VERITAS DGC INC, S-3/A, 1997-06-10

VERITAS DGC INC
S-3/A, 1997-06-10
OIL & GAS FIELD EXPLORATION SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1997

REGISTRATION NO. 333-28421

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

VERITAS DGC INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<C> <C>
DELAWARE 76-0343152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098
(713) 512-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

ANTHONY TRIPODO
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098
(713) 512-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

With copies to:

<TABLE>
<C> <C>
T. WILLIAM PORTER J. MARK METTS
PORTER & HEDGES, L.L.P. VINSON & ELKINS L.L.P.
700 LOUISIANA, 35TH FLOOR 1001 FANNIN
HOUSTON, TEXAS 77002 2300 FIRST CITY TOWER
(713) 226-0600 HOUSTON, TEXAS 77002
(713) 758-2222
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any State.

SUBJECT TO COMPLETION, DATED JUNE 10, 1997

3,000,000 SHARES

[VERITAS DGC INC. LOGO]

VERITAS DGC INC.

COMMON STOCK

The 3,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (this "Offering") are being offered by Veritas DGC Inc.
(the "Company"). The Common Stock is listed on the New York Stock Exchange under
the symbol "VTS." On June 6, 1997, the last reported sales price of the Common
Stock on the New York Stock Exchange was $22 1/4 per share. See "Price Range of
Common Stock and Dividend Policy."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 9-11.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total++.................................................. $ $ $
</TABLE>

- ---------------

* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

+ Before deducting expenses of this Offering payable by the Company estimated
to be $450,000.

++ The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If such option is exercised in
full, the total price to public will be $ , the total
underwriting discounts and commissions will be $ and the total
proceeds to the Company will be $ . See "Underwriting."
---------------------

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York, on or about , 1997 against payment therefor. The
Underwriters include:

DILLON, READ & CO. INC.
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3

The graphic material includes: an artist's impression of Veritas DGC Inc.'s new
chartered "flagship" vessel, which is under construction (at 305 feet long and
72 feet wide, this vessel is expected to be one of the most capable seismic
vessels available to the industry); a photograph of the Houston processing
center's NEC supercomputer; and a photograph of Veritas DGC Inc. transition zone
crewmen deploying seismic cable in a Louisiana swamp.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZATION, SYNDICATE COVERING TRANSACTIONS AND
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 4

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered by this Prospectus. Certain portions of
the Registration Statement have not been included in this Prospectus. For
further information, reference is made to the Registration Statement. Statements
made in this Prospectus regarding the contents of any contract or document filed
as an exhibit to the Registration Statement are not necessarily complete and, in
each instance, reference is hereby made to the copy of such contract or document
so filed. Each such statement is qualified in its entirety by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, as well as such reports, proxy
statements and other information, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 13, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials also can be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on
which the Common Stock is listed. The Commission maintains a site on the World
Wide Web that contains certain documents filed with the Commission
electronically. The address of such site is http://www.sec.gov and the
Registration Statement may be inspected at such site.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 1-7427), are incorporated in
this Prospectus by reference and shall be deemed to be a part hereof:

(a) the Company's Annual Report on Form 10-K for the year ended July 31,
1996;

(b) the Company's Current Reports on Form 8-K filed September 16, 1996,
November 27, 1996 and May 27, 1997 and Form 8-K/A filed December 4,
1996;

(d) the Company's Quarterly Reports on Form 10-Q for the quarters ended
October 31, 1996, January 31, 1997 and April 30, 1997; and

(e) the Company's Forms 8-A filed August 14, 1996 and May 27, 1997 and Form
8-A/A filed May 28, 1997.

On August 30, 1996, Digicon Inc. and Veritas Energy Services Inc.
consummated a business combination accounted for as a pooling of interests.
Accordingly, all prior financial statements included in the Annual Report on
Form 10-K for the year ended July 31, 1996 have been restated to reflect that
combination and are included herein.

Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of filing
of such document. Any statement contained in this Prospectus, in a supplement to
this Prospectus or in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed supplement
to this Prospectus modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written or telephone requests for
such copies should be directed to the Company at its principal executive offices
located at 3701 Kirby Drive, Suite 112, Houston, Texas 77098, Attention:
Corporate Secretary (telephone number: (713) 512-8300).

3
<PAGE> 5

PROSPECTUS SUMMARY

The following summary should be read in conjunction with and is qualified
in its entirety by the information and consolidated financial statements
(including the notes thereto) appearing elsewhere in this Prospectus and the
documents incorporated by reference herein. Unless the context otherwise
requires, the number of shares, per share prices, weighted average number of
shares outstanding and per share amounts in this Prospectus have been adjusted
to reflect (i) the August 30, 1996 business combination (the "Combination") with
Veritas Energy Services Inc. ("VES") and (ii) a one-for-three reverse stock
split effected in January 1995. Unless the context otherwise requires, all
references to the "Company" are to Veritas DGC Inc. and its subsidiaries and
give effect to the consummation of the Combination. Prior to the consummation of
the Combination, the Company's name was Digicon Inc. ("Digicon"). Unless the
context otherwise requires, all references to activities of, and financial
information with respect to, the Company are presented on a combined basis, even
with respect to periods prior to the consummation of the Combination. Unless
otherwise indicated, information in this Prospectus assumes that the
Underwriters' over-allotment option has not been exercised.

THE COMPANY

The Company is a leading provider of seismic data acquisition, data
processing and multi-client data surveys to the oil and gas industry in selected
markets worldwide. Oil and gas companies utilize seismic data for the
determination of suitable locations for drilling exploratory wells and,
increasingly, in reservoir management for the development and production of oil
and gas reserves. The Company acquires seismic data on land and in marine, and
in marsh, swamp and tidal ("transition zone") environments, and processes data
acquired by its own crews and crews of other operators. The Company acquires
seismic data both on an exclusive contractual basis for its customers and on its
own behalf for licensing to multiple customers on a non-exclusive basis.

To increase its presence in the market for onshore geophysical services, in
August 1996 the Company completed the Combination with VES, a leading land
seismic contractor. Prior to the Combination, Digicon and VES had complementary
operations with no significant geographic overlap. Management believes that the
Combination has produced a balanced company with significant market presence in
the land, transition zone and marine data acquisition and processing businesses
in selected geographic areas worldwide. The Company believes that the
Combination has provided it with the critical mass necessary to compete more
effectively, has improved its access to capital markets and has enabled it to
pursue additional opportunities, particularly in the multi-client data licensing
business.

INDUSTRY OVERVIEW

Geophysical services enable oil and gas companies to determine whether
subsurface conditions are likely to be favorable for finding new oil and gas
accumulations and assist oil and gas companies in determining the size and
structure of previously identified oil and gas fields. These services consist of
the acquisition and processing of three-dimensional ("3D") and two-dimensional
("2D") seismic and other geophysical data, which are used to produce
computer-generated graphic cross-sections and maps of the subsurface strata. The
resulting cross-sections and maps are then analyzed and interpreted by
customers' geophysicists and are used by oil and gas companies in the
acquisition of new leases, the selection of drilling locations on exploratory
prospects and in reservoir development and management.

Over the last several years, worldwide demand for 3D surveys by major oil
and gas companies and independent producers has increased. The greater precision
and improved subsurface resolution obtainable from 3D seismic data have assisted
oil and gas companies in finding new fields and more accurately delineating
existing fields, as well as enhancing existing reservoir management and
production monitoring techniques. Enhanced subsurface resolution obtainable from
3D studies has been a key factor in improving drilling success ratios and
lowering finding and field extension costs. This improved technology, coupled
with advances in drilling and completion techniques, is enhancing the industry's
ability to develop oil and gas reserves, particularly in transition zone and
deepwater environments.
4
<PAGE> 6

The industry is experiencing growing demand for 3D multi-client data
surveys, particularly in deepwater environments. Increased leasing activity and
the high cost of drilling exploration and development wells in these waters have
created significant demand for large-scale surveys employing sophisticated data
processing techniques. The relatively expensive cost of acquiring and processing
this data has prompted many oil and gas companies to participate in multi-client
data surveys to reduce their geophysical expenses.

BUSINESS STRATEGY

The Company's objective is to enhance its position as a leading provider of
seismic services while seeking to maximize earnings and cash flow. To achieve
these goals, the Company employs the following business strategy:

FOCUS ON SELECT GEOGRAPHIC MARKETS. The Company deploys its land and
transition zone crews and seismic vessels in geographic areas where it can
establish and maintain a strong competitive presence. Of the 14 land crews
presently operated by the Company, 11 are operating in North America, where
the Company maintains a significant market share. Currently, a majority of
the Company's vessels are operating in the Gulf of Mexico, where it is
positioned to take advantage of the increased demand for 3D marine seismic
data.

CONTINUE TO INVEST IN LEADING TECHNOLOGY. The Company intends to upgrade
its data acquisition and processing equipment as often as necessary to
maintain technological capabilities that are comparable or superior to its
competitors. From the beginning of fiscal 1994 through April 30, 1997, the
Company invested approximately $169 million primarily to replace or
substantially upgrade its principal geophysical operating assets. This
investment in the latest available seismic technology has resulted in
increased operating efficiency and capacity.

Land and transition zone data acquisition. The Company's transition zone
crews are equipped with Input/Output System Two Remote Seismic Recorder
("I/O System Two - RSR") equipment, and land crews employ I/O System Two
equipment. An additional crew and various other land seismic upgrades
are budgeted for fiscal 1998, at an aggregate cost of approximately $14
million.

Marine data acquisition. Six of the Company's seven seismic data
acquisition vessels have been upgraded to Syntron recording systems. The
Company has ordered another large chartered vessel primarily to service
the North Sea market. This new "flagship" vessel, capable of deploying
12 seismic streamer cables, will be the Company's largest vessel.
Equipment for this vessel represents the major portion of the Company's
$43 million marine seismic capital budget for fiscal 1998.

Data processing. The Company's 19 seismic data processing centers employ
the latest available technology. To improve its speed and capacity in
processing large 3D marine surveys, the Company recently leased an NEC
supercomputer for its Houston processing center and plans to install
another NEC supercomputer in its London center by calendar year-end.
Additional equipment purchases aggregating approximately $16 million are
budgeted for fiscal 1998.

MAINTAIN FLEXIBLE MARINE OPERATIONS. In its marine seismic data acquisition
activities, the Company operates exclusively from chartered vessels with
unexpired terms ranging from one to three years, subject to renewal at the
Company's option in most instances. In employing this strategy, the Company
is able to reduce vessel costs in times of low demand and retains the
flexibility to relocate its marine seismic equipment onto vessels that may
better meet customers' evolving requirements. In general, the Company also
seeks to operate a technically balanced fleet of chartered vessels with
operating characteristics that efficiently serve those markets experiencing
the greatest demand.
5
<PAGE> 7

PROMOTE CUSTOMER SERVICE. As a service business, the Company promotes a
corporate culture embodying a strong customer orientation. The Company's
decentralized management structure enables it to respond more quickly to
customer needs. In addition, the Company has established informal strategic
alliances with a number of customers, under which it is the exclusive
provider of seismic services to the customer.

COMPANY OVERVIEW

Land and transition zone data acquisition. The Company's land and
transition zone data acquisition crews consist of a surveying unit that lays out
the lines to be recorded, an explosives or mechanical vibrating unit and a
recording unit that lays out the geophones and recording instruments. The
Company utilizes helicopters to aid its crews in seismic data acquisition in
situations where such use will reduce overall costs and improve productivity.
The Company's land and transition zone data acquisition services are currently
conducted by 14 seismic crews, seven of which are operating in the continental
United States, four of which are operating in Canada, and three of which are
operating in South America, currently in Argentina and Ecuador. In fiscal 1996
and the first nine months of fiscal 1997, land and transition zone data
acquisition accounted for approximately 47% and 50% of the Company's revenues,
respectively.

Marine data acquisition. The Company's marine data acquisition crews
operate on chartered vessels equipped with a full complement of seismic,
navigational and communications equipment capable of performing both 3D and 2D
seismic surveys. As of April 30, 1997, the Company had seven vessels under
charter, with five located in the Gulf of Mexico and one located in each of
Taiwan and Indonesia. In fiscal 1996 and the first nine months of fiscal 1997,
marine data acquisition accounted for approximately 22% and 17% of the Company's
revenues, respectively.

Data processing. The Company currently operates 19 data processing centers.
These centers process data acquired by the Company's own crews, as well as crews
of other operators. Because they are configured primarily for processing
large-scale offshore surveys, eight of these centers operate high capacity, NEC
and Hewlett Packard ("HP") mainframe computer systems with high speed networks.
The other eleven centers, which are utilized primarily for smaller scale land
seismic surveys, operate data processing systems with 50 Sun workstations. In
fiscal 1996 and the first nine months of fiscal 1997, data processing accounted
for approximately 22% and 21% of the Company's revenues, respectively.

Licensing of multi-client data surveys. The Company also acquires and
processes seismic data for its own account by conducting surveys either
partially or wholly funded by multiple customers. In this mode of operation, the
Company retains ownership of the data and licenses this data on a non-exclusive
basis. In fiscal 1996 and for the first nine months of fiscal 1997, the
licensing of multi-client data surveys accounted for 9% and 12% of the Company's
revenues, respectively. However, these percentages do not include the portion of
the Company's marine data acquisition and data processing revenues that are
derived from the Company's multi-client data survey activity.

6
<PAGE> 8

THE OFFERING

Common Stock offered by the
Company.......................... 3,000,000 shares

Common Stock to be outstanding
after this Offering.............. 21,865,901 shares(1)

Use of Proceeds.................. Funding of a portion of the Company's
capital expenditure budget and other
general corporate purposes, including
working capital, possible repurchases of
outstanding 9 3/4% Senior Notes due 2003
(the "Senior Notes") and possible
acquisitions.

New York Stock Exchange Symbol... VTS
- ---------------

(1) Includes 2,378,551 shares of VES, which are exchangeable for, and identical
to, the Common Stock in all material respects (the "Exchangeable Shares"),
but excludes 563,326 shares reserved for issuance upon exercise of
outstanding warrants and options.

7
<PAGE> 9

VERITAS DGC INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data as of
and for each of the five years in the period ended July 31, 1996 and as of April
30, 1997 and for the nine months ended April 30, 1996 and 1997. The Statement of
Operations Data for the four years ended July 31, 1996 and the Balance Sheet
Data as of July 31, 1994, 1995 and 1996 have been derived from the audited
consolidated financial statements of the Company and the related notes thereto
which have been restated for the Combination, which was accounted for as a
pooling of interests. The consolidated financial statements and related notes
thereto for the three years ended July 31, 1996 and as of July 31, 1995 and 1996
are included elsewhere herein, which statements have been audited by Deloitte &
Touche LLP, independent auditors, whose report is included elsewhere herein. The
Statement of Operations Data for the year ended July 31, 1992 and for the nine
months ended April 30, 1996 and 1997 and the Balance Sheet Data as of July 31,
1992 and 1993 and April 30, 1997 have been derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the Statement of Operations Data for the year ended July 31, 1992 and for the
nine months ended April 30, 1996 and 1997 and the Balance Sheet Data as of July
31, 1992 and 1993 and April 30, 1997 include all adjustments necessary to
present fairly the results of such periods.

As a result of the differing year ends of Digicon and VES, results of
operations for dissimilar year ends have been combined. Digicon's results of
operations for fiscal years ended July 31, 1992, 1993, 1994 and 1995 have been
combined with VES' results of operations for fiscal years ended October 31,
1992, 1993, 1994 and 1995, respectively. To conform year ends, Digicon's results
of operations for the year ended July 31, 1996 have been combined with VES'
results of operations for the twelve months ended July 31, 1996. Accordingly,
VES' operating results for the period August 1, 1995 through October 31, 1995
are included in the years ended July 31, 1995 and 1996. An adjustment in an
amount equal to the results of operations for the three-month period is included
in the consolidated statements of changes in stockholders' equity. VES'
revenues, net income and net income per share were $22,150,000, $936,000 and
$.05, respectively, for the period August 1, 1995 through October 31, 1995.

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED JULY 31, APRIL 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $116,826 $146,090 $178,392 $215,630 $250,596 $181,683 $253,939
Costs and expenses:
Operating expenses:
Cost of services............................... 95,022 121,873 144,984 170,424 198,711 145,104 189,646
Restructuring.................................. 838
Write-off/write-down for impairment of assets.... 5,235 3,628
Depreciation and amortization.................... 7,836 11,741 19,119 23,732 26,921 20,000 28,662
Selling, general and administrative.............. 4,183 4,797 6,296 5,855 7,255 5,258 7,603
Interest......................................... 2,579 1,928 3,213 5,170 5,466 3,775 5,334
Merger related costs............................. 3,666 597
Gain on sale of investment in FSU joint
ventures....................................... (4,370)
Other............................................ 181 (210) (1,833) 232 546 270 811
-------- -------- -------- -------- -------- -------- --------
Total........................................ 109,801 140,129 177,852 201,043 246,193 174,407 232,653
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes and equity
in (earnings) loss of 50% or less-owned companies
and joint ventures............................... 7,025 5,961 540 14,587 4,403 7,276 21,286
Provision for income taxes......................... 1,229 3,183 5,929 3,807 2,009 2,287 4,260
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures..................... 1,521 2,204 4,965 5,186 1,113 (793) (735)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................................. $ 4,275 $ 574 $(10,354) $ 5,594 $ 1,281 $ 5,782 $ 17,761
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share........................ $ .46 $ .05 $ (.66) $ .31 $ .07 $ .33 $ .95
======== ======== ======== ======== ======== ======== ========
Weighted average shares............................ 9,378 11,874 15,633 17,771 17,882 17,754 18,611
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(1).......................................... $ 17,440 $ 19,630 $ 28,945 $ 39,119 $ 44,084 $ 31,051 $ 55,879
Capital expenditures............................... 18,157 42,148 29,772 33,634 32,860 18,697 73,156
Investments in multi-client data library........... 4,114 5,132 16,019 21,360 14,906 11,517 19,930
</TABLE>

<TABLE>
<CAPTION>
AS OF
AS OF JULY 31, APRIL 30,
---------------------------------------------------- ---------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 8,567 $ 5,321 $ 15,545 $ 10,082 $ 10,072 $ 14,131
Working capital................................... 16,362 9,704 16,794 14,830 22,479 49,027
Property and equipment -- net..................... 30,509 60,889 68,423 75,379 79,010 122,298
Multi-client data library......................... 6,578 9,203 18,500 27,976 25,628 27,250
Total assets...................................... 93,738 141,464 171,814 184,340 198,592 288,034
Long-term debt (including current maturities)..... 17,933 30,890 31,104 36,788 41,090 79,485
Stockholders' equity.............................. 46,748 69,380 94,517 98,000 105,923 127,648
OPERATING DATA (UNAUDITED):
Land crews in operation........................... 8 12 16 15 14 14
Land crews system channels........................ 6,248 12,740 14,526 17,200 18,708 22,700
Marine vessels in operation....................... 9 7 5 6 7 7
Marine vessels system channels.................... 2,400 2,160 1,680 1,920 3,840 6,000
Data processing centers in operation.............. 13 15 17 17 16 19
</TABLE>

- ---------------

(1) EBITDA represents income before provision for income taxes and equity in
(earnings) loss of 50% or less-owned companies and joint ventures plus
restructuring costs, write-off/write-down for impairment of assets,
depreciation and amortization, interest expense and merger related costs
and less gain on sale of investment in FSU joint ventures. EBITDA should
not be considered as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles) as an indicator of operating performance or
liquidity, respectively.
8
<PAGE> 10

RISK FACTORS

Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus.

ENERGY INDUSTRY SPENDING

Demand for the Company's seismic services depends upon the level of capital
expenditures by oil and gas companies for exploration, production, development
and the portion of these expenditures allocated to seismic acquisition. These
activities depend in part on oil and gas prices; expectations about future
prices; the cost of exploring for, producing and delivering oil and gas; the
sale and expiration dates of leases in the United States, Canada and abroad;
local and international political, regulatory and economic conditions; and the
ability of oil and gas companies to obtain capital. In addition, a decrease in
oil and gas expenditures could result from such factors as unfavorable tax,
environmental and other legislation or uncertainty concerning national energy
policies. No assurance can be given that current levels of oil and gas
activities will be maintained or that demand for the Company's services will
reflect the level of such activities. Decreases in oil and gas activity could
have a significant adverse effect upon the demand for the Company's services and
the Company's results of operations.

COMPETITION FOR SEISMIC BUSINESS

Competition among seismic contractors historically has been intense.
Competitive factors include price, crew experience, equipment availability,
technological expertise and reputation for quality and dependability. Certain of
the Company's major competitors operate more data acquisition crews than the
Company, have substantially greater revenues than the Company and are
subsidiaries or divisions of major industrial enterprises having far greater
financial and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully against its competitors for
contracts to conduct seismic surveys and process data. See "Business --
Competition and Other Business Conditions."

HAZARDOUS OPERATING CONDITIONS

The Company's data acquisition activities involve operating under extreme
weather and other hazardous conditions. Accordingly, these operations are
subject to risks of loss to property and injury to personnel from such causes as
fires, adverse weather and accidental explosions. The Company carries insurance
against these risks in amounts that it considers adequate. The Company may not,
however, be able to obtain insurance against certain risks or for certain
equipment located from time to time in certain areas of the world.

INVESTMENT IN MULTI-CLIENT DATA LIBRARY

The Company has invested significant amounts in acquiring and processing
multi-client data surveys that are owned by the Company (remaining book carrying
value of $27.3 million at April 30, 1997), and it expects to continue doing so
for the foreseeable future. Although the Company normally obtains prefunding
commitments for at least 70% of the cost of acquiring and processing such
surveys, future data licensing to multiple customers may not fully recoup its
costs. Factors affecting the Company's ability to recoup its costs include
possible technological, regulatory or other industry or general economic
developments, any of which could render all or portions of the Company's library
of multi-client data obsolete or otherwise impair its value. In addition, the
timing of multi-client data licensing is typically less dependable from period
to period than are revenues from surveys performed on an exclusive contract
basis for single customers.

9
<PAGE> 11

HIGH FIXED COSTS; CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE

Because of the high fixed costs involved in the major components of the
Company's business, downtime or low productivity due to reduced demand, weather
interruptions, equipment failures or other causes can result in significant
operating losses. In recent years, the Company's contracts for data acquisition
have been predominantly on a turnkey or on a combination of turnkey/time basis.
Under the turnkey method, payments for data acquisition services are based upon
the amount of data collected, and the Company bears substantially all of the
risk of business interruption caused by inclement weather and other hazards.
When a combination of both turnkey and time methods is used, the risk of
business interruptions is shared in an agreed percentage by the Company and the
customer.

Seismic data acquisition and processing is a capital intensive business.
The development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements, and the Company expects this
trend to continue. There can be no assurance that manufacturers of seismic
equipment will not develop new systems that have competitive advantages over
systems now in use that either render the Company's current equipment obsolete
or require the Company to make significant capital expenditures to maintain its
competitive position. For the Company to maintain its competitive position,
large expenditures of capital in addition to its planned capital expenditures
could be required. There can be no assurance that the Company will have the
necessary capital or that financing will be available on favorable terms. If the
Company is unable to raise the capital necessary for its capital expenditure
program and to upgrade its data acquisition and processing equipment to the
extent necessary, it may be materially and adversely affected.

RISKS INHERENT IN INTERNATIONAL OPERATIONS

In fiscal 1996 and the first nine months of fiscal 1997, 61% and 55%,
respectively, of the Company's revenues were derived from international
operations and export sales, which are subject in varying degrees to risks
inherent in doing business abroad. Such risks include the possibility of
unfavorable circumstances arising from host country laws or regulations. For
example, the Company acquired approximately 6,500 line miles of offshore Peru
seismic data in 1993, none of which was sold until recently because the Peruvian
government delayed lease activity in the area. In addition, foreign operations
include risks of partial or total expropriation; currency exchange rate
fluctuations and restrictions on currency repatriation; the disruption of
operations from labor and political disturbances, insurrection or war; and the
requirements of partial local ownership of operations in certain countries. To
minimize such risks, the Company generally denominates its contracts in U.S.
dollars and other currencies it believes to be stable. The Company also obtains
insurance against war, expropriation, confiscation and nationalization when such
insurance is available and when management considers it advisable to do so. Such
coverage is not always available, and when available, is subject to unilateral
cancellation by the insuring companies on short notice.

ENVIRONMENTAL AND OTHER REGULATIONS

The Company's operations are subject to a variety of foreign, federal,
state and local laws and regulations, including laws and regulations relating to
the protection of the environment. The Company is required to invest financial
and managerial resources to comply with such laws and related permit
requirements in its operations and anticipates that it will continue to do so in
the future. In recent years, an increased number of the Company's data
acquisition contracts have required customers to obtain all necessary permits.
Customers' failure to timely obtain the required permits may result in crew
downtime and operating losses. To date, the Company's cost of complying with
governmental regulation has not been material, but the fact that such laws or
regulations are changed frequently makes it impossible for the Company to
predict the cost or impact of such laws and regulations on its future
operations. The modification of existing laws or regulations or the adoption of
new laws or regulations curtailing offshore drilling for oil and gas or imposing
more stringent restrictions on seismic operations could adversely affect the
Company.

10
<PAGE> 12

SHARES ELIGIBLE FOR FUTURE SALE

Of the Company's 21,865,901 shares of Common Stock to be outstanding
following this Offering, approximately 1.7 million shares are subject to a
currently effective shelf registration statement under the Securities Act. Of
this 1.7 million, approximately 300,000 shares are held by affiliates. Also,
approximately 1.5 million Exchangeable Shares are held by affiliates. These
affiliates, who hold a combined 1.8 million shares, have, in connection with
this Offering, agreed not to offer, sell or otherwise dispose of any of their
shares for a period of 90 days from the date of this Prospectus, without the
prior written consent of Dillon, Read & Co. Inc. Thereafter, all of the shares
held by affiliates will be available for resale under the existing shelf
registration statement or Rule 144 of the Securities Act. Sales of a substantial
number of the currently outstanding shares of Common Stock in the public market
may adversely affect the market price of the Common Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's board of directors has the authority to issue shares of
preferred stock, par value $.01 per share ("Preferred Stock"), in one or more
series and to fix the rights and preferences of the shares of any such series
without shareholder approval. Any series of Preferred Stock is likely to be
senior to the Common Stock with respect to dividends, liquidation rights and,
possibly, voting rights. The Company has established a shareholder rights plan
which has certain anti-takeover effects. The rights issued under such plan may
reduce or eliminate (i) "two-tiered" or other partial offers that do not offer
fair value for all Common Stock, (ii) the accumulation by a third party of 15%
or more of the Common Stock in open-market or private purchases in order to
influence or control the business and affairs of the Company without paying an
appropriate premium for a controlling position in the Company, and (iii) the
accumulation of shares of Common Stock by third parties in market transactions
for the primary purpose of attempting to cause the Company to be sold. The
ability to issue Preferred Stock and the existence of the rights plan could also
have the effect of discouraging unsolicited acquisition proposals. In addition,
the holders of the $75.0 million outstanding principal amount of Senior Notes
have the right to tender their Senior Notes and thereby cause the Company to
repurchase the same at 101% of principal amount upon a "Change of Control" (as
defined in the Indenture).

FORWARD-LOOKING STATEMENTS

This Prospectus contains, or incorporates by reference, certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act, and Section 21E of the Exchange Act. All statements,
other than statements of historical facts so included in this Prospectus that
address activities, events or developments that the Company expects, projects,
believes or anticipates will or may occur in the future, including, without
limitation, statements regarding the Company's business strategy, plans and
objectives; statements expressing beliefs and expectations regarding future
demand for seismic data acquisition, data processing services and multi-client
data surveys, these markets and the Company's performance in the future;
statements concerning the Company's future efficiencies, additional capacity,
vessel charters and equipment upgrades, including the anticipated level and
timing of related capital expenditures; disclosure of trends in the seismic data
acquisition, data processing and multi-client data survey business and other
such matters are forward-looking statements. Such statements are based on
certain assumptions and analyses made by management of the Company in light of
its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes to be appropriate.
The forward-looking statements included in this Prospectus are also subject to a
number of material risks and uncertainties. Important factors that could cause
actual results to differ materially from the Company's expectations are
discussed herein under the captions "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Prospective
investors are cautioned that such forward-looking statements are not guarantees
of future performance and that actual results, developments and business
decisions may vary from those envisaged by such forward-looking statements and
any such variance could be material.

