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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-7427
VERITAS DGC INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0343152
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3701 KIRBY DRIVE, SUITE #112 77098
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
(713) 512-8300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was $867,252,962 as of September 30, 1997.
The number of shares of the Company's common stock, $.01 par value, (the
"Common Stock"), outstanding at September 30, 1997 was 22,434,574 (including
2,367,071 Veritas Energy Services Inc. exchangeable shares which are identical
to the Common Stock in all material respects).
The registrant's proxy statement to be filed in connection with the
registrant's 1997 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS
FORM 10-K
================================================================================
<TABLE>
<CAPTION>
Item Page Number
- ---- -----------
PART I
<S> <C>
1 Business
General 1
Industry Overview 2
Services and Markets 2
Technology and Capital Expenditures 7
Competition and Other Business Conditions 7
Backlog 8
Significant Customers 8
Employees 8
2 Properties 9
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters 10
6 Selected Consolidated Financial Data 11
7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12
8 Consolidated Financial Statements and Supplementary Data 16
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 48
PART III
10 Directors and Executive Officers of the Registrant 48
11 Executive Compensation 48
12 Security Ownership of Certain Beneficial Owners and Management 48
13 Certain Relationships and Related Transactions 48
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 48
Signatures
</TABLE>
<PAGE> 3
Unless the context otherwise requires, the number of shares, per share prices,
weighted average number of shares outstanding and per share amounts in this
report 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"). This report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in the forward-looking
statements as a result of certain factors including those set forth under Item
1. "Business" and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
PART I
ITEM I. BUSINESS
GENERAL
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 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.
Prior to the Combination, the Company had initiated a comprehensive program
designed to refocus each of the Company's geographic and operational lines of
business. The Company's actions included: (i) selling its seismic equipment
manufacturing operations; (ii) selling its joint venture interests in the former
Soviet Union ("FSU"); (iii) deploying its land and transition zone crews and its
marine crews into markets where the Company's presence would be significant;
(iv) expanding its accumulation and licensing of multi-client data surveys to
capitalize on the historically higher margins associated with nonexclusive data
sales; (v) emphasizing research and development on its proprietary software in
order to capitalize on its reputation for seismic data processing innovation;
and (vi) streamlining its cost structure through personnel reduction, office
consolidations, vessel deactivations and the outsourcing of certain development
and manufacturing functions.
In fiscal 1997, the Company embarked upon an extensive capital expenditure
program designed to increase its efficiency and expand its operations to
improve the competitive position of its principal services and to enable the
Company to capitalize on high-growth/high-margin opportunities in selected
markets.
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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 is 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 it
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.
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.
The industry is experiencing growing demand for 3D multi-client data surveys,
particularly in deepwater environments. Increased leasing activity and the
high costs 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.
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 United States, four land crews in Canada, four
land crews in South America, currently in Argentina, Peru and Bolivia, and one
land crew in Oman. The Company's eight marine crews operate in selected markets
worldwide. The Company also operates 20 seismic data processing facilities,
most of which are located in major oil and gas centers around the
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world. In fiscal 1995, 1996 and 1997, 61%, 62% and 50%, 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 nonexclusive basis. When acquiring data for its library, the
Company generally obtains pre-funding commitments for a 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:
<TABLE>
<CAPTION>
REVENUES BY SERVICE GROUPS(1) YEARS ENDED JULY 31,
-----------------------------------------
1995 1996 1997
----------- ---------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
Land and transition zone data acquisition $ 108,133 117,667 $ 175,837
Marine data acquisition 32,781 54,360 64,429
Data processing 54,687 55,566 74,107
Licensing of multi-client data surveys 19,804 23,003 48,342
Other 225
--------- -------- ---------
Total $ 215,630 $250,596 $ 362,715
========= ======== =========
</TABLE>
REVENUES BY GEOGRAPHICAL AREA
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------------------------
1995 1996 1997
----------- ---------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
United States(2) $ 87,318 $ 98,875 $ 184,013
Canada 44,297 47,423 52,141
Europe and Middle East 20,230 37,394 45,201
Far Bast 25,918 30,558 30,203
South America 37,867 36,346 51,157
--------- -------- ---------
Total $215,630 $250,596 $ 362,715
========= ======== =========
</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 am recognized based on the
percentage of each service group's cost to total cost
(2) Includes export sales of $2,228, $4,774 and $4,115 in fiscal 1995, 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 corporate 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 services are based upon the amount of data collected or processed,
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 certain 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 interruption 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
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accomplished in a brief period. In recent years, the Company's contracts for
data acquisition have been predominately on a turnkey or on a combination of
turnkey/times 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 16 seismic crews, with a combined seismic recording capacity of
approximately 27,000 channels. The Company is able to configure its equipment
to operate up to 19 crews. Seven of the crews are operating in the United
States, four in Canada, four in South American markets, currently Argentina,
Peru and Bolivia, and one in Oman.
