customers.....................................................55
Marketing; Growth Strategy..............................................................57
Competition.............................................................................57
Operating Hazards and Insurance.........................................................58
Government Regulation and Environmental Compliance......................................58
Weather, Productivity and Seasonality of Operations.....................................58
Equipment Acquisition and Suppliers.....................................................59
Employees...............................................................................59
Executive Officers......................................................................59
Principal Shareholders .................................................................61
Executive Compensation..................................................................62
Properties..............................................................................63
Legal Proceedings.......................................................................63
Market for Venture Common Shares........................................................64
Management's Discussion and Analysis of Financial Condition and Results of Operations...66
Recent Developments.....................................................................67
Continental Acquisition.................................................................67
Quarterly Fluctuations..................................................................68
CERTAIN INFORMATION REGARDING CONTINENTAL...................................................76
Summary.................................................................................76
Industry Overview.......................................................................76
Company Overview........................................................................77
Marketing and Principal Customers.......................................................78
Pacific Titan...........................................................................78
Non-exclusive Surveys...................................................................79
Competition.............................................................................80
Operating Hazards and Insurance.........................................................80
Government Regulation and Environmental Compliance......................................81
Equipment Acquisition and Suppliers.....................................................81
Executive Officers......................................................................81
Employees...............................................................................82
Properties..............................................................................83
Legal Proceeding........................................................................83
Market for Common Shares................................................................83
Management's Discussion and Analysis of Financial Condition and Results of Operations...84
PROPOSAL NO. 2 ELECTION OF DIRECTOR.........................................................89
Meetings of the Venture Board...........................................................90
Compensation of the Venture Board.......................................................91
Certain Relationships and Related Transactions..........................................91
Indebtedness of Directors and Officers..................................................91
</TABLE>
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<TABLE>
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PROPOSAL NO. 3 AMENDMENT TO THE 1995 STOCK OPTION PLAN, AS AMENDED..........................92
General.................................................................................92
Options.................................................................................92
Directors' Options......................................................................94
Participation in the 1995 Plan..........................................................94
DEADLINE FOR PROPOSALS OF VENTURE HOLDERS...................................................95
OTHER MATTERS...............................................................................95
INDEPENDENT AUDITORS........................................................................95
GENERAL.....................................................................................95
INDEX TO FINANCIAL STATEMENTS..............................................................F-1
ANNEX A
SECURITIES PURCHASE AGREEMENT
ANNEX B
1995 STOCK OPTION PLAN, AS AMENDED
ANNEX C
VENTURE SEISMIC LTD. INSTRUMENT OF PROXY
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GLOSSARY OF TERMS
Unless the context otherwise requires, the following terms shall have the
meanings set forth below when used in this Proxy Statement.
"Acquisition" means the proposed purchase by Venture of the Continental
Capital Stock, pursuant to the terms of the Purchase Agreement.
"Acquisition Common Shares" means the Venture Common Shares to be issued to
Continental Holders as Share Consideration.
"Applicable Percentage" means the percentage of Continental Capital Stock
held by a Continental Holder.
"Bonus Transactions" means the Management Bonus and the Preferred Share
Redemption.
"Boone" means Boone Geophysical, Inc., a Texas corporation and wholly-owned
subsidiary of Venture.
"(Canadian)" or "(Cdn)" means Canadian dollars.
"Cash Consideration" means the Closing Cash Installment and the Note
Installment.
"Closing" means the closing of the Acquisition, including the execution and
delivery of the documents required to effectuate the Contemplated Transactions
and the closing of the Contemplated Transactions.
"Closing Cash Installment" means an aggregate of $500,000 of cash payments
at Closing to Continental Holders.
"Closing Date" means the later of three business days following receipt of
Shareholder Approval of the Purchase Agreement or whichever day the Parties may
agree.
"Contemplated Transactions" means the transactions contemplated by the
Purchase Agreement, including the Acquisition.
"Continental" means Continental Holdings Ltd., an Alberta, Canada
corporation.
"Continental Capital Stock" means all issued and outstanding capital stock
of Continental on the Closing Date, including 502 Continental Common Shares and
538 Continental Preferred Shares.
"Continental Holders" means the holders of the Continental Capital Stock.
"Continental Common Shares" means Class B Common Shares, no par value, of
Continental.
"Continental Preferred Shares" means Class C Series I Preferred Shares, no
par value, of Continental.
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<PAGE> 13
"Credit Agreement" means the agreement between Venture and Continental,
entered into simultaneously and in connection with the Purchase Agreement,
pursuant to which Venture advanced to Continental the Venture Advance in the
aggregate principal amount of $4,000,000.
"Employees" means each of Mr. Leslie Stinn and Roy Self.
"Employment Agreements" means the employment agreements between Continental
and each of Mr. Leslie Stinn and Roy Self, entered into simultaneously with the
execution of the Purchase Agreement.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles.
"Hydrokinetic" means Hydrokinetic Surveys of Canada Ltd., an Alberta, Canada
corporation and a wholly-owned subsidiary of Venture.
"Management Bonuses" means bonuses of an aggregate of approximately $721,500
declared by Continental in December 1997 to be paid to certain members of
management of Continental, each of whom is a Continental Holder, on or before
June 25, 1998.
"Meeting" means the Special Meeting of Shareholders of Venture, to be held
with respect to, among other things, approval by the Venture Holders of the
Purchase Agreement.
"Nasdaq" means the National Market segment of the Nasdaq Stock Market.
"Note Installment" means the portion of the Cash Installment of the Purchase
Price represented by the Notes.
"Notes" means the negotiable interest-bearing promissory notes due and
payable on or before January 1, 1999 and bearing interest at the prime rate of
the Royal Bank plus 1%, to be issued to Continental Holders at Closing,
representing the Note Installment.
"1995 Plan" means the 1995 Stock Option Plan, as amended, of Venture.
"Parties" means Venture, Continental and the Continental Holders.
"Preferred Share Redemption" means the redemption by Continental in December
1997 of the Redeemed Shares, all held by one Continental Holder (who is proposed
to be a director of Venture), for an aggregate of approximately $524,000,
including the payment of approximately $35,000 in cash and $489,000 represented
by a non-interest bearing note with no fixed terms of repayment; although,
pursuant to the terms of the Purchase Agreement, Continental has agreed to pay
the note by the earlier of (i) June 25, 1998 or (ii) the Closing.
"Proxy Statement" means this Proxy Statement relating to the Meeting.
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<PAGE> 14
"Purchase Agreement" means the Securities Purchase Agreement dated as of
March 27, 1998, by and among Venture, Continental and the Continental Holders.
"Purchase Price" means the Cash Consideration plus the Share Consideration.
"Record Date" means June 19, 1998.
"Redeemed Shares" means the 748 Class C Series II Preferred Shares of
Continental, which were redeemed pursuant to the Preferred Share Redemption in
December 1997.
"Refurbishment" means the outfitting and refurbishing, at an estimated cost
of approximately $13,500,000, of the Pacific Titan, a marine seismic vessel for
which Continental has entered into an agreement in principle to lease.
"Royal Bank" means the Royal Bank of Canada in Calgary, Alberta.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Security Agreement" means the General Security Agreement, dated March 27,
1998, between Venture and Continental relating to the Venture Advance.
"Share Consideration" means the Acquisition Common Shares to be issued to
Continental Holders on the Closing Date.
"Shareholder Approval" means, assuming a quorum is present, approval of a
measure by the affirmative vote of a simple majority of Venture Common Shares
voting in person or by proxy.
"Titan Loan" means the term loan of approximately $3,100,000 principal
amount, with respect to which Continental has accepted an offer to finance from
a third party, and the net proceeds of which are to be used to finance a portion
of the Refurbishment. The Titan Loan would be for a period of five years
commencing from the date of funding and would be payable in twenty quarterly
installments of approximately $200,000 (including principal and interest),
bearing interest at a rate of 8.75%.
"Venture" means Venture Seismic Ltd., an Alberta, Canada corporation.
"Venture Advance" means the advance of $4,000,000 by Venture to Continental,
pursuant to the terms of the Credit Agreement.
"Venture Common Shares" means the common shares, no par value, of Venture.
"Venture Holders" means the holders of issued and outstanding Venture Common
Shares.
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<PAGE> 15
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. The summary is not intended to be a complete
statement of all material features of the Acquisition and related transactions
and is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and the Annexes attached hereto,
including the Purchase Agreement (without schedules or exhibits), which is
incorporated by reference herein. Venture Holders should read all such
information in its entirety.
THE PARTIES
Venture was incorporated under the laws of Alberta, Canada in 1984.
Venture is engaged primarily in the acquisition of land and water-based seismic
data for use in the exploration for and development and field management of oil
and natural gas reserves. Venture acquires both traditional two-dimensional
("2D") and three-dimensional ("3D") seismic data on possible oil and gas
reserves for its customers, which range from junior exploration companies to
fully-integrated multi-national corporations. Acquisition of seismic data, a
principal technique used in oil and gas exploration to determine geological
conditions, involves using either explosives, vibroseis (vibrations) or airguns
to generate and transmit acoustic energy downward into the earth and
subsequently capturing and recording the information which is reflected back
toward the surface by the various intervening geological layers. Except as
otherwise indicated, "Venture" refers collectively to Venture and its
wholly-owned subsidiaries, Boone and Hydrokinetic. The principal executive
office of Venture is located at 3110 80th Avenue, SE, Calgary, Alberta, Canada
T2C 1J3, and its telephone number at that address is (403) 777-9070. See
"Certain Information Regarding Venture".
Continental was incorporated under the laws of Alberta, Canada in 1957,
and is a privately held marine seismic data acquisition company, based in
Calgary, which leases and operates one marine seismic vessel (the "SV Calgary")
to conduct 2D seismic surveys. Since 1987, Continental has been engaged
primarily in performing offshore seismic surveys to acquire seismic data on
possible oil and gas reserves for its customers. Continental also performs
surveys, as a joint venture or independently, on a non-exclusive basis, for sale
to multiple parties. Continental has completed seismic surveys in the Persian
Gulf, the North Sea, the Falkland Islands area, the Mediterranean and off the
coasts of West Africa and Norway. Continental has entered into an agreement in
principle to lease a second marine vessel (the "Pacific Titan"), for a five year
period commencing February 1998, at an annual cost of $2,700,000 increasing to
$3,100,000 by the final year of the lease (the "Lease Payments"). The Pacific
Titan, which is being refurbished and outfitted with certain capital
improvements (the "Refurbishment") at a cost estimated, as of June 19, 1998, to
be approximately $13,500,000 (in addition to the Lease Payments), is scheduled
to be ready for deployment in July 1998. Continental currently anticipates,
based upon customer demand, market conditions and available acceptable
financing, that within the next twelve months it may undertake additional
capital expenditures of approximately $2,000,000 per vessel, to outfit each of
the SV Calgary and the Pacific Titan to conduct 3D surveys. The principal
executive office of Continental is located at Suite 210, 3030-3rd Ave N.E.,
Calgary, Alberta, Canada, and its telephone number at that address is (403)
235-6882. See "Certain Information Regarding Continental".
THE MEETING; PURPOSE OF THE MEETING
Time, Date and Place of the Meeting
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<PAGE> 16
The Meeting will be held at 10:00 a.m. (local time) on July 20, 1998 at
3100, 324 8th Avenue, S.W., Calgary, Alberta T2P 2Z2, Canada.
Record Date and Outstanding Shares
Only the Venture Holders as of the close of business on the Record Date
will be entitled to notice of and to vote at the Meeting. On the Record Date,
4,635,084 Venture Common Shares were outstanding. Venture Holders of record on
the Record Date are entitled to one vote per Venture Common Share on any matter
which may properly come before the Meeting.
Purposes of the Meeting
The Meeting will be held to permit the Venture Holders to consider and
vote upon the approval and adoption of the Purchase Agreement. Venture Holders
are also being asked to consider and vote upon resolutions approving the Other
Special Meeting Matters, to: (i) fix the number of members of the Venture Board
until the next annual meeting of shareholders at six (6); (ii) to elect a
nominee of the Continental Holders as an additional director to the Venture
Board; (iii) to approve an amendment to the 1995 Plan to increase the number of
Venture Common Shares reserved for issuance thereunder from 450,000 to 750,000;
and (iv) to act upon any other matter as may properly come before the Meeting or
any adjournment thereof.
Vote Required
The By-laws of Venture provide that two (2) persons present and holding
or representing by proxy not less than fifty percent (50%) of the issued and
outstanding Venture Common Shares entitled to vote at the Meeting shall
constitute a quorum for the Meeting. Assuming a quorum is present, a simple
majority of the Venture Common Shares voting, in person or by proxy, is
necessary to approve the Purchase Agreement and the Other Special Meeting
Matters. As of June 19, 1998, the directors and executive officers of Venture
and their affiliates have the right to vote, in the aggregate, 928,779 Venture
Common Shares (approximately 20% of the outstanding Venture Common Shares).
These directors and executive officers of Venture have advised Venture that they
intend to vote their shares for approval of the Purchase Agreement. See "Voting
and Proxy Information" and "Certain Information Regarding Venture - Principal
Shareholders".
PRINCIPAL TERMS OF THE ACQUISITION
Payment for and Acquisition of Continental Capital Stock
Under the terms of the Purchase Agreement, Venture will acquire all of
the Continental Capital Stock and Continental will become a wholly-owned
subsidiary of Venture. On the Closing Date, all shares of Continental Capital
Stock outstanding immediately prior to the Closing Date will be transferred by
the Continental Holders to Venture, in exchange for consideration payable by
Venture to the Continental Holders of an aggregate of (i) (a) the Closing Cash
Installment and (b) the Notes representing the Note Installment, and (ii) the
Share Consideration. The closing sales price of the Venture Common Shares on
June 19, 1998, was $6.625, as reported by Nasdaq. The number of Acquisition
Common Shares to be issued to each Continental Holder will equal the product of
the Share Consideration multiplied by the Applicable Percentage. The percentage
of the Closing Cash Installment and the Note Installment to be paid to each
Continental Holder will equal the product obtained by multiplying each such
installment by the Applicable Percentage for such Continental Holder.
-5-
<PAGE> 17
In connection with the Acquisition, (i) in April 1998, Venture loaned
Continental the Venture Advance to assist in funding the Refurbishment of the
Pacific Titan, a marine seismic data acquisition vessel for which Continental
has entered into an agreement in principle to lease; (ii) in December 1997,
Continental (a) declared the Management Bonus, payable to certain Continental
Holders on or before June 25, 1998; and (b) called for redemption the Redeemed
Shares, and paid (including the issuance of a $489,000 note (to be paid the
earlier of (i) June 25, 1998 or (ii) the Closing)) to a Continental Holder (who
is proposed to be a director of Venture) the Preferred Share Redemption; and
(iii) in June 1998, Continental accepted an offer to finance from a third party
for the Titan Loan to fund a portion of the Refurbishment, for which Venture has
agreed to replace certain Continental Holders as a guarantor, upon consummation,
if ever, of the Acquisition. A copy of the Purchase Agreement (without exhibits
or schedules) is attached hereto as Annex A and incorporated herein by
reference. See "Proposal No. 1 -- the Acquisition -- The Purchase Agreement,"
"-- Other Agreements -- Credit Agreement," and "-- Interests of Certain Persons
in the Acquisition."
Purchase Price
The Purchase Price to be paid for the Acquisition equals the Share
Consideration plus the Cash Consideration. The Purchase Price does not include:
(i) the Venture Advance; (ii) the Bonus Transactions; (iii) additional
indebtedness of Continental or which Continental may incur in connection with
the Refurbishment (including anticipated borrowings under its line of credit of
approximately $1,000,000 and supplier financing of approximately $2,000,000) or
otherwise to be outstanding after the Acquisition, including (a) the Titan Loan
or (b) any indebtedness related to the possible upgrade of the vessels to 3D
capability or (iv) the costs associated with the preparation of this Proxy
Statement, including without limitation, the costs associated with the
preparation of the pro forma financial statements, which Venture has agreed to
pay. Assuming consummation of the Acquisition, indebtedness of Continental will
become, on a consolidated basis, a liability of Venture. See "Proposal No. 1 --
the Acquisition -- The Purchase Agreement -- Other Agreements -- Credit
Agreement," and "-- Interests of Certain Persons in the Acquisition."
Conditions to Acquisition
The obligations of Continental, the Continental Holders and Venture to
consummate the Acquisition are subject, among other things, to receipt of
Shareholder Approval of the Purchase Agreement and requisite third party
consents. See "Proposal No. 1 -- The Acquisition - The Purchase Agreement -
Conditions to Consummation of the Acquisition" and "- Amendment and Termination
of the Purchase Agreement".
Share Ownership Following the Acquisition
The five former Continental Holders will own 2,080,000 of the
outstanding Venture Common Shares or approximately 31 % of the outstanding
Venture Common Shares after giving effect to the Acquisition. See "Proposal No.
1 -- The Acquisition -- The Purchase Agreement -- General."
RELATED TRANSACTIONS
Venture Advance; Guarantee
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<PAGE> 18
Simultaneously with the execution of the Purchase Agreement, Venture
agreed to loan, and in April 1998, loaned the Venture Advance to Continental.
The Venture Advance is payable in quarterly installments of principal and
interest commencing December 1, 1999 and bears interest at the prime lending
rate of the Royal Bank plus 1%. The proceeds of the Venture Advance are being
used by Continental to fund a portion of the costs of the Refurbishment,
estimated, as of June 19, 1998, to aggregate $13,500,000 (in addition to the
Lease Payments). The Venture Advance is secured by certain assets of
Continental. Should Closing of the Acquisition not occur prior to August 31,
1998, the Venture Advance is convertible at the option of Venture, during the
period from August 31, 1998 to December 1, 1999, without any additional
consideration, into approximately 26% of the outstanding capital of Continental
on a fully-diluted basis at the time of conversion. Assuming the Closing of the
Acquisition occurs, the Venture Advance will become an intercompany debt, due
and payable by Continental to Venture. See "Proposal No. 1 -- The Purchase
Agreement -- Other Agreements -- Credit Agreement."
Pursuant to the Purchase Agreement, Continental has agreed to limit the
cost of the Refurbishment to $12,000,000; however, as of June 19, 1998, the
estimated cost of the Refurbishment was $13,500,000. Continental's arrangements
for the Refurbishment do not limit expenditures, nor can there be any assurance
that the aggregate cost will not exceed $13,500,000. Since the estimated cost of
the Refurbishment exceeds $12,000,000, it is a breach of the Purchase Agreement,
for which Venture has the right to seek indemnification from Continental and
certain Continental Holders or terminate the Purchase Agreement. Although the
cost of the Refurbishment is estimated to exceed $12,000,000, and therefore will
require Continental to secure additional funding to complete the Refurbishment,
as of June 19, 1998, management of Venture has determined not to pursue any
remedy available to Venture pursuant to the Purchase Agreement and to proceed
with the Acquisition as planned, although, in the future, management of Venture
may determine in its discretion to pursue remedies available to Venture,
including, without limitation, those available pursuant to the Purchase
Agreement. The cost of the Refurbishment is expected to be financed by (i) the
Venture Advance; (ii) the Titan Loan; (iii) resources of Continental (including
cash of approximately $2,000,000 and borrowings under its line of credit of
approximately $1,000,000); and (iv) supplier financing of approximately
$3,000,000. The increase in the cost of the Refurbishment will result in an
increase in indebtedness of Continental, which as a result of the consummation
of the Acquisition, would increase Venture's debt on a consolidated basis. In
connection with the Titan Loan, Venture has agreed to replace Messrs. Stinn and
Self as a guarantor of Continental's obligations thereunder, in the event the
Acquisition is consummated. In the event the Titan Loan is advanced it is
anticipated that Venture's security interest will be subordinate to that of the
lender of the Titan Loan. See "Proposal No. 1 -- The Acquisition -- Interests of
Certain Persons in the Acquisition," "-- The Purchase Agreement -- Amendment and
Termination of the Purchase Agreement," and "-- Indemnification."
Bonus Transactions
Management Bonus
In December 1997, Continental declared the Management Bonuses
aggregating approximately $721,500 and, pursuant to the Purchase Agreement,
agreed to pay such Management Bonuses on or before June 25, 1998, to certain
members of management of Continental, each of whom is a Continental Holder.
Continental has advised that these bonuses are a common tax planning transaction
for private Canadian companies; they do not necessarily reflect the value of
management services rendered. If the Acquisition is consummated, management of
Venture has determined to disallow bonus transactions of such nature on a
forward-going basis. As of June 19, 1998, the Management Bonuses had not been
paid. Any cash used to pay the Management Bonuses will reduce the amount
available for other purposes, including the Refurbishment. See "Proposal No. 1
- -- The Acquisition -- Interests of Certain Persons in the Acquisition."
Preferred Share Redemption
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<PAGE> 19
Continental redeemed in December 1997 the Redeemed Shares, for an
aggregate of approximately $524,000, representing the consideration paid by the
holder of the Redeemed Shares. The redemption included the payment of
approximately $35,000 in cash and approximately $489,000 in a promissory note
(to be paid the earlier of (i) June 25, 1998 or (ii) the Closing) to a
Continental Holder (who is proposed to be a director of Venture). Any cash used
by Continental to pay the note will reduce the amount available to it for other
purposes, including the Refurbishment. See "Proposal No. 1 -- The Acquisition --
Interests of Certain Persons in the Acquisition."
BACKGROUND OF THE ACQUISITION
Following extensive negotiations, due diligence and Board deliberations,
Venture, Continental and the Continental Holders entered into the Purchase
Agreement on March 27, 1998. On the Closing of the Acquisition, Venture will
acquire all of the Continental Capital Stock in exchange for the Purchase Price.
See "Proposal No. 1 - The Acquisition - Background of the Acquisition".
RECOMMENDATION OF THE VENTURE BOARD
The Venture Board has unanimously determined that the Acquisition is in
the best interests of and fair to the Venture Holders and approved the Purchase
Agreement, and recommends that the Venture Holders vote for approval of the
Purchase Agreement. See "Proposal No. 1 - The Acquisition - Recommendation of
the Venture Board".
BOARD OF DIRECTORS AND MANAGEMENT OF VENTURE AFTER THE ACQUISITION
Upon the Closing of the Acquisition, it is currently expected that the
Venture Board shall consist of Venture's Board as of immediately prior to the
Acquisition, with the addition of a nominee of the Continental Holders; provided
that the election of such nominee receives Shareholder Approval. Upon the
Closing of the Acquisition, the executive officers of Venture shall be the
executive officers of Venture immediately prior to the Closing. Upon Closing of
the Acquisition, it is currently expected the Continental Board shall consist of
Messrs. Stinn and Self, each of whom is currently a director of Continental, and
Messrs. Kozun, Wiebe and McArthur. It is currently expected that upon the
Closing of the Acquisition the executive officers of Continental shall be the
executive officers of Continental immediately prior to the Acquisition, and such
other additions as Venture shall designate. See "Proposal No. 1 - The
Acquisition - Board of Directors and Management of Venture and Continental After
the Acquisition," -- The Purchase Agreement -- Other Agreements -- the
Employment Agreements" and "Proposal No. 2 -- Election of Director."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
At June 19, 1998, certain directors and executive officers of each of
Venture and Continental have certain interests in the Acquisition that may be in
addition to the interests of the Venture Holders generally and create certain
conflicts of interest. These interests arise from, among other things, certain
arrangements among Venture, Continental and certain directors and officers of
Continental, including arrangements related to employment, indemnification, the
Bonus Transactions, the Venture Advance, the release of guarantees in connection
with the Titan Loan and nomination to the Venture Board. See "Proposal No. 1 -
The Acquisition - Interests of Certain Persons in the Acquisition."
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
Consummation of the Acquisition is subject to a number of conditions,
including receipt of Shareholder Approval of the Purchase Agreement and certain
requisite third party consents. Conditions to
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<PAGE> 20
each Party's obligations to consummate the Acquisition may be waived by such
Party, subject to applicable law and certain limitations imposed by the Purchase
Agreement. See "Proposal No. 1 - The Acquisition The Purchase Agreement -
Conditions to Consummation of the Acquisition" and "- Amendment and Termination
of the Purchase Agreement".
CLOSING OF THE ACQUISITION
Under the Purchase Agreement, the Closing of the Acquisition is expected
to be as soon as practicable after the satisfaction or waiver of all conditions
to the Acquisition, including Shareholder Approval of the Purchase Agreement and
receipt of requisite third party consents. It is anticipated that if the
Purchase Agreement is approved at the Meeting and all other conditions to the
Acquisition have been fulfilled or waived, the Closing will occur on the date of
the later of three business days following the Meeting or as soon as practicable
thereafter. See "Proposal No. 1 - The Acquisition - The Purchase Agreement -
Closing of the Acquisition".
TERMINATION
The Purchase Agreement may be terminated and the Acquisition abandoned
at any time prior to the Closing Date, whether before or after Shareholder
Approval of the Purchase Agreement under circumstances specified in the Purchase
Agreement, including: (i) by the written agreement of Venture, the Continental
Holders and Continental or (ii) by Venture or the Continental Holders if the
satisfaction of any of the conditions to their respective obligations becomes
impossible and such condition has not been waived by the other Party. In the
event that the Acquisition is not consummated prior to August 31, 1998, the
Parties to the Purchase Agreement are relieved of all of their obligations
thereunder, except (a) certain confidentiality requirements and (b) obligations
relating to the Venture Advance. See "Proposal No. 1 - The Acquisition - The
Purchase Agreement -- Amendment and Termination of the Purchase Agreement" and
"-- Other Agreements -- Credit Agreement."
CERTAIN CANADIAN INCOME TAX CONSEQUENCES
The income tax consequences to Venture, if any, resulting from the
purchase of the Continental Capital Stock, would generally be determined at the
time of disposition of such stock by Venture, if ever. See "Proposal No. 1 --
The Acquisition -- Certain Canadian Income Tax Consequences."
ACCOUNTING TREATMENT
It is intended that the Acquisition will be treated as a "purchase" for
financial accounting purposes in accordance with Canadian and U.S. GAAP. See
"Proposal No. 1 - The Acquisition - Accounting Treatment".
INDEPENDENT AUDITORS
A representative of Ernst & Young, Chartered Accountants, the
independent auditors of Venture and Continental, is expected to be present at
the Meeting with the opportunity to make a statement if he or she desires to do
so, and shall be available to respond to appropriate questions.
REGULATORY APPROVALS
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<PAGE> 21
No filings are required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
with respect to the Acquisition. Venture and Continental are aware of no other
governmental or regulatory approvals required for consummation of the
Acquisition, other than receipt of Shareholder Approval of the Purchase
Agreement; the filing for notification purposes of a Form 20 with the Alberta
Securities Commission within ten days of the consummation of the Acquisition;
and compliance with applicable "blue sky" laws of the various states. See
"Proposal No. 1 - The Acquisition - Regulatory and Other Legal Matters".
MARKET PRICES AND DIVIDEND POLICIES
PRICE RANGE OF SECURITIES
The Venture Common Shares trade on Nasdaq under the symbol "VSEIF". The
following table sets forth, for the periods indicated, the high and low closing
sale prices for Venture Common Shares as reported by Nasdaq. These prices are
based on quotations between dealers, do not reflect retail markup, markdown or
commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year ended September 30, 1996 High Low
- ------------------------------------ ---- ---
<S> <C> <C>
October 1 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
Fiscal Year ended September 30, 1997 High Low
- ------------------------------------- ---- ---
October 1 through December 31 $ 5.25 $ 3.00
January 1 through March 31 $ 5.38 $ 3.12
April 1 through June 30 $ 6.25 $ 3.25
July 1 through September 30 $ 9.25 $ 5.38
Fiscal Year ending September 30, 1998 High Low
- -------------------------------------- ---- ---
October 1 through December 31 $ 10.69 $ 6.50
January 1 through March 31 $ 7.75 $ 4.56
April 1 through June 19 $ 8.88 $ 6.00
</TABLE>
On February 17, 1998 the last full trading day prior to the announcement
that Venture and Continental had entered into an amended Letter of Intent
relating to the Acquisition, the reported closing sales price per Venture Common
Share on Nasdaq was $6.00. On June 19, 1998, the last full trading day prior to
the date of this Proxy Statement, the reported closing sales price per Venture
Common Share on Nasdaq was $6.625.
VENTURE HOLDERS ARE ADVISED TO OBTAIN MARKET QUOTATIONS FOR THE VENTURE
COMMON SHARES. No assurance can be given as to the market price of Venture
Common Shares at the Closing Date or at any other time.
APPROXIMATE NUMBER OF VENTURE HOLDERS
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<PAGE> 22
On June 19, 1998 there were approximately 30 record holders of the
Venture Common Shares. Venture believes the number of beneficial owners exceeds
1,700.
DIVIDENDS
Venture did not pay any dividends during its fiscal years ended
September 30, 1997, 1996 or 1995 and, for the foreseeable future, it intends to
retain all earnings, if any, for use in the expansion of Venture's business. The
declaration and payment of future dividends, if any, will be at the sole
discretion of the Venture Board and will depend upon Venture's earnings,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Venture Board.
The Continental Capital Stock is not publicly traded. Continental, a
closely-held private company, has, on occasion, paid cash dividends on the
Continental Capital Stock, including, most recently, approximately $125,000
($250.00 per share) during its fiscal year ended December 31, 1996. For the
foreseeable future, Continental intends to retain all of its earnings, if any,
for use in its business. The declaration of any future dividends by Continental
is within the discretion of its Board of Directors (the "Continental Board") and
is dependent upon the earnings, financial condition and capital requirements of
Continental, as well as any other factors deemed relevant by the Continental
Board.
COMPARATIVE PER SHARE DATA
The following table presents Venture's historical per share data and the
unaudited consolidated pro forma per share data of Venture adjusted for the
Acquisition contemplated by the Purchase Agreement and described herein. See
"Proposal No. 1 -- The Acquisition". The unaudited consolidated pro forma
earnings per share data is presented for comparative purposes only and is not
necessarily indicative of what the actual financial position and results of
operations would have been as of and for the period indicated had the
Acquisition been consummated nor does such data purport to represent results for
future periods after consummation of the Acquisition. The data set forth below
should be read in conjunction with the historical financial statements and the
notes thereto of Venture, and the unaudited pro forma consolidated financial
statements, both of which are included elsewhere herein.
<TABLE>
<CAPTION>
UNAUDITED
VENTURE PRO FORMA(1)
------- ------------
<S> <C> <C>
Net tangible book value per share at September 30, 1997: $3.10 $4.57
Year ended September 30, 1997 (2)
Basic earnings per share........................ .47 .44
Fully diluted earnings per share................ .31 .33
Diluted earnings per share...................... .39 .39
Six Months ended March 31, 1998 (3)
Basic earnings per share........................ .36 .23
Fully diluted earnings per share................ .25 .18
Diluted earnings per share...................... .35 .23
</TABLE>
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<PAGE> 23
- ------------
(1) For the year ended September 30, 1997, gives effect to the
Acquisition and the issuance in December 1997 and January 1998 of
1,513,690 Common Shares on the exercise of Venture's Redeemable
Warrants.
(2) The unaudited pro forma earnings per share data was derived from the
audited income statements of Venture and Continental for their fiscal
years ended September 30, 1997 and December 31, 1997, respectively.
(3) The unaudited pro forma earnings per share data was derived from the
unaudited income statements of Venture and Continental for the six
month periods ended March 31, 1998 and December 31, 1997,
respectively.
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Selected Financial Data of Venture
The selected consolidated financial data of Venture presented below for
each of the fiscal years ended September 30, 1995 through September 30, 1997
have been derived from, and are qualified by reference to, the consolidated
financial statements of Venture, which have been audited by Ernst & Young,
Chartered Accountants. Venture reports its financial data in accordance with
Canadian GAAP, and provides a reconciliation to U.S. GAAP, where appropriate.
Differences between Canadian and U.S. GAAP, where material, are disclosed in the
notes to Venture's financial statements, including elsewhere herein. The
selected financial data presented below for the six months ended March 31, 1998
and 1997 have been derived from Venture's unaudited internal financial
statements and reflect all adjustments Venture's management considers necessary
for a fair and consistent presentation of the financial position and results of
operations for those periods. The following selected financial data are
qualified by reference to, and should be read in conjunction with, "Certain
Information Regarding Venture - Management's Discussion and Analysis of
Financial Condition and Results of Operations", the financial statements of
Venture, the notes thereto and the auditors' report thereon included elsewhere
in this Proxy Statement.
<TABLE>
<CAPTION>
Six months
ended March 31,
(Unaudited) Year ended September 30,
------------------------------ ------------------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue $ 21,706,425 $ 15,683,001 $ 27,132,227 $ 14,146,971 $ 9,458,452
Gross margin 5,799,656 4,532,780 7,335,765 2,155,735 2,745,271
Income from operations 3,068,947 2,483,381 2,977,583 (699,594) 1,018,182(1)
Income (loss) before
income taxes 2,601,095 2,216,593 2,430,706 (1,022,158) 756,043(1)
Net income (loss) 1,549,580 1,245,815 1,454,706 (664,699) 436,306(1)
Basic earnings (loss)
per share .36 .40 .47 (.23) .31(1)
Other Data:
Depreciation 1,540,928 1,085,949 2,363,398 1,461,807 901,896
Amortization of goodwill 89,160 77,160 166,320 51,440 --
Capital expenditures 4,321,150 2,614,994 10,080,773 5,891,181 2,479,039
</TABLE>
-12-
<PAGE> 24
<TABLE>
<CAPTION>
At March 31,
(Unaudited) At September 30,
---------------------------- ------------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) 5,544,025 905,090 (4,857,227) (686,036) (907,753)
Total assets 38,340,646 24,932,807 22,615,860 14,933,240 7,001,795
Long term debt, less
current portion 5,891,548 4,004,929 3,746,490 2,356,060 2,440,594
Shareholders' equity 20,288,775 9,347,733 9,659,736 8,127,827 1,291,213
</TABLE>
- --------------------
(1) Does not include a compensation charge of $212,692 or $0.15 per share
relating to the estimated fair value of 60,679 Venture Common Shares
transferred for nominal consideration from the president and principal
shareholder of Venture to an executive officer of Venture pursuant to
the terms of an employment contract, for which transfer a charge would
be required in accordance with U.S. GAAP but is not required under
Canadian GAAP.
-13-
<PAGE> 25
Selected Financial Data of Continental
The selected financial data of Continental presented below for each of
the years ended December 31, 1995 through December 31, 1997 have been derived
from the audited financial statements of Continental, which have been audited by
Meyers Norris Penny & Co., Chartered Accountants, as at December 31, 1996 and
for each of the two years then ended and by Ernst & Young, Chartered
Accountants, as at and for the year ended December 31, 1997. The selected
financial data presented below are qualified by reference to, and should be read
in conjunction with "Certain Information Regarding Continental - Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with Continental's financial statements, the notes thereto and the auditors'
reports thereon included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Data:
Revenue $ 9,609,915 $ 8,485,092 $ 5,095,856
Gross margin 3,978,840 2,313,834 1,048,635
Income from operations 2,397,378 (219,740) 532,131
Income (loss) before
Income taxes 2,690,460 (44,362) 982,309
Net income 1,613,023 84,081 580,484
Other Data:
Depreciation 620,255 476,564 38,134
Capital expenditures 369,100 3,743,724 196,179
At December 31,
---------------------------------------------------
1997 1996 1995
---- ---- ----
Balance Sheet Data:
Working capital (326,521) (2,946,271) (29,859)
Total assets 5,746,192 5,215,311 2,594,450
Long term debt, less
Current portion 8,923 176,670 51,067
Shareholders' equity 1,726,618 113,595 922,717
</TABLE>
-14-
<PAGE> 26
Selected Unaudited Pro Forma Consolidated Financial Data
The unaudited pro forma consolidated financial information of Venture
has been prepared giving effect to the consummation of the Acquisition of
Continental by Venture in accordance with the terms of the Purchase Agreement
and the exercise of 1,513,690 of Venture's Redeemable Warrants (the "Warrant
Exercise"). The pro forma consolidated balance sheet gives effect to the
Acquisition and the Warrant Exercise as if the transactions had occurred on
September 30, 1997. The pro forma consolidated statements of income for the year
ended September 30, 1997 and the six months ended March 31, 1998 give effect to
the Acquisition as if it had occurred on October 1, 1996 and October 1, 1997,
respectively.
The Acquisition has been accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired is recognized as
goodwill and is being amortized over fifteen years.
The pro forma financial information is not necessarily indicative of the
results of operations or of the financial position which would have been
attained had the Acquisition and the Warrant Exercise been consummated at any of
the foregoing dates or which may be attained in the future. The pro forma
financial information should be read in conjunction with the historical
financial statements of Venture and Continental, the notes thereto and the
auditors' reports thereon included elsewhere in this Proxy Statement. In the
opinion of management of Venture, these pro forma consolidated financial
statements include all adjustments necessary for fair presentation.
-15-
<PAGE> 27
VENTURE SEISMIC LTD.
SELECTED UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Year ended
Ended March 31, 1998 September 30, 1997
-------------------- ------------------
<S> <C> <C>
Operating Data:
Revenue $26,425,908 $36,742,142
Gross margin 7,507,751 11,314,605
Income from operations 3,099,553 4,631,530
Income before income taxes 2,717,768 4,325,166
Net income 1,474,624 2,271,729
Other Data:
Depreciation 1,851,312 2,983,653
Amortization of goodwill 487,160 962,320
At
Balance Sheet Data: September 30, 1997
- ------------------- ------------------
Working capital 3,198,252
Total assets 48,677,434
Acquisition instalment payment 1,000,000
Deferred lease expense 337,939
Long term debt, less current
portion 3,755,413
Shareholders' equity 30,701,736
</TABLE>
-16-
<PAGE> 28
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 which represent Venture's and/or Continental's expectations
or beliefs. For this purpose, any statements, contained in this Proxy Statement
which related to Venture's or Continental's plans and objectives, which are not
statements of historical facts, future operations, assumptions underlying plans
and objectives and other forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms,
variations of such terms or the negative of such terms may be deemed to be
forward-looking statements, which, by their nature involve substantial risks and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements, depending upon a number of
important factors, including those described in "Risk Factors" below, elsewhere
herein and in each of Venture's reports filed with the SEC pursuant to the
Exchange Act. Venture and Continental expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in Venture's or Continental's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
RISK FACTORS
The risk factors discussed below include, where appropriate, a
discussion of the risks associated with the business and operations of
Continental, assuming that the Acquisition is consummated.
Risks Associated with the Consummation of the Acquisition. The
consummation of the Acquisition is subject to a number of conditions, any of
which may not occur, including receipt of requisite shareholder, regulatory
and/or third party approvals. The Parties have no obligations, other than the
Venture Advance and certain confidentiality obligations, under the Purchase
Agreement if the Acquisition is not consummated prior to August 31, 1998. There
can be no assurance that all conditions to the Acquisition will be met in a
timely or satisfactory matter, or without undue expense to Venture or on
substantially the terms contemplated and, accordingly, there is no assurance the
Acquisition will be completed. If Venture consummates the Acquisition, it will
be subject to a number of risks in completing such transaction, in addition to
the risks set forth below in "Risks Associated with the Venture Advance, the
Pacific Titan and Titan Loan and the Refurbishment," and "Risks Associated with
the Combined Operations of Venture and Continental," including the reliance upon
certain representations and warranties made by Continental and the Continental
Holders with respect to Continental and its operations and limited possible
indemnification for losses to Venture for breaches of such representations and
warranties. Venture and Continental have each received correspondence, including
a draft of a statement of claim, from, and have been advised by, Canaccord
Capital Corporation ("Canaccord"), a Canadian investment bank, that Canaccord
may pursue legal action against each of Venture and Continental with respect to
a claim of entitlement to a fee of approximately $300,000 in connection with the
Acquisition. If the Acquisition is consummated, Venture will be subject to the
risks associated with a possible lawsuit against it by Canaccord, including an
adverse adjudication which could require Venture to pay a finder's fee to
Canaccord. See "Proposal No. 1 -- The Acquisition," and "Certain Information
Regarding Venture -- Legal Proceedings."
Risks Associated with the Venture Advance, the Pacific Titan and Titan
Loan and the Refurbishment. Continental has entered into an agreement in
principle to lease the Pacific Titan, for a five year term commencing in
February 1998, at an initial annual cost of approximately $2,700,000 increasing
to $3,100,000
-17-
<PAGE> 29
by the final year of the lease. Continental has entered into arrangements to
complete the Refurbishment, which is expected to be completed, with the Pacific
Titan ready for deployment, in July 1998. However, there can be no assurance
that the vessel will be ready for deployment at such time, if at all, which may
have an adverse effect on Continental, and Venture, in the event the Acquisition
is consummated. In connection with the Purchase Agreement, Venture loaned to
Continental in April 1998 the Venture Advance. The Venture Advance is being used
by Continental to fund a portion of the costs of the Refurbishment, and is
secured by certain assets of Continental. In the event Closing of the
Acquisition does not occur prior to August 31, 1998, the Venture Advance, which
is payable in quarterly installments commencing December 1, 1999, including
interest, will be convertible at the option of Venture, during the period August
31, 1998 to December 1, 1999, without any additional consideration, into
approximately 26% of the outstanding capital stock of Continental on a
fully-diluted basis, at the time of conversion. In the event the Acquisition is
not consummated, there can be no assurance that Continental will have sufficient
resources to repay Venture the Venture Advance or, if Continental does not repay
the Venture Advance, that Venture will be able to realize upon its security
interest, or that if the Venture Advance is converted, that Venture will be able
to liquidate its equity in Continental on acceptable terms, if at all.
Continental has indicated to Venture that it has accepted an offer to
finance from a third party for the Titan Loan to fund a portion of the remainder
of the cost of the Refurbishment. Therefore, solely as a result of the Titan
Loan, assuming consummation of the Acquisition, Venture's long-term debt, on a
consolidated basis will increase by approximately $3,100,000 (excluding any
other indebtedness, if any, of Continental outstanding after consummation of the
Acquisition, if ever, including, as the case may be, additional indebtedness
incurred in connection with the Refurbishment and potential upgrade of the
vessels at a cost of an aggregate of approximately $4,000,000). In connection
with the anticipated Titan Loan, Venture has agreed to replace Messrs. Stinn and
Self as a guarantor of Continental's obligations thereunder, in the event the
Acquisition is consummated. In the event the Titan Loan is advanced it is
anticipated that Venture's security interest will be subordinate to that of the
lender of the Titan Loan. As a result, in the event the Acquisition is not
consummated, Venture may have difficulty realizing upon its security interest if
Continental does not repay the Venture Advance. The cost of the Refurbishment,
estimated at approximately $13,500,000 (in addition to the Lease Payments), is
expected to be financed by: (i) the Venture Advance; (ii) the Titan Loan; and
(iii) a combination of resources of Continental (including borrowings under its
line of credit of approximately $1,000,000 and cash resources of approximately
$2,000,000) and supplier financing aggregating approximately $3,000,000. As a
result of the increase in the estimated cost of the Refurbishment, Continental
will be required to obtain a greater amount of financing than originally
anticipated, including increased borrowings under its line of credit and
supplier financing. There can be no assurance that Continental will be able to
obtain financing for the Refurbishment, on the terms anticipated, including the
Titan Loan, if at all. In the event Continental is not advanced the Titan Loan,
it will be required to seek alternative financing to fund a portion of the
Refurbishment, although there can be no assurance that it will be able to obtain
alternative financing on acceptable terms, if at all, which may, in the event of
the consummation of the Acquisition, result in a material adverse effect on
Venture's business.
In connection with the Refurbishment, Continental has agreed to limit
the cost to $12,000,000; however, as of June 19, 1998, the estimated cost of the
Refurbishment had increased to $13,500,000. Continental's arrangements for the
Refurbishment do not limit expenditures, nor can there be any assurance that the
cost will not exceed the increased estimate of $13,500,000. The estimated cost
of the Refurbishment exceeds $12,000,000, which is a breach of the Purchase
Agreement, as a result of which, Venture has the right to seek indemnification
from Continental and certain Continental Holders or terminate the agreement. As
of June 19, 1998, however, management of Venture have determined not to pursue
any remedy available to Venture as a result of the breach of the Purchase
Agreement and to continue with the Acquisition as planned, although management
may determine, in its discretion, at a future date to take action. There can
-18-
<PAGE> 30
be no assurance, however, that, as of some future date, either (a) Venture will
not pursue any remedies available to it, or that Venture will not choose to
terminate the Purchase Agreement or seek indemnification for breach of the
Purchase Agreement, or that if it sought indemnification, that Venture would be
successful, in whole or in part or (b) that the costs associated with the
Refurbishment will not exceed $13,500,000, or if they do, that Venture will be
able to limit such excess expenditures or that it would not result in
significant additional liabilities to Venture. Any additional indebtedness
incurred by Continental as a result of the increased cost of the Refurbishment
will result in increased debt of Venture, on a consolidated basis, assuming
consummation of the Acquisition. Any additional indebtedness incurred by
Continental as a result of the increased cost of the Refurbishment will result
in increased debt of Venture, on a consolidated basis, assuming consummation of
the Acquisition. Further, as a result of the Acquisition, the increased
indebtedness may result in Venture not being in compliance with certain of its
bank covenants as of the Closing Date and as of September 30, 1998 (the
respective measurement dates for compliance pursuant to the terms of each
facility). As a result, assuming consummation of the Acquisition, Venture might
be required to seek a waiver from each lender or to seek additional financing in
order to attempt to restore compliance, although there can be no assurance that
it will be able to do so. A general security agreement on all equipment and a
fixed charge on certain equipment have been pledged by Venture as collateral for
its long term debt. Venture's ability to meet its debt service obligations will
depend on Venture's future operations (including Continental), which are subject
to prevailing industry conditions and other factors, many of which are beyond
Venture's control. In the event of a violation by Venture of any of its loan
covenants or any other default by Venture on its obligations relating to its
term indebtedness the lenders could declare such indebtedness to be immediately
due and payable and in certain cases foreclose on Venture's assets. There can be
no assurance that in the event that Venture is in default of certain of its loan
covenants in the future, that Venture will be able to secure a waiver from the
lender. Moreover, to the extent that all of Venture's assets continue to be
pledged to secure outstanding indebtedness under the term loan and its line of
credit, such assets will not be available to secure additional indebtedness,
which may adversely affect Venture's ability to borrow in the future. In the
event of a default relating to Venture's indebtedness it is likely that the
Venture Holders would forfeit all or a substantial portion of their investment
in Venture.
A large portion of the arrangements for the Pacific Titan, including the
leasing thereof, the Titan Loan and the Refurbishment, entered into by
Continental are not governed by any written contract or other documentation. As
a result, in the event of a dispute with regard to the lease or work performed
in connection with the Refurbishment, Continental may not be able to resolve
such dispute as quickly or effectively as it might have been able to do if a
written contract existed. In addition, in the absence of a written agreement,
there may be discrepancies with regard to payment terms, project scope or other
matters which may, in turn, result in delays, cash flow shortages, increased
costs and lower revenues or profits. In the event of the consummation of the
Acquisition, this may result in a material adverse effect on Venture's business.
See "Proposal No. 1 -- The Acquisition," and "Certain Information Regarding
Continental."
Control of Venture by Continental Holders as a Result of the
Acquisition; Dilution to Venture Holders as a Result of the Acquisition. As a
result of the consummation of the Acquisition and the issuance of the
Acquisition Common Shares, the former Continental Holders (one of whom is
proposed to become a director of Venture) will own 2,080,000 Venture Common
Shares (or approximately 31% of the outstanding Venture Common Shares as of June
19, 1998, after giving effect to the Acquisition). As a result such individuals
will likely be able to influence the outcome of corporate transactions or other
matters submitted for shareholder approval. Such control by management could
preclude any unsolicited acquisition of Venture and consequently adversely
affect the market price of the Venture Common Shares. In addition, the issuance
of the Acquisition Common Shares will result in dilution to Venture Holders. See
"Proposal No. 1 -- The Acquisition".
Risks Associated with the Combined Operations of Venture and
Continental. In the event that the Acquisition is consummated, Venture will be
subject to a number of potential risks, including: increased capital
requirements; substantially increased indebtedness, including indebtedness
associated with the Refurbishment and the potential vessel upgrade; potential
non-compliance with existing bank covenants; assimilation of new operations and
personnel, including management; adverse short-term effects on operating
results; the potential loss of key employees; the diversion of resources from
Venture's existing business, capabilities, equipment and technologies;
coordination of geographically separated facilities and work forces; management
challenges associated with the integration of the companies in addition to the
other requirements associated with growth of Venture's infrastructure and
capabilities; maintenance of Venture's existing standards, controls, procedures
and policies and other unanticipated problems. No assurance can be given that
difficulties encountered in integrating the operations of Continental will be
overcome. The process of integrating Continental's operations, including its
personnel, could cause interruption of, or loss of momentum in, the activities
of Venture's business and operations, including Continental's business.
In addition, Venture will incur significant additional charges for
depreciation and amortization and for interest expense and Venture may incur
additional charges in subsequent periods to reflect other costs associated with
the Acquisition or from the integration of operations after the Acquisition.
There can be no assurance that the Acquisition will not have a material adverse
effect on the business, financial condition and results of operations of
Venture, will not result in significant unexpected liabilities or that Venture
will realize
-19-
<PAGE> 31
the benefits and strategic objectives sought through the Acquisition, including
the addition of new capabilities, equipment and technologies. Costs associated
with the Acquisition, or liabilities and expenses associated with the operations
of Continental could have a material adverse effect on Venture's financial
condition and results of operations.
In order to manage any future growth, Venture will be required to
continue to improve its operating systems, attract and retain qualified
management, and update and expand Venture's equipment base. If Venture is unable
to effectively manage its growth, Venture's business, operating results and
financial condition could be adversely affected. Future growth, if achieved, may
also strain Venture's capital resources. There can be no assurance that Venture
will be able to obtain additional financing, or that such financing will be on
terms favorable or acceptable to Venture. The failure to secure necessary
financing could have a material adverse impact on Venture.