11
<PAGE> 13

THE COMPANY

The Company is a leading provider of seismic data acquisition, data
processing and multi-client data surveys to the oil and gas industry in selected
markets worldwide. The Company was incorporated in Texas in 1965 and was
reincorporated in Delaware in 1969. The Company's principal offices are located
at 3701 Kirby Drive, Houston, Texas 77098, and its telephone number is (713)
512-8300.

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock offered hereby are
estimated at $62.9 million ($72.4 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use the net proceeds for
the funding of a portion of the Company's capital expenditure program and other
general corporate purposes, including working capital, possible repurchases of
outstanding Senior Notes and possible acquisitions.

The Senior Notes, which bear interest at 9.75%, were issued in October 1996
to repay then outstanding indebtedness and fund a portion of the Company's
capital expenditures for fiscal 1997. No repurchases will be made of outstanding
Senior Notes, except at prices which are, at the time of any such repurchase,
regarded by the Company to be attractive. Accordingly there can be no assurance
that any such repurchases will be made.

While the Company regularly evaluates opportunities to acquire
complementary businesses, except as described below, it has no present
agreements or commitments with respect to possible acquisitions, and no estimate
can be made as to the amount of net proceeds which ultimately may be used for
acquisitions. The Company has recently entered into a letter of intent to
purchase a land acquisition company in the Middle East for approximately $10
million. The acquisition is subject to due diligence and definitive
documentation, and there is no assurance that the acquisition will be
consummated.

Pending application, the Company will invest portions of the net proceeds
in short-term, interest-bearing, investment grade securities or temporarily
reduce borrowings under its revolving credit facility. Borrowings under this
facility bear interest at the lending bank's prime commercial lending rate (8.5%
as of April 30, 1997) or LIBOR plus 2% at the Company's option. Amounts repaid
on the revolving credit facility may be reborrowed from time to time. See
further discussion of the Senior Note offering and the revolving credit facility
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

12
<PAGE> 14

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
April 30 1997, and as adjusted to reflect the sale of 3,000,000 shares of Common
Stock offered by the Company hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
-----------------------
(UNAUDITED)
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments............................. $ 14,131 $ 77,010
======== ========
Long-term debt including current maturities(1):
Revolving credit agreement due July 1998 at LIBOR plus 2%
or prime (8.5% at April 30, 1997)...................... $ 3,340 $ 3,340
Equipment purchase obligations maturing through September
2000 at a weighted average rate of 9.1% at April 30,
1997................................................... 1,145 1,145
9 3/4% Senior Notes due October 2003...................... 75,000 75,000
-------- --------
Total long-term debt including current
maturities...................................... 79,485 79,485
-------- --------
Stockholders' equity:
Common Stock, $.01 par value; 40,000,000 shares
authorized; 16,482,016 shares issued and outstanding;
19,482,016 shares as adjusted(2)....................... 165 195
Additional paid-in capital................................ 108,108 170,957
Accumulated earnings (from August 1, 1991 with respect to
Digicon)............................................... 20,036 20,036
Cumulative foreign currency translation adjustment........ (661) (661)
-------- --------
Total stockholders' equity........................ 127,648 190,527
-------- --------
Total capitalization........................................ $207,133 $270,012
======== ========
</TABLE>

- ---------------

(1) For a further description of the terms of the Company's long-term debt, see
Note 4 of Notes to the Unaudited Consolidated Financial Statements as of and
for the nine months ended April 30, 1997.

(2) Excludes 2,378,551 Exchangeable Shares and 568,660 shares reserved for
issuance upon exercise of outstanding warrants and options.

13
<PAGE> 15

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

PRICE RANGE OF COMMON STOCK

The Common Stock commenced trading on the New York Stock Exchange under the
symbol "VTS" on September 3, 1996. Prior to that time, the Common Stock traded
on the American Stock Exchange under the symbol "DGC." The following table sets
forth the reported high and low sales price for the Common Stock on the New York
Stock Exchange and the American Stock Exchange, as appropriate, for the periods
shown.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended July 31, 1995:
First Quarter............................................. $ 6 $ 3 3/8
Second Quarter............................................ 5 13/16 3/8
Third Quarter............................................. 5 1/8 3 1/8
Fourth Quarter............................................ 6 4 1/4
Year ended July 31, 1996:
First Quarter............................................. 6 3/8 4 3/4
Second Quarter............................................ 8 3/4 5 3/8
Third Quarter............................................. 15 7/8 6 1/4
Fourth Quarter............................................ 18 1/4 11
Year ended July 31, 1997:
First Quarter............................................. 21 1/2 11 1/2
Second Quarter............................................ 25 1/4 16 1/2
Third Quarter............................................. 21 1/4 15 1/2
Fourth Quarter (through June 6, 1997)..................... 23 1/4 18 1/8
</TABLE>

On June 6, 1997, the last reported sales price for the Common Stock on the
New York Stock Exchange was $22 1/4 per share. As of May 31, 1997, there were
approximately 208 record holders of the Common Stock.

DIVIDEND POLICY

Historically, the Company has not paid any dividends on its Common Stock
and has no present plans to pay any dividends. The payment of any future
dividends on Common Stock would depend, among other things, upon the current and
retained earnings and financial condition of the Company, and upon a
determination by its board of directors that the payment of dividends would be
desirable. In addition, the Company's revolving credit facility prohibits the
payment of cash dividends.

14
<PAGE> 16

VERITAS DGC INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
FOR THE YEARS ENDED JULY 31, ENDED APRIL 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $116,826 $146,090 $178,392 $215,630 $250,596 $181,683 $253,939
Costs and expenses:
Operating expenses:
Cost of services............................... 95,022 121,873 144,984 170,424 198,711 145,104 189,646
Restructuring.................................. 838
Write-off/write-down for impairment of assets.... 5,235 3,628
Depreciation and amortization.................... 7,836 11,741 19,119 23,732 26,921 20,000 28,662
Selling, general and administrative.............. 4,183 4,797 6,296 5,855 7,255 5,258 7,603
Interest......................................... 2,579 1,928 3,213 5,170 5,466 3,775 5,334
Merger related costs............................. 3,666 597
Gain on sale of investment in FSU joint
ventures....................................... (4,370)
Other............................................ 181 (210) (1,833) 232 546 270 811
-------- -------- -------- -------- -------- -------- --------
Total........................................ 109,801 140,129 177,852 201,043 246,193 174,407 232,653
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes and equity
in (earnings) loss of 50% or less-owned companies
and joint ventures............................... 7,025 5,961 540 14,587 4,403 7,276 21,286
Provision for income taxes......................... 1,229 3,183 5,929 3,807 2,009 2,287 4,260
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures..................... 1,521 2,204 4,965 5,186 1,113 (793) (735)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................................. $ 4,275 $ 574 $(10,354) $ 5,594 $ 1,281 $ 5,782 $ 17,761
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share........................ $ .46 $ .05 $ (.66) $ .31 $ .07 $ .33 $ .95
======== ======== ======== ======== ======== ======== ========
Weighted average shares............................ 9,378 11,874 15,633 17,771 17,882 17,754 18,611
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(1).......................................... $ 17,440 $ 19,630 $ 28,945 $ 39,119 $ 44,084 $ 31,051 $ 55,879
Capital expenditures............................... 18,157 42,148 29,772 33,634 32,860 18,697 73,156
Investments in multi-client data library........... 4,114 5,132 16,019 21,360 14,906 11,517 19,930
</TABLE>

- ---------------

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Selected Consolidated
Financial Data included elsewhere herein.

GENERAL

The Company's business is divided into four classes of services: (i) land
and transition zone data acquisition; (ii) marine data acquisition; (iii) data
processing; and (iv) licensing of multi-client data surveys. In August 1996, the
Company completed the Combination with VES, which has been accounted for as a
pooling of interests.

The Company acquires and processes seismic data on either an exclusive
contract basis or a multi-client basis. In general, multi-client data surveys
are prefunded by customers prior to or during the acquisition and processing
phase and recognized as marine acquisition, land acquisition or data processing
revenues. After the survey is completed, sales are recognized as licensing of
multi-client data revenues.

With respect to multi-client data surveys, the Company typically obtains
non-cancelable prefunding for at least 70% of the costs of such surveys from
customers who desire to obtain seismic data in a particular area. As a result,
often the Company assumes the risk that future licensing of such data may not
ultimately cover 100% of its cost. A portion of the costs of acquiring and
processing multi-client data are capitalized and later expensed based on a
percentage of total estimated costs to total estimated revenues multiplied by
actual revenues. Two years after a survey is completed, any remaining
capitalized costs are expensed over a period not to exceed twenty-four months.
The Company periodically reviews the carrying value of the multi-client data
library to assess whether there has been a permanent impairment of value and
records losses when the total estimated costs exceed total estimated sales or
when it is determined that estimated sales would not be sufficient to cover the
carrying value of the asset.

RESULTS OF OPERATIONS

Nine Months Ended April 30, 1997 compared with Nine Months Ended April 30, 1996.

Revenues. For the first nine months of fiscal 1997, total revenues
increased 40% from $181.7 million to $253.9 million. Land and transition zone
revenues for the nine months increased 45% from $87.1 million to $126.2 million
attributable to unseasonably high demand in Canada and increased capacity to
satisfy customer demand in the United States. Furthermore, the Company's United
States and South American land markets benefited from contracts with longer
terms, improved prices and more weather protection clauses. Marine revenues
increased 33% from $32.1 million to $42.7 million primarily because of increased
utilization of the Company's vessels, higher productivity resulting from the
upgrade of existing vessels to Syntron equipment and the addition of the Polar
Princess in the first quarter of fiscal 1997. Data processing operations
increased 28% from $42.0 million to $53.9 million because of increased capacity
and increased volumes of marine data available for processing. The Company has
substantially upgraded its processing centers and will be adding a NEC
supercomputer in the London center by calender year-end. The Company also added
new centers in Abu Dhabi, Australia, Ecuador and Oklahoma. Multi-client data
sales rose 52% from $20.5 million to $31.1 million because of increasing
customer interest in multi-client data surveys in the North Sea and Gulf of
Mexico.

Operating Expenses. Costs of services increased 31% from $145.1 million to
$189.6 million, but as a percent of revenues decreased from 80% to 75%. The
improvement in operating margins resulted from increased demand, higher prices,
better equipment utilization and increased capacity in all service groups.

Depreciation and Amortization. Depreciation and amortization expense
increased 43% from $20.0 million to $28.7 million, due to the $80.0 million
fiscal 1997 capital expenditure program.

16
<PAGE> 18

Selling, General and Administrative. Selling, general and administrative
expenses increased 45% from $5.3 million to $7.6 million, resulting primarily
from costs associated with a more aggressive marketing strategy and the
implementation of new administrative and accounting data processing systems.

Interest. Interest expense increased 41% from $3.8 to $5.3 because of
increased debt levels to finance the Company's 1997 capital expenditure program.

Merger Related Costs. Merger related costs of $597,000 consist primarily of
one month of investment banking and professional fees and expenses incurred in
connection with the Combination, which was completed on August 30, 1996. These
costs include $150,000 payable to a stockholder who was the former chairman of
the board of directors for consulting services in connection with the
Combination.

Other. Other expense increased from $270,000 to $811,000 primarily due to
net foreign currency exchange losses.

Income Taxes. Provision for income taxes increased from $2.3 million to
$4.3 million as a result of increased profitability of the Company, although the
effective tax rate was reduced in the current period by restructuring the
operations of certain of the Company's subsidiaries.

Fiscal 1996 Compared with Fiscal 1995

Revenues. For fiscal 1996, total revenues increased 16% from $215.6 million
to $250.6 million. Land and transition zone revenues increased 9% from $108.1
million to $117.7 million primarily as a result of increased capacity in Canada
and expansion in the United States and Argentina. Marine revenues increased 66%
from $32.8 million to $54.4 million, primarily resulting from the reassignment
of two vessels to contract work and higher funding levels on multi-client data
surveys. This increase was partially offset by lower prices in the Far East.
Data processing revenue increased 2% from $54.7 million to $55.6 million.
Improved results at the Holland, Singapore and Australia centers were offset by
the closing of three other centers and by reduced European data processing
prices. Multi-client data survey revenues increased 16% from $19.8 million to
$23.0 million, resulting from an expansion of the Company's multi-client data
library in response to an increase in demand by oil and gas companies for
multi-client data surveys.

Operating Expenses. Cost of services increased 17% from $170.4 million to
$198.7 million, however, as a percentage of total revenues, costs of services
remained constant at approximately 79%.

Write-off/Write-down for Impairment of Assets. Write-off/write-down for
impairment of assets of $3.6 million relates to mainframe data processing
equipment used in the Company's marine seismic data processing operations that
was replaced by more powerful and flexible workstation-based systems during the
first quarter of fiscal 1997.

Depreciation and Amortization. Depreciation and amortization expense
increased 14% from $23.7 million to $26.9 million, due to equipment purchases to
upgrade and expand the Company's operations.

Selling, General and Administrative. Selling, general and administrative
expenses increased 24% from $5.9 million to $7.3 million, resulting primarily
from costs incurred in implementing a new administrative data processing system
and from the addition of staff to support the Company's expanded operations.

Interest. Interest expense increased 6% from $5.2 million to $5.5 million,
resulting primarily from prepayment penalties incurred to pay off a $17.0
million revolving credit agreement.

Merger Related Costs. Merger related costs of $3.7 million consist
primarily of investment banking and professional fees and expenses incurred in
connection with the Combination.

Income Taxes. Provision for income taxes decreased from $3.8 million to
$2.0 million. An $876,000 tax benefit was recognized as a result of taxable
losses in Argentina generated by deductions allowed

17
<PAGE> 19

for social security taxes and employee compensation and the remainder was due to
taxable losses incurred during expansion into foreign markets.

Equity in Loss. Equity in loss decreased by $4.1 million as a result of the
sale of the FSU joint ventures in fiscal 1995 and decreased losses in the
Indonesian joint venture. Equity losses in the Indonesian joint venture
decreased as a result of losses on abandonment of the seismic data processing
operations incurred in fiscal 1995.

Fiscal 1995 Compared with Fiscal 1994

Revenues. For fiscal 1995, total revenues increased 21% from $178.4 million
to $215.6 million. Land revenues increased 30% from $83.2 million to $108.1
million, resulting from increased capacity to satisfy customer demand in Canada
and Argentina. This increase was partially offset by reduced United States and
Far East revenues. Land and transition zone revenues in the Far East declined as
a result of the decommissioning of an Australian crew. Marine revenues decreased
10% from $36.5 million to $32.8 million, resulting from the derigging of two
seismic vessels, lower production from three vessels due to lower operating
efficiency caused by offshore obstructions and bad weather, and the redeployment
of one vessel from contract work to multi-client data surveys. However, improved
market conditions for 2D surveys continued in the Far East where marine revenues
increased $6.6 million during the current year. Data processing revenues
increased 19% from $46.1 million to $54.7 million resulting from increased
capacity and increased demand at existing centers and the opening of two
additional remote site processing centers in Texas and Venezuela during the
year. Multi-client data survey revenues increased 71% from $11.6 million to
$19.8 million, resulting from an expansion of the Company's data library in
response to increased demand by oil and gas companies for multi-client data
surveys.

Operating Expenses. Cost of services increased 18% from $145.0 million to
$170.4 million, primarily as a result of increased operating levels. Cost of
services as a percentage of total revenues declined from 81% to 79% due to
savings from the restructuring program implemented during fiscal 1994 and the
higher profitability associated with multi-client data surveys. These
improvements in margins were partially offset by decreases in Canadian margins
caused by a very weak market in the summer months and by inclement weather
experienced in the United States land data acquisition market. Furthermore,
gross margin in the data processing division decreased due to substantial
software development costs which are expensed as incurred. In fiscal 1994,
restructuring charges of $838,000 were recognized, primarily relating to
severance costs associated with a reduction in the Company's work force.

Write-off/Write-down for Impairment of Assets. In fiscal 1994, assets in
the amount of $5.2 million were written off or down in conjunction with a
restructuring program. See Note 15 of Notes to Consolidated Financial
Statements.

Depreciation and Amortization. Depreciation and amortization expense
increased 24% from $19.1 million to $23.7 million due to substantial asset
purchases during the current year. Fiscal 1995 also includes decreases in
charges resulting from the prior year's restructuring program of $2.2 million.

Selling, General and Administrative. Selling, general and administrative
expenses decreased 6% from $6.3 million to $5.9 million, primarily as a result
of the accrual in the prior year of benefits payable over five years under an
employment contract with a former executive.

Interest. Interest expense increased 63% from $3.2 million to $5.2 million
as a result of increased borrowings on working capital facilities and equipment
financing, as well as higher borrowing costs.

FSU Joint Ventures. In April 1994, the Company acquired interests in joint
ventures that conduct seismic operations in the former Soviet Union ("FSU"). In
acquiring these interests, the Company exchanged common stock and cash
commitments valued in excess of the fair market value of the net assets
received. The excess value was to be amortized over a 20 year period, and the
Company recorded $392,000 of amortization expense during fiscal 1995. The joint
ventures were in the start-up phase and

18
<PAGE> 20

the Company recorded $1.5 million of equity losses during fiscal 1995. In June
1995, the Company disposed of its FSU interests and recorded a $4.4 million gain
on sale. See Note 4 of Notes to the Consolidated Financial Statements.

Other. Other (income) expense decreased from income of $1.8 million to an
expense of $232,000. In fiscal 1995, net losses were recorded on the disposition
of property and equipment, partially offset by a gain on the sale of a vessel.
Income recorded in the prior year resulted primarily from a gain on the sale of
a vessel.

Income Taxes. Provision for income taxes decreased from $5.9 million to
$3.8 million in 1995 due to decreased taxable income in Canadian and United
States operations.

Equity in Loss. Equity in loss includes losses from the FSU joint ventures
and losses in the Indonesian joint venture.

LIQUIDITY AND CAPITAL RESOURCES

The Company's internal sources of liquidity are cash, short-term
investments and cash flow from operations. External sources include the
unutilized portion of a revolving credit facility, equipment financing and trade
credit.

The Company requires significant amounts of working capital to support its
operations and to fund capital spending and research and development programs.
The Company's foreign operations require greater amounts of working capital than
similar domestic activities, as the average collection period for foreign
receivables is generally longer than for comparable domestic accounts.
Approximately 55% of revenues for the nine months ended April 30, 1997 were
attributable to the Company's export sales and foreign operations. In addition,
the Company has increased its participation in multi-client data surveys and has
significantly expanded its library of multi-client data. Because of the lead
time between survey execution and sale, multi-client data surveys generally
require greater amounts of working capital than contract work. Depending on
timing of future sales of the data and the collection of the proceeds from such
sales, the Company's liquidity will continue to be affected; however, the
Company believes that these non-exclusive surveys have good long-term sales,
earnings and cash flow potential.

The Company maintains a $25.0 million revolving credit facility, as amended
(the "Credit Facility"), with a commercial bank which will mature in July 1998.
Advances up to $20.0 million under the Credit Facility are secured by
substantially all of the Company's receivables. All advances bear interest, at
the Company's election, at LIBOR plus two percent or prime rate and are limited
by a borrowing formula which, based on current levels of receivables, results in
a borrowing base well in excess of the maximum commitment. Covenants in the
Credit Facility prohibit the payment of cash dividends and limit, among other
things, the Company's right to create indebtedness and make capital expenditures
over a certain amount in any fiscal year. In addition, the Credit Facility
requires minimum cash flow coverage and the maintenance of minimum tangible net
worth, limits the ratio of funded debt to total capitalization, and requires the
Company to maintain a minimum current ratio.

In October 1996, the Company completed a $75.0 million public offering of
Senior Notes, which generated approximately $72.2 million of net proceeds. The
indenture relating to the Senior Notes (the "Indenture") contains certain
covenants, including covenants that limit the Company's ability to, among other
things, incur additional debt, pay dividends and complete mergers, acquisitions
and sales of assets. Upon a change of control of the Company (as defined in the
Indenture), holders of the Senior Notes have the right to require the Company to
purchase all or a portion of such holder's Senior Note at a price equal to 101%
of the aggregate principal amount. Interest is payable semi-annually beginning
April 1997. Approximately $49.8 million of the net proceeds from the Senior
Notes was used to retire outstanding indebtedness of the Company. The remaining
net proceeds were used to fund a portion of the Company's $80 million capital
expenditure budget for fiscal 1997. It is anticipated that the balance of the
1997 capital expenditure budget will be financed from internally generated
funds, and, if necessary, from the Credit Facility or other borrowings permitted
by the Indenture and Credit Facility.

19
<PAGE> 21

Of the Company's $80 million capital expenditure budget for fiscal 1997,
approximately $10.3 million represents capital spending necessary to maintain
the Company's operating equipment and the remainder is for discretionary capital
spending, including approximately $22.0 million for the replacement of older
operating equipment with a view of substantially enhancing operating efficiency
and $47.7 million for expansion of its equipment to meet increased demand for
seismic services.

The utilization of net operating loss carryforwards ("NOLs") with respect
to the Company is subject to certain limitations. Additionally, when such NOLs
are utilized, the benefit will be recognized as an addition to paid-in capital
and will not be reflected in the consolidated statements of operations.

The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure and research and
development programs (including the $75 million capital expenditure budget for
fiscal 1998), and meet its principal and interest obligations with respect to
the outstanding indebtedness. The Company anticipates that cash and short-term
investments, net proceeds from this Offering, cash flow generated from
operations and borrowings permitted under the Indenture and Credit Facility will
provide sufficient liquidity to fund these requirements through fiscal 1998.
However, the Company's ability to meet its debt service and other obligations
depends on its future performance, which, in turn, is subject to general
economic conditions, business and other factors beyond the Company's control.
See "Forward-Looking Statements." If the Company is unable to generate
sufficient cash flow from operations or otherwise to comply with the terms of
the Credit Facility or the Indenture, it may be required to refinance all or a
portion of its existing debt or obtain additional financing. There can be no
assurance that the Company would be able to obtain such refinancing or
financing, or that any refinancing or financing would result in a level of net
proceeds required.

20
<PAGE> 22

BUSINESS

The Company is a leading provider of seismic data acquisition, data
processing and multi-client data surveys to the oil and gas industry in selected
markets worldwide. Oil and gas companies utilize seismic data for the
determination of suitable locations for drilling exploratory wells and,
increasingly, in reservoir management for the development and production of oil
and gas reserves. The Company acquires seismic data on land and in transition
zone and marine environments and processes data acquired by its own crews and
crews of other operators. The Company acquires seismic data both on an exclusive
contractual basis for its customers and on its own behalf for licensing to
multiple customers on a non-exclusive basis.

INDUSTRY OVERVIEW

Geophysical services enable oil and gas companies to determine whether
subsurface conditions are likely to be favorable for finding new oil and gas
accumulations and assist oil and gas companies in determining the size and
structure of previously identified oil and gas fields. These services consist of
the acquisition and processing of 3D and 2D seismic and other geophysical data,
which are used to produce computer-generated graphic images of the subsurface
strata. The resulting images are then analyzed and interpreted by customers'
geophysicists and are used by oil and gas companies in the acquisition of new
leases, the selection of drilling locations on exploratory prospects and in
reservoir development and management.

Geophysical data is acquired by land, transition zone and marine crews. In
data acquisition, a source of acoustical energy is employed at or below the
earth's surface and an acoustical wave is produced through the discharge of
compressed air, the detonation of small explosive charges, or other energy
generating techniques. As the acoustical wave travels through the earth,
portions are reflected by variations in the underlying rock layers, and the
reflected energy is captured by geophones situated at intervals along specified
paths from the point of acoustical impulse. The resulting signals are then
transmitted to a recording unit which amplifies the reflected energy wave and
converts it into digital data. This data is then input into a specialized data
processing system that enhances the recorded signal by reducing noise and
distortion and improving resolution and arranges the input data to produce, with
the aid of plotting devices, an image of the subsurface strata. By interpreting
seismic data, oil and gas companies create detailed stratigraphic maps of
prospective areas and producing oil and gas reservoirs.

Three-dimensional surveys involve the acquisition of a very dense grid of
seismic data over a precisely defined area. This heavy concentration of data
requires extensive computer processing, involving the use of sophisticated
proprietary techniques, to produce an accurate image of the subsurface. Computer
analysis of the 3D survey data allows geophysicists to better examine and
interpret important subsurface features.

21
<PAGE> 23

the industry's ability to develop oil and gas reserves, particularly in
transition zone and deepwater environments.

The industry is experiencing growing demand for 3D multi-client data
surveys, particularly in deep water environments. Increased leasing activity and
the high cost of drilling exploration and development wells in these waters have
created significant demand for large-scale surveys employing sophisticated data
processing techniques. The relatively expensive cost of acquiring and processing
this data has prompted many oil and gas companies to participate in multi-client
data surveys to reduce their geophysical expenses.

BUSINESS STRATEGY

FOCUS ON SELECTED GEOGRAPHIC MARKETS. The Company deploys its land and
transition zone crews and seismic vessels in geographic areas where it can
establish and maintain a strong competitive presence. Of the 14 land crews
presently operated by the Company, 11 are operating in North America, where
the Company maintains a significant market share. Currently, a majority of
the Company's vessels are operating in the Gulf of Mexico, where it is
positioned to take advantage of the increased demand for 3D marine seismic
data.

Land and transition zone data acquisition. The Company's transition zone
crews are equipped with I/O System Two-RSR equipment, and land crews
employ I/O System Two equipment. An additional crew and various other
land seismic upgrades are budgeted for fiscal 1998, at an aggregate cost
of approximately $14 million.

MAINTAIN FLEXIBLE IN MARINE OPERATIONS. In its marine seismic data
acquisition activities, the Company operates exclusively from chartered
vessels with unexpired terms ranging from one year to three years, subject
to renewal at the Company's option in most instances. In employing this
strategy, the Company is able to reduce vessel costs in times of low demand
and retains the flexibility to relocate its marine seismic equipment onto
vessels that may better meet customers' evolving requirements. In general,
the Company also seeks to operate a technically balanced fleet of chartered
vessels with operating characteristics that efficiently serve those markets
experiencing the greatest demand.

22
<PAGE> 24

SERVICES AND MARKETS

The Company acquires seismic data in land, transition zone and marine
environments and processes data acquired from its own crews as well as data
acquired by other geophysical crews. The Company currently operates seven land
and transition zone crews in the continental United States, four land crews in
Canada and three land crews in South America, currently in Argentina and
Ecuador. The Company's seven marine crews operate in selected markets worldwide.
The Company also operates 19 seismic data processing facilities, most of which
are located in major oil and gas centers around the world. In fiscal 1995 and
1996 and the first nine months of fiscal 1997, 61%, 62% and 55%, respectively,
of the Company's revenues were attributable to international operations and
export sales.

When performing geophysical services under contract for oil and gas
producers, the Company may be employed to acquire and/or process geophysical
data. Under these arrangements, the Company's entire work-product belongs to the
contracting party. The Company also acquires and processes geophysical data for
its own account, preserving its work-product in a data library for later
licensing on a non-exclusive basis. When acquiring data for its library, the
Company generally obtains pre-funding commitments for at least 70% of the cost
of such surveys from multiple clients.

The following tables set forth the Company's revenues by service group and
geographical area:

REVENUES BY SERVICE GROUP(1)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and transition zone data
acquisition............................ $ 83,229 $108,133 $117,667 $ 87,076 $126,172
Marine data acquisition.................. 36,509 32,781 54,360 32,096 42,755
Data processing.......................... 46,124 54,687 55,566 42,044 53,888
Licensing of multi-client data surveys... 11,604 19,804 23,003 20,467 31,124
Other.................................... 926 225
-------- -------- -------- -------- --------
Total.......................... $178,392 $215,630 $250,596 $181,683 $253,939
======== ======== ======== ======== ========
</TABLE>

- ---------------

(1) Revenues from data acquisition and data processing services are recognized
based on contractual rates set forth in the related contract if the contract
provides a separate rate for each service provided. If the contract only
provides a rate for the overall service, revenues are recognized based on
the percentage of each cost of each service to total cost.