The Company's land and transition zone crews are equipped to perform both 2D
and 3D 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 explosive or mechanical vibrating unit; 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 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 reduced 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 invested $38.0 million during fiscal 1997 in land and transition
zone equipment that has provided additional capacity and increased
efficiencies. Total capacity increased from 18,000 channels in the prior year
to 27,000 channels in the current year primarily from the purchase of equipment
capable of configuring up to two crews in Oman and the upgrade of a third
transition zone crew to I/0 System Two - RSR equipment. The Company also
acquired geophones and cables to standardize equipment so that it is
interchangeable among the Company's land crews. 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 relates to a
new crew in South America.
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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 vessel currently operated by the Company:
<TABLE>
<CAPTION>
YEAR
ENTERED
VESSEL(1) SERVICE LOCATION LENGTH BEAM
- ------ ------- -------- ------ -----
<S> <C> <C> <C> <C>
Acadian Searcher 1983 Australia 217 feet 44 feet
Ross Seal 1987 Malaysia 176 feet 38 feet
Seacor Surf 1991 Gulf of Mexico 135 feet 35 feet
Polar Search 1992 Gulf of Mexico 300 feet 51 feet
Pearl Chouest 1995 Gulf of Mexico 210 feet 40 feet
Cape Romano 1996 Gulf of Mexico 155 feet 36 feet
Polar Princess 1996 Gulf of Mexico 250 feet 46 feet
Seabulk Veritas 1997 Gulf of Mexico 194 feet 40 feet
</TABLE>
(1) Does not include the Professor Kurentsov which is operating under
short-term contract.
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 short-term charter arrangements
expiring at various times through 1998. These charters contain certain options
for the Company to extend on terms and at rates closely approximating the
expiring terms and rates. Decisions on whether to extend the 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. During 1997, the
Company invested $34.5 million primarily to complete the upgrade of its vessels
to Syntrak 480 recording systems and streamers. 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 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 signed an eight-year charter for another large vessel,
primarily to service the North Sea and South Atlantic markets. This new
"flagship" vessel, the Veritas Viking, which will be the Company's largest
vessel and will be capable of deploying 12 seismic streamer cables, is expected
to begin service in late fiscal 1998. The purchase of equipment for this new
vessel, together with 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 the ship
during their tours of duty, which are staggered to permit continuous
operations. During seismic operations, the Company's personnel direct the
positioning
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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 20 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 (two locations), Irving, Austin and Midland, Texas; Denver, Colorado;
Oklahoma City, Oklahoma; Singapore; Crawley, England; Calgary, Alberta, Canada;
Brisbane, Melbourne, and Perth, Australia; Jakarta, Indonesia; Kuala Lumpur,
Malaysia; Buenos Aires and Neuquen, Argentina; Caracas, Venezuela; Quito,
Ecuador; and Abu Dhabi, U.A.E.
The Company's centers operate high capacity, advanced technology data
processing systems based on NEC, SUN SGI and HP computer systems with high
speed networks. These systems utilize the Company's proprietary SEISMIC data
processing software. The marine and land data acquisition crews have software
identical to that utilized in the processing centers, allowing for ease in the
movement of data from the field to the data processing centers. The Company
operates both land and marine data processing centers and tailors the equipment
and software deployed in an area to meet the local market demands.