Capital Intensive Business; Cash Flow Shortages; Need for Additional
Funds. Continental's business is highly capital intensive requiring continuous
upgrading and expansion of its equipment base. In addition, capital is required
to operate and expand Continental's operations. As at December 31, 1997
Continental had a working capital deficit of $326,521, which as a result of
costs incurred for the Refurbishment as of June 19, 1998, has increased.
Continental maintains a line of credit which provides for borrowing of an
aggregate of approximately $1,500,000. Borrowings under the line of credit are
payable on demand and bear interest at the bank's U.S. prime rate plus 0.5%.
Borrowings at June 19, 1998 were nil. As a result of the increased cost of the
Refurbishment, however, management of Continental has indicated that Continental
anticipates borrowing within the next few months a substantial portion of the
amount available to it under its line of credit. Because of the development of
its marine seismic data acquisition infrastructure, Continental's working
capital requirements have increased significantly over the last few years and
are expected to continue to do so, which, if the Acquisition is consummated,
would substantially increase the working capital requirements of Venture.
Continental currently anticipates, based upon customer demand, market conditions
and available acceptable financing, that within the next twelve months it may
undertake capital expenditures of approximately $2,000,000 per vessel, to outfit
each of the SV Calgary and the Pacific Titan to conduct 3D surveys. There can be
no assurance that Continental will undertake such capital improvements on the
terms anticipated, if at all, or that, if it attempted to do so, that funds will
be available on acceptable terms. If Continental did undertake such capital
improvements, as a result of the Acquisition, Venture's long-term debt on a
consolidated basis would increase by any amounts of financing incurred by
Continental to fund such improvements. Continental has indicated to Venture that
it has accepted an offer to finance from a third party for the Titan Loan to
fund a portion of the remainder of the cost of the Refurbishment. Therefore,
solely as a result of Titan Loan, assuming consummation of the Acquisition,
Venture's debt, on a consolidated basis will increase by approximately
$3,100,000 (excluding any other indebtedness, if any, of Continental outstanding
after consummation of the Acquisition, if ever, including, as the case may be,
(i) additional debt incurred to finance the Refurbishment (including supplier
financing of approximately $3,000,000 and borrowings under Continental's line of
credit of approximately $1,000,000; or (ii) any indebtedness incurred in
connection with the potential upgrade of the vessels). In the event Continental
is not advanced the Titan Loan, it will be required to seek alternative
financing to fund a portion of the Refurbishment, although there can be no
assurance that it will be able to obtain alternative financing on acceptable
terms, if at all, which may, in the event of the consummation of the
Acquisition, result in a material adverse effect on Venture's business. Further,
there can be no assurance that the cost of the Refurbishment will not increase
more, which would require Continental to seek additional financing, which
financing might not be available on acceptable terms. Continental has agreed to
pay the Management Bonuses and the note representing the Preferred Share
Redemption on or prior to June 25, 1998. If Continental uses cash resources to
pay such
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<PAGE> 32
amounts, it will reduce the amount of cash available to Continental for other
purposes, including the Refurbishment, which may require Continental to seek an
even greater amount of financing to complete the Refurbishment. As a result of
any such financings, assuming consummation of the Acquisition, Venture's debt
will increase on a consolidated basis.
In addition, because Continental generally does not receive payment for
a project conducted on a contract basis until 30 to 60 days following its
completion, and is often required to commit significant expenditures during the
course of performing a project, prior to its receipt of any payments from the
customer. Continental performs surveys for non-exclusive data without a
commitment to purchase, and prior to receipt of any payments from any customer.
In addition, because fixed costs account for a significant portion of
Continental's costs and expenses, a reduction in productivity or inability to
obtain new contracts would result in significant operating losses and cash flow
shortages, which could result in a material adverse effect on Venture's business
in the event the Acquisition is consummated. Although Continental has funded
equipment purchases through bank borrowings, the Venture Advance and equipment
lease purchase contracts, it has no commitments, other than the acceptance of
the offer to finance for the Titan Loan, to obtain any other additional debt or
equity financing for equipment purchases, including any purchases related to the
potential upgrade of the vessels to conduct 3D surveys, and there can be no
assurance that, if the Acquisition is consummated, additional funds will be
available, when required, on favorable terms or at all. As a result of the
Acquisition, the indebtedness of Continental will result in increased interest
expense and debt service charges to Venture. As a result, Venture may be
required to obtain additional financing or raise additional capital to fund
operations and meet such debt service requirements. There can be no assurance
such funds will be available on acceptable terms or at all. See "Debt Service
Requirements; Consequences of Default and Covenants Under Debenture" and
"Certain Information Regarding Continental -- Management's Discussion and
Analysis of Financial Condition and Results of Operation."
Debt Service Requirements; Consequences of Default and Covenants Under
Debenture. At December 31, 1997 Continental had long term debt consisting of a
term loan, note payable and a conditional sales agreement aggregating $222,818,
the current portion of which is $213,895. In conjunction with the Acquisition,
Continental received the Venture Advance in April 1998, which is being used to
fund a portion of the Refurbishment. The Venture Advance bears interest at the
prime lending rate of the Royal Bank plus 1%. Should Closing of the Acquisition
not occur prior to August 31, 1998, the Venture Advance, including interest, is
payable in quarterly installments and is convertible, at Venture's option and
without any additional consideration, during the period August 31, 1998 to
December 1, 1999, into approximately 26% of the outstanding capital of
Continental on a fully diluted basis at the time of conversion. Subsequent to
December 31, 1997 Continental accepted an offer to finance from a third party
for the Titan Loan to fund a portion of the Refurbishment. This funding is
expected to bear interest at 8.75% and be repayable over a five year term in
twenty installments of approximately $200,000 (including principal and interest)
commencing July 1998. In the event Continental is not advanced the Titan Loan,
it will be required to seek alternative financing to fund a portion of the
Refurbishment, although there can be no assurance that it will be able to obtain
alternative financing on acceptable terms, if at all, which may, in the event of
the consummation of the Acquisition, result in a material adverse effect on
Venture's business. Debt service requirements relating to Continental's long
term debt at December 31, 1997, the Titan Loan and the Venture Advance are
estimated to aggregate approximately $1,100,000 (including principal and
interest) during the next twelve months. If the Acquisition is consummated, the
liabilities (including any increased indebtedness resulting from the increased
cost of the Refurbishment or associated with the potential vessel upgrade) of
Continental will be reflected on a consolidated basis on the balance sheet of
Venture. On a pro forma consolidated basis, solely giving effect to the
Acquisition and the Titan Loan, but excluding any indebtedness, if any, of
Continental which may be outstanding after consummation
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<PAGE> 33
of the Acquisition, if ever, including, as the case may be, (i) any additional
indebtedness incurred by Continental to fund the Refurbishment (including
borrowings under its line of credit and supplier financing); and (ii) any debt
which may be incurred relating to the possible upgrade of Continental's vessels,
Venture anticipates its long term debt to increase by approximately $3,100,000
and its debt service requirements to increase by approximately $120,000 per
month. Further, Continental has agreed to pay the Management Bonuses and the
note issued in connection with the Preferred Share Redemption on or prior to
June 25, 1998. If Continental uses its existing cash resources to make such
payments, it will reduce the amount of cash available for the Refurbishment,
which would require Continental to seek a greater amount of financing to
complete the Refurbishment. All of the foregoing indebtedness is subject to
various financial and operating covenants, including, assuming consummation of
the Acquisition, requirements of Venture to maintain certain financial ratios.
The increased indebtedness of Continental may, as a result of the Acquisition,
place Venture in violation of certain of its bank covenants (as of the Closing
Date and as of September 30, 1998 (the respective measurement dates for
compliance pursuant to the terms of each facility)), which would require Venture
to seek a waiver from its lenders or seek alternative methods to attempt to
restore compliance, including a possible equity or debt financing or strategic
merger or other corporate transaction, although there can be no assurance that
Venture will be able to do so. Venture's ability to meet the increased debt
service obligations will depend on Venture's future operations (including those
of Continental), which are subject to prevailing industry conditions and other
factors, many of which are beyond Venture's control. In the event of a default
relating to Venture's indebtedness it is likely that the Venture Holders would
forfeit all or a substantial portion of their investment in Venture. Further,
because Continental's line of credit bears interest at rates that fluctuate with
prevailing interest rates, increases in such prevailing rates would increase
Continental's interest payment obligations and could have a material adverse
effect on Continental's financial condition and results of operations. Further,
Continental's term indebtedness is secured by substantially all of Continental's
assets including all of its seismic data acquisition equipment. In the event of
a violation by Continental of any of its loan covenants or any other default by
Continental on its obligations relating to its term indebtedness the lenders
could declare such indebtedness to be immediately due and payable and in certain
cases foreclose on Continental's assets. There can be no assurance that in the
event that if, as a result of Continental's indebtedness, Venture is in default
of certain of its loan covenants in the future, that Venture will be able to
secure a waiver from the lender, which could have a material adverse effect on
Venture, assuming consummation of the Acquisition. Moreover, to the extent that
all of Continental's assets continue to be pledged to secure outstanding
indebtedness under the term loan and its line of credit, such assets will not be
available to secure additional indebtedness, which may adversely affect
Venture's ability to borrow in the future, assuming consummation of the
Acquisition. See "Certain Information Regarding Continental -- Management's
Discussion and Analysis of Financial Condition and Results of Operation."
Dependence Upon Principal Customers; Concentration of Credit Risk.
During the fiscal years ended December 31, 1995, 1996 and 1997 four, three and
six customers, respectively, each accounted for over 10% of Continental's
revenues. Two customers accounted for over 10% of Continental's revenues in each
period, including 31% and 24% in 1995, respectively, 60% and 25% in 1996,
respectively, and 15% and 11% in 1997, respectively. Continental's three largest
customers accounted for 85%, 100%, and 60% of revenues during fiscal 1995, 1996
and 1997, respectively. The inability to replace significant customers would
cause Continental's revenues and operating results to fluctuate significantly
from period to period and in the event of the consummation of the Acquisition,
the loss of certain customers could have a material adverse impact on Venture's
business. Assuming deployment of the Pacific Titan, Continental expects to be
operating only two marine vessels, which will limit the number of data
acquisition contracts Continental will be able to enter into annually, and,
accordingly, Continental anticipates that a substantial portion of future
revenues will continue to be attributable to a few customers, who may change
from period to period. Further, in the event that a marine vessel of Continental
is not operational, it could limit Continental's ability to conduct surveys and
could have a material adverse impact on Venture's business in the event of the
consummation of the Acquisition. At December 31, 1997, 100% of Continental's
accounts receivable were represented by two
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customers. Continental generally provides services to a relatively small group
of key customers that account for a significant percentage of the accounts
receivable at any given time. This concentration of credit risk may be affected
by changes in the economic or other conditions of Continental's customers.
Should the Acquisition be consummated, Venture anticipates a substantial portion
of Continental's revenue will continue to be attributable to a few customers,
who may change from time to time. See "Certain Information Regarding Continental
- -- Management's Discussion and Analysis of Financial Condition and Results of
Operation."
Dependence on Key Personnel. Continental is highly dependent on the
services and expertise provided to it by its executive officers and key
personnel, especially those of its President and Chief Executive Officer, Mr.
Leslie Stinn and Mr. Roy Self, Vice President, Geophysical Operations. Because
of the specialized nature of the business of Continental, the future success of
Continental depends in large part upon its ability to attract and retain highly
qualified personnel. Continental faces competition for such highly qualified
personnel from other geophysical services companies, as well as from oil, gas
and other natural resource organizations, and may have to pay higher salaries to
attract and retain such personnel. There can be no assurance that Continental
will be able to hire sufficient qualified personnel on a timely basis or retain
such personnel. Although in connection with the Purchase Agreement Continental
has entered into three-year employment contracts with each of Messrs. Stinn and
Self, the loss of these or other personnel or the failure to recruit additional
key personnel by Continental could, in the event of the consummation of the
Acquisition, have a material adverse effect on Venture's business, financial
condition and results of operations. See "Certain Information Regarding
Continental -- Executive Officers".
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INTRODUCTION
THIS PROXY STATEMENT IS BEING FURNISHED TO VENTURE HOLDERS OF VENTURE
COMMON SHARES AS OF THE RECORD DATE IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE VENTURE BOARD FOR USE AT THE MEETING TO BE HELD ON JULY 20, 1998,
AT 10:00 A.M., LOCAL TIME, AT 3100, 324 -- 8TH AVENUE S.W., CALGARY, ALBERTA,
CANADA, T2P 2Z2.
As set forth more fully below, at the Meeting, the Venture Holders will
be asked to consider and vote upon a proposal to approve the Purchase Agreement.
The Purchase Agreement provides for, among other things, upon satisfaction of
certain conditions set forth therein, Venture will acquire from the Continental
Holders all of the Continental Capital Stock in exchange for the Purchase Price,
including consideration payable by Venture to each Continental Holder of a
portion of the Closing Cash Installment, the Note Installment and the Share
Consideration based on the Applicable Percentage for such Continental Holder. A
copy of the Purchase Agreement (without exhibits or schedules) is attached as
Annex A to this Proxy Statement.
The Venture Board has unanimously determined that the Acquisition is
fair to and in the best interests of the Venture Holders and recommends that you
vote for approval of the Purchase Agreement. See "Proposal No. 1 - The
Acquisition - Recommendation of the Venture Board" for a discussion of the
factors considered by the Venture Board. As of June 19, 1998 the directors and
executive officers of Venture and their affiliates have the right to vote, in
the aggregate, 928,779 Venture Common Shares (approximately 20% of the
outstanding Venture Common Shares). Venture's directors and executive officers
have advised that they intend to vote their shares for approval of the Purchase
Agreement. See "Voting and Proxy Information" and "Certain Information Regarding
Venture - Principal Shareholders".
The Venture Holders are also being asked to consider and vote upon the
Other Special Meeting Matters, including: (i) to fix the number of members of
the board of directors of the Venture Board until the next annual meeting of
shareholders at six (6); (ii) to elect a nominee of the Continental Holders as
an additional director to the Venture Board; (iii) to approve an amendment to
the 1995 Plan, to increase the number of Venture Common Shares reserved for
issuance thereunder from 450,000 to 750,000; and (iv) act upon any other matter
as may properly come before the meeting or any adjournment thereof.
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<PAGE> 36
VOTING AND PROXY INFORMATION
Venture is authorized to issue an unlimited number of Venture Common
Shares. The Venture Board has fixed the close of business on June 19, 1998 as
the Record Date for determining the Venture Holders entitled to receive notice
of and to vote at the Meeting, on the basis of one vote for each Venture Common
Share held, except to the extent that:
(a) such person transfers his Venture Common Shares after the
Record Date; and
(b) the transferee of those Venture Common Shares produces
properly endorsed share certificates or otherwise establishes his
ownership to the Venture Common Shares and makes a demand to the
registrar and transfer agent of Venture, not later than 10 days before
the Meeting, that his name be included on the shareholders' list.
On the Record Date there were 4,635,084 Venture Common Shares issued and
outstanding and entitled to vote at the Meeting on all matters which may
properly come before the Meeting. Only Venture Holders of record at the close of
business on the Record Date are entitled to notice of and to vote at the Meeting
or any postponements or adjournments thereof. The stock transfer books of
Venture will not be closed.
The By-laws of Venture provide that two (2) persons present and holding
or representing by proxy not less than fifty percent (50%) of the issued Venture
Common Shares entitled to vote at the Meeting shall constitute a quorum for the
Meeting. Assuming a quorum is present, a simple majority of any of the Venture
Common Shares voting, in person or by proxy, is necessary to approve the
Purchase Agreement and the Other Special Meeting Matters. ALL VENTURE COMMON
SHARES REPRESENTED AT THE MEETING BY PROPERLY EXECUTED PROXIES WILL BE VOTED AND
WHERE A CHOICE WITH RESPECT TO ANY MATTER TO BE ACTED UPON HAS BEEN SPECIFIED IN
THE INSTRUMENT OF PROXY, THE VENTURE COMMON SHARES REPRESENTED BY THE PROXY WILL
BE VOTED IN ACCORDANCE WITH SUCH SPECIFICATIONS. In the absence of any such
specifications, the management designees, if named as proxy, will vote in favor
of all the matters set out herein.
Proxies are being solicited from Venture Holders by and on behalf of the
Venture Board. Venture will bear its own expenses of the solicitation, including
the costs of preparing and mailing this Proxy Statement. In addition to
solicitation by use of the mail, proxies may be solicited by directors,
officers, and employees of Venture, respectively, in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated for such services but may be reimbursed for
out-of-pocket expenses incurred by them in connection with such solicitation.
Arrangement will also be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of Venture
Common Shares held of record by such persons.
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<PAGE> 37
PROPOSAL NO. 1
THE ACQUISITION
The following information with respect to the Acquisition, insofar as it
relates to matters contained in the Purchase Agreement, is qualified in its
entirety by reference to the Purchase Agreement, a copy of which is attached
hereto as Annex A and is incorporated herein by reference.
GENERAL
The Purchase Agreement provides that three (3) business days following
the satisfaction or, to the extent permitted, waiver of all conditions to the
Acquisition and receipt of Shareholder Approval of the Purchase Agreement, or at
such later time as the Parties to the Purchase Agreement may agree, Venture
shall acquire all of the Continental Capital Stock in exchange for the Purchase
Price and Continental shall become a wholly-owned subsidiary of Venture. On the
Closing Date, all of the Continental Capital Stock outstanding immediately prior
to the Closing will be transferred to Venture by the Continental Holders in
exchange for the Purchase Price which includes consideration payable by Venture
to the Continental Holders of an aggregate of (i) (a) the Closing Cash
Installment and (b) the Notes evidencing the right to receive the Note
Installment, and (ii) the Share Consideration. The closing sales price of the
Venture Common Shares on June 19, 1998 was $6.625, as reported by Nasdaq. The
portion of the Purchase Price to be received by each Continental Holder will be
calculated by multiplying each component of the Purchase Price by the Applicable
Percentage of Continental Capital Stock held by such holder.
In addition to the Purchase Price, in connection with the Acquisition,
(i) in April 1998, Venture loaned the Venture Advance to Continental to assist
in funding the Refurbishment; (ii) in December 1997, Continental (a) declared
the Management Bonus, payable to certain Continental Holders on or before June
25, 1998; and (b) called the Redeemed Shares for redemption and paid the
Preferred Share Redemption (including the issuance of a $489,000 note which
Continental has agreed to pay on or before June 25, 1998) to a Continental
Holder (who is proposed to be a director of Venture); and (iii) in June 1998,
Continental accepted an offer to finance from a third party for the Titan Loan,
the net proceeds of which are to be used to fund a portion of the Refurbishment,
for which Venture has agreed to replace certain Continental Holders as a
guarantor in the event the Acquisition is consummated. Any indebtedness of
Continental outstanding upon consummation of the Acquisition will be reflected
as a liability of Venture, on a consolidated basis.
The rights of Venture Holders, including the former Continental Holders
of Continental who will become holders of Venture Common Shares, will be
governed by the Certificate of Incorporation and Bylaws of Venture and the laws
of the Province of Alberta.
BACKGROUND OF THE ACQUISITION
Venture, which was founded in 1984 as a seismic data acquisition company
based in Western Canada, has historically expanded its operations, in part,
through financings to acquire additional equipment, and, in part, through
strategic acquisition of synergistic companies. In furtherance of this strategy,
in June 1996 Venture acquired Boone, a Texas based company engaged in the
acquisition of land and transition zone seismic data in the Southern United
States. For Venture's fiscal year ended September 30, 1997 and the six months
ended March 31, 1998 approximately 35% and 55%, respectively, of the
consolidated revenue of Venture was derived from projects conducted by Boone. In
April 1997, Venture acquired Hydrokinetic, a company based in Western Canada
which provides shallow marine airgun and survey services.
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After completing the acquisitions of Boone and Hydrokinetic, Venture has
continued its ongoing strategy of evaluating corporate transactions with
possible benefits to Venture. In furtherance of this strategy, in November 1996,
after a referral from Meyers Norris Penny & Co., Chartered Accountants, the
former independent accountants of Continental, Mr. Brian W. Kozun and Mr.
Gregory B. Wiebe, the President and the Chief Financial Officer of Venture,
respectively, met with Mr. Leslie J. Stinn and Mr. Roy Self, the President and
Vice President, Geophysical Operations of Continental, respectively. At the
meeting, the parties discussed the nature of Continental's operations, potential
growth opportunities in the marine seismic industry and Continental's need for
additional financing. The parties also discussed potential corporate
transactions, including a potential acquisition of some or all of the capital or
assets of Continental by Venture, in exchange for cash and/or Venture Common
Shares.
In December 1996, Continental provided Venture with certain corporate
and financial information. Management of Venture prepared an analysis of the
financial information and conducted preliminary due diligence regarding the
marine seismic industry and Continental. Venture's management then presented an
overview of this information to the Venture Board, which authorized management
to proceed with negotiations with Continental.
In January 1997, Mr. Kozun contacted Mr. Stinn to inquire if Continental
had any interest in pursuing a potential acquisition by Venture. Mr. Stinn
indicated Continental had commenced discussions regarding a possible merger with
a United Kingdom ("U.K.") data processing company and the parties discussed
whether there might be a possibility of structuring the potential corporate
transaction to permit Venture to acquire the combined company. Mr. Stinn
indicated he would discuss this possibility with the U.K. company.
In March 1997, Continental indicated to Venture that it was not
currently interested in the potential acquisition and that it intended to pursue
an initial public offering (the "Proposed Continental IPO") on a combined basis
with the U.K. company.
At various times throughout the period from March 1997 to October 1997,
Mr. Daniel P. McArthur, Chief Operating Officer of Venture and Mr. Wiebe, made
inquiries of the status of the Proposed Continental IPO and received indications
from management of Continental that Continental was continuing to pursue the
Proposed Continental IPO.
In October 1997, Mr. Kozun and Mr. Wiebe met with representatives from
Canaccord Capital Corporation, ("Canaccord") a Canadian investment bank,
expressed an interest in meeting with Venture. During the meeting,
representatives of Canaccord informed Venture that it was their understanding
that Continental might elect not to pursue the Proposed Continental IPO.
Management of Venture informed Canaccord that Venture had been interested in
pursuing, and had intermittent discussions with Continental regarding, a
possible corporate transaction with Continental for almost a year.
Representatives of Canaccord then invited Venture to attend a meeting with them
and Continental management.
In early November 1997, Mr. Kozun and Mr. Wiebe met with Canaccord
representatives and Continental management. At this meeting, Canaccord proposed
that the potential acquisition of Continental be restructured to include a
"Special Warrant" financing in Canada. The parties discussed the nature and
timing of this financing, which would require Venture to obtain a listing of its
securities on the Toronto Stock Exchange, and which would be structured to
facilitate the acquisition by Continental of a second marine seismic vessel. The
parties reached a general agreement that, due to timing concerns related to
financing the vessel acquisition by Continental, the parties desired that the
potential acquisition of Continental by Venture, and related financing, be
completed on an expedited basis.
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Subsequent to this meeting Mr. Kozun and Mr. Wiebe met with Continental
management at Continental's offices to discuss further its financing
requirements, the status of the marine seismic data industry and Continental
operations and more definitive terms for the restructured potential acquisition.
In November 1997, Venture presented to Continental certain terms for the
potential acquisition, including the amount and components of the purchase
price, combined with employment agreements for Mr. Stinn and Mr. Self. After
extensive negotiations between the parties, and consultations with legal,
financial and accounting advisors, Venture and Continental agreed to the
principal terms of the potential acquisition, except for the terms of the
proposed financing by Canaccord.
On November 12, 1997, management of Venture and Continental met with
representatives of Canaccord to discuss the terms of the proposed financing by
Canaccord for the potential acquisition and to disclose the terms of the
potential acquisition, as determined by Venture and Continental.
On November 14, 1997, Venture and Continental received from Canaccord a
draft financing proposal, the terms of which indicated a significant
discrepancy, in the form of delay in the expected timing of the proposed
"Special Warrant" financing, in the terms that had been agreed in principle by
the parties in early November 1997. This change in timing, combined with (i)
discussions between Venture and certain United States financial advisors, and
(ii) the Warrant Exercise which was in process, resulted in Venture and
Continental agreeing it would be in the best interest of both parties for
Venture to seek financing for the potential acquisition in the United States,
without the complications and delay to Venture created by a financing containing
warrants and a dual listing on the Toronto Stock Exchange.
Canaccord was subsequently informed of this decision in a telephone
conversation between Mr. Kozun and representatives of Canaccord.
During the remainder of the month of November, after the decision to
forego the proposed "Special Warrant" financing, discussions and negotiations
took place between management of Venture and Continental to finalize the
structure of the potential acquisition. The proposal agreed to at that time
included cash and Venture Common Shares, of approximately 80% and 20%,
respectively of the total consideration. On November 21, 1997 management of
Venture presented to the Venture Board the terms of a draft letter of intent and
the Board authorized management to enter into a letter of intent on
substantially the terms presented. On November 30, 1997, the parties executed a
letter of intent. Venture announced the execution of the letter of intent
through the issuance of a press release on December 2, 1997.
Subsequent to announcing of the letter of intent, Venture commenced
formal due diligence procedures, including a review of Continental's financial
statements and meetings with management and representatives of Continental.
In December 1997, each of Venture and Continental received a letter from
Canaccord, indicating that representatives of Canaccord believed the bank was
entitled to a finder's fee in connection with the potential acquisition.
During late December, Continental indicated to Venture that due to
market conditions and Continental's financing needs, Continental might lose the
opportunity to lease a second marine vessel if Continental did not commit to a
lease within the next few months, which, in turn, meant that Continental's need
for financing was more immediate than originally anticipated when the parties
executed the letter of intent. To determine the viability of financing the lease
of a second marine vessel by Continental, management of Venture and Continental
agreed that Venture would meet with potential lenders to determine the
availability
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<PAGE> 40
and possible terms of a financing to Venture in conjunction with or after
consummation of the potential acquisition.
At a previously scheduled Venture Board meeting on January 15, 1998
Venture's management reported to the Venture Board on the status of the due
diligence of Continental. Management also informed the Board that Management of
Venture had discussions with potential lenders regarding the availability of
financing to Venture, after completion of the potential acquisition, for the
second vessel to be leased by Continental; and concluded that financing would
not be available to Venture on acceptable terms.
As a result of the lack of availability of acceptable financing, and in
order to permit Continental to lease the second marine vessel, at a meeting in
early February, Continental management proposed that the potential acquisition
be restructured such that Venture would take a 25% initial ownership position
in Continental accompanied by an option to purchase the remaining shares
outstanding over an 18 to 24 month time period. Venture management subsequently
reviewed this proposal and discussed it with the Venture Board and its
financial and legal advisors.
At a meeting on February 9, 1998 Venture management proposed to
Continental a restructuring of the transaction that would address the concerns
of each party, with the majority of the purchase consideration to consist of
Venture Common Shares, and prior to the consummation of the proposed
acquisition, if at all, Venture lending $4,000,000 to Continental to be used by
Continental to equip a second marine vessel to be leased by Continental. A
draft of the revised letter of intent, outlining the financial terms of the
potential acquisition, as prepared by Venture, was received by Continental on
February 10, 1998. On February 12, 1998, management of Venture presented to the
Venture Board the terms of the revised letter of intent and the Venture Board
authorized management to enter into a revised letter of intent on substantially
the terms presented. The revised letter of intent was executed on February 13,
1998. The execution of the revised letter of intent was announced in a press
release February 18, 1998.
On February 17, 1998, Venture delivered the first draft of the Purchase
Agreement to representatives of Continental. During the period between February
17, 1998 and March 27, 1998, representatives of the parties discussed and
negotiated the terms and conditions of the Purchase Agreement.
On March 25, 1998, the Venture Board discussed the potential acquisition
and reviewed a draft of the Purchase Agreement. After discussion, the Venture
Board authorized management to enter into a Purchase Agreement in accordance
with the terms and conditions outlined in the draft of the Purchase Agreement.
On March 27, 1998 Venture and Continental executed the Purchase
Agreement which included the essential terms of the February 1998 revised
letter of intent. The execution of the Purchase Agreement was announced in a
press release dated March 30, 1998.
In April 1998 and May 1998, each of Venture and Continental received
additional correspondence from Canaccord regarding the demand for a finder's
fee, including, in late May 1998, correspondence including a draft of a
statement of claim, indicating that Canaccord may pursue legal action against
each of Venture and Continental with respect to a claim of entitlement to a fee
of approximately $300,000 in connection with the Acquisition. As of June 19,
1998, no notice had been received by either Venture or Continental regarding a
formal proceeding.
RECOMMENDATIONS OF THE VENTURE BOARD
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THE VENTURE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT AND UNANIMOUSLY RECOMMENDS A VOTE BY THE VENTURE HOLDERS FOR THE
PROPOSAL TO APPROVE AND ADOPT THE PURCHASE AGREEMENT. VENTURE'S BOARD BELIEVES
THE ACQUISITION IS FAIR TO AND IN THE BEST INTERESTS OF VENTURE HOLDERS.
The rules of the Nasdaq Stock Market require Venture to obtain
Shareholder Approval of the Purchase Agreement. In the event Shareholder
Approval of the Purchase Agreement is not obtained, Venture would be able to
consummate the Acquisition; however the designation of the Venture Common
Shares as a Nasdaq National Market Security would be subject to termination, in
accordance with the rules of the Nasdaq Stock Market. As a result, Venture has
determined, in the event Shareholder Approval of the Purchase Agreement is not
obtained, not to proceed with the Acquisition.
The Venture Board believes that the Acquisition is fair to and in the
best interests of the Venture Holders for the following reasons, among others:
(i) The general trend in the seismic data acquisition industry is
towards consolidation leading to a smaller number of larger suppliers
who are able to supply a broad range of seismic data acquisition
services to their customers. Further, the combined entity will be
significantly larger than Venture and will be able to compete more
effectively. The combined entity will provide a broader range of
services, which the Venture Board believes will make Venture a more
versatile and attractive supplier of seismic data to the industry.
(ii) Assuming the consummation of the Acquisition, Venture is
expected to be less exposed to risk of a downturn in the oil and natural
gas production industry than Venture would be without Continental as a
subsidiary. Venture is expected to be more diversified across the
seismic data acquisition industry segments, combining its land-based
seismic data acquisition businesses with Continental's marine-based
business. As a result, Venture is expected to be less subject to
fluctuations in demand in any particular segment of the seismic data
acquisition industry.
(iii) The Acquisition of Continental, including the integration
of the complementary management and operating expertise, personnel,
asset portfolios and financial attributes of Continental and Venture
would make Venture a larger and more competitive seismic data
acquisition company based in North America with expanded international
operations and an expanded experienced management team, thereby
increasing Venture's growth opportunities in the seismic data
acquisition business, reducing its dependence upon its operations in
Western Canada and on certain select customers and increasing its
potential for access to capital and financial markets.
In the course of its deliberations, the Venture Board reviewed with
Venture's management a number of other factors relevant to the Acquisition. In
particular, the Venture Board considered, among other things: (i) information
concerning Venture's and Continental's respective businesses, prospects,
historical and projected financial performances, financial condition and
operations; (ii) an analyses of the respective projected contributions of each
company to consolidated net revenues and operating results of Venture after the
Acquisition; (iii) reports from management of Venture on its due diligence
investigation of Continental; (iv) the business capabilities of the management
and employees of Continental, as well as the compatibility of the managements
and corporate cultures of Venture and Continental; (v) cash requirements
relating to the Acquisition, and Venture, with the addition of Continental; (vi)
valuations for publicly traded companies
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with businesses comparable to Continental; and (vii) amounts paid in other
acquisition transactions in Continental's industry.
In its deliberations concerning the Acquisition, the Venture Board also
considered a variety of additional considerations and risk factors, including:
(i) the historical financial performance and cash requirements of Continental;
(ii) the percentage ownership dilution to Venture Holders resulting from the
issuance to the Continental Holders of Acquisition Common Shares; (iii) the
risk that the market price of Venture Common Shares might be adversely affected
by announcement of the Acquisition or by other associated factors; (iv) the
risk that Venture, with the addition of Continental might not achieve revenue
equal to the sum of the potential revenue of the separate companies; (v) the
risk that other benefits sought to be obtained by the Acquisition will not be
obtained; (vi) the cost of integration of the operations of Continental and its
impact on the results of Venture, with the addition of Continental after the
Acquisition; (vii) the risks that, as a result of the Acquisition, Venture may
need to raise additional capital and the resulting dilution to Venture Holders;
(viii) the risks associated with the Venture Advance and the increased debt to
Venture, which will occur as a result of the Acquisition, including the Titan
Loan, debt relating to the possible upgrade of the vessels and Continental's
capital requirements, in general; and (ix) other risks of the Acquisition
associated with either Venture or Continental described under "Risk Factors".
The foregoing discussion of the information and factors considered by
the Venture Board is not intended to be exhaustive, but it does include all
material factors considered by the Venture Board. In view of the wide variety
of factors considered by the Venture Board, both positive and negative, the
Venture Board did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors considered, and individual
directors may have given differing weights to different factors. After taking
into consideration all of the factors set forth above, the Venture Board
determined that the Acquisition was in the best interests of and fair to
Venture and the Venture Holders and that Venture should proceed with the
Acquisition.
THE PURCHASE AGREEMENT
The following is a brief summary of the Purchase Agreement, a copy of
which (without exhibits or schedules) is attached as Annex A to this Proxy
Statement and is incorporated herein by reference. Although the material
provisions of the Purchase Agreement set forth in this Proxy Statement have
been summarized accurately, the statements made herein concerning such document
are not necessarily complete, and reference is made to the full text of the
Purchase Agreement attached hereto as Annex A. Each such statement is qualified
in its entirety by such reference. Capitalized terms that are not otherwise
defined in this summary have the meanings set forth in the Purchase Agreement.
General
The Purchase Agreement provides that, subject to Shareholder Approval of
the Purchase Agreement, and the satisfaction or waiver (to the extent legally
permissible) of the other conditions set forth therein, on the Closing Date,
Venture will acquire all of the Continental Capital Stock and Continental will
become a wholly-owned subsidiary of Venture.
On the Closing Date, all of the Continental Capital Stock will be
transferred by the Continental Holders to Venture, in exchange for payment of
the Purchase Price, including (i) (a) the Closing Cash Installment and (b)
Notes representing the Note Installment, and (ii) the Share Consideration. The
portion of the Purchase Price to be received by each Continental Holder will be
calculated using their Applicable Percentage.
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In addition to the Purchase Price, in connection with the Acquisition,
(i) in April 1998, Venture loaned the Venture Advance; (ii) in December 1997,
Continental (a) declared the Management Bonus, payable to certain Continental
Holders on or before June 25, 1998; and (b) called the Redeemed Shares for
redemption, and paid (including the issuance of a $489,000 note which
Continental has agreed to pay on or before June 25, 1998) to a Continental
Holder (who is proposed to be a director of Venture), the Preferred Share
Redemption; and (iii) in June 1998, Continental accepted an offer to finance
for the Titan Loan, the net proceeds of which are to be used to fund a portion
of the Refurbishment, for which Venture has agreed to replace certain
Continental Holders as a guarantor, upon consummation of the Acquisition. Any
indebtedness of Continental outstanding upon consummation of the Acquisition
will be reflected as a liability of Venture, on a consolidated basis. See "--
Other Agreements -- The Credit Agreement," and "--Interests of Certain Persons
in the Acquisition."
Because the market price of Venture Common Shares following the
Acquisition is subject to fluctuation, the market value of the Acquisition
Common Shares that Continental Holders will receive in the Acquisition may
increase or decrease following the Acquisition.
Purchase Price
The Purchase Price to be paid in the Acquisition equals the Cash
Consideration plus the Share Consideration. The Purchase Price does not
include: (i) the Venture Advance; (ii) the Bonus Transactions; (iii) the costs
associated with the preparation of this Proxy Statement, including without
limitation, the costs associated with the preparation of the pro forma
financial statements, which Venture has agreed to pay; or (iv) other
indebtedness of Continental or which Continental may incur in connection with
the Refurbishment (including borrowings under its line of credit of
approximately $1,000,000 and supplier financing of approximately $3,000,000) or
otherwise to be outstanding after the Acquisition, including (a) the Titan Loan
or (b) any indebtedness related to the possible upgrade of the vessels to 3D
capability estimated at approximately $4,000,000. Assuming the consummation of
the Acquisition, on a consolidated basis, any indebtedness of Continental will
be reflected as a liability of Venture.
Allocation of Purchase Price; Share Ownership Following the Acquisition
The following table sets forth the dollar value of Cash Consideration to
be issued in installments to, the total number and dollar value of Acquisition
Common Shares and the percentage of the outstanding Venture Common Shares to be
held by, the five former Continental Holders, after giving effect to the
Acquisition:
<TABLE>
<CAPTION>
PURCHASE PRICE(1)
----------------------------------------------------------
PERCENTAGE
OWNERSHIP OF
CONTINENTAL CASH SHARE VENTURE AFTER THE
HOLDER CONSIDERATION($)(2) CONSIDERATION ACQUISITION(3)
- ---------------------- -------------------- --------------------------------- -------------------
NO. VALUE($)(4)
------------- --------------
<S> <C> <C> <C> <C>
Leslie J. Stinn(5) 660,000 915,200 6,063,200 13.6%
Roy Self (5) 660,000 915,200 6,063,200 13.6%
</TABLE>
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<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
Sandra Kelly 60,000 83,200 551,200 1.2%
Elaine B. McCarthy 60,000 83,200 551,200 1.2%
Gregory A. Stinn 60,000 83,200 551,200 1.2%
---------- --------- ----------- -----
Total $1,500,000 2,080,000 $13,780,000 30.8%
</TABLE>
- ---------------
(1) Does not include the Venture Advance or the Bonus Transactions. See
"Proposal No. 1 -- The Acquisition -- Other Agreements -- Credit
Agreement" and "-- Interests of Certain Persons in the Acquisition".
(2) The Cash Consideration is to be paid as follows: (a) an aggregate of
$500,000 will be paid in cash in the Closing Cash Installment and (b)
notes in the aggregate principal amount of $1,000,000 will be issued on
the Closing and paid in the Note Installment. The amounts set forth in
the table do not include the interest payable to the Continental Holders
on the Note Installment. The portion of Cash Consideration to be
received by each Continental Holder, one-third of which will be paid in
the Closing Cash Installment and two-thirds of which will be paid in the
Note Installment, is calculated in accordance with their Applicable
Percentage as follows: (a) 44% for each of Leslie J. Stinn and Roy Self
and (b) 4% for each of Sandra Kelly, Elaine B. McCarthy and Gregory A.
Stinn.
(3) Based on 4,635,084 Venture Common Shares issued and outstanding as of
June 19, 1998. Assumes no issuances of Venture Common Shares, or
securities to acquire Venture Common Shares, other than the Share
Consideration.
(4) Based upon the closing sales price of Venture Common Shares as reported
by Nasdaq on June 19, 1998, of $6.625 per share.
(5) Has entered into an employment agreement with Continental and will
remain an executive officer of Continental upon consummation of the
Acquisition. See "Proposal No. 1 -- The Acquisition -- Other Agreements
-- Employment Agreements."
Closing Date of the Acquisition
It is the intention of the Parties to close the Acquisition as soon as
possible following Shareholder Approval of the Purchase Agreement and
satisfaction of all conditions (or, to the extent permitted, waiver thereof) to
the Parties' respective obligations to consummate the Acquisition. If
Shareholder Approval of the Purchase Agreement is received at the Meeting and
all other conditions to the Acquisition have been fulfilled or waived, the
Closing will occur on the date of the later of three business days following the
Meeting or as soon as practicable thereafter.
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<PAGE> 45
Representations and Warranties
The Purchase Agreement contains certain representations and warranties
of Continental or the Continental Holders relating to, among other things,: (i)
share ownership; (ii) due organization, qualification, power and standing; (iii)
the authorization, execution, delivery and enforceability of the Purchase
Agreement; (iv) validity of the Contemplated Transactions; (v) absence of claims
against Continental; (vi) the residency of the Continental Holders; (vii) the
investment intentions and qualifications of the Continental Holders; (viii)
accounts receivable; (ix) inventory and revenue producing equipment; (x) absence
of undisclosed liabilities; (xi) assets and properties; (xii) compliance with
law; (xiii) books of account; (xiv) absence of certain contracts or commitments;
(xv) environmental matters; (xvi) compliance with laws; (xvii) capitalization;
(xviii) absence of preemptive rights, repurchase obligations or voting trusts;
(xix) absence of subsidiaries; (xx) required governmental consents and approvals
and the absence of breaches, defaults or violations of Continental's Certificate
of Incorporation or Bylaws, agreements and instruments, and law; (xxi) financial
statements; (xxii) the absence of litigation; (xxiii) the absence of certain
changes; (xxiv) tax matters; (xxv) employee benefit plans; (xxvi) labor and
employment matters; (xxvii) brokers; (xxviii) intellectual property matters;
(xxix) investments; and (xxx) insurance matters.
The Purchase Agreement contains certain representations and warranties
of Venture relating to, among other things,: (i) "reporting issuer" status in
the Province of Alberta; (ii) capitalization; (iii) due organization,
qualification, power and standing; (iv) the authorization, execution, delivery
and enforceability of the Purchase Agreement; (v) the validity of the
Contemplated Transactions; (vi) certain corporate and securities laws matters
relating to the issuance of the Venture Common Shares; (vii) the status of
Venture as a Canadian corporation; (viii) brokers; (ix) absence of judgments;
(x) the accuracy of documents supplied to the Continental Holders; and (xi) the
status of the Venture Common Shares as "restricted securities" under Rule 144 of
the Securities Act.
Certain Covenants
Covenants of Continental Prior to Closing of the Acquisition
Prior to the Closing Date, Continental is required by the Purchase
Agreement to: (i) conduct its business only in the ordinary course consistent
with past practice; (ii) use reasonable efforts to preserve intact its business
organization and relationships with third parties; and (iii) pay accounts
payable and pay and perform other obligations of the business of Continental
when they become due and payable in the ordinary course of business consistent
with prior practice.
In addition, Continental has agreed that, except as otherwise agreed to
or required in connection with the leasing, outfitting and operation of the
"Pacific Titan" in an aggregate amount not to exceed $12,000,000, and, prior to
the Closing Date, among other actions, it will not: (i) amend its articles or
certificate of incorporation or by-laws; (ii) declare or pay any dividend or
make any other payment or distribution in respect of its capital stock, other
than the Bonus Transactions; (iii) purchase, redeem, issue, sell or otherwise
acquire or dispose of, either directly or indirectly, any of its capital stock,
or reclassify, split or otherwise change any of its capital stock or grant or
enter into any options, warrants, puts or calls or other rights to purchase,
sell or convert any obligation into any of, its capital stock, other than the
Bonus Transactions; (iv) organize any subsidiary or acquire any capital stock or
other equity securities of any person or any equity or ownership interest in any
business; (v) borrow any funds or incur, assume or acquire any obligation or
liability (whether fixed, accrued, contingent or otherwise, whether due or to
become due) or in the aggregate amount of more than $25,000 (Cdn) except for
current liabilities incurred in the ordinary course of business in connection
with
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<PAGE> 46
the purchase of goods or services consistent with prior practice; (vi) utilize
its existing credit facility with Royal Bank other than in the ordinary course
of business and other than to effect payment of the Management Bonus; (vii)
enter into any commitment letter, offer to finance or loan agreement regarding
the leasing, outfitting or operation of the "Pacific Titan" with any of Export
Development Corporation, Northstar Trade Finance Inc. or their respective agents
or affiliates without the prior express written consent of the Buyer; (viii)
pay, discharge or satisfy any encumbrance (other than an encumbrance then
required to be paid, discharged or satisfied), claim, liability or obligation
(whether fixed, accrued, contingent or otherwise, whether due or to become due),
except for payment, discharge or satisfaction for cash of a claim, liability or
obligation that is a current liability either shown on the most recent financial
statement of Continental provided to Venture, or incurred since the date of such
financial statement in the ordinary course of business consistent with prior
practice; (ix) make or grant any material increase in the compensation (whether
salary, commission, bonus, benefits (retirement, severance or other) or other
direct or indirect remuneration) of any employees of Continental, or enter into
any employment contract with any employee of Continental other than the
Employment Agreements; (x) sell, assign, transfer, convey, lease, pledge,
encumber or otherwise dispose of any of its assets or properties (real or
personal, tangible or intangible) or any other material right, other than in the
ordinary course of business; (xi) enter into any instrument which would
constitute a material lease or contract or enter into any material amendment,
supplement or waiver in respect of any material lease or contract; (xii) incur
any severance pay obligation by reason of the Purchase Agreement or the
Contemplated Transactions; (xiii) grant or extend any power of attorney other
than in the ordinary course of business which does not affect a material part of
Continental's business or act as guarantor, surety, co-signer, endorser,
co-maker, indemnitor, or otherwise in respect of the obligation of any person
other than through endorsements of negotiable instrument in the ordinary course
of business; (xiv) cancel or compromise any material debt or claim, or waive or
release any material right, other than adjustments in the ordinary course of
business for goods or services sold and received which, in the aggregate, are
not material; (xv) make any capital expenditures or capital additions or
improvements in excess of an aggregate of $25,000 (Cdn), other than pursuant to
capital expenditure commitments disclosed on a Schedule to the Purchase
Agreement or not required to be disclosed thereon; (xvi) enter into or amend any
collective bargaining or union contract or agreement; (xvii) institute or settle
any Proceeding; (xviii) incur any tax liability other than in the ordinary
course of business; (xix) in any other manner, modify, change or otherwise alter
in a material way the fundamental nature of the business of Continental as
presently conducted; or (xx) agree or otherwise commit, whether in writing or
otherwise, to do, or take any action or omit to take any action that would
result in, any of the foregoing, without the prior express written consent of
Venture.
Covenants Relating to the Acquisition
The Purchase Agreement also provides that, prior to the Closing Date,:
(i) Venture shall apply for listing of the Venture Common Shares on Nasdaq; (ii)
Continental shall assist Venture in preparing, and have the opportunity to
review and comment on, the Proxy Statement with respect to the Meeting; and
(iii) at the Meeting, Venture shall use its best efforts to nominate for
election to the Venture Board an individual selected by the Continental Holders,
collectively.
Venture has agreed to use its best efforts to ensure that a nominee of
the Continental Holders, collectively, is included as a nominee to the Venture
Board at each of the next three annual meetings of shareholders of Venture.
Covenants Not to Compete
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<PAGE> 47
From the date of Purchase Agreement until the third anniversary of the
Closing, each of the Continental Holders has agreed not to, anywhere in North
America, unless acting for Venture or its affiliates (including without
limitation Continental) or in accordance with Venture's prior written consent,
(i) (directly or indirectly) own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, principal, agent,
representative, consultant, investor, owner, partner, manager, joint venturer or
otherwise with, or permit his name to be used by or in connection with, any
business or enterprise engaged anywhere in North America by Continental on the
Closing Date or during the three-year non-compete period stated above or at the
time of its termination, (ii) call on or solicit any person who or which during
such non-compete period is a customer of Continental with respect to any
business covered by clause (i) above or (iii) solicit the employment of any
person who during such non-compete period is employed by Continental on a full
or part-time basis.
Covenants Relating to Securities Law Compliance
Venture has agreed for a period equal to the lesser of (i) five years
from the Closing Date or (ii) after an aggregate of 95% of the Acquisition
Common Shares being acquired by the Continental Holders as a result of the
Acquisition have been transferred or otherwise disposed of by the Continental
Holders, Venture shall use its best efforts to (i) maintain the listing of its
securities on Nasdaq, or such other exchange or market as the securities of
Venture may then be listed for trading; (ii) make and keep available adequate
current public information regarding Venture as such is understood and defined
in Rule 144 under the Securities Act; (iii) comply in all material respects with
the reporting requirements of the Exchange Act applicable to it; (iv) use its
best efforts to otherwise comply with the provisions of Rule 144 as then in
effect and which may be applicable to it; and (v) use its best efforts to comply
with the rules and regulations of the Securities Act (Alberta) in all material
respects.
No Solicitation
The Continental Holders and Continental have agreed, and have agreed to
direct and use reasonable efforts to cause their representatives and agents,
prior to the Closing Date, not to (i) solicit, initiate or encourage the
submission of inquiries, proposals or offers from any person relating to (a) any
business combination with Continental or (b) the sale of a material portion of
the assets and/or capital stock of Continental (a "Transaction"), (ii) enter
into or participate in any negotiations, nor initiate any discussions or
continue any discussions initiated by others, regarding any Transaction, or
furnish to any other person any information with respect to the assets or
business of Continental for the purposes of pursuing a possible Transaction with
any other party, or (iii) otherwise participate in, assist, facilitate, or
encourage any effort or attempt by any other person to do any of the foregoing.