23
<PAGE> 25

REVENUES BY GEOGRAPHICAL AREA

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States(1)......................... $ 67,373 $ 87,318 $ 98,875 $ 73,365 $114,871
Canada................................... 46,501 44,297 47,423 38,550 43,025
Europe and Middle East................... 29,891 20,230 37,394 23,173 39,234
Far East................................. 16,958 25,918 30,558 21,175 22,222
South America............................ 17,669 37,867 36,346 25,420 34,587
-------- -------- -------- -------- --------
Total.......................... $178,392 $215,630 $250,596 $181,683 $253,939
======== ======== ======== ======== ========
</TABLE>

- ---------------

(1) Includes export sales of $1,501, $2,228 and $4,774 in fiscal 1994, 1995 and
1996, respectively; and $4,372 and $2,902 for the first nine months of
fiscal 1996 and 1997, respectively.

See Note 17 of Notes to the Consolidated Financial Statements for additional
geographical information.

Geophysical services are marketed from the Company's Houston and Calgary
offices and from its regional administrative centers by personnel whose duties
also typically include technical, supervisory or executive responsibilities.
Contracts are obtained either through competitive bidding in response to
invitations for bids, by direct negotiation with the prospective customer or
through the initiation by the Company of surveys for its data library, which
surveys are then offered for license on a non-exclusive basis.

Contracts for exclusive data acquisition involve payments on either a
turnkey or a time basis or on a combination of both methods. Under the turnkey
method, payments for data acquisition services are based upon the amount of data
collected, and the Company bears substantially all of the risk of business
interruption caused by inclement weather and other hazards. When operating on a
time basis, payments are based on agreed rates per unit of time, which may be
expressed in periods ranging from days to months, and most of the risk of
business interruption (except for interruptions caused by failure of the
Company's equipment) is borne by the customer. When a combination of both
turnkey and time methods is used, the risk of business interruptions is shared
in an agreed percentage by the Company and the customer. In each case, progress
payments are usually required unless it is expected that the job can be
accomplished in a brief period. In recent years, the Company's contracts for
data acquisition have been predominantly on a turnkey or on a combination of
turnkey/time basis. Substantially all exclusive data processing work is done on
a turnkey basis.

LAND AND TRANSITION ZONE DATA ACQUISITION

The Company's land and transition zone data acquisition services are
currently conducted by 14 seismic crews, with a combined seismic recording
capacity of approximately 22,700 channels. The Company is able to configure its
equipment to operate up to 17 crews and has done so this past winter in response
to demand for shorter recording lines in Canada. Seven of the crews are
operating in the continental United States, four in Canada and three in South
American markets, currently Argentina and Ecuador.

The Company's land and transition zone crews are equipped to perform both
3D and 2D surveys. Each crew consists of a surveying unit which lays out the
lines to be recorded and marks the site for shot-hole placement or equipment
location; an explosives or mechanical vibrating unit (a vibroseis); and a
recording unit that lays out the geophones and recording instruments, directs
shooting operations and records the acoustical signal reflected from subsurface
strata. On the typical land seismic survey, the seismic crew is supported by
several drill crews, which are typically furnished by third parties under
short-term contracts. Drill crews operate in advance of the seismic crew and
bore shallow holes for explosive charges which, when detonated by the seismic
crew, produce the necessary acoustical

24
<PAGE> 26

impulse. In locations where the use of explosives is precluded due to population
density, technical requirements or ecological factors, a mechanical vibrating
unit or compressed air is substituted for explosives as the acoustical source.

The Company uses helicopters to aid its crews in seismic data acquisition
in situations where such use will reduce overall costs and improve productivity.
In a helicopter-supported project, seismic lines are cut approximately two
meters wide, compared to five meters wide when trucks are used to move cables,
geophones and personnel. The use of helicopters, which is often required in
areas with rugged terrain and in agricultural areas, results in better access
and lessened surface damage. In such a project, each seismic crew is typically
supported by one or two helicopters specifically suited to seismic acquisition
requirements.

The Company has made capital improvements during fiscal 1997 which have
provided efficiencies and additional capacity in its land and transition zone
data acquisition operations. For example, it has acquired geophones and cables
which standardized this equipment so that such equipment is interchangeable
among the Company's seismic crews. In addition, the transition zone crews have
been upgraded to I/O System Two-RSR equipment. The Company plans to make land
and transition zone capital expenditures of approximately $14 million during
fiscal 1998. A significant portion of these capital expenditures is expected to
relate to the introduction of an additional crew into South America.

MARINE DATA ACQUISITION

Marine data acquisition services are carried out by the Company's crews
operating from chartered vessels which have been modified or equipped to the
Company's specifications. The following table sets forth certain information
concerning the geophysical vessels operated by the Company as of April 30, 1997:

<TABLE>
<CAPTION>
YEAR
ENTERED SEISMIC RECORDING
VESSEL(1) SERVICE LOCATION LENGTH BEAM CAPACITY (CHANNELS)
- ------------------------------- ------- -------------- --------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Acadian Searcher............... 1983 Indonesia 217 feet 44 feet 480/3D
Ross Seal...................... 1987 Taiwan 176 feet 38 feet 240/3D
Seacor Surf.................... 1991 Gulf of Mexico 135 feet 35 feet 480/3D
Polar Search................... 1992 Gulf of Mexico 300 feet 51 feet 1,920/3D
Pearl Chouest.................. 1995 Gulf of Mexico 210 feet 40 feet 480/3D
Cape Romano.................... 1996 Gulf of Mexico 155 feet 36 feet 480/3D
Polar Princess................. 1996 Gulf of Mexico 250 feet 46 feet 1,920/3D
</TABLE>

- ---------------

(1) Does not include the Professor Kurentsov, which is operating on a trial
basis under short term charter.

The Polar Search and the Polar Princess are chartered from a ship operator
for initial terms which expire in January and February 2000, respectively. The
Company's other vessels are operated under shorter term charter arrangements
expiring at various times throughout fiscal 1998. These charters contain certain
options for the Company to extend on terms and at rates closely approximating
the expiring terms and rates. It is presently anticipated that the charters on
the Seacor Surf and the Cape Romano will not be renewed and that these two
vessels will be replaced by a single larger vessel. Decisions on whether to
extend the other expiring vessel charters or enter into charters with other
vessel owners will be made prior to each charter expiration date.

All of the vessels operated by the Company are equipped to perform both 3D
and 2D seismic surveys. During the last several years, a majority of the marine
seismic data acquisition services performed by the Company involved 3D surveys.
The Company frequently upgrades seismic survey equipment on its vessels to
enhance performance quality and incorporate new technology. Each vessel
generally has an equipment complement consisting of seismic recording
instrumentation, digital seismic streamer cable, cable location and seismic data
location systems, multiple navigation systems, a

25
<PAGE> 27

source control system which controls the synchronization of the energy source
and a firing system which generates the acoustical impulses. The streamer cable
contains hydrophones that receive the acoustical impulses reflected by
variations in the subsurface strata. Data acquired by each channel in the
digital cable is partially processed before it is transmitted to recording
instruments for storage on magnetic media, thus reducing subsequent processing
time and the effective acquisition costs to the customer.

At present, two of the Company's vessels are equipped with multiple
streamers and multiple energy sources, which acquire more lines of data with
each pass, reducing the time to completion and the effective acquisition cost. A
three vessel multi-boat crew obtains similar benefits by recording the signals
generated from two source arrays on the master vessel from single cables towed
by each of the master and two slave vessels. These five vessels are located in
the Gulf of Mexico and are engaged in acquiring 3D multi-client data surveys.
The Company has ordered another large chartered vessel, primarily to service the
North Sea market. This new "flagship" vessel will be the Company's largest
vessel and will be capable of deploying 12 seismic streamer cables. The purchase
of equipment for this new vessel, together with less extensive upgrades on some
of the other vessels in the fleet, is anticipated to require capital
expenditures of approximately $43 million in fiscal 1998.

Each marine seismic crew consists of approximately 20 persons, excluding
the ship's captain and ship personnel. Seismic personnel live aboard ship during
their tours of duty, which are staggered to permit continuous operations. During
seismic operations, the Company's personnel direct the positioning of the vessel
using sophisticated navigational equipment, deploy and retrieve the seismic
streamer cable and energy-source array, and operate all other systems relating
to data collection activities. The Company's personnel do not, however, have
ultimate responsibility for the vessel, which is operated by the captain and
personnel who are employees of the vessel owner.

DATA PROCESSING

The Company currently operates 19 seismic data processing centers. At each
of the centers, data received from the field, both from the Company and other
geophysical crews, is processed to produce an image of the earth's subsurface
using proprietary computer software and techniques developed by the Company. The
Company also reprocesses older seismic data using new techniques designed to
enhance the quality of the data. A majority of the Company's data processing
services are performed on 3D seismic data. The Company's data processing centers
have opened at various times from 1966 through 1997 and are located in Houston,
Texas (two locations); Hurst, Texas; Dallas, Texas; Midland, Texas; Denver,
Colorado; Oklahoma City, Oklahoma; Singapore; London, England; Calgary, Alberta;
Brisbane, Australia; Melbourne, Australia; Jakarta, Indonesia; Kuala Lumpur,
Malaysia; Buenos Aires, Argentina; Neuquen, Argentina; Caracas, Venezuela;
Quito, Equador; and Abu Dhabi U.A.E.

Eight of the Company's centers operate high capacity, advanced technology
data processing systems based on NEC and HP computer systems with high speed
networks. These systems utilize the Company's proprietary software,
seismicTANGO, which is installed on all of the Company's marine vessels. The
data acquisition crews run seismicTANGO software identical to that utilized in
the NEC and HP systems, allowing for ease in the movement of data from the field
to the data processing centers. The seismicTANGO software is used primarily for
marine data processing which involves large projects in comparison with
typically smaller scale land data processing projects. Eleven of the Company's
centers process seismic data on Sun workstations. These systems use SAGE, a
proprietary processing system developed primarily for land data processing.

Because of the increased complexity of processing 3D surveys, in fiscal
1997 the Company upgraded to more powerful and flexible workstation-based
systems at five of its data processing centers which are dedicated primarily to
processing marine data. To improve its speed and capacity in processing large 3D
surveys, the Company recently leased an NEC supercomputer for its Houston
processing center and plans to install another NEC supercomputer in its London
center by calendar year-end. During fiscal 1997, in its land processing
operations, the Company acquired additional Sun

26
<PAGE> 28

workstations to add capacity at existing processing centers and to equip two new
processing centers. These expansions and upgrades have increased capacity and
lowered operating costs. The Company has budgeted $16 million in fiscal 1998 for
data processing capital expenditures, primarily for the purchase of additional
workstations, HP mainframes and peripheral equipment for the workstations, the
NEC supercomputer and other mainframes.

LICENSING OF MULTI-CLIENT DATA SURVEYS

In its data acquisition and processing efforts, the Company often acquires
and processes data for its own account by conducting surveys partially or wholly
funded by multiple customers. Once acquired and processed, these surveys are
then licensed for use to other customers on a non-exclusive basis. Factors
considered in determining whether to undertake such surveys include the
availability of initial participants to underwrite a percentage of the costs,
the location to be surveyed, the probability and timing of future lease,
concession and development activity in the area, and the availability, quality
and price of competing data. In general, the Company obtains pre-funding
commitments for at least 70% of the costs of its multi-client data surveys.

As described above, the relatively expensive cost of acquiring and
processing deepwater 3D seismic data has prompted many oil and gas companies to
participate in multi-client data surveys to reduce their geophysical expenses.
In response to this increased demand, the Company is adding to its data library,
primarily in the Gulf of Mexico and the North Sea. While historically the
Company's growth in multi-client data surveys has been offshore, it has recently
initiated onshore surveys and intends to expand its land data library. As of
July 31, 1996, the Company's data library included 512,259 line miles, compared
with 224,356 line miles as of July 31, 1994, representing a 128% increase. For
additional information with respect to the multi-client data library, see "Risk
Factors -- Investment in Multi-Client Data Library" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General."

TECHNOLOGY AND CAPITAL EXPENDITURES

The geophysical industry is highly technical, and the requirements for the
acquisition and processing of seismic data have evolved continuously over the
past 50 years. Accordingly, it is of significance to the Company that its
technological capabilities are comparable or superior to those of its
competitors, whether through continuing research and development, strategic
alliances with equipment manufacturers or by acquiring technology under license
from others. The Company has introduced several technological innovations in its
geophysical service business that have become industry standard practice in both
acquisition and processing.

Currently, the Company employs approximately 50 persons in its research and
development activities, substantially all of whom are scientists, engineers or
programmers. During fiscal 1994, 1995 and 1996, research and development
expenditures were $5.8 million, $3.6 million and $3.2 million, respectively. The
reduced level of expenditures in fiscal 1995 and 1996 reflects the transfer of
the Company's marine and land engineering departments to Syntron, Inc. in August
1994. See Note 6 of Notes to the Consolidated Financial Statements.

The Company rarely applies for patents on internally developed technology.
This policy is based upon the belief that most proprietary technology, even
where regarded as patentable, can be more effectively protected by maintaining
confidentiality than through disclosure and a patent enforcement program.

Certain of the equipment, processes and techniques used by the Company are
subject to the patent rights of others, and the Company holds non-exclusive
licenses with respect to a number of such patents. While the Company regards as
beneficial its access to others' technology through licensing, the Company
believes that substantially all presently licensed technology could be replaced
without significant disruption to the business should the need arise.

27
<PAGE> 29

The capital expenditure program for fiscal 1998 requires expenditures of
approximately $75 million, and another $3.5 million is budgeted for research and
development activities. The level of future capital expenditures will depend on
the availability of funding and market requirements as dictated by oil and gas
company activity levels.

The following table sets forth a summary of the Company's capital
expenditures for the three years ended July 31, 1996, its estimated capital
expenditures for the year ended July 31, 1997 and its budgeted capital
expenditures for the year ending July 31, 1998.

<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ----------- ----------
(ESTIMATED) (BUDGETED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and transition zone data
acquisition.............................. $21,566 $18,004 $15,020 $25,500 $14,000
Marine data acquisition.................... 3,370 8,296 7,757 29,100 43,000
Data processing............................ 4,374 6,495 8,394 18,900 16,000
Other...................................... 462 839 1,689 6,500 2,000
------- ------- ------- ------- -------
Total............................ $29,772 $33,634 $32,860 $80,000 $75,000(1)
======= ======= ======= ======= =======
</TABLE>

- ---------------

(1) Of this amount, approximately $13.5 million represents capital spending
necessary to maintain the Company's operating equipment and the remainder is
allocated for discretionary capital spending, including approximately $12.5
million for the replacement of older operating equipment and approximately
$49 million for expansion of equipment needed to meet increased demand for
seismic services.

COMPETITION AND OTHER BUSINESS CONDITIONS

The acquisition and processing of seismic data for the oil and gas
exploration industry has historically been highly competitive worldwide.
However, as a result of changing technology and increased capital requirements,
the seismic industry has consolidated substantially since the late 1980s. The
consolidation has reduced the number of competitors, and the largest competitors
remaining in the market are Western Geophysical (a division of Western Atlas
Inc.), Geco-Prakla (a division of Schlumberger), Compagnie Generale Geophysique
and Petroleum Geo-Services ASA. Although reliable comparative figures are not
available in all cases, the Company believes that its largest competitors have
more extensive and diversified operations and have financial and operating
resources in excess of those available to the Company. Competition for available
seismic surveys is based on several competitive factors, including price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability.

The Company's data acquisition activities often are conducted under extreme
weather and other hazardous conditions. Accordingly, these operations are
subject to risks of injury to personnel and loss of equipment. The Company
carries insurance against the destruction of, or damage to, its chartered
vessels and its geophysical equipment in amounts that it considers adequate. The
Company may not, however, be able to obtain insurance against certain risks or
for equipment located from time to time in certain areas of the world. The
Company obtains insurance against war, expropriation, confiscation and
nationalization when such insurance is available and when management considers
it advisable to do so. Such coverage is not always available and, when
available, is subject to unilateral cancellation by the insuring companies on
short notice. The Company also carries insurance against pollution hazards and
injury to persons and property that may result from its operations and considers
the amounts of such insurance to be adequate.

Fixed costs, including costs associated with vessel charters and operating
leases, labor costs, depreciation and interest expense, account for a
substantial percentage of the Company's costs and expenses. As a result,
downtime or low productivity resulting from reduced demand, equipment failures,
weather interruptions or otherwise, can result in significant operating losses.

28
<PAGE> 30

BACKLOG

At April 30, 1997, the Company's backlog of commitments for services was
$226.6 million, compared with $158.8 million at July 31, 1996. It is anticipated
that substantially all of the April 30, 1997 backlog will be completed in the
next 12 months. This backlog consisted of written orders or commitments believed
to be firm. Contracts for services are occasionally varied or modified by mutual
consent and in certain instances are cancelable by the customer on short notice
without penalty. As a result of these factors, the Company's backlog as of any
particular date may not be indicative of the Company's actual operating results
for any succeeding fiscal period.

SIGNIFICANT CUSTOMERS

Historically, the Company's principal customers have been international oil
and gas companies, foreign national oil companies and independent oil and gas
companies. Due to the contractual nature of the Company's operations, it is
anticipated that significant portions of future consolidated revenues may be
attributable to a few customers, although it is likely that the identity of such
customers may change from period to period.

EMPLOYEES

At April 30, 1997, the Company employed approximately 2,600 full-time
personnel. With the exception of approximately 35 unionized employees in the
Company's Singapore data processing center, none of its employees are subject to
collective bargaining agreements. The Company considers the relations with its
employees to be good.

29
<PAGE> 31

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The table below sets forth certain information regarding the Company's
executive officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
David B. Robson........................ 58 Chairman of the Board, Chief Executive Officer
and Director
Stephen J. Ludlow...................... 47 President, Chief Operating Officer and Director
Lawrence C. Fichtner................... 52 Executive Vice President -- Corporate
Communications and Director
Anthony Tripodo........................ 44 Executive Vice President, Chief Financial Officer
and Treasurer
Rene M.J. VandenBrand.................. 38 Vice President -- Business Development
Clayton P. Cormier..................... 64 Director
Ralph M. Eeson......................... 48 Director
Steven J. Gilbert...................... 50 Director
Brian F. MacNeill...................... 57 Director
Douglas B. Thompson.................... 47 Director
Jack C. Threet......................... 68 Director
</TABLE>

David B. Robson. Mr. Robson has been chairman of the board and chief
executive officer of the Company since consummation of the Combination on August
30, 1996. Prior thereto, he had held similar positions with VES or its
predecessors since 1974.

Stephen J. Ludlow. Mr. Ludlow became president and chief operating officer
of the Company in August 1996, upon consummation of the Combination. He was
employed by Digicon for 24 years and served as president and chief executive
officer of Digicon for the preceding two years. Prior to 1994, he served as
executive vice president of Digicon for four years following eight years of
service in a variety of progressively more responsible management positions,
including several years of service as the executive responsible for operations
in Europe, Africa and the Middle East.

Lawrence C. Fichtner. Mr. Fichtner became executive vice
president -- corporate communications of the Company in August 1996, upon
consummation of the Combination. Prior thereto, he had been executive vice
president of VES or its predecessors since 1978. During the ten years prior to
joining VES, he held various positions as a geophysicist with Geophysical
Services Inc., Texaco Exploration Ltd. and Bow Valley Exploration Ltd.

Anthony Tripodo. Mr. Tripodo was appointed executive vice president, chief
financial officer, and treasurer of the Company in April 1997. Prior to joining
the Company, he was employed by Baker Hughes for sixteen years in various
financial management capacities, most recently as vice president of finance and
administration for its Baker Performance Chemicals Incorporated unit. Prior to
his service with Baker Hughes, Mr. Tripodo was employed by the accounting firm
of Price Waterhouse from 1974 to 1980.

Rene M.J. VandenBrand. Mr. VandenBrand became vice president -- business
development of the Company in August 1996 upon consummation of the Combination.
Prior thereto, he had been vice president--finance and secretary of VES since
November 1995, following two years of service in comparable positions with Taro
Industries Limited. He was previously a partner of Coopers & Lybrand Chartered
Accountants in Calgary.

Clayton P. Cormier. Mr. Cormier is currently a financial and insurance
consultant. From 1986 to 1991, Mr. Cormier was a senior vice president in the
oil and gas division of Johnson & Higgins, an

30
<PAGE> 32

insurance broker, and previously served as chairman of the board, president, and
chief executive officer of Ancon Insurance Company, S.A. and as an assistant
treasurer of Exxon Corporation.

Ralph M. Eeson. Mr. Eeson has been co-owner and chairman of the board of
Kids Only Clothing Club Inc., a manufacturer and direct seller of children's
clothing, since 1991. From 1977 to 1991, he was a senior partner at Code Hunter,
Barristers and Solicitors, Calgary. He remains counsel to Code Hunter.

Steven J. Gilbert. Mr. Gilbert is chairman of Gilbert Global Equity
Partners, L.P. From 1992 to 1997 he was managing general partner of Soros
Capital L.P., the principal venture capital and leveraged transaction entity of
Quantum Group of Funds and was a principal advisor to Quantum Industrial
Holdings Ltd. He has also been the managing director of Commonwealth Capital
Partners, L.P., a private equity investment firm. Mr. Gilbert was the managing
general partner of Chemical Venture Partners, a venture capital firm, from 1984
to 1988. Mr. Gilbert is also a director of Katz Media Group, Inc., NFO Research,
Inc., The Asian Infrastructure Fund, Peregrine Indonesia Fund, Inc., Terra Nova
(Bermuda) Holdings, Ltd., GTS -- Duratek, Inc., Sydney Harbour Casino Holdings,
Ltd., UroMed, Inc., and Affinity Technology Group, Inc., and is a member of the
Advisory Committee of Donaldson, Lufkin & Jenrette Merchant Banking.

Brian F. MacNeill. Mr. MacNeill has been president and chief executive
officer of IPL Energy Inc., a crude oil and liquids transportation and natural
gas distribution company, formerly Interprovincial Pipe Line, Inc. ("IPL"),
since 1991. He was executive vice president and chief operating officer of IPL
from 1990 to 1991 and previously served as chief financial officer of Interhome
Energy, Inc. and Home Oil Company Limited and as vice president and treasurer of
Hiram Walker Resources Ltd.

Douglas B. Thompson. Mr. Thompson served as chairman of the board of the
Company from May 1994 until consummation of the Combination in August 1996. He
is a private investor and also served as chairman of the board of WellTech,
Inc., a privately-held workover drilling company, until its sale in March 1996.

Jack C. Threet. Mr. Threet was formerly a vice president of Shell Oil
Company. Prior to his retirement from Shell Oil Company in 1987, Mr. Threet was
also a member of the boards of directors of several affiliates of Shell Oil
Company.

31
<PAGE> 33

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company is authorized to issue 40,000,000 shares of Common Stock, par
value $.01 per share, and at May 31, 1997, there were 18,865,901 shares
outstanding, and 563,326 shares were reserved for issuance upon exercise of
outstanding warrants and options. Included in shares outstanding are 2,378,551
VES Exchangeable Shares, which are exchangeable for, and vote with the Common
Stock, and are identical to, the Common Stock in all material respects. Each
share of Common Stock has one vote on all matters presented to the stockholders.
Subject to the rights and preferences of any Preferred Stock (as defined below)
which may be designated and issued, the holders of Common Stock are entitled to
receive dividends, if and when declared by the board of directors, and are
entitled on liquidation to all assets remaining after the payment of
liabilities. The Common Stock has no preemptive or other subscription rights.
Outstanding shares of Common Stock are and the shares of Common Stock offered by
the Company, when issued and paid for, will be fully paid and nonassessable.
Because the Common Stock does not have cumulative voting rights, the holders of
more than 50% of the shares may, if they choose to do so, elect all of the
directors and, in that event, the holders of the remaining shares will not be
able to elect any directors. ChaseMellon Shareholder Services, L.L.C., Dallas,
Texas, is the transfer agent and registrar for the Common Stock.

PREFERRED STOCK

The board of directors of the Company, without any action by the
stockholders of the Company, is authorized to issue up to 1,000,000 shares of
Preferred Stock. Shares of Preferred Stock may be issued in one or more series
or classes, which will have such designation, voting powers, preferences and
relative, participating, optional or other rights and such qualifications,
limitations or restrictions thereon, including voting rights, dividends, rights
on liquidation, dissolution or winding up, conversion or exchange rights and
redemption provisions, as set forth in the resolutions adopted by the Board of
Directors providing for the issuance of such stock and as permitted by the
Delaware General Corporation Law (the "DGCL"). A series of 400,000 shares of
Preferred Stock has been designated for use in connection with the Rights Plan.
See "Rights Plan." Although the Company has no other current plans for the
possible issuance of Preferred Stock, the issuance of shares of Preferred Stock,
or the issuance of securities convertible into or exchangeable for such shares,
could be used to discourage an unsolicited acquisition proposal that some or a
majority of the stockholders believe to be in their interests or in which
stockholders are to receive a premium for their stock over the then current
market price. In addition, the issuance of Preferred Stock could adversely
affect the voting power of the holders of Common Stock. The Board of Directors
does not presently intend to seek stockholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law or stock exchange
rules.

RIGHTS PLAN

Pursuant to a Rights Agreement between the Company and ChaseMellon
Shareholder Services, L.L.C., Dallas, Texas (the "Rights Plan"), each share of
Common Stock has attached to it one Right (the "Right"), represented by the
certificate which is also the certificate representing the Common Stock. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), of the Company at a
purchase price of $100, subject to adjustment (the "Purchase Price").

The Rights will separate from the Company's Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days (or such
later date as the Board of Directors of the Company shall determine) following
the commencement of a tender or exchange offer which would

32
<PAGE> 34

result in a person or group beneficially owning 15% or more of such outstanding
shares of Common Stock (the "Tender Offer Date"). Until the Distribution Date,
the Rights will be transferred with and only with the Common Stock certificates.
The Rights are not exercisable until the Distribution Date and, unless earlier
redeemed by the Company as described below, will expire at the close of business
on May 15, 2007.

In the event that, among other things, (i) the Company is the surviving
corporation in a merger or other business combination with an Acquiring Person
or (ii) any person shall become the beneficial owner of more than 15% of the
outstanding shares of the Common Stock (except (A) pursuant to certain
consolidations or mergers involving the Company or sales or transfers of the
combined assets or earning power of the Company and its subsidiaries, or (B)
pursuant to an offer for all outstanding shares of the Common Stock at a price
and upon terms and conditions which a majority of the Continuing Directors (as
defined below) determines to be in the best interests of the Company and its
stockholders) each holder of a Right (other than the Acquiring Person, certain
related parties and transferees) will thereafter have the right to purchase,
upon exercise, a one-thousandth fractional share interest in Series A Preferred
Stock each of which is for all purposes essentially equivalent to a share of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right. For example, at the exercise price of $100 per Right, each Right not
owned by an Acquiring Person (or by certain related parties and transferees)
following an event set forth above would entitle its holder to purchase $200
worth of Series A Preferred Stock (or other consideration, as noted above) for
$100. Assuming that the Series A Preferred Stock had a per share market price of
$40 at such time (with each one-thousandth share of Series A Preferred Stock
valued at one share of Common Stock), the holder of each valid Right would be
entitled to purchase 5 shares of the Series A Preferred Stock for $100. Rights
are not exercisable following the occurrence of any of the events described
above until the Rights are no longer redeemable by the Company as described
below. Notwithstanding any of the foregoing, following the occurrence of any of
the events described in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Plan) were, beneficially owned by any
Acquiring Person will be null and void.

In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation, (ii) the Company is the
surviving corporation in a consolidation or merger pursuant to which all or part
of the outstanding shares of Common Stock are changed into or exchanged for
stock or other securities of any other person or cash or any other property or
(iii) more than 50% of the combined assets or earning power of the Company and
its subsidiaries is sold or transferred (in each case other than certain
consolidations with, mergers with and into, or sales of assets or earning power
by or to subsidiaries of the Company as specified in the Rights Agreement), each
holder of a Right (except Rights that previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the exercise price of
the Right. The events described in this paragraph and in the immediately
preceding paragraph are referred to as the "Triggering Events."