Conditions to Consummation of the Acquisition
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<PAGE> 48
The obligation of Venture to effect the Acquisition is subject to the
fulfillment or waiver, if legally permissible, of a number of conditions,
including the following: (i) the execution of the Credit Agreement and Security
Agreement and the making of the Venture Advance; (ii) the receipt of approval
from the Venture Board of the Contemplated Transactions and of the Due
Diligence; (iii) Continental shall have provided such audited financial
statements as necessary for the consummation of the Contemplated Transactions;
(iv) Shareholder Approval; (v) the execution of the Employment Agreements; (vi)
all necessary permits, authorizations, regulatory approvals and consents
necessary for the consummation of the Acquisition shall have been received;
(vii) the Continental Holders shall have delivered releases in favor of
Continental in their capacities as directors, officer, shareholders and
employees of Continental; (viii) counsel for Venture shall have approved all
actions necessary to carry out the Contemplated Transactions and the Continental
Holders shall have delivered all documents, instruments and other assurances as
Venture may reasonably require, including an opinion of counsel to Continental;
(ix) Continental shall have paid, or made arrangements to pay, all of the costs
and expenses of Continental and the Continental Holders in connection with the
consummation of the Contemplated Transactions; (x) all certificates and
documents to be delivered to Venture shall be to its reasonable satisfaction;
and (xi) the Continental Holders shall have cancelled any indebtedness owed to
them by Continental, other than amounts due under any employment agreements;
(xii) the material accuracy of the representations and warranties made by
Continental in the Purchase Agreement; (xiii) the material compliance by
Continental with all material covenants and agreements contained in the Purchase
Agreement required to be performed by it prior to the Closing Date; and (xiv) no
order, including the institution of any litigation or investigation, injunction
or decree issued by any court or competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the Acquisition, shall be in
effect.
The obligation of Continental to consummate the Acquisition is also
subject to the fulfillment or waiver of certain additional conditions, including
the following: (i) the material accuracy of the representations and warranties
made by Venture in the Purchase Agreement; (ii) the material compliance by
Venture with all material covenants and agreements contained in the Purchase
Agreement required to be performed by Venture prior to the Closing Date; (iii)
Continental shall have executed and delivered the Employment Agreements and the
Employment Agreements shall be in full force and effect, unamended; (iv) the
Continental Holders shall provide the name of one nominee director of Venture on
behalf of the Continental Holders acceptable to Venture and Venture shall use
its best efforts to nominate such nominee director to stand for election as a
director of Venture at the Meeting; (v) the Credit Agreement shall have been
duly executed and delivered by the parties thereto, and Venture,
contemporaneously therewith, shall have advanced the funds contemplated by the
Credit Agreement for the purposes specified therein; (vi) all action,
proceedings, resolutions, instruments and documents required to carry out the
Purchase Agreement or incidental hereto and all other related legal matters
shall have been approved on the Closing Date by counsel for the Continental
Holders; (vii) Venture shall have delivered to the Continental Holders such
other documents, instruments, certifications and further assurances as such
counsel may reasonably require; (viii) Continental shall have received the
approval of its board of directors and the unanimous approval of all of its
shareholders, both to the Purchase Agreement, the Employment Agreements and to
the Contemplated Transactions, and Venture shall have received the required
approval of the Venture Board and of its shareholders, both to the Purchase
Agreement and to the Contemplated Transactions; (ix) Continental shall have
executed and delivered to each of the Continental Holders a general release in
favor of each such holder in his or her, as the case may be, respective capacity
as a director, officer, employee and independent contractor of Continental; (x)
Venture, Continental and the Continental Holders shall have obtained all third
party consents and approvals necessary to complete the Contemplated
Transactions; (xi) the Continental Holders shall have approved the results of
the Due Diligence; (xii) no event, occurrence, fact, condition, change,
development or effect shall have occurred, exist or come to exist since the date
of the Purchase
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<PAGE> 49
Agreement that, individually or in the aggregate, has constituted or resulted
in, or could reasonably be expected to constitute or result in, in the
reasonable judgment of an experienced, prudent business person (a) a reduction
in the value of the business of Venture or (b) a decision not to consummate the
Contemplated Transactions on the terms and conditions set forth in the Purchase
Agreement; (xiii) all certificates, opinions and other documents to be delivered
by Venture and all other matters to be accomplished by Venture prior to or at
the Closing shall be satisfactory in the reasonable judgment of the Continental
Holders, Continental and their counsel; (xiv) Venture shall provide to the
Continental Holders on the Closing Date the following: (a) a certified copy of
the directors' resolution of Venture, approving the Purchase Agreement and all
transactions contemplated by the Purchase Agreement, (b) the legal opinion of
counsel to Venture, and (c) a true copy of the written verification from Nasdaq,
for the listing of the Venture Common Shares; and (xv) all necessary state
securities and blue sky permits, approvals and exemption orders required in
connection with the Contemplated Transactions shall have been obtained and the
Acquisition Common Shares shall have been listed with Nasdaq.
Amendment and Termination of the Purchase Agreement
The Purchase Agreement may be amended by Continental, the Continental
Holders or Venture at any time, whether before or after Shareholder Approval.
The Purchase Agreement may be terminated and the Acquisition abandoned
at any time prior to the Closing Date, whether before or after Shareholder
Approval: (i) by the mutual written agreement of Venture, the Continental
Holders and Continental; or (ii) by either Venture or the Continental Holders if
a condition to their closing becomes impossible and is not waived by the other
party. If the Acquisition is not consummated by August 31, 1998, no party to the
Purchase Agreement shall have any continuing obligations thereunder, other than
the Venture Advance and certain confidentiality obligations.
Indemnification
Continental Holders and Continental
Each Continental Holder has agreed to reimburse, indemnify and hold
harmless Venture and its affiliates (a "Buyer Indemnified Party") against and in
respect of certain damages, losses, settlement payments, deficiencies,
liabilities, costs and expenses suffered, sustained, incurred or required to be
paid by any Buyer Indemnified Party because of or that result from, relate to or
arise out of the untruth, inaccuracy or breach of, certain representations and
warranties of such Continental Holder in whole or in part contained in the
Purchase Agreement, including representations and warranties relating to (i)
share ownership; (ii) due organization, qualification, power and standing; (iii)
the authorization, execution, delivery and enforceability of the Purchase
Agreement; (iv) validity of the Contemplated Transactions; (v) absence of claims
against Continental; (vi) the residency of the Continental Holders; (vii) the
investment intentions and qualifications of the Continental Holders (the
"Individual Continental Holders Representations").
Further, each Continental Holder and Continental has agreed to indemnify
and hold harmless Venture and each person, if any, who controls Venture within
the meaning of the Securities Act against any losses, claims, damages or
liabilities to which Venture or such controlling person may become subject,
under the Securities Act or otherwise, and has agreed to reimburse, as incurred,
Venture and such controlling persons for any legal or other expenses reasonably
incurred in connection with investigating, defending against or appearing as a
third party witness in connection with any losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement or any amendment or supplement
thereto, but
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<PAGE> 50
only to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to Venture by or on behalf of such Continental Holder or
Continental, as the case may be, specifically for use in the preparation of the
Proxy Statement or any such amendment or supplement thereof.
Leslie J. Stinn and Roy Self
Each of Leslie J. Stinn and Roy D. Self have agreed to reimburse,
indemnify, and hold harmless any Buyer Indemnified Party against and in respect
of fifty percent (50%) of any and all damages, losses, settlement payments,
deficiencies, liabilities, costs and expenses suffered, sustained, incurred or
required to be paid by any Buyer Indemnified Party because of or that result
from, relate to or arise out of: (i) the untruth, inaccuracy or breach of, or
the failure to fulfil, certain representations or warranties (other than the
Individual Continental Holders Representations), agreement, covenant or
statement of any Continental Holder contained in the Purchase Agreement or in
any certificate or other writing furnished to Venture by or on behalf of any
Continental Holder or Continental in connection with the Contemplated
Transactions; (ii) any claim by any former shareholder of Continental involving
the Contemplated Transactions or any prior transaction involving any shares of
capital stock of Continental or any predecessor corporation and not already
provided for in the Financials; or (iii) any liability or obligation relating to
or arising out of the business, operations or assets of Continental or the
actions or omissions of Continental's directors, officers, shareholders,
employees or agents; and prior to the Closing Date and not already provided for
in the Financials, including without limitation any liability or obligation
relating to, and any claim which arises out of or is based upon, (a) negligence,
(b) strict liability, (c) any Environmental Claim or which otherwise relates to,
or involves a claim, liability or obligation which arises out of or is based
upon, any Environmental Law to the extent that such liability or obligation
relates to or arises out of, in whole or in part, any activity occurring,
condition existing, omission to act or other matter existing prior to the
Closing Date, (d) any other statute, rule or regulation or (e) any express or
implied representation, warranty, agreement or guarantee made by or on behalf of
Continental, or any liability or obligation, except for existing liabilities and
obligations of Continental described in the Purchase Agreement which is imposed
on Continental or any successor corporation by operation of law, in connection
with any product designed, used, rented, sold, manufactured, shipped or
installed by or on behalf of Continental, or for any service performed by or on
behalf of Continental, including without limitation any acts, omissions,
workmanship or material performed or sold by Continental, in any case prior to
the Closing Date and irrespective of the date that any claim, suit or other
cause of action related to any of the foregoing is filed or otherwise instituted
against Continental or any successor corporation.
Venture
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<PAGE> 51
From and after the Closing, Venture has agreed to reimburse, indemnify
and hold harmless each Continental Holder (a "Securityholder Indemnified Party")
against and in respect of any and all damages, losses, settlement payments,
deficiencies, liabilities, costs and expenses suffered, sustained, incurred or
required to be paid by such Securityholder Indemnified Party because of or that
result from, relate to or arise out of: (i) the untruth, inaccuracy or breach
of, or the failure to fulfil, any representation, warranty, agreement, covenant
or statement of Venture contained in the Purchase Agreement or in any
certificate or other writing furnished to the Continental Holder by or on behalf
of Venture in connection therewith; or (ii) any liability or obligation relating
to or arising out of the business, operations or assets of Continental conducted
after the Closing Date or the actions or omissions of Continental's directors,
officers, shareholders, employees or agents after the Closing Date (other than
the Continental Holders) including, without limitation, any liability or
obligation relating to, and any claim which arises out of or is based upon, (a)
negligence, (b) strict liability, (c) any Environmental Claim or which otherwise
relates to, or involves a claim, liability or obligation which arises out of or
is based upon, any Environmental Law to the extent that such liability or
obligation relates to or arises out of, in whole or in part, any activity
occurring, condition existing, omission to act or other matter existing
subsequent to the Closing Date, (d) any other statute, rule or regulation or (e)
any express or implied representation, warranty, agreement or guarantee made or
on behalf of Continental, or any liability or obligation which is imposed on
Continental or any successor corporation by operation of law, in connection with
any product designed, used, rented, sold, manufactured, shipped or installed by
or on behalf of Continental, or for any service performed by or on behalf of
Continental, including, without limitation, any acts, omissions, workmanship or
material performed or sold by Continental, in any case subsequent to the Closing
Date and irrespective of the date that any claim, suit or other cause of action
related to any of the foregoing is filed or otherwise instituted against
Continental or any successor corporation.
Venture has also agreed to indemnify and hold harmless the Continental
Holders and Continental, each of its directors, and each person, if any, who
controls Continental within the meaning of the Securities Act, against any
losses, claims, damages or liabilities to which the Continental Holders and
Continental or any such director, nominee, officer or controlling person may
become subject, under the Securities Act or otherwise, and will reimburse, as
incurred, the Continental Holders, Continental and such controlling persons for
any legal or other expenses reasonably incurred in connection with
investigating, defending against or appearing as a third party witness in
connection with any losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Proxy Statement or any amendment or
supplement thereto other than in reliance upon and in conformity with written
information furnished by the Continental Holders and Continental to Venture
specifically for use in the preparation thereof.
Limitations on Liability
Except with respect to (i) the Individual Continental Holders
Representations, or (ii) indemnification relating to liability for broker's
fees, Leslie J. Stinn and Roy D. Self shall not be liable to any Buyer
Indemnified Party for any misrepresentation or breach of warranty until the
aggregate amount for which they would otherwise be liable exceeds in the
aggregate the sum (the "Deductible") of $25,000 (Cdn), and the indemnification
liability of each of them shall be limited to fifty percent (50%) of any claim
or demand made thereunder.
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<PAGE> 52
Except with respect to indemnification claims arising under or with
respect to (i) the Individual Continental Holders Representations, or (ii)
indemnification relating to liability for broker's fees, the indemnification
liability of each Continental Holder to any Buyer Indemnified Party for any
misrepresentation or breach of warranty shall be limited to the percentage of
any claim or demand made thereunder equal to their Applicable Percentage.
Except with respect to indemnification claims arising under or with
respect to liability for broker's fees, Venture shall not be liable to any
Securityholder Indemnified Party for any misrepresentation or breach of warranty
until the aggregate amount for which it would otherwise be liable to any or all
Securityholder Indemnified Parties for all such misrepresentations and breaches
of warranty exceeds in the aggregate the Deductible.
Survival of Representations and Warranties.
The representations and warranties given or made by the Continental
Holders or Venture in the Purchase Agreement or in any certificate or other
writing furnished in connection therewith shall survive the Closing for a period
of two years after the Closing Date, except that (a) all representations and
warranties relating to Taxes and Tax Returns and to Environmental Claims shall
survive the Closing for the period of the applicable statutes of limitation plus
any extensions, (b) (i) the Individual Continental Holders Representations, or
(ii) indemnification relating to liability for broker's fees shall survive the
Closing without limitation and (c) any representation or warranty as to which a
claim shall have been asserted during the survival period shall continue in
effect with respect to such claim until such claim shall have been finally
resolved or settled.
Indemnification Relating to Liability for Broker's Fees
Each of the Continental Holders and Venture has represented and
warranted that all discussions, activities and negotiations relative to the
Purchase Agreement have been carried on by such Party directly without the
intervention of any person who may be entitled to, or has claimed entitlement
to, any brokerage or finder's fee or other commission in respect thereof or the
consummation of the Completed Transactions, irrespective of the validity of such
claim, other than as disclosed in a letter from Canaccord dated December 8, 1997
(the "December Letter"), and each party has agreed to indemnify and hold
harmless the other against any and all claims, losses, liabilities and expenses
which may be incurred or paid by such other party as a result of the first
party's dealings, arrangements or agreements with any such person contrary to
such representations and warranties. In the December Letter, representatives of
Canaccord indicated that they believed Canaccord was entitled to a finder's fee
in connection with the Acquisition.
Venture and Continental have each received correspondence, including a
draft of a statement of claim, from, and have been advised by, Canaccord that
Canaccord may pursue legal action against each of Venture and Continental with
respect to a claim of entitlement to a fee of approximately $300,000 in
connection with the Acquisition. See "Certain Information Regarding Venture --
Legal Matters."
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<PAGE> 53
Board of Directors and Management of Venture and Continental After the
Acquisition
Upon consummation of the Acquisition, it is currently expected that the
Venture Board shall consist of the members of the Venture Board as of
immediately prior to consummation of the Acquisition, in addition to a nominee
of the Continental Holders, Mr. Leslie J. Stinn; provided that the election of
Mr. Stinn shall have received Shareholder Approval. The Venture Board currently
consists of five members: Brian W. Kozun, P. Daniel McArthur, Stuart Norman, J.
Joseph Ciavarra and Michael J. Beninger. Upon consummation of the Acquisition,
it is currently expected that the Continental Board shall consist of Messrs.
Stinn and Self with the addition of Messrs. Kozun, Wiebe and McArthur. See
"Proposal No. 2 -- Election of Director."
The executive officers of Venture after consummation of the Acquisition
will be the executive officers of Venture as of immediately prior to the Closing
Date of the Acquisition. It is currently expected that the executive officers of
Continental after consummation of the Acquisition shall be the executive
officers of Continental as of immediately prior to the Closing Date, with such
other additions as Venture may designate. Simultaneously with the execution of
the Purchase agreement, each of Leslie J. Stinn and Roy Self entered into an
employment agreement with Continental for a period of three years commencing
March 1, 1998. See "-- Other Agreements -- Employment Agreements."
Expenses
Whether or not the Acquisition is consummated, all costs and expenses
incurred in connection with the Purchase Agreement and the Contemplated
Transactions (including, without limitation, the fees and expenses of advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense; provided, however, that in connection with the Proxy Statement, Venture
has agreed that Continental shall be responsible for all costs incurred in
connection with the preparation of its audited and unaudited financial
statements as necessary for the preparation of the Proxy Statement and Venture
shall be responsible, and shall reimburse Continental or the Continental
Holders, as the case may be, for all other costs incurred in connection with the
preparation of the Proxy Statement, including, without limitation, the
preparation of pro forma financial statements. In addition, Continental has
agreed to pay all expenses of the Continental Holders in connection with the
Contemplated Transactions, including legal fees and expenses.
CERTAIN CANADIAN INCOME TAX CONSEQUENCES
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE.
The cost to Venture for income tax purposes of each class of shares
purchased will be as follows:
(a) in the case of the Continental Preferred Shares, an amount equal
to the purchase price paid therefor plus all reasonable closing
costs; and
(b) in the case of the Continental Common Shares, the lesser of the
fair market value of those shares immediately before the exchange
and their paid-up capital immediately before the exchange, plus
all reasonable closing costs.
The income tax consequences to Venture, if any, resulting from the
purchase of the Continental Capital Stock, would generally be determined at the
time of disposition of such stock by Venture, if ever.
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<PAGE> 54
ACCOUNTING TREATMENT
It is intended that the acquisition of the Continental Capital Stock
will be treated as a "purchase" for financial accounting purposes in accordance
with Canadian and U.S. GAAP. Accordingly, Venture will record the assets and
liabilities of Continental at their fair value as of the effective date of the
Acquisition.
RESTRICTIONS ON RESALES OF VENTURE COMMON SHARES
The Venture Common Shares to be issued pursuant to the Purchase
Agreement have not been registered under the Securities Act. The sale of Venture
Common Shares issued in the Acquisition is subject to restriction. Under present
law, any public reoffering or sale of such shares will require either (i) the
registration of such shares under the Securities Act, or (ii) the availability
of an exemption from such further registration, including compliance with Rule
144 of the Securities Act. In general, under Rule 144, a person may publicly
sell such stock after a period of one year from the date of issuance if the
person: (a) sells during any three-month period no more than the number of
shares permitted under Rule 144(e) (which is generally the greater of (i) 1% of
the total number of Venture Common Shares outstanding, or (ii) the average
weekly volume of trading of Venture Common Shares for the four calendar weeks
prior to the sale); (b) sells in a "brokers' transaction" (which means,
generally, that the broker can do no more than execute the order as agent for
the seller, can receive no more than the usual broker's commission, cannot
solicit orders to buy in connection with the transaction, and cannot believe
that the seller is an underwriter of the securities being sold); (c) does not
solicit orders to buy in connection with the transaction and does not make any
payment in connection with such sale to anyone other than the selling broker;
and (d) sells at a time when there is adequate current public information about
Venture (which will be satisfied so long as Venture's Common Shares remain
registered under the Exchange Act and Venture continues to file the necessary
reports under such act). In addition, under Rule 144(k), a person who is not an
affiliate of Venture and who has not been an affiliate of Venture at any time
during the 90 days preceding any sale, would be entitled to sell Venture Common
Shares without regard to the limitations described above, provided the Venture
Common Shares have been beneficially owned for at least two years.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
At June 19, 1998, certain directors and executive officers of each of
Venture and Continental have certain interests in the Acquisition that may be in
addition to the interests of the Venture Holders generally and create certain
conflicts of interest. These interests arise from, among other things, certain
arrangements among Venture, Continental and certain directors and officers of
Continental, including arrangements related to employment, indemnification, the
Bonus Transactions, the Venture Advance, the release of guarantees in
connection with the Titan Loan and nomination to the Venture Board.
Employment Agreements
Simultaneously with the execution of the Purchase Agreement, each of
Leslie J. Stinn and Roy Self has entered into an Employment Agreement with
Continental for a period of three years commencing March 1, 1998. See "The
Purchase Agreement -- Other Agreements -- The Employment Agreements."
Bonus Transactions
Management Bonus
In December 1997, Continental declared the Management Bonuses, which
pursuant to the Purchase Agreement, Continental agreed to pay on or before June
25, 1998, to certain members of management of Continental, each of whom is a
Continental Holder. If the Acquisition is consummated, management of Venture has
determined to disallow bonus transactions of such nature on a going forward
basis. The portion of the Management Bonuses, which aggregated $721,500, to be
received by certain of the Continental Holders
-43-
<PAGE> 55
is as follows: $404,000 to Mr. Leslie J. Stinn and $317,500 to Mr. Roy Self. As
of June 19, 1998, the Management Bonuses had not been paid. Any cash resources
of Continental used to pay the Bonus Transactions will reduce the cash available
for other purposes, including the Refurbishment.
Preferred Share Redemption
Continental called for redemption the Redeemed Shares in December 1997,
for an aggregate of approximately $524,000, including approximately $35,000 in
cash and $489,000 in non-interest bearing notes with no fixed terms of
repayment, representing the original consideration paid for the Redeemed Shares
by the holder thereof (Mr. Leslie J. Stinn, who is proposed to be a director of
Venture). Although the note has no fixed term of repayment, Continental has
agreed pursuant to the Purchase Agreement to repay the note the earlier of (i)
June 25, 1998 or (ii) the Closing. As of June 19, 1998, the note had not been
paid. Any cash resources of Continental used to pay the Bonus Transactions will
reduce the cash available for other purposes, including the Refurbishment.
Indemnification
Pursuant to the Purchase Agreement, each of the Continental Holders and
Venture have agreed to indemnify and hold harmless the other Party, its
affiliates, successors and assigns, subject to certain conditions and
limitations, from certain damages, losses, settlement payments, deficiencies,
liabilities and costs and expenses arising from the Contemplated Transactions,
the Purchase Agreement and the Proxy Statement. See "-- The Purchase Agreement
- -- Indemnification."
Director Nominee
Pursuant to the Purchase Agreement, at the Meeting, Venture has agreed
to use its best efforts to nominate, to the Venture Board an individual chosen
by the Continental Holders, collectively (who have selected Mr. Leslie Stinn as
their nominee). Further, Venture has agreed to use its best efforts to have a
nominee of the Continental Holders, collectively, stand for election at each of
the next three annual meetings of its shareholders. See "Proposal No. 2 --
Election of Director."
Loan Arrangements; Guarantee
Pursuant to the Credit Agreement executed simultaneously with the
Purchase Agreement, Venture has loaned Continental the Venture Advance, the
proceeds of which is being used to assist in funding the Refurbishment. The
Venture Advance bears interest at an annual rate of 1% over the prime rate of
the Royal Bank. In the event that the Acquisition is not consummated prior to
August 31, 1998, the Venture Advance is convertible, at the option of Venture,
during the period from August 31, 1998 to December 1, 1999, without any
additional consideration, into equity of Continental equal to approximately 26%
of the outstanding capital of Continental on a fully-diluted basis at the time
of conversion. The Venture Advance is secured by certain assets of Continental,
which security interest is expected to become subordinate to that of the lender
of the Titan Loan, in the event Continental receives such loan. Further, in
connection with the Titan Loan, Venture has agreed to replace Messrs. Stinn and
Self as a guarantor of Continental's obligations thereunder, in the event the
Acquisition is consummated. See "-- The Purchase Agreement -- Other Agreements
- -- Credit Agreement and General Security Agreement."
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<PAGE> 56
REGULATORY AND OTHER LEGAL MATTERS
Regulatory Matters
Venture and Continental are not aware of any material governmental or
regulatory requirements that must be complied with in connection with the
Acquisition, other than applicable securities and "blue sky" laws of the various
states, the filing of notification of the transaction on a Form 20 with the
Alberta Securities Commission, within 10 days following consummation of the
Acquisition and the receipt of Shareholder Approval of the Purchase Agreement.
The Continental Holders agreed by unanimous consent on March 27, 1998 to approve
the Purchase Agreement.
Consents
Several of the material agreements to which Continental is a party,
including agreements relating to certain of its financing arrangements and the
leases for the SV Calgary and the Pacific Titan, require the consent of the
other party to the agreement prior to or upon a change-in-control of the
ownership of Continental. Specifically, Continental must obtain the consent of
each of the following parties in order to consummate the Acquisition: the Royal
Bank; Calbers Ltd.; Swire Offshore Services Inc.; Swire Pacific Offshore Ltd.;
and Rabo Bank. Management of Continental have indicated to Venture that they
have contacted each of the aforementioned parties to obtain their respective
consent and that management believes it will be able to obtain such consents
prior to the consummation of the Acquisition. There can be no assurance that
Continental will be able to obtain all of such consents, or that, in the event
that it fails to do so, that such failure will not have a material adverse
effect on Continental or on Venture in the event the Acquisition is consummated.
OTHER AGREEMENTS
Credit Agreement
Continental has entered into an agreement in principle to lease the
Pacific Titan for a five year period commencing February 1998, at an annual
lease rate of $2,700,000 increasing to $3,100,000 in the final year of the
lease. In connection with the leasing of the Pacific Titan, Continental has
entered into arrangements for the Refurbishment, at a cost of approximately
$13,500,000 (in addition to the Lease Payments). In April 1998, Venture loaned
to Continental the Venture Advance, which is being used by Continental to fund a
portion of the costs of the Refurbishment. The Venture Advance is secured by
certain assets of Continental, which, upon receipt of the Titan Loan by
Continental, is expected to become subordinate to the security interest of the
lender of the Titan Loan. Should Closing of the Acquisition not occur prior to
August 31, 1998, the Credit Agreement provides the Venture Advance, including
interest, is payable in quarterly installments commencing December 1, 1999,
consisting of principal and accrued interest, bearing interest at the prime
lending rate of the Royal Bank plus 1%, and is convertible at the option of
Venture, without any additional consideration, during the period from August 31,
1998 to December 1, 1999, into approximately 26% of the outstanding capital of
Continental on a fully-diluted basis at the time of conversion. Assuming the
Closing of the Acquisition occurs, the Venture Advance will become an
intercompany debt, due and payable to Venture.
Pursuant to the Purchase Agreement, Continental agreed not to exceed
$12,000,000 in costs for the Refurbishment; however, as of June 19, 1998, the
cost of the Refurbishment had increased to $13,500,000. Continental's
arrangements for the Refurbishment do not limit expenditures, nor can there be
any assurance that the cost will not exceed $13,500,000. The increased cost of
the Refurbishment is a breach of the Purchase Agreement, which permits Venture
to seek indemnification from Continental and certain Continental Holders or
terminate the Purchase Agreement. As of June 19, 1998, management of Venture
have determined however, not to pursue any remedy available to Venture as a
result of such breach. In the future, management of Venture may determine in its
discretion to take action, including remedies available to it pursuant to the
Purchase Agreement, with respect to the cost of the Refurbishment. The cost of
the Refurbishment is expected to be financed by (i) the Venture Advance; (ii)
the
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<PAGE> 57
Titan Loan; (iii) resources of Continental (including borrowings under its line
of credit of approximately $1,000,000 and cash of approximately $2,000,000); and
(iv) supplier financing of approximately $3,000,000. In connection with the
Titan Loan, Venture has agreed to replace certain Continental Holders as a
guarantor of Continental's obligations thereunder, in the event the Acquisition
is consummated.
Employment Agreements
Simultaneously with the execution of the Purchase Agreement, Continental
entered into the Employment Agreements with certain of the existing management
of Continental, each of whom is considered integral to the operations of
Continental, for a period of three years commencing March 1, 1998 (the "Term").
The Employment Agreements are with Mr. Roy Self, as Vice President Geophysical
Operations, and Mr. Leslie J. Stinn, as President (each, an "Employee"), and
provide for monthly compensation of $7,000 ($10,000 Cdn), subject to annual
review, with such other annual and fringe benefits as determined by the
Continental Board, provided that certain of such benefits shall be consistent
with and comparable in value to those of certain executive officers of Venture,
as such shall have been authorized by the Venture Board.
In the event of termination of the Employee without cause, Continental
must pay to the Employee his gross salary and the value of all benefits owed for
the remainder of the term of the Employment Agreement. In the event of
termination for "just cause," Continental's obligations to the Employee under
the Employment Agreement terminate.
Provided that the Employment Agreements have not been terminated by
Continental prior to the expiration of their Term and without "just cause," then
for one year from the date of termination, each Employee has agreed not to (i)
represent himself as an employee of Continental or (ii) solicit the employment
of any person employed by Continental within two years prior thereto.
The Employment Agreement may be terminated by the Employees if (i)
Venture does not pay the Note Installment when due; (ii) Continental does not
pay the Management Bonuses when due; or (iii) Continental fails to cure a
material breach by it of the Employment Agreement after 30 days prior written
notice. In the event of a termination by the Employee in accordance with the
foregoing, Continental must pay all compensation owed to the Employee for the
remainder of the Term. Each Employment Agreement provides that in the event of a
merger or amalgamation of Continental with another company, the agreement may be
assigned without the consent of the Employee.
The Purchase Agreement also includes a provision for Venture to use its
best efforts to nominate an individual selected by the Continental Holders,
collectively (who have selected Mr. Leslie J. Stinn as their nominee) for
election to the Venture Board at the Meeting. In addition, Venture has agreed to
use its best efforts to ensure that a nominee of the Continental Holders,
collectively, is included as a nominee to the Venture Board at each of the next
three annual meetings of shareholders of Venture. See "Proposal No. 2 --
Election of Director."
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<PAGE> 58
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma consolidated financial statements of Venture
have been prepared to reflect certain adjustments to the historical financial
statements of Venture and Continental to give effect to the consummation of the
Acquisition in accordance with the Purchase Agreement and the Warrant Exercise.
The pro forma consolidated balance sheet as at September 30, 1997, which was
derived from the audited balance sheets of Venture and Continental as at
September 30, 1997 and December 31, 1997, respectively, gives effect to the
Acquisition and the Warrant Exercise as if they had occurred on September 30,
1997. The pro forma consolidated income statement for the year ended September
30, 1997, which was derived from the audited income statements of Venture and
Continental for their fiscal years ended September 30, 1997 and December 31,
1997, respectively, gives effect to the Acquisition as if it had occurred on
October 1, 1996. The pro forma consolidated income statement for the six months
ended March 31, 1998, which was derived from the unaudited interim income
statements of Venture and Continental for the six month periods ended March 31,
1998 and December 31, 1997, respectively, gives effect to the Acquisition as if
it had occurred on October 1, 1997. The pro forma adjustments are based on
currently available information and certain estimates and assumptions, and
therefore the actual adjustments made to effect the transactions may differ from
the pro forma adjustments.
The Acquisition has been accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired is recognized as
goodwill and is being amortized over fifteen years.
The pro forma financial statements are not necessarily indicative of the
results of operations or of the financial position which would have been
attained had the Acquisition and the Warrant Exercise been consummated at any of
the foregoing dates or which may be attained in the future. The pro forma
financial statements should be read in conjunction with the historical financial
statements of Venture and Continental and the related notes thereto. In the
opinion of management of Venture, these pro forma consolidated financial
statements include all adjustments necessary for fair presentation.
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<PAGE> 59
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED BALANCE SHEET
As at September 30, 1997
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Venture Continental Pro forma
September 30, December 31, Pro forma Consolidated
1997 1997 Adjustments Balance Sheet
$ $ $ $
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash 68,066 1,690,102 (500,000)(a) 10,140,168
(200,000)(a)
9,082,000 (c)
Accounts receivable 2,586,688 1,256,029 3,842,717
Work-in-progress 521,594 -- 521,594
Inventory -- 344,047 344,047
Other receivables 297,707 -- 297,707
Prepaid expenses 204,276 56,013 260,289
-------------- ------------ ------------
3,678,331 3,346,191 15,406,522
INVESTMENTS -- 72,966 72,966
DEFERRED INCOME TAXES -- 100,052 100,052
CAPITAL ASSETS 17,383,026 2,226,983 19,610,009
INTANGIBLE ASSETS 1,554,503 -- 11,933,382 (a) 13,487,885
-------------- ------------ ------------
22,615,860 5,746,192 48,677,434
-------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued
liabilities 1,036,147 1,828,424 2,864,571
Due to shareholders -- 488,535 488,535
Deferred revenue 800,000 -- 800,000
Income taxes payable 118,708 1,141,858 1,260,566
Current portion of long-term debt 6,580,703 213,895 6,794,598
-------------- ------------ ------------
8,535,558 3,672,712 12,208,270
-------------- ------------ ------------
ACQUISITION INSTALLMENT
PAYMENT -- -- 1,000,000 (a) 1,000,000
-------------- ------------ ------------
DEFERRED LEASE EXPENSE -- 337,939 337,939
-------------- ------------ ------------
LONG TERM DEBT 3,746,490 8,923 3,755,413
-------------- ------------ ------------
DEFERRED INCOME TAXES 674,076 -- 674,076
-------------- ------------ ------------
SHAREHOLDERS' EQUITY
Share capital 7,671,366 14,914 (14,914)(a) 28,713,366
11,960,000 (a)
9,082,000 (c)
Retained earnings 1,949,549 1,711,704 (1,711,704)(a) 1,949,549
Cumulative translation
adjustment 38,821 -- 38,821
-------------- ------------ ------------
9,659,736 1,726,618 30,701,736
-------------- ------------ ------------
22,615,860 5,746,192 48,677,434
-------------- ------------ ------------
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
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<PAGE> 60
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED INCOME STATEMENT
Year ended September 30, 1997
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Venture Continental
Year ended Year ended Pro forma
September 30, December 31, Pro forma Consolidated
1997 1997 Adjustments Balance Sheet
$ $ $ $
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES 27,132,227 9,609,915 36,742,142
DIRECT EXPENSES 19,796,462 5,631,075 25,427,537
-------------- -------------- -------------
GROSS MARGIN 7,335,765 3,978,840 11,314,605
-------------- -------------- -------------
EXPENSES
General and administrative 1,828,464 187,138 2,015,602
Discretionary management
bonus (note d) -- 721,500 721,500
Depreciation 2,363,398 620,255 2,983,653
Amortization of goodwill 166,320 -- 796,000 (b) 962,320
-------------- -------------- -------------
4,358,182 1,528,893 6,683,075
-------------- -------------- -------------
INCOME FROM OPERATIONS 2,977,583 2,449,947 4,631,530
-------------- -------------- -------------
OTHER INCOME (EXPENSE)
Gain on sale of capital assets 80,372 30,000 110,372
Gain on sale of investments -- 93,074 93,074
Interest and other income 42,689 26,759 69,448
Interest expense (669,938) (52,569) (722,507)
Foreign exchange gain -- 143,249 143,249
-------------- -------------- -------------
(546,877) 240,513 (306,364)
-------------- -------------- -------------
INCOME BEFORE INCOME TAXES 2,430,706 2,690,460 4,325,166
-------------- -------------- -------------
INCOME TAXES (RECOVERY)
Current 90,000 1,177,489 1,267,489
Deferred 886,000 (100,052) 785,948
-------------- -------------- -------------
976,000 1,077,437 2,053,437
-------------- -------------- -------------
NET INCOME FOR THE YEAR 1,454,706 1,613,023 2,271,729
============== ============== =============
BASIC EARNINGS PER SHARE .47 .44
-------------- -------------
FULLY DILUTED EARNINGS PER
SHARE .31 .33
-------------- -------------
DILUTED EARNINGS PER SHARE .39 .39
-------------- -------------
Weighted average number of
common shares - basic 3,111,000 2,080,000 (a) 5,191,000
-------------- -------------
Weighted average number of
common shares - fully diluted 5,280,000 2,080,000 (a) 7,360,000
-------------- -------------
Weighted average number of
common shares - diluted 4,660,000 2,080,000 (a) 6,740,000
-------------- -------------
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
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<PAGE> 61
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED INCOME STATEMENT
Six months ended March 31, 1998
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Venture Continental
Six months Six months Pro forma
ended ended Consolidated
March 31, December 31, Pro forma Income Statement
1998 1997 Adjustments
$ $ $ $
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES 21,706,425 4,719,483 26,425,908
DIRECT EXPENSES 15,906,769 3,011,388 18,918,157
-------------- -------------- -----------
GROSS MARGIN 5,799,656 1,708,095 7,507,751
-------------- -------------- -----------
EXPENSES
General and administrative 1,100,621 247,605 1,348,226
Discretionary management
bonus (note d) -- 721,500 721,500
Depreciation 1,540,928 310,384 1,851,312
Amortization of goodwill 89,160 -- 398,000 (b) 487,160
-------------- -------------- -----------
2,730,709 1,279,489 4,408,198
-------------- -------------- -----------
INCOME FROM OPERATIONS 3,068,947 428,606 3,099,553
-------------- -------------- -----------
OTHER INCOME (EXPENSE)
Gain on sale of capital assets 32,870 -- 32,870
Interest and other income 88,600 14,816 103,416
Interest expense (589,322) (17,080) (606,402)
Foreign exchange gain -- 88,331 88,331
-------------- -------------- -----------
(467,852) 86,067 (381,785)
-------------- -------------- -----------
INCOME BEFORE INCOME TAXES 2,601,095 514,673 2,717,768
-------------- -------------- -----------
INCOME TAXES (RECOVERY)
Current 616,834 254,458 871,292
Deferred 434,681 (62,829) 371,852
-------------- -------------- -----------
1,051,515 191,629 1,243,144
-------------- -------------- -----------
NET INCOME FOR THE PERIOD 1,549,580 323,044 1,474,624
============== ============== ===========
BASIC EARNINGS PER SHARE .36 .23
-------------- -----------
FULLY DILUTED EARNINGS PER
SHARE .25 .18
-------------- -----------
DILUTED EARNINGS PER SHARE .35 .23
-------------- -----------
Weighted average number of
common shares - basic 4,312,000 2,080,000 (a) 6,392,000
-------------- -----------
Weighted average number of
common shares - fully diluted 6,190,000 2,080,000 (a) 8,270,000
-------------- -----------
Weighted average number of
common shares - diluted 4,456,000 2,080,000 (a) 6,536,000
-------------- -----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
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<PAGE> 62
VENTURE SEISMIC LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended September 30, 1997 and March 31, 1998
(U.S. Dollars)
(Unaudited)
The accompanying pro forma consolidated financial statements of Venture
have been prepared to reflect certain adjustments to the historical financial
statements of Venture and Continental to give effect to the consummation of the
Acquisition in accordance with the Purchase Agreement and the Warrant Exercise.
The pro forma consolidated balance sheet as at September 30, 1997, which was
derived from the audited balance sheets of Venture and Continental as at
September 30, 1997 and December 31, 1997, respectively, gives effect to the
Acquisition and the Warrant Exercise as if they had occurred on September 30,
1997. The pro forma consolidated income statement for the year ended September
30, 1997, which was derived from the audited income statements of Venture and
Continental for their fiscal years ended September 30, 1997 and December 31,
1997, respectively, gives effect to the Acquisition as if it had occurred on
October 1, 1996. The pro forma consolidated income statement for the six months
ended March 31, 1998, which was derived from the unaudited interim income
statements of Venture and Continental for the six month periods ended March 31,
1998 and December 31, 1997, respectively, gives effect to the Acquisition as if
it had occurred on October 1, 1997. The pro forma adjustments are based on
currently available information and certain estimates and assumptions, and
therefore the actual adjustments made to effect the transactions may differ from
the pro forma adjustments.
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma adjustments are reflected in the pro forma
consolidated balance sheet as at September 30, 1997 and the pro forma
consolidated statement of income for the year ended September 30, 1997 and the
six months ended March 31, 1998.
a) The Acquisition for $500,000 in cash; 2,080,000 Venture common shares
valued at $5.75 per share; $200,000 of estimated direct acquisition
costs and a $1,000,000 installment payment due January 1, 1999 bearing
interest at bank prime rate plus 1%. The assigned fair value of net
assets acquired is:
<TABLE>
<CAPTION>
$
--------------
<S> <C>
Working capital deficiency (326,521)
Long term debt (8,923)
Investments 72,966
Deferred lease expense (337,939)
Deferred income taxes 100,052
Capital assets 2,226,983
--------------
1,726,618
Excess of cost over net tangible assets acquired, assigned to goodwill 11,933,382
--------------
13,660,000
--------------
</TABLE>
b) Adjustment to reflect the annual amortization of goodwill, resulting
from the Acquisition, over a 15 year estimated useful life.
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<PAGE> 63
VENTURE SEISMIC LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended September 30, 1997 and March 31, 1998
(U.S. Dollars)
(Unaudited)
c) Adjustment to reflect the exercise from November 10, 1997 to January 5,
1998 of 1,513,690 of Venture's Redeemable Warrants for aggregate
proceeds of approximately $9,082,000 and the issuance of 1,513,690
Venture Common Shares.
d) The pro forma consolidated financial statements do not reflect
adjustments for the elimination of a discretionary management bonus
declared in December 1997 of $721,500 to the existing owners of
Continental, an increase of $101,000 for management compensation to
reflect compensation levels of employment agreements entered into in
conjunction with the Acquisition and the additional tax expense of
$276,700 resulting from the above adjustments using Venture's Canadian
statutory tax rate of 44.6%. The discretionary management bonus recorded
in 1997 does not necessarily reflect the economic value of management
services provided but instead is a common tax planning transaction for
Canadian private companies. Had the above adjustments been reflected in
the pro forma consolidated financial statements for the year ended
September 30, 1997, pro forma net income for the year ended September
30, 1997 would have been $2,615,529 and pro forma Basic, Fully Diluted
and Diluted Earnings Per Share would have been $.50, $.38 and $.44,
respectively. Had the above adjustments been reflected in the pro forma
consolidated financial statements for the six months ended March 31,
1998, pro forma net income for the year would have been $1,818,424 and
pro forma Basic, Fully Diluted and Diluted Earnings Per Share would have
been $.28, $.22 and $.28, respectively.
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<PAGE> 64
CERTAIN INFORMATION REGARDING VENTURE
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Proxy Statement. Investors should also carefully consider the
information set forth under the heading "Risk Factors."
SUMMARY
Venture is engaged primarily in the acquisition of land and water-based
seismic data in North America for use in the exploration for and development and
field management of oil and natural gas reserves. Venture acquires both 2D and
3D seismic data on possible oil and gas reserves for its customers, which range
from junior exploration companies to fully-integrated multi-national
corporations. Acquisition of seismic data, a principal technique used in oil and
gas exploration to determine geological conditions, involves using either
explosives, vibroseis (vibrations) or airguns to generate and transmit acoustic
energy downward into the earth and subsequently capturing and recording the
information which is reflected back toward the surface by the various
intervening geological layers.
Venture acquires seismic data only on a contract basis for its
customers, who retain all rights to the information obtained, and Venture's
seismic data acquisition crews operate at the customers' exploration and
development field locations. Since October 1994, Venture has performed a total
of approximately 580 projects for over 120 different customers. Venture believes
its seismic data technology assists its customers in enhancing their exploration
for new reserves, better delineating their existing oil and gas fields and
improving their reservoir management techniques. Use of Venture's seismic data
acquisition technology may also result in decreased oil and gas finding costs
and associated drilling risks and the elimination of prospects that are unlikely
to be successful.
Venture operates land and transition zone crews in Canada and the
Southern United States. Venture owns approximately 10,700 channels and has
approximately 1,400 channels under short term rental. Equipment is moved between
the Canadian and the United States' markets depending upon demand. During the
1997-98 winter season the Company had six crews in Canada and three in the
United States. In response to current project demands in the Southern United
States, Venture reconfigured its crews for the summer season resulting in five
crews in the United States and three in Western Canada. All of Venture's
equipment employs 24 bit technology and approximately 9,600 channels use
telemetry technology to transmit the seismic data from the remote acquisition
modules to the central recording unit. The telemetry technology employed by
Venture permits Venture to conduct more efficient seismic data acquisition
operations in marsh or swamp areas, rivers and shallow lakes, areas of difficult
terrain and areas of dense population. The telemetry systems are also designed
to operate in sensitive environmental areas by limiting environmental contact
and damage. Although there are several geophysical services companies in Western
Canada, Venture believes that it is currently the only one providing telemetry
technology based services in Western Canada.
Venture acquired a set of vibroseis units in December 1995 and in
October 1996. These units gave Venture the capability of performing vibroseis
projects for the first time in Western Canada (Venture does not currently have
vibroseis capability in the United States). Vibroseis projects accounted for
approximately 20%, 17% and 10% of Venture's revenues during Venture's fiscal
years ended September 30, 1996 and 1997 ("Venture FY 1996 and FY 1997,"
respectively), and the six months ended March 31, 1998, respectively.
In addition, Venture has expanded its operations through certain
strategic acquisitions. In June 1996, Venture acquired Boone, a Texas based
company engaged in the acquisition of land and transition zone seismic data in
the southern United States. For Venture FY 1997 and the six months ended March
31, 1998, approximately 35% and 55%, respectively, of the consolidated revenue
of Venture was derived from projects
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<PAGE> 65
conducted by Boone. In April 1997, Venture acquired Hydrokinetic, a company
based in Western Canada which provides shallow marine airgun and survey
services.
Venture was organized under the laws of Alberta, Canada in August 1984.
Venture has three wholly owned subsidiaries, Boone, Hydrokinetic and an inactive
subsidiary, Venture Seismic Inc. (Texas). Venture's executive offices are
located at 3110 80th Avenue SE, Calgary, Alberta T2C 1J3 and its telephone
number is (403) 777-9070.
OVERVIEW
Seismic data enables oil and gas companies to evaluate the earth's
subsurface to determine the potential of a hydrocarbon bearing structure and
assists such oil and gas companies in determining the size and structure of
previously identified oil and gas fields. Venture obtains the seismic data by
using an energy source, such as dynamite, vibroseis units (which generate
vibrations) or airguns 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. Typically six geophone strings are connected to the remote field
recording boxes and the electronic output of each geophone string becomes the
electrical input for one recording "channel" or trace of seismic data. 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.
In the seismic data acquisition industry, surveys are generally either
2D or 3D in nature. Historically the majority of seismic data acquisition has
been 2D in nature, where a line of geophones capture information to generate a
2-dimensional image of the earth's subsurface structure immediately below the
geophones. In a 3D seismic survey multiple lines of geophones are combined with
multiple energy sources to generate a 3-dimensional image of the earth's
subsurface structure. 3D surveys provide seismic data relating to multiple
horizontal and vertical planes within a geologic formation and can extend over
vast geographic areas, as opposed to 2D seismic surveys which are designed to
provide seismic data in the form of a cross-section of a single seismic line. As
advances have occurred in computing power, surveying techniques, geophone
systems, recording technology and acquisition techniques, there has been a
resulting decline in prices and a significant increase in demand for 3D surveys.
The 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. However, while a 3D
survey provides more comprehensive information, its cost is also much greater
than 2D surveys due to factors such as increased equipment costs and longer set
up time and recording time. As a result 2D surveys remain more cost efficient
for preliminary, reconnaissance type exploratory evaluations.
SEISMIC OPERATIONS
The equipment employed by Venture is portable and can be moved between
the Canadian and United States markets to meet varying market demands. Five of
Venture's crews, employing approximately 9,600 channels, use both 24 bit
recording, the most advanced technology currently available for seismic data
recording, and telemetry transmission, which uses radio frequencies to transmit
the captured data from remote acquisition modules in the survey area to a
central recording station. The integration of 24 bit technology and telemetry
transmission in the seismic data acquisition process increases the amount of
seismic data generated and enhances the quality. In addition, by eliminating the
traditional need for cables to transmit seismic data,
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<PAGE> 66
telemetry transmission creates more flexibility and easier deployment of field
gear and fewer safety and environmental concerns. The telemetry technology
permits Venture to conduct more efficient seismic data acquisition operations in
marsh or swamp areas, rivers and shallow lakes and areas of difficult terrain or
transition zones. The telemetry systems are also designed to operate in
sensitive environmental areas by limiting environmental contact and damage.
Venture believes it is currently the sole provider of telemetry technology 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. Venture enters into both term and turnkey contracts
or arrangements with its customers for projects which generally have a duration
of a few days to three months. Turnkey projects are based on a fixed fee and
Venture bears substantially all of the risk of business interruption caused by
bad weather or other hazards. Turnkey projects can be more profitable where the
cost variables associated with a particular contract are well understood thereby
enabling Venture to minimize productivity risk. Currently approximately 85% of
Venture's projects are conducted on a turnkey or turnkey combined with term
basis. Under the terms of Venture's contracts the oil and gas company retains
proprietary rights for the data collected by the seismic survey.
In accordance with industry practice, a large portion of the projects
entered into by Venture in Canada are not governed by any written contracts or
other documentation, including projects performed for one customer which
accounted for 43%, 54%, 32% and 8% of Venture's revenues for Venture's fiscal
year ended September 30, 1995 ("Venture FY 1995"), Venture FY 1996 and 1997, and
the six months ended March 31, 1998, respectively. As a result, in the event of
a dispute with regard to work performed or collection of fees relating to a
project, Venture may not be able to resolve such dispute as quickly or
effectively as it might have been able to do if a written contract existed. In
addition, in the absence of a written agreement, Venture may experience
discrepancies with regard to payment terms, project scope or other matters which
may, in turn, result in delays, cash flow shortages, increased costs, and lower
revenues or profits.
Venture markets its services to approximately 100 oil and gas companies
in Canada and approximately 50 in the United States. During Venture FY 1995,
1996 and 1997 and the six months ended March 31, 1998, Venture performed a total
of approximately 580 projects for over 120 different customers. Venture's
customers range from junior exploration companies to fully-integrated
multi-national operators. The services provided by Venture vary according to the
size and needs of the customer.
During Venture FY 1995, 1996 and 1997, and the six months ended March
31, 1998, three, two, two and three customers each accounted for in excess of
10% of Venture's revenues and in Venture FY 1995, 1996 and 1997 and the six
months ended March 31, 1998, the same customer accounted for 43%, 54%, 32% and
8% of the revenues, respectively. In Venture FY 1995 two other customers, in
Venture FY 1996 one other customer, in Venture FY 1997 one other customer and
the six months ended March 31, 1998, three other customers all accounted for
over 10% of Venture's revenue. Although the projects performed by Venture were
generally short term, the inability to replace significant customers would cause
Venture'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 Venture, and thus the limited number of data acquisition crews that
Venture is able to deploy at any given time, Venture anticipates that a
substantial portion of future revenues will continue to be attributable to a few
customers, who may change from time to time.
Venture's sales are to customers in the oil and gas industry which
results in a concentration of credit risk. Venture generally extends unsecured
credit to these customers and, therefore, the collection of these
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<PAGE> 67
receivables may be affected by changes in economic or other conditions and may
accordingly impact Venture'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. Venture has not previously experienced any material
credit losses on the collection of receivables.
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<PAGE> 68
MARKETING; GROWTH STRATEGY
Venture currently markets its services to approximately 150 customers in
the oil and gas industry, ranging from junior exploration companies to
fully-integrated, multi-national companies, primarily in North America. Venture
intends to pursue a strategy for expansion and to acquire equipment to enable it
to expand its operations in Canada and the United States. During Venture FY 1996
one of Venture's Canadian telemetry systems was mobilized to Pakistan and
Venture performed its first project outside North America (the "Pakistan
Project"). The Pakistan Project was completed in September 1996 and certain of
the equipment was subsequently returned to the Canadian marketplace. Since
completion of the Pakistan Project, Venture has determined to focus its
operations in the North American marketplace. Although Venture intends to focus
its marketing and operational efforts on the Canadian and United States
marketplaces and is not currently marketing its services internationally,
Venture may, from time to time, as market conditions permit, consider pursuing
operations in the international market through joint ventures or other
arrangements with strategic partners in geophysics services or related
industries in the United States, South America, and Asia and/or by contracting
directly with oil and gas companies located in such markets. The success of
Venture's growth and expansion will depend upon a number of factors not entirely
within Venture's control, including, among others, the cost and availability of
equipment, the ability to meet project schedules, the securing of required
government permits and other regulatory approvals, the hiring and training of
management and other personnel, competition in the industry, demand for seismic
data, the terms and availability of financing and other general economic and
business conditions. Any problems or delays encountered in any one of these
areas could result in substantial increases in costs to Venture. In connection
with any growth or expansion, Venture will be required to develop and improve
operational, management and financial systems and controls. There can be no
assurance that Venture will be able to effectively manage its expanding
operations and anticipate all of the changing demands that growth will impose on
its systems and controls. Failure to manage growth would have a material adverse
effect on Venture's business.
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. Several of
Venture's competitors are substantially larger than Venture, or are subsidiaries
or divisions of major industrial enterprises, or have longer operating
histories, greater financial and technical resources and larger sales volumes
than Venture. In addition, Venture is experiencing and will continue to face
substantially increased competition as it expands outside of Western Canada,
particularly in the United States.
Demand for Venture's services depends primarily upon the level of
spending by oil and gas companies for exploration, production and development
and field management activities. These spending levels, in turn, tend to
correspond to fluctuations in the commodity prices for oil and gas.
Consequently, demand for Venture's services is affected to some degree by market
prices for natural gas and crude oil, which have historically been very
volatile. A decrease in oil and gas exploration expenditures could result from
such factors as unfavorable tax and other legislation, international economic or
political turmoil or uncertainty concerning governmental energy policies. A
substantial or extended decline in oil and gas prices could have a material
adverse effect on Venture's financial position and results of operations and
could cause the Company to alter its capital spending plans. There can be no
assurance that current levels of oil and gas activities will be maintained or
that demand for Venture's services will reflect the level of such activities.
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<PAGE> 69
OPERATING HAZARDS AND INSURANCE
Venture's operations are subject to the general risks incident to land
and water seismic data acquisition activities, including the use of explosives,
which subject personnel to risk of injury due to accidental explosions resulting
from the mishandling of equipment and supplies. Venture also often operates in
remote areas, often characterized by difficult terrain, and under extreme
weather conditions. Venture's crews are mobile and its equipment and personnel
are subject to vehicular accidents. Many of the hazards encountered during
Venture's operations can cause personal injury and loss of life, severe damage
to and destruction of property and equipment, environmental damage and
suspension of operations. An employee of Boone recently experienced personal
injuries while engaged in operations at Boone and there can be no assurance that
other employees will not experience such losses in the future or that any such
injuries, losses or environmental claims will not materially adversely affect
Venture. To the extent available, Venture maintains general liability insurance
coverage against these potential claims, the nature and amount of which Venture
believes to be customary in the industry. There can be no assurance that such
insurance is adequate to cover any claims, that adequate insurance will be
available in the future, or that Venture will be able to maintain adequate
insurance on acceptable terms and conditions. In the event of an uninsured or
inadequately insured claim, Venture's business and financial condition could be
materially adversely affected.
GOVERNMENT REGULATION AND ENVIRONMENTAL COMPLIANCE
The oil and gas industry is subject to an extensive array of federal,
provincial, state and local laws and regulations, which may change from time to
time in response to economic or political conditions. Laws and regulations that
have the effect of reducing or curtailing exploration and production activities
by energy companies could also adversely affect Venture's operations and its
financial condition by reducing the demand for its services. In addition, oil
and gas exploration is subject to regulations governing environmental quality
and pollution control. Venture is required expand financial and managerial
resources to comply with such laws in its operations, and anticipates that it
will continue to be required to do so in the future. Further, in many instances,
Venture must abide by permit requirements in order to conduct its operations and
must abide by environmental operating restrictions during the breeding period of
certain specific wildlife. To date Venture's cost of complying with such laws
and regulations has not been material, but because such laws and regulations are
changed frequently, it is not possible for Venture to enumerate or to accurately
predict the cost or impact of such laws and regulations on its future
operations. In the past, certain environmental operating restrictions by which
Venture was required to abide have adversely affected Venture's operating
results, and contributed to a significant decrease in revenues and a net loss,
during certain periods. Management believes that Venture is in substantial
compliance with currently applicable permit requirements and environmental laws
and regulations, although any changes in such requirements, laws and regulations
could cause Venture to incur increased operating costs in the future.
WEATHER, PRODUCTIVITY AND SEASONALITY OF OPERATIONS
The majority of Venture'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, debt service costs, labor costs, depreciation
and interest expense account for a substantial portion of Venture'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. Venture's operations have traditionally been
highly seasonal, with the majority of the demand for its services occurring from
November to March. The seasonality of Venture's operations is primarily because
oil and gas companies prefer delaying exploration activities in Western Canada
until the ground is frozen. The seasonality of demand may lead to substantial
fluctuations in revenues, results of operations and cash flow for Venture at
various times throughout the year.
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<PAGE> 70
Venture believes that the addition of telemetry technology has lessened
the risks associated with weather, low productivity and seasonality due to the
diversified operating capabilities of the equipment. The system's capabilities
increases the efficiencies of surveys to be conducted in areas of difficult
terrain, such as marshes, lakes and mountainous areas. In addition, the
expansion of Venture's operations into the United States, as a result of the
acquisition of Boone in June of 1996, has reduced the effect of the seasonality
associated with Venture's Canadian operations. For the six months ended March
31, 1998, Boone contributed revenue of approximately $12,000,000, or 55% of
Venture's consolidated revenue, as compared to revenue of $9,400,000, or 35% of
Venture's consolidated revenue in Venture FY 1997 and revenue of $1,200,000 or
8% of Venture's consolidated revenue in Venture FY 1996.
EQUIPMENT ACQUISITION AND SUPPLIERS
The seismic data acquisition industry is marked by rapidly evolving
technology. In order to effectively market its services, Venture expects it will
continue to be required to upgrade its seismic data acquisition equipment to
incorporate technological advances. Venture 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. Venture 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 Venture. In addition there can be no
assurance that Venture will not experience delays or other supply problems that
may materially adversely affect Venture's operations or that Venture 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 Venture's business, operating results
and financial condition.
EMPLOYEES
The number of persons employed by Venture 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 300 people. Although Venture does
maintain a core staff of 20 to 30 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 Venture's employees are covered by collective bargaining
agreements. Venture has not experienced any work stoppages and considers its
relations with employees to be good. Venture has employment contracts with five
of its senior corporate executives.
EXECUTIVE OFFICERS
The executive officers of Venture are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Brian W. Kozun 37 President and Chief Executive Officer
Gregory B. Wiebe 40 Vice President Finance and Chief
Financial Officer
P. Daniel McArthur 36 Chief Operating Officer
James W. Stenhouse 49 Vice President Operations
</TABLE>
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<PAGE> 71
Brian W. Kozun has been President and Chief Executive Officer of Venture
since April 1992. Mr. Kozun was one of the founding shareholders of Venture and
served as Venture's Vice President -- Field Operations and Vice President --
Survey Operations from 1985 to 1992. Mr. Kozun also serves as Chairman of the
Board of each of Boone and Hydrokinetic, and upon consummation of the
Acquisition is expected to be a director of Continental. 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 17 years.
Gregory B. Wiebe joined Venture as Chief Financial Officer in August
1994. Mr. Wiebe also serves as a director of each of Boone and Hydrokinetic, and
upon consummation of the Acquisition is expected to be a director of
Continental. 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.
P. Daniel McArthur has served as Chief Operating Officer since August
1994. Assuming consummation of the Acquisition, Mr. McArthur is expected to be a
director of Continental. 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.
James W. Stenhouse has served as Vice President -- Operations of Venture
since August 1994. From November 1987 until August 1994, he served as Marketing
Manager and crew supervisor of Venture. 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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Venture Common Shares (i) at June 19, 1998 and (ii)
after giving effect to the Acquisition, of (a) the Named Officer (as defined
under "Executive Compensation"), (b) each person or entity known by Venture to
own beneficially more than 5% of outstanding Venture Common Shares, (c) each
director of Venture, and (d) all executive officers and directors of Venture as
a group:
<TABLE>
<CAPTION>
PERCENT OF VENTURE
AMOUNT AND COMMON SHARES
NATURE OF ---------------------
NAME AND ADDRESS OF BENEFICIAL PRIOR TO AFTER
BENEFICIAL OWNER (1) OWNERSHIP (2) ACQUISITION (8) ACQUISITION (9)
- -------------------- ------------- --------------- ----------------
<S> <C> <C> <C>
Brian W. Kozun 833,836(3) 17.8% 12.3%
P. Daniel McArthur 72,731(4) 1.6% 1.1%
Michael J. Beninger 54,981(5)(6) 1.2% **
J. Joseph Ciavarra 5,750(6) ** **
Stuart M. Norman 16,519(6) ** **
All executive officers and directors
as a group (7 persons) 1,096,317(7) 22.9% 16.0%
</TABLE>
- ----------
** Does not exceed one percent.
(1) Unless otherwise indicated, the address of each beneficial owner
identified is: c/o Venture Seismic Ltd., 3110 -- 80th Avenue S.E.,
Calgary, Alberta, T2C 1J3.
(2) Beneficial ownership is defined in accordance with the rules of the SEC
and generally means the power to vote and/or to dispose of the
securities regardless of any economic interest therein.
(3) Includes (i) 757,009 Venture Common Shares held by a personal holding
company, of which Mr. Kozun is the sole shareholder, of which 460,000
are pledged in favor of a bank to secure certain outstanding personal
indebtedness, (ii) 23,077 Venture Common Shares held in trust, of which
Mr. Kozun is one of three trustees and (iii) 53,750 Venture Common
Shares underlying immediately exercisable options, but excludes 51,250
Venture Common Shares underlying options which are not exercisable
within 60 days. Mr. Kozun disclaims beneficial ownership as to the
Venture Common Shares held in trust, as he is not a beneficiary under
such trust.
(4) Includes (i) 70,231 Venture Common Shares and (ii) 2,500 Venture Common
Shares underlying immediately exercisable options, but excludes 7,500
Venture Common Shares underlying options which are not exercisable
within 60 days. Of the Venture Common Shares owned by Mr. McArthur,
3,693 have been pledged to Venture as collateral for a shareholder's
loan in the amount of $4,405.
(5) Includes 49,231 Venture Common Shares held in a trust of which Mr.
Beninger is a beneficiary.
(6) Includes 5,750 Venture Common Shares underlying immediately exercisable
options but excludes 6,250 Venture Common Shares underlying options
which are not exercisable within 60 days.
(7) Includes (i) 12,308 Venture Common Shares which have been pledged to
Venture as collateral for shareholders' loans in the aggregate amount of
$14,660 (ii) 460,000 Venture Common Shares pledged by Mr. Kozun in favor
of a bank to secure certain personal indebtedness and (iii) 146,000
Venture Common Shares underlying immediately exercisable options, but
excludes 115,000 Venture Common Shares underlying options which are not
exercisable within 60 days.
(8) All holders own Venture Common Shares. The numbers in this column
reflect the percent of class as calculated on the basis of 4,635,084
Venture Common Shares outstanding as of June 19, 1998.
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<PAGE> 73
(9) Assumes no additional issuances of Venture Common Shares other than the
issuance of 2,080,000 Acquisition Common Shares.
EXECUTIVE COMPENSATION
Summary Compensation
The following summary compensation table sets forth the aggregate
compensation paid or accrued by Venture to Brian W. Kozun, the President and
Chief Executive Officer of Venture (the "Named Officer") for services rendered
to Venture during Venture FY 1995, 1996 and 1997. No other executive officers of
Venture received compensation in excess of $100,000 for services rendered during
such fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS
- --------------------------- ---- ------ ------------------
<S> <C> <C> <C>
Brian W. Kozun............. 1995 $ 114,000 55,000(1)
President and Chief Executive Officer 1996 $ 114,000 --
1997 $ 122,000 --
</TABLE>
- -----------
(1) Represents options to purchase Venture Common Shares granted pursuant to
the 1995 Plan.
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<PAGE> 74
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth certain information with respect to each
exercise of stock options during Venture FY 1997 by the Named Officer and the
number and value of unexercised options held by such Named Officer as of
September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
SECURITIES OPTIONS AT FISCAL THE MONEY OPTIONS AT
ACQUIRED ON VALUE YEAR END FISCAL YEAR-END
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE (EXERCISABLE/UNEXERCISABLE(1)
NAME ($) ($) ($) ($)
---- ------ ------ ------------------------ ----------------------------
<S> <C> <C> <C> <C>
Brian W. Kozun 0 0 41,250/13,750 152,200/50,735
</TABLE>
- -----------
(1) Value calculated by multiplying the number of unexercised in-the-money
options outstanding at September 30, 1997 by the difference between the
closing sale price ($8.69 per share) for the Venture Common Shares on
September 30, 1997, as reported by Nasdaq, and the option exercise
price.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
In September 1995, Venture entered into an employment agreement with
Brian W. Kozun (the "Kozun Agreement"), which provides for an annual salary as
determined by the Venture Board, subject to annual review, such number of stock
options as may be determined by the Venture Board, and a leased vehicle for use
in Venture's business. The Venture Board increased Mr. Kozun's annual salary to
$133,000 in January 1998. The Kozun Agreement expires in September 2000 and may
be terminated by either party to the agreement, however, in the event of
termination for reasons other than Just Cause or Disability, or in the event of
Change of Control (as defined therein), Mr. Kozun shall be entitled to receive a
lump sum payment equal to one month of his salary for each full year of
employment. In addition, the Kozun Agreement prohibits Mr. Kozun from competing
with Venture during his employment and for a period of two years following the
end of such employment.
In the event of certain transactions including those which may result in
a change in control, as defined under the 1995 Plan, options to purchase Venture
Common Shares held by all executive officers of Venture may become immediately
exercisable.
PROPERTIES
Venture leases administrative and warehouse facilities in Calgary,
Alberta, Canada and Huntsville, Texas. The corporate office facilities and
warehouse space in Calgary consist of approximately 27,000 square feet under a
five year lease expiring June 30, 2002 with a monthly rental of approximately
$10,000. Venture also leases approximately 5,000 square feet of administrative
and warehouse facilities in Huntsville, Texas at a monthly cost of $3,000 under
an agreement expiring June 30, 2001. Venture believes its facilities are
adequate to meet its current needs and that additional facilities in the area
are available for lease to meet future needs.
LEGAL PROCEEDINGS
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From time to time Venture and its subsidiaries are defendants or parties
in lawsuits or other proceedings arising in the ordinary course of Venture's
business other than as described below. Venture is not aware of any such
proceedings which it deems to be potentially material.
In November 1997 Venture received notice that the Canadian taxation
authorities have disallowed certain expenses incurred by Venture related to the
1994, 1995 and 1996 taxation years. Venture has also deducted similar expenses
in 1997. These reassessments and the potential reassessment for the 1997
taxation year, would result in additional income taxes aggregating approximately
$340,000 ($485,000 Cdn). Based on a recently decided court case, involving
another company with a set of circumstances similar to Venture's situation,
Venture has filed notices of objection with the basis of the reassessment.
Venture does not expect to receive a decision regarding the outcome of these
notices of objections until the similar court case proceeds through the appeal
process. Should the reassessments be upheld, any resulting loss would be charged
to operations in the year the outcome was determined. In accordance with GAAP,
Venture has not established a reserve for the potential reassessment, due to the
determination by management of Venture of the probability of success on the
merits by management of Venture.
Venture and Continental have each received correspondence, including a
draft of a statement of claim, from, and have been advised by, Canaccord that
Canaccord may pursue legal action against each of Venture and Continental with
respect to a claim of entitlement to a fee of approximately $300,000 in
connection with the Acquisition. As of June 19, 1998, neither party had received
notice of any formal proceedings.
MARKET FOR VENTURE COMMON SHARES
Market Price of Venture Common Shares
The Venture Common Shares trade on Nasdaq under the symbol "VSEIF". The
following table sets forth, for the periods indicated, the high and low closing
sale prices for the Venture Common Shares as reported by Nasdaq. These prices
are based on quotations between dealers, do not reflect retail markup, markdown
or commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year ended September 30, 1996 High Low
- ------------------------------------ ---- ---
<S> <C> <C>
October 1 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>
<TABLE>
<CAPTION>
Fiscal Year ended September 30, 1997 High Low
- ------------------------------------ ---- ---
<S> <C> <C>
October 1 through December 31 $ 5.25 $ 3.00
January 1 through March 31 $ 5.38 $ 3.12
April 1 through June 30 $ 6.25 $ 3.25
July 1 through September 30 $ 9.25 $ 5.38
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year ending September 30, 1998 High Low
- ------------------------------------- ---- ---
<S> <C> <C>
October 1 through December 31 $10.69 $ 6.50
January 1 through March 31 $ 7.75 $ 4.56
April 1 through June 19 $ 8.88 $ 6.00
</TABLE>
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Approximate Number of Venture Holders
On June 19, 1998 there were approximately 30 record holders of Venture's
Common Shares. Venture believes the number of beneficial owners exceeds 1,700.
Dividends
Venture did not pay any dividends during Venture FY 1995, 1996 or 1997
and it intends to retain all earnings, if any, for use in the expansion of
Venture's business. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Venture Board and will depend upon
Venture's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Venture Board.
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<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of Venture should be read in conjunction with Venture's
Financial Statements and Notes thereto appearing elsewhere herein.
Overview
Since it commenced operations in September 1985, Venture has been
engaged primarily in land and water-based seismic data acquisition in North
America. Venture has experienced significant revenue growth since November 1993
when it first began offering 3D seismic data acquisition services using a leased
3D data acquisition system. Venture purchased its first 3D, 24-bit seismic data
acquisition system with telemetry transmission capabilities in September 1994
and has since acquired four additional 3D systems. In addition Venture currently
operates four 2D data acquisition systems. In each of 1995 and 1996 Venture
acquired a set of vibroseis units for use in the Canadian market, which gave
Venture the ability to operate in the vibroseis segment of the market. Venture's
channel capacity has increased from approximately 1,100 channels in November
1993 to approximately 12,000 channels, including approximately 1,400 rental
channels. The addition of more technically advanced data acquisition systems and
increased channel capacity has not only increased the number of projects that
Venture is capable of handling at any one time, but has also broadened the pool
of projects upon which Venture has the technical capacity to bid. In June, 1996
Venture expanded its geographic operating base with the acquisition of Boone, a
Texas based seismic data acquisition company which conducts seismic data
acquisition operations in the Southern United States.
Demand for Venture's seismic data acquisition services depends primarily
on the level of spending by oil and natural gas companies for exploration and
development activities. Venture's business is subject to significant seasonal
variations in Western Canada, due to weather conditions, which impacts quarterly
operations.
Venture recognizes revenue using the percentage of completion method,
primarily based upon project costs incurred to date compared to the estimated
total project costs to be incurred. Billings in excess of revenue earned are
disclosed on the balance sheet as deferred revenue.
A substantial portion of Venture's projects for its customers are
performed on a fixed price or "turnkey" basis pursuant to which Venture bears
substantially all of the risks associated with inclement weather or other
productivity delays. To the extent Venture incurs costs in excess of those
estimated to complete a project, its margins are reduced and, in limited cases,
it has incurred a loss on a particular contract.
The following table sets forth certain financial data of Venture as a
percentage of revenue for the periods indicated:
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED SEPTEMBER 30,
--------- -------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
REVENUE 100% 100% 100% 100% 100%
- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Direct expenses 73.3 71.1 73.0 84.8 71.0
Gross margin 26.7 28.9 27.0 15.2 29.0
General and administrative 5.1 5.7 6.7 9.5 8.7
Depreciation and amortization 7.5 7.4 9.3 10.7 9.5
Interest expense 2.7 1.7 2.5 2.3 3.1
Other income 0.6 -- 0.5 -- 0.3
Income (loss) before income
taxes 11.9 14.1 9.0 (7.2) 8.0
Income taxes 4.8 6.2 3.6 2.5 3.4
Net income (loss) for the period 7.1 7.9 5.4 (4.7) 4.6
</TABLE>
RECENT DEVELOPMENTS
On November 7, 1997, Venture called for redemption, at a redemption
price of $.10 per Warrant, all of the outstanding redeemable Warrants
("Warrants") of Venture which were outstanding after 5:00 p.m., New York Time,
on January 5, 1998. As of January 6, 1998, 1,513,690 of 1,610,000 Warrants were
exercised (the "Warrant Exercise"), resulting in the issuance of 1,513,690
Venture Common Shares and aggregate proceeds of $9,082,140 to Venture. The
Warrants were exercisable at an exercise price of $6.00 to purchase one Venture
Common Share. The remaining 96,310 Warrants were redeemed by Venture at a price
of $0.10 per Warrant, or $9,631 in the aggregate. Venture used approximately
$3,200,000 of the proceeds to exercise certain purchase options on capital
equipment leases in December 1997 and January 1998. Venture also used a portion
of the Warrant Exercise proceeds to fund the Venture Advance to Continental to
assist in the equipping of the Pacific Titan, and intends to use the remaining
proceeds from the Warrant Exercise to fund other costs relating to the
Acquisition and, if sufficient funds are available, the acquisition of capital
equipment.
CONTINENTAL ACQUISITION
On March 30, 1998, Venture announced it had entered into the Purchase
Agreement with Continental and the Continental Holders for the Acquisition, in
exchange for the Purchase Price. The Purchase Agreement also includes provision
for the Employment Agreements, as well as the nomination at the Meeting of a
director selected by the Continental Holders to the Venture Board. Venture has
also agreed for a period of three years following closing of the Acquisition to
use its best efforts to nominate to the Venture Board an individual selected by
the Continental Holders. Solely as a result of the Acquisition, and assuming the
Titan Loan, Venture's long term debt (excluding any additional debt, if any,
which may be incurred by Continental and remain outstanding after the
consummation of the Acquisition, if ever, including debt related to the possible
vessel upgrade or debt relating to the note issued in connection with the
Preferred Share Redemption) will increase by approximately $3,100,000. In
connection with the Acquisition, (i) in April 1998, Venture loaned the Venture
Advance to fund a portion of the Refurbishment, (ii) in December 1997,
Continental (a) declared the Management Bonuses, payable to certain Continental
Holders on or before June 25, 1998 and (b) called for redemption the Redeemed
Shares, and paid (including the issuance of a $489,000 note, which Continental
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has agreed to pay on or before June 25, 1998) to a Continental Holder (who is
proposed to be a director of Venture), the Preferred Shares Redemption, and
(iii) in June 1998, Continental accepted an offer to finance from a third party
for the Titan Loan, the net proceeds of which are to be used to fund a portion
of the Refurbishment, for which Venture has agreed to replace certain
Continental Holders as a guarantor, upon Acquisition is subject to a number of
conditions any of which may not occur, including receipt of Shareholder Approval
of the Purchase Agreement, as well as receipt of certain requisite third-party
consents.
Assuming the Acquisition is consummated, management of Venture
anticipates, based on current plans and assumptions, that on a consolidated
basis, costs, particularly direct costs, depreciation expense and interest
expense will substantially increase, although there can be no assurance that
actual results of operations will not vary substantially from what management
anticipates. In addition, goodwill associated with the consummation of the
Acquisition will significantly increase Venture's amortization expense. Further,
management of Venture anticipates that the consummation of the Acquisition will
help to diversify Venture's operations and further reduce the seasonality
associated with its operations in Western Canada.
QUARTERLY FLUCTUATIONS
Venture's business is subject to substantial quarterly variations as a
result of seasonal activity variations in the seismic industry in Western
Canada. Generally, increased activity occurs in the Canadian seismic industry
during the Canadian winter season, from November to March. During this period
the colder weather freezes the ground and permits easier access to marshy
terrain in the northern areas of Western Canada and agricultural areas. During
the spring, bans are placed on road use, which temporarily limits access to many
areas where Venture conducts its operations. Further, due to the soft wet ground
conditions and marshy terrain in the northern areas of Western Canada, both of
which are extremely sensitive to traffic and heavy equipment, the extent to
which Venture can conduct its operations during the spring and summer is
significantly reduced. As a result Venture has historically experienced a
fluctuation in quarterly results with generally increased activity in Venture's
first and second fiscal quarters and a significant decrease in revenues and net
income during its third and fourth fiscal quarters. With the acquisition of
Boone in June 1996 Venture has diversified its operations by expanding into the
United States, which has somewhat reduced the seasonality traditionally
associated with Venture's Canadian operations. Management anticipates if the
Acquisition is consummated, the addition of Continental's operations would
further reduce the seasonality associated with Venture's operations in Western
Canada. Due to the factors noted above, Venture's results of operations may be
subject to fluctuations, particularly on a quarterly basis and Venture's stock
price may be affected by such results.
Results of Operations
Six Months Ended March 31, 1998 Compared to Six Months Ended March
31,1997
Revenue for the six months ended March 31, 1998 ("1998 six months")
increased by approximately 38% to $21,706,425 as compared to $15,683,001 for the
six months ended March 31, 1997 ("1997 six months"). This increase was primarily
attributable to additional revenue generated from increased operations in the
Southern United States by Boone. Boone contributed revenue of $11,983,917 for
the 1998 six months as compared to $3,060,858 for the 1997 six months. As a
percentage of revenue, Boone contributed approximately 55% of the Company's
revenue for the 1998 six months as compared to approximately 20% for the 1997
six months. Revenue for the 1998 six months from operations in the Canadian
market decreased by approximately 23% to $9,722,508 as compared to $12,622,143
for the 1997 six months.
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<PAGE> 80
During the 1998 six months, three customers accounted for 40% of
Venture's revenue and during the 1997 six months, two customers accounted for
60% of Venture's revenue. Although the projects performed by the Company were
generally short term, the inability to replace significant customers would cause
the Company's revenue and operating results to fluctuate significantly from
period to period, and the loss of certain customers would have a material
adverse impact on Venture's business. Because of the limited number of data
acquisition crews owned by Venture, and thus the limited number of crews Venture
is able to deploy at any given time, Venture anticipates that a substantial
portion of future revenues will continue to be attributable to a few customers,
who may change from time to time.
Direct expenses for the 1998 six months increased by 43% to $15,906,769
as compared to $11,150,221 for the 1997 six months. Direct expenses as a
percentage of revenue increased to approximately 73% for the 1998 six months as
compared to approximately 71% for the 1997 six months. The increase in direct
expenses as a percentage of revenue in the 1998 six months as compared to the
1997 six months was due to increased operations in the United States where the
Company typically engages in lower margin projects due to the highly competitive
nature of the business. The increase in amount was offset partially by the
completion of a greater number of 3D projects during the period, which typically
generate higher margins than 2D projects.
General and administrative expenses for the 1998 six months increased by
approximately 24% to $1,100,621 as compared to $886,290 for the 1997 six months.
This increase was primarily attributable to increased activity levels in the
United States market.
Depreciation expense for the 1998 six months increased by 42% to
$1,540,928 as compared to $1,085,949 for the 1997 six months. The increase in
depreciation expense is primarily attributable to seismic data acquisition
equipment acquired to expand Boone's operations, but also includes the
acquisition of three 2D systems used in operations in Canada during the period
and the purchase of 250 seismic acquisition remote units for use in both market
places.
Amortization expense for the 1998 six months of $89,160 is related to
the amortization of goodwill recognized on the acquisition of Boone, which the
Company acquired in June 1996, and the acquisition of Hydrokinetic. The
comparable charge for the 1997 six months of $77,160 did not include a charge
for the amortization of Hydrokinetic goodwill since this acquisition occurred in
April 1997.
Interest and other income for the 1998 six months increased to $121,470
as compared to $6,550 for the 1997 six months. The increase primarily resulted
from interest earned on additional funds on deposit resulting from the Warrant
Exercise.
Interest expense for the 1998 six months increased by approximately 116%
to $589,322 as compared to $273,338 for the 1997 six months. This increase
resulted primarily from financing costs related to short term lease purchase
commitments entered into for the lease of seismic equipment to meet demand for
increased operations in the United States. The purchase options on these lease
contracts were exercised in December 1997 and January 1998 for an aggregate
purchase price of approximately $3,200,000, with proceeds from the Warrant
Exercise.
The Company's effective income tax rate was approximately 40% for the
1998 six months as compared to 44% for the 1997 six months. The decrease in the
effective rate for the 1998 period is primarily
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<PAGE> 81
due to a greater portion of the net income being earned in the United
States which is subject to a lower statutory tax rate.
Venture FY 1997 Compared to Venture FY 1996 Compared to Venture FY 1995.
Revenue increased by 92% to $27,132,227 in Venture FY 1997 from
$14,146,971 in Venture FY 1996, which represents a 50% increase over revenues of
$9,458,452 in Venture FY 1995. The increase in revenue between Venture FY 1997
and Venture FY 1996 was due to increased capacity as a result of equipment
acquisitions in Venture FY 1997 and the inclusion of revenue from Boone's
operations for an entire year in Venture FY 1997. Boone accounted for
approximately 35% of revenue for Venture's FY 1997 revenue as compared to
approximately 8% of Venture FY 1996 revenue. Boone was acquired in June 1996 and
therefore only four months of revenue were included in Venture's results of
operations for Venture FY 1996. The increase in revenue between Venture FY 1996
and Venture FY 1995 was due to the following factors: a greater number of total
seismic crews used over the year (six in Venture FY 1996 compared to five in
Venture FY 1995); the acquisition of vibroseis units which enabled Venture to
participate in a new segment of the seismic data acquisition industry, the
acquisition of Boone in June 1996, and Venture's participation in the Pakistan
Project, its first foreign contract outside of North America. The Pakistan
Project generated revenue of $1,593,825 in Venture FY 1996.
Venture's direct expenses, which consist primarily of labor, drilling
and surveying costs, increased 65% to $19,796,462 in Venture FY 1997 from
$11,991,236 in Venture FY 1996, which represents a 79% increase over direct
expenses of $6,713,181 in Venture FY 1995. These amounts reflect increased costs
incurred by Venture to meet Venture's expanding operations over the past three
years, and significant costs associated with the Pakistan Project in 1996.
Overall gross margins were 27.0% in Venture FY 1997, 15.2% in Venture FY 1996
and 29.0% in Venture FY 1995. The decrease in gross margin in Venture FY 1996 is
primarily due to (i) a loss on the Pakistan Project of $703,851 incurred and
recognized in the fourth quarter of Venture FY 1996, (ii) reduced margins on
Canadian based operations due to poor weather conditions in the first and second
quarters of Venture FY 1996 which resulted in increased expenses to Venture
because the majority of its projects are performed on a turnkey basis and (iii)
increased expenses incurred by Venture during the second quarter of Venture FY
1996 associated with the temporary leasing of equipment which was necessary to
ensure customer demands were met on a timely basis.
General and administrative expenses increased 36% in Venture FY 1997 to
$1,828,464 from $1,342,082 in Venture FY 1996, which represents an increase of
63% over general and administrative expenses of $825,193 in Venture FY 1995. The
increase in Venture FY 1997 as compared to Venture FY 1996 reflects increased
level of operations and the inclusion of Boone's results of operations,
including increased personnel costs, for an entire year in Venture FY 1997. The
Venture FY 1996 amount includes Venture's increased marketing activities outside
of Western Canada, including marketing associated with the Pakistan Project and
other overseas activities, the costs associated with Venture's public company
status and additional personnel costs related to the expansion of operations,
including costs arising from the Boone acquisition and the Pakistan Project. The
amount recorded in Venture FY 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 Venture Common Shares from an officer and principal shareholder to
another officer of Venture. The compensation charge would have been required to
comply with GAAP in the United States but not under Canadian GAAP.
Depreciation increased 62% in Venture FY 1997 to $2,363,398 from
$1,461,807 in Venture FY 1996, which represents an increase of 62% over
depreciation of $901,896 in Venture FY 1995. The increases in
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Venture FY 1997 and Venture FY 1996 reflect substantial additions to capital
assets during the period from Venture FY 1995 to Venture FY 1997. Capital asset
expenditures incurred during Venture FY 1997, 1996 and 1995 amounted to
$10,080,773, $5,891,181 and $2,479,039, respectively.
In Venture FY 1997 and 1996, Venture amortized $166,320 and $51,440 of
goodwill, respectively, related to the acquisition of Boone in June of 1996 and
Hydrokinetic in April of 1997.
Interest expense increased by 104% to $669,938 in Venture FY 1997 from
$327,931 in Venture FY 1996, which represents a 13% increase over interest
expense of $290,115 in Venture FY 1995. Interest expense has risen due to
increased bank debt and equipment financing associated with Venture's equipment
purchases. Net borrowings of long term debt amounted to $1,042,440, $598,691 and
$6,451,133 in Venture FY 1995, FY 1996 and FY 1997, respectively.
The write down for impairment in capital assets of $100,000 in Venture
FY 1996 relates to the estimated realizable value on sale of capital equipment
purchased locally for the Pakistan Project. With completion of the project, and
a determination by Venture not to pursue additional contracts in Pakistan at
this time, certain of the equipment purchased for the project was sold locally
since transport of the equipment to Venture's North American markets was not
economical.
Venture's income tax provision increased to $976,000 in Venture FY 1997,
as compared to an income tax recovery of $357,459 in Venture FY 1996, as a
result of the increased profitability of Venture FY 1997 operations. The Venture
FY 1996 tax benefit of $357,459, as compared to the income tax provision of
$319,737 for Venture FY 1995, reflects the operating loss in Venture FY 1996
which primarily resulted from the loss on the Pakistan Project. A reconciliation
of actual income tax expense as compared to expected income taxes is provided in
Note 9 of the consolidated financial statements.
Net income in Venture FY 1997 increased to $1,454,706 as compared to a
loss for Venture FY 1996 of $664,699 and net income for Venture FY 1995 of
$436,306. The increased net income for Venture FY 1997 primarily reflects
increased activity and revenue levels in 1997 which contributed to increased
profitability of Venture FY 1997 operations. The loss in Venture FY 1996, as
compared to net income in Venture FY 1995 of $436,306, is primarily the result
of the loss on Venture's Pakistan Project, costs incurred to expand its North
American operations and reduced margins associated with Venture's Canadian based
operations.
Liquidity and Capital Resources
At March 31, 1998 Venture had cash of $5,229,339 and working capital of
$5,544,025, which includes the current portion of long term debt in the amount
of $2,693,300.
Venture maintains operating lines of credit in Canada and the United
States. The Canadian line of credit provides for an aggregate of up to
$1,200,000 in advances available to Venture subject to a limit of: i) the excess
in value of current assets over current liabilities (excluding the current
portion of long-term debt) and ii) 70% of the value of the accounts receivable
of Venture which are less than ninety days old. Borrowings under the Canadian
operating line are payable on demand and bear interest at the bank's prime rate
plus .75%. Venture's Canadian trade receivables have been pledged as collateral
for borrowings under the Canadian operating line. The United States line of
credit provides for an aggregate of up to $250,000 in advances available to
Venture. Borrowings under the United States operating line are payable on demand
and bear interest at prime plus 1%. Venture's United States trade receivables
have been pledged as collateral for
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borrowings under the United States operating line. At March 31, 1998, advances
under Venture's operating lines of credit aggregated $350,000 and approximately
$1,100,000 was available for advance.
In addition to operating lines of credit at March 31, 1998 Venture had
long term debt consisting of capital loans of $5,268,900 and equipment financing
of $3,315,948. The capital loans bear interest at the lender's cost of funds
plus 2.75% and are payable in monthly installments of approximately $141,200
plus interest and mature in February, September and November 2001. The equipment
lease bears interest at 9% and is repayable in quarterly installments of
approximately $196,000 comprised of principal and interest and matures in
January 2001. In May 1998, Venture refinanced a lease purchase contract for 200
seismic acquisition remotes or 1,200 channels of data acquisition equipment,
with a four year term loan with an aggregate obligation of approximately
$1,400,000. The term loan bears interest at the lender's cost of funds plus
2.75% and is payable in monthly installments of $28,000 plus interest and
matures in July 2002. A general security agreement on all equipment and a fixed
charge on certain equipment have been pledged by Venture as collateral for the
long term debt. In addition, Venture has assigned to the lender the proceeds of
its key-man life insurance policy on Mr. Brian W. Kozun, Venture's Chief
Executive Officer. Debt service requirements relating to the long term debt is
estimated to aggregate approximately $3,266,000 (including principal and
interest payments) during the twelve month period ending March 31, 1999. At
March 31, 1998, Venture was in compliance with all bank covenants. On a pro
forma consolidated basis, solely giving effect to the Acquisition and the Titan
Loan (but excluding any additional debt which may be incurred by Continental and
remain outstanding after consummation of the Acquisition, if ever, including
debt related to the Refurbishment (including borrowings under its line of credit
of approximately $1,000,000 and supplier financing of approximately $3,000,000
and the possible vessel upgrade at a cost of approximately $4,000,000, which,
assuming consummation of the Acquisition, would increase Venture's long-term
debt on a consolidated basis), Venture anticipates its long term debt to
increase by approximately $3,100,000 and its debt service requirements to
increase by approximately $120,000 per month. Assuming consummation of the
Acquisition and the resultant increased indebtedness of Venture on a
consolidated basis, Venture may not be in compliance with certain of its bank
covenants as of the Closing Date and as of September 30, 1998 (the respective
measurement dates for compliance pursuant to the terms of each facility), which
would require Venture to seek a waiver from each lender or pursue alternative
financing options in order to attempt to restore compliance, including a
possible debt or equity (which would be dilutive to existing shareholders)
financing or strategic merger or other corporate transaction although there can
be no assurance Venture would be able to secure a waiver or restore compliance,
in the event of a default relating to Venture's indebtedness it is likely that
Venture's shareholders would forfeit all or a substantial portion of their
investment in Venture.
Included in the March 31, 1998 accounts receivable balance of
$10,624,200 and the accounts payable and accrued liabilities balance of
$6,976,242 were certain reimbursable amounts which are not included in Venture's
revenue or direct costs. In accordance with the terms of various project
agreements, certain costs are paid by Venture and passed on or flowed through to
the customer at cost. As a result these reimbursable costs are included in
accounts receivable and accounts payable even though they do not impact revenue
or direct expenses. The collection of accounts receivable and the payment of
accounts payable are expected to continue to occur in the normal 30 to 60 day
time period following billing.
Work-in-progress at March 31, 1998 was $290,000 as compared to $521,594
as at September 30, 1997. The decreased value of work-in-progress primarily
reflects a smaller component of unbilled project work which was still in
progress at March 31, 1998 and, in accordance with the project terms, will be
billed and recognized in accounts receivable upon completion of the project.
The changes in accounts receivable, accounts payable and accrued
liabilities accounts are not necessarily reflective of the corresponding change
in activity or revenue and expenses for the period since the balances for
accounts receivable, work-in-progress and accounts payable are more reflective
of Venture's operational activity in the previous 30 to 90 day period. Since
there is a seasonality to Venture's operations and levels of equipment
utilization can vary at different times of the year the accounts receivable,
work-in-
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progress and accounts payable balances at any point in time will not necessarily
correspond to changes in revenue. Work-in-progress reflects partially completed
project work for which revenue is recognized based on the costs incurred to date
in relation to total estimated contract costs. The increase in work-in-progress
at September 30, 1997 primarily reflects an increase of projects partially
completed and therefore considered to be in progress at September 30, 1997 as
compared to the value of partially completed projects at September 30, 1996.
Venture had deferred revenue at March 31, 1998 of $560,000 as compared
to $800,000 at September 30, 1997 as compared to a nil balance at September 30,
1996. Deferred revenue represents billings in excess of revenue amounts earned
on projects, and varies depending upon the completion status of projects.
In December 1997 and January 1998 Venture received proceeds of
approximately $9,100,000 from the Warrant Exercise. Venture used approximately
$3,200,000 of the proceeds to exercise certain purchase options on capital
equipment leases in December 1997 and January 1998. Further, a portion of these
funds were used in Venture FY 1998 to fund the Venture Advance. Venture intends
to use the remaining proceeds to fund the acquisition of capital equipment and a
portion of the acquisition costs of Continental.
Capital asset expenditures amounted to $4,321,150 for the 1998 six
months and $10,080,773, $5,891,181 and $2,479,039 in Venture FY 1997, 1996 and
1995, respectively. These capital expenditures were for additional seismic data
acquisition equipment and related auxiliary equipment. Capital expenditures are
transacted through standard equipment purchase contracts or equipment lease
purchase contracts which contain a purchase option. To date Venture has always
exercised the purchase option contained in such lease purchase contracts.
Net operating cash flows provided by operating activities for the 1998
six months amounted to $1,682,852 as compared to $708,489 for the 1997 six
months. The increase in operating cash flow for the 1998 six months as compared
to the 1997 six months is attributable to (i) increased operating activity in
the United States, (ii) a greater impact of non-cash items such as depreciation
and deferred income taxes and (iii) a positive change in non-cash working
capital amounts.
Net operating cash flows provided by operating activities amounted to
$3,923,982, $192,292 and $1,960,267 in Venture FY 1997, 1996 and 1995,
respectively. The increase in operating cash flow in Venture FY 1997 is the
result of increased profitability of operations and the inclusion of Boone's
operations for an entire year in Venture's 1997 results of operations. The
decrease in operating cash flow in Venture FY 1996 from Venture FY 1995 is
primarily attributable to the loss incurred in 1996 and the reduction in
non-cash working capital.
Net cash provided by financing activities for the 1998 six months of
$7,743,759 is attributable to cash proceeds to Venture on the exercise of
1,513,690 of Venture's Warrants during the period combined with increases in
Venture's long term debt and bank indebtedness. This increase in net cash
provided by financing activities was partially offset by the net repayment of
approximately $6,700,000 of long term debt during the 1998 six months, including
approximately $3,200,000 used to exercise equipment lease contract purchase
options.
Net cash provided by financing activities in Venture FY 1997 of
$6,424,911 is primarily the result of increased borrowings from long term debt
to fund equipment acquisitions. Net cash provided by financing activities in
Venture FY 1996 of $7,455,317 is primarily attributable to proceeds from
Venture's initial public
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offering in November 1995 ("IPO") and increased debt levels. Net cash from
financing activities in Venture FY 1995 of $509,306 is primarily attributable to
increased debt levels.
Cash used in investing activities of $4,265,158 for the 1998 six months
and $2,614,994 for the 1997 six months resulting from the purchase of additional
seismic data acquisition equipment during the respective periods.
Cash used in investing activities of $10,280,827 in Venture FY 1997
resulted primarily from capital expenditures of $10,080,773 and the acquisition
of Hydrokinetic for $313,354. Cash used in investing activities of $7,647,609 in
Venture FY 1996 results from capital equipment expenditures of $5,891,181 and
the acquisition of Boone at a cost of $1,756,428. Cash used in investing
activities of $2,469,573 in Venture FY 1995 is primarily attributable to the
purchase of capital equipment.
Venture will require satisfactory operating cash flows to continue
operations, complete capital expenditures and meet its principal and interest
obligations with respect to Venture's long term debt. Further, if the
Acquisition is consummated, Venture will require additional cash to fund
operations and capital expenditure requirements of Continental and meet
Continental's obligation with respect to its debt. Assuming consummation of the
Acquisition, Venture may not be in compliance with certain of its bank covenants
as of the Closing Date and as of September 30, 1998 (the applicable dates of
determination pursuant to the terms of each facility), which may require Venture
to seek a waiver from each lender or seek to secure a debt or equity financing
or enter into a strategic merger or other corporate transaction in order to
attempt to restore compliance with its covenants. There can be no assurance,
however, that Venture will be able to obtain such waiver or financing or
complete such a corporate transaction, on acceptable terms, if at all. Any
equity financing would result in dilution to Venture Holders, while the
incurrence of indebtedness would result in increased expense and debt charges.
In the event of a default relating to Venture's indebtedness it is likely that
the Venture Holders would forfeit all or a substantial portion of their
investment in Venture. Venture anticipates, based on its current plans and
assumptions, funds to be generated from operations will be sufficient to satisfy
Venture's existing cash requirements over the next twelve month period; however,
as a result of the consummation of the Acquisition, Venture may require
additional financing to fund operations and meet debt service requirements
relating to capital improvements Continental may undertake, or otherwise,
although there can be no assurance that Venture will be able to obtain such
financing on acceptable terms.
Venture'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 Venture's control. If
Venture is unable to generate sufficient cash flow from operations or to comply
with the terms of its long term debt 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 Venture will be able to obtain such refinancing or
additional financing, on terms acceptable to Venture, if at all. Any future
issuances of equity securities would likely result in dilution to Venture
Holders, while the incurring of additional indebtedness would result in
increased interest expense and debt charges.
Currency for Financial Reporting
Since completion of its IPO, Venture has chosen to select United States
dollars as its currency for reporting and display purposes on the basis that the
securities of Venture are currently only listed for trading on Nasdaq and the
primary users of the financial statements are United States residents.
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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 Venture's services is primarily a
function of these factors. Venture does not believe inflationary trends have had
any significant impact on its financial operating results for the three years
ended September 30, 1997 or the six months ended March 31, 1998.
Year 2000
Venture has commenced review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and will develop an
implementation plan to resolve the issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of Venture's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. Venture expects to
identify Year 2000 problems in its existing software and if necessary to modify
its existing software or convert to new software in 1998/99, in order to address
Year 2000 problems, if any. If necessary modifications or conversions to new
software are not completed on a timely basis, the Year 2000 problem may have an
adverse effect on Venture's business, financial condition and results of
operations.
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CERTAIN INFORMATION REGARDING CONTINENTAL
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Proxy Statement. Investors should also carefully consider the
information set forth under the heading "Risk Factors."
SUMMARY
Continental is a privately held Canadian company, founded in 1957, which
commenced operating primarily as a marine seismic data acquisition company in
1987. Continental conducts 2D offshore seismic surveys through the use of a
marine seismic acquisition vessel. Continental currently operates one vessel,
the SV Calgary, and has entered into an agreement in principle to lease a second
marine vessel, the Pacific Titan, for a five year period commencing in February
1998, at an annual cost of $2,700,000 increasing to $3,100,000 in the final year
of the lease. Continental performs offshore seismic data acquisition services
for customers on a contract basis and also acquires data for its own
non-exclusive survey operations. Continental's staff work closely with its
customers, which include oil and gas companies and larger seismic acquisition
companies, to design seismic surveys specifically tailored to meet the
customer's seismic data requirements, while conducting offshore seismic surveys
within the confines imposed by weather, sea conditions and government
regulations. Continental has completed seismic surveys in the Persian Gulf, the
North Sea, the Falkland Islands area, the Mediterranean and off the coasts of
West Africa and Norway. During the preceding four years, Continental has
performed 18 seismic surveys for approximately 10 customers. During its fiscal
year ended December 31, 1997, contract services, non-exclusive surveys and data
sales accounted for approximately 91%, nil % and 9% of Continental's revenues,
respectively.
Continental was incorporated under the laws of Alberta, Canada in 1957.
The principal executive office of Continental is located at Suite 210, 3030-3rd
Ave N.E., Calgary, Alberta, Canada, and its telephone number at that address is
(403) 235-6882.
INDUSTRY OVERVIEW
Seismic data is used by oil and gas companies to identify and image
underground geological structures likely to contain hydrocarbons, both to aid in
the exploration for new hydrocarbon reservoirs and to enhance production from
existing reservoirs. A seismic data acquisition project generally consists of
designing and planning the survey, obtaining necessary regulatory, governmental
and environmental approvals and acquiring the seismic data. The data, when
processed, is then used to produce computer generated 2D cross sections or 3D
images of subsurface geologic formations. These cross sections and images are
then used by oil and gas companies to evaluate the potential for successful
drilling for or production of oil and gas.
The conventional method of acquiring offshore seismic data involves
releasing acoustic energy, normally generated by a burst of compressed air, into
the water. The energy, in the form of a pressure wave, travels through the water
into the sea bed and is reflected from various subsurface strata back to
hydrophones towed behind the marine seismic acquisition vessel. Hydrophones are
sensitive pressure sensors, many thousands of which are deployed in towed
streamer arrays behind the marine seismic vessel. The reflected energy is
detected by the hydrophones, and the data from the hydrophones is transmitted by
wire or optical fibers to sophisticated recording equipment on the vessel.