At any time until any person becomes an Acquiring Person, the Company may
redeem the Rights in whole, but not in part, at a price of $.001 per Right
(payable in cash, shares of Common Stock or other consideration deemed
appropriate by the Board of Directors). Rights may not be redeemed during the
180 day period after any person becomes an Acquiring Person unless the
redemption is approved by a majority of Continuing Directors. The term
"Continuing Director" means any member of the Board of Directors of the Company
who was a member of the Board prior to the date of the Rights Agreement, and any
person who is subsequently elected to the Board if such person is recommended or
approved by a majority of at least five Continuing Directors, but shall not
include an Acquiring Person, or an affiliate or associate of an Acquiring
Person, or any representative of the foregoing persons.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.

33
<PAGE> 35

The Rights have certain anti-takeover effects. They may reduce or eliminate
(i) "two-tiered" or other partial offers that do not offer fair value for all
Common Stock; (ii) the accumulation by a third party of 15% or more of the
Common Stock in open-market or private purchases in order to influence or
control the business and affairs of the Company without paying an appropriate
premium for a controlling position in the Company; and (iii) the accumulation of
shares of Common Stock by third parties in market transactions for the primary
purpose of attempting to cause the Company to be sold. In addition, the Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company in a manner defined as a Triggering Event unless the offer is
conditioned on a substantial number of Rights being acquired. The Rights,
however, should not affect any prospective offeror willing to make an offer for
all outstanding shares of Common Stock and other voting securities at a price
and on other terms that are in the best interests of the Company and its
stockholders as determined by the Board of Directors or affect any prospective
offeror willing to negotiate with the Board of Directors because as part of any
negotiated transaction the Rights would either be redeemed or otherwise made
inapplicable to the transaction. The Rights should not interfere with any merger
or other business combination approved by the Board of Directors since the Board
of Directors may, at its option, at any time until ten business days following
the Stock Acquisition Date, redeem all, but not less than all, of the then
outstanding Rights at the $.001 redemption price. For a description of
additional provisions that could have antitakeover effects, see "Risk
Factors -- Certain Antitakeover Provisions."

34
<PAGE> 36

UNDERWRITING

The names of the underwriters of the shares of Common Stock offered hereby
(the "Underwriters") and the aggregate number of shares which each has severally
agreed to purchase from the Company (subject to the terms and conditions
specified in the Underwriting Agreement) are as follows:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Dillon, Read & Co. Inc. ....................................
PaineWebber Incorporated....................................
Raymond James & Associates, Inc. ...........................
----------
Total............................................. 3,000,000
==========
</TABLE>

The Managing Underwriters are Dillon, Read & Co. Inc. ("Dillon Read"),
PaineWebber Incorporated ("PaineWebber") and Raymond James & Associates, Inc.
("Raymond James").

If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10 percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.

The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain dealers. The offering of the
shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 450,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover the over-allotments made of the shares in connection with this
Offering.

For a period of 90 days after the date of this Prospectus, the Company, the
executive officers of the Company and certain directors of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any other capital stock of the Company or any security
convertible into or exercisable or exchangeable for Common Stock or any other
capital stock without the prior written consent of Dillon Read, except (a) the
Company may register the Common Stock and the Company may sell the shares of
Common Stock offered in this Offering, (b) the Company may register and the
Company may issue securities pursuant to the Company's existing stock option or
other benefit or incentive plans maintained for its officers, directors or
employees, and (c) shares of Common Stock may be issued in accordance with the
Rights Plan.

The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act or to payments that the Underwriters may be required to make in
respect thereof.

35
<PAGE> 37

In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under the
Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. In a syndicate covering transaction, the Underwriters would
place a bid or effect a purchase to reduce a short position created in
connection with this Offering. Pursuant to a penalty bid, Dillon Read, on behalf
of the Underwriters, would be able to reclaim a selling concession from an
Underwriter if shares of Common Stock originally sold by such Underwriter are
purchased in syndicate covering transactions. These transactions may result in
the price of the Common Stock being higher than the price that might otherwise
prevail in the open market. These transactions may be effected on the New York
Stock Exchange, in the over-the-counter market or otherwise, and, if commenced,
may be discontinued at any time.

Dillon Read and Raymond James served as underwriters in connection with the
Company's offering of Senior Notes in October 1996 and were compensated at
customary rates for such services. In 1996, the Company engaged PaineWebber to
act as its financial advisor in connection with the Combination and has paid
PaineWebber a customary fee for such services.

LEGAL MATTERS

Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed on for the Company by Porter &
Hedges, L.L.P., Houston, Texas. Certain legal matters in connection with such
securities are being passed upon for the Underwriters by Vinson & Elkins L.L.P.,
Houston, Texas.

EXPERTS

The consolidated financial statements of Veritas DGC Inc. as of July 31,
1995 and 1996 and for each of the three years in the period ended July 31, 1996
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which has been included herein
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

Effective November 20, 1996, the Company replaced Deloitte & Touche LLP as
independent auditors. Deloitte & Touche LLP has not performed any procedures
with respect to any financial statements of the Company as of or for any interim
period within the fiscal year ended July 31, 1996.

The consolidated financial statements of Veritas Energy Services Inc., as
of and for the nine months ended July 31, 1996, as of and for the year ended
October 31, 1995 and for the year ended October 31, 1994 not separately
presented in this Prospectus, have been audited by Price Waterhouse, Chartered
Accountants, whose report thereon appears herein. Such consolidated financial
statements, to the extent they have been included in the consolidated financial
statements of Veritas DGC Inc., have been so included in reliance on their
report given up on the authority of such firm as experts in accounting and
auditing.

36
<PAGE> 38

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AS OF JULY 31, 1996 AND APRIL 30, 1997 AND FOR THE NINE
MONTHS ENDED APRIL 30, 1996 AND 1997:
Unaudited Consolidated Statements of Operations........ F-2
Unaudited Consolidated Balance Sheets.................. F-3
Unaudited Consolidated Statements of Cash Flows........ F-4
Unaudited Consolidated Statements of Changes in
Stockholders' Equity.................................. F-6
Notes to Unaudited Consolidated Financial Statements... F-7

AS OF JULY 31, 1995 AND 1996 AND FOR THE YEARS ENDED JULY
31, 1994, 1995 AND 1996:
Independent Auditors' Report of Deloitte & Touche
LLP................................................... F-13
Independent Accountants' Report of Price Waterhouse.... F-14
Consolidated Statements of Operations.................. F-15
Consolidated Balance Sheets............................ F-16
Consolidated Statements of Cash Flows.................. F-17
Consolidated Statements of Changes in Stockholders'
Equity................................................ F-19
Notes to Consolidated Financial Statements............. F-21
</TABLE>

F-1
<PAGE> 39

VERITAS DGC INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
APRIL 30,
------------------------
1996 1997
-------- --------
(AS COMBINED -- SEE NOTE
2)
<S> <C> <C>
REVENUES.................................................... $181,683 $253,939

COSTS AND EXPENSES:
Cost of services.......................................... 145,104 189,646
Depreciation and amortization............................. 20,000 28,662
Selling, general and administrative....................... 5,258 7,603
Other (income) expense:
Interest............................................... 3,775 5,334
Merger related costs................................... 597
Other.................................................. 270 811
-------- --------
Total............................................. 174,407 232,653
-------- --------
Income before provision for income taxes and equity in
earnings of 50% or less-owned companies and joint
ventures.................................................. 7,276 21,286
Provision for income taxes.................................. 2,287 4,260
Equity in earnings of 50% or less-owned companies and joint
ventures.................................................. (793) (735)
-------- --------
NET INCOME.................................................. $ 5,782 $ 17,761
======== ========

PER SHARE OF COMMON STOCK:
Income per share of common stock.......................... $ .33 $ .95
======== ========
Weighted average shares................................... 17,754 18,611
======== ========
Cash dividends............................................ None None
======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-2
<PAGE> 40

VERITAS DGC INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)

<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1996 1997
-------- -----------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments........................... $ 10,072 $ 14,131
Restricted cash investments............................... 327 542
Accounts and notes receivable (net of allowance for
doubtful accounts: July, $740; April, $484)............ 65,447 100,789
Materials and supplies inventory.......................... 1,659 2,541
Prepayments and other..................................... 8,199 9,306
-------- --------
Total current assets.............................. 85,704 127,309
Property and equipment...................................... 165,104 234,584
Less accumulated depreciation.......................... 86,094 112,286
-------- --------
Property and equipment -- net..................... 79,010 122,298
Multi-client data library................................... 25,628 27,250
Investments in and advances to joint venture................ 1,463 770
Goodwill (net of accumulated amortization: July, $2,214;
April, $2,601)............................................ 3,674 3,287
Other assets................................................ 3,113 7,120
-------- --------
Total............................................. $198,592 $288,034
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 13,739 $ 484
Accounts payable -- trade................................. 27,454 44,462
Accrued interest.......................................... 313 381
Other accrued liabilities................................. 19,905 30,580
Income taxes payable...................................... 1,814 2,375
-------- --------
Total current liabilities......................... 63,225 78,282
Non-current liabilities:
Long-term debt -- less current maturities................. 27,351 79,001
Other non-current liabilities............................. 2,093 3,103
-------- --------
Total non-current liabilities..................... 29,444 82,104
Commitments and contingent liabilities (Note 5)
Stockholders' equity:
Preferred stock, $.01 par value; authorized: 400,000
shares; none issued....................................
Common stock, $.01 par value; authorized: 40,000,000
shares; issued: 11,334,352 shares and 16,482,016 shares
(excluding 2,378,551 Exchangeable Shares) at July and
April, respectively.................................... 113 165
Additional paid-in capital................................ 104,469 108,108
Retained earnings (from August 1, 1991 with respect to
Digicon Inc.).......................................... 2,275 20,036
Cumulative foreign currency translation adjustment........ (934) (661)
-------- --------
Total stockholders' equity........................ 105,923 127,648
-------- --------
Total............................................. $198,592 $288,034
======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-3
<PAGE> 41

VERITAS DGC INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
APRIL 30,
------------------------
1996 1997
-------- ---------
(AS COMBINED -- SEE NOTE
2)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 5,782 $ 17,761
Non-cash items included in net income:
Depreciation and amortization.......................... 20,000 28,662
Amortization of deferred gain on sale/leaseback........ (103)
Loss on disposition of property and equipment.......... 606 783
Equity in earnings of 50% or less-owned companies and
joint ventures........................................ (793) (735)
Write-down of multi-client data library to market...... 297 989
Change in operating assets/liabilities:
Accounts and notes receivable.......................... 4,973 (35,342)
Materials and supplies inventory....................... (1,550) (882)
Prepayments and other.................................. (1,401) (1,107)
Multi-client data library.............................. 2,422 (2,611)
Other.................................................. (2,749) (1,588)
Accounts payable -- trade.............................. (3,115) 9,303
Accrued interest....................................... (67) 68
Other accrued liabilities.............................. (568) 10,675
Income taxes payable................................... (847) 561
Other non-current liabilities.......................... (820) 1,010
------- --------
Total cash provided by operating activities....... 22,067 27,547
FINANCING ACTIVITIES:
Borrowing of senior notes................................. 75,000
Debt issue costs.......................................... (2,765)
Payment of secured term loans............................. (10,072)
Payments of long-term debt................................ (10,500) (25,584)
Borrowings of long-term debt.............................. 2,290 781
Net payments under credit agreements...................... (3,467) (8,118)
Net proceeds from sale of common stock.................... 816 3,691
Net proceeds from sale of treasury stock.................. 3,972
------- --------
Total cash provided (used) by financing
activities....................................... (6,889) 32,933
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments........ 331 (215)
(Increase) decrease in investment in and advances to joint
ventures............................................... (269) 1,428
Purchase of property and equipment........................ (12,070) (59,063)
Sale of property and equipment............................ 650 812
Other..................................................... (22)
------- --------
Total cash used by investing activities........... (11,380) (57,038)
Currency (gain) loss on foreign cash........................ (77) 617
------- --------
Change in cash and cash equivalents......................... 3,721 4,059
Beginning cash and cash equivalents balance................. 6,691 10,072
------- --------
Ending cash and cash equivalents balance.................... $10,412 $ 14,131
======= ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-4
<PAGE> 42

VERITAS DGC INC. AND SUBSIDIARIES

UNAUDITED SUPPLEMENTARY SCHEDULES TO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
APRIL 30,
--------------------------------
1996 1997
------- ----------------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in property and equipment for:
Equipment purchase obligations......................... $ 5,529 $ 6,388
Accounts payable -- trade.............................. 232 7,705
Accounts and notes receivable -- deferred credits
utilized.............................................. 866

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest --
Senior notes......................................... 3,494
Equipment purchase obligations....................... 1,428 755
Secured term loans................................... 363 274
Revolving credit agreements.......................... 1,408 236
Other................................................ 620 278
Income taxes........................................... 4,614 1,589
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-5
<PAGE> 43

VERITAS DGC INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED APRIL 30, 1997

(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS CUMULATIVE
COMMON STOCK ISSUED (FROM FOREIGN
-------------------- ADDITIONAL AUGUST 1, 1991 CURRENCY
PAR PAID-IN WITH RESPECT TO TRANSLATION
SHARES VALUE CAPITAL DIGICON INC.) ADJUSTMENT
----------- ------ ---------- --------------- -----------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1996............. 11,334,352 $113 $104,469 $ 2,275 $(934)

Common stock issued for
exchangeable shares (See Note
2)............................... 4,645,150 47 (47)
Common stock issued for cash upon
exercise of warrants............. 191,333 2 1,029
Common stock issued for cash under
employee stock option plan....... 311,181 3 2,713
Registration and filing costs...... (56)
Cumulative foreign currency
translation adjustment........... 273
Net income......................... 17,761
---------- ---- -------- ------- -----

BALANCE, APRIL 30, 1997............ 16,482,016 $165 $108,108 $20,036 $(661)
========== ==== ======== ======= =====
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-6
<PAGE> 44

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED APRIL 30, 1997

(AS COMBINED -- SEE NOTE 2)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPINION OF MANAGEMENT

In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments of a normal and recurring nature
necessary to present fairly the financial position of Veritas DGC Inc. and
subsidiaries ("the Company") at April 30, 1997, and the results of its
operations and its cash flows for the nine months ended April 30, 1996 and 1997.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for a full year as such results could be affected
by changes in demand for geophysical services and products, which is directly
related to the level of oil and gas exploration and development activity.
Governmental actions, foreign currency exchange rate fluctuations, seasonal
factors, weather conditions and equipment problems also could impact future
operating results.

EARNINGS PER SHARE

Weighted average shares and earnings per share for all periods presented
have been restated to reflect the effect of shares issuable upon exchange of
Veritas Energy Services Inc. ("VES") Exchangeable Shares (See Note 2).

Earnings per share are based on the weighted average number of shares of
common stock and Exchangeable Shares. Shares issuable upon the conversion of
stock options and warrants, which are common stock equivalents, are disregarded
since the treasury stock method of calculation resulted in dilution of less than
3%.

MULTI-CLIENT DATA LIBRARY

The Company collects and processes certain seismic data for its own account
to which it retains all ownership rights and which it resells to clients on a
non-transferable, non-exclusive basis. The Company may obtain precommitted sales
contracts to help fund the cash requirements of these surveys, which generally
last from 5 to 7 months. The Company capitalizes a portion of the survey costs
using an estimated sales method. Under that method the amount capitalized equals
actual costs incurred less costs attributed to the precommitted sales contracts
based on the percentage of total estimated costs to total estimated sales
multiplied by actual sales. The capitalized cost of multi-client data library is
likewise charged to operations in the period subsequent sales occur based on the
percentage of total estimated costs to total estimated sales multiplied by
actual sales. Beginning in fiscal 1997, the Company changed the estimated life
of its multi-client data library so that any costs remaining 24 months after
completion of a survey are charged to operations over a period not to exceed 24
months. The Company periodically reviews the carrying value of the multi-client
data library to assess whether there has been a permanent impairment of value
and records losses when the total estimated costs exceed total estimated sales
or when it is determined that estimated sales would not be sufficient to cover
the carrying value of the asset.

NEW ACCOUNTING PRONOUNCEMENTS

F-7
<PAGE> 45

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

This statement is effective for financial statements with fiscal years beginning
after December 15, 1995. The Company implemented this statement at the beginning
of the fiscal year 1997. Implementation of this pronouncement did not have a
material effect on the Company's consolidated financial statements.

In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation." This statement establishes a fair value method of accounting for
stock-based compensation plans either through recognition or disclosure. This
statement is effective for fiscal years beginning after December 15, 1995. The
Company will be required to implement this statement for the fiscal year 1997.
The Company intends to adopt this standard by disclosing the pro forma net
income (loss) and net income (loss) per share amounts assuming the fair value
method was adopted on August 1, 1995. The adoption of this statement will have
no material impact on the Company's consolidated financial statements.

In February 1997, the FASB issued SFAS No. 128 "Earnings per Share." This
statement requires the computation of basic earnings per share based upon
weighted-average common shares outstanding and diluted earnings per share based
upon weighted-average common shares outstanding and additional common shares
that would have been outstanding if dilutive potential common shares had been
issued under the treasury stock method using average market prices. In addition,
previously reported earnings per share must be restated. This statement is
effective for interim and annual periods ending after December 15, 1997. Basic
earnings per share will not differ from previously reported primary earnings per
share amounts. Diluted earnings per share will include the effect of using
average market price for the period instead of the higher of average market
price or end of period price under the treasury stock method. In addition,
diluted earnings per share will be presented for all prior periods where fully
diluted earnings per share were not previously required because dilutive
potential common shares did not result in more than 3% dilution. Diluted
earnings per share are not expected to differ materially from basic earnings per
share.

2. BUSINESS COMBINATION

As discussed in Note 2 of Notes to Consolidated Financial Statements on
page F-25, Veritas DGC Inc. was formerly named Digicon Inc. ("Digicon"). On
August 30, 1996, Digicon and Veritas Energy Services Inc. ("VES"), a Canadian
company, consummated a business combination (the "Combination").

F-8
<PAGE> 46

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Presented below is the effect of the pooling of interests on the Company's
reported results of operations for the nine months ended April 30, 1996. Amounts
related to VES have been converted into the Company's reporting currency, U.S.
dollars, using weighted average exchange rates prevailing during the period and
reflect adjustments for differences between U.S. and Canadian generally accepted
accounting principles ("GAAP") and reclassifications to conform financial
statement presentation. Canadian to U.S. GAAP adjustments include adjustments to
(i) write off foreign exchange losses on borrowings which are deferred and
amortized over the period of the debt reducing net income by approximately
$154,000 and (ii) reverse the effect of a prior period adjustment increasing net
income by approximately $90,000. A reclassification of $23,956,000 has been made
to net amounts billed to customers for reimbursable costs against VES' revenues.

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
APRIL 30,
1996
-------------------
(IN THOUSANDS OF
DOLLARS, EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Revenues:
Digicon................................................... $112,214
VES....................................................... 93,425
Reclassification.......................................... (23,956)
--------
Total............................................. $181,683
========
Net income:
Digicon................................................... $ 3,693
VES....................................................... 2,153
Adjustments............................................... (64)
--------
Total............................................. $ 5,782
========
Net income per share:
As previously reported.................................... $ .34
========
As restated............................................... $ .33
========
</TABLE>

There were no material adjustments to the net assets of VES as a result of
adopting the same accounting principles as the Company.

During the nine months ended April 30, 1997, the Company incurred and
expensed $597,000 of costs associated with the Combination. These costs consist
primarily of professional fees and $150,000 payable to a stockholder who was the
former Chairman of the Board of Directors for consulting services rendered in
conjunction with the Combination.

F-9
<PAGE> 47

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENT IN INDONESIAN JOINT VENTURE

Summarized financial information for the Company's Indonesian joint venture
which is accounted for under the equity method is as follows:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
APRIL 30,
--------------------------
1996 1997
--------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues................................ $ 2,311 $ 4,954
Costs and expenses:
Cost of services...................... 1,213 3,761
Depreciation and amortization......... 300 469
Other................................. 5 (11)
------- -------
Total......................... 1,518 4,219
------- -------
Net income.............................. $ 793 $ 735
======= =======
</TABLE>

4. LONG-TERM DEBT

The Company's long-term debt is as follows:

<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1996 1997
-------- ---------
(AS COMBINED -- SEE NOTE 2)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Senior notes due October 2003, at
9 3/4%................................ $75,000
Revolving credit agreement due July
1998, at LIBOR plus 2% or prime (8.5%
at April 30, 1997).................... $11,458 3,340
Secured term loan due July 1999, at
prime plus 3/4%...................... 6,000
Secured term loan due July 1999, at
prime plus 1/2%...................... 1,240
Secured term loan due July 1999, at
prime plus 1/2%...................... 2,832
Equipment purchase obligation maturing
through September 2000, at a weighted
average rate of 9.1% at April 30,
1997.................................. 19,319 1,145
Mortgage note payable due October 2005,
at 10%................................ 241
------- -------
Total......................... 41,090 79,485
Less current maturities................. 13,739 484
------- -------
Due after one year............ $27,351 $79,001
======= =======
</TABLE>

The senior notes are due in October 2003 with interest payable
semi-annually at 9 3/4%. The senior notes are unsecured and are effectively
subordinated to secured debt of the Company with respect to the assets securing
such debt and to all debt of its subsidiaries whether secured or unsecured. The
indenture relating to the senior notes contains certain covenants which limit
the Company's ability to, among other things, incur additional debt, pay
dividends and complete mergers, acquisitions and sales of assets. Upon a change
in control of the Company, as defined in the Indenture, the holders of the
senior notes have the right to require the Company to purchase all or a portion
of such holder's senior note at a price equal to 101% of the aggregate principal
amount. The Company has the right to redeem the senior notes, in whole or in
part, on or after October 15, 2000. Under certain conditions, the Company

F-10
<PAGE> 48

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

may redeem up to $20.0 million in aggregate principal amount of the senior notes
prior to October 15, 1999.

The revolving credit agreement due July 1998, is with a commercial bank
and, as of April 30, 1997, provided a facility of up to $15.0 million. In June
1997, the revolving credit agreement was amended to provide advances up to $25.0
million of which $20.0 million are secured as discussed below. Advances are
secured by substantially all of the receivables of the Company, bear interest,
at the Company's election, at LIBOR plus two percent or prime rate and are
limited by a borrowing formula. Covenants in the agreement limit, among other
things, the Company's right, without consent of the lender, to take certain
actions, including creating indebtedness and paying dividends, and limit the
Company's capital expenditures in any fiscal year. In addition, the agreement
requires minimum cash flow coverage and the maintenance of minimum tangible net
worth, limits the ratio of funded debt to total capitalization, and requires the
Company to maintain a minimum current ratio.

The secured term loan due July 1999 was with a commercial bank, was due in
36 monthly installments of $166,667 plus interest at prime plus 3/4% and was
secured by a majority of the assets of the Company (except those assets directly
or indirectly owned by VES). The secured term loan was paid with proceeds from
the senior notes.

The secured term loans due July 1999 provided for advances for equipment
purchases up to Canadian $4.0 million and Canadian $5.5 million, respectively,
and advances were payable in 36 equal monthly installments. Advances bore
interest at the prime rates (as defined) plus 1/2% and were secured by the
equipment purchased. The agreements required VES to maintain certain financial
ratios. Advances under the secured term loans were paid with proceeds from the
senior notes.

The Company's equipment purchase obligations represent installment loans
and capitalized lease obligations primarily related to computer and seismic
equipment. Substantially all the equipment purchase obligations were paid with
proceeds from the senior notes.

The mortgage note was payable in monthly installments of Canadian $4,800
including interest at 10% and was secured by a building. The mortgage note was
paid with proceeds from the senior notes.

5. COMMITMENTS AND CONTINGENCIES

On May 16, 1997, the Company entered into a 96 month charter agreement for
a vessel which is being constructed by a shipbuilder for the owner. The charter
is noncancellable unless the owner exercises its right to cancel the
shipbuilding contract due to late delivery (in excess of 180 days of the
scheduled delivery time of May 31, 1998).

6. SHAREHOLDER RIGHTS AGREEMENT

On May 27, 1997, the board of directors of the Company declared a
distribution of one right for each outstanding share of common stock or
exchangeable share (see Note 2 of Notes to the Consolidated Financial Statements
at page F-25) to shareholders of record at the close of business on June 12,
1997 and authorized 400,000 shares of a class of preferred stock to be
distributed under a shareholder rights agreement. Upon the occurrence of certain
events enumerated by the shareholder rights agreement, each right entitles the
registered holder to purchase a fraction of a share of the Company's authorized
preferred stock or the common stock of an acquiring company. The rights, among
other things, will cause substantial dilution to a person or group that attempts
to acquire the Company. The rights expire on May 15, 2007 but may be redeemed
earlier.

F-11
<PAGE> 49

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. OTHER EXPENSE

Other expense consists of the following:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
APRIL 30,
----------------------------
1996 1997
-------- --------
(AS COMBINED -- SEE NOTE 2)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Net foreign currency exchange (gain) loss.................. $ (24) $ 477
Net loss on disposition of property and equipment.......... 606 783
Interest income............................................ (399) (425)
Other...................................................... 87 (24)
----- -----
Total............................................ $ 270 $ 811
===== =====
</TABLE>

F-12
<PAGE> 50

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Veritas DGC Inc.
Houston, Texas

We have audited the consolidated balance sheets of Veritas DGC Inc. and
subsidiaries as of July 31, 1995 and 1996, and the related consolidated
statements of operations, cash flows and changes in stockholders' equity for
each of the three years in the period ended July 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits. The consolidated financial statements give retroactive
effect to the merger of Digicon Inc. and Veritas Energy Services Inc., which has
been accounted for as a pooling of interests as described in Note 2 to the
consolidated financial statements. We did not audit the consolidated balance
sheets of Veritas Energy Services Inc. as of October 31, 1995 or as of July 31,
1996, or the related consolidated statements of operations, cash flows and
changes in stockholders' equity of Veritas Energy Services Inc. for each of the
two years in the period ended October 31, 1995 or for the twelve months ended
July 31, 1996, which statements reflect total assets of $53,910,000 and
$57,793,000 as of October 31, 1995 and July 31, 1996, respectively, and total
revenues of $90,070,000 and $109,996,000 for the years ended October 31, 1994
and 1995, respectively and $118,591,000 for the twelve months ended July 31,
1996. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Veritas Energy Services Inc. for 1994, 1995 and 1996, is based solely on the
report of such other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Veritas DGC Inc. and subsidiaries
as of July 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended July 31, 1996 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Houston, Texas

October 10, 1996

F-13
<PAGE> 51

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Veritas Energy Services Inc.

We have audited the consolidated balance sheets of Veritas Energy Services Inc.
as at July 31, 1996 and October 31, 1995 and the consolidated statements of
operations, retained earnings and changes in financial position for the nine
months ended July 31, 1996 and for the years ended October 31, 1995 and 1994
(not presented separately herein). 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 July 31, 1996 and
October 31, 1995 and the results of its operations and the changes in its
financial position for the nine months ended July 31, 1996 and for the years
ended October 31, 1995 and 1994 in accordance with Canadian generally accepted
accounting principles.