Navigation and positioning equipment, including global position systems ("GPS"),
lasers and acoustic and azimuth devices, are used to accurately determine the
respective positions of the vessel, energy sources and streamer arrays as they
traverse the survey area. A recording of seismic data is made at regular
intervals over the sea bed as the vessel traverses the survey area
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along predetermined paths. For 2D projects, a cross-section of independent lines
of data are acquired and recorded; whereas, for 3D projects, the data is
recorded from a dense grid of lines. The density of data required to perform a
3D survey is most efficiently achieved by using multiple energy sources and
streamers. However, some geological structures can be better imaged by limiting
the lateral distance from the streamers to the energy source, and in these
situations fewer streamers are more effective at collecting the data. Vessels
towing fewer streamers are generally more maneuverable than vessels towing more
streamers, and are therefore better suited to conduct 3D surveys in congested
areas offshore with dense marine traffic and numerous obstacles such as drilling
rigs, supply vessels and platforms. Conversely, vessels towing more streamers
are generally more efficient at conducting larger, wide-swathe 3D surveys in
open water. The SV Calgary is configured to tow between one and four streamers,
however, to date, Continental has only performed 2D surveys using one streamer.
This facilitates data acquisition in offshore areas with dense marine traffic,
production platforms and other obstructions where larger vessels with more
streamers are ill-suited to work due to their lack of maneuverability.
In recent years, major offshore seismic data acquisition companies have
generally decreased the amount of 2D survey work they conduct and reconfigured
their fleets to improve their efficiency in conducting larger 3D seismic
surveys. These modifications consisted principally of increasing vessel size,
horsepower and the number of streamers which can be towed. Although the 3D
segment of the industry has experienced high growth, Continental believes that,
due to its lower cost, 2D seismic will remain an important exploratory
technique, particularly for acquiring regional exploration grids. To date,
Continental has only performed 2D seismic surveys.
Similar to onshore seismic data acquisition systems, the channel
capacity of offshore seismic data acquisition systems is governed by the number
of hydrophone groups deployed in the streamers, the number of digitizing modules
available, and the capability of the onboard recording system depending upon the
specific requirements of a seismic data acquisition project. The vessel operated
by Continental has either 1,024 or 1,440 channels and can be incrementally
upgraded by adding a combination of additional hydrophone groups, digitizing
modules and more recording capacity.
After the raw seismic data has been acquired, it is partly processed
before being sent to a data processing facility where it is further processed.
The processed data can then be manipulated and viewed on computer workstations
by geoscientists to map the structures of the subsurface to determine if
formations exist where hydrocarbons are likely to have accumulated and where
such formations are located.
COMPANY OVERVIEW
Currently Continental operates one seismic data acquisition vessel, the
SV Calgary under a lease (the "SV Calgary Lease") which expires in April 2000,
subject to two one-year extension options. The SV Calgary was built in 1981 at
Teraoka, Japan, and has a gross registered tonnage of 1,307 tons, overall length
of 53 meters with a 12 meter hull and is configured to tow between one and three
streamers. The vessel is powered by two diesel engines producing 2,600 brake
horsepower. The vessel has been modified and outfitted with a full complement of
data acquisition, recording, navigation and communications equipment owned by
Continental and is currently used by Continental to conduct 2D seismic surveys.
In the next twelve months, management of Continental currently anticipates,
depending upon customer demands, market conditions and the availability of
acceptable financing, reconfiguring the SV Calgary to also be able to conduct 3D
seismic surveys. Such reconfiguration would require capital expenditures of
approximately $2,000,000. The timing and cost of such expenditures, if any,
cannot however, be predicted. The vessel's seismic crew is employed by
Continental on a contract basis, pursuant to the terms of the SV Calgary Lease,
and consists of 24 crew
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members, half of whom are on leave at any time. The vessel's main seismic
equipment consists of recording instruments, digital recording systems, location
systems, multiple navigation systems, and seismic energy sources and control
systems. Seismic data acquired by the instrumentation is partly processed before
being recorded on magnetic media for shipment to an onshore data processing
center.
Continental operates the SV Calgary on a 24 hour-a-day, seven
days-a-week basis. The vessel is taken out of service for approximately two
weeks every two years and, ten days every five years, for re-classification
which includes dry-docking, inspection of main engine, shafts, propellers and
hull. Additional routine maintenance is carried out on the vessel and seismic
equipment during these periods, with the remainder being provided on an ongoing
basis during vessel operations.
MARKETING AND PRINCIPAL CUSTOMERS
Three types of contracts are generally used to conduct marine seismic
data acquisition for clients: (i) distance rate based, (ii) turnkey and (iii)
day rate based. A distance rate based contract requires customers to pay a set
price per kilometer or square kilometer of seismic data acquired as well as a
standby charge for downtime due to factors such as weather, fishing
interference, "feathering" on seismic streamers due to ocean currents and
seismic interference from other vessels. A turnkey contracts is a fixed price
contract where clients pay a set price per kilometer or square kilometer and the
contractor assumes the risks of delays. The price for a turnkey contract is
generally higher and can be more profitable, provided risks and potential delays
are carefully understood and managed. A day rate based contract requires
customers to pay a set price per day for the vessel. All risks are assumed by
the customer and therefore such contracts tend to be priced lower, and less
profitable, than other contract arrangements.
In 1997, Continental conducted 100% of its data acquisition business
under distance rate based contracts whereby a set price per kilometer is earned
as well as additional contracted amounts related to certain reimbursable costs
and down time for specified events. None of Continental's data acquisition
business was conducted under day rate based contracts in 1997. Continental
generally seeks to secure distance based contracts with standby charges for
operations in territories where it is difficult to adequately assess the risks
of delays.
PACIFIC TITAN
Continental has entered into an agreement in principle to lease an
additional marine seismic vessel, the Pacific Titan, beginning in February 1998
for a five year term at an annual cost of $2,700,000 increasing to $3,100,000 in
the final year of the lease. In addition, Continental has entered into
arrangements to conduct the Refurbishment, at an estimated cost, as of June 19,
1998, of $13,500,000 in addition to the Lease Payments. Simultaneously with the
execution of the Purchase Agreement, Venture agreed to loan, and in April 1998,
extended the Venture Advance to Continental. The proceeds of the Venture Advance
are being used by Continental to fund a portion of the costs of the
Refurbishment and is secured by certain assets of Continental. Should Closing of
the Acquisition not occur prior to August 31, 1998, the Venture Advance,
including interest, is payable in quarterly installments and is subject to
equity conversion, during the period from August 31, 1998 to December 1, 1999,
at the option of Venture and without additional consideration, equal to
approximately 26% of the outstanding capital of Continental on a fully-diluted
basis at the time of conversion. Assuming the Closing of the Acquisition, the
Venture Advance will become an intercompany debt, due and payable to Venture.
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The cost of the Refurbishment is expected to be financed by Continental
with: (i) the Venture Advance; (ii) the Titan Loan; (iii) resources of
Continental (including an estimated $2,000,000 in cash and $1,000,000 in
borrowings under its line of credit); and (iv) supplier financing of
approximately $3,000,000. In June 1998, Continental accepted an offer to finance
from a third party for the Titan Loan, the net proceeds of which are to be used
to fund a portion of the Refurbishment. In the event the Titan Loan is advanced,
it is anticipated that Venture's security interest will be subordinate to that
of the lender of the Titan Loan. In connection with the Titan Loan, Venture has
agreed to replace Messrs. Stinn and Self as a guarantor of Continental's
obligations thereunder, in the event the Acquisition is consummated. If the
Titan Loan is not advanced, Continental will be required to seek alternative
financing to fund that portion of the cost of the Refurbishment, although there
can be no assurance that acceptable alternative funds will be available. The
Refurbishment is expected to be completed, with the Pacific Titan ready for
deployment, in July 1998, although there can be no assurance the vessel will be
ready at such date. Pursuant to the Purchase Agreement, Continental has agreed
to limit the cost for the Refurbishment to $12,000,000; however, as of June 19,
1998, Continental's arrangements for the Refurbishment aggregated approximately
of $13,500,000, nor can there be any assurance that the cost will not exceed
such sum. The increased cost of the Refurbishment is a breach of the Purchase
Agreement, which, pursuant to the terms of the Purchase Agreement, entitles
Venture to seek indemnification from Continental and certain Continental Holders
or terminate the agreement. As of June 19, 1998, management of Venture has
indicated, however, that it is not pursuing any remedy available to Venture
under the Purchase Agreement as a result of such increased cost, and will
continue with the Acquisition as planned, although, in the future, management of
Venture may determine, in its discretion to take action, including, without
limitation, any remedy available to Venture pursuant to the terms of the
Purchase Agreement. See "Proposal No. 1 -- The Acquisition -- Purchase Agreement
- -- Amendment and Termination of the Purchase Agreement" and "--
Indemnification."
The Pacific Titan was built in 1987 at Teraoka, Japan and the vessel has
a gross registered tonnage of 1,434 tons, overall length of 63.5 meters, a beam
of 14.5 meters and a maximum draft of 5.9 meters. The vessel is powered by four
diesel engines producing 6,400 brake horse power, through two variable pitch
propellers. The Pacific Titan is being converted to a seismic vessel, and in
connection with the Refurbishment, Continental has entered into arrangements to
have it equipped with state-of-the-art seismic streamer, instrumentation,
navigation systems and energy source systems. The Pacific Titan is expected to
be ready for deployment in July 1998. Continental currently anticipates using
the Pacific Titan to conduct 2D and 3D seismic surveys; however, prior to
conducting any 3D surveys with the Pacific Titan, Continental will be required
to incur additional capital expenditures of approximately $2,000,000. Management
of Continental anticipates equipping the Pacific Titan within the next twelve
months to be able to conduct 3D surveys, depending upon customer demands, market
conditions and the availability of acceptable financing.
NON-EXCLUSIVE SURVEYS
In addition to conducting offshore seismic surveys on a contract basis,
Continental develops and acquires non-exclusive marine seismic surveys and
licenses the resultant data. Unlike data acquired on a contract basis,
Continental retains ownership of or, a right to market, non-exclusive survey
data and adds newly acquired data to its seismic library for future sales on a
non-exclusive basis. Continental can then market this non-exclusive data to oil
and gas companies for less on a per unit basis than data acquired for a customer
on an exclusive basis. Continental continually evaluates new geographic areas to
ensure the ongoing development and replenishment of the Continental
non-exclusive survey data library. Non-exclusive data may be sold a number of
times to different customers over several years, and as a result, non-exclusive
operations may be more profitable than contract data operations. During its
fiscal year ended December 31, 1997, approximately 9% of Continental's revenues
were generated from sales of non-exclusive data.
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The time line from conceptual development to completion on a
non-exclusive survey generally takes several months. Continental develops and
plans non-exclusive surveys targeted to coincide with specific licensing or
sales of leases for offshore acreage to better ensure that there is an
identifiable and ready market for the data. The timing, terms and conditions of
these licensing or lease sales vary considerably from country to country and may
occur at intervals ranging from less than a year, to several years. In order to
complete a non-exclusive survey to coincide with licensing or lease sales of
offshore acreage, Continental frequently has to undertake a survey based on the
best available estimate of such dates, and relies on information and estimates
published or supplied by government bodies or other authoritative third parties
to better gauge such timing issues. Continental assumes the risk that future
sales of non-exclusive survey data may not cover the cost of acquiring and
processing such data. Continental has reduced this risk in part by obtaining
prefunding from oil and gas companies for a portion of its costs for certain
non-exclusive surveys and by carefully evaluating a number of factors during the
development phase, including: (i) the quality and age of any existing seismic
data that may already exist in the area; (ii) the amount of leased acreage in
the area; (iii) the historical turnover of leased acreage; (iv) the extent to
which governmental regulation, fiscal regimes and exploration acreage licensing
factors encourage exploration by oil and gas companies; and (v) the actual level
of interest of oil and gas companies in the area. To further reduce the risk
associated with a non-exclusive survey, Continental may fund all or a portion of
the cost to develop and execute its larger projects through joint venture or
syndicate arrangements with third parties.
Continental has designed and conducted profitable non-exclusive surveys
in many geographical locations and has been successful in bidding for certain
exclusive contracts to acquire non-exclusive seismic data, including, the award
to Continental of an exclusive right to undertake seismic surveys in the
northern sector of the Falkland Islands when that region was opened for
exploration in 1993. Continental retains exclusivity for a period of ten years
from the date of completion of processing or reprocessing such data to license
the data from the surveys it conducted between 1993 and 1995.
COMPETITION
The marine seismic data acquisition business is highly competitive.
Continental believes that approximately five major competitors account for a
substantial majority of the offshore seismic data acquisition business
worldwide, with the remainder of the industry represented by smaller
competitors, including Continental. Competitive factors include price,
experience, availability, technological expertise, performance and reputation
for dependability. Certain of Continental's major competitors operate more data
acquisition vessels than Continental, have substantially greater revenues than
Continental or are subsidiaries or divisions of major industrial enterprises
having far greater financial and other resources than the Company and more
extensive relationships with major integrated and multinational oil and gas
companies. Such resources may enable these competitors to maintain technological
and certain other advantages relating to costs that may provide them with an
advantage over Continental in bidding for contracts. In addition, certain
competitors having greater financial resources than Continental may take an
economic interest in the seismic data acquired in exchange for the services they
perform for their customers.
OPERATING HAZARDS AND INSURANCE
Continental's operations are subject to the general risks incident to
marine seismic data acquisition activities, including inclement weather, sea
conditions, and natural and man-made obstacles. These risks may result in
personal injury and loss of life, severe damage to or destruction of property
and equipment, environmental damage or suspension of operations. Continental has
not experienced any material losses or environmental claims to date, but there
can be no assurance that it will not experience such losses or claims
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in the future. To the extent available, Continental maintains general liability
insurance coverage against these potential claims, the nature and amount of
which Continental believes to be customary in the industry. There can be no
assurance that adequate insurance will be available in the future or that
Continental will be able to maintain adequate insurance on terms and conditions
it finds acceptable. In the event of an uninsured or inadequately insured claim,
Continental's business and financial condition could be materially adversely
affected.
GOVERNMENT REGULATION AND ENVIRONMENTAL COMPLIANCE
Continental's operations are materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which Continental's
operates. Laws and regulations that have the effect of reducing or curtailing
exploration and production activities by energy companies could also adversely
affect Continental's operations and its financial condition by reducing the
demand for its services. In addition, oil and gas exploration is subject to
regulations governing environmental quality and pollution control. Continental
conducts its operations consistent with international standards, including
numerous international and industry safety and environmental regulations.
Continental is a member of the International Association of Geophysical
Contractors, and follows their standards on health, safety and environmental
management systems. Continental is required to expend financial and managerial
resources to comply with such laws in its operations, and anticipates that it
will continue to be required to do so in the future. There can be no assurance
that in the future Continental will be able to acquire all of the necessary
permits to conduct its business or that the costs associated with complying with
laws and regulations affecting its business will not have a material adverse
effect upon Continental. Management of Continental has indicated that they
believe Continental possesses all permits, licenses and certificates material to
the operation of its business. The modification of existing laws or regulations
or the adoption of new laws or regulations curtailing drilling for oil and gas
or imposing more stringent restrictions on seismic operations in general, and
marine operations in particular, could adversely affect Continental. Further,
there can be no assurance that such laws or regulations will not change
frequently. In recent years, there has been a trend toward more expansive and
stricter environmental laws and regulations.
EQUIPMENT ACQUISITION AND SUPPLIERS
Continental obtains its seismic data acquisition equipment from a few
select vendors, and with respect to its marine vessels, one vendor. Other than
the lease for the SV Calgary and the potential lease for the Pacific Titan,
Continental 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
of such equipment will be able to support the future equipment requirements of
Continental. In addition, there can be no assurance that Continental will not
experience delays or other supply problems that may materially adversely affect
Continental's operations or that Continental will be able to obtain supplies,
including additional data acquisition systems or vessels, in a timely manner in
the event of an increase in demand for its services. The inability to obtain
seismic data acquisition equipment or vessels as required, or to develop
alternative sources as required in the future, could materially adversely affect
Continental's business, operating results and financial condition.
EXECUTIVE OFFICERS
The executive officers of Continental following consummation of the
Acquisition will be as follows:
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<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Leslie J. Stinn 47 President and Chief Executive Officer
Roy Self 52 Vice President, Geophysical Operations
</TABLE>
Leslie J. Stinn has been President and Chief Executive Officer of
Continental since 1988. Mr. Stinn has over 17 years of experience in offshore
marine seismic with international experience in South America, Western Europe,
Mediterranean Sea, Persian Gulf and West and East Africa. Prior to co-founding
Continental, Mr. Stinn held the position of Vessel Manager in London, England
with Seismic Exploration Ltd. of Dallas, Texas.
Roy Self has been the Vice-President, Geophysical Operations, of
Continental since 1988. He has over 22 years experience in all aspects of land
and marine seismic operations. Mr. Self has held international positions as
Manager of Marine Operations in London, England and as Technical Manager for SSL
in South Africa. Mr. Self has operated surveys offshore West Africa, the North
Sea, Qatar, Iran, Bahrain, Oman, Egypt, Falkland Islands, Ireland and the East
Coast of Canada. Onshore experience includes surveys in Ethiopia, Iran, Nigeria,
South Africa and Western Canada.
Employment Agreements
Simultaneously with the execution of the Purchase Agreement, Continental
entered into the Employment Agreements with certain of the existing management
(each, an "Employee") of Continental for a period of three years commencing
March 1, 1998. The Employment Agreements are with Roy Self, as Vice- President,
Geophysical Operations, and Leslie J. Stinn, as President and Chief Executive
Officer, of Continental, respectively, and provide for monthly compensation of
$7,000 ($10,000 Cdn), subject to annual review, with such other annual and
fringe benefits as determined by the board of directors of Continental, provided
that certain of such benefits shall be consistent with and comparable in value
to those of certain executive officers of Venture, as such shall have been
authorized by the Venture Board.
In the event of termination of the Employee without cause, Continental
must pay to the Employee his gross salary and the value of all benefits owed for
the remainder of the term of the Employment Agreement. In the event of
termination for "just cause," Continental will cease to have any obligations to
the Employee.
Provided that the Employment Agreements have not been terminated by
Continental prior to the expiration of their Term and without "just cause," then
for one year from the date of termination, each Employee has agreed not to (i)
represent himself as an employee of Continental or (ii) solicit the employment
of any person employed by Continental within two years prior thereto.
The Employment Agreement may be terminated by the Employees if (i)
Venture does not pay the Note Installment when due; (ii) Continental does not
pay the Management Bonus when due; or (iii) Continental fails to cure a material
breach by it of the Employment Agreement after 30 days prior written notice. In
the event of which, Continental must pay all compensation owed to the Employee
for the remainder of the Term. Each Employment Agreement provides that in the
event of a merger or amalgamation of Continental with another company, the
agreement may be assigned without the consent of the Employee.
EMPLOYEES
Continental currently employs approximately 35 full-time employees with
the number expected to increase to approximately 55 upon the deployment of the
second marine vessel, expected to occur in July
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1998. None of Continental's employees are covered by collective bargaining
agreements. Continental has not experienced any work stoppages and considers its
relations with employees to be good.
PROPERTIES
Continental leases administrative space in Calgary, Alberta, Canada. The
corporate office space in Calgary consists of approximately 3,400 square feet
under a three year lease expiring December 1, 2000 with a monthly rental of
approximately $2,300. Continental believes its facilities are adequate to meet
its current needs and that additional space, in the area, is available to meet
future needs.
LEGAL PROCEEDING
Venture and Continental have each received correspondence, including a
draft of a statement of claim, from, and have been advised by, Canaccord that
Canaccord may pursue legal action against each of Venture and Continental with
respect to a claim of entitlement to a fee of approximately $300,000 in
connection with the Acquisition. As of June 19, 1998, neither party had received
notice of any formal proceedings.
MARKET FOR COMMON SHARES
Continental is a privately held Canadian company and there is no public
market for its capital stock. Continental has on occasion paid cash dividends on
the Continental Capital Stock, including, most recently, approximately $125,000
($250 per Share) in its fiscal year ended December 31, 1996. For the foreseeable
future, Continental intends to retain all of its earnings, if any, for use in
its business. The declaration of any future dividends by Continental is within
the discretion of the Continental Board and is dependent upon the earnings,
financial condition and capital requirements of Continental, as well as any
other factors deemed relevant by the Continental Board.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of Continental should be read in conjunction with
Continental's Financial Statements and Notes thereto appearing elsewhere herein.
Overview
Continental was founded in 1957, and, most recently, was reorganized in
1987 to focus its operations primarily as a geophysical services company based
in Alberta, Canada, engaged in the worldwide acquisition of offshore seismic
data. Continental performs offshore seismic data acquisition services for
customers on a contract basis and also designs surveys and acquires data on a
non-exclusive basis, which it retains in its library to be marketed to a large
array of potential customers. For the contract surveys, Continental's staff
designs seismic surveys to meet the specific requirements of its customers, who
range from oil and gas companies to larger seismic acquisition companies. The
conduct of offshore seismic surveys includes working within the confines imposed
by weather, sea conditions, government regulations and both manmade and natural
obstacles. Continental has conducted surveys off the Falkland Islands, in the
Persian Gulf, the North Sea, the Mediterranean and off the coasts of West Africa
and Norway. Since January 1994, Continental has performed 18 surveys, including
11 on a contract basis and 7 non-exclusive surveys.
Currently Continental operates one seismic data acquisition vessel, the
SV Calgary, which is 53 meters in length with a 12 meter hull and is configured
to tow between one and three streamers. The vessel has been modified and
outfitted with data acquisition, recording, navigation and communications
equipment and is used by Continental to conduct 2D surveys. Continental would be
required to expend approximately $2,000,000 for capital improvements to outfit
the vessel to conduct 3D surveys. Management of Continental currently
anticipates, depending upon customer demands, market conditions and the
availability of acceptable financing, to outfit its vessels to conduct 3D
surveys within the next twelve months. The vessel's main seismic equipment
consists of recording instruments, digital recording systems, location systems,
multiple navigation systems, and seismic energy sources and control systems.
Seismic data acquired by the instrumentation is partly processed before being
recorded on magnetic media for shipment to an onshore data processing center.
Continental has entered into an agreement in principle to lease an
additional seismic vessel, the Pacific Titan, beginning in February 1998 for a
five year term at a rate of $2,700,000 increasing to $3,100,000 in the final
year of the lease. The Pacific Titan was built in 1987 at Teraoka, Japan and the
vessel has a gross registered tonnage of 1,434 tons, overall length of 63.5
meters, a beam of 14.5 meters and a maximum draft of 5.9 meters. In connection
with the Purchase Agreement, Venture agreed to loan, and in April 1998, advanced
to Continental the Venture Advance, to fund a portion of the Refurbishment,
which, as of June 19, 1998, is expected to aggregate approximately $13,500,000
(in addition to the Lease Payments). Pursuant to the Purchase Agreement,
Continental agreed the cost of funding of the Refurbishment would not exceed
$12,000,000; however, Continental's arrangements for the Refurbishment currently
aggregate approximately $13,500,000 and there be no assurance that the cost will
not exceed such sum. The increased cost of the Refurbishment is a breach of the
Purchase Agreement, which, pursuant to the terms of the Purchase Agreement,
entitles Venture to seek indemnification from Continental and certain
Continental Holders or terminate the Purchase Agreement. Notwithstanding the
increased cost of the Refurbishment, as of June 19, 1998, management of Venture
have indicated Venture will not pursue any remedy available pursuant to the
Purchase Agreement as a result of such breach, and will proceed with the
Acquisition; although in the future, management of Venture may determine in its
discretion to take action, including, without limitation, any remedy available
to Venture pursuant to the terms of the Purchase Agreement. See "Proposal No. 1
- -- The Acquisition -- The Purchase Agreement -- Amendment and Termination of the
Purchase Agreement" and "-- Indemnification."
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The cost of the Refurbishment is expected to be financed by (i) the
Venture Advance; (ii) the Titan Loan; and (iii) a combination of (a) resources
of Continental (including an estimated $2,000,000 in cash and $1,000,000 in
borrowings under its line of credit) and (b) supplier financing of approximately
$3,000,000, subject to adjustment, depending upon the financial position of
Continental. If the Titan Loan is not advanced, Continental will be required to
seek alternative financing to fund that portion of the cost of the
Refurbishment, although there can be no assurance that acceptable alternative
funds will be available. Further, Continental has agreed to pay for the Bonus
Transactions by June 25, 1998. Any cash used by Continental for such payments
will reduce the amount available for other purposes, including the
Refurbishment, which may require Continental to seek even more financing. Any
indebtedness of Continental outstanding after consummation of the Acquisition,
if ever, will, on a consolidated basis, be reflected as a liability of Venture.
Continental has entered into arrangements to equip the vessel with state-of-
the-art instrumentation, navigation systems and energy source systems. The
Pacific Titan will initially be outfitted with one streamer, will be capable of
performing 2D surveys and is scheduled to be ready for deployment in July 1998.
Management of Continental currently anticipates, depending upon customer
demands, market conditions and the availability of acceptable financing, to
outfit the vessel to conduct 3D surveys within the next twelve months, which
would require it to expend an additional approximately $2,000,000.
Continental currently only conducts 2D surveys. Although major offshore
seismic data acquisition companies have more recently focused their efforts on
3D surveys due to high growth in this segment of the market, Continental
believes that, due to its lower cost, 2D surveys will remain an important
exploratory technique, particularly for acquiring data on regional exploration
grids, and has determined to focus the majority of its efforts on the 2D segment
of the market, and anticipates, based upon current plans and assumptions,
entering the smaller 3D segment of the market within the next twelve months,
depending upon customer demand, market conditions and the availability of
acceptable financing for the necessary capital improvements to the vessels.
Results of Operations
Revenue increased by 13% to $9,609,915 in Continental's fiscal year
ended December 31, 1997 ("CHL FY 1997") from $8,485,092 in Continental's fiscal
year ended December 31, 1996 ("CHL FY 1996"), which represents a 67% increase
over revenue of $5,095,856 in Continental's fiscal year ended December 31, 1995
("CHL FY 1995"). The increase in revenue between CHL FY 1997 and CHL FY 1996 was
primarily due to increased contract rates and improved utilization. The increase
in revenue between CHL FY 1996 and CHL FY 1995 resulted from an increase in
proprietary seismic surveys for major oil companies and increased operating
levels.
Continental's direct expenses which consist primarily of the vessel
lease, labor, fuel and repairs and maintenance decreased by 9% to $5,631,075 in
CHL FY 1997 from $6,171,258 in 1996, which represents a 53% increase over direct
expenses of $4,047,221 in CHL FY 1995. The decrease in 1997 is primarily due to
the operation of the SV Calgary in 1997, which operates more efficiently than
Continental's previous vessel used extensively in 1996 and the overlap of two
vessels for a short period of time in 1996. The increase in direct expenses
between CHL FY 1996 and 1995 is primarily due to the increased operating
activity in 1996 and mobilization costs related to the SV Calgary and the
demobilization of the M/V Mezen upon its lease expiry in August 1996.
General and administrative expenses decreased 53% to $908,638 in CHL FY
1997 from $1,938,607 in CHL FY 1996, which represents a 313% increase over
general and administrative expenses of $469,800 in CHL FY 1995. The decrease in
CHL FY 1997 as compared to CHL FY 1996 is primarily due to the inclusion of
management/owner bonus of approximately $720,000 in CHL FY 1997 as compared to
approximately $1,010,000 in CHL FY 1996 and the write-off of $600,000 in
accounts receivable in 1996 and
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the subsequent recovery of $158,000 in 1997. The increase in CHL FY 1996 as
compared to CHL FY 1995 is primarily due to the management bonus of $1,010,000
in 1996 as compared to $260,000 in CHL FY 1995 and the write-off of $600,000 of
accounts receivable in CHL FY 1996. The write-off of the accounts receivable in
1996 was as a result of management's decision to suspend a contract in the North
Sea due to weather conditions and the availability of more profitable work in
the Middle East. After adjusting general and administrative expenses for the
effects of the management/owner bonuses and the write-off of accounts receivable
in CHL FY 1996 and the subsequent recovery of a portion of the receivable in CHL
FY 1997 general and administrative expenses of CHL FY 1997, 1996 and 1995 were
approximately $346,000, $329,000 and $210,000, respectively, which reflect
increased activity levels.
Depreciation increased 30% in CHL FY 1997 to $620,255 from $476,564 in
CHL FY 1996, which represents a 1,150% increase over CHL FY 1995 depreciation of
$38,134. The significant increase in depreciation in 1996 is concurrent with the
mobilization of the SV Calgary in May of 1996 and the investment of
approximately $3,000,000 in asset expenditures for use onboard the SV Calgary.
The increase in CHL FY 1997 depreciation expenses primarily reflects a full year
of depreciation related to the 1996 capital additions.
Interest expense decreased by 56% to $52,569 in CHL FY 1997 from
$118,403 in CHL FY 1996, which represents a 1,282% increase over CHL FY 1995
interest expense of $8,570. The significant increase in interest expense in CHL
FY 1996 represents additional debt incurred in conjunction with the outfitting
of the SV Calgary. The decrease in interest expense in CHL FY 1997 represents a
reduction in debt levels which has reduced financing costs.
Other income increased by 67% to $293,082 in CHL FY 1997 from $175,378
in CHL FY 1996, which represents a 61% decrease over CHL FY 1995 other income of
$450,178. The increase in CHL FY 1997 other income represents a increase in
Continental's foreign exchange gain related to the translation of transactions
during the year into United States dollars of approximately $143,000, an
increase in the gain on disposition of investments of approximately $93,000 and
a reduction in gain on disposal of capital assets of approximately $114,000. The
decrease in CHL FY 1996 other income as compared to CHL FY 1995 other income is
primarily the result of a 1995 gain on the disposition of investments of
approximately $406,000.
The Company's income tax provision increased to approximately $1,077,000
in CHL FY 1997, as compared to an income tax recovery of approximately $128,000
in Continental FY 1996, due to the increased profitability of 1997 operations.
The income tax recovery of $128,000 in CHL FY 1996 results from the significant
management/owner bonus recorded in CHL FY 1996 which has reduced pretax income
to a loss of approximately $44,000. A reconciliation of actual income tax
expense as compared to expected income taxes in included in the notes to
Continental's financial statements.
Liquidity and Capital Resources
As at December 31, 1997 Continental had a working capital deficit of
$326,521. Continental maintains a line of credit which provides for borrowings
up to an aggregate of approximately $1,500,000. Borrowings under the line are
payable on demand and bear interest at the bank's United States prime rate plus
0.5%. Borrowings at June 19, 1998 were nil, although management of Continental
has indicated Continental anticipates borrowing, within the next few months,
substantially all of the amount available under the line of credit to help
finance the Refurbishment.
In addition to the operating line as at December 31, 1997, Continental
had long term debt consisting of a term loan, note payable and a conditional
sales agreement aggregating $222,818, the current portion of
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which is $213,895. Subsequent to December 31, 1997, Continental accepted an
offer to finance from a third party for the Titan Loan, with net proceeds to be
used to fund a portion of the Refurbishment. This funding would bear interest at
8.75% and would be repayable over a 5 year term in twenty installments of
approximately $200,000 (including principal and interest) commencing from the
date of funding. Assuming the Closing of the Acquisition, the Titan Loan would,
if advanced, increase the long-term debt of Venture, on a consolidated basis. If
the Titan Loan is not advanced, Continental will be required to seek alternative
financing to fund that portion of the cost of the Refurbishment, although there
can be no assurance that acceptable alternative funds will be available.
Continental has agreed to pay any amounts due as a result of the Bonus
Transactions on or before June 25, 1998. If Continental uses its cash resources
to pay such amounts, it will reduce the amount available for other purposes,
including the Refurbishment, which may require Continental to seek a greater
amount of financing. Any indebtedness of Continental outstanding after
consummation of the Acquisition, if ever, will, on a consolidated basis, be
reflected as a liability of Venture. Further, in conjunction with the Purchase
Agreement, Continental received the Venture Advance in April 1998, which is
funding a portion of the cost of the Refurbishment. The Venture Advance bears
interest at the prime lending rate of the Royal Bank of Canada plus 1% and is
secured by certain assets of Continental, which, upon receipt of the Titan Loan
by Continental, are expected to become subordinate to the security interest of
the lender of the Titan Loan. Should closing of the Acquisition not occur before
August 31, 1998, the Venture Advance, including interest, is payable in
quarterly installments commencing December 1, 1999, consisting of principal and
accrued interest and is convertible at the option of Venture, without additional
consideration, during the period from August 31, 1998 to December 1, 1999, into
approximately 26% of the outstanding capital of Continental on a fully-diluted
basis at the time of conversion. Assuming Closing of the Acquisition occurs, the
Venture Advance will become an intercompany debt, due and payable to Venture.
Debt service requirements relating to Continental's long term debt at
December 31, 1997, the Titan Loan and the Venture Advance (but excluding any
additional indebtedness of Continental which may be outstanding during the next
twelve months, including any debt related to the possible upgrade of the
vessels) are estimated to aggregate approximately $1,100,000 (including
principal and interest) during the next twelve months.
Continental plans to expand its data acquisition capabilities with the
operation of the Pacific Titan, which is scheduled to be ready for deployment in
July 1998. The Refurbishment of the Pacific Titan is expected, as of June 19,
1998, to cost approximately $13,500,000 with $4,000,000 to be provided by the
Venture Advance, $3,000,000 from the Titan Loan and $3,000,000 from cash
resources of Continental, including drawings under its line of credit, and
$3,000,000 from supplier financing. Any debt incurred to finance the
Refurbishment and outstanding upon Closing the Acquisition, if it occurs, would
be reflected as a liability of Venture, on a consolidated basis. In connection
with the Purchase Agreement, Continental agreed to limit the cost of
Refurbishment to $12,000,000, although, as of June 19, 1998, the estimated cost
aggregated approximately $13,500,000 and there can be no assurance that the cost
of the Refurbishment will not exceed such increased sum. As of June 19, 1998,
management of Venture have indicated they will not pursue any remedies available
pursuant to the terms of the Purchase Agreement as a result of such increase,
and will proceed with the Acquisition, although, in the future, in its
discretion, management of Venture may determine to pursue remedies available to
Venture, including, without limitation, any remedy available pursuant to the
terms of the Purchase Agreement.
Continental will require satisfactory operating cash flows to continue
operations, complete the Bonus Transactions, complete capital expenditures,
including expenditures related to the Refurbishment and reconfiguring its
vessels to conduct 3D surveys, and meet its principal and interest obligations
with respect to its financing arrangements. Continental anticipates, based on
its current plans and assumptions, that the funds expected to be generated from
operations will be sufficient to satisfy Continental's existing cash
requirements for 1998. Management of Continental currently anticipates,
depending upon customer demands,
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market conditions and the availability of acceptable financing, to outfit its
vessels to conduct 3D surveys within the next twelve months, at an aggregate
cost of approximately $4,000,000. If the Acquisition is consummated, Venture may
not be in compliance with certain of its bank covenants (as of the closing date
and as of September 30, 1998, the applicable dates of determination pursuant to
the terms of each facility) and it may be necessary for Venture to seek a waiver
from each of its lenders and to obtain additional financing to fund the upgrade
to 3D capability and meet Continental's and Venture's debt service requirements,
although there can be no assurance that Venture will be able to obtain such
waiver or financing on acceptable terms. Assuming the consummation of the
Acquisition, Venture's ability to meet its debt service requirements and other
obligations depends on its future performance (including Continental) which is
subject to general economic conditions, oil and gas commodity prices and other
business factors beyond Venture's control. Assuming consummation of the
Acquisition, if Venture is unable to generate sufficient cash flow from its
operations or to comply with the terms of its financing arrangements it may be
required to refinance all or a portion of its financings or to obtain additional
financing, although there can be no assurance that Venture will be able to
obtain such refinancing or additional financing.
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PROPOSAL NO. 2
ELECTION OF DIRECTOR
The Venture Board currently consists of five (5) directors, all of whom
are elected annually. In connection with the Acquisition, it is proposed that
the number of members of the Venture Board until the next annual meeting of
shareholders be set at six (6). Venture has agreed to use its best efforts at
the Meeting to nominate for election to the Venture Board a nominee of the
Continental Holders, collectively (who have selected Mr. Leslie Stinn as their
nominee). In addition, Venture has agreed to use its best efforts to ensure that
a nominee of the Continental Holders, collectively, is included as a nominee to
the Venture Board at each of the next three annual meetings of shareholders of
Venture. IT IS THE INTENTION OF THE MANAGEMENT DESIGNEES, IF NAMED AS PROXY, TO
VOTE FOR THE ELECTION OF MR. LESLIE J. STINN TO THE VENTURE BOARD. MANAGEMENT
DOES NOT CONTEMPLATE THAT HE WILL BE UNABLE TO SERVE AS DIRECTOR; HOWEVER, IF
FOR ANY REASON THE PROPOSED NOMINEE DOES NOT STAND FOR ELECTION OR IS UNABLE TO
SERVE AS SUCH, PROXIES IN FAVOR OF THE MANAGEMENT DESIGNEE WILL BE VOTED FOR
ANOTHER NOMINEE IN THEIR DISCRETION UNLESS THE SHAREHOLDER HAS SPECIFIED IN HIS
PROXY THAT HIS VENTURE COMMON SHARES ARE TO BE WITHHELD FROM VOTING IN THE
ELECTION OF THE DIRECTOR. The five current members of the Venture Board and the
additional director, if elected, will hold office until the next annual meeting
of shareholders or until a successor is duly elected or appointed pursuant to
the by-laws of Venture.
Nominee for Election to the Venture Board
Mr. Leslie J. Stinn, the nominee, is not currently a director of
Venture, although he is a director and executive officer of Continental. In
connection with the Acquisition, Mr. Stinn will receive a portion of the
Purchase Price equal to an aggregate of $660,000 and 915,200 Venture Common
Shares, or 13.6% of the outstanding Venture Common Shares immediately after the
Acquisition. In addition, Mr. Stinn will receive $404,000 as a Management Bonus
and approximately $524,000 (including a $489,000 note which Continental has
agreed to pay the earlier of (i) June 25, 1998 or (ii) the Closing) from the
Preferred Share Redemption. In addition, Mr. Stinn has entered into an
Employment Agreement for a period of three years, as President and Chief
Executive Officer of Continental. See "Proposal No. 1 --The Acquisition
- --Interests of Certain Persons in the Acquisition," and "--Other Agreements
- --Employment Agreements."
Leslie J. Stinn (47) has been President and Chief Executive Officer of
Continental since 1988. Mr. Stinn has over 17 years of experience in offshore
marine seismic with international experience in South America, Western Europe,
Mediterranean Sea, Persian Gulf and West and East Africa. Prior to co-founding
Continental Mr. Stinn held the position of Vessel Manager in London, England
with Seismic Exploration Ltd., a seismic data acquisition company based in
Dallas, Texas.
Members of Board of Directors
The following sets forth the names and ages of the five members of the
Venture Board, their respective principal occupations or employments during the
past five years and the period during which each has served as a director of
Venture.
Brian W. Kozun (37) has been President and Chief Executive Officer of
Venture since April, 1992 and has been a director since 1985. Mr. Kozun was one
of the founding shareholders of Venture and served as Venture's Vice President,
Field Operations and Vice President, Survey Operations from 1985 to 1992. Mr.
Kozun is also Chairman of the Board of each of Boone and Hydrokinetic. Upon
consummation of the Acquisition, Mr. Kozun is expected to be a director of
Continental. From 1983 to 1985, Mr. Kozun served
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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.
P. Daniel McArthur (36) has served as Chief Operating Officer and a
director of Venture 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 of Solid State Geophysical Inc. in June 1992. From 1981 to 1988, he
was employed by Sonics Exploration Ltd., a geophysical company, in various field
management positions, on-shore and offshore, in Canada, the United States and
the Caribbean.
Stuart Norman (53) was appointed a director of the Corporation in August
1994. He has been co-owner and a director of Paxton Pacific Resources Inc., a
pressure treating and speciality wood products company since March, 1994. From
1990 to 1993, Mr. Norman was involved in the acquisition and construction of
projects in the United States for Amusements International Inc., an operator of
Ripleys Museums and, since 1990 has been a partner in Ripleys Museum of
Hollywood, California. From 1987 to 1990, Mr. Norman served as President of
Location Leasing Ltd., an oilfield camp rental company with operations in
Alberta, British Columbia, Yukon and Northwest Territories. Also from 1972 to
1990, he was President of Diamond Resource Services Ltd., an oilfield services
company operating in Western Canada.
J. Joseph Ciavarra (47) was appointed a director of the Corporation in
August 1994. From 1991 until February 1997, he served as President and Chief
Executive Officer of Transwest Energy Inc., an oil and gas company. Since
February 1997, Mr. Ciavarra has been providing oil and gas consulting services.
From 1976 to 1991, Mr. Ciavarra held various positions with Triton Energy
Company, an oil and gas company, the most recent of which was Vice-President,
Engineering.
Michael J. Beninger (44) was appointed a director of the Corporation in
August 1994. He has been practicing law since 1980 and since August 1993, has
operated as a sole practitioner in Alberta and British Columbia. Prior to August
1993, he was a partner with Felesky Flynn, Barristers & Solicitors in Calgary
and Edmonton.
MEETINGS OF THE VENTURE BOARD
The Venture Board held three meetings during Venture FY 1997. Each of
the directors attended at least 75% of the meetings of the Venture Board and the
committees thereof on which such director served, which were held during Venture
FY 1997.
The Audit Committee consists of Mr. Beninger, Mr. Norman and Mr. Kozun.
The Audit Committee is authorized by the Venture Board to review, with Venture's
independent auditors, the annual financial statements of Venture and to make
annual recommendations to the Venture Board for the appointment of independent
auditors for the ensuing year. The Audit Committee also reviews the
effectiveness of the financial and accounting functions, organizations, internal
controls, and related party transactions. The Audit Committee met two times in
Venture FY 1997.
The Compensation Committee, which consists of Mr. Beninger, Mr. Ciavarra
and Mr. Norman, reviews and sets on behalf of the Venture Board, the
compensation and benefits of all executive officers of Venture, reviews general
policy matters relating to compensation and benefits of employees of Venture,
administers the 1995 Plan, consults with management on matters concerning
compensation and makes
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recommendations to the Venture Board on compensation where approval of the
Venture Board is required. The Compensation Committee met two times during
Venture FY 1997.
Venture does not have a Nominating Committee.
COMPENSATION OF THE VENTURE BOARD
Other than being reimbursed by Venture for their expenses, the aggregate
cash compensation paid to members of the Venture Board for services rendered in
their capacities as directors, during Venture FY 1997 was nil.
In January 1998, each of the following directors received grants of
options to purchase 5,000 common shares, subject to vesting restrictions: Mr.
Beninger, Mr. Ciavarra and Mr. Norman. On March 20, 1998, each of the following
directors received automatic grants of options to purchase 1,000 common shares
pursuant to the 1995 Plan, subject to vesting restrictions: Mr. Beninger, Mr.
Ciavarra and Mr. Norman. All of such options are exercisable at the fair market
value of Venture's Common Shares on the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Venture FY 1994, Mr. Kozun entered into an agreement with Elmdale
Trust, of which Mr. Beninger, a director of Venture, is a beneficiary, whereby
the trust issued a promissory note in the principal amount of $82,598 to Mr.
Kozun in consideration for Mr. Kozun's transfer to the trust of 69,231 of his
Venture Common Shares. The promissory note is non-interest bearing. As of June
19, 1998, $9,178 of the amounts due under the promissory note has been repaid.
All future transactions and/or loans between Venture and its officers,
directors and/or 5% shareholders are intended to be on terms no less favorable
to Venture than could be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of Venture.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
Other than as set forth herein, no director, proposed director or
executive officer, nor any of their respective associates or affiliates, is or
has been at any time since the beginning of the last fiscal year, indebted to
Venture or any of its subsidiaries.
During Venture FY 1997 three officers of Venture (P. Daniel McArthur,
James W. Stenhouse and Gregory B. Wiebe) were indebted to Venture in the
aggregate amount of $22,000. These advances, which are non-interest bearing,
were made to the officers in September, 1994 for the purchase of Venture Common
Shares pursuant to agreements dated September 23, 1994 between Venture and each
of these officers (the "Advance Agreements"). Pursuant to the Advance
Agreements, during Venture FY 1997, an aggregate of $7,340 of these amounts were
repaid and the remaining balance of $14,660 is scheduled to be repaid in two
equal annual installments ending September 30, 1999.
THE VENTURE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT VENTURE
HOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEE LISTED ABOVE.
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PROPOSAL NO. 3
AMENDMENT TO THE 1995 STOCK OPTION PLAN, AS AMENDED
In June 1998, the Venture Board adopted an amendment to Venture's 1995
Plan, to increase the authorized number of Venture Common Shares available for
option grants pursuant to the 1995 Plan from 450,000 to 750,000 (the "1995 Plan
Amendment"). The Venture Board is requesting and recommends to the Venture
Holders ratification and approval of the 1995 Plan Amendment to assure that an
adequate supply of authorized unissued Venture Common Shares is reserved for
issuance for option grants to ensure the attraction of new and retention of
existing executive personnel, key employees, directors, consultants and advisors
and to provide additional incentive by permitting such individuals to
participate in the ownership of Venture.
GENERAL
The following summary of the 1995 Plan, including the 1995 Plan
Amendment, is qualified in its entirety by the specific language of the 1995
Plan, which was adopted by the Venture Board in August 1995, ratified by the
Venture Holders in August 1995, and most recently amended by the Venture Board
in June 1998, a copy of which is attached as Appendix A to this Proxy Statement.
The 1995 Plan, which expires in August 2005, is structured to comply
with applicable provisions of Rule 16b-3 of the Exchange Act and the Internal
Revenue Code of 1986, as amended (the "Code") and is administered by the Venture
Board or a committee of the Venture Board (the "Committee"). Pursuant to the
1995 Plan, employees, officers and directors of, and consultants or advisors to,
Venture and any subsidiary corporations are eligible to receive incentive stock
options ("incentive options") within the meaning of Section 422 of the Code
and/or options that do not qualify as incentive options ("non-qualified
options"). The number of Venture Common Shares which may be issued pursuant to
options granted under the 1995 Plan, prior to the 1995 Plan Amendment, was
450,000 Shares. There have been 401,000 options granted under the 1995 Plan of
which, as of June 1, 1998, 393,500 are outstanding. If the 1995 Plan Amendment
is approved, the number of Venture Common Shares which may be issued pursuant to
option grants under the 1995 Plan will be a maximum of 750,000 Shares. The
aggregate number of Venture Common Shares that may be subject to options granted
to any person in a calendar year under the 1995 Plan shall not exceed 25% of the
maximum number of Venture Common Shares which may be issued from time to time
under the 1995 Plan (112,500 Venture Common Shares or 187,500 Venture Common
Shares if the 1995 Plan Amendment is approved). The 1995 Plan provides for
automatic grants of options to certain directors in the manner set forth below
under "Directors' Options."
OPTIONS
Options granted under the 1995 Plan may be either incentive options or
non-qualified options. Incentive options granted under the 1995 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Venture Common Shares
on the date of the grant, except that the term of an incentive option granted
under the 1995 Plan to a Venture Holder owning more than 10% of the outstanding
voting power may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Venture Common Shares on the date of
the grant. To the extent that the aggregate fair market value, as of the date of
grant, of the Venture Common Shares for which incentive options become
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the portion of such option which is in excess of the $100,000
limitation will be treated as a non-qualified option. Unless otherwise
determined by the Venture Board or the Committee, options granted under the 1995
Plan to officers, directors or employees of Venture may be exercised only while
the optionee is
-92-
<PAGE> 104
employed or retained by Venture or within 90 days of the date of termination of
the employment relationship or directorship. However, options which are
exercisable at the time of termination by reason of death or permanent
disability of the optionee may be exercised within 12 months of the date of
termination of the employment relationship or directorship. Upon the exercise of
an option, payment may be made by cash or by any other means that the Venture
Board or the Committee determines. No option may be granted under the 1995 Plan
after August 2005.
Options may be granted to such employees, officers and directors of, and
consultants and advisors to, Venture or any subsidiary of Venture as the Venture
Board or the Committee shall select from time to time in its sole discretion,
provided that only employees of Venture or a subsidiary of Venture shall be
eligible to receive incentive options. As of June 19, 1998, the number of
employees, officers and directors of Venture and any subsidiary of Venture
eligible to receive grants under the 1995 Plan was approximately 200 persons.
The number of consultants and advisors to Venture eligible to receive grants
under the 1995 Plan is not determinable. An optionee may be granted more than
one option under the 1995 Plan. Subject to the terms of the 1995 Plan and
Venture's informal policies regarding the granting of options to senior
management, the Venture Board or the Committee will, in its discretion,
determine who will be granted options, the time or times at which options shall
be granted, and the number of shares subject to each option, whether the options
are incentive options or non-qualified options, and the manner in which options
may be exercised. In making such determination, consideration may be given to
the value of the services rendered by the respective individuals, their present
and potential contributions to the success of Venture and its subsidiaries and
such other factors deemed relevant in accomplishing the purpose of the 1995
Plan.
The 1995 Plan provides for the acceleration of exercisability of
outstanding options under certain circumstances including certain transactions
which may result in changes in control of Venture.
Under the 1995 Plan, the optionee has none of the rights of a
shareholder with respect to the Venture Common Shares issuable upon the exercise
of the option until such Venture Common Shares shall be issued upon such
exercise. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date of exercise, except as
provided in the 1995 Plan. During the lifetime of the optionee, an option shall
be exercisable only by the optionee. No option may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of decent and distribution, except that non-qualified options may be
transferred by the optionee during his lifetime to certain permitted
transferees, subject to certain conditions.
The Venture Board may amend or terminate the 1995 Plan, except that
shareholder approval is required if required by Rule 16b-3 of the Exchange Act
or Section 422 of the Code. No action taken by the Venture Board may adversely
affect any outstanding option grant without the consent of the optionee.
-93-
<PAGE> 105
DIRECTORS' OPTIONS
The provisions of the 1995 Plan provide for the automatic grant of
non-qualified options to purchase Venture Common Shares ("Director Options") to
directors of Venture who are not employees or principal shareholders of Venture
("Eligible Directors"). In accordance with the 1995 Plan, (i) future Eligible
Directors of Venture will be granted a Director Option to purchase 5,000 Venture
Common Shares on the date that such person is first elected or appointed a
director ("Initial Director Options"), and (ii) on the day immediately following
the date of each annual meeting of shareholders for each Eligible Director,
other than directors who received an Initial Director Option since the last
annual meeting, will be granted ("Automatic Grants") a Director Option to
purchase 1,000 Venture Common Shares, as long as such director is a member of
the Venture Board. The exercise price for each Venture Common Share subject to a
Director Option shall be equal to the fair market value of the Venture Common
Share on the date of grant.
Through June 19, 1998 options to purchase an aggregate of 401,000
Venture Common Shares have been granted under the 1995 Plan, at exercise prices
ranging from $5.00 per Venture Common Share to $6.88 per Venture Common Share.
PARTICIPATION IN THE 1995 PLAN
Option grants for Venture FY 1997 to the Named Officer are set forth in
the table to this Proxy Statement entitled "Securities Underlying Option/SAR
Grants in Last Fiscal Year." Since Venture FY 1997, Venture has granted options
to purchase (i) 50,000 Venture Common Shares to the Named Officer and (ii)
82,000 Venture Common Shares to employees, officers and directors, of which
options are exercisable at prices ranging from $5.69 to $6.88 per Venture Common
Share and are subject to annual vesting provisions. Future grants under the 1995
Plan, other than as disclosed above, have not yet been determined.
THE VENTURE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE PROPOSED AMENDMENTS TO THE 1995 PLAN.
Venture has submitted the 1995 Plan Amendment for Shareholder Approval
in accordance with the requirements of Section 422 of the Code. If Shareholder
Approval of the 1995 Plan Amendment is not obtained, the increase in the number
of Venture Common Shares will still be effective, however, Venture will not be
able to grant incentive stock options from the additional Venture Common Shares.
-94-
<PAGE> 106
DEADLINE FOR PROPOSALS OF VENTURE HOLDERS
Venture Holders having proposals that they desire to present at the
annual meeting of Venture Holders for Venture's fiscal year ending September 30,
1998, should, if they desire that such proposals be included in Venture's Proxy
Statement relating to such meeting, submit such proposals in time to be received
by Venture not later than December 30, 1998. To be so included, all such
submissions must comply with the requirements of Rule 14a-8 promulgated under
the Exchange Act and the Venture Board directs the close attention of interested
Venture Holders to that Rule. Proposals may be mailed to Gregory B. Wiebe, Chief
Financial Officer, Venture Seismic Ltd., 3110 80th Avenue, SE, Calgary, Alberta
T2C 1J3.
OTHER MATTERS
The Venture Board knows of no other business to be brought before the
Meeting, but it is intended that, as to any such other business, the Venture
Common Shares will be voted pursuant to the proxy in accordance with the best
judgment of the person or persons acting thereunder.
INDEPENDENT AUDITORS
Representatives of Ernst & Young, Chartered Accountants are expected to
be present at the Meeting, will have the opportunity to make a statement at the
Meeting if they desire to do so and are expected to be available to respond to
appropriate questions.
GENERAL
Venture will provide without charge to each person being solicited by
this Proxy Statement, on the written request of any such person, a copy of the
Annual Report of Venture on Form 10-KSB for Venture FY 1997, as amended (as
filed with the SEC), including the financial statements attached thereto. All
such requests should be directed to Gregory B. Wiebe, Chief Financial Officer,
Venture Seismic Ltd., 3110 -- 80th Avenue S.E., Calgary, Alberta, Canada, T2C
1J3.
The by-laws of Venture provide that two (2) persons present and holding
or representing by proxy not less than fifty percent (50%) of the issued Venture
Common Shares entitled to vote at the Meeting shall constitute a quorum for the
Meeting. Assuming a quorum is present, the affirmative vote of a simple majority
of the Venture Common Shares voting, in person or by proxy, is necessary to
approve the Purchase Agreement and the Other Special Meeting Matters.
This information is given as of the 19th day of June, 1998. The contents
and sending of this Proxy Statement has been approved by the Venture Board.
The foregoing contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in the light of the circumstances
in which it was made concerning Venture Seismic Ltd.
/s/ Brian W. Kozun /s/ Gregory B. Wiebe
- --------------------------- ---------------------------
BRIAN W. KOZUN GREGORY B. WIEBE
Chief Executive Officer Chief Financial Officer
-95-
<PAGE> 107
The foregoing contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in the light of the circumstances
in which it was made concerning Continental Holdings Ltd.
/s/ Leslie J. Stinn
- ---------------------------
LESLIE J. STINN
Chief Executive Officer
-96-
<PAGE> 108
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
VENTURE SEISMIC LTD.
Auditors' Report....................................................... F-3
Consolidated Balance Sheets -- As at September 30, 1997
and September 30, 1996................................................. F-4
Consolidated Statements of Income and Retained Earnings --
For the years ended September 30, 1997, 1996 and 1995.................. F-5
Consolidated Statements of Cash Flows -- For the years ended
September 30, 1997, 1996 and 1995...................................... F-6
Notes to Consolidated Financial Statements............................. F-7
Consolidated Balance Sheets -- As at March 31, 1998 and
September 30, 1997 (Unaudited)......................................... F-17
Consolidated Statements of Income -- For the six months ended
March 31, 1998 and 1997 (Unaudited).................................... F-18
Consolidated Statements of Cash Flows -- For the six months ended
March 31, 1998 and 1997 (Unaudited).................................... F-19
Notes to Consolidated Financial Statements (Unaudited)................. F-20
</TABLE>
F-1
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
CONTINENTAL HOLDINGS LTD.
Auditors' Reports...................................................... F-24
Balance Sheet -- As at December 31, 1997 and 1996...................... F-26
Statement of Income and Retained Earnings -- For the years ended
December 31, 1997, 1996 and 1995....................................... F-28
Statement of Cash Flows -- For the years ended December 31,
1997, 1996 and 1995.................................................... F-29
Notes to Financial Statements.......................................... F-30
</TABLE>
F-2
<PAGE> 110
AUDITORS' REPORT
To the Shareholders of
VENTURE SEISMIC LTD.
We have audited the consolidated balance sheets of Venture Seismic Ltd. as
at September 30, 1997 and 1996 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, 1997. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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,
1997 and 1996 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, 1997
in accordance with accounting principles generally accepted in Canada.
Calgary, Canada /s/ Ernst & Young
December 17, 1997 Chartered Accountants
F-3
<PAGE> 111
VENTURE SEISMIC LTD.
(Incorporated under the Business Corporations Act (Alberta))
CONSOLIDATED BALANCE SHEETS
(in U.S. Dollars)
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash............................................................ $ 68,066 $ --
Accounts receivable [note 4].................................... 2,586,688 2,644,659
Other receivables............................................... 297,707 149,732
Income taxes recoverable........................................ -- 430,975
Work-in-progress................................................ 521,594 381,273
Prepaid expenses and deposits................................... 204,276 156,678
----------- -----------
3,678,331 3,763,317
DEFERRED INCOME TAXES........................................... -- 63,875
CAPITAL ASSETS [notes 2, 5 and 14].............................. 17,383,026 9,614,265
INTANGIBLE ASSETS (NET OF ACCUMULATED AMORTIZATION
1997 - $217,760; 1996 - $51,440) [note 3]..................... 1,554,503 1,491,783
----------- -----------
$22,615,860 $14,933,240
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness [note 4]...................................... $ -- $ 164,630
Accounts payable and accrued liabilities........................ 1,036,147 2,764,723
Deferred revenue................................................ 800,000 --
Income taxes payable............................................ 118,708 --
Current portion of long term debt [notes 5 and 14].............. 6,580,703 1,520,000
----------- -----------
8,535,558 4,449,353
----------- -----------
LONG TERM DEBT [notes 5 and 14]................................. 3,746,490 2,356,060
----------- -----------
DEFERRED INCOME TAXES........................................... 674,076 --
----------- -----------
COMMITMENTS AND CONTINGENCY [note 6]
SHAREHOLDERS' EQUITY
Share capital [notes 7 and 14].................................. 7,671,366 7,539,902
Retained earnings............................................... 1,949,549 494,843
Cumulative translation adjustment............................... 38,821 93,082
----------- -----------
9,659,736 8,127,827
----------- -----------
$22,615,860 $14,933,240
=========== ===========
</TABLE>
On behalf of the Board:
<TABLE>
<S> <C>
/s/ BRIAN KOZUN /s/ DAN MCARTHUR
Director Director
</TABLE>
See accompanying notes
F-4
<PAGE> 112
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in U.S. Dollars)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
REVENUE............................................ $27,132,227 $14,146,971 $9,458,452
DIRECT EXPENSES.................................... 19,796,462 11,991,236 6,713,181
----------- ----------- ----------
GROSS MARGIN....................................... 7,335,765 2,155,735 2,745,271
----------- ----------- ----------
EXPENSES
General and administrative......................... 1,828,464 1,342,082 825,193
Depreciation....................................... 2,363,398 1,461,807 901,896
Amortization of goodwill........................... 166,320 51,440 --
----------- ----------- ----------
4,358,182 2,855,329 1,727,089
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS...................... 2,977,583 (699,594) 1,018,182
----------- ----------- ----------
OTHER INCOME (EXPENSE)
Gain on sale of capital assets..................... 80,372 -- 9,466
Interest and other income.......................... 42,689 105,367 18,510
Interest expense [note 8].......................... (669,938) (327,931) (290,115)
Write-down for impairment of assets................ -- (100,000) --
----------- ----------- ----------
(546,877) (322,564) (262,139)
----------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................. 2,430,706 (1,022,158) 756,043
----------- ----------- ----------
Income taxes [note 9]
Current (recovery)............................... 90,000 (293,732) 174,317
Deferred......................................... 886,000 (63,727) 145,420
----------- ----------- ----------
976,000 (357,459) 319,737
----------- ----------- ----------
NET INCOME (LOSS) FOR THE YEAR..................... 1,454,706 (664,699) 436,306
RETAINED EARNINGS, BEGINNING OF YEAR............... 494,843 1,159,542 723,236
----------- ----------- ----------
RETAINED EARNINGS, END OF YEAR..................... $ 1,949,549 $ 494,843 $1,159,542
=========== =========== ==========
NET INCOME (LOSS) PER COMMON SHARE [notes 7 and 12]
Basic............................................ $ .47 $ (.23) $ .31
Fully diluted.................................... $ .31 $ (.23) $ .31
</TABLE>
See accompanying notes
F-5
<PAGE> 113
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. Dollars)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year.................. $ 1,454,706 $ (664,699) $ 436,306
Items not involving cash
Depreciation and amortization................. 2,529,718 1,513,247 901,896
Deferred income taxes......................... 886,000 (63,727) 145,420
Gain on sale of capital assets................ (80,372) -- (9,466)
Write-down of capital assets.................. -- 100,000 --
Cumulative translation adjustment............... (170,846) 139,335 --
Net change in non-cash working capital
[note 11]..................................... (695,224) (831,864) 486,111
------------ ------------ -----------
3,923,982 192,292 1,960,267
------------ ------------ -----------
FINANCING ACTIVITIES
Proceeds on issuance of shares.................. 100,000 6,907,507 --
Borrowings of long term debt.................... 12,239,474 1,936,277 3,347,187
Repayments of long term debt.................... (5,788,341) (1,337,586) (2,304,747)
Decrease in bank indebtedness................... (164,630) (208,451) (309,015)
Net change in non-cash working capital [note
11]........................................... 38,408 157,570 (224,119)
------------ ------------ -----------
6,424,911 7,455,317 509,306
------------ ------------ -----------
INVESTING ACTIVITIES
Purchase of capital assets...................... (10,080,773) (5,891,181) (2,479,039)
Acquisitions [note 3]........................... (313,354) (1,756,428) --
Proceeds on sale of capital assets.............. 113,300 -- 9,466
------------ ------------ -----------
(10,280,827) (7,647,609) (2,469,573)
------------ ------------ -----------
INCREASE IN CASH FOR THE YEAR................... 68,066 -- --
------------ ------------ -----------
CASH, BEGINNING OF YEAR......................... -- -- --
------------ ------------ -----------
CASH, END OF YEAR............................... $ 68,066 $ -- $ --
============ ============ ===========
</TABLE>
See accompanying notes
F-6
<PAGE> 114
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. Dollars)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements of Venture Seismic Ltd. ("Venture"
or the "Company") 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. All amounts
are in $US unless otherwise stated.
CONSOLIDATION
The consolidated financial statements include the accounts of Venture and
its wholly-owned subsidiaries, Boone Geophysical, Inc., Hydrokinetic Surveys of
Canada Inc. and Venture Seismic Inc. (Texas). 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%
Automotive equipment........................................ 30%
Equipment and radios........................................ 25%
Computer 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 price of net assets
acquired and is amortized on a straight-line basis over five to ten years from
the date of acquisition. A writedown for impairment is recorded in income when
the Company assesses the net carrying value to be in excess of net realizable
value.
FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of a bank operating line,
capital loans and equipment lease purchase contracts. The carrying value of
these instruments approximates fair value unless otherwise stated.
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. Billings in excess of revenue
amounts earned are disclosed on the balance sheet as deferred revenue.
F-7
<PAGE> 115
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
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.
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. All $US denominated debt is short
term.
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 gains or losses are included in a cumulative translation
adjustment account as a separate component of shareholders' equity.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Recording equipment................... $20,725,799 $4,289,072 $11,124,043 $2,302,653
Automotive equipment.................. 1,066,896 547,774 733,338 389,848
Equipment and radios.................. 814,325 493,989 778,577 388,862
Computer equipment.................... 99,720 50,644 57,929 30,408
Furniture and fixtures................ 91,535 33,770 50,502 18,353
----------- ---------- ----------- ----------
22,798,275 5,415,249 12,744,389 3,130,124
----------- ---------- ----------- ----------
Net Book Value........................ $17,383,026 $9,614,265
============ ===========
</TABLE>
3. ACQUISITIONS
Effective April 1, 1997, the Company acquired all of the outstanding shares
of Hydrokinetic Surveys of Canada Inc. for an aggregate cash purchase price of
$313,354. Of this amount, $84,314 was allocated to capital assets and $229,040
to intangible assets.
F-8
<PAGE> 116
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
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's common shares from
treasury and $56,428 of direct acquisition costs.
<TABLE>
<S> <C>
Capital assets.................................................................. $ 213,205
Excess of cost over net tangible assets acquired, assigned to intangible
assets........................................................................ 1,543,223
----------
1,756,428
Cash............................................................................ 50,000
----------
$1,806,428
==========
</TABLE>
4. BANK INDEBTEDNESS
The bank operating loan is a $1,230,000 ($1,700,000 Canadian) line of
credit. The loan is repayable on demand, with interest payable at the Alberta
Treasury Branch prime rate plus .75% per annum. The average effective interest
rate for the year was 5.52%.
A general assignment of book debts has been pledged as collateral for the
bank operating loan.
The loan agreement with the bank contains restrictive covenants about the
maintenance of certain financial ratios and changes in share ownership. As at
September 30, 1997, the Company was not in compliance with the covenant
requiring a working capital ratio of not less the 1:1. However, the Company has
subsequently requested and received a letter from the bank waiving this covenant
requirement until January 31, 1998.
5. LONG TERM DEBT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Capital loans, bearing interest at the lender's cost of funds plus
2.75% to 3.00% and repayable in monthly instalments of $124,847
($172,583 Canadian) comprised of principal and interest, due in
periods through September 15, 2001. The average effective
interest rates for the years were 6.56% and 6.84%,
respectively.................................................... $5,244,650 $2,409,094
Equipment lease purchase contracts, bearing interest at 20%,
repayable in monthly instalments of $452,810 comprised of
principal and interest, due from November 30, 1997 to February
10, 1998........................................................ 5,082,543 --
Equipment lease purchase contracts................................ -- 1,466,966
----------- ----------
10,327,193 3,876,060
Less current portion.............................................. (6,580,703) (1,520,000)
----------- ----------
$3,746,490 $2,356,060
=========== ==========
</TABLE>
A general security agreement on equipment and a fixed charge on certain
equipment have been pledged as collateral for the capital loans.
F-9
<PAGE> 117
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
Principal repayments are as follows:
<TABLE>
<S> <C>
1998....................................................... $ 6,580,703
1999....................................................... 1,498,160
2000....................................................... 1,498,160
2001....................................................... 750,170
-----------
$10,327,193
===========
</TABLE>
6. COMMITMENTS AND CONTINGENCY
The Company has entered into several operating lease agreements for
automotive equipment and office premises, with the following required payments:
<TABLE>
<S> <C>
1998....................................................... $ 670,000
1999....................................................... 508,000
2000....................................................... 290,000
2001....................................................... 100,000
2002....................................................... 74,000
----------
$1,642,000
==========
</TABLE>
Operating lease expenses of $462,000, $300,000, and $316,368, were included
in income for the years ended September 30, 1997, 1996 and 1995, respectively.
The Company has recently received notice that the Canadian taxation
authorities have disallowed certain expenses related to the 1994, 1995 and 1996
taxation years. The Company has also deducted these expenses for tax purposes in
1997. These reassessments and the potential reassessment for the current year,
would result in additional income taxes of approximately $340,000 ($485,000
Canadian). Based on a recent court case, involving another company with a set of
similar circumstances to the Company's situation, the Company disagrees with the
basis of the reassessment and has filed notices of objection. Should the
reassessments be upheld, any resulting loss would be charged to income in the
year the outcome was determined.
F-10
<PAGE> 118
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
7. SHARE CAPITAL
(A) AUTHORIZED
The Company's authorized share capital consists of an unlimited number of
common and preferred shares.
(B) ISSUED
<TABLE>
<CAPTION>
COMMON
-----------------------
NUMBER AMOUNT
--------- ----------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1995 (i)............. 1,400,000 $ 131,671
Issued for cash(ii).................................................. 1,604,050 7,008,231
Issued on acquisition of Boone Geophysical, Inc. (see note 3)........ 93,633 400,000
--------- ----------
BALANCE AT SEPTEMBER 30, 1996........................................ 3,097,683 7,539,902
Adjustment for translation of Canadian dollar amounts................ -- (110,189)
Issued on acquisition of Boone Geophysical, Inc. (see note 3)........ 23,211 100,000
Recognition of income tax benefit of previous year's share issue
costs (iii)........................................................ -- 141,653
--------- ----------
BALANCE AT SEPTEMBER 30, 1997........................................ 3,120,894 $7,671,366
========= ==========
</TABLE>
(i) On August 23, 1995, the Company's 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 give effect to
the share reorganization as at September 30, 1994.
(ii) As part of the Company's initial public offering 1,610,000 warrants
were issued. 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 [Note 14(b)]. 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
per share. 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.
(iii) The shares issued for cash are net of share issue costs totaling
$1,640,148. Of the $731,500 of income tax benefit associated with these
share issue costs, $642,377 (1996 -- $500,724) has been recorded in the
share capital account. The remaining benefit of $89,123 (1996 --
$230,776) will be recognized in the accounts when realized.
(C) STOCK OPTIONS
Under the Company's 1995 Stock Option Plan, as amended (the "Option Plan"),
up to 450,000 common shares are available for purchase by directors, officers,
employees and consultants. Options granted under the Option Plan are contingent
upon continued employment and are exercisable on a cumulative basis over a
vesting period of three years. There are 264,500 options outstanding to purchase
common shares at an exercise prices varying from $3.38 to $5.88, of which
178,250 options are fully vested. These options expire at varying dates from
September 2005 to July 2007.
F-11
<PAGE> 119
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
In October, 1995, FASB Statement No. 123 "Accounting for Stock Based
Compensation" was issued requiring companies to recognize a compensation expense
for grants of stock options or other equity investments based on their fair
value or provide pro forma disclosure of the effect on net income in the notes
to the financial statements. The following pro forma information presents a
summary of the results of operations had the company accounted for its employee
stock options under the fair value method of FASB Statement No. 123:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Net income (loss) as reported.......................... $1,454,706 $(664,699) $436,306
Compensation expense on issuance of stock options...... (185,520) (158,136) --
---------- --------- --------
Pro Forma net income (loss)............................ $1,269,186 $(822,835) $436,306
========== ========= ========
Pro Forma net income (loss) per common share
Primary and fully-diluted............................ $ .35 $ (.29) $ .31
===== ====== =====
</TABLE>
8. INTEREST EXPENSE
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Bank indebtedness...................................... $ 58,374 $ 72,965 $ 68,940
Long-term debt......................................... 611,564 254,966 221,175
-------- -------- --------
$669,938 $327,931 $290,115
======== ======== ========
</TABLE>
The Company paid interest of $669,938, $331,970 and $290,607 in the years
ended September 30, 1997, 1996 and 1995, respectively.
9. 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>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Corporate tax rate..................................... 44.6% 44.6% 44.48%
========== ========= ========
Provision for income taxes at statutory tax rate....... $1,084,100 $(455,882) $336,290
Increase (decrease) in income taxes due to:
Small business deduction............................. -- -- (37,000)
Loss of subsidiary company (recognized)/not
recognized........................................ (47,000) 47,000 --
Subsidiary income taxed at lower rate................ (100,000) -- --
Non-taxable portion of capital gain.................. (9,000) -- --
Non-deductible expenses.............................. 90,000 39,000 22,000
Other................................................ (42,100) 12,423 (1,553)
---------- --------- --------
$ 976,000 $(357,459) $319,737
========== ========= ========
</TABLE>
The Company paid income taxes of $Nil, $Nil, and $400,270 in the years
ended September 30, 1997, 1996 and 1995, respectively.
F-12
<PAGE> 120
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
10. 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer A........................................................... 32% 54% 43%
Customer B........................................................... -- 11% --
Customer C........................................................... -- -- 15%
Customer D........................................................... -- -- 13%
Customer E........................................................... 13% -- --
---- ---- ----
45% 65% 71%
==== ==== ====
</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.
Approximately 35% and 84% of accounts receivable at September 30, 1997 and
1996, respectively, were represented by three customers.
The following table provides information by geographic area as at and for
the years ended September 30, 1997 and 1996. Prior to the year ended September
30, 1996 primarily all the Company's operations were conducted in Canada.
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
CANADA UNITED STATES INTERNATIONAL CORPORATE TOTAL
----------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue........................... $16,077,318 $ 11,054,909 $ -- $ -- $27,132,227
----------- ----------- ----------- ----------- -----------
Gross margin...................... 4,480,795 2,854,970 -- -- 7,335,765
General and administrative
costs........................... -- -- -- -- (1,828,464)
Depreciation and amortization..... -- -- -- -- (2,529,718)
Interest expense.................. -- -- -- -- (669,938)
Other............................. -- -- -- -- 123,061
Income taxes...................... -- -- -- -- (976,000)
-----------
Net income for the year........... -- -- -- -- 1,454,706
----------- ----------- ----------- ----------- -----------
Identifiable assets............... $10,396,171 $ 10,665,186 $ -- $1,554,503 $22,615,860
=========== =========== =========== =========== ===========
</TABLE>
F-13
<PAGE> 121
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------------
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>
11. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Accounts receivable................................ $ 57,971 $(1,224,060) $ 69,094
Other receivables.................................. (147,975) (84,424) 232,515
Income taxes recoverable........................... 430,975 (430,975) --
Work-in-progress................................... (140,321) (322,513) 85,988
Prepaid expenses and deposits...................... (47,598) 228,764 (214,020)
Accounts payable and accrued liabilities........... (1,728,576) 1,166,288 314,368
Deferred revenue................................... 800,000 -- --
Income taxes payable............................... 118,708 (7,374) (225,953)
----------- ----------- ---------
(656,816) (674,294) 261,992
----------- ----------- ---------
Comprised of:
Operating.......................................... (695,224) (831,864) 486,111
Financing.......................................... 38,408 157,570 (224,119)
----------- ----------- ---------
$ (656,816) $ (674,294) $ 261,992
=========== =========== =========
</TABLE>
12. DIFFERENCES BETWEEN CANADA AND UNITED STATES ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Net income (loss) using Canadian GAAP.............. $ 1,454,706 $ (664,699) $ 436,306
Compensation expense............................... -- -- 212,692
---------- --------- --------
Net income (loss) using U.S. GAAP.................. $ 1,454,706 $ (664,699) $ 223,614
========== ========= ========
</TABLE>
Compensation expense represents the estimated fair market value at $3.50
per share for shares given for nominal consideration from a principal
shareholder to a member of senior management as part of an employment contract.
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 provisions also
F-14
<PAGE> 122
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
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>
1997 1996
--------- ---------
<S> <C> <C>
Capital assets..................................................... $ 897,000 $ 133,800
Current assets/liabilities......................................... 522,000 103,200
Share issue costs.................................................. (408,000) (480,975)
Benefit of unrecognized loss carryforward.......................... (336,924) (40,000)
--------- ---------
674,076 (283,975)
Valuation allowance................................................ -- 220,100
--------- ---------
$ 674,076 $ (63,875)
========= =========
</TABLE>
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>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net income (loss) per common share using U.S. basis
Primary and fully diluted....................................... $ .39 $(.23) $ .16
===== ===== =====
</TABLE>
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 3,111,000 for 1997,
2,857,000 for 1996 and 1,400,000 for 1995.
13. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
current year's presentation.
14. SUBSEQUENT EVENTS
(A) CAPITAL LOAN
Subsequent to September 30, 1997, the Company was advanced $1.0 million
($1.4 million Canadian) by Roynat Inc. with the proceeds used to fund the
acquisition of certain capital assets. The loan bears interest at the lender's
cost of funds plus 2.75% and is repayable in monthly principal installments of
$21,000 ($29,167 Canadian), commencing October 1997.
(B) WARRANT REDEMPTION
Subsequent to September 30, 1997, the Company announced it had called all
of its outstanding Redeemable Warrants ("Warrants") for redemption on January 6,
1998. Each warrant is exercisable prior to January 6, 1998, for one of the
Company's Common Shares at an exercise price of $6.00. As at December 17, 1997,
784,912 warrants had been exercised and approximately $4,700,000 of cash has
been received upon exercise of these warrants.
F-15
<PAGE> 123
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in U.S. Dollars)
SEPTEMBER 30, 1997
(C) ACQUISITION
On December 2, 1997, the Company announced it had signed a letter of intent
to acquire 100% of the outstanding capital stock of Continental Holdings Ltd.
("Continental") for consideration in cash and shares of the Company with an
aggregate value of approximately $14,525,000. Continental is a privately held
marine seismic data acquisition company.
F-16
<PAGE> 124
VENTURE SEISMIC LTD.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash $ 5,229,339 $ 68,066
Accounts receivable 10,624,200 2,586,688
Work-in-progress 290,000 521,594
Other receivables 223,809 297,707
Prepaid expenses and deposits 367,829 204,276
----------- -----------
16,735,177 3,678,331
CAPITAL ASSETS 20,140,126 17,383,026
INTANGIBLE ASSETS 1,465,343 1,554,503
----------- -----------
$38,340,646 $22,615,860
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 350,000 $ --
Accounts payable and accrued liabilities 6,976,242 1,036,147
Deferred revenue 560,000 800,000
Income taxes payable 611,610 118,708
Current portion of long term debt (note 4) 2,693,300 6,580,703
----------- -----------
11,191,152 8,535,558
----------- -----------
LONG TERM DEBT (NOTE 4) 5,891,548 3,746,490
----------- -----------
DEFERRED INCOME TAXES 969,171 674,076
----------- -----------
SHAREHOLDERS' EQUITY
Share capital (note 5) 16,807,290 7,671,366
Retained earnings 3,499,129 1,949,549
Foreign currency translation (17,644) 38,821
----------- -----------
20,288,775 9,659,736
----------- -----------
$38,340,646 $22,615,860
=========== ===========
</TABLE>
F-17
<PAGE> 125
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF INCOME
(IN U.S. DOLLARS)
(Unaudited)
<TABLE>
SIX MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUE $21,706,425 $15,683,001
DIRECT EXPENSES 15,906,769 11,150,221
----------- -----------
GROSS MARGIN 5,799,656 4,532,780
----------- -----------
EXPENSES
General and administrative 1,100,621 886,290
Depreciation 1,540,928 1,085,949
Amortization 89,160 77,160
---------- ----------
2,730,709 2,049,399
---------- ----------
INCOME FROM OPERATIONS 3,068,947 2,483,381
OTHER INCOME (EXPENSE)
Interest and other income 121,470 6,550
Interest expense (589,322) (273,338)
----------- -----------
(467,852) (266,788)
----------- -----------
INCOME BEFORE INCOME TAXES 2,601,095 2,216,593
----------- -----------
INCOME TAXES
Current 616,834 703,616
Deferred 434,681 267,162
----------- -----------
1,051,515 970,778
----------- -----------
NET INCOME $ 1,549,580 $ 1,245,815
=========== ===========
EARNINGS PER COMMON SHARE
(NOTE 3)
Basic $0.36 $0.40
Diluted (U.S. GAAP) $0.35 $0.40
Fully diluted (CDN GAAP) $0.25 $0.25
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
Basic 4,312,000 3,105,000
Diluted (U.S. GAAP) 4,456,000 3,105,000
Fully diluted (CDN GAAP) 6,190,000 5,346,000
</TABLE>
F-18
<PAGE> 126
VENTURE SEISMIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,549,580 $ 1,245,815
Items not involving cash:
Depreciation and amortization 1,630,088 1,163,109
Deferred income taxes 434,681 267,162
Gain on sale of capital assets (32,870) --
Cumulative translation adjustment (196,051) (54,151)
Net change in non-cash working capital (1,702,576) (1,913,446)
----------- -----------
1,682,852 708,489
----------- -----------
FINANCING ACTIVITIES:
Proceeds on issuance of common shares 9,135,924 50,000
Increase in bank indebtedness 350,000 675,856
Proceeds from long term debt 4,915,580 3,820,411
Principal payments on long term debt (6,657,925) (2,277,274)
Net change in non-cash working capital -- (100,000)
----------- -----------
7,743,579 2,168,993
----------- -----------
INVESTING ACTIVITIES:
Purchase of capital assets (4,321,150) (2,614,994)
Proceeds on sale of capital assets 55,992 --
----------- -----------
(4,265,158) (2,614,994)
----------- -----------
INCREASE IN CASH FOR THE PERIOD 5,161,273 262,488
CASH, BEGINNING OF PERIOD 68,066 --
----------- -----------
CASH, END OF PERIOD $ 5,229,339 $ 262,488
=========== ===========
</TABLE>
F-19
<PAGE> 127
VENTURE SEISMIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(in U.S. Dollars)
(Unaudited)
1. Basis of Financial Statement Presentation
The consolidated financial statements of Venture Seismic Ltd. (the "Company")
are unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position of the Company as at March 31, 1998,
operating results for the six months ended March 31, 1998 and 1997 and
statements of cash flows for the six months ended March 31, 1998 and 1997. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-KSB for its fiscal year
ended September 30, 1997. The foregoing interim results for the six months
ended March 31, 1998 are not necessarily indicative of the results for the
fiscal year ending September 30, 1998 or any other period.
The consolidated financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("Cdn GAAP"). Certain of these
principles differ from those applicable in the United States ("U.S. GAAP").
Differences, if material, are disclosed in note 3 - Reconciliation to United
States Accounting Principles.
2. Currency Presentation and Exchange Rates
All dollar amounts, unless otherwise stated, are expressed in U.S. dollars.
Since the completion of its initial public offering in November 1995, the
Company has selected U.S. dollars as its currency for financial reporting and
display purposes on the basis that the securities of the Company are listed for
trading on the Nasdaq National Market ("Nasdaq") and the primary users of the
financial statements of the Company are U.S. residents. Accordingly, the
Company applies the "current rate" method to translate its accounts measured in
Canadian ("Cdn") dollars to U.S. dollars. Under this method, average exchange
rates are used for items included in the consolidated income statement and
period end exchange rates are used for the assets and liabilities. Any
significant gains or losses are included as a separate component of
shareholders' equity.
For translation purposes, the exchange rates of Cdn dollars to U.S. dollars, is
calculated using the exchange rates reported by the Federal Reserve Bank of New
York, as the noon buying rate in New York for cable transfers in Cdn dollars, as
certified for custom purposes. The average exchange rates for the six months
ended March 31, 1998 and 1997 are US $0.7044 = $1.00 Cdn and US $0.7382 = $1.00
Cdn, respectively. The period end exchange rates at March 31, 1998 and September
30, 1997 are US $0.7033 = $1.00 Cdn and US $0.7234 = $1.00 Cdn, respectively.
3. Reconciliation to United States Accounting Principles
For the periods ended March 31, 1998 and 1997 there were no material differences
in net
F-20
<PAGE> 128
income as calculated in accordance with Cdn GAAP and U.S. GAAP.
The Company adopted the Financial Accounting Statements Board Statement of
Financial Accounting Standards No. 128 "Earnings per Share" in the first quarter
of fiscal 1998. In accordance with this pronouncement, for purposes of U.S.
GAAP, basic earnings per share ("EPS") is computed by dividing net earnings by
the weighted average number of common shares of the Company ("Shares")
outstanding during the period. Diluted EPS is determined on the assumption that
outstanding dilutive stock options and warrants have been exercised and the
aggregate proceeds were used to reacquire Shares using the average price of such
Shares for the period.
<TABLE>
<CAPTION>
Six months ended March 31, 1998
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income $1,549,580 4,312,000 $0.36
Effect of dilutive securities:
Redeemable warrants 45,000
Employee stock options 75,000
Warrants 24,000
---------- --------- -----
Diluted EPS $1,549,580 4,456,000 $0.35
========== ========= =====
</TABLE>
During the six months ended March 31, 1998, the average closing price of the
Shares, as reported on Nasdaq, was $6.96 per share. Underwriter Warrants to
purchase 280,000 Shares at exercise prices ranging from $7.00 to $8.25 per share
were not included in the calculation of diluted EPS for the six month period
ended March 31, 1998 since the exercise prices were greater than $6.96 per
share. The warrants, which expire in November 2000, were still outstanding at
March 31, 1998.
F-21
<PAGE> 129
4. Long term debt
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
--------- -------------
<S> <C> <C>
Capital loans, bearing interest at the lender's cost
of funds plus 2.75%, payable in monthly principal
installments of $141,205 ($201,750 Cdn) due February,
September and November 2001. $ 5,268,900 $ 5,244,650
Equipment lease purchase contract, bearing interest
at 20%, payable in monthly installments of $130,600
comprised of principal and interest, due May 1998
(see note 6). 1,388,637 --
Equipment lease, bearing interest at 9%, payable
in quarterly installments of $196,290 comprised of
principal and interest, due January 2001. 1,927,311 --
Equipment lease purchase contracts -- 5,082,543
----------- -----------
8,584,848 10,327,193
Less current portion (2,693,300) (6,580,703)
----------- -----------
$ 5,891,548 $ 3,746,490
=========== ===========
</TABLE>
A general security agreement on all equipment and a fixed charge on certain
equipment have been pledged as collateral for the long term debt. Aggregate
principal payments on a fiscal year basis for long term debt are as follows:
<TABLE>
<S> <C>
1998, remainder of fiscal year $1,298,485
1999 2,652,516
2000 2,716,309
2001 1,681,988
2002 235,550
----------
$8,584,848
==========
</TABLE>
5. Share capital
On November 10, 1997, the Company called for redemption, at a redemption price
of $0.10 per Warrant, all of the Company's 1,610,000 outstanding redeemable
Warrants ("Warrants") which were not exercised prior to 5:00 p.m. on January 5,
1998 (the "Redemption Date"). During the six month period ended March 31, 1998,
1,513,690 Warrants were exercised, at an exercise price of $6.00 per Warrant to
purchase one Share, resulting in the issuance of 1,513,690 Shares and aggregate
proceeds of $9,082,140. The Company incurred costs of $25,978 related to the
exercise of the Warrants. The 96,310 Warrants outstanding after the Redemption
Date were redeemed by the Company for an aggregate of $9,631.
F-22
<PAGE> 130
During the six months ended March 31, 1998 the Company recorded in the share
capital account an income tax benefit of $89,123 associated with expenses
related to the issuance of Shares in the fiscal year ended September 30, 1996.
6. Subsequent events
Subsequent to March 31, 1998:
i) the Company entered into a capital loan agreement whereby the lender
loaned approximately $1,400,000 ($2,000,000 Cdn) to refinance an existing
lease purchase contract of an aggregate principal amount of approximately
$1,400,000. This lease bears interest at the lender's cost of funds plus
2.75%, payable in monthly installments of approximately $28,000 ($40,000
Cdn) plus interest and matures in July 2002. A fixed charge on the leased
equipment has been pledged as collateral for the financing.
ii) the Company loaned $4,000,000 to Continental Holdings Ltd.
("Continental") in conjunction with a definitive Securities Purchase
Agreement to acquire 100% of the outstanding capital stock of Continental
(the "Continental Acquisition") entered into in March 1998. The loan is
being used by Continental to fund a portion of the cost, estimated to
aggregate approximately $10,000,000, of equipping and refurbishing (the
"Refurbishment") a second marine vessel. The loan is payable in quarterly
installments of principal and interest commencing December 1, 1999 and
bears interest at the prime lending rate of the Royal Bank of Canada, plus
1%. Certain assets of Continental have been pledged in favor of the
Company as collateral. Should closing of the Continental Acquisition not
occur prior to August 31, 1998, the loan, including interest, is payable
in quarterly installments commencing December 1, 1999, consisting of
principal and accrued interest, and is convertible into approximately 26%
of the outstanding capital of Continental. Assuming the Continental
Acquisition closes, the loan will become intercompany debt, due and
payable to Venture.
F-23
<PAGE> 131
AUDITORS' REPORT
To the Shareholders of
CONTINENTAL HOLDINGS LTD.
We have audited the balance sheet of CONTINENTAL HOLDINGS LTD. as at December
31, 1997 and the statements of income and retained earnings and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with accounting principles generally accepted in
Canada.
The financial statements as at December 31, 1996 and for each of the years in
the two year period ended December 31, 1996 were audited by other auditors who
expressed an opinion without reservation on those financial statements in their
report dated February 19, 1997.
Calgary, Canada /s/ ERNST & YOUNG
March 26, 1998 Chartered Accountants
(except for note
13 which is as
of May 26, 1998)
F-24
<PAGE> 132
AUDITORS' REPORT
To the Shareholders of
CONTINENTAL HOLDINGS LTD.
We have audited the balance sheet of CONTINENTAL HOLDINGS LTD. as at December
31, 1996 and the statements of income and retained earnings and cash flows for
each of the years in the two year period then ended. 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 audit.
We conducted our audit 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 presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in financial position for each of the
years in the two year period then ended in accordance with accounting principles
generally accepted in Canada.
Calgary, Canada /s/ Meyers Norris Penny & Co.
February 19, 1997 Chartered Accountants
F-25
<PAGE> 133
CONTINENTAL HOLDINGS LTD.
BALANCE SHEET
(in U.S. Dollars)
As at December 31
ASSETS
<TABLE>
<CAPTION>
1997 1996
$ $
--------- ---------
<S> <C> <C>
CURRENT [NOTE 5]
Cash 1,690,102 230,400
Accounts receivable 1,256,029 1,311,004
Inventory 344,047 161,561
Prepaid expenses and deposits 56,013 6,149
--------- ---------
3,346,191 1,709,114
INVESTMENT [NOTE 2] 72,966 72,966
DEFERRED INCOME TAXES [NOTE 9] 100,052 --
CAPITAL ASSETS [NOTES 3 AND 5] 2,226,983 3,433,231
--------- ---------
5,746,192 5,215,311
========= =========
</TABLE>
F-26
<PAGE> 134
CONTINENTAL HOLDINGS LTD.
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
$ $
--------- ---------
<S> <C> <C>
CURRENT
Accounts payable and accrued liabilities 1,828,424 3,528,761
Income taxes payable 1,141,858 --
Due to shareholders, non-interest bearing with
no fixed terms of repayment 488,535 97,066
Current portion of long term debt [note 5] 213,895 1,029,558
--------- ---------
3,672,712 4,655,385
--------- ---------
DUE TO RELATED COMPANY [NOTE 4] -- 269,661
--------- ---------
DEFERRED LEASE EXPENSE [NOTE 8] 337,939 --
--------- ---------
LONG TERM DEBT [NOTE 5] 8,923 176,670
--------- ---------
COMMITMENTS [NOTE 8]
SHAREHOLDERS' EQUITY
Share capital [note 6] 14,914 14,914
Retained earnings 1,711,704 98,681
--------- ---------
1,726,618 113,595
--------- ---------
5,746,192 5,215,311
========= =========
</TABLE>
See accompanying notes
On behalf of the Board:
<TABLE>
<S> <C> <C>
/s/ ROY SELF /s/ LES STINN
Director Director
</TABLE>
F-27
<PAGE> 135
CONTINENTAL HOLDINGS LTD.
STATEMENT OF INCOME AND RETAINED EARNINGS
(in U.S. Dollars)
For the year ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
REVENUE 9,609,915 8,485,092 5,095,856
DIRECT EXPENSES 5,631,075 6,171,258 4,047,221
--------- --------- ---------
3,978,840 2,313,834 1,048,635
--------- --------- ---------
EXPENSES
General and administration 908,638 1,938,607 469,800
Depreciation 620,255 476,564 38,134
Interest - other 9,809 62,146 --
Interest - long term 42,760 56,257 8,570
--------- --------- ---------
1,581,462 2,533,574 516,504
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 2,397,378 (219,740) 532,131
--------- --------- ---------
OTHER INCOME
Interest 26,759 28,541 44,311
Foreign exchange gain 143,249 1,823 --
Gain on disposal of capital assets 30,000 144,136 --
Gain on sale of investments 93,074 878 405,867
--------- --------- ---------
293,082 175,378 450,178
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 2,690,460 (44,362) 982,309
--------- --------- ---------
INCOME TAXES [NOTE 7]
Current 1,177,489 (4,401) 277,783
Deferred (100,052) (124,042) 124,042
--------- --------- ---------
1,077,437 (128,443) 401,825
--------- --------- ---------
NET INCOME FOR THE YEAR 1,613,023 84,081 580,484
RETAINED EARNINGS, BEGINNING OF YEAR 98,681 907,776 327,292
DIVIDENDS -- (125,493) --
PREMIUM ON REDEMPTION OF SHARES [NOTE 6] -- (767,683) --
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR 1,711,704 98,681 907,776
========= ========= =========
</TABLE>
See accompanying notes
F-28
<PAGE> 136
CONTINENTAL HOLDINGS LTD.
STATEMENT OF CASH FLOWS
(in U.S. Dollars)
For the year ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
---------- ---------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income for the year 1,613,023 84,081 580,484
Items not involving cash
Depreciation 620,255 476,564 38,134
Deferred lease expense 337,939 -- --
Deferred income taxes (100,052) (124,042) 124,042
Gain on disposal of capital assets (30,000) (144,136) --
Gain on sale of investments (93,074) (878) (405,867)
---------- ---------- --------
2,348,091 291,589 336,793
Net change in non-cash working capital
[note 10] (735,854) 1,173,971 558,854
---------- ---------- --------
1,612,237 1,465,560 895,647
---------- ---------- --------
FINANCING ACTIVITIES
Repayment of long term debt (1,031,634) (384,363) (116,706)
Issuance of long term debt 48,224 1,538,320 --
Repayment of shareholders' advances (97,066) -- (5,742)
Advances from shareholders 488,535 97,066 --
Advances from (to) related company (269,661) 269,661 --
Issuance of share capital 523,519 -- --
Redemption of share capital (523,519) (26) --
Premium on redemption of common shares -- (767,683) --
---------- ---------- --------
(861,602) 752,975 (122,448)
---------- ---------- --------
INVESTING ACTIVITIES
Additions to capital assets (369,100) (3,743,724) (196,179)
Proceeds on disposal of capital assets 985,093 270,417 --
Increase in investments -- -- (603,312)
Proceeds on disposal of investments 93,074 639,202 649,470
---------- ---------- --------
709,067 (2,834,105) (150,021)
---------- ---------- --------
DIVIDENDS -- (125,493) --
---------- ---------- --------
INCREASE (DECREASE) IN CASH 1,459,702 (741,063) 623,178
CASH, BEGINNING OF YEAR 230,400 971,463 348,285
---------- ---------- --------
CASH, END OF YEAR 1,690,102 230,400 971,463
========== ========== ========
</TABLE>
See accompanying notes
F-29
<PAGE> 137
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements of Continental Holdings Ltd. ("Continental" or the
"Company") 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 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.
REVENUE RECOGNITION AND WORK-IN-PROGRESS
The percentage of completion method is followed to recognize revenue on
contracts. Under this method, revenue is recognized over the period of the
contract in the proportion that costs incurred to date bear to total estimated
costs. When a loss is foreseen on completion of a contract, an allowance for
the loss is provided in the accounts. Unbilled work-in-progress on contracts
not sufficiently underway to warrant revenue recognition is carried at the lower
of cost and net realizable value.
The Company recognizes revenue from the sale of non-exclusive seismic data when
sale of the data to third parties has occurred.
INVENTORY
Inventory of fuel, supplies and consumables are valued at the lower of cost,
determined on a first in, first out basis, and net realizable value.
CAPITAL ASSETS AND DEPRECIATION
Capital assets are recorded at cost. Depreciation is applied on a declining
balance basis at rates designed to amortize the cost of the assets over their
estimated economic useful lives as follows:
<TABLE>
<S> <C>
Computer equipment 30%
Office equipment 20%
Seismic equipment 20% - 30%
</TABLE>
F-30
<PAGE> 138
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
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 accruing lease expenses which are not
deductible for income tax purposes until paid, claiming depreciation for tax
purposes which differs from that provided in the accounts and the deferral of
profits for income tax purposes where a portion of the selling price of seismic
property is due after the end of the period.
FOREIGN CURRENCY TRANSLATION
The Company's functional (measurement) currency is the U.S. dollar. It
translates foreign currency transactions into U.S. dollars using the average
exchange rates for the year for items included in the 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.
FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash, accounts receivable,
accounts payable and accrued liabilities, long term debt and due to
shareholders. The carrying value of these instruments approximates fair value
unless otherwise stated.
INVESTMENTS
Investments are carried at the lower of cost and market. Write downs occur when
there has been a permanent decline in value.
F-31
<PAGE> 139
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
2. INVESTMENT
<TABLE>
<CAPTION>
1997 1996
$ $
------ ------
<S> <C> <C>
ICE Drilling Enterprises Inc., 200,000 common shares, at cost 72,966 72,966
====== ======
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997
-----------------------------------------
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
$ $ $
--------- ------------ ----------
<S> <C> <C> <C>
Computer equipment 18,246 10,644 7,602
Office equipment 10,632 6,501 4,131
Seismic equipment 3,186,000 970,750 2,215,250
--------- -------- ----------
3,214,878 987,895 2,226,983
========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
$ $ $
--------- ------------ ----------
<S> <C> <C> <C>
Computer equipment 15,660 8,174 7,486
Office equipment 11,101 6,294 4,807
Seismic equipment 3,921,334 500,396 3,420,938
--------- -------- ----------
3,948,095 514,864 3,433,231
========= ======== ==========
</TABLE>
4. DUE TO RELATED COMPANY
Amounts due to a related company were non-interest bearing and had no specific
terms of repayment. The companies are related through common shareholdings.
Management had determined that no significant amounts would be repaid on these
accounts in 1996 and accordingly, the amounts were classified as a long term
liability.
F-32
<PAGE> 140
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
5. LONG TERM DEBT
<TABLE>
<CAPTION>
1997 1996
$ $
-------- ----------
<S> <C> <C>
Term loan bearing interest at 9%, repayable in monthly
instalments of $13,800 including interest, due April
1998. A general security agreement and certain
property owned by a related company, have been
pledged as collateral. 54,724 206,169
Note payable bearing interest at 9%, repayable in
monthly instalments of $30,602 plus interest, due
April 1998. Certain seismic equipment has been
pledged as collateral. 130,792 490,230
Conditional sales agreement bearing interest at 6.7%,
repayable in monthly instalments of $2,465 including
interest, due April 1999. 37,302 --
Note payable -- 509,829
-------- ----------
222,818 1,206,228
Less current portion (213,895) (1,029,558)
-------- ----------
8,923 176,670
======== ==========
</TABLE>
Principal repayments are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1998 213,895
1999 8,923
-------
222,818
=======
</TABLE>
F-33
<PAGE> 141
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
6. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
$ $
------ ------
<S> <C> <C>
AUTHORIZED
Unlimited number of Classes "A" and "B" voting common shares
and an unlimited number of Class "C" and Class "C II"
non-voting preferred shares.
ISSUED:
502 Class "B" common shares 366 366
538 Class "C" preferred shares 14,548 14,548
------ ------
14,914 14,914
====== ======
</TABLE>
During 1996, 36 Class "B" common shares were transferred to 684733 Alberta Ltd.,
a related company and redeemed for $767,709. This transaction was completed
under Section 85(1) of the Canadian Income Tax Act and resulted in a premium
paid on the redemption in the amount of $767,683.
In 1997, the Company issued 748 Class C II preferred shares for cash
consideration of $523,519 and redeemed the shares during the year for an
aggregate redemption price of $523,519 consisting of cash of $34,984 and a
$488,535 note payable to the shareholders.