PRICE WATERHOUSE
Chartered Accountants

Calgary, Alberta
September 20, 1996

F-14
<PAGE> 52

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C>
REVENUES................................................... $178,392 $215,630 $250,596

COSTS AND EXPENSES:
Operating expenses:
Cost of services...................................... 144,984 170,424 198,711
Restructuring......................................... 838
Write-off/write-down for impairment of assets............ 5,235 3,628
Depreciation and amortization............................ 19,119 23,732 26,921
Selling, general and administrative...................... 6,296 5,855 7,255
Other (income) expense:
Interest.............................................. 3,213 5,170 5,466
Merger related costs.................................. 3,666
Gain on sale of investment in FSU joint ventures...... (4,370)
Other................................................. (1,833) 232 546
-------- -------- --------
Total............................................ 177,852 201,043 246,193
-------- -------- --------
Income before provision for income taxes and equity in loss
of 50% or less-owned companies and joint ventures........ 540 14,587 4,403
Provision for income taxes................................. 5,929 3,807 2,009
Equity in loss of 50% or less-owned companies and joint
ventures................................................. 4,965 5,186 1,113
-------- -------- --------
NET INCOME (LOSS).......................................... $(10,354) $ 5,594 $ 1,281
======== ======== ========

PER SHARE OF COMMON STOCK:
Earnings (loss) per share................................ $ (.66) $ .31 $ .07
======== ======== ========
Weighted average shares.................................. 15,633 17,771 17,882
======== ======== ========
Cash dividends -- common stock........................... None None None
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-15
<PAGE> 53

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)

<TABLE>
<CAPTION>
JULY 31,
--------------------
1995 1996
-------- --------
(AS COMBINED --
SEE NOTE 2)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 10,082 $ 10,072
Restricted cash investments............................... 670 327
Accounts and notes receivable (net of allowance for
doubtful accounts: 1995, $607; 1996, $740).............. 54,587 65,447
Materials and supplies inventory (net of reserve for
obsolescence: 1995, $66; 1996, $0)...................... 1,418 1,659
Prepayments and other..................................... 5,805 8,199
-------- --------
Total current assets............................... 72,562 85,704
Property and equipment:
Seismic equipment......................................... 92,538 103,899
Data processing equipment................................. 32,506 34,403
Leasehold improvements and other.......................... 32,085 26,802
-------- --------
Total.............................................. 157,129 165,104
Less accumulated depreciation........................... 81,750 86,094
-------- --------
Property and equipment -- net...................... 75,379 79,010
Multi-client data library................................... 27,976 25,628
Investment in and advances to joint ventures................ 187 1,463
Goodwill (net of accumulated amortization: 1995, $1,701;
1996, $2,214)............................................. 4,223 3,674
Other assets................................................ 4,013 3,113
-------- --------
Total.............................................. $184,340 $198,592
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 10,895 $ 13,739
Accounts payable -- trade................................. 23,526 27,454
Accrued interest.......................................... 408 313
Other accrued liabilities................................. 19,213 19,905
Income taxes payable...................................... 3,690 1,814
-------- --------
Total current liabilities.......................... 57,732 63,225
Non-current liabilities:
Long-term debt -- less current maturities................. 25,893 27,351
Deferred credits.......................................... 1,084 364
Other non-current liabilities............................. 1,631 1,729
-------- --------
Total non-current liabilities...................... 28,608 29,444
Commitments and contingent liabilities (Note 10)
Stockholders' equity:
Common stock, $.01 par value; authorized: 20,000,000
shares; issued: 11,134,939 shares and 11,334,352 shares
at July 31, 1995 and 1996, respectively (See Note 12)... 111 113
Additional paid-in capital................................ 100,797 104,469
Accumulated earnings (from August 1, 1991 with respect to
Digicon Inc.)........................................... 1,930 2,275
Less: Treasury stock, at cost; 858,497 shares in 1995..... (4,772)
Cumulative foreign currency translation adjustment........ (66) (934)
-------- --------
Total stockholders' equity......................... 98,000 105,923
-------- --------
Total.............................................. $184,340 $198,592
======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-16
<PAGE> 54

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $(10,354) $ 5,594 $ 1,281
Non-cash items included in net income (loss):
Restructuring accrual................................... 252 14
Write-off/write-down for impairment of assets........... 5,235 3,628
Depreciation and amortization........................... 19,119 23,732 26,921
Amortization of warrants issued with short-term related
party loans............................................ 89
Amortization of deferred gain on sale/leaseback......... (898) (103)
(Gain) loss on disposition of property and equipment.... (1,592) 919 875
Equity in loss of 50% or less-owned companies and joint
ventures............................................... 4,965 5,186 1,113
Gain on sale of investment in FSU joint ventures........ (4,370)
Write-down of multi-client data library to market....... 778 1,786 1,774
Other................................................... (842) (339) 61
Change in operating assets/liabilities (exclusive of the
effects of the purchase of DataGraphics Ltd. in 1995):
Accounts and notes receivable........................... (1,626) (8,230) (9,466)
Materials and supplies inventory........................ 910 235 (241)
Prepayments and other................................... 1,435 (3,044) (1,807)
Multi-client data library............................... (10,075) (11,262) 574
Other................................................... (2,027) 731 851
Accounts payable -- trade............................... (6,103) (4,988) 952
Accrued interest........................................ 131 117 (96)
Other accrued liabilities............................... 4,584 7,837 796
Income taxes payable.................................... 1,116 1,721 (227)
Deferred credits........................................ (455) (239) (720)
Other non-current liabilities........................... 1,679 (376) (821)
Adjustment to conform fiscal year of Veritas Energy
Services Inc............................................ (5,268)
-------- -------- --------
Total cash provided by operating activities........ 7,130 14,215 20,077
FINANCING ACTIVITIES:
Payments of long-term debt................................ (9,777) (9,634) (11,437)
Borrowings from long-term debt............................ 531 1,500
Net borrowings (payments) under credit agreements......... 7,446 1,676 (2,665)
Net proceeds from sale of common stock.................... 28,219 (44) 4,470
Net proceeds from sale of treasury stock.................. 3,984 3,972
Borrowings of short-term related party loans.............. 6,081 30
Payments of short-term related party loans................ (4,801) (2,725)
-------- -------- --------
Total cash provided (used) by financing
activities........................................ 27,168 (6,182) (4,160)
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments........ 304 (350) 343
Increase in investment in and advances to joint
ventures................................................ (1,185) (4,231) (2,372)
Sale to Syntron, Inc.:
Inventories and technologies............................ 1,630
Property and equipment.................................. 1,370
Sale of investment in FSU joint ventures.................. 6,000
Purchase of property and equipment........................ (24,487) (19,231) (14,459)
Sale of property and equipment............................ 1,402 1,651 668
Purchase of DataGraphics Ltd.............................. (407)
-------- -------- --------
Total cash used by investing activities............ (23,966) (13,568) (15,820)
Currency (gain) loss on foreign cash........................ (108) 72 (107)
-------- -------- --------
Change in cash and cash equivalents......................... 10,224 (5,463) (10)
Beginning cash and cash equivalents balance................. 5,321 15,545 10,082
-------- -------- --------
Ending cash and cash equivalents balance.................... $ 15,545 $ 10,082 $ 10,072
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-17
<PAGE> 55

VERITAS DGC INC. AND SUBSIDIARIES

SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
-----------------------------
1994 1995 1996
------- -------- --------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in assets/liabilities due to purchase of Data
Graphics Ltd.:
Accounts receivable..................................... $ 354
Property and equipment -- net........................... 213
Goodwill................................................ 748
Accounts payable -- trade............................... 637
Long-term debt.......................................... 678
Increase (decrease) in investment in FSU joint ventures
for:
Common stock............................................ $7,299 2,309
Accounts and note receivable from FSU joint ventures.... 135 (409)
Increase in property and equipment for:
Accounts and notes receivable -- deferred credits
utilized............................................... 2,045 $ 866
Execution of equipment purchase obligations............. 4,227 12,024 16,963
Accounts payable -- trade............................... 1,058 334 572
Increase in prepayments on property and equipment for
notes payable........................................... 601
Increase in notes receivable for:
Sale of property and equipment.......................... 250
Sale of other assets.................................... 1,330
Sale of investment in FSU joint ventures resulting in an
increase (decrease) in:
Accounts and notes receivable from purchaser............ 1,790
Accounts and note receivable from FSU joint ventures.... (1,740)
Accounts payable -- trade............................... 78
Treasury stock.......................................... 8,756
Sale of inventories, property and equipment and
technologies to Syntron, Inc. resulting in an increase
(decrease) in:
Accounts and notes receivable -- deferred credits....... 3,255
Materials and supplies inventory........................ (2,154)
Other assets -- deferred credits receivable............. 857
Accounts payable -- trade............................... 957
Other accrued liabilities -- deferred gain.............. 891
Other non-current liabilities -- deferred gain.......... 110
Sale of accounts receivable and property and equipment
resulting in a decrease in:
Accounts and notes receivable........................... (78)
Property and equipment -- net........................... (247)
Long-term debt.......................................... (199)
Accounts payable -- trade............................... (18)
Other non-current liabilities........................... (108)
Increase in additional paid-in capital as a result of
warrants issued with short-term related party loans..... 89
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest --
Equipment purchase obligations........................ 1,538 1,280 1,878
Secured term loans.................................... 585 635 506
Credit agreements..................................... 461 1,723 1,843
Short-term related party loans........................ 206 199
Other................................................. 339 1,388 1,286
Income taxes............................................ 1,272 2,276 5,086
</TABLE>

See Notes to Consolidated Financial Statements

F-18
<PAGE> 56

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<TABLE>
<CAPTION>
ACCUMULATED
TREASURY STOCK, EARNINGS CUMULATIVE
COMMON STOCK ISSUED AT COST (DEFICIT) (FROM FOREIGN
------------------- -------------------- ADDITIONAL AUGUST 1, 1991 CURRENCY
PAR PAID-IN WITH RESPECT TO TRANSLATION
SHARES VALUE SHARES AMOUNT CAPITAL DIGICON INC.) ADJUSTMENT
----------- ----- ---------- ------- ---------- --------------- -----------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1993
(AS PREVIOUSLY REPORTED BY DIGICON
INC.)................................ 28,279,323 $283 $ 62,138 $ 3,296
Pooling of interests with Veritas
Energy Services Inc. ................ 483 3,394 $(215)
Common stock issued for investment in
FSU joint ventures, net of issue
costs................................ 3,072,950 31 7,228
Exchangeable stock issued for cash, net
of issue costs -- Veritas Energy
Services Inc. ....................... 28,255
Exchangeable stock issued for cash
under employee purchase
plan -- Veritas Energy Services
Inc. ................................ 9
Exchangeable stock issued for cash
under employee stock option
plan -- Veritas Energy Services
Inc. ................................ 127
Cumulative foreign currency translation
adjustment........................... (158)
Net loss............................... (10,354)
----------- ---- ---------- ------- -------- -------- -----
BALANCE, JULY 31, 1994................. 31,352,273 314 -- -- 98,240 (3,664) (373)
</TABLE>

(Continued)

F-19
<PAGE> 57

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<TABLE>
<CAPTION>
ACCUMULATED
TREASURY STOCK, EARNINGS CUMULATIVE
COMMON STOCK ISSUED AT COST (DEFICIT) (FROM FOREIGN
------------------- -------------------- ADDITIONAL AUGUST 1, 1991 CURRENCY
PAR PAID-IN WITH RESPECT TO TRANSLATION
SHARES VALUE SHARES AMOUNT CAPITAL DIGICON INC.) ADJUSTMENT
----------- ----- ---------- ------- ---------- --------------- -----------
(AS COMBINED -- SEE NOTE 2)
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for investment in
FSU joint ventures, net of issue
costs................................ 2,052,543 20 2,265
One for three reverse stock split, net
of issue costs....................... (22,269,877) (223) 175
Warrants issued in conjunction with
short-term related party loans....... 89
Exchangeable stock issued for cash
under employee purchase
plan -- Veritas Energy Services
Inc. ................................ 28
Common stock reacquired in sale of
investment in FSU joint ventures..... (1,708,497) $(8,756)
Treasury stock issued for cash......... 850,000 3,984
Cumulative foreign currency translation
adjustment........................... 307
Net income............................. 5,594
----------- ---- ---------- ------- -------- ------- -----
BALANCE, JULY 31, 1995................. 11,134,939 111 (858,497) (4,772) 100,797 1,930 (66)

Treasury stock issued for cash, net of
issue costs.......................... 858,497 4,772 (800)
Common stock issued for cash upon
exercise of warrants................. 29,433 530
Common stock issued for cash under
employee stock option plan........... 181,497 2 2,448
Common stock certificates
cancelled............................ (11,517)
Registration and filing costs.......... (30)
Exchangeable stock issued for cash
under employee stock purchase plan --
Veritas Energy Services Inc.......... 12
Exchangeable stock issued for cash
under employee stock option
plan -- Veritas Energy Services
Inc.................................. 1,512
Cumulative foreign currency translation
adjustment........................... (868)
Net income............................. 1,281
Adjustment to conform fiscal year of
Veritas Energy Services Inc.......... (936)
----------- ---- ---------- ------- -------- ------- -----
BALANCE, JULY 31, 1996................. 11,334,352 $113 $104,469 $ 2,275 $(934)
=========== ==== ========== ======= ======== ======= =====
</TABLE>

See Notes to Consolidated Financial Statements

F-20
<PAGE> 58

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996
(AS COMBINED -- SEE NOTE 2)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Veritas DGC Inc., formerly Digicon Inc., (the "Company") and all majority-owned
domestic and foreign subsidiaries. All financial information for all periods
presented prior to the merger on August 30, 1996 between Digicon Inc.
("Digicon") and Veritas Energy Services Inc. ("VES") includes the results of
VES. (See Note 2). The merger has been accounted for as a pooling of interests.
The consolidated financial statements will become the primary historical
consolidated financial statements of Veritas DGC Inc. upon issuance of
consolidated financial statements for a period that includes the date of
consummation, August 30, 1996. Investment in 50% or less-owned companies and
joint ventures are accounted for on the equity method. All material intercompany
balances and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and restricted cash
investments, accounts and notes receivable, accounts payable and debt. For all
such instruments the carrying value is a reasonable estimate of fair value.

RECLASSIFICATION OF PRIOR YEAR BALANCES

Certain prior year balances have been reclassified for consistent
presentation.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. This statement is effective for financial statements with
fiscal years beginning after December 15, 1995. The Company will be required to
implement this statement for the fiscal year 1997. Implementation of this
pronouncement is not expected to have a material effect on the Company's
consolidated financial statements.

In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." This statement establishes a fair value method of accounting for
stock-based compensation plans either through recognition or disclosure. This
statement is effective for fiscal years beginning after December 15, 1995. The
Company will be required to implement this statement for the fiscal year 1997.
The Company intends to adopt this standard by disclosing the pro forma net
income (loss) and net income (loss) per share amounts assuming the fair value
method was adopted on August 1, 1995. The adoption of this statement will have
no material impact on the Company's consolidated financial statements.

F-21
<PAGE> 59

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TRANSLATION OF FOREIGN CURRENCIES

The Company has determined that the U.S. dollar is its primary functional
currency and, accordingly, most foreign entities translate property and
equipment (and related depreciation) and inventories into U.S. dollars at the
exchange rate in effect at the time of their acquisition while other assets and
liabilities are translated at year-end rates. Operating results (other than
depreciation) are translated at the average rates of exchange prevailing during
the year and remeasurement gains and losses are included in the determination of
net income and are reflected in other costs and expenses (See Note 16). The
remaining foreign entities use the Canadian dollar as the functional currency
and translate all assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of assets and liabilities are
recorded in the cumulative foreign currency translation adjustment account in
the stockholders' equity section.

CASH EQUIVALENTS

For purposes of the Consolidated Statements of Cash Flows, the Company has
defined "cash equivalents" as items readily convertible into known amounts of
cash with original maturities of three months or less.

RESTRICTED CASH INVESTMENTS

Restricted cash investments in the amounts of $670,000 and $327,000 at July
31, 1995 and 1996, respectively, were pledged as collateral on certain bank
guarantees.

ACCOUNTS RECEIVABLE

Included in accounts and notes receivable at July 31, 1995 and 1996 are
unbilled amounts of approximately $11,036,000 and $12,682,000, respectively.
Such amounts are either not billable to the customer at July 31 in accordance
with the provisions of the contract and generally will be billed in one to four
months or are currently billable and will be invoiced in the next monthly
statement cycle.

INVENTORIES

Inventories of materials and supplies are stated at the lower of average
cost or market.

MULTI-CLIENT DATA LIBRARY

The Company collects and processes certain seismic data for its own account
to which it retains all ownership rights and which it resells to clients on a
non-transferable, non-exclusive basis. The Company may obtain precommitted sales
contracts to help fund the cash requirements of these surveys which generally
last from 5 to 7 months. The Company capitalizes the unfunded portion using an
estimated sales method. Under that method the amount capitalized equals actual
costs incurred less costs attributed to the precommitted sales contracts based
on the percentage of total estimated costs to total estimated sales multiplied
by actual sales. The capitalized cost of multi-client data library is likewise
charged to operations in the period subsequent sales occur based on the
percentage of total estimated costs to total estimated sales multiplied by
actual sales. The Company periodically reviews the carrying value of the
multi-client data library to assess whether there has been a permanent
impairment of value and records losses when the total estimated costs exceed
total estimated sales or when it is determined that estimated sales would not be
sufficient to cover the carrying value of the asset. In general, costs are
expected to be recovered from sales over a period of less than 5 years.

F-22
<PAGE> 60

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL

The Company records the purchase price of businesses or joint venture
interests in excess of the fair value of net assets acquired as goodwill which
is amortized over a period of 10 to 20 years which approximates the period
benefits are expected to be derived. The Company periodically reviews the
carrying value of goodwill in relation to the current and expected operating
results of the businesses or joint ventures in order to assess whether there has
been a permanent impairment of such amounts. There were no write-downs as a
result of such review during the years ended July 31, 1994, 1995 or 1996.

See Notes 4 and 5 relating to the purchase of the investment in the FSU
joint ventures and in Data Graphics Ltd.

MOBILIZATION COST

Transportation and make-ready expenses of seismic operations incurred prior
to commencement of business in an area, that would not have been incurred
otherwise, are deferred and amortized over the lesser of the term of the related
contract or backlog of contracts in that area or one year. Amounts applicable to
operations for the Company's own account are included in the cost of the
multi-client data library. Unamortized mobilization costs are shown as other
assets and totaled $1,421,000 and $517,000 at July 31, 1995 and 1996,
respectively.

INCOME TAXES

The Company's policy is not to provide for the income taxes, if any, which
would be payable if undistributed earnings of foreign consolidated subsidiaries
were paid as dividends to the parent company, since such earnings have been or
will be reinvested in the business.

In February 1992, the FASB issued SFAS 109 "Accounting for Income Taxes",
which requires the use of the "liability method" in place of the previously
required "deferred method". Under the liability method, deferred income taxes
reflect the net tax effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss and tax credit
carryforwards. SFAS 109 allows recognition of all or a portion of benefits from
net operating loss carryforwards as deferred tax assets if realization is "more
likely than not". In periods of changing income tax rates, the liability method
will cause fluctuations in net income of companies with deferred taxes. The
Company adopted SFAS 109 effective August 1, 1993. The adoption of this standard
did not result in a cumulative effect adjustment to equity or income for the
year ended July 31, 1994.

Recognition will be given in the accompanying consolidated balance sheets
to the future income tax benefits of loss carryforwards only to the extent that
they will be used to offset existing deferred taxes. Since the Company's
quasi-reorganization with respect to Digicon Inc. on July 31, 1991, in
accordance with Staff Accounting Bulletin No. 86, the tax benefits of loss
carryforwards existing at the date of the quasi-reorganization, when realized,
have been recognized in the consolidated statements of operations by a charge in
lieu of income taxes, representing the additional income taxes which otherwise
would have been provided, with an equal and offsetting direct addition to
paid-in capital reflecting the utilization of the loss carryforward.

LEASES

Operating leases include those for office space, specialized seismic
equipment rented for short periods of time, and the Company's seismic ships
which generally are chartered on a short-term basis.

F-23
<PAGE> 61

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

QUASI-REORGANIZATION

Digicon effected a quasi-reorganization adjustment as of July 31, 1991 in
which its accumulated deficit at July 31, 1991 of $139,751,000 was offset
against additional paid-in capital.

REVENUES

Revenues are recognized based on the percentage of completion method.
Revenues from data acquisition and data processing services are recognized based
on contractual rates set forth in the related contract if the contract provides
a separate rate for each service group. If the contract only provides a rate for
the overall service, revenues are recognized based on the percentage of each
service group's cost to the total cost.

DEPRECIATION

Depreciation is computed using the straight-line method based on estimated
useful lives as follows:

<TABLE>
<CAPTION>
AVERAGE
YEARS
-------
<S> <C>
Seismic equipment..................................... 4-5
Data processing equipment............................. 3-6
Leasehold improvements and other...................... 3-8
</TABLE>

Expenditures for routine repairs and maintenance are charged to expense as
incurred; expenditures for additions and improvements are capitalized and
depreciated over the estimated useful life of the related asset. Significant
vessel drydocking expenses are recorded as deferred charges in other assets and
are amortized over a six to twenty-four month period. The net gain or loss on
items of property and equipment retired or disposed of is included in other
costs and expenses. See Note 16.

In fiscal 1994 and 1996, the Company recognized impairment of assets in the
amount of $5,235,000 and $3,628,000, respectively or $.33 and $.20 per share (as
restated for the Reverse Split), respectively. See Notes 12 and 15.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to expense when incurred.
Research and development costs for the years ended July 31, 1994, 1995 and 1996
were $5,764,000, $3,589,000 and $3,193,000, respectively.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share and weighted average shares have been restated
for all periods presented to reflect the effect of the Reverse Split consummated
on January 17, 1995 (see Note 12) and shares issuable upon exchange of the
Veritas Energy Services Inc. Exchangeable Stock (see Note 2).

Primary loss per share is computed based on the weighted average number of
shares of common stock. Primary earnings per share is computed based on the
weighted average number of shares of common stock plus common stock equivalents.
Common stock equivalents include (i) stock options (see Note 11), (ii) warrants
(see Note 14) and (iii) contingent shares issuable (see Note 4). Shares issuable
upon the conversion of stock options and warrants were disregarded since the
treasury stock method of calculation resulted in dilution of less than 3%. For
the year ended July 31, 1994, contingent shares issuable discussed in Note 4
were disregarded due to net losses incurred.

F-24
<PAGE> 62

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fully diluted earnings per share is not presented for the year ended July
31, 1994 due to net losses incurred. Fully diluted earnings per share is not
presented for the years ended July 31, 1995 and 1996 since stock options and
warrants referenced above resulted in dilution of less than 3%.

2. BUSINESS COMBINATION

Veritas DGC Inc. was formerly named Digicon Inc. ("Digicon"). On August 30,
1996, Digicon and Veritas Energy Services Inc. ("VES"), a Canadian company,
consummated a business combination (the "Combination"). VES became a wholly
owned subsidiary of Digicon and Digicon changed its name to Veritas DGC Inc.
(the "Company"). As a result of the Combination, each share of VES no par value
common shares outstanding was converted into the right to receive VES no par
value exchangeable stock (the "Exchangeable Stock") at an exchange ratio of 0.8
of a share of Exchangeable Stock per VES common share. All of the holders of VES
common shares, except for those shareholders who perfected and properly
exercised their right to dissent from the Combination and received fair value of
their shares in cash, became holders of Exchangeable Stock and accordingly,
7,023,701 shares of Exchangeable Stock were issued. The aggregate stated capital
of the Exchangeable Stock is equal to the aggregate stated capital immediately
prior to the Combination of the VES common shares that were exchanged or
approximately $30.0 million. The Exchangeable Stock is convertible, at the
discretion of the stockholder, on a one-for-one basis into shares of the
Company's $0.01 par value common stock and their holders have rights identical
to the holders of the Company's common stock. Options to purchase shares of VES
common stock ("VES Option") were converted into options to purchase shares of
the Company's common stock at an exchange ratio of 0.8 of an option in the
Company's common stock per VES Option. See Note 11. The VES articles of
amalgamation were amended to reduce the number of authorized VES common shares
to one which will be held by the Company.

The Combination has been accounted for as a pooling of interests and,
accordingly, the accompanying consolidated financial statements have been
prepared on a basis that includes the accounts of Digicon and VES. Information
concerning common stock and per share data has been restated on an equivalent
share basis. As a result of differing year ends of Digicon and VES, results of
operations for dissimilar year ends have been combined. Digicon's results of
operations for the years ended July 31, 1994 and 1995 have been combined with
VES' results of operations for the years ended October 31, 1994 and 1995. To
conform year ends, Digicon's results of operations for the year ended July 31,
1996 have been combined with VES' results of operations for the twelve months
ended July 31, 1996 and, accordingly, VES' operating results for the period
August 1, 1995 through October 31, 1995 is included in the years ended July 31,
1995 and July 31, 1996. An adjustment in an amount equal to the results of
operations for this three-month period is included in the consolidated
statements of changes in stockholders' equity. VES' revenues, net income and net
income per share were $22,150,000, $936,000 and $0.05, respectively, for the
period August 1, 1995 through October 31, 1995.

Presented below is the effect of the pooling of interests on previously
reported results of operations. Amounts related to VES have been converted into
the Company's reporting currency, United States ("U.S.") dollars, using weighted
average exchange rates prevailing during the period and reflects adjustments for
differences between U.S. and Canadian generally accepted accounting principles
("GAAP") and reclassifications to conform financial statement presentation.
Canadian to U.S. GAAP adjustments include adjustments to (i) write off foreign
exchange gains and (losses) on borrowings which are deferred and amortized over
the period of the debt affecting net income by approximately $253,000, ($25,000)
and ($173,000) for the years ended July 31, 1994, 1995 and 1996, respectively,
and (ii) reverse the effect of a prior period adjustment affecting net income by
approximately ($834,000), $314,000 and $102,000 for the years ended July 31,
1994, 1995 and 1996, respectively. Reclassification of $27,213,000, $25,493,000
and $28,842,000 for the years ended July 31,

F-25
<PAGE> 63

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994, 1995 and 1996, respectively, have been made to net amounts billed to
customers for reimbursable costs against VES' revenues.

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Digicon.............................................. $115,535 $131,127 $160,847
VES.................................................. 90,070 109,996 118,591
Reclassifications.................................... (27,213) (25,493) (28,842)
-------- -------- --------
Total........................................ $178,392 $215,630 $250,596
======== ======== ========

Net income (loss):
Digicon.............................................. $(14,426) $ 2,778 $ 385
VES.................................................. 4,653 2,527 967
Adjustments.......................................... (581) 289 (71)
-------- -------- --------
Total........................................ $(10,354) $ 5,594 $ 1,281
======== ======== ========

Net income (loss) per share:
As previously reported............................... $ (1.48) $ .25 $ .03
======== ======== ========
As restated.......................................... $ (.66) $ .31 $ .07
======== ======== ========
</TABLE>

There were no material adjustments to the net assets of VES as a result of
adopting the same accounting principles as the Company.

During the year ended July 31, 1996, the Company incurred and expensed
$3,666,000 of costs associated with the merger. These costs consist primarily of
professional fees.

F-26
<PAGE> 64

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENT IN INDONESIAN JOINT VENTURE

Summarized financial information of this joint venture is as follows:

<TABLE>
<CAPTION>
JULY 31,
-------------------------
1995 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets.............................................. $ 1,492 $ 1,831
Multi-client data library................................... 468 617
-------- --------
Total assets...................................... $ 1,960 $ 2,448
======== ========
Current liabilities......................................... $ 1,192 $ 878
Non-current liabilities:
Other long-term liabilities............................... 635
Advances from Veritas DGC Inc............................. 12,439 14,532
-------- --------
Total non-current liabilities..................... 13,074 14,532
Stockholders' deficit:
Common stock.............................................. 2,576 2,576
Accumulated deficit....................................... (14,882) (15,538)
-------- --------
Total stockholders' deficit....................... (12,306) (12,962)
-------- --------
Total liabilities and stockholders' deficit....... $ 1,960 $ 2,448
======== ========
</TABLE>

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues................................................ $ 2,518 $ 1,443 $2,927
Operating expenses...................................... 5,367 5,368 3,429
Depreciation and amortization........................... 1,065 430
Other................................................... 174 196 (15)
------- ------- ------
Total......................................... 6,606 5,994 3,414
------- ------- ------
Loss before provision for income taxes.................. (4,088) (4,551) (487)
Provision for from income taxes......................... (359) (166)
------- ------- ------
Net loss................................................ $(4,088) $(4,910) $ (653)
======= ======= ======
</TABLE>

4. INVESTMENT IN FSU JOINT VENTURES

During the year ended July 31, 1994, the Company entered into a joint
venture agreement with MD Seis International Ltd. ("MD Seis") to perform
geophysical services in the former Soviet Union ("FSU"). In connection with the
agreement, the Company placed 5,431,615 shares of its pre-Reverse Split common
stock in escrow to be distributed in stages upon the execution and completion of
certain conditions.