F-34
<PAGE> 142
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
7. 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>
1997 1996 1995
$ $ $
--------- -------- -------
<S> <C> <C> <C>
Corporate tax rate 44.6% 44.6% 44.48%
========= ======== =======
Provision for (recovery of) income taxes at
statutory tax rate 1,199,945 (19,786) 436,931
Increase (decrease) in income taxes due to:
Small business deduction (36,903) -- (36,483)
Non-taxable portion of
capital gain (41,245) (16,056) --
Other (44,360) (92,601) 1,377
--------- -------- -------
1,077,437 (128,443) 401,825
========= ========= =======
</TABLE>
8. COMMITMENTS
The Company has entered into several operating lease agreements for a vessel,
seismic equipment and office premises. The annual minimum lease payments are as
follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1998 1,590,345
1999 1,672,205
2000 563,932
---------
3,826,482
=========
</TABLE>
In addition, there is a $250,000 lien on certain of the seismic equipment on the
vessel.
Under the vessel lease, the Company is responsible for restoring the vessel to
its original condition at the end of the lease. The Company is accruing
deferred lease expense of $16,092 per month based on management's current
estimate of the expected restoration costs of approximately $1.0 million.
F-35
<PAGE> 143
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
9. DIFFERENCES BETWEEN CANADA AND UNITED STATES ACCOUNTING PRINCIPLES
There were no significant differences in net income for the years ended December
31, 1997, 1996 and 1995 and in retained earnings as at December 31, 1997, 1996
and 1995 under Canadian and United States accounting principles.
The Company paid interest of $52,569, $118,403 and $9,521 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company paid income taxes of $Nil, $275,358, and $20,743 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Operating lease expenses of $1,706,797, $3,194,239, and $1,346,520, were
included in income for the years ended December 31, 1997, 1996 and 1995,
respectively.
Included in accounts payable and accrued liabilities is accrued liabilities in
the amounts of $844,106, $1,413,347 and $219,177 as at December 31, 1997, 1996
and 1995, respectively.
Included in the 1997 redemption of share capital on the Statement of Cash Flows
is $488,535 relating to the issuance of a note payable to shareholders.
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 provisions also require the Company to establish
a valuation allowance for deferred tax assets where the recovery of these assets
is uncertain.
The deferred tax asset (liability) relates to the following:
<TABLE>
<CAPTION>
1997 1996
$ $
------- ----
<S> <C> <C>
Deferred lease expense 150,429 --
Capital assets (50,377) --
------- ----
100,052 --
Valuation allowance -- --
------- ----
100,052 --
======= ====
</TABLE>
F-36
<PAGE> 144
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
10. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
---------- --------- ---------
<S> <C> <C> <C>
Accounts receivable 54,975 (791,677) (507,724)
Inventory (182,486) (161,562) --
Prepaid expenses and deposits (49,864) 93,869 25,711
Accounts payable and accrued liabilities (1,700,337) 2,311,854 783,827
Income taxes payable 1,141,858 (278,513) 257,040
---------- --------- ---------
(735,854) 1,173,971 558,854
========== ========= =========
</TABLE>
11. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the current
year's presentation.
12. MAJOR CUSTOMER INFORMATION
The Company operates in only one business segment, marine seismic data
acquisition services. Revenue from individual customers representing 10% or
more of revenue was:
<TABLE>
<CAPTION>
1997 1996 1995
% % %
---- ---- ----
<S> <C> <C> <C>
Customer A 28 15 --
Customer B 17 -- --
Customer C 15 60 31
Customer D 14 -- --
Customer E 11 25 24
Customer F 11 -- --
Customer G -- -- 15
Customer H -- -- 30
---- ---- ----
96 100 100
==== ==== ====
</TABLE>
F-37
<PAGE> 145
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
The Company's sales are to customers in the oil and gas industry for the
acquisition of marine 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.
Approximately 100%, 99% and 99% of accounts receivable at December 31, 1997,
1996 and 1995, respectively, were represented by two, one and one customer,
respectively.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company:
(i) entered into an agreement in principal to lease a second vessel for a five
year term at an initial annual cost of $2.7 million and increasing to $3.1
million by the end of the lease term. In addition, the Company will be
required to purchase capital assets at an estimated cost of $10 million to
equip and refurbish the vessel;
(ii) entered into a credit agreement with Venture Seismic Ltd. whereby $4
million was loaned to the Company, payable in quarterly installments of
principal and interest commencing December 1, 1999 and bearing interest at
the prime lending rate of the Royal Bank of Canada plus 1%; and
(iii) entered into an agreement in principal for a loan of $3 million payable in
quarterly installments of principal and interest over five years and
bearing interest at 8.75%.
F-38
<PAGE> 146
ANNEX A
SECURITIES PURCHASE AGREEMENT
<PAGE> 147
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "AGREEMENT") is made and entered into on
the 27th day of March, 1998 among CONTINENTAL HOLDINGS LTD., an Alberta
corporation ("CONTINENTAL") LESLIE J. STINN, SANDRA KELLY, ELAINE B. MCCARTHY,
GREGORY A. STINN AND ROY D. SELF (individually, each a "SECURITYHOLDER", and
collectively, the "SECURITYHOLDERS"), being the owners of all of the issued and
outstanding shares of capital stock of Continental and VENTURE SEISMIC LTD., an
Alberta corporation (the "BUYER").
The Securityholders collectively own all of the issued and outstanding shares of
capital stock of Continental (the "SHARES"), with each Securityholder owning the
number and type of Shares set forth opposite such Securityholder's name in
column A of Exhibit A hereto. The Buyer desires to purchase from the
Securityholders, and the Securityholders desire to sell to the Buyer, all of the
Shares in accordance with the provisions of this Agreement. References in this
Agreement to "SECTION A" refer to a section in Appendix A hereto.
NOW THEREFORE, intending to be legally bound hereby, the parties hereto agree as
follows:
1.1 SALE AND PURCHASE OF THE SHARES. Subject to the terms and conditions of this
Agreement and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, on the Closing Date (as
defined in Section 2(a) hereof), each Securityholder shall sell to the Buyer and
the Buyer shall purchase from each Securityholder the following:
(a) all of those Class "B" Shares owned by such Securityholder in
exchange for the aggregate share purchase price (the "SHARE
CONSIDERATION") allocated among and payable to each individual
Securityholder by issuing on the Closing Date an aggregate of
2,080,000 fully paid and non-assessable common shares in the
capital of the Buyer (the "VENTURE STOCK"), issuable to each
Securityholder in accordance with that number of the Venture
Stock set forth after such Securityholder's name in column B
of Exhibit A registered in the respective names of the
Securityholders and bearing the legend set forth in A.1.5(g)
of Appendix A; and
(b) all of those Class "C", Series I Shares owned by such
Securityholder in exchange for the aggregate cash purchase
price of $1,500,000.00 (U.S.) (the "CASH CONSIDERATION"),
allocated among and payable to each individual Securityholder
in such amounts or percentages as set forth after such
Securityholder's name in columns C, D and E of Exhibit A,
payable as follows:
(i) $500,000.00 (U.S.) on the Closing Date; and
(ii) $1,000,000.00 (U.S.) on or before January 1, 1999
with simple interest to accrue and be payable on such
amount at the prime rate of the Main Downtown Branch
of the Royal Bank of Canada in Calgary, Alberta, plus
1.0%, such interest to be due and payable on the
outstanding principal amount from the Closing Date up
to and including the date upon which such amount,
together with all interest payable thereon in
accordance with this sub-paragraph 1.1(b)(ii), is
paid in full to the Securityholders, all to be
evidenced by promissory notes to be delivered by the
Buyer to the Securityholders on the Closing Date, in
negotiable form and in the form and content
reasonably satisfactory to the Securityholders, in
such principal
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amounts with respect to each Securityholder as is set forth after such
Securityholder's name in column E of Exhibit A,
such Class "B" Shares and Class "C" Shares together representing 100% of the
issued and outstanding Shares of Continental as of the Closing Date (the Share
Consideration and the Cash Consideration hereinafter collectively called the
"PURCHASE PRICE" for the Shares).
1.2 METHOD OF PAYMENT OF CASH CONSIDERATION. The Cash Consideration, when paid
by the Buyer to the Securityholders, shall be paid by way of trust cheques drawn
from the trust account of Burstall Ward, Alberta legal counsel for the Buyer, or
bank drafts drawn from the Buyer's account with Alberta Treasury Branches
("ATB").
2. CLOSING.
(a) The closing (the "CLOSING") of the sale and purchase of the
Shares described in Section 1.1 hereof shall take place at the
offices of the Buyer's Alberta solicitors, Burstall Ward,
commencing at 10:00 a.m., local time, on the third (3rd)
business day after satisfaction or waiver of all closing
conditions specified in Sections 8 and 9 or at such other date
as the parties hereto agree, with the date on which the
Closing takes place being referred to herein as the "CLOSING
DATE". Notwithstanding anything herein contained, the parties
agree that in the event the transactions contemplated by this
Agreement are not completed on or before August 31, 1998, the
parties shall be released from all obligations under this
Agreement, other than those pursuant to Section 5 and Section
8.1.
(b) At the Closing, each Securityholder shall deliver to the
Buyer, free and clear of all security interests, pledges,
liens, transfer and stamp tax obligations, encumbrances,
claims and other charges thereon of every kind, the
certificates for the Shares to be sold by such Securityholder
in negotiable form, duly endorsed in blank, or with separate
stock transfer powers attached thereto and signed in blank,
representing in the aggregate all of the issued and
outstanding Shares of Continental, in exchange for delivery by
the Buyer of the following documents to the Securityholders on
Closing:
(i) Burstall Ward trust cheque or ATB bank draft in the
amount of $500,000.00 (U.S.), made payable to Tharp
Sinclair Watson Quigley Taylor, in trust for the
Securityholders;
(ii) the promissory notes, duly executed, sealed and
delivered by the Buyer, which are referred to in
sub-paragraph 1.1(b)(ii) above; and
(iii) share certificates for the Venture Stock, duly issued
from the Buyer's capital stock, free and clear of all
security interests, pledges, liens, transfer and
stamp tax obligations, encumbrances, claims and other
charges thereon of every kind and nature whatsoever,
and issued to the individual Securityholders as
specified in sub-paragraph 1.1(a) of this Agreement.
(c) At the Closing, the Securityholders shall make available to
the Buyer the written resignations of all the directors and
officers of Continental effective as of the Closing Date
except for such directors and officers as the Buyer shall
designate in writing, and shall
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cause to be made available to the Buyer and any continuing
directors and officers of Continental (the "POST-CLOSING
CONTINENTAL DIRECTORS AND OFFICERS") all minute books, stock
record books, books of account, corporate seals, leases,
contracts, agreements, securities, bank, checking and money
market accounts, other investments, deposits, customer and
subscriber lists, files and other documents, instruments and
papers belonging to Continental and shall cause full
possession and control of all of the assets and properties of
every kind and nature, tangible and intangible, of Continental
and of all other things and matters pertaining to the
operation of the business of Continental to be transferred and
delivered to the post-Closing Continental directors and
officers. At the Closing, the Securityholders shall also
deliver to the Buyer, and the Buyer shall deliver to the
Securityholders, the agreements, certificates and other
instruments and documents referred to in Sections 8 and 9
hereof, respectively.
(d) After the Closing, the Buyer shall make all agreements,
documents, information and other items referred to in Section
2(c) hereof available to the Securityholders for inspection,
in each case upon reasonable prior notice to the Buyer, during
normal business hours, at no expense to the Buyer and only for
a proper purpose, including without limitation the use thereof
in connection with (i) the indemnification and other
obligations of the Securityholders hereunder and (ii) the
payment of any liability to any third party which is owed by
any Securityholder.
3. PRE-CLOSING BALANCE SHEET ADJUSTMENTS.
(a) The Buyer acknowledges the declaration by Continental,
effective December 31, 1997, of a bonus of up to $1,000,000.00
(Cdn.) in the aggregate payable to the Securityholders, and
the redemption and cancellation of its outstanding 748 Class
"C", Series II Shares from the Securityholders for up to an
aggregate of $748,239.00 (Cdn.) (collectively, the "BONUS
TRANSACTIONS"). Continental shall pay for such redemptions on
or before the earlier of (i) June 25, 1998, or (ii) the
Closing Date. Each of the Securityholders hereby agree to the
terms and conditions of the redemption, including the
consideration payable to each in exchange for the 748 Class
"C", Series II Shares described herein.
(b) Continental shall pay the entire $1,000,000.00 (Cdn.) bonus
portion of the Bonus Transactions to the Securityholders, as
declared, on or before the earlier of (i) the Closing Date or
(ii) June 25, 1998, after payment of which there shall be no
outstanding loans, notes, payables or other indebtedness owed
by Continental to the Securityholders, either individually or
in the aggregate, except pursuant to the Employment Agreements
(as defined in Section 8.5).
4. EXAMINATION OF BUSINESS AND ASSETS.
(a) For the purpose of allowing the Buyer to analyze the business
and affairs of Continental to determine if there are any facts
relating to the Shares or to the business of Continental
which, if known to the Buyer, would cause the Buyer to elect
not to proceed with the purchase of the Shares, all
information relative to the Shares, the business of
Continental and the assets of Continental shall be open to
inspection by the Buyer, the Buyer's financial advisors and
the Buyer's solicitors, Burstall Ward, and Bachner, Tally,
Polevoy and Misher LLP at any reasonable time up to and
including the date hereof, as the Buyer may deem
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reasonably necessary or advisable in order to ensure that each
of the representations, warranties, covenants and agreements
of the Securityholders and Continental herein contained shall
be true and correct on the Closing Date (the "BUYER'S DUE
DILIGENCE").
(b) For the purpose of allowing the Securityholders to analyze the
business and affairs of the Buyer to determine if there are
any facts relating to the Venture Stock or to the business of
the Buyer which, if known to the Securityholders or to any one
of the Securityholders, would cause any one of such
Securityholders to elect not to proceed with the purchase and
sale of the Shares, all information in the possession of the
Buyer, subject to any confidentiality provisions, or as
otherwise may be limited by regulatory authorities or the
rules and regulations of the Securities and Exchange
Commission (the "S.E.C.") or the Nasdaq Stock Market
("NASDAQ") relative to the Venture Stock, to the listing of
the Venture Stock for trading on Nasdaq, to the regulatory
filings of the Buyer, to the publicly filed financial
statements of the Buyer, to the business and affairs of the
Buyer and to the assets of the Buyer, shall be open to
inspection by any one of the Securityholders, the financial
advisors of any one of the Securityholders, and to the
solicitors of the Securityholders, at any reasonable time up
to and including the date hereof, as any one of the
Securityholders may deem reasonably necessary or advisable in
order to ensure that each of the representations, warranties,
covenants and agreements of the Buyer contained in this
Agreement shall be true and correct on the Closing Date (the
"SECURITYHOLDERS' DUE DILIGENCE").
(c) For the purpose of allowing the Buyer, Continental and the
Securityholders to monitor compliance by each of Continental,
the Securityholders and the Buyer with their respective
covenants, representations and warranties made herein up to
and including the Closing Date, each of Continental, the
Securityholders and the Buyer shall continue to have access to
the information and materials described in Section 4(a) and
(b) for such purpose.
5. CONFIDENTIALITY. Between the date of this Agreement and the Closing Date,
each of the Buyer, Continental and the Securityholders shall and shall cause
their respective affiliates and officers and directors, and shall use reasonable
efforts to cause all their other respective employees, auditors, attorneys,
consultants, advisors and agents, to treat as confidential and hold in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, and after prior
written notice to the other party, all confidential information of the
Securityholders and Continental, or the Buyer, as the case may be, furnished to
the Buyer by the Securityholders and Continental or to the Securityholders and
Continental by the Buyer, as the case may be, or any of their respective
representatives in connection with the Contemplated Transactions (as defined in
Section 8.11) and will not release or disclose such confidential information to
any other person, except their respective auditors, attorneys, financial
advisors and other consultants, agents and advisors in connection with the
consummation of the Contemplated Transactions, except as may be required by the
rules of the Alberta Securities Commission, the S.E.C. or Nasdaq, including
without limitation, the issuance of a press release and the filing of a report
on Form 8-K by the Buyer upon execution of this Agreement. If the Closing does
not occur (i) such confidence shall be maintained by the Securityholders and
Continental, or the Buyer, as the case may be, and each party shall cause its
officers and directors and affiliates and shall use reasonable efforts to cause
such other persons to maintain such confidence, except to the extent such
information comes into the public domain (other than as a result of an action by
such party, its officers, directors or such other persons in contravention of
this Agreement), (ii) each party shall and shall cause its officers and
directors and affiliates and shall use reasonable efforts to cause such other
persons to refrain from using any of such
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confidential information except in connection with the Agreement, and (iii) upon
the request of any party, the other party shall promptly return to the
requesting party any written materials remaining in its possession, which
materials it has received from the requesting party, or their respective
representatives.
6. REPRESENTATIONS AND WARRANTIES OF CONTINENTAL AND THE SECURITYHOLDERS. Each
Securityholder represents and warrants as of the date hereof, and as of the
Closing Date to the Buyer as set forth in Section A.1 of Appendix A hereto and
Continental and each of Leslie J. Stinn and Roy Self represents and warrants as
of the date hereof, and as of the Closing Date to the Buyer as set forth in
Section A.2 of Appendix A hereto, which Sections are incorporated in this
Section 6 by reference and are deemed to be a part of this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants as of the date hereof, and as of the Closing Date, to the
Securityholders and to each of them as set forth in Section A.3 of Appendix A
hereto, which Section is incorporated in this Section 7 by reference and is
deemed to be a part of this Agreement.
8. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS. Except for the obligations
of the Buyer contained in Section 5 and Section 8.1 of this Agreement, all
obligations of the Buyer under this Agreement are subject to the fulfilment or
satisfaction, prior to or at the Closing, of each of the following conditions
precedent:
8.1 BUYER LOAN. The Buyer shall, upon execution hereof, forthwith advance to
Continental $4,000,000.00 (U.S.) pursuant to the credit agreement between the
Buyer, as lender, and Continental, as borrower, in substantially the form of
Exhibit B attached hereto (the "CREDIT AGREEMENT"), to be secured with a
security interest in certain of the assets of Continental pursuant to the
security agreement to be granted by Continental pursuant to the Credit Agreement
in substantially the form annexed hereto as Exhibit C (the "SECURITY
AGREEMENT"), subject to a priority agreement with Royal Bank of Canada, if
necessary, with the funds advanced pursuant to the Credit Agreement to be used
solely to assist with the equipping of a marine seismic vessel described as the
"Pacific Titan".
8.2 APPROVAL OF DUE DILIGENCE. The Buyer shall have received the requisite
approval from its board of directors of the Contemplated Transactions and of the
Due Diligence.
8.3 AUDITED FINANCIAL STATEMENTS OF THE COMPANY. Continental shall have provided
such audited financial statements for such periods, in such form as may be
required by the applicable regulatory authorities in connection with the
consummation of the Contemplated Transactions, together with any other audited
financial statements (as necessary) of Continental up to and including the
Closing Date as may be required by the applicable regulatory authorities, with
all costs of all such audits and financial statements to be paid by Continental.
8.4 SHAREHOLDER APPROVAL. The Buyer shall have received the requisite approval
from its shareholders of the Contemplated Transactions in accordance with
applicable law.
8.5 EMPLOYMENT AGREEMENTS. Each of Leslie J. Stinn and Roy D. Self shall have
executed and delivered employment agreements (the "EMPLOYMENT AGREEMENTS") with
Continental providing for a 3 year employment term, which will include
appropriate non-competition provisions, in the form annexed hereto as Exhibit D.
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8.6 REGULATORY, CONTRACTUAL APPROVALS. The Buyer, Continental and each of the
Securityholders shall have obtained all third party consents and approvals and
all applicable governmental, regulatory, stock exchange, shareholder and
contractual approvals necessary in connection with the execution, delivery and
performance of this Agreement and to complete the Contemplated Transactions,
including, without limitation, those consents set forth on Schedule A.2.14
(regarding Continental) and Schedule A.3.5 (regarding the Buyer).
8.7 RELEASES. The Securityholders shall have executed and delivered releases in
favour of Continental in their capacities as directors, officers, shareholders
and employees of Continental, in such form as reasonably required by the Buyer
and as reasonably acceptable to the Securityholders.
8.8 THIRD PARTY CONSENTS AND APPROVALS. The Securityholders and Continental
shall have obtained all third party consents or approvals required by
Continental or by the Securityholders in order to complete the Contemplated
Transactions.
8.9 APPROVAL OF COUNSEL; CORPORATE MATTERS. All actions, proceedings,
resolutions, instruments and documents (including those required to complete the
Bonus Transactions) required to carry out this Agreement or incidental hereto
and all other related legal matters shall have been approved on or before the
Closing Date by Burstall Ward, counsel for the Buyer, in the exercise of their
reasonable judgment. The Securityholders shall also have delivered to the Buyer
on or before the Closing Date such other documents, instruments, certifications
and further assurances as such counsel for the Buyer may reasonably require, as
more particularly described in the draft form of closing agenda attached hereto
and marked Exhibit E, with such additional documents to be added thereto as
mutually agreed to by the parties prior to the Closing Date, acting in a
commercially reasonable manner for transactions similar to the Completed
Transactions (the "CLOSING AGENDA").
8.10 LEGAL OPINIONS. The Buyer shall have received the opinions of Reesor
Martin, Barristers and Solicitors, and Tharp Sinclair Watson Quigley Taylor,
Barristers and Solicitors, counsel to Continental and to the Securityholders,
dated the Closing Date and addressed to the Buyer, in form and content agreed to
on or before Closing, acting in a commercially reasonable manner for
transactions similar to the Contemplated Transactions.
8.11 NO INJUNCTION. There shall not be in effect any injunction, order or decree
of a court of competent jurisdiction that prohibits or delays consummation of
the transactions contemplated by this Agreement (the "CONTEMPLATED
TRANSACTIONS"), or that will require any divestiture by the Buyer as a result of
the Buyer's acquisition of the Shares.
8.12 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (a) The representations and
warranties of Continental and the Securityholders set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement, and as of the Closing Date with the same effect as though made on the
Closing Date, (b) the Securityholders and Continental shall have performed and
complied in all material respects with the agreements, covenants and conditions
contained in this Agreement required by this Agreement to be performed or
complied with by them prior to or at the Closing, and (c) the Buyer shall have
received a certificate to the foregoing effect signed by the Chief Executive
Officer and Chief Financial Officer of Continental and by the Securityholders.
8.13 LITIGATION. There shall not have been instituted any (a) investigation or
other inquiry by any domestic or foreign national, state, multi-state or
municipal or other local government, any subdivision,
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agency, commission or authority thereof, or any quasi-governmental or private
body exercising any regulatory or taxing authority thereunder (each, a
"GOVERNMENTAL BODY"), (b) action, suit, proceeding, claim, demand, citation,
summons, subpoena or inquiry of any kind or nature whatsoever, civil, criminal,
regulatory or otherwise, at law or equity (each, a "PROCEEDING"), by any
Governmental Body or by any other person or entity and, at what would otherwise
have been the Closing Date, remain pending to delay, restrain or prohibit the
Contemplated Transactions or to seek any divestiture or to revoke or suspend any
consent, waiver, registration, certificate, approval, grant, franchise,
concession, permit, license, exception or authorization of, or declaration or
filing with, or notice or report to, (i) any Governmental Body and (ii) any
other person required or obtained in connection with the Contemplated
Transactions (collectively, the "APPROVALS") by reason of any or all of the
Contemplated Transactions; nor shall any Governmental Body have notified any of
the parties hereto or any of their respective affiliates that consummation of
any part of the Contemplated Transactions would constitute a violation of any
law or that it intends to commence a Proceeding to restrain or prohibit any part
of the Contemplated Transactions or to require such divestiture, revocation or
suspension; unless, in either such case, such Governmental Body or other person
shall have withdrawn such notice and abandoned such Proceeding.
8.14 NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition, change,
development or effect shall have occurred, exist or come to exist since the date
of this Agreement that, individually or in the aggregate, has constituted or
resulted in, or could reasonably be expected to constitute or result in, in the
reasonable judgment of an experienced, prudent business person (a) a reduction
in the value of the business of Continental, or (b) a decision not to consummate
the Contemplated Transactions on the terms and conditions set forth in this
Agreement (a "MATERIAL ADVERSE EFFECT").
8.15 PAYMENT OF SECURITYHOLDER TRANSACTION EXPENSES. Continental shall have
paid, or made all necessary arrangements with respect to payment of, all costs,
liabilities and expenses incurred by or for the benefit of Continental and the
Securityholders (including without limitation all legal and accounting fees and
expenses) in connection with the negotiation and execution of this Agreement and
the consummation of the Contemplated Transactions, in each case at no cost or
obligation to the Buyer following the Closing; and Continental and the
Securityholders shall have provided the Buyer with evidence reasonably
satisfactory to the Buyer of such payments or other arrangements.
8.16 PROCEEDINGS SATISFACTORY. All certificates, opinions and other documents to
be delivered by the Securityholders and Continental and all other matters to be
accomplished by the Securityholders or Continental prior to or at the Closing
shall be satisfactory in the reasonable judgment of the Buyer and its counsel.
8.17 CANCELLATION OF INDEBTEDNESS TO SECURITYHOLDERS. Except for reimbursement
for expenses and payments due under the Employment Agreements (the "PERMITTED
INDEBTEDNESS"), on the Closing Date (a) the Securityholders shall have cancelled
any notes payable by Continental to the Securityholders as of the Closing Date;
and (b) any indebtedness owed by Continental to the Securityholders as of the
Closing Date shall, without further consideration, have been repaid, discharged
or contributed to the capital of Continental, which payment, contribution or
discharge shall be evidenced in a form reasonably satisfactory to the Buyer.
Except for the Permitted Indebtedness, as of the Closing Date, there shall be no
outstanding notes, loans, payables or other indebtedness owed by Continental to
any of the Securityholders.
9. CONDITIONS PRECEDENT TO THE SECURITYHOLDERS' OBLIGATIONS. Except for the
obligations of Continental and the Securityholders contained in Sections 5 and
8.1 of this Agreement, all the obligations of the Securityholders under this
Agreement are subject to the fulfilment or satisfaction, prior to or at the
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Closing, of each of the following conditions precedent:
9.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (a) The representations and
warranties of the Buyer set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement, and as of the Closing
Date with the same effect as though made on the Closing Date, (b) the Buyer
shall have performed and complied in all material respects with all agreements,
covenants and conditions contained in this Agreement required by this Agreement
to be performed or complied with by the Buyer prior to or at the Closing, and
(c) the Securityholders shall have received a certificate to the foregoing
effect signed by the Chief Executive Officer and Chief Financial Officer of the
Buyer.
9.2 EMPLOYMENT AGREEMENTS. Continental shall have executed and delivered the
Employment Agreements and the Employment Agreements shall be in full force and
effect, unamended.
9.3 NOMINEE DIRECTOR. The Securityholders shall provide the name of one nominee
director of the Buyer on behalf of the Securityholders acceptable to the Buyer
and the Buyer shall use its best efforts to nominate such nominee director to
stand for election as a director of the Buyer at the special meeting of the
Shareholders of the Buyer to be held prior to the Closing Date; provided that
the nomination of such director shall be conditional upon receipt of the
requisite shareholder approval necessary for the Contemplated Transactions and
the election of such director shall be subject to the Closing of the
Contemplated Transactions.
9.4 CREDIT AGREEMENT, SECURITY AGREEMENT. The Credit Agreement shall have been
duly executed and delivered by the parties thereto on the date hereof, and the
Buyer, contemporaneously therewith, shall have advanced the funds contemplated
by the Credit Agreement for the purposes specified therein.
9.5 APPROVAL OF SECURITYHOLDERS' COUNSEL; CORPORATE MATTERS. All actions,
proceedings, resolutions, instruments and documents (including those required to
complete the Bonus Transactions) required to carry out this Agreement or
incidental hereto and all other related legal matters shall have been approved
on the Closing Date by Reesor Martin and Tharp Sinclair Watson Quigley Taylor,
counsel for the Securityholders, in the exercise of their reasonable judgment.
The Buyer shall also have delivered to the Securityholders such other documents,
instruments, certifications and further assurances as such counsel for the
Securityholders may reasonably require, as more particularly described in the
Closing Agenda.
9.6 DIRECTOR AND SHAREHOLDER APPROVALS.
(a) Continental shall have received the approval of its board of
directors and the unanimous approval of all of its
shareholders, both to the Agreement and to the Contemplated
Transactions, and certified copies of the resolutions
containing these approvals shall be delivered by Continental
to the Securityholders and the Buyer on the Closing Date.
(b) The Buyer shall have received the required approval of its
board of directors and of its shareholders, both to the
Agreement and to the Contemplated Transactions, and certified
copies of the resolutions or minutes containing these
approvals shall be delivered by the Buyer to the
Securityholders on the Closing Date.
9.7 RELEASES. On the Closing Date, Continental shall have executed and delivered
to each of the Securityholders a general release in favour of each such
Securityholder in his or her, as the case may be, respective capacity as a
director, officer, employee and independent contractor of Continental, in such
form
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as mutually acceptable to the parties.
9.8 DIRECTORS' APPROVAL - EMPLOYMENT AGREEMENTS - CONTEMPLATED TRANSACTIONS.
(a) Continental, by way of written resolution made effective March
1, 1998 shall have received the approval of its board of
directors and the unanimous approval of its shareholders to
the Employment Agreements and certified copies of the
resolutions containing these approvals shall be delivered by
Continental to Roy Self and Leslie A. Stinn on the Closing
Date.
(b) Continental, by way of written resolution shall have received
the approval of its board of directors and the unanimous
approval of its shareholders to the Contemplated Transactions,
and certified copies of the resolutions containing these
approvals shall be delivered by Continental to the
Securityholders on the Closing Date.
9.9 THIRD PARTY CONSENTS AND APPROVALS. The Buyer shall have obtained all third
party consents and approvals necessary in connection with the execution,
delivery and performance of this Agreement and as required by the Buyer in order
to complete the Contemplated Transactions, including without limitation, those
set forth on Schedule A.3.5. hereof and all applicable and required
governmental, legal, regulatory, stock exchange and contractual approvals.
9.10 APPROVAL OF DUE DILIGENCE. The Securityholders shall have approved the
results of the Securityholders' Due Diligence.
9.11 REGULATORY, CONTRACTUAL APPROVALS. The Buyer, Continental and each of the
Securityholders shall have obtained all third party consents and approvals and
all applicable governmental, regulatory, stock exchange, shareholder and
contractual approvals necessary in connection with the execution, delivery and
performance of this Agreement and to properly complete the Contemplated
Transactions, including, without limitation, those consents set forth in
Schedule A.2.14 (regarding Continental) and Schedule A.3.5 (regarding the
Buyer).
9.12 NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition, change,
development or effect shall have occurred, exist or come to exist since the date
of this Agreement that, individually or in the aggregate, has constituted or
resulted in, or could reasonably be expected to constitute or result in, in the
reasonable judgment of an experienced, prudent business person (a) a reduction
in the value of the business of the Buyer, or (b) a decision not to consummate
the Contemplated Transactions on the terms and conditions set forth in this
Agreement (a "VENTURE MATERIAL ADVERSE EFFECT").
9.13 PROCEEDINGS SATISFACTORY. All certificates, opinions and other documents to
be delivered by the Buyer and all other matters to be accomplished by the Buyer
prior to or at the Closing shall be satisfactory in the reasonable judgment of
the Securityholders, Continental and their counsel.
9.14 ADDITIONAL CLOSING DOCUMENTS. The Buyer shall provide to the
Securityholders on the Closing Date the following:
(a) a certified copy of the directors' resolution of the Buyer,
approving the Agreement and all transactions contemplated by
the Agreement, including without limitation the approval and
due authorization of the issuance and delivery of the Venture
Stock to the Securityholders on the Closing Date, and
authorizing and directing the execution and delivery of the
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Agreement by the Buyer, together with all other documents
required pursuant to the Closing Agenda;
(b) the legal opinion of Burstall Ward addressed to the
Securityholders, made effective as of the Closing Date, in
form and content as agreed to on or before the Closing, acting
in a commercially reasonable manner for transactions similar
to the Contemplated Transactions, confirming that the
Agreement and all of the Contemplated Transactions have been
duly approved by the Buyer's shareholders and the Buyer's
board of directors, that the Venture Stock has been duly and
properly issued by the Buyer, from treasury, as fully paid and
non-assessable shares, and, to the best of their knowledge,
information and belief, having made reasonable and adequate
inquiry in that regard, is free and clear of all security
interests, pledges, liens, transfer and stamp tax obligations,
encumbrances, claims and other charges thereon of every kind
and nature whatsoever, and further, confirming that the
Agreement and all of the Contemplated Transactions, including,
without limitation, the issuance of the Venture Stock to the
Securityholders has been made and done in compliance with all
applicable corporate and securities laws, regulations, and
policies, including without limitation the rules, regulations
and policies of the Alberta Securities Commission, and that
the required Form 20 has been duly filed with the Alberta
Securities Commission and to the best of their knowledge,
information and belief, having made reasonable inquiry in that
regard, and in reliance upon an opinion of Bachner, Tally,
Polevoy and Misher LLP and (A) assuming (i) the accuracy of
the representations and warranties provided by the
Securityholders in this Agreement and (ii) that the Buyer has
complied in all material respects with the requirements of
section 4(2) of the Act, the offer and sale of the Venture
Stock by the Buyer is exempt from registration under the Act;
and (B) under the federal securities laws of the United States
as currently in effect, and assuming the accuracy of the
representations and warranties made by the Securityholders in
this Agreement, except to the extent that the Venture Stock
issued to the Securityholders constitute "restricted
securities" as such term is defined under Rule 144 of the Act,
or that any of the Securityholders may be deemed an
"affiliate" of the Buyer, as such term is defined under Rule
144 of the Act, as of the date of issuance, the Venture Stock
will have no prohibition on transfer; and
(c) a true copy of the written verification from Nasdaq referred
to in Section 13.7, if obtainable.
10. INDEMNIFICATION.
10.1 INDIVIDUAL INDEMNIFICATION BY THE SECURITYHOLDERS AND CONTINENTAL.
(a) From and after the Closing, each Securityholder shall
reimburse, indemnify and hold harmless the Buyer and its
affiliates (including, without limitation, Continental) (each
such person and its successors and assigns is referred to
herein as a "BUYER INDEMNIFIED PARTY") against and in respect
of any and all damages, losses, settlement payments,
deficiencies, liabilities, costs and expenses suffered,
sustained, incurred or required to be paid by any Buyer
Indemnified Party because of or that result from, relate to or
arise out of the untruth, inaccuracy or breach of, any
representation or warranty of such Securityholder in whole or
in part contained in Section A.1 of this Agreement and any and
all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs and
other expenses (including without limitation reasonable legal
fees and expenses) incident to any of the foregoing or to the
enforcement of this Section 10.1.
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(b) Each Securityholder and Continental shall indemnify and hold
harmless the Buyer and each person, if any, who controls the
Buyer within the meaning of the Act (as defined) against any
losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to,
all reasonable costs of defense and investigation and all
attorneys' fees), to which the Buyer or such controlling
person may become subject, under the Act or otherwise, and
will reimburse, as incurred, the Buyer and such controlling
persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing
as a third party witness in connection with any losses,
claims, damages or liabilities, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Proxy
Statement (as defined in Section 13.6) or any amendment or
supplement thereto, but only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with
written information furnished to the Buyer by or on behalf of
such Securityholder or Continental, as the case may be,
specifically for use in the preparation of the Proxy Statement
or any such amendment or supplement thereof. This indemnity
will be in addition to any liability which the Securityholders
and Continental may otherwise have.
10.2 SEVERAL INDEMNIFICATION BY STINN AND SELF. From and after the Closing, each
of Leslie J. Stinn and Roy D. Self shall reimburse, indemnify any Buyer
Indemnified Party against and in respect of fifty percent (50%) of:
(a) any and all damages, losses, settlement payments,
deficiencies, liabilities, costs and expenses suffered,
sustained, incurred or required to be paid by any Buyer
Indemnified Party because of or that result from, relate to or
arise out of:
(i) the untruth, inaccuracy or breach of, or the failure
to fulfil, any representation, warranty (other than a
representation or warranty contained in Section A.1
of this Agreement), agreement, covenant or statement
of any Securityholder contained in this Agreement or
in any certificate or other writing furnished to the
Buyer by or on behalf of any Securityholder or
Continental in connection herewith;
(ii) any claim by any former shareholder of Continental
involving the Contemplated Transactions or any prior
transaction involving any shares of capital stock of
Continental or any predecessor corporation
(including, without limitation, claims relating to
any and all decisions and determinations made with
respect to amounts or allocations of purchase price
or other consideration) and not already provided for
in the Financials (as defined in Section A.2.4); or
(iii) any liability or obligation relating to or arising
out of the business, operations or assets of
Continental or the actions or omissions of
Continental's directors, officers, shareholders,
employees or agents; and prior to the Closing Date
and not already provided for in the Financials (as
defined in Section A.2.4), including without
limitation any liability or obligation relating to,
and any claim which arises out of or is based upon,
(1) negligence, (2) strict liability, (3) any
Environmental Claim (as defined in Section A.2.19
hereof) or which otherwise relates to, or involves a
claim,
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liability or obligation which arises out of or is
based upon, any Environmental Law (as defined in
Section A.2.19 hereof) to the extent that such
liability or obligation relates to or arises out of,
in whole or in part, any activity occurring,
condition existing, omission to act or other matter
existing prior to the Closing Date, (4) any other
statute, rule or regulation or (5) any express or
implied representation, warranty, agreement or
guarantee made by or on behalf of Continental, or any
liability or obligation which is imposed on
Continental or any successor corporation by operation
of law, in connection with any product designed,
used, rented, sold, manufactured, shipped or
installed by or on behalf of Continental, or for any
service performed by or on behalf of Continental,
including without limitation any acts, omissions,
workmanship or material performed or sold by
Continental, in any case prior to the Closing Date
and irrespective of the date that any claim, suit or
other cause of action related to any of the foregoing
is filed or otherwise instituted against Continental
or any successor corporation (with all references to
Continental in this Section 10.2(a)(iii) also deemed
to be references to any predecessor in business of
Continental); provided, however, that the foregoing
shall not apply to liabilities and obligations of
Continental described in Section A.2.7(a) hereof; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines,
judgments, costs and other expenses (including without
limitation reasonable legal fees and expenses) incident to any
of the foregoing or to the enforcement of this Section 10.2.
10.3 INDEMNIFICATION BY THE BUYER.
(a) From and after the Closing, the Buyer shall reimburse,
indemnify and hold harmless each Securityholder (each such
person and his or her heirs, administrators, personal
representatives and assigns is referred to herein as a
"SECURITYHOLDER INDEMNIFIED PARTY") against and in respect of:
(i) any and all damages, losses, settlement payments,
deficiencies, liabilities, costs and expenses
suffered, sustained, incurred or required to be paid
by such Securityholder Indemnified Party because of
or that result from, relate to or arise out of:
A. the untruth, inaccuracy or breach of, or the
failure to fulfil, any representation,
warranty, agreement, covenant or statement
of the Buyer contained in this Agreement or
in any certificate or other writing
furnished to the Securityholders by or on
behalf of the Buyer in connection herewith;
or
B. any liability or obligation relating to or
arising out of the business, operations or
assets of Continental conducted after the
Closing Date or the actions or omissions of
Continental's directors, officers,
shareholders, employees or agents after the
Closing Date (other than the
Securityholders) including, without
limitation, any liability or obligation
relating to, and any claim which arises out
of or is based upon, (i) negligence, (ii)
strict
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liability, (ii) any Environmental Claim (as
defined in Section A.2.19 hereof) or which
otherwise relates to, or involves a claim,
liability or obligation which arises out of
or is based upon, any Environmental Law (as
defined in Section A.2.19 hereof) to the
extent that such liability or obligation
relates to or arises out of, in whole or in
part, any activity occurring, condition
existing, omission to act or other matter
existing subsequent to the Closing Date
(iii) any other statute, rule or regulation
or (iv) any express or implied
representation, warranty, agreement or
guarantee made or on behalf of Continental,
or any liability or obligation which is
imposed on Continental or any successor
corporation by operation of law, in
connection with any product designed, used,
rented, sold, manufactured, shipped or
installed by or on behalf of Continental, or
for any service performed by or on behalf of
Continental, including, without limitation,
any acts, omissions, workmanship or material
performed or sold by Continental, in any
case subsequent to the Closing Date and
irrespective of the date that any claim,
suit or other cause of action related to any
of the foregoing is filed or otherwise
instituted against Continental or any
successor corporation (with all references
to Continental in this Section 10.3(a)(B)
also deemed to be references to any
predecessor in business of Continental); and
(ii) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines,
judgments, costs and other expenses (including
without limitation reasonable legal fees and
expenses) incident to any of the foregoing or to the
enforcement of this Section 10.3.
(b) The Buyer shall indemnify and hold harmless the
Securityholders and Continental, each of its directors, and
each person, if any, who controls Continental within the
meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the
Securityholders and Continental or any such director, nominee,
officer or controlling person may become subject, under the
Act or otherwise, and will reimburse, as incurred, the
Securityholders, Continental and such controlling persons for
any legal or other expenses reasonably incurred in connection
with investigating, defending against or appearing as a third
party witness in connection with any losses, claims, damages
or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Proxy
Statement, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in the Proxy Statement or any
amendment or supplement thereto other than in reliance upon
and in conformity with written information furnished by the
Securityholders and Continental to the Buyer specifically for
use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Buyer may otherwise
have.
10.4 LIMITATIONS ON LIABILITY.
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(a) Except as otherwise provided in Section 10.6 hereof and except
that this limitation shall not apply to any indemnification
claims arising under or with respect to Sections 10.1 and
11(a) hereof, Leslie J. Stinn and Roy D. Self shall not be
liable to any Buyer Indemnified Party under Section 10.2 for
any misrepresentation or breach of warranty until the
aggregate amount for which they would otherwise (but for this
provision) be liable to any or all Buyer Indemnified Parties
for all such misrepresentations and breaches of warranty
exceeds in the aggregate the sum (the "DEDUCTIBLE") of
$25,000.00.
(b) Except as otherwise provided in Section 10.6 hereof and except
that this limitation shall not apply to any indemnification
claims arising under or with respect to Sections 10.1 and
11(a) hereto, the indemnification liability of each of Leslie
J. Stinn and Roy Self to any Buyer Indemnified Party under
Section 10.2 for any misrepresentation or breach of warranty
shall be limited to fifty percent (50%) of any claim or demand
made thereunder.
(c) Except as otherwise provided in Section 10.6 hereof and except
that this limitation shall not apply to any indemnification
claims arising under or with respect to Sections 10.1 and
11(a) hereto, the indemnification liability of each
Securityholder to any Buyer Indemnified Party under Section
10.2 for any misrepresentation or breach of warranty shall be
limited to the percentage of any claim or demand made
thereunder equal to the percentage set forth after such
Securityholder's name in column C on Exhibit A.
(d) Except as otherwise provided in Section 10.6 hereof and except
that this limitation shall not apply to any indemnification
claim arising under or with respect to Section 11(b) hereof,
the Buyer shall not be liable to any Securityholder
Indemnified Party under Section 10.3 hereof for any
misrepresentation or breach of warranty until the aggregate
amount for which it would otherwise (but for this provision)
be liable to any or all Securityholder Indemnified Parties for
all such misrepresentations and breaches of warranty exceeds
in the aggregate the Deductible.
10.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided in Section
10.6 hereof, the representations and warranties given or made by the
Securityholders or the Buyer in this Agreement or in any certificate or other
writing furnished in connection herewith shall survive the Closing for a period
of two years after the Closing Date and shall thereafter terminate and be of no
further force or effect, except that (a) all representations and warranties
relating to Taxes and Tax Returns (each as defined in Section A.2.10 hereof) and
to Environmental Claims (as defined in Section A.2.19 hereof) shall survive the
Closing for the period of the applicable statutes of limitation plus any
extensions, (b) all representations and warranties set forth in Sections A.1 and
11(a) hereof shall survive the Closing without limitation and (c) any
representation or warranty as to which a claim shall have been asserted during
the survival period shall continue in effect with respect to such claim until
such claim shall have been finally resolved or settled. Notwithstanding any
investigation or audit conducted before or after the Closing Date or the
decision of any party to complete the Closing, each party shall be entitled to
rely upon the representations and warranties of the other party or parties set
forth herein.
10.6 EXCEPTIONS TO LIMITATIONS. Nothing herein shall be deemed to limit or
restrict in any manner any rights or remedies which any Buyer Indemnified Party
has, or might have, at law, in equity or otherwise, against the Securityholders,
or which any Securityholder Indemnified Party has, or might have, at law, in
equity or otherwise, against the Buyer, based on any willful misrepresentation,
willful breach of warranty or
<PAGE> 161
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willful failure to fulfil any agreement or covenant.
10.7 PAYMENT OF INDEMNIFICATION OBLIGATIONS. In the event that any
Securityholder or the Buyer is required to make any payment under this Section
10, such party shall promptly pay the Buyer Indemnified Party or the
Securityholder Indemnified Party, as the case may be, the amount of such
indemnity obligation. If there should be a dispute as to such amount, such
Securityholder or the Buyer, as the case may be, shall nevertheless pay when due
such portion, if any, of the obligation as shall not be subject to dispute. The
difference, if any, between the amount of the obligation ultimately determined
as properly payable under this Section 10 and the portion, if any, theretofore
paid shall bear interest for the period from the date the amount was demanded by
the Buyer Indemnified Party or the Securityholder Indemnified Party, as the case
may be, until payment in full, payable on demand, at the fluctuating rate per
annum which at all times shall be 1.0 percentage point in excess of the rate
which is publicly announced from time to time by The Royal Bank of Canada as its
"PRIME RATE".
10.8 INDEMNIFICATION PROCEDURE. All claims for indemnification under this
Section 10 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which a party (the
"INDEMNIFYING PARTY") would be liable to any Buyer Indemnified
Party or Securityholder Indemnified Party (in either case, the
"INDEMNIFIED PARTY") hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party
shall take immediate steps to notify the Indemnifying Party of
such claim or demand, specifying the nature of such claim or
demand in as much detail as possible and the amount or the
estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such
claim or demand), together with all documentation required by
the Indemnifying Party and which the Indemnified Party has the
power to obtain or is able to obtain, and detailing such claim
or demand sufficiently to permit a decision regarding
indemnification to be made by the Indemnifying Party
(collectively called the "CLAIM NOTICE"). The Indemnifying
Party shall have 20 days from the receipt of the Claim Notice
(the "NOTICE PERIOD") to notify the Indemnified Party (i)
whether or not the Indemnifying Party disputes the
Indemnifying Party's liability to the Indemnified Party
hereunder with respect to such claim or demand and (ii) if the
Indemnifying Party does not dispute such liability, whether or
not the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend against such
claim or demand, provided that the Indemnified Party is hereby
authorized (but not obligated) prior to and during the Notice
Period to file any motion, answer or other pleading which the
Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests. In the event that
the Indemnifying Party notifies the Indemnified Party within
the Notice Period that the Indemnifying Party does not dispute
the Indemnifying Party's obligation to indemnify hereunder and
desires to defend the Indemnified Party against such claim or
demand and except as hereinafter provided, the Indemnifying
Party shall have the right to defend by appropriate
proceedings, which proceedings shall be promptly settled or
prosecuted by the Indemnifying Party to a final conclusion. If
the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party
may do so at the Indemnified Party's sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified
Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or
otherwise, then the Indemnified Party, without waiving any
rights against the Indemnifying Party, may defend against any
such claim in the Indemnified
<PAGE> 162
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Party's sole discretion and, if it is ultimately determined
that the Indemnifying Party is responsible therefor under this
Section 10, then the Indemnified Party shall be entitled to
recover from the Indemnifying Party the amount of any judgment
and, subject to Section 10.8(c) hereof, all indemnifiable
costs and expenses of the Indemnified Party with respect
thereto, including without limitation interest as provided in
Section 10.7 hereof.
(b) If the Indemnified Party elects to defend any such claim or
demand or the Indemnifying Party elects not to defend such
claim or demand, then the Indemnified Party covenants to
diligently defend any such claim or demand to the full extent
an experienced, prudent businessperson would in the
circumstances. The Indemnified Party shall, prior to entering
into any settlement of any such claim or demand, provide the
Indemnifying Party with full particulars of such proposed
settlement and obtain in writing the approval of such
Indemnifying Party to such settlement, such approval to not be
unreasonably withheld. The Indemnified Party shall have the
right to control the defense of any such claim or demand and
the amount of any judgment and, subject to Section 10.8(c)
hereof, the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnified Party should
elect to exercise such right, the Indemnifying Party shall be
consulted by the Indemnified Party on an ongoing basis with
respect to all material issues related to the defense of such
claim or demand, and have the right to participate in, but not
control, the defense of such claim or demand at the sole cost
and expense of the Indemnifying Party.
(c) Notwithstanding any other provisions of Section 10 of this
Agreement, the Indemnifying Party's obligation to indemnify
the Indemnified Party with respect to the reasonable costs and
expenses incurred by the Indemnified Party in defending any
particular claim or demand, is subject to the following
qualifications and limitations:
(i) all such costs and expenses must be reasonable given
the nature and extent of such claim or demand ; and
given the nature and extent of the relevant defense,
(ii) prior to retaining any professional services in
connection with the defense of such claim or demand,
the Indemnified Party shall first advise the
Indemnifying Party of the need for such professional
services, shall consult with the Indemnifying Party
regarding the identity and the expected fees of the
professional to be retained and shall, to the extent
possible, acting reasonably, come to a mutual
agreement with the Indemnifying Party regarding the
professional to be retained, and
(iii) all such costs and expenses incurred with respect to
the provision of legal services shall be subject to
taxation.
(d) In the event the Indemnified Party should have a claim against
the Indemnifying Party hereunder which does not involve a
claim or demand being asserted against or sought to be
collected by a third party, the Indemnified Party shall take
immediate steps to send a Claim Notice with respect to such
claim to the Indemnifying Party.