The first stage was completed on April 1, 1994 and the Company exchanged
3,072,950 shares of pre-Reverse Split common stock valued at $2.375 per share,
or $7,298,256, and a $1,000,000 cash commitment in return for interests in
certain jointly owned companies. The second stage of the agreement was completed
on August 25, 1994, and the Company increased its ownership interest in

F-27
<PAGE> 65

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certain of these companies by exchanging 2,052,543 shares of pre-Reverse Split
common stock valued at $1.125 per share, or $2,309,111, and an additional
$2,000,000 cash commitment. In addition, the Company agreed to guarantee certain
liabilities of the joint ventures. After adjustment for the Reverse Split
consummated on January 17, 1995, MD Seis owned 1,708,497 shares of common stock.

The investments were being accounted for under the equity method. The FSU
joint ventures generated total revenues of approximately $300,000 and $6,994,000
and net losses of approximately $921,000 and $2,954,000 during the years ended
July 31, 1994 and 1995, respectively. The Company's share of net losses was
approximately $391,000 and $1,477,000 during the years ended July 31, 1994 and
1995, respectively. The excess purchase price over the fair value of the net
assets acquired in the amount of $9,292,000 was being amortized over a 20 year
period. Amortization expense for the years ended July 31, 1994 and 1995 was
$100,000 and $392,000, respectively.

On June 6, 1995, the Company sold its interests in the joint ventures for
$6,000,000 in cash and the return of the 1,708,497 shares of the post-Reverse
Split common stock owned by MD Seis (valued at $5.125 per share). In addition,
the Company received $2,992,144 in short-term notes, which were collected on
July 31, 1995, representing payments for equipment sold and a return of amounts
previously advanced to the joint ventures and is entitled to receive royalties
of up to $1,500,000 based on future sales of multi-client data acquired by the
joint ventures. The net effect of these transactions was a gain of $4,370,000
which was recognized during 1995.

5. PURCHASE OF DATAGRAPHICS LTD.

On December 1, 1994, the Company acquired all of the outstanding capital
stock of DataGraphics Ltd., an exploration and development information service
company, for a cash purchase price of $407,000. The acquisition has been
accounted for using the purchase method of accounting, and accordingly, goodwill
of $1,155,000 was recorded representing the excess of the purchase price over
the fair value of the net assets acquired. The goodwill is being amortized over
a ten-year period and the operations of DataGraphics Ltd. are included in the
consolidated financial statements beginning December 1, 1994.

6. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES

On August 31, 1994, the Company entered into a series of agreements with
Syntron, Inc. ("Syntron") that provided for the sale of certain assets,
inventories and technologies by the Company to Syntron and the assumption of
certain liabilities by Syntron. The sale price was $7,500,000 payable in cash of
$3,000,000 and credits of $4,500,000 to be applied by the Company against future
purchases from Syntron. The agreements also provide that for a period of three
years, Syntron will be the sole supplier to the Company of certain acquisition,
monitoring and recording equipment that is competitively priced, deliverable on
a timely basis and technologically competitive. In addition, the Company agreed
to lease back certain marine and land recording equipment from Syntron for a
period of up to 36 months with minimum lease terms ranging from 7 1/2 to 17 1/2
months. The difference between the sale price and the net book value of the net
assets sold after discounting the credits by 2 1/2% was a $1,001,000 gain which
was recognized on a pro rata basis over the minimum lease terms as a reduction
in rental expense. Unused credits in the amount of $1,168,000 are included in
accounts and notes receivable at July 31, 1996.

F-28
<PAGE> 66

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

The Company's long-term debt is as follows:

<TABLE>
<CAPTION>
JULY 31,
-------------------------
1995 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Revolving credit agreement due July 1998, at prime plus
1/4% (8.5% at July 31, 1996)............................. $11,458
Revolving credit agreement due April 1997, at prime plus
3%........................................................ $14,123
Secured term loan due July 1999, at prime plus 3/4% (9.0%
at July 31, 1996)......................................... 6,000
Secured term loan due June 1997, at 10.75%.................. 4,500
Secured term loan due July 1999, at prime plus 1/2% (6.75%
at July 31, 1996)......................................... 1,240
Secured term loan due July 1999, at prime plus 1/2% (9.25%
at July 31, 1996)......................................... 2,832
Equipment purchase obligations maturing through July 1999,
at a weighted average rate of 10.28% at July 31, 1996..... 17,720 19,319
Secured term loan due July 1996, at 7.75%................... 185
Mortgage note payable due October 2005, at 10%.............. 260 241
------- -------
Total............................................. 36,788 41,090
Less current maturities..................................... 10,895 13,739
------- -------
Due after one year................................ $25,893 $27,351
======= =======
</TABLE>

The revolving credit agreement (the "Credit Facility") due July 1998 is
with a commercial bank (the "Bank") and provides a facility of up to
$15,000,000. Advances under the agreement are limited by a borrowing formula and
are collateralized by a majority of the assets of the Company (except those
assets directly or indirectly owned by VES). The agreement provides for the
collection of certain of the Company's accounts receivable into cash collateral
accounts. Amounts applied against outstanding advances are available for
reborrowing upon presentation of evidence of adequate borrowing base coverage.
Interest is payable monthly at prime plus 1/4%. The agreement limits, among
other things, the Company's right, without consent of the lender, to take
certain actions including creating indebtedness in excess of specified amounts
and declaring or paying dividends, and requires the Company to maintain certain
financial ratios. At July 31, 1996, $3,542,000 was available for borrowing under
this agreement.

The Company effected a $75,000,000 debt offering in October 1996. The
unsecured senior notes are due in 2003 with interest payable semi-annually at
9.75% and limits certain actions of the Company and its subsidiaries including
the ability to incur additional indebtedness and to pay dividends. The Company
has the right to redeem the senior notes prior to 2003 under certain terms.
Proceeds of the offering will be used to repay all long-term debt and to fund
capital expenditures. See Note 15.

Upon completion of the debt offering, the Bank amended the Credit Facility.
The Company will be entitled to borrow up to $15.0 million on a revolving basis,
which will mature in July 1998 and will be secured by substantially all of the
receivables of Digicon and VES. The Bank released its existing security interest
in assets of Digicon other than its receivables and approved the issuance of the
senior notes. Pursuant to the amendment, advances under the Credit Facility will
bear interest, at the Company's election, at the prime rate or LIBOR plus 2%.
Advances under the Credit Facility will be limited by a borrowing formula.
Covenants in the amended Credit Facility prohibit the payment of dividends and
limit the Company's capital expenditures in any fiscal year. In addition, the
amended Credit Facility requires minimum cash flow coverage and the maintenance
of minimum tangible net

F-29
<PAGE> 67

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

worth; limits the ratio of funded debt to total capitalization; and requires the
Company to maintain a minimum credit ratio.

The revolving credit agreement due April 1997 was with a finance company
and provided a revolving credit facility of up to $17,000,000 (increased from
$15,000,000 in April 1995) through April 11, 1997. The facility was repaid in
July 1996 with proceeds from the revolving credit agreement due July 1998.

The secured term loan due July 1999 is with a commercial bank and is due in
36 monthly installments of $166,667 plus interest at prime plus 3/4% and was
secured by a majority of the assets of the Company (except those assets directly
or indirectly owned by VES).

The secured term loan due June 30, 1997, bore interest at 10.75% payable
quarterly. In connection with the loan, the Company issued common stock purchase
warrants to the lender. See Note 14. The loan was repaid with proceeds from the
secured term loan due July 1999.

The secured term loans due July 1999 provided for advances for equipment
purchases up to Canadian $5.5 million and Canadian $4.0 million, respectively,
and advances are payable in 36 equal monthly installments. Advances bear
interest at the prime rate (as defined) plus .5% and are secured by the
equipment purchased. The agreements require VES to maintain certain financial
ratios. Amounts available for borrowing under the agreements at July 31, 1996
were $2,760,000 and $76,000, respectively.

The Company's equipment purchase obligations represent installment loans
and capitalized lease obligations primarily related to computer and seismic
equipment.

Annual maturities of long-term debt for the next five years are as follows:

<TABLE>
<CAPTION>
ANNUAL
FISCAL YEAR MATURITIES
----------- ----------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
1997...................................................... $13,739
1998...................................................... 21,531
1999...................................................... 5,555
2000...................................................... 86
2001...................................................... 29
Thereafter................................................ 150
-------
Total............................................. $41,090
=======
</TABLE>

F-30
<PAGE> 68

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

The tax effects of significant items comprising the Company's net deferred
tax position are as follows:

<TABLE>
<CAPTION>
JULY 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred tax assets:
Difference between book and tax basis of property
and equipment................................... $ 4,544 $ 3,107
Difference between book and tax basis of
multi-client data library....................... 4,526 8,443
Operating loss carryforwards....................... 50,156 45,902
Tax credit carryforwards........................... 5,761 3,580
Other.............................................. 156 1,304
-------- --------
Total...................................... 65,143 62,336
Deferred tax liabilities:
Other.............................................. (840) (1,955)
-------- --------
Net deferred tax assets.............................. 64,303 60,381
Valuation allowance.................................. (65,036) (60,957)
-------- --------
Net deferred tax liability........................... $ (733) $ (576)
======== ========
</TABLE>

Provision for income taxes consists of the following:

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
----------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current -- U.S.............................................. $ 210 $ 277 $ 192
Deferred -- U.S............................................. 39 (264) 395
Current -- Foreign.......................................... 5,188 4,320 2,555
Deferred -- Foreign......................................... 492 (526) (1,133)
------ ------ ------
Total............................................. $5,929 $3,807 $2,009
====== ====== ======
</TABLE>

As of July 31, 1996, the Company had U.S. net operating loss carryforwards
("NOLs") of approximately $86,890,000 which expire in the years 1998 through
2010, including $73,681,000 of NOLs that existed prior to the
quasi-reorganization. See Note 1. As of July 31, 1996, approximately $3,580,000
of investment tax credit carryforwards, which will expire in the years 1997
through 1999, was available to reduce future U.S. income taxes.

Foreign operations had NOLs of approximately $49,061,000 at July 31, 1996,
which are available indefinitely to reduce future foreign taxable income in
specific jurisdictions including $38,315,000 of NOLs that existed prior to the
quasi-reorganization. See Note 1. The foreign component of income (loss) before
provision for income taxes was $3,221,000, $(844,000) and $(1,256,000) for the
years ended July 31, 1994, 1995 and 1996, respectively.

F-31
<PAGE> 69

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income tax expense computed at the statutory rate to
the provision included in the Consolidated Statements of Operations is as
follows:

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income tax at the statutory rate..................... $ 183 $5,105 $1,541
Increase (reduction) in taxes resulting from:
Foreign losses with no tax recovery................ 4,221 2,505 4,985
Foreign withholding tax cost....................... 1,400 274
Foreign exchange capital loss...................... 2,410 148 51
Foreign rate adjustment............................ (710) (93) (131)
Non-deductible expenses............................ 419 258 315
Write-off of capital investment in foreign
subsidiary...................................... (5,775) (4,734)
Other.............................................. (594) 259 (292)
----- ------ ------
Total...................................... $5,929 $3,807 $2,009
===== ====== ======
</TABLE>

IRS regulations restrict utilization of NOLs for any company in which an
"ownership change" (as defined in Section 382 of the Internal Revenue Code) has
occurred. The Company has performed the required testing and has concluded that
an "ownership change" occurred in connection with the issuance of common stock
through a public offering made by the Company on January 6, 1992. As a result,
the future utilization of U.S. NOLs existing at the date of the "ownership
change" will be limited to approximately $4,000,000 per year. This limitation
had no effect on the provision for income taxes for the years ended July 31,
1994, 1995 and 1996. To the extent that any portion of this annual limitation is
not used in any year, it may be carried over and added to the annual limitation
of succeeding years. At July 31, 1996, the accumulated unused limitation on NOLs
existing at the date of the "ownership change" was approximately $16,003,000.

9. DEFERRED CREDITS

In August 1992, the Company entered into agreements with a customer
pursuant to which the Company received certain seismic equipment with a fair
value of approximately $1,792,000 and was obligated to allow $7,800,000 in
discounts at specified rates on future seismic services performed by the Company
for such customer. The Company recorded deferred revenue equal to the fair value
of seismic equipment at the time the equipment was received. The deferred
revenue is amortized as an adjustment to revenues at a rate determined by the
ratio of revenues generated by the customer during a reporting period to total
revenues estimated to be generated by the customer under the agreements.
Revenues are recognized net of discounts allowed as the customer purchases
seismic services eligible for the discounts. At July 31, 1996, remaining
discounts in the amount of $3,041,000 were available to such customer and the
remaining unrecognized deferred revenue is $363,000.

The Company also has $880,000 and $962,000 at July 31, 1995 and 1996,
respectively, included in other accrued liabilities relating to deferred credits
earned by certain customers in conjunction with their original participation in
certain of the Company's multi-client data surveys. These credits may be applied
by the customers against future invoiced amounts.

F-32
<PAGE> 70

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS AND CONTINGENT LIABILITIES

Total rentals of vessels, equipment and office facilities charged to
operations amounted to $22,631,000, $27,651,000 and $28,210,000 for the years
ended July 31, 1994, 1995 and 1996, respectively.

Minimum rentals payable under operating leases, principally for office
space and vessel charters with remaining noncancellable terms of at least one
year are as follows:

<TABLE>
<CAPTION>
FISCAL MINIMUM
YEAR RENTALS
------ -------------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
1997...................................................... $15,268
1998...................................................... 9,650
1999...................................................... 8,373
2000...................................................... 4,222
2001...................................................... 628
2002-2013................................................... 6,745
</TABLE>

In connection with the Company's 1997 capital expenditure program, the
Company has commitments of $5,382,000 outstanding at July 31, 1996.

The Company has an employment agreement with a former employee, who was
also a director, that provided for salary payments of $25,417 per month plus
certain employee benefits through December 31, 1995. The agreement also contains
a non-compete clause for a subsequent period of three years during which time
the former employee will receive payments of $12,709 per month plus certain
employee benefits.

During 1993 the Company purchased an occurrence-based workers compensation
insurance policy. The policy provides for a maximum deductible of $1.1 million,
$1.4 million and $1 million for the policy years ended August 31, 1994, 1995 and
1996, respectively. Management has evaluated the adequacy of the accrual for the
liability for incurred but unreported workers compensation claims and has
determined that the ultimate resolution of any such claims would not have a
materially adverse impact on the financial position of the Company.

11. EMPLOYEE BENEFITS

The Company maintains a 401(k) plan in which employees of Digicon's
majority-owned domestic subsidiaries and certain foreign subsidiaries are
eligible to participate. However, employees of Digicon's foreign subsidiaries
who are covered under a foreign deferred compensation plan are not eligible.
Employees are permitted to make contributions of up to 10% of their salary to a
maximum of $9,240 per year. Generally, the Company will contribute an amount
equal to one-half of the employee's contribution up to $6,000 or 6% of the
employee's salary (whichever is less); however, if consolidated pre-tax income
for any fiscal year is less than the amount required to be contributed by the
Company, the Company may elect to reduce its contribution, but in no event may
it reduce the total contribution to less than 25% of the employee contribution.
The Company may make additional contributions from its current or cumulative net
profits in an amount to be determined by the Board of Directors. Employer
matching contributions to the 401(k) plan were $286,000 in 1994, $281,000 in
1995 and $314,000 in 1996.

F-33
<PAGE> 71

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company initiated an employee nonqualified stock option plan on
September 1, 1992. Options are granted to Digicon's officers and key employees
and are exercisable no earlier than six months after the date of grant. The
option price per share shall not be less than the lesser of (i) fair market
value of the common stock on the date the option is granted or (ii) the average
fair market value for the common stock during the 30 trading days ending on the
trading day next preceding the date the option is granted. Options expire ten
years from the date of grant. The exercise prices and number of options existing
prior to January 17, 1995 have been adjusted for the Reverse Split. See Note 12.
The Company has authorized 1,158,333 shares of post-Reverse Split common stock
to be issued under the plan.

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- ------------
<S> <C> <C>
Balance, August 1, 1994........................... 489,333 $13.50
Options issued.................................. 13,333 $6.00
Options cancelled............................... (79,666) $13.50
--------
Balance, July 31, 1995............................ 423,000 $6.00-$13.50
Options issued.................................. 195,500 $5.25
Options cancelled............................... (31,680) $5.25-$13.50
Options exercised............................... (181,497) $13.50
--------
Balance, July 31, 1996............................ 405,323 $5.25-$13.50
========
Options exercisable, July 31, 1996................ 234,823
========
</TABLE>

The Company also initiated a stock option plan for Digicon's non-employee
directors (the "Director Plan") providing for stock options to be granted to
each non-employee director of the Company. The Director Plan provides that on
December 31 of each year, each eligible director shall be granted an option to
purchase 3,333 shares of the Company's post-Reverse Split common stock, subject
to an aggregate limit of 16,667 shares for each director. The exercise price for
each option granted shall be the average closing price of the common stock for
the 30 trading days prior to the date of grant. The exercise prices of options
existing prior to January 17, 1995 have been adjusted for the Reverse Split.
Options may be exercised at any time (i) after the later of six months following
the date of grant or the first anniversary of the director's service on the
board and (ii) before the sixth anniversary of the date of grant, when the
option expires. No options under the Director Plan have been exercised. The
Company has authorized 200,000 shares of post-Reverse Split common stock to be
issued under the Director Plan.

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Balance, August 1, 1994............................. 36,667 $6.72-$12.87
Options issued.................................... 19,998 $4.13
------
Balance, July 31, 1995.............................. 56,665 $4.13-$12.87
Options issued.................................... 19,994 $6.76
------
Balance, July 31, 1996.............................. 76,659 $4.13-$12.87
======
Options exercisable, July 31, 1996.................. 76,659
======
</TABLE>

The Company maintains a contributory defined benefit pension plan (the
"Pension Plan") for eligible participating employees in Digicon's United Kingdom
offices. Monthly contributions by employees are equal to 3.5% of their salaries
with the Company providing an additional contribution in an actuarially
determined amount necessary to fund future benefits to be provided under the
Pension Plan. Benefits provided are based upon 1/60 of the employee's final
pensionable salary (as defined) for

F-34
<PAGE> 72

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

each complete year of service up to 2/3 of the employee's final pensionable
salary and increase annually at 5%. The Pension Plan also provides for 50% of
such actual or expected benefits to be paid to a surviving spouse upon the death
of a participant. Pension Plan assets consist mainly of investments in
marketable securities which are held and managed by an independent trustee. The
net periodic pension costs are as follows:

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service costs (benefits earned during the
period)........................................ $ 288 $ 275 $ 224
Interest costs on projected benefit obligation... 249 253 292
Return on assets................................. (226) (275) (312)
Net amortization and deferral.................... 4 5 5
----- ----- -----
Net periodic pension costs....................... $ 315 $ 258 $ 209
===== ===== =====
</TABLE>

The funded status of the Pension Plan is as follows:

<TABLE>
<CAPTION>
JULY 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Plan assets at fair value................................. $3,444 $4,029
Actuarial present value of accumulated vested benefit
obligations............................................. 3,026 3,696
Effect of future salary increases......................... 517 633
------ ------
Projected benefit obligation............................ 3,543 4,329
------ ------
Projected benefit obligation in excess of plan assets..... (99) (300)
Unrecognized prior service cost........................... 13 179
------ ------
Pension liability......................................... $ (86) $ (121)
====== ======
</TABLE>

The weighted average assumptions used to determine the projected benefit
obligation and the expected long-term rate of return on assets for the years
ended July 31, 1994, 1995 and 1996 are as follows:

<TABLE>
<S> <C>
Discount rate............................................... 8.5%
Rates of increase in compensation levels.................... 6.5%
Expected long-term rate of return on assets................. 9.0%
</TABLE>

F-35
<PAGE> 73

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At the date of combination (see Note 2), options to purchase VES Common
Stock ("VES Option") were converted into options to purchase shares of the
Company's common stock at an exchange ratio of 0.8 of an option in the Company's
common stock per VES Option. All options are immediately exercisable and expire
at varying times through February 2006. Options to purchase the Company's common
stock converted from VES Options are as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- ------------
<S> <C> <C>
Balance, August 1, 1994........................... 224,680 $7.28
Options issued.................................. 200,016 $7.28
Options cancelled............................... (27,098) $7.28
--------
Balance, July 31, 1995............................ 397,598 $7.28
Options issued.................................. 184,666 $5.79-$7.16
Options cancelled............................... (19,732) $5.79-$7.28
Options exercised............................... (206,674) $5.79-$7.28
--------
Balance, July 31, 1996............................ 355,858 $5.79-$7.28
========
</TABLE>

12. REVERSE STOCK SPLIT

On December 14, 1994, shareholders approved a one for three reverse stock
split (the "Reverse Split") to holders of record on January 17, 1995, with no
change in par value. On January 17, 1995, there were 33,404,816 shares of common
stock outstanding which were converted into 11,134,939 shares of post-Reverse
Split common stock. The net effect of these transactions was a charge to common
stock and a credit to additional paid-in capital of approximately $223,000. All
references to the number of shares and per share amounts have been retroactively
adjusted for the effects of the Reverse Split unless otherwise indicated.

On January 17, 1995, there were 1,363,637 publicly traded common stock
purchase warrants expiring on July 5, 1996 with an exercise price of $6.00 per
share. In connection with the Reverse Split and as required by the American
Stock Exchange, the publicly traded warrants were converted, effective January
17, 1995, into approximately 454,545 post-Reverse Split common stock purchase
warrants with an exercise price of $18.00. Also on January 17, 1995, there were
340,000 common stock purchase warrants expiring on June 29, 1997 with an
exercise price of $2.00 per share which were adjusted in connection with the
Reverse Split to represent 113,333 shares of post-Reverse Split common stock
issuable upon exercise of these warrants at an exercise price of $6.00.
Additionally, there were 1,975,000 and 600,000 shares of pre-Reverse Split
common stock authorized under the 1992 Employee Nonqualified Stock Option Plan
and 1992 Non-Employee Director Stock Option Plan, respectively. In connection
with the Reverse Split, these authorized shares were decreased to 658,333 and
200,000 authorized shares of post-Reverse Split common stock under the Employee
Plan and Director Plan, respectively, and the new exercise prices were tripled.

13. COMMON AND PREFERRED STOCK

See Note 12 relating to the Reverse Split consummated on January 17, 1995.

See also Note 4 relating to the issuance of pre-Reverse Split common stock
for the purchase of investment in FSU joint ventures.

In June 1995, 850,000 shares of treasury stock were sold to an
institutional investor at a price of $4.6875 per share.

In September 1995, the Company sold its remaining 858,497 shares of
treasury stock to a group of institutional investors at a price of $4.6875 per
share.

F-36
<PAGE> 74

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In January 1996, the Company cancelled 11,517 shares of common stock and
22,473 warrants previously held by an escrow agent for issuance in conjunction
with the cancellation of a previous issue of common and preferred stock and
certain other liabilities in 1991.

The board of directors, without any action by the stockholders, is
authorized to issue up to 1 million shares of preferred stock, par value, $.01,
in one or more series and to determine the voting rights, preferences as to
dividends and in liquidation and the conversion and other rights of such stock.
There are no shares of preferred stock outstanding as of July 31, 1996.

14. WARRANTS

The following number of warrants issued and exercise prices have been
adjusted for the Reverse Split consummated on January 17, 1995. See Note 12.

In conjunction with the cancellation of a previous issue of common and
preferred stock and certain other liabilities, the Company authorized 454,545
warrants which could be exercised for 454,545 shares of common stock. The
warrants were issued for a term of five years beginning July 5, 1991 at an
exercise price of $18.00 per share. The warrants could only be exercised for
cash. Warrants for 29,433 shares were exercised on July 5, 1996 and the
remaining warrants expired.

In conjunction with the Company's secured term loan due June 30, 1997, the
Company issued 113,333 warrants which expire June 29, 1997. The warrants were
exercisable for cash at a price of $18.00 per share. In conjunction with an
amendment to the loan in August 1994, which revised certain financial ratio
covenants, the exercise price of the warrants was reduced to $6.00 per share.

In conjunction with certain short-term related party loans, the Company
issued warrants to purchase 120,000 common shares to the lenders. The warrants
may be exercised for cash at a price of $4.50 per share and will expire July 26,
1999.

15. WRITE-OFF/WRITE-DOWN OF ASSETS AND RESTRUCTURING CHARGES

In connection with the Combination, management committed the Company to a
plan to upgrade its seismic data processing hardware. Certain equipment is
scheduled to be replaced by October 1996. During July 1996, the Company
recognized impairment of $3,628,000 relating to the abandonment of the equipment
to be replaced.

In response to operating losses in certain markets which adversely impacted
the Company's liquidity during the year ended July 31, 1994, management made a
decision to restructure its operations and revalue certain assets in April 1994
and accordingly incurred $7,261,000 in total expenses relating to such decision.
Costs of $1,188,000 are included in cost of services and include non-recurring
expenses associated with certain contract liabilities. Also included in the
$7,261,000 is $5,235,000 for the write-off/write-down for the impairment of
assets to their net realizable value. A portion of the write-off pertains to
marine ($2,437,000) and land ($552,000) acquisition assets related to
decommissioned marine vessels and stacked land crews. The write-off/write-down
for impairment of assets also includes the write-down of certain other marine
and land acquisition assets that were not a direct result of the restructuring
program ($1,048,000). In addition, the Company wrote down data processing
equipment ($1,198,000), particularly in the Far East, based on the declining
market. The remaining costs are restructuring charges of $838,000 which relates
to severance costs for a reduction in the Company's workforce of 82 employees.
Employees to be terminated are from the processing centers, marine and land
crews, marine support, manufacturing, research and development and corporate
groups. As of July 31, 1996, 79 employees have been terminated and $670,000 in
severance costs have been paid. The Company estimates that all remaining
liabilities in the amount of $168,000 will be paid during fiscal 1997.

F-37
<PAGE> 75

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. OTHER COSTS AND EXPENSES

Other costs and expenses consist of the following:

<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
JULY 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net foreign currency exchange (gains) losses............ $ 554 $ 290 $(156)
Net (gain) loss on disposition of property and
equipment............................................. (1,592) 919 875
Interest income......................................... (540) (943) (547)
Other................................................... (255) (34) 374
------- ----- -----
Total......................................... $(1,833) $ 232 $ 546
======= ===== =====
</TABLE>

17. GEOGRAPHICAL INFORMATION

Substantially all of the Company's operations consist of geophysical
services. The following tables provide relevant information for the years ended
July 31, 1994, 1995 and 1996, grouped by major geographic areas. Intersegment
sales between geographic areas are valued at current market prices.

<TABLE>
<CAPTION>
REVENUES
----------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ --------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1994:
Geographic areas:
Europe & Middle East........ $ 29,891 $1,697 $ 31,588 $ (3,120) $ 28,848
Far East.................... 16,958 16,958 (7,851) 15,155
South America............... 17,669 17,669 (556) 16,545
Canada...................... 46,501 26 46,527 8,241 26,048
Eliminations................ (1,697) (1,697)
-------- ------ -------- -------- --------
Totals................. 111,019 26 111,045 (3,286) 86,596
United States............... 67,373* 1,936 69,309* 7,968 69,365
Eliminations................ (1,962) (1,962)
-------- ------ -------- -------- --------
Totals................. 178,392 178,392 4,682 155,961
Corporate, general and
administrative expenses..... (2,762)
Interest....................... (3,213)
Other.......................... 1,833
Income taxes................... (5,929)
Investments in 50% or
less-owned companies and
joint ventures.............. (4,965) 9,639
Corporate assets............... 6,214
-------- ------ -------- -------- --------
Totals................. $178,392 $ $178,392 $(10,354) $171,814
======== ====== ======== ======== ========
</TABLE>

- ---------------

* Includes export sales of $1,501.

There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1994. Operating profit (loss) includes
restructuring charges and write-off/writedown for impairment of assets of
$182,000 for Europe & Middle East, $1,416,000 for Far East, and $5,663,000 for
United States. Depreciation and amortization expense was $4,214,000 for Europe &
Middle East, $877,000 for Far East, $1,730,000 for South America, $4,927,000 for
Canada, and $7,350,000 for United States. Capital expenditures were $2,031,000
for Europe & Middle East, $444,000 for Far East, $2,291,000 for South America,
$16,481,000 for Canada and $8,514,000 for United States.

F-38
<PAGE> 76

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
REVENUES
----------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ --------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1995:
Geographic areas:
Europe & Middle East........... $ 20,230 $ 579 $ 20,809 $ 2,188 $ 11,976
Far East....................... 25,918 22 25,940 2,621 21,199
South America.................. 37,867 83 37,950 68 26,735
Canada......................... 44,297 148 44,445 4,656 27,617
Eliminations................... (601) (601)
-------- ----- -------- ------- --------
Totals.................... 128,312 231 128,543 9,533 87,527
United States.................. 87,318* 387 87,705* 8,389 90,522
Eliminations................... (618) (618)
-------- ----- -------- ------- --------
Totals.................... 215,630 215,630 17,922 178,049
Corporate, general and
administrative expenses........ (2,303)
Interest.......................... (5,170)
Gain on sale of investment in FSU
joint ventures................. 4,370
Other............................. (232)
Income taxes...................... (3,807)
Investments in 50% or less-owned
companies and joint ventures... (5,186) 187
Corporate assets.................. 6,104
-------- ----- -------- ------- --------
Totals.................... $215,630 $ $215,630 $ 5,594 $184,340
======== ===== ======== ======= ========
</TABLE>

- ---------------

* Includes export sales of $2,228.

There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1995. During 1995, depreciation and amortization
expense was $3,984,000 for Europe & Middle East, $1,040,000 for Far East,
$4,390,000 for South America, $6,001,000 for Canada and $7,919,000 for United
States. Capital expenditures were $1,709,000 for Europe & Middle East,
$1,240,000 for Far East, $6,651,000 for South America, $10,531,000 for Canada
and $13,502,000 for United States.

F-39
<PAGE> 77

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
REVENUES
----------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ --------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1996:
Geographic areas:
Europe & Middle East......... $ 37,394 $1,532 $ 38,926 $ 7,220 $ 35,463
Far East..................... 30,558 30,558 1,055 23,590
South America................ 36,346 92 36,438 (1,915) 29,758
Canada....................... 47,423 87 47,510 3,683 30,666
-------- ------ -------- ------- --------
Totals.................. 151,721 1,711 153,432 10,043 119,477
United States................ 98,875* 61 98,936* 6,910 77,561
Eliminations................. (1,772) (1,772)
-------- ------ -------- ------- --------
Totals.................. 250,596 250,596 16,953 197,038
Corporate, general and
administrative expenses...... (2,872)
Interest........................ (5,466)
Merger related costs............ (3,666)
Other........................... (546)
Income taxes.................... (2,009)
Investments in 50% or less-owned
companies and joint
ventures..................... (1,113) 1,463
Corporate assets................ 91
-------- ------ -------- ------- --------
Totals.................. $250,596 $ $250,596 $ 1,281 $198,592
======== ====== ======== ======= ========
</TABLE>

- ---------------

* Includes export sales of $4,774.

There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1996. During 1996, Operating profit (loss)
includes write-off/write-down for impairment of assets of $2,091,000 for Europe
& Middle East, $1,127,000 for Far East and $410,000 for United States.
Depreciation and amortization expense was $5,182,000 for Europe & Middle East,
$1,707,000 for Far East, $4,655,000 for South America, $7,689,000 for Canada and
$7,682,000 for United States. Capital expenditures were $4,088,000 for Europe &
Middle East, $6,795,000 for Far East, $4,734,000 for South America, $3,657,000
for Canada and $13,586,000 for United States.

18. RELATED PARTY TRANSACTIONS

During fiscal 1994, the Company entered into two credit facilities with
shareholders SOROS Capital L.P., CCF Jupiter L.P. and Jupiter Management Co.,
Inc. (collectively, "the Lenders"). In November 1993, the Company executed a
secured term loan agreement with the Lenders which provided loans totaling
$3,386,000. The loans were repaid in full in April 1994, and the facility was
terminated. In July 1994, the Company executed a second secured loan agreement
with the Lenders providing up to $3,000,000 of advances. The second facility was
repaid in full in June 1995. In connection with the second facility, the Lenders
received warrants to purchase the Company's common stock. See Note 14. During
the fiscal year ended July 31, 1994 and 1995, $206,000 and $376,000,
respectively, was paid to the Lenders as interest and fees under the two
facilities.

In fiscal 1994 and 1995, the Company performed certain data acquisition,
processing, marketing and training services for various co-venturers and
recorded sales in the amount of $1,279,000 and

F-40
<PAGE> 78

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$1,633,000, respectively. At July 31, 1995, there was approximately $300,000, in
outstanding receivables related to these transactions.

The Company sold certain assets during July 1994 to Caspian Geophysical, a
joint venture in which the Company had an indirect 10% interest, for a note
receivable payable in 36 monthly installments of $41,667 with an imputed
interest rate of 10%. The net gain recorded after eliminating intercompany
profits was $148,000. The note receivable was repaid in June 1995 as a result of
the sale of the Company's interest in the joint venture. See Note 4.

The Company is party to transactions with P.T. Digicon Mega Pratama ("P.T.
Digicon"), an 80% owned joint venture (see Note 3) in the normal course of
business. During the years ended July 31, 1994, 1995 and 1996 the Company
charged P.T. Digicon $1,069,000, $607,000 and $1,207,000 relating to allocations
of corporate administrative expenses and actual expenses incurred by P.T.
Digicon for salary cost, insurance and equipment charges. Advances from the
Company to P.T. Digicon of $12,439,000 and $14,532,000 at July 31, 1995 and
1996, respectively, have no formal repayment terms and do not bear interest.

19. SELECTED UNAUDITED QUARTERLY FINANCIAL DATA

The Company's quarterly consolidated financial statements for the years
ended July 31, 1995 and 1996 have been restated to account for a pooling of
interests between Digicon Inc. and Veritas Energy Services Inc. (See Note 2). In
addition, the Company's quarterly consolidated financial statements for the year
ended July 31, 1996 have been restated to account for the Company's investment
in an 80% owned joint venture on the equity method of accounting rather than on
consolidation accounting (See Note 3).

FOR THE YEARS ENDED JULY 31, 1995 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1995
---------------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
--------------------- --------------------- --------------------- ---------------------
AS AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $31,811 $54,558 $29,993 $51,482 $ 34,197 $ 52,314 $35,126 $57,276
Operating expenses:
Cost of services............ 24,109 41,441 22,225 38,718 27,320 44,008 29,163 46,257
Depreciation and
amortization................ 3,285 5,670 3,346 5,891 3,361 5,994 3,341 6,177
Selling, general and
administrative.............. 1,106 1,520 1,058 1,504 1,244 1,482 1,020 1,349
Gain on sale of investment in
FSU joint ventures.......... (4,370) (4,370)
Income (loss) before provision
for income taxes and equity
in (earnings) loss of 50% or
less-owned companies and
joint ventures.............. 2,557 5,176 1,825 3,899 1,054 (301) 3,939 5,813
Net income (loss)............. 607 2,023 829 2,047 479 (276) 863 1,800
Net income (loss) per share of
common stock*............... .06 .11 .07 .11 .04 (.02) .08 .10
</TABLE>

F-41
<PAGE> 79

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1996
--------------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
--------------------- --------------------- --------------------- --------------------
AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $38,178 $59,824 $40,068 $62,719 $ 36,279 $ 59,140 $68,913
Operating expenses:
Cost of services........... 30,433 46,806 33,247 53,297 27,837 45,001 53,607
Write-off/write-down for
impairment of assets....... 3,628
Depreciation and
amortization............... 3,623 6,352 3,899 6,695 4,015 6,953 6,921
Selling, general and
administrative............. 1,251 1,580 1,276 1,824 1,431 1,854 1,997
Merger related costs......... 3,666
Income (loss) before
provision for income taxes
and equity in (earnings)
loss of 50% or less-owned
companies and joint
ventures................... 1,478 3,683 351 (412) 2,041 4,005 (2,873)
Net income (loss)............ 752 1,690 1,077 1,269 1,864 2,823 (4,501)
Net income (loss) per share
of common stock*........... .07 .10 .10 .07 .17 .16 (.25)
</TABLE>

- ------------

* Reported quarterly earnings (loss) per share is based on each quarter's
weighted average shares outstanding. The quarters may not total to the
reported annual earnings per share due in part to fluctuations in common
shares outstanding. Weighted average shares for all periods presented have
been restated for the Reverse Split consummated on January 17, 1995. See Note
12.

F-42
<PAGE> 80

===============================================================================

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 3
Incorporation of Certain Documents by
Reference............................ 3
Prospectus Summary..................... 4
Risk Factors........................... 9
Forward-Looking Statements............. 11
The Company............................ 12
Use of Proceeds........................ 12
Capitalization......................... 13
Price Range of Common Stock
and Dividend Policy.................. 14
Selected Consolidated Financial Data... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Business............................... 21
Management............................. 30
Description of Capital Stock........... 32
Underwriting........................... 35
Legal Matters.......................... 36
Experts................................ 36
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

===============================================================================

[VERITAS LOGO]

VERITAS DGC INC.

------------------------

3,000,000 SHARES

COMMON STOCK

PROSPECTUS

, 1997

------------------------

DILLON, READ & CO. INC.

PAINEWEBBER INCORPORATED

RAYMOND JAMES & ASSOCIATES, INC.

===============================================================================
<PAGE> 81

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses payable by the Company in connection with the
offering of the Common Stock to be registered and offered hereby are as follows:

<TABLE>
<S> <C>
Commission registration fee................................. $ 21,955
National Association of Securities Dealers, Inc. fee........ 7,745
New York Stock Exchange, Inc. listing fee................... 22,150
Printing expenses........................................... 125,000
Legal fees and expenses..................................... 150,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Accounting fees and expenses................................ 75,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 33,150
--------
Total............................................. $450,000
========
</TABLE>

All such expenses are estimated except for the Commission registration fee,
the National Association of Securities Dealers, Inc. fee and the New York Stock
Exchange, Inc. fee.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the DGCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action.

In a suit brought to obtain a judgment in the corporation's favor, whether
by the corporation itself or derivatively by a stockholder, the corporation may
only indemnify for expenses, including attorney's fees, actually and reasonably
incurred in connection with the defense or settlement of the case, and the
corporation may not indemnify for amounts paid in satisfaction of a judgment or
in settlement of the claim. In any such action, no indemnification may be paid
in respect of any claim, issue or matter as to which such persons shall have
been adjudged liable to the corporation except as otherwise approved by the
Delaware Court of Chancery or the court in which the claim was brought. In any
other type of proceeding, the indemnification may extend to judgments, fines and
amounts paid in settlement, actually and reasonably incurred in connection with
such other proceeding, as well as to expenses (including attorneys' fees).

The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. There are additional limitations applicable to
criminal actions and to actions brought by or in the name of the corporation.
The determination as to whether a person seeking indemnification has met the
required standard of conduct is to be made (i) by a majority vote of a quorum of
disinterested members of the board of directors, or (ii) by independent legal
counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (iii) by the stockholders.

II-1
<PAGE> 82

The certificate of incorporation and bylaws of the Company require the
Company to indemnify the Company's directors and officers to the fullest extent
permitted under Delaware law, and to implement provisions pursuant to
contractual indemnity agreements the Company has entered into with its directors
and executive officers. The Company's Certificate of Incorporation limits the
personal liability of a director to the Company or its stockholders to damages
for breach of the director's fiduciary duty.

The Company has purchased insurance on behalf of its directors and officers
against certain liabilities that may be asserted against, or incurred by, such
persons in their capacities as directors or officers of the registrant, or that
may arise out of their status as directors or officers of the registrant,
including liabilities under the federal and state securities laws.

ITEM 16. EXHIBITS.

The following is a list of all the exhibits and financial statements
schedules filed as part of the Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*1 -- Form of Underwriting Agreement by and among Dillon, Read
& Co. Inc., PaineWebber Incorporated, Raymond James &
Associates, Inc. and Veritas DGC Inc.
2 -- Combination Agreement dated as of May 10, 1996, between
Digicon Inc. and Veritas Energy Services Inc.
(Incorporated by reference to Exhibit 2.1 of Digicon
Inc.'s Current Report on Form 8-K dated May 10, 1996)
3 -A -- Restated Certificate of Incorporation (with Amendments)
of Digicon Inc. dated August 30, 1996. (Incorporated by
reference to exhibit 3.1 to Veritas DGC Inc.'s Current
Report on Form 8-K dated September 16, 1996)
3 -B -- Certificate of Ownership and Merger of New Digicon Inc.
and Digicon Inc. (Incorporated by reference to Exhibit
3-B to Digicon's Registration Statement No. 33-43873,
dated November 12, 1991)
3 -C -- By-laws of New Digicon Inc. dated June 24, 1991.
(Incorporated by reference to Exhibit 3-C to Digicon's
Registration Statement No. 33-43873, dated November 12,
1991).
4 -A -- Specimen Veritas DGC Inc. Common Stock certificate.
(Incorporated by reference to exhibit 4-C to Veritas DGC
Inc.'s Annual Report on Form 10-K for the year ended July
31, 1996)
4 -B -- Rights Agreement between Veritas DGC Inc. and ChaseMellon
Shareholder Services, L.L.C. dated as of May 15, 1997.
(Incorporated by reference to Exhibit 4.1 of Veritas DGC
Inc.'s Current Report on Form 8-K filed May 27, 1997)
*5 -- Opinion of Porter & Hedges, L.L.P. with respect to
legality of securities, including consent.
+23 -A -- Consent of Deloitte & Touche LLP.
+23 -B -- Consent of Price Waterhouse, Chartered Accountants.
*23 -C -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5)
+24 -- Power of Attorney.
+27 -A -- Financial Data Schedule for fiscal 1996.
27 -B -- Financial Data Schedule. (Incorporated by reference to
Exhibit 27 to Veritas DGC Inc.'s Quarterly Report on Form
10-Q for the quarterly period ended April 30, 1997)
</TABLE>

- ---------------

* Filed herewith.

+ Previously filed.

II-2
<PAGE> 83

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of a registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 84

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 10, 1997.

VERITAS DGC INC.

By: /s/ DAVID B. ROBSON
------------------------------------
David B. Robson,
Chairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Act, this amendment to the
Registration Statement has been signed by the following persons in the indicated
capacities and on the 10th day of June, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>

/s/ DAVID B. ROBSON Director, Chairman of the
- ----------------------------------------------------- Board and Chief Executive
David B. Robson Officer

* /s/ ANTHONY TRIPODO Executive Vice President and
- ----------------------------------------------------- Chief Accounting and
Anthony Tripodo Financial Officer

* /s/ CLAYTON P. CORMIER Director
- -----------------------------------------------------
Clayton P. Cormier

* /s/ RALPH M. EESON Director
- -----------------------------------------------------
Ralph M. Eeson

* /s/ LAWRENCE C. FICHTNER Director
- -----------------------------------------------------
Lawrence C. Fichtner

Director
- -----------------------------------------------------
Steven J. Gilbert

* /s/ STEPHEN J. LUDLOW Director
- -----------------------------------------------------
Stephen J. Ludlow

* /s/ BRIAN F. MACNEILL Director
- -----------------------------------------------------
Brian F. MacNeill

Director
- -----------------------------------------------------
Douglas B. Thompson

* /s/ JACK C. THREET Director
- -----------------------------------------------------
Jack C. Threet

*By /s/ ANTHONY TRIPODO
-----------------------------------------------
Anthony Tripodo
(Individually and as Attorney-in-fact)
</TABLE>

II-4
<PAGE> 85

INDEX TO EXHIBITS

- ---------------

* Filed herewith.

+ Previously filed.

<PAGE> 1
EXHIBIT 1

3,000,000 Shares
Common stock
($.01 Par Value)

UNDERWRITING AGREEMENT

,1997

<PAGE> 2
UNDERWRITING AGREEMENT

,1997

DILLON, READ & CO. INC.
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
as Managing Underwriters
535 Madison Avenue
New York, New York 10022

Ladies and Gentlemen:

Veritas DGC Inc. (the "Company") proposes to issue and sell to
the underwriters named in Schedule A annexed hereto (the "Underwriters") an
aggregate of 3,000,000 shares (the "Firm Shares") of Common Stock, $.01 par
value (the "Common Stock"), of the Company. In addition, solely for the
purpose of covering over-allotments, the Company proposes to grant to the
Underwriters the option to purchase from the Company up to an additional
450,000 shares of Common Stock (the "Additional Shares"). The Firm Shares and
the Additional Shares are hereinafter collectively sometimes referred to as the
"Shares." The Shares are described in the Prospectus which is referred to
below. Pursuant to the Rights Plan (as defined in the Registration Statement
described below), shares of Common Stock are accompanied by certain preferred
stock purchase rights (the "Rights"), which Rights trade with the Common Stock.
Unless the context otherwise requires, all references to "Common Stock,"
"Shares," "Firm Shares" and "Additional Shares" shall include the applicable
Rights.

The Company has filed, in accordance with the provisions of
the Securities Act of 1933, as amended, and the rules and regulations
thereunder (collectively called the "Act"), with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3, including a
prospectus, relating to the Shares, which incorporates by reference documents
that the Company has filed or will file in accordance with the provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively called the "Exchange Act"). The Company has furnished
to you, for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses and the documents incorporated by reference therein
(each thereof, including the documents incorporated therein by reference, being
herein called a "Preliminary Prospectus") relating to the Shares. Except where
the context otherwise requires, the registration statement, as amended when it
becomes effective, including all documents filed as a part thereof or
incorporated by reference therein, and including any information contained in a
prospectus subsequently filed with the Commission pursuant to Rule 424(b) under
the Act and deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430(A) under the Act, is herein called the
"Registration Statement", and the prospectus, including all documents

<PAGE> 3
incorporated therein by reference, in the form filed by the Company with the
Commission pursuant to Rule 424(b) under the Act or, if no such filing is
required, the form of final prospectus included in the Registration Statement
at the time it became effective, is herein called the "Prospectus." If the
Company files a registration statement to register a portion of the Shares and
relies on Rule 462(b) for such registration statement to become effective upon
filing with the Commission (the "Rule 462 Registration Statement"), then any
reference to "Registration Statement" herein shall be deemed to be to both the
registration statement referred to above (No. 333-28421) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the Act.

The Company and the Underwriters agree as follows:

1. Sale and Purchase. Upon the basis of the warranties
and representations and the other terms and conditions herein set forth, the
Company agrees to sell to the respective Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A annexed hereto bears to the total number of Firm Shares to be sold
by the Company, in each case at a purchase price of $_____ per Share. You
shall release the Firm Shares for public sale promptly after this Agreement
becomes effective. You may from time to time increase or decrease the public
offering price after the initial public offering to such extent as you may
determine.

In addition, the Company hereby grants to the several
Underwriters the option to purchase, and upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the
Underwriters shall have the right to purchase, severally and not jointly, from
the Company, ratably in accordance with the number of Firm Shares to be
purchased by each of them (subject to such adjustment as you shall determine to
avoid fractional shares), all or a portion of the Additional Shares as may be
necessary to cover over-allotments made in connection with the offering of the
Firm Shares, at the same purchase price per share to be paid by the
Underwriters to the Company for the Firm Shares. This option may be exercised
at any time (but not more than once) on or before the thirtieth day following
the date hereof, by written notice to the Company. Such notice shall set forth
the aggregate number of Additional Shares as to which the option is being
exercised, and the date and time when the Additional Shares are to be delivered
(such date and time being herein referred to as the additional time of
purchase); provided, however, that the additional time of purchase shall not be
earlier than the time of purchase (as defined below) nor earlier than the
second business day after the date on which the option shall have been
exercised nor later than the eighth business day after the date on which the
option shall have been exercised. The number of Additional Shares to be sold
to each Underwriter shall be the number which bears the same proportion to the
aggregate number of Additional Shares being purchased as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule A hereto
bears to the total number of Firm Shares (subject, in each case, to such
adjustment as you may determine to eliminate fractional shares).

2. Payment and Delivery. Payment of the purchase price
for the Firm Shares shall be made to the Company by wire transfer of
immediately available funds, at the office of Dillon, Read & Co. Inc. in New
York City, against delivery of the certificates for the Firm Shares

-2-
<PAGE> 4
to you for the respective accounts of the Underwriters. Such payment and
delivery shall be made at 10:00 A.M., New York City time, on ____________ ,
1997 (unless another time shall be agreed to by you and the Company or unless
postponed in accordance with the provisions of Section 8 hereof). The time at
which such payment and delivery are actually made is hereinafter sometimes
called the "time of purchase." Certificates for the Firm Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify on the second business day preceding the time of purchase.
For the purpose of expediting the checking of the certificates for the Firm
Shares by you, the Company agree to make such certificates available to you for
such purpose at least one full business day preceding the time of purchase.

Payment of the purchase price for the Additional Shares shall
be made at the additional time of purchase in the same manner and at the same
office as the payment for the Firm Shares. Certificates for the Additional
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the
additional time of purchase. For the purpose of expediting the checking of the
certificates for the Additional Shares by you, the Company agrees to make such
certificates available to you for such purpose at least one full business day
preceding the additional time of purchase.

3. Representations and Warranties of the Company. The
Company represents and warrants to each of the Underwriters that:

(a) when the Registration Statement becomes effective,
the Registration Statement and the Prospectus will fully comply in all
material respects with the provisions of the Act, and the Registration
Statement will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no warranty or representation with
respect to any statement contained in the Registration Statement or
the Prospectus in reliance upon and in conformity with information
concerning the Underwriters and furnished in writing by or on behalf
of any Underwriter through you to the Company expressly for use in the
Registration Statement or the Prospectus; the documents incorporated
by reference in the Prospectus, at the time they were filed with the
Commission, complied in all material respects with the requirements of
the Exchange Act, and do not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(b) as of the date of this Agreement, the Company has
authorized capital stock as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the
Prospectus entitled "Capitalization" and, as of the time of purchase
and the additional time of purchase, as the case may be, the Company
shall have authorized capital stock as set forth under the heading
entitled "As Adjusted" in the section of the Registration Statement

-3-
<PAGE> 5
and the Prospectus entitled "Capitalization" (for purposes of this
Agreement, references to capital stock of the Company shall also refer
to the Exchangeable Shares of Veritas Energy Services Inc., unless the
context otherwise requires); all of the issued and outstanding shares
of capital stock, including Common Stock, of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable; the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full power and authority to own its properties and
conduct its business as described in the Registration Statement and
the Prospectus, to execute and deliver this Agreement and to issue and
sell the Shares as herein contemplated;

(c) the Company and each of its subsidiaries (the
"Subsidiaries") are duly qualified or licensed by and are in good
standing in each jurisdiction in which they conduct their respective
businesses and in which the failure, individually or in the aggregate,
to be so licensed or qualified could have a material adverse effect on
the operations, business or condition of the Company and its
Subsidiaries, taken as a whole; and the Company and each of its
Subsidiaries are in compliance in all material respects with the laws,
orders, rules, regulations and directives issued or administered by
such jurisdictions;

(d) neither the Company nor any of its Subsidiaries is in
breach of, or in default under (nor has any event occurred which with
notice, lapse of time, or both would constitute a breach of, or
default under), its respective charter or by-laws or in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, bank
loan or credit agreement or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which any of them
is bound, and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
will not conflict with, or result in any breach of or constitute a
default under (nor constitute any event which with notice, lapse of
time, or both would constitute a breach of, or default under), any
provisions of the charter or by-laws, of the Company or any of its
Subsidiaries or under any provision of any license, indenture,
mortgage, deed of trust, bank loan or credit agreement or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or under any federal, state,
local or foreign law, regulation or rule or any decree, judgment or
order applicable to the Company or any of its Subsidiaries;

(e) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement
of the Company enforceable in accordance with its terms, subject to
applicable laws of bankruptcy, insolvency or similar laws relating to
creditors' rights generally and to general principles of equity
(whether applied in a proceeding in law or equity);

(f) (i) the capital stock of the Company, including the
Shares, conforms in all material respects to the description thereof
contained in the Registration Statement and Prospectus and the
certificates for the Shares are in due and proper form and the holders
of

-4-
<PAGE> 6
the Shares will not be subject to personal liability by reason of
being such holders, (ii) the Shares, when issued and delivered to and
paid for by the Underwriters, will be duly and validly authorized and
issued and will be fully paid and non-assessable and (iii) the Rights
Agreement (as defined in the Registration Statement) has been duly
authorized, executed and delivered by the Company and is a legal,
valid and binding agreement of the Company enforceable in accordance
with its terms, subject to applicable laws of bankruptcy, insolvency
or similar laws relating to creditors' rights generally and to general
principles of equity (whether applied in a proceeding in law or
equity);

(g) no approval, authorization, consent or order of or
filing with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares as contemplated hereby other
than registration of the Shares under the Act and any necessary
qualification under the securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the
Underwriters;

(h) except pursuant to the registration statement on Form
S-3 dated __________, 199__ and except for registration rights that
have been unconditionally waived or otherwise terminated, no person
has the right, contractual or otherwise, to cause the Company to issue
to it, or register pursuant to the Act, any shares of capital stock of
the Company upon the issue and sale of the Shares to the Underwriters
hereunder, nor does any person have preemptive rights, rights of first
refusal or other rights to purchase any of the Shares;

(i) Price Waterhouse, Chartered Accountants and Deloitte
& Touche LLP, whose reports on the consolidated financial statements
of the Company and its Subsidiaries are filed with the Commission as
part of the Registration Statement and Prospectus, and Price
Waterhouse LLP are independent public accountants as required by the
Act and the applicable published rules and regulations thereunder;

(j) each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and has
made all necessary filings required under any federal, state, local or
foreign law, regulation or rule, and has obtained all necessary
authorizations, consents and approvals from other persons, in order to
conduct its respective business; neither the Company nor any of its
Subsidiaries is in violation of, or in default under, any such
license, authorization, consent or approval or any federal, state,
local or foreign law, regulation or rule or any decree, order or
judgment applicable to the Company or any of its Subsidiaries the
effect of which could have a material adverse effect on the Company
and its Subsidiaries taken as a whole;

(k) all legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required;

-5-
<PAGE> 7
(l) there are no actions, suits or proceedings pending or
threatened against the Company or any of its Subsidiaries or any of
their respective properties, at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency which could result in a
judgment, decree or order having a material adverse effect on the
business, condition, prospects or property of the Company and its
Subsidiaries taken as a whole;

(m) the audited financial statements included in the
Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its Subsidiaries as
of the dates indicated and the consolidated results of operations and
changes in financial position of the Company and its Subsidiaries for
the periods specified; such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis during the periods involved;

(n) Other than as set forth in the Prospectus, the
Company and each of its Subsidiaries have obtained all material
environmental permits, licenses and other authorizations required by
federal, state, foreign and local law in order to conduct their
businesses as described in the Prospectus; the Company and each of its
Subsidiaries are conducting their businesses in substantial compliance
with such permits, licenses and authorizations and with applicable
environmental laws, except where the failure to be in compliance would
not have a material adverse effect results of operations or condition
(financial or otherwise), present or prospective, of the Company and
its Subsidiaries taken as a whole; and, except as described in the
Prospectus, the Company is not in violation of any Federal, state,
foreign or local law or regulation relating to the storage, handling,
disposal, release or transportation of hazardous or toxic materials;

(o) subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as may be otherwise stated in the Registration Statement or
Prospectus, there has not been (A) any material and unfavorable
change, financial or otherwise, in the business, properties,
prospects, regulatory environment, results of operations or condition
(financial or otherwise), present or prospective, of the Company and
its Subsidiaries taken as a whole, (B) any transaction, which is
material to the Company and its Subsidiaries taken as a whole,
contemplated or entered into by the Company or any of its Subsidiaries
or (C) any obligation, contingent or otherwise, directly or indirectly
incurred by the Company or any of its Subsidiaries which is material
to the Company and its Subsidiaries taken as a whole;

(p) none of the assets, liabilities, revenues or expenses
of the Company's Subsidiaries other than the Significant Subsidiaries
(as hereinafter defined), when each such financial statement item is
considered separately but aggregated for all such non-Significant
Subsidiaries, is material to the assets, liabilities, revenues or
expenses, respectively, of the Company and its Subsidiaries, taken as
a whole; and

-6-
<PAGE> 8
(q) No forward looking statement within the meaning to
Section 27A of the Act and Section 21E of the Exchange Act contained
in the Registration Statement has been made or reaffirmed without a
reasonable basis or has been disclosed other than in good faith.