(e) Subject to the provisions of Sections 10.8(b) and 10.8(c)
hereof, the Indemnified Party's failure to give immediate
notice to the Indemnifying Party of any actual, threatened or
possible claim or demand which may give rise to a right of
indemnification hereunder shall
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not relieve the Indemnifying Party of any liability which the
Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely
prejudiced the Indemnifying Party.
11. NO BROKERS' OR FINDERS' FEES.
(a) Each of the Securityholders represents and warrants that all
discussions, activities and negotiations relative to this
Agreement have been carried on by such Securityholder directly
without the intervention of any person who may be entitled to,
or has claimed entitlement to, any brokerage or finder's fee
or other commission in respect hereof or the consummation of
the Completed Transactions, irrespective of the validity of
such claim, other than as disclosed in the December 8, 1997
letter from Canaccord Capital Corporation to the Buyer, and
each Securityholder agrees to indemnify and hold harmless the
Buyer Indemnified Parties against any and all claims, losses,
liabilities and expenses (including without limitation
reasonable legal fees and expenses) which may be incurred or
paid by the Buyer as a result of such Securityholder's
dealings, arrangements or agreements with any such person
contrary to the representation and warranty contained in this
sub-paragraph 11(a).
(b) The Buyer represents and warrants that all discussions,
activities and negotiations relative to this Agreement have
been carried on by the Buyer and its affiliates directly
without the intervention of any person who may be entitled to,
or has claimed entitlement to, any brokerage or finder's fee
or other commission in respect hereof or the consummation of
the Contemplated Transactions, irrespective of the validity of
such claim, other than as disclosed in the December 8, 1997
letter from Canaccord Capital Corporation to the Buyer and the
Buyer agrees to indemnify and hold harmless each
Securityholder against any and all claims, losses, liabilities
and expenses (including without limitation reasonable legal
fees and expenses) which may be incurred or paid by such
Securityholder as a result of the Buyer's or any of the
Buyer's affiliates' or associates' dealings, arrangements or
agreements with any such person contrary to the representation
and warranty contained in this sub-paragraph 11(b).
12. COVENANT NOT TO COMPETE.
(a) From the date of this Agreement until the third anniversary of
the Closing, each of the Securityholders agrees that he or
she, as the case may be, will not, anywhere in North America,
unless acting for the Buyer or its affiliates (including
without limitation Continental) or in accordance with the
Buyer's prior written consent, (i) (directly or indirectly)
own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of,
or be connected as an officer, director, employee, principal,
agent, representative, consultant, investor, owner, partner,
manager, joint venturer or otherwise with, or permit his name
to be used by or in connection with, any business or
enterprise engaged anywhere in North America by Continental on
the Closing Date or during the three-year non-compete period
stated above or at the time of its termination, (ii) call on
or solicit any person who or which during such non-compete
period is a customer of Continental with respect to any
business covered by clause (i) above or (iii) solicit the
employment of any person who during such non-compete period is
employed by Continental on a full or part-time basis.
<PAGE> 164
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(b) The restriction provided in Section 12(a) above shall not be
construed to prohibit the ownership by the Securityholders (as
a group) of not more than 5% of any class of securities of any
corporation (other than the Buyer) which is engaged in any of
the foregoing businesses, having a class of securities
registered pursuant to the Securities Act (Alberta), or which
are publicly traded on a recognized securities exchange,
provided that such ownership represents a passive investment
and that neither the Securityholders nor any group of persons
including the Securityholders in any way, either directly or
indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations,
otherwise takes any part in its business, other any exercising
his or her rights as a shareholder, or seeks to do any of the
forgoing.
(c) Each of the Securityholders acknowledges that (i) the
provisions of this Section 12 are reasonable and necessary to
protect the legitimate interests of the Buyer and its
affiliates (including, without limitation, Continental), (ii)
any violation of this Section 12 will result in irreparable
injury to the Buyer and its affiliates (including, without
limitation, Continental) and that damages at law would not be
reasonable or adequate compensation to the Buyer and its
affiliates (including, without limitation Continental,) for a
violation of this Section 12 and (iii) the Buyer and its
affiliates (including, without limitation, Continental) shall
be entitled to have the provisions of this Section 12
specifically enforced by preliminary and permanent injunctive
relief without the necessity of proving actual damages and
without posting bond or other security as well as to an
equitable accounting from the violating Securityholder of all
earnings, profits and other benefits arising out of any
violation of this Section 12 by such Securityholder, including
without limitation estimated future earnings related to any
such violation by such Securityholder. In the event that the
provisions of this Section 12 should ever be deemed or held by
a court of competent jurisdiction to exceed the time,
geographic, product or any other limitations permitted by
applicable law, then such provisions shall be deemed reformed
to the maximum permitted by applicable law.
(d) The Buyer and each of the Securityholders intend to and do
hereby confer jurisdiction to enforce the covenants set forth
in this Section 12 upon the courts of any jurisdiction within
the geographical scope of such covenants. In addition to
Section 15.8 hereof and not in limitation thereof, if the
courts of any one or more of such jurisdictions hold such
covenants unenforceable in whole or in part, it is the
intention of the Buyer and each covenanting Securityholder
that such determination not bar or in any way adversely affect
the right of the Buyer and its affiliates (including without
limitation Continental) to equitable relief and remedies
hereunder in courts of any other jurisdiction as to breaches
or violations of this Section 12 only, such covenants being,
for this purpose, severable into diverse and independent
covenants.
13. FURTHER AGREEMENTS OF THE PARTIES.
13.1 CONDUCT OF BUSINESS OF CONTINENTAL. Except as expressly permitted by or
contemplated by this Agreement, the Credit Agreement, the Employment Agreements
and except as otherwise agreed to or required in connection with the leasing,
outfitting and operation of the "Pacific Titan" in an aggregate amount not to
exceed $12,000,000.00 (U.S.) (hereinafter collectively called the "EXTRAORDINARY
EXPENDITURES") between the date of this Agreement and the Closing Date,
Continental shall conduct its business only in the ordinary course in
substantially the same manner as heretofore conducted, and use all its
reasonable efforts to preserve intact its present business organization, and to
preserve the goodwill of
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persons having business relations with Continental. Without limiting the
generality of the foregoing, except as otherwise expressly permitted or
contemplated in this Agreement, and except for the Extraordinary Expenditures,
between the date of this Agreement and the Closing Date, Continental shall pay
accounts payable and pay and perform other obligations of the business of
Continental when they become due and payable in the ordinary course of business
consistent with prior practice, or when required to be performed, as the case
may be, and shall not:
(a) amend its articles or certificate of incorporation or by-laws;
(b) declare or pay any dividend or make any other payment or
distribution in respect of its capital stock, other than the
Bonus Transactions;
(c) purchase, redeem, issue, sell or otherwise acquire or dispose
of, either directly or indirectly, any of its capital stock,
or reclassify, split or otherwise change any of its capital
stock or grant or enter into any options, warrants, puts or
calls or other rights to purchase, sell or convert any
obligation into any of, its capital stock, other than the
Bonus Transactions;
(d) organize any subsidiary or acquire any capital stock or other
equity securities of any person or any equity or ownership
interest in any business;
(e) borrow any funds or incur, assume or acquire any obligation or
liability (whether fixed, accrued, contingent or otherwise,
whether due or to become due) or in the aggregate amount of
more than $25,000.00 except for current liabilities incurred
in the ordinary course of business in connection with the
purchase of goods or services consistent with prior practice;
(f) utilize its existing credit facility with Royal Bank of Canada
other than in the ordinary course of business and other than
to effect payment in accordance with Section 3(b) of the
$1,000,000.00 (Cdn.) bonus;
(g) enter into any commitment letter, offer to finance or loan
agreement regarding the leasing, outfitting or operation of
the "Pacific Titan" with any of Export Development
Corporation, Northstar Trade Finance Inc. or their respective
agents or affiliates without the prior express written consent
of the Buyer (collectively, the "EDC FINANCING");
(h) pay, discharge or satisfy any encumbrance (other than an
encumbrance then required to be paid, discharged or
satisfied), claim, liability or obligation (whether fixed,
accrued, contingent or otherwise, whether due or to become
due), except for payment, discharge or satisfaction for cash
of a claim, liability or obligation that is a current
liability either shown on the most recent financial statement
of Continental provided to Buyer, or incurred since the date
of such financial statement in the ordinary course of business
consistent with prior practice;
(i) make or grant any material increase in the compensation
(whether salary, commission, bonus, benefits (retirement,
severance or other) or other direct or indirect remuneration)
of any employees of Continental, or enter into any employment
contract with any employee of Continental other than the
Employment Agreements;
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(j) sell, assign, transfer, convey, lease, pledge, encumber or
otherwise dispose of any of its assets or properties (real or
personal, tangible or intangible) or any other material right,
other than in the ordinary course of business;
(k) enter into any instrument which would constitute a material
lease or contract or enter into any material amendment,
supplement or waiver in respect of any material lease or
contract;
(l) incur any severance pay obligation by reason of this Agreement
or the Contemplated Transactions;
(m) grant or extend any power of attorney other than in the
ordinary course of business which does not affect a material
part of Continental's business or act as guarantor, surety,
co-signer, endorser, co-maker, indemnitor, or otherwise in
respect of the obligation of any person other than through
endorsements of negotiable instrument in the ordinary course
of business;
(n) cancel or compromise any material debt or claim, or waive or
release any material right, other than adjustments in the
ordinary course of business for goods or services sold and
received which, in the aggregate, are not material;
(o) make any capital expenditures or capital additions or
improvements in excess of an aggregate of $25,000.00, other
than pursuant to capital expenditure commitments disclosed on
any Schedule hereto or not required to be disclosed thereon;
(p) enter into or amend any collective bargaining or union
contract or agreement;
(q) institute or settle any Proceeding;
(r) incur any tax liability other than in the ordinary course of
business;
(s) in any other manner, modify, change or otherwise alter in a
material way the fundamental nature of the business of
Continental as presently conducted; or
(t) agree or otherwise commit, whether in writing or otherwise, to
do, or take any action or omit to take any action that would
result in, any of the foregoing, without the prior express
written consent of the Buyer.
13.2 FURTHER ASSURANCES. Following the Closing, the Securityholders, Continental
and the Buyer shall, and shall cause each of their affiliates to, from time to
time, execute and deliver such additional instruments, documents, conveyances or
assurances and take such other actions as shall be necessary, or otherwise
reasonably requested by the other party, to confirm and assure the rights and
obligations provided for in this Agreement and render effective the consummation
of the Contemplated Transactions.
13.3 TAX MATTERS.
(a) Between the date of this Agreement and the Closing Date,
Continental shall (i) file on a timely basis all tax returns
required to be filed by or with respect to Continental within
such time period and pay all taxes shown to be due thereon;
provided that A. all such tax returns
<PAGE> 167
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will be true, correct, and complete when filed by Continental
and B. submit each of such tax returns to the Buyer for the
Buyer's review and approval prior to filing, and (ii) shall
not make or cause to be made any election, or file any tax
return or amended tax return reflecting any position, that
could result in adverse tax consequences to the Buyer or to
Continental for any period, except for elections made in
accordance with historical practices of Continental.
(b) Each of the Buyer, Continental and the Securityholders will
provide the other parties with such assistance as may
reasonable be requested by any of them in connection with the
preparation of any tax return, any audit or other examination
by any taxing authority, any Proceedings relating to liability
for taxes, or any other claim arising under this Agreement,
and each will retain and provide the others with any of their
respective records or information that may be relevant to any
such tax return, audit or examination, Proceeding or claim.
Such assistance shall include making employees available on a
mutually convenient basis to provide additional information
and explanation of any material provided hereunder and shall
include providing copies of any relevant tax returns and
supporting work schedules.
13.4 EXCLUSIVITY. From the date hereof until the earlier of the Closing Date or
the date of termination of this Agreement pursuant to Section 14 hereof, neither
any of the Securityholders nor Continental shall (i) solicit, initiate or
encourage the submission of inquiries, proposals or offers from any person
relating to A. any business combination with Continental or B. the sale of a
material portion of the assets and/or capital stock of Continental (a
"TRANSACTION"), (ii) enter into or participate in any negotiations, nor initiate
any discussions or continue any discussions initiated by others, regarding any
Transaction, or furnish to any other person any information with respect to the
assets or business of Continental for the purposes of pursuing a possible
Transaction with any other party, or (iii) otherwise participate in, assist,
facilitate, or encourage any effort or attempt by any other person to do any of
the foregoing. Neither the Securityholders nor Continental shall authorize their
investment bankers or other advisors to violate the provisions of this paragraph
and shall use reasonable efforts to prevent their investment bankers or other
advisors from violating the provisions of this paragraph.
13.5 RETRIEVAL OF CONFIDENTIAL INFORMATION. At the Closing, the Securityholders
and Continental shall deliver to the Buyer a list of all persons (other than
directors, officers, employees, legal advisors and accountants of Continental)
who received confidential information concerning Continental and copies of all
confidentiality agreements entered into by such persons in connection with the
solicitation of prospective acquirors of Continental. Following the Closing, the
Securityholders and Continental shall, with respect to confidential information
given to such persons pursuant to or in connection with confidentiality
agreements that do not run directly to Continental, authorize the Buyer to
retrieve or cause its agents to retrieve all such confidential information from
such persons. The Securityholders and Continental shall provide their full
cooperation in connection with the foregoing. In addition the Securityholders
and Continental shall assign to the Buyer all rights of the Securityholders and
Continental, if any, to enforce the confidentiality agreements entered into by
such persons.
13.6 REGULATORY COMPLIANCE. The Securityholders shall, and shall cause
Continental to, fully cooperate, and take all such actions as may be requested,
with respect to any and all requirements to facilitate the preparation and
filing of the proxy statement (the "PROXY STATEMENT"), or any other documents,
required to be filed by Buyer with the S.E.C. in connection with the
solicitation of the approval of the shareholders of the Buyer of the
Contemplated Transactions, or as otherwise necessary in connection with
<PAGE> 168
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the Contemplated Transactions, including, without limitation, furnishing the
Buyer with any information concerning Continental and its Securityholders, the
preparation of its audited financial statements by Ernst & Young, Chartered
Accountants, for the three years ended December 31, 1997, and for such other
periods as otherwise may be requested by the S.E.C., assistance with respect to
Buyer's preparation of pro forma financial statements and unaudited interim
financial statement information, preparation of amendments and/or responses to
comments from the S.E.C. in relation to any of the foregoing and other matters
incidental to the Contemplated Transactions. Whenever an event occurs which
should be set forth in an amendment to the Proxy Statement or otherwise
disclosed by Continental or any of the Securityholders on the Schedules hereto,
or by the Buyer in any filing required to made by it pursuant to the rules and
regulations of the S.E.C., Continental or the Securityholders, as the case may
be, shall promptly inform the Buyer and will cooperate with the Buyer in
preparing such amendment or filing. With respect to the preparation of the Proxy
Statement, Continental shall be responsible for all costs incurred in connection
with the preparation of its audited and unaudited financial statements as
necessary for the preparation of the Proxy Statement in accordance with the
applicable rules and regulations of the S.E.C. and the Buyer shall be
responsible, and shall reimburse Continental or the Securityholders, as the case
may be, for all other costs incurred in connection with the preparation of the
Proxy Statement, including, without limitation, the preparation of pro forma
financial statements.
13.7 NASDAQ LISTING. Prior to the Closing Date, the Buyer shall prepare and file
with the Nasdaq Stock Market, or such other exchange or market upon which the
Buyer's shares are then primarily listed for trading, a notification of listing
(the "NASDAQ LISTING") of the additional shares of Venture Stock to be issued to
the Securityholders pursuant to the terms hereof, and to the extent obtainable
and prior to the Closing Date, shall obtain written verification of such
listing. For a period equal to the lesser of (i) five years from the Closing
Date or (ii) after an aggregate of 95% of the Venture Stock being acquired by
the Securityholders pursuant to the terms hereof have been transferred or
otherwise disposed of by the Securityholders, the Buyer shall use its best
efforts to maintain the listing of its securities on Nasdaq, or such other
exchange or market as the securities of the Buyer may then be listed for
trading.
13.8 RULE 144 REPORTING AND ALBERTA COMPLIANCE. For a period equal to the lesser
of (i) five years from the Closing Date or (ii) after an aggregate of 95% of the
Venture Stock being acquired by the Securityholders pursuant to the terms hereof
have been transferred or otherwise disposed of by the Securityholders, the Buyer
agrees to:
(a) Make and keep available adequate current public information
regarding the Buyer as such is understood and defined in Rule
144 under the Securities Act;
(b) Comply in all material respects with the reporting
requirements of the Exchange Act applicable to it;
(c) Use its best efforts to otherwise comply with the provisions
of Rule 144 as then in effect and which may be applicable to
it; and
(d) Use its best efforts to comply with the rules and regulations
of the Securities Act (Alberta) in all material respects (the
"ALBERTA ACT").
13.9 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend endorsed on each
certificate for the Venture Stock pursuant to Section A.1.5(g) shall be removed
and the Buyer shall issue a certificate without such legend to the
Securityholders and will instruct the Buyer's transfer agent to remove any
stop-transfer
<PAGE> 169
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instructions to the extent that (i) the Venture Stock issued to such
Securityholder is registered for resale under the Act and a prospectus meeting
the requirements of section 10 of the Act is available, (ii) there is available
an exemption from registration under the Act and, if the Buyer reasonably
requests, the Securityholder (or a valid transferee) provides to the Buyer an
opinion of counsel for the Securityholder (or such transferee) reasonably
satisfactory to the Buyer, or a no-action letter or interpretive opinion of the
staff of the SEC to the effect that a public sale, transfer or assignment of
such Venture Stock may be made without registration under the Act or (iii) Rule
144 (k) under the Act is applicable to such Venture Stock and the applicable
conditions have been met, and the Buyer receives an opinion of counsel of such
Securityholders to such effect. Notwithstanding the previous sentence, the
legend endorsed on each certificate for the Venture Stock pursuant to Section
A.1.5(g) shall be removed and the Buyer shall issue a certificate without such
legend to the Securityholder or a valid transferee, two years after the Closing
Date, provided however, that the holding period as set forth in Rule 144(k)
under the Act, and as calculated in accordance with the provisions of Rule
144(d) under the Act, has been met by either the Securityholder or a valid
transferee, and the Buyer receives a representation letter from such
Securityholder to such effect.
13.10 NOMINEE DIRECTOR OF THE BUYER. The Buyer agrees to use its best efforts to
ensure that a nominee selected by the Securityholders, collectively, is included
on the board of directors' list of nominee directors for each of the next three
annual shareholder meetings of the Buyer.
14. TERMINATION
14.1 TERMINATION PROCEDURES. This Agreement may be terminated before the Closing
Date only as follows:
(a) by written agreement of the Securityholders, Continental and
the Buyer at any time;
(b) by the Buyer, by notice to the Securityholders and
Continental, if satisfaction of any of the conditions to the
Buyer's obligations set forth in Section 8 becomes impossible
and such condition has not been waived by the Securityholders
and Continental; or
(c) by the Securityholders, by notice to the Buyer, if
satisfaction of any of the conditions to the Securityholders'
obligations set forth in Section 9 becomes impossible and such
condition has not been waived by the Buyer.
14.2 EFFECT OF TERMINATION. In the event that this Agreement is terminated
pursuant to Section 14, this Agreement shall terminate without any liability or
further obligation of any party to another, except for the obligations of the
Buyer, Continental and the Securityholders under Sections 5 and 8.1.
15. MISCELLANEOUS.
15.1 ACCOUNTS RECEIVABLE. In the event that all accounts receivable of
Continental as of January 1, 1998 are not collected in full within 90 days after
the Closing, then at the request of the Buyer the Securityholders shall become
obligated to pay the Buyer or Continental, as specified by the Buyer, an amount
equal to the accounts receivable not so collected, less an allowance for
doubtful accounts equal to $25,000.00. Upon receipt of such payment Continental
shall assign to the Securityholders all of its rights with respect to such
uncollected accounts receivable.
15.2 EXPENSES. Except as otherwise indicated in this Agreement, the Buyer and
Continental shall pay
<PAGE> 170
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their own expenses incidental to the preparation hereof and, through the
Closing, the carrying out of the provisions hereof and the consummation of the
transactions contemplated hereby. The Buyer and Continental shall pay their own
expenses incidental to the carrying out of the provisions hereof after the
Closing. Continental shall pay all expenses of the Securityholders, and each of
them, incidental to the preparation hereof, and, through the Closing, the
carrying out of the provisions hereof and the consummation of the transactions
contemplated hereby, including without limitation, the Securityholders' legal
fees and expenses, and incidental to the carrying out of the provisions hereof
after the Closing.
15.3 CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC. This Agreement sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby. This Agreement shall not be amended or modified except by a
written instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties regarding
the subject matter hereof, whether written or oral, are superseded by this
Agreement.
15.4 ASSIGNMENT AND BINDING EFFECT. All of the terms and provisions of this
Agreement shall be binding upon and enure to the benefit of and be enforceable
by the heirs, administrators, personal representatives and successors of the
parties hereto. This Agreement shall be non-assignable and non-transferable
without the prior written consent of all parties.
15.5 WAIVER. Any term or provision of this Agreement may be waived at any time
by the party entitled to the benefit thereof by a written instrument duly
executed by such party.
15.6 PUBLICITY. Between the date of this Agreement and the Closing Date, except
to the extent required by law, neither the Buyer nor any of the Securityholders
nor Continental shall, and none of them shall permit any affiliate to, issue any
press release or public announcement of any kind concerning, or otherwise
publicly disclose, the Contemplated Transactions without the consent of the
other; and in the event any such public announcement, release or disclosure is
required by law, the parties will consult prior to the making thereof and use
their best efforts to agree upon a mutually satisfactory text; provided that the
Securityholders hereby acknowledge that upon execution of this Agreement, the
Buyer shall prepare and issue a press release and file a report on Form 8-K, the
form and substance of which shall be reviewed by Continental, but be
satisfactory to the Buyer and its counsel.
15.7 NOTICES. Any notice, request, claim, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given if delivered personally or sent by telecopier or other
telecommunications, by registered or certified mail, postage prepaid, or by
recognized courier service, as follows:
If to the Buyer, to:
Venture Seismic Ltd.
3110 80th Avenue S.E.
Calgary, Alberta T2C 1T3
Telecopier: (403) 777-9080
Attention: Brian W. Kozun
With a required copy to:
Burstall Ward
<PAGE> 171
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Barristers & Solicitors
3100, 324 8th Avenue S.W.
Calgary, Alberta T2P 2Z2
Telecopier: (403) 266-6016
Attention: Scott W. Sangster
and to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017-2590
Telecopier: (212) 682-5729
Attention: Nellie Gilligan
If to the Securityholders, to:
Leslie J. Stinn
612 24th Avenue N.E.
Calgary, Alberta T2E 1X8
Telephone: (403) 230-1698
Gregory A. Stinn
7411 Hunterhaven Place N.E.
Calgary, Alberta T2K 4K7
Telephone: (403) 275-1188
Roy D. Self
69 31st Avenue S.W.
Calgary, Alberta T2S 2Y7
Telephone: (403) 234-8627
Sandra Kelly
3712 3rd Avenue S.W.
Calgary, Alberta T3C 0A6
Telephone: (403) 249-4922
Elaine McCarthy
504 36th Street S.W.
Calgary, Alberta T3C 0A6
Telephone: (403) 242-6118
With a required copy to:
Tharp Sinclair Watson Quigley Taylor
Barristers & Solicitors
800, 933 17th Avenue S.W.
Calgary, Alberta T2P 5R6
Telecopier: (403) 245-3777
<PAGE> 172
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Attention: David H. Sinclair, Q.C.
If to Continental to:
Continental Holdings Ltd.
210, 3030 3rd Avenue N.E.
Calgary, Alberta T2A 6T7
Telecopier: (403) 273-6729
Attention: Les J. Stinn, President
With a required copy to:
Tharp Sinclair Watson Quigley Taylor
Barristers & Solicitors
800, 933 17th Avenue S.W.
Calgary, Alberta T2P 5R6
Telecopier: (403) 245-3777
Attention: David H. Sinclair, Q.C.
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered or telecopied, or if
mailed, on the seventh calendar day following the date of mailing, and if given
by any other means shall be deemed given only when actually received by the
addressees.
15.8 ALBERTA LAW TO GOVERN; CONSENT TO JURISDICTION. This Agreement shall be
governed by and interpreted and enforced in accordance with the laws of the
Province of Alberta. Each of the Buyer and the Securityholders irrevocably and
unconditionally (a) agrees that any suit, action or other legal proceeding
(collectively, "SUIT") instituted by the Securityholders and arising out of this
Agreement shall be brought and adjudicated only in the Province of Alberta, (b)
agrees that any Suit instituted by the Buyer arising out of this Agreement shall
be brought and adjudicated only in the Province of Alberta, and (c) waives and
agrees not to assert by way of motion, as a defense or otherwise in any such
Suit, any claim that it, he or she is not subject to the jurisdiction of the
above courts, that such Suit is brought in an inconvenient forum or that the
venue of such Suit is improper.
15.9 NO BENEFIT TO OTHERS. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Section 10 hereof, the other Buyer Indemnified
Parties and Securityholder Indemnified Parties, and their heirs, administrators,
personal representatives, successors and assigns, and they shall not be
construed as conferring any rights on any other persons.
15.10 HEADINGS; GENDER; PERSON; SECURITYHOLDERS; DOLLARS; $. All section
headings contained in this Agreement are for convenience of reference only, do
not form a part of this Agreement and shall not affect in any way the meaning or
interpretation hereof. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires. Any reference to a "PERSON" herein shall include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity. Any
reference to an "AFFILIATE" or an "AFFILIATED
<PAGE> 173
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CORPORATION" herein shall have the meaning ascribed to such terms in the
Business Corporations Act (Alberta), as amended from time to time, except as
otherwise provided for herein. Any reference to "DOLLARS" or "$" shall refer to
dollars of the United States of America.
15.11 TAX TREATMENT.
(a) The Buyer makes no representations regarding the tax
consequences to the Securityholders of the transactions
contemplated by this Agreement. The Securityholders
acknowledge that they have been advised of the tax
consequences of the transactions contemplated by this
Agreement by their own tax advisers, and that they are relying
on their tax advisers in determining their respective tax
consequences in connection with the transactions contemplated
in this Agreement.
(b) None of Continental or any Securityholder makes any
representation regarding the tax consequences to the Buyer of
the transactions contemplated by this Agreement. The Buyer
acknowledges that it has been advised of the tax consequences
of the transactions contemplated by this Agreement by its own
tax advisers, and that it is relying on its tax advisers in
determining its tax consequences in connection with the
transactions contemplated in this Agreement.
15.12 EXHIBITS; APPENDIX; SCHEDULES.
(a) Appendix A hereto and the Schedules referred to herein and
therein are intended to be and hereby are specifically made a
part of this Agreement.
(b) The following Exhibits are intended to be and hereby are
specifically made a part of this Agreement:
Exhibits
A - Allocation of Shares, Venture Stock, Cash Consideration
B - Form of Credit Agreement
C - Form of Security Agreement to the Buyer
D - Form of Employment Agreement
E - Form of Closing Agenda
15.13 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstance in any other jurisdiction or to other persons or
circumstances in any jurisdiction, shall not be affected thereby, and to this
end the provisions of this Agreement shall be severable.
15.14 COUNTERPARTS; TELECOPIER EXECUTION. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts. Execution and delivery of
counterparts of this Agreement by telecopier by any party shall be binding on
all parties to
<PAGE> 174
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this Agreement.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement on the
date first written.
VENTURE SEISMIC LTD.
Per: /s/ Brian Kozun
----------------
Name: Brian W. Kozun
Title: President
THE SECURITYHOLDERS
/s/ D. H. Sinclair /s/ L.J. Stinn
- ------------------ --------------------
WITNESS LESLIE J. STINN
/s/ D. H. Sinclair /s/ Sandra Kelly
- ------------------ --------------------
WITNESS SANDRA KELLY
/s/ D. H. Sinclair /s/ Elaine McCarthy
- ------------------ --------------------
WITNESS ELAINE B. MCCARTHY
(signatures continued on page 29)
<PAGE> 175
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(signatures continued from page 28)
/s/ D.H. Sinclair /s/ Gregory Stinn
- ----------------- ---------------------
WITNESS GREGORY A. STINN
/s/ D. H. Sinclair /s/ R.D. Self
- ----------------- ---------------------
WITNESS ROY SELF
CONTINENTAL HOLDINGS LTD.
Per: /s/ L. J. Stinn
-----------------------
Name: Leslie J. Stinn
Title: President
Per: /s/ R. D. Self
-----------------------
Name: Roy D. Self
Title: Vice-President, Geophysical Operations
<PAGE> 176
ANNEX B
1995 STOCK OPTION PLAN, AS AMENDED
<PAGE> 177
VENTURE SEISMIC LTD.
1995 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE.
The purpose of this plan (the "Plan") is to secure for VENTURE SEISMIC
LTD. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its subsidiary corporations who are expected to
contribute to the Company's future growth and success. Those provisions of the
Plan which make express reference to Section 422 shall apply only to Incentive
Stock Options (as that term is defined in the Plan).
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a
committee designated by the Board of Directors, the "Committee") and
may be either incentive stock options ("Incentive Stock Options")
meeting the requirements of Section 422 of the United States Internal
Revenue Code of 1986, as amended or replaced from time to time (the
"Code") or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of
Directors or the Committee, whose construction and interpretation of
the terms and provisions of the Plan shall be final and conclusive.
The delegation of powers to the Committee shall be consistent with
applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the United States
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3")). The Board of Directors or the Committee may in
its sole discretion grant options to purchase the Company's Common
Shares, no par value ("Common Shares"), and issue shares upon exercise
of such options as provided in the Plan. The Board of Directors or the
Committee shall have authority, subject to the express provisions of
the Plan, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option
agreements, which need not be identical, and to make all other
determinations in the judgment of the Board of Directors or the
Committee necessary or desirable for the administration of the Plan.
The Board of Directors or the Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the sole and
final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board of Directors or the Committee shall
be liable for any action or determination under the Plan made in good
faith. Subject to
1
<PAGE> 178
adjustment as provided in Section 15 below, the aggregate number of
shares of Common Stock that may be subject to Options granted to any
person in a calendar year shall not exceed 225,000 shares or 30% of the
maximum number of shares which may be issued and sold under the Plan, as
set forth in Section 4 hereof, as such section may be amended from time
to time.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply to the Company only at
such time as the Company's Common Stock is registered under the
Exchange Act, subject to the last sentence of Section 3(b), and then
only to such persons as are required to file reports under Section 16
(a) of the Exchange Act (a "Reporting Person").
3. ELIGIBILITY.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors
to, the Company or any subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Code ("Participants") provided, that
Incentive Stock Options may only be granted to individuals who are
employees of the Company (within the meaning of Section 3401 (c) of the
Code). A person who has been granted an option may, if he or she is
otherwise eligible, be granted additional options if the Board of
Directors or the Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection of a director
or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) as a recipient of an
option, the timing of the option grant, the exercise price of the
option and the number of shares subject to the option shall be
determined either (i) by the Board of Directors, (ii) by a committee
consisting of two or more directors having full authority to act in the
matter, or (iii) pursuant to provisions for automatic grants set forth
in Section 3 (c) below.
(c) Directors' Options. Directors of the Company who are not employees
of the Company ("Eligible Directors") will receive an option ("Director
Option") to purchase 5,000 Common Shares on the date that such person
is first elected or appointed a director ("Initial Director Option").
Commencing on the day immediately following the date of the annual
meeting of stockholders for the Company's fiscal year ending September
30, 1996, each Eligible Director will receive an automatic grant
("Automatic Grant") of a Director Option to purchase 1,000 Common
Shares, other than Eligible Directors who received an Initial Director
Option since the most recent Automatic Grant, on the day immediately
following the date of each annual meeting of stockholders, as long as
such director is a member of the Board of Directors. The exercise
price for each share subject to a Director Option shall be equal to the
fair market value of the Common Shares on the date of grant. Director
Options shall become exercisable in four equal annual installments
commencing one year from the date the option is granted and will expire
the earlier of 10 years after the date of grant or 90 days
after the termination of the director's service on the Board.
2
<PAGE> 179
4. STOCK SUBJECT TO PLAN.
The stock subject to options granted under the Plan shall be authorized
but unissued or reacquired Common Shares. Subject to adjustment as provided in
Section 15 below, the maximum number Common Shares of the Company which may be
issued and sold under the Plan is 750,000 shares. If an option granted under
the Plan shall expire, terminate or is canceled for any reason without having
been exercised in full, the unpurchased shares subject to such option shall
again be available for subsequent option grants under the Plan.
5. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. PURCHASE PRICE.
(a) General. The purchase price per share of stock deliverable upon
the exercise of an option shall be determined by the Board of Directors
or the Committee at the time of grant of such option; provided,
however, that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the Fair Market Value (as
hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of
options described in Section 11 (b). "Fair Market Value" of a share of
Common Stock of the Company as of a specified date for the purposes of
the Plan shall mean the closing price of a Common Share on the
principal securities exchange (including the Nasdaq National Market) on
which such shares are traded on the day immediately preceding the date
as of which Fair Market Value is being determined, or on the next
preceding date on which such shares are traded if no shares were traded
on such immediately preceding day, or if the shares are not traded on a
securities exchange, Fair Market Value shall be deemed to be the
average of the high bid and low asked prices of the shares in the
over-the-counter market on the day immediately preceding the date as of
which Fair Market Value is being determined or on the next preceding
date on which such high bid and low asked prices were recorded. If the
shares are not publicly traded, Fair Market Value of a Common Share
(including, in the case of any repurchase of shares, any distributions
with respect thereto which would be repurchased with the shares) shall
be determined in good faith by the Board of Directors or the Committee.
In no case shall Fair Market Value be determined with regard to
restrictions other than restrictions which, by their terms, will never
lapse.
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(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a
check to the order of the Company in an amount equal to the exercise
price of such options, or by any other means which the Board of
Directors or the Committee determines are consistent with the purpose of
the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by
the Federal Reserve Board if applicable).
7. OPTION PERIOD.
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors or the Committee and set forth in the applicable option agreement,
provided, that such date shall not be later than (10) ten years after the date
on which the option is granted.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. NONTRANSFERABILITY OF OPTIONS.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act, or the
rules thereunder, if applicable. An option may be exercised during the
lifetime of the optionee only by the optionee. In the event an optionee dies
during his employment by the Company or any of its subsidiaries, or during the
three-month period following the date of termination of such employment, his
option shall thereafter be exercisable, during the period specified in the
option agreement, by his executors or administrators to the full extent to
which such option was exercisable by the optionee at the time of his death
during the periods set forth in Section 10 or 11 (d).
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as provided in Section 11 (d) with respect to Incentive Stock
Options and except as otherwise determined by the Committee at the date of
grant of an Option, and subject to the provisions of the Plan, an optionee may
exercise an option at any time within three months following the termination of
the optionee's employment or other relationship with the Company or within one
(1) year if such termination was due to the death or disability of the optionee
but, except in the case of the optionee's death, in no
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event later than the expiration date of the Option. If the termination of the
optionee's employment is for cause or is otherwise attributable to a breach by
the optionee of an employment or confidentiality or non-disclosure agreement,
the option shall expire immediately upon such termination. The Board of
Directors shall have the power to determine what constitutes a termination for
cause or a breach of an employment or confidentiality or non-disclosure
agreement, whether an optionee has been terminated for cause or has breached
such an agreement, and the date upon which such termination for cause or breach
occurs. Any such determinations shall be final and conclusive and binding upon
the optionee.
11. INCENTIVE STOCK OPTIONS.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in
the option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (after
taking into account the attribution of stock ownership rules of Section
424(d) of the Code), then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual:
(i) The purchase price per Common Share subject to such Incentive
Stock Option shall not be less than 110% of the Fair Market Value of
one Common Share at the time of grant; and
(ii) the option exercise period shall not exceed five years from
the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive
stock option plans of the Company) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to
the extent that such options, in the aggregate, become exercisable for
the first time in any one calendar year for Common Shares with an
aggregate Fair Market Value, as of the respective date or dates of
grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the
optionee is, and has been continuously since the date of grant of his
or her option, employed by the Company, except that:
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(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in
the applicable option agreement), provided, that the agreement with
respect to such option may designate a longer exercise period and
that the exercise after such three-month period shall be treated as
the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person
to whom it is transferred by will or the laws of descent and
distribution within the period of one year after the date of death
(or within such lesser period as may be specified in the applicable
option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e) (3) of the Code or any successor provisions thereto)
while in the employ of the Company, the Incentive Stock Option may
be exercised within the period of one year after the date the
optionee ceases to be such an employee because of such disability
(or within such lesser period as may be specified in the applicable
option agreement).
For all purposes of the Plan and any option granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7 (h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
12. ADDITIONAL PROVISIONS.
(a) Additional Option Provisions. The Board of Directors or the
Committee may, in its sole discretion, include additional provisions in
option agreements covering options granted under the Plan, including
without limitation restrictions on transfer, repurchase rights, rights
of first refusal, commitments to pay cash bonuses, to make, arrange for
or guaranty loans or to transfer other property to optionees upon
exercise of options, or such other provisions as shall be determined by
the Board of Directors or the Committee; provided, that such additional
provisions shall not be inconsistent with any other term or condition
of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors or the
Committee may, in its sole discretion, (i) accelerate the date or dates
on which all or any particular option or options granted under the Plan
may be exercised or (ii) extend the dates during which all, or any
particular, option or options granted under the Plan may be exercised;
provided, however, that no such extension shall be permitted if it
would cause the Plan to fail to comply with Section 422 of the Code or
with Rule 16b-3 (if applicable).
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13. GENERAL RESTRICTIONS.
(a) Investment Representations. The Company may require any person to
whom an Option is granted, as a condition of exercising such option or
award, to give written assurances in substance and form satisfactory to
the Company to the effect that such person is acquiring the Common
Shares subject to the option, for his or her own account for investment
and not with any present intention of selling or otherwise distributing
the same, and to such other effects as the Company deems necessary or
appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the
Company in connection with any public offering of its Common Shares,
including any "lock-up" or other restriction on transferability.
(b) Compliance With Securities Law. Each Option shall be subject to
the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares
subject to such option or award upon any securities exchange or
automated quotation system or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with the
issuance or purchase of shares thereunder, such option or award may not
be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition
shall have been effected or obtained on conditions acceptable to the
Board of Directors. Nothing herein shall be deemed to require the
Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
14. RIGHTS AS A SHAREHOLDER.
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
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15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS, REORGANIZATIONS AND RELATED
TRANSACTIONS.
(a) Recapitalizations and Related Transactions. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, (i) the
outstanding Common Shares are increased, decreased or exchanged for a
different number or kind of shares or other securities of the Company,
or (ii) additional shares or new or different shares or other non-cash
assets are distributed with respect to such Common Shares or other
securities, an appropriate and proportionate adjustment shall be made
in (x) the maximum number and kind of shares reserved for issuance
under or otherwise referred to in the Plan, (y) the number and kind of
shares or other securities subject to any then outstanding options
under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Section 15 if such adjustment (i) would cause the Plan to fail to
comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be
considered as the adoption of a new plan requiring stockholder
approval.
(b) Reorganization, Merger and Related Transactions. All outstanding
Options under the Plan shall become fully exercisable for a period of
sixty (60) days following the occurrence of any Trigger Event, whether
or not such Options are then exercisable under the provisions of the
applicable agreements relating thereto. For purposes of the Plan, a
"Trigger Event" is any one of the following events :
(i) the date on which Common Shares are first purchased pursuant
to a tender offer or exchange offer (other than such an offer by the
Company, any Subsidiary, any employee benefit plan of the Company
or of any Subsidiary or any entity holding shares or other
securities of the Company for or pursuant to the terms of such
plan), whether or not such offer is approved or opposed by the
Company and regardless of the number of shares purchased pursuant to
such offer;
(ii) the date the Company acquires knowledge that any person or
group deemed a person under Section 13(d)-3 of the Exchange Act
(other than the Company, any Subsidiary, any employee benefit plan
of the Company or of any Subsidiary or any entity holding Common
Shares or other securities of the Company for or pursuant to the
terms of any such plan or any individual or entity or group or
affiliate thereof which acquired its beneficial ownership interest
prior to the date the Plan was adopted by the Board), in a
transaction or series of transactions, has become the beneficial
owner, directly or indirectly (with beneficial ownership determined
as provided in Rule 13d-3, or any successor rule, under the Exchange
Act), of securities of the Company entitling the person or group to
30% or more of all votes (without
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consideration of the rights of any class or stock to elect directors
by a separate class vote) to which all shareholders of the Company
would be entitled in the election of the Board of Directors were an
election held on such date;
(iii) the date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for
election by the shareholders of the Company, of each new director
was approved by a vote of at least two thirds of the directors then
still in office who were directors at the beginning of such period;
and
(iv) the date of approval by the shareholders of the Company of an
agreement (a "reorganization agreement") providing for:
(A) The merger of consolidation of the Company with
another corporation where the shareholders of the Company,
immediately prior to the merger or consolidation, do not
beneficially own, immediately after the merger or consolidation,
shares of the corporation issuing cash or securities in the
merger or consolidation entitling such shareholders to 65% or
more of all votes (without consideration of the rights of any
class of stock to elect directors by a separate class vote) to
which all shareholders of such corporation would be entitled in
the election of directors or where the members of the Board of
Directors of the Company, immediately prior to the merger or
consolidation, do not, immediately after the merger or
consolidation, constitute a majority of the Board of Directors
of the corporation issuing cash or securities in the merger or
consolidation; or
(B) The sale or other disposition of all or substantially
all the assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination
as to what adjustments, if any, will be made and the extent thereof
will be final, binding and conclusive. No fractional shares will be
issued under the Plan on account of any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) General. In the event of a consolidation or merger sale of all or
substantially all of the assets of the Company in which outstanding
Common Shares are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a
liquidation of the Company, the Board of Directors of the Company, or
the board of directors of any corporation assuming the obligations of
the Company, may, in its discretion, take any one or more of the
following actions, as to outstanding options: (i) in the event of a
merger under the
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<PAGE> 186
terms of which holders of the Common Shares of the Company will receive
upon consummation thereof a cash payment for each share surrendered in
the merger (the "Merger Price"), make or provide for a cash payment to
the optionees equal to the difference between (A) the Merger Price times
the number of Common Shares subject to such outstanding options (to the
extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (ii) in the event the
provisions of Section 15 are not applicable, provide that all or any
outstanding options shall become exercisable in full immediately prior to
such event and upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the consummation
of such transaction unless exercised by the optionee within a specified
period following the date of such notice.
(b) Substitute Options. The Company may grant options under the Plan
in substitution for options held by employees of another corporation
who become employees of the Company, or a subsidiary of the Company, as
the result of a merger or consolidation of the employing corporation
with the Company or a subsidiary of the Company, or as a result of the
acquisition by the Company, or one of its subsidiaries, of property or
stock of the employing corporation. The Company may direct that
substitute options be granted on such terms and conditions as the Board
of Directors considers appropriate in the circumstances.
17. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time
to terminate such employment or to increase or decrease the compensation of the
optionee.
18. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. AMENDMENT OF THE PLAN.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect; provided, however, that if at
any time the approval of the shareholders of the Company is required
under Section 422 of the Code or any successor provision with respect
to Incentive Stock Options, or under Rule 16b-3
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or by the Alberta Business Corporation Act, the Board of Directors may
not effect such modification or amendment without such approval; and
provided, further, that the provisions of Section 3 (c) hereof shall
not be amended more than once every six months, other than to comport
with changes in the Code, the Employer Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option
agreements in a manner not inconsistent with the Plan. The Board of
Directors shall have the right to amend or modify (i) the terms and
provisions of the Plan and of any outstanding Incentive Stock Options
granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock
options under Section 422 of the Code and (ii) the terms and provisions
of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, provincial or state or
local taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan. Subject to
the prior approval of the Company, which may be withheld by the Company
in its sole discretion, the optionee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company to
withhold Common Shares otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company Common Shares already
owned by the optionee. The shares so delivered or withheld shall have
a Fair Market Value equal to such withholding obligation as of the date
that the amount of tax to be withheld is to be determined. An optionee
who has made an election pursuant to this Section 20(a) may only
satisfy his or her withholding obligation with Common Shares which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements.
(b) The acceptance of Common Shares upon exercise of an Incentive Stock
Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one
year from the date the shares were issued to the optionee pursuant to
the exercise of the option, and (ii) if required by law, to remit to
the Company, at the time of and in the case of any such disposition, an
amount sufficient to satisfy the Company's federal, state and local
withholding tax obligations with respect to such disposition, whether
or not, as to both (i) and (ii), the optionee is in the employ of the
Company at the time of such disposition.
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(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section
3 (b) herein, no election to use shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3.
21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of Common Shares and having an option exercise price per
share which may be lower or higher than the exercise price per share of the
canceled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the
Plan shall become exercisable unless and until the Plan shall have been
approved by the Company's shareholders. If such shareholder approval
is not obtained within twelve months after the date of the Board's
adoption of the Plan, no options previously granted under the Plan
shall be deemed to be Incentive Stock Options and no Incentive Stock
Options shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as
provided in Section 19) shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted after the
date of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to grant
such Incentive Stock Option to a particular optionee) unless and until
such amendment shall have been approved by the Company's shareholders.
If such shareholder approval is not obtained within twelve months of
the Board's adoption of such amendment, any Incentive Stock Options
granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the
Company to grant such option to a particular optionee. Subject to this
limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of
its adoption by the Board of Directors, or (ii) the date on which all
shares available for issuance under the Plan shall have been issued
pursuant to the exercise or cancellation of options granted under the
Plan. If the date of termination is determined under (i) above, then
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<PAGE> 189
options outstanding on such date shall continue to have force and effect
in accordance with the provisions of the instruments evidencing such
options.
23. PROVISION FOR FOREIGN PARTICIPANTS.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
24. GOVERNING LAW.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the province of Alberta, Canada without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on September 14, 1995, as most recently
amended by the Board of Directors on June 3, 1998.
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ANNEX C
VENTURE SEISMIC LTD.
INSTRUMENT OF PROXY
THIS PROXY IS SOLICITED BY THE
MANAGEMENT AND WILL BE USED AT THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 1998
The undersigned shareholder of Venture Seismic Ltd. (the
"Corporation") hereby nominates, constitutes and appoints Brian W. Kozun,
Chairman of the Corporation, or failing him, P. Daniel McArthur, Chief Operating
Officer of the Corporation, or in the place and stead of the foregoing
________________ the true and lawful attorney and proxy of the undersigned to
attend, act and vote in respect of all common shares, no par value, of the
Corporation (the "Common Shares") held by the undersigned at the annual meeting
of the shareholders of the Corporation to be held at 3100, 324 -- 8th Avenue
S.W., Calgary, Alberta, Canada, T2P 2Z2 on July 20, 1998, 10:00 a.m. local time,
and at any adjournment or adjournments thereof. The undersigned hereby instructs
the said proxy to vote the Common Shares represented by this instrument of proxy
in the following manner:
1. TO VOTE FOR [ ] OR AGAINST [ ] OR ABSTAIN FROM VOTING [ ]
The approval and ratification of the Securities Purchase
Agreement by and among the Corporation, Continental Holdings Ltd.
and the shareholders of Continental named therein, dated March
27, 1998.
2. TO VOTE FOR [ ] OR AGAINST [ ] OR ABSTAIN FROM VOTING [ ]
A resolution fixing the number of directors of the Corporation at
six (6) until the next annual meeting of its shareholders.
3. TO VOTE FOR [ ] OR WITHHOLD FROM VOTING [ ]
A resolution electing Leslie J. Stinn as director of the
Corporation until the next annual meeting of its shareholders.
4. TO VOTE FOR [ ] OR AGAINST [ ] OR ABSTAIN FROM VOTING [ ]
The approval and ratification of an amendment to the
Corporation's 1995 Stock Option Plan, as amended, increasing the
number of Common Shares reserved for issuance thereunder from
450,000 to 750,000.
<PAGE> 191
5. To vote in the discretion of the proxy nominee on any amendments to or
variations of matters identified in the notice of meeting and on any
other matters which may properly come before the meeting.
DATED this ______ day of ________________ , 1998.
_____________________________________________
(Signature of Shareholder)
_____________________________________________
(Name of Shareholder -- Please Print)
Please date, sign as name appears at the left and return
promptly. If the common shares are registered in the names of two
or more persons, each should sign. When signing as Corporate
Officer, Partner, Executor, Administrator, Trustee or Guardian,
please give full title. Please note any changes in your address
alongside the address as it appears in the proxy.
NOTE: If the shareholder is a corporation, the instrument of
proxy must be under its corporate seal or under the hand of an
officer duly authorized in that behalf. All Common Shares
represented at the meeting by properly executed proxies will be
voted, and where a choice with respect to any matter to be acted
upon has been specified in the instrument of proxy, the common
shares represented by the proxy will be voted in accordance with
such specifications. IN THE ABSENCE OF ANY SUCH SPECIFICATIONS,
THE MANAGEMENT DESIGNEES, IF NAMED AS PROXY, WILL VOTE FOR THE
APPROVAL OF THE SECURITIES PURCHASE AGREEMENT, FOR THE RESOLUTION
FIXING THE NUMBER OF MEMBERS OF THE VENTURE BOARD OF DIRECTORS AT
SIX (6), FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR, AND FOR
THE APPROVAL OF THE AMENDMENT TO THE 1995 STOCK OPTION PLAN, AS
AMENDED. A blank space has been provided to date the instrument
of proxy. If the instrument of proxy is undated, it will be
deemed to bear the date on which it is mailed by the person
making the solicitation.