4. Certain Covenants of the Company. The Company hereby
agrees:

(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale
under the securities or blue sky laws of such states as you may
designate and to maintain such qualifications in effect so long as
required for the distribution of the Shares, provided that the Company
shall not be required to qualify as a foreign corporation or to
consent to the service of process under the laws of any such state
(except services of process with respect to the offering and sale of
the Shares); and to promptly advise you of the receipt by the Company
of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;

(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective, and
thereafter from time to time to furnish to the Underwriters, as many
copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes
contemplated by the Act;

(c) to advise you promptly and (if requested by you) to
confirm such advice in writing, (i) when the Registration Statement
has become effective and when any post-effective amendment thereto
becomes effective and (ii) if Rule 430A under the Act is used, when
the Prospectus is filed with the Commission pursuant to Rule 424(b)
under the Act (which the Company agrees to file in a timely manner
under such Rules);

(d) to advise you promptly, confirming such advice in
writing, of any request by the Commission for amendments or
supplements to the Registration Statement or Prospectus or for
additional information with respect thereto, or of notice of
institution of proceedings for, or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of
the Registration Statement, to make every reasonable effort to obtain
the lifting or removal of such order as soon as possible; to advise
you promptly of any proposal to amend or supplement the Registration
Statement or Prospectus including by filing any documents that would
be incorporated therein by reference and to file no such amendment or
supplement to which you shall object in writing;

(e) to furnish to you and, upon request, to each of the
other Underwriters for a period of five years from the date of this
Agreement (i) copies of any reports or other communications which the
Company shall send to its stockholders or shall from time to time
published or publicly disseminate, (ii) copies of all annual,
quarterly and current reports filed

-7-
<PAGE> 9
with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar
form as may be designated by the Commission, and (iii) such other
information as you may reasonably request regarding the Company or its
Subsidiaries;

(f) to advise the Underwriters promptly of the happening
of any event known to the Company within the time during which a
prospectus relating to the Shares is required to be delivered under
the Act which, in the judgment of the Company, would require the
making of any change in the Prospectus then being used, or in the
information incorporated therein by reference, so that the Prospectus
would not include an untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading,
and, during such time, to prepare and furnish, at the Company's
expense, to the Underwriters promptly such amendments or supplements
to such Prospectus as may be necessary to reflect any such change and
to furnish you a copy of such proposed amendment or supplement before
filing any such amendment or supplement with the Commission;

(g) to make generally available to its security holders,
and to deliver to you, an earnings statement of the Company (which
will satisfy the provisions of Section 11(a) of the Act) covering a
period of twelve months beginning after the effective date of the
Registration Statement but no later than ______________, 1998, as soon
as is reasonably practicable after the termination of such
twelve-month period;

(h) to furnish to you four signed copies of the
Registration Statement, as initially filed with the Commission, and of
all amendments thereto (including all exhibits thereto and documents
incorporated by reference therein) and sufficient conformed copies of
the foregoing (other than exhibits) for distribution of a copy to each
of the other Underwriters;

(i) to furnish to you as early as practicable prior to
the time of purchase and the additional time of purchase, as the case
may be, but not later than two business days prior thereto, a copy of
the latest available unaudited interim consolidated financial
statements, if any, of the Company and its Subsidiaries which have
been read by the Company's independent certified public accountants,
as stated in their letter to be furnished pursuant to Section 6(b) of
this Agreement;

(j) to apply the net proceeds from the sale of the Shares
in the manner set forth under the caption "Use of Proceeds" in the
Prospectus;

(k) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and
during the period referred to in paragraph (f) above, a copy of any
document proposed to be filed pursuant to Sections 13, 14, or 15(d) of
the Exchange Act;

(l) not to offer to sell, sell, contract to sell, grant
any option to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock or securities convertible into

-8-
<PAGE> 10
or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock or permit the registration under the Act of any
shares of Common Stock, except for (i) the registration of the Shares
and the sales to the Underwriters pursuant to this Agreement, (ii)
issuances of Common Stock upon the exercise of outstanding options and
warrants, and (iii) issuances of shares of Common Stock (including
without limitation Rights) pursuant to the Rights Plan, or issuances
of shares of capital stock upon the exercise of Rights pursuant
thereto, for a period of 90 days after the date hereof, without the
prior written consent of Dillon Read & Co. Inc.;

(m) to use its best efforts to cause the Shares to be
listed on the New York Stock Exchange; and

(n) the Company will pay all expenses, fees and taxes
(other than any transfer taxes and fees and disbursements of counsel
for the Underwriters except as set forth under Section 5 hereof or
(iii) or (iv) below) in connection with (i) the preparation and filing
of the Registration Statement, each Preliminary Prospectus, the
Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the Underwriters
and to dealers (including costs of mailing and shipment), (ii) the
issuance, sale and delivery of the Shares by the Company, (iii) the
word processing and/or printing of this Agreement, any Agreement Among
Underwriters, any dealer agreements and any Statements of Information,
and the reproduction and/or printing and furnishing of copies of each
thereof to the Underwriters and to dealers (including costs of mailing
and shipment), (iv) the qualification of the Shares for offering and
sale under state laws and the determination of their eligibility for
investment under state law as aforesaid (including the legal fees and
filing fees and other disbursements of counsel to the Underwriters)
and the printing and furnishing of copies of any blue sky surveys or
legal investment surveys to the Underwriters and to dealers, (v) any
listing of the Shares on any securities exchange or qualification of
the Shares for quotation on the Nasdaq Stock Market and any
registration thereof under the Exchange Act, (vi) the filing for
review of the public offering of the Shares by the National
Association of Securities Dealers, Inc. (the "NASD"), and (vii) the
performance of the Company's other obligations hereunder.

5. Reimbursement of Underwriters' Expenses. If the
Shares are not delivered for any reason other than the termination of this
Agreement pursuant to the first two paragraphs of Section 8 hereof or the
default by one or more of the Underwriters in its or their respective
obligations hereunder, the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the fees and disbursements of their
counsel.

6. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties on the part of the Company on the date hereof
and at the time of purchase (and the several obligations of the Underwriters at
the additional time of purchase are subject to the accuracy of the
representations and warranties on the part of the Company on the date hereof
and at the time of purchase (unless

-9-
<PAGE> 11
previously waived) and at the additional time of purchase, as the case may be),
the performance by the Company of its obligations hereunder and to the
following conditions:

(a) The Company shall furnish to you at the time of
purchase and at the additional time of purchase, as the case may be,
an opinion of Porter & Hedges, L.L.P., counsel for the Company,
addressed to the Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, with reproduced
copies for each of the other Underwriters and in form satisfactory to
Vinson & Elkins L.L.P., counsel for the Underwriters, stating that:

(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with full corporate power and
authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, to
execute and deliver this Agreement and to issue, sell and
deliver the Shares as herein contemplated;

(ii) each of the Company's significant
subsidiaries named in Schedule B ("Significant Subsidiaries")
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its respective
jurisdiction of incorporation with full corporate power and
authority to own its respective properties and to conduct its
respective business;

(iii) the Company and its Significant Subsidiaries
are duly qualified or licensed by each jurisdiction in which
they conduct their respective businesses and in which the
failure, individually or in the aggregate, to be so licensed
or qualified could have a material adverse effect on the
operations, business or condition of the Company and its
Significant Subsidiaries taken as a whole, and the Company and
its Significant Subsidiaries are duly qualified, and are in
good standing, in each jurisdiction in which they own or lease
real property or maintain an office and in which such
qualification is necessary;

(iv) the Company has full corporate power and
authority to enter into this Agreement, and this Agreement has
been duly authorized, executed and delivered by the Company;

(v) the Shares, when issued and delivered to and
paid for by the Underwriters, will be duly and validly
authorized and issued and will be fully paid and
non-assessable;

(vi) the Company has authorized capital stock as
set forth in the Registration Statement and the Prospectus;
the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued, and are fully
paid, nonassessable and free of statutory and contractual
preemptive rights; the Shares when issued will be free of
statutory and contractual preemptive rights; the

-10-
<PAGE> 12
certificates for the Shares are in due and proper form and the
holders of the Shares will not be subject to personal
liability by reason of being such holders;

(vii) the capital stock of the Company, including
the Shares, conforms in all material respects to the
description thereof contained in the Registration Statement
and Prospectus and the Rights Agreement (as defined in the
Registration Statement) has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable in accordance with its
terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to
general principles of equity (whether applied in a proceeding
in law or equity);

(viii) the Registration Statement and the Prospectus
(except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by
reference therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act;

(ix) the Registration Statement has become
effective under the Act and, to the best of such counsel's
knowledge, no stop order proceedings with respect thereto are
pending or threatened under the Act;

(x) no approval, authorization, consent or order
of or filing with any national, state or local governmental or
regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the
Shares as contemplated hereby other than registration of the
Shares under the Act (except such counsel need express no
opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in
which the Shares are being offered by the Underwriters);

(xi) the execution, delivery and performance of
this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and
will not conflict with, or result in any breach of, or
constitute a default under (nor constitute any event which
with notice, lapse of time, or both, would constitute a breach
of or default under), or result in the creation of any lien,
charge or encumbrance on any property, or assets of the
Company or any of its Subsidiaries pursuant to, any provisions
of the charter or by-laws of the Company or any of its
Subsidiaries or under any provision of any license, indenture,
mortgage, deed of trust, bank loan, credit agreement or other
agreement or instrument to which the Company or any of its
Subsidiaries, to such counsel's knowledge, is a party or by
which, to such counsel's knowledge, any of them or their
respective properties may be bound or affected, or under any
law, regulation or rule of the United States or any
jurisdiction located within the United States, or, to such
counsel's knowledge, under any law, regulation or rule of any
jurisdiction not located within the United States,

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<PAGE> 13
or any decree, judgment or order applicable to the Company or
any of its Subsidiaries;

(xii) to the best of such counsel's knowledge,
neither the Company nor any of its Subsidiaries is in breach
of, or in default under (nor has any event occurred which with
notice, lapse of time, or both would constitute a breach of,
or default under), any license, indenture, mortgage, deed of
trust, bank loan or any other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which
any of them or their respective properties may be bound or
affected or under any law, regulation or rule or any decree,
judgment or order applicable to the Company or any of its
Subsidiaries;

(xiii) to the best of such counsel's knowledge,
there are no contracts, licenses, agreements, leases or
documents of a character which are required to be filed as
exhibits to the Registration Statement or to be summarized or
described in the Prospectus which have not been so filed,
summarized or described;

(xiv) to the best of such counsel's knowledge,
there are no actions, suits or proceedings pending or
threatened against the Company or any of its Subsidiaries or
any of their respective properties, at law or in equity or
before or by any commission, board, body, authority or agency
which are required to be described in the Prospectus but are
not so described;

(xv) the documents incorporated by reference in
the Registration Statement and Prospectus, when they were
filed (or, if an amendment with respect to any such document
was filed when such amendment was filed), complied as to form
in all material respects with the Exchange Act (except as to
the financial statements and schedules and other financial and
statistical data contained or incorporated by reference
therein as to which such counsel need express no opinion); and

(xvi) such counsel have participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accountants of the
Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus were
discussed and, although such counsel is not passing upon and
does not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in
subparagraphs (vi) and (vii) above), on the basis of the
foregoing (relying as to materiality to a large extent upon
the opinions of officers and other representatives of the
Company) nothing has come to the attention of such counsel
that causes them to believe that the Registration Statement or
any amendment thereto at the time such Registration Statement
or amendment became effective contained an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus or any
supplement thereto

-12-
<PAGE> 14
at the date of such Prospectus or such supplement, and at all
times up to and including the time of purchase or additional
time of purchase, as the case may be, contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical
data included in the Registration Statement or Prospectus).

(b) You shall have received from Price Waterhouse,
Chartered Accountants, Price Waterhouse LLP and Deloitte & Touche LLP,
letters dated, respectively, the date of this Agreement and the time
of purchase and additional time of purchase, as the case may be, and
addressed to the Underwriters (with reproduced copies for each of the
Underwriters) in the forms heretofore approved by the Managing
Underwriters.

(c) You shall have received at the time of purchase and
at the additional time of purchase, as the case may be, the favorable
opinion of Vinson & Elkins L.L.P., counsel for the Underwriters, dated
the time of purchase or the additional time of purchase, as the case
may be, as to the matters referred to in subparagraphs (iv), (v),
(vii), (viii) and (ix) of paragraph (a) of this Section 6.

In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the
independent public accountants of the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus (except as to matters
referred to under subparagraph (vii) of paragraph (a) of this Section
6), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of officers and other representatives
of the Company), no facts have come to the attention of such counsel
which lead them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus as of its date or any supplement thereto as of its date
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading (it being understood that such counsel need
express no comment with respect to the financial statements and
schedules and other financial and statistical data included in the
Registration Statement or Prospectus).

-13-
<PAGE> 15
(d) No amendment or supplement to the Registration
Statement or Prospectus, including documents deemed to be incorporated
by reference therein, shall be filed prior to the time the
Registration Statement becomes effective to which you object in
writing.

(e) The Registration Statement shall become effective, or
if Rule 430A under the Act is used, the Prospectus shall have been
filed with the Commission pursuant to Rule 424(b) under the Act, at or
before 5:00 P.M., New York City time, on the date of this Agreement,
unless a later time (but not later than 5:00 P.M., New York City time,
on the second full business day after the date of this Agreement)
shall be agreed to by the Company and you in writing or by telephone,
confirmed in writing; provided, however, that the Company and you and
any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at least 50% of the Firm Shares may from
time to time agree on a later date.

(f) Prior to the time of purchase or the additional time
of purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued
under the Act or proceedings initiated under Section 8(d) or 8(e) of
the Act; (ii) the Registration Statement and all amendments thereto,
or modifications thereof, if any, shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (iii) the Prospectus and all amendments or supplements
thereto, or modifications thereof, if any, shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.

(g) Between the time of execution of this Agreement and
the time of purchase or the additional time of purchase, as the case
may be, (i) no material and unfavorable change, financial or otherwise
(other than as referred to in the Registration Statement and
Prospectus), in the business, condition or prospects of the Company
and its Subsidiaries taken as a whole shall occur or become known and
(ii) no transaction which is material and unfavorable to the Company
shall have been entered into by the Company or any of its
Subsidiaries.

(h) The Company will, at the time of purchase or
additional time of purchase, as the case may be, deliver to you a
certificate of two of its executive officers to the effect that the
representations and warranties of the Company as set forth in this
Agreement are true an correct as of such date and the conditions set
forth in paragraph (f) and paragraph (g) have been met as of such
date.

(i) You shall have received signed letters, dated the
date of this Agreement, from and each of the directors and officers of
the Company listed on Schedule C to the effect that such persons shall
not offer to sell, sell, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, any shares of Common
Stock of the Company or securities convertible into or exchangeable
for Common Stock or warrants or other rights to purchase

-14-
<PAGE> 16
Common Stock for a period of 90 days after the date of the Prospectus
without the prior written consent of Dillon Read & Co. Inc.

(j) The Company shall have furnished to you such other
documents and certificates as to the accuracy and completeness of any
statement in the Registration Statement and the Prospectus as of the
time of purchase and the additional time of purchase, as the case may
be, as you may reasonably request.

(k) The Company shall perform such of its obligations
under this Agreement as are to be performed by the terms hereof at or
before the time of purchase and at or before the additional time of
purchase, as the case may be.

(l) The Shares shall have been approved for listing on
the Exchange, subject only to notice of issuance at or prior to the
time of purchase.

(m) Between the time for the execution of this Agreement
and the time of purchase or the additional time of purchase, as the
case may be, there shall not have occurred any downgrading, nor shall
any notice have been given of (i) any intended or potential
downgrading or (ii) any review or possible change that does not
indicate an improvement, the the rating accorded any securities of or
guaranteed by the Company by any "nationally recognized statistical
rating organization," as that term is defined in Rule 436(g)(2)
promulgated under the Act.

7. Effective Date of Agreement; Termination: This
Agreement shall become effective (i) if Rule 430A under the Act is not used,
when you shall have received notification of the effectiveness of the
Registration Statement, or (ii) if Rule 430A under the Act is used, when the
parties hereto have executed and delivered this Agreement.

The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, or American Stock Exchange or Toronto Stock Exchange
shall have been suspended or minimum prices shall have been established on the
New York Stock Exchange, or American Stock Exchange or Toronto Stock Exchange,
or if a banking moratorium shall have been declared either by the United States
or New York State authorities, or if the United States shall have declared war
in accordance with its constitutional processes or there shall have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on the
financial markets of the United States as, in your judgment or in the judgment
of such group of Underwriters, to make it impracticable to market the Shares.

-15-
<PAGE> 17
If you or any group of Underwriters elects to terminate this
agreement as provided in this Section 7, the Company and each other
Underwriter shall be notified promptly by letter or telegram.

If the sale to the Underwriters of the Shares, as contemplated
by this Agreement, is not carried out by the Underwriters for any reason
permitted under this Agreement or if such sale is not carried out because the
Company shall be unable to comply with any of the terms of this Agreement, the
Company shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 4(n), 5 and 9 hereof), and the
Underwriters shall be under no obligation or liability to the Company under
this Agreement (except to the extent provided in Section 9 hereof) or to one
another hereunder.

8. Increase in Underwriters' Commitments: If any
Underwriter shall default in its obligation to take up and pay for the Firm
Shares to be purchased by it hereunder and if the number of Firm Shares which
all Underwriters so defaulting shall have agreed but failed to take up and pay
for does not exceed 10% of the total number of Firm Shares, the non-defaulting
Underwriters shall take up and pay for (in addition to the aggregate principal
amount of Firm Shares they are obligated to purchase pursuant to Section 1
hereof) the number of Firm Shares agreed to be purchased by all such defaulting
Underwriters, as hereinafter provided. Such Shares shall be taken up and paid
for by such non-defaulting Underwriter or Underwriters in such amount or
amounts as you may designate with the consent of each Underwriter so designated
or, in the event no such designation is made, such Shares shall be taken up and
paid for by all non-defaulting Underwriters pro rata in proportion to the
aggregate number of Firm Shares set opposite the names of such non-defaulting
Underwriters in Schedule A.

Without relieving any defaulting Underwriter from its
obligations hereunder, the Company agrees with the non-defaulting Underwriters
that they will not sell any Firm Shares hereunder unless all of the Firm Shares
are purchased by the Underwriters (or by substituted Underwriters selected by
you with the approval of the Company or selected by the Company with your
approval).

If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the
right to postpone the time of purchase for a period not exceeding five business
days in order that any necessary changes in the Registration Statement and
Prospectus and other documents may be effected.

The term Underwriter as used in this agreement shall refer to
and include any Underwriter substituted under this Section 8 with like effect
as if such substituted Underwriter had originally been named in Schedule A.

9. Indemnity by the Company and the Underwriters.

-16-
<PAGE> 18
(a) The Company agrees to indemnify, defend and hold
harmless each Underwriter and any person who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each of your agents, employees, officers and directors
and the agents, employees, officers and directors of such controlling
person (collectively, the "Underwriters indemnified parties") from and
against any loss, expense, liability or claim (including the
reasonable cost of investigation) which, jointly or severally, any
such Underwriter or any such controlling person may incur under the
Act, the Exchange Act or otherwise insofar as such loss, expense,
liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or in the Registration Statement as amended by
any post-effective amendment thereof by the Company) or in a
Prospectus (the term "Prospectus" for the purpose of this Section 9
being deemed to include any Preliminary Prospectus, the Prospectus and
the Prospectus as amended or supplemented by the Company), or arises
out of or is based upon any omission or alleged omission to state a
material fact required to be stated in either such Registration
Statement or Prospectus or necessary to make the statements made
therein not misleading, except insofar as any such loss, expense,
liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in
conformity with information furnished in writing by any Underwriter
through you to the Company expressly for use with reference to such
Underwriter in such Registration Statement or such Prospectus or
arises out of or is based upon any omission or alleged omission to
state a material fact in connection with such information required to
be stated in either such Registration Statement or Prospectus or
necessary to make such information not misleading.

If any action is brought against an Underwriter
indemnified party in respect of which indemnity may be sought against
the Company pursuant to the foregoing paragraph, such Underwriter
indemnified party shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of
such action, including the employment of counsel and payment of
expenses. Such Underwriter indemnified party shall have the right to
employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Underwriter
indemnified party unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have employed counsel
to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to
those available to the Company (in which case the Company shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and
expenses shall be borne by the Company and paid as incurred (it being
understood, however, that the Company shall not be liable for the
expenses of more than one separate counsel in any one action or series
of related actions in the same jurisdiction representing the
indemnified parties who are parties to such action). Anything in this
paragraph to the contrary notwithstanding, the Company shall not be
liable for any settlement of any such claim or action effected without
its written consent.

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<PAGE> 19
(b) Each Underwriter severally agrees to indemnify,
defend and hold harmless the Company, its directors and officers, and
any person who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any
loss, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, the Company or any such
person may incur under the Act or otherwise, insofar as such loss,
expense, liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in
and in conformity with information furnished in writing by or on
behalf of such Underwriter through you to the Company expressly for
use with reference to such Underwriter in the Registration Statement
(or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus, or arises out of
or is based upon any omission or alleged omission to state a material
fact in connection with such information required to be stated either
in such Registration Statement or Prospectus or necessary to make such
information not misleading.

If any action is brought against the Company or any
such person in respect of which indemnity may be sought against any
Underwriter pursuant to the foregoing paragraph, the Company or such
person shall promptly notify such Underwriter in writing of the
institution of such action and such Underwriter shall assume the
defense of such action, including the employment of counsel and
payment of expenses. The Company or such person shall have the right
to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Company or such person
unless the employment of such counsel shall have been authorized in
writing by such Underwriter in connection with the defense of such
action or such Underwriter shall not have employed counsel to have
charge of the defense of such action or such indemnified party or
parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to
those available to such Underwriter (in which case such Underwriter
shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by such Underwriter and paid as
incurred (it being understood, however, that such Underwriter shall
not be liable for the expenses of more than one separate counsel in
any one action or series of related actions in the same jurisdiction
representing the indemnified parties who are parties to such action).
Anything in this paragraph to the contrary notwithstanding, no
Underwriter shall be liable for any settlement of any such claim or
action effected without the written consent of such Underwriter.

(c) If the indemnification provided for in this Section 9
is unavailable to an indemnified party under subsections (a) and (b)
of this Section 9 in respect of any losses, expenses, liabilities or
claims referred to therein, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, expenses, liabilities or claims (i) in such proportion as
is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law,

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<PAGE> 20
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault
of the Company on the one hand and of the Underwriters on the other
in connection with the statements or omissions which resulted in such
losses, expenses, liabilities or claims, as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters.
The relative fault of the Company on the one hand and of the
Underwriters on the other shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement
of a material fact or omission or alleged omission relates to
information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, expenses,
liabilities and claims referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any claim or action.

(d) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in subsection (c) above. Notwithstanding the provisions
of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by such Underwriter and distributed to the public
were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such
untrue statements or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriter's obligations to contribute
pursuant to this Section 9 are several in proportion to their
respective underwriting commitments and not joint.

(e) The indemnity and contribution agreements contained
in this Section 9 and the covenants, warranties and representations of
the Company contained in this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter, or any person who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, or
by or on behalf of the Company, its directors and officers, or any
person who controls the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, and shall survive any
termination of this Agreement or the issuance and delivery of the
Shares. The Company and each Underwriter agree promptly to notify the
others of the commencement of any litigation or proceeding against it
and, in the case of the Company, against any of the Company's officers

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<PAGE> 21
and directors in connection with the issuance and sale of the Shares,
or in connection with the Registration Statement or Prospectus.

10. Notices. Except as otherwise herein provided, all
statements, requests, notices and agreements shall be in writing or by telegram
and, if to the Underwriters, shall be sufficient in all respects if delivered
or sent to Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022,
Attention: Syndicate Department, and, if to the Company, shall be sufficient
in all respects if delivered or sent to the Company at the offices of the
Company at 3701 Kirby Drive, Houston, Texas 77098, Attention: Chief Financial
Officer.

11. Construction. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York. The
Section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.

12. Parties at Interest. The Agreement herein set forth
has been and is made solely for the benefit of the Underwriters, the Company
and the controlling persons, directors, officers and Underwriters indemnified
parties referred to in Section 9 hereof, and their respective successors,
assigns, executors and administrators. No other person, partnership,
association or corporation (including a purchaser, as such purchaser, from any
of the Underwriters) shall acquire or have any right under or by virtue of this
Agreement.

13. Counterparts. This agreement may be signed by the
parties in counterparts which together shall constitute one and the same
agreement among the parties.

If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below
for the purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.

Very truly yours,

VERITAS DGC INC.

By
------------------------------------
Title:

Accepted and agreed to as of the date
first above written, on behalf of themselves
and the other several Underwriters named
in Schedule A.

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<PAGE> 22
DILLON, READ & CO. INC.
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.

By: DILLON, READ & CO. INC.

By: ----------------------------
Title:

-21-
<PAGE> 23
SCHEDULE A

Number of
Underwriter Firm Shares
- ----------- -----------
DILLON, READ & CO. INC.
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC. ---------
Total 3,000,000
=========

<PAGE> 24
SCHEDULE B

SIGNIFICANT SUBSIDIARIES

<PAGE> 25
SCHEDULE C

CERTAIN EXECUTIVE OFFICERS AND DIRECTORS

David B. Robson
Stephen J. Ludlow
Lawrence C. Fichtner
Anthony Tripodo
Rene M.J. VandenBrand
Steven J. Gilbert
Douglas B. Thompson

<PAGE> 1
EXHIBIT 5

[PORTER & HEDGES, L.L.P. LETTERHEAD]

June 9, 1997

Veritas DGC Inc.
3701 Kirby Drive, Suite 112
Houston, Texas 77098

Re: Veritas DGC Inc. -- Registration Statement on Form S-3

Gentlemen:

We have acted as counsel to Veritas DGC Inc., a Delaware corporation
(the "Company"), in connection with the preparation for filing with the
Securities and Exchange Commission of a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended. The
Registration Statement relates to an aggregate of 3,450,000 shares, including
450,000 shares to cover over-allotments, if any, (the "Shares") of the Company's
common stock, par value $.01 per share (the "Common Stock"), to be issued for
purpose of sale of the Shares to the underwriters for offering to the public.

We have examined such corporate records, documents, instruments and
certificates of the Company, and have reviewed such questions of law as we have
deemed necessary, relevant or appropriate to enable us to render the opinion
expressed herein. In such examination, we have assumed without independent
investigation the authenticity of all documents submitted to us as originals,
the genuineness of all signatures, the legal capacity of all natural persons,
and the conformity of any documents submitted to us as copies to their
respective originals. As to certain questions of fact material to this opinion,
we have relied without independent investigation upon statements or
certificates of public officials and officers of the Company.

Based upon such examination and review, we are of the opinion that the
Shares have been duly and validly authorized and will, upon issuance and
delivery as described in the Registration Statement, be validly issued, fully
paid and nonassessable outstanding shares of the Common Stock.

This Firm consents to the filing of this opinion as an exhibit to the
Registration Statement and further consents to all references to this Firm in
the Registration Statement.

This opinion is conditioned upon the Registration Statement being
declared effective and upon compliance by the Company with all applicable
provisions of the Securities Act of 1933, as amended, and such state securities
rules, regulations and laws as may be applicable.

Very truly yours,

PORTER & HEDGES, L.L.P.