Because of the increased complexity of processing 3D surveys and growing demand
for such surveys, in fiscal 1997, the Company invested $19.7 million to expand
and upgrade computer resources at most of its data processing centers. To
improve its speed and capacity in processing large 3D surveys, the Company
installed a NEC supercomputer in its Houston processing center in early fiscal
1997. The success of this first system led to the installation of a second NEC
supercomputer in the Crawley center in August 1997. These supercomputer
installations act as global resources for all of the Company's data processing
operations. During fiscal 1997, the Company acquired additional SUN systems to
add capacity at existing land processing centers and to equip two new
processing centers. These expansions and upgrades have both increased capacity
and lowered processing costs. The Company has budgeted $16 million in fiscal
1998 for data processing capital expenditures, primarily for the purchase of
additional computers and peripherals and other equipment.
LICENSING OF MULTI-CLIENT DATA SURVEYS
The Company often acquires and processes data for its own account by conducting
surveys either 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.
The relatively expensive cost of acquiring and processing deepwater 3D seismic
data has prompted many oil and gas companies to participate in multi-client
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. As of July 31, 1997, the Company's multi-client data
library included approximately 1.0 million line kilometers of survey data in
the Gulf of Mexico and North Sea. While historically the Company's multi-client
data library has been offshore, in fiscal 1997 the Company initiated onshore
surveys in the U.S. and intends to expand its land data library.
In general, the Company obtains pre-funding commitments for at least 70% of the
cost of these surveys. Factors considered in determining whether to undertake
such surveys include the availability of initial
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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
TECHNOLOGY AND CAPITAL EXPENDITURES
The geophysical industry is highly technical, and the requirements for the
acquisition and processing of seismic data have evolved continuously during 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 45 persons in its research and
development activities, substantially all of whom are scientists, engineers or
programmers. During fiscal 1995, 1996 and 1997, research and development
expenditures were $3.6 million, $3.2 million, and $3.7 million, respectively.
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.
The capital expenditure program for fiscal 1999 requires expenditures of
approximately $75 million, and another $4.6 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, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ----------
(In thousands of dollars)
<S> <C> <C> <C>
Land and transition zone data acquisition $ 18,004 $ 15,020 $ 38,024
Marine data acquisition 8,296 7,757 34,482
Data processing 6,495 8,394 19,743
Other 839 1,689 3,801
-------- -------- --------
Total $ 33,634 $ 32,860 $ 96,050
======== ======== ========
</TABLE>
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. As a result of
changing technology and increased capital requirements, the seismic industry
has consolidated substantially since the late 1980's. The largest competitors
remaining in the market are Western Geophysical (a division of Western Atlas
Inc.), Geco-Prakla (a division of Schlumberger), Compagne Generale
Geophysique and Petroleum Geo-Services ASA. Management believes the Company is
the fifth largest geophysical service company based on revenues. 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
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and its geophysical equipment and injury to persons and property that may
result from its operations and considers the amounts of such insurance to be
adequate. The Company may not 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.
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.
BACKLOG
At July 31, 1997, the Company's backlog of commitments for services was $257.3
million, compared with $158.8 million at July 31, 1996. it is anticipated that
a majority of the July 31, 1997 backlog will be completed in the next 12
months. This backlog consists 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. No single customer accounted for 10% or more of total revenues
during the years ended July 31, 1995, 1996 and 1997,
EMPLOYEES
At July 31, 1997, the Company had approximately 3,500 full-time employees. With
the exception of 33 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.
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ITEM 2. PROPERTIES
The Company's headquarters in Houston are located in a 12-story office building
and occupy approximately 97,000 square feet of leased premises. Approximately
38% of this space is devoted to data processing operations, and the balance
houses executive, accounting, research and development and geophysical
operating personnel, The Company leases additional space aggregating
approximately 338,000 square feet which is used primarily for seismic data
processing operations, exploration and development information services,
geophysical operating personnel and warehousing in Austin, Galveston, Houston,
Irving and Midland, Texas; Denver, Colorado; Oklahoma City, Oklahoma; Crawley,
England; Singapore; Kuala Lumpur, Malaysia; Brisbane, Melbourne and Perth,
Australia; Calgary, Alberta, Canada; Buenos Aires and Niacin, Argentina;
Caracas, Venezuela; Quito, Ecuador; Lima, Peru; Santa Cruz, Bolivia; and Abu
Dhabi, U.A.E. These facilities are conventional office space, except for any
modifications in wiring, air conditioning and lighting necessary to accommodate
computer equipment. Leases covering the Company's facilities expire at varying
times from 1998 through 2013. The Company owns property in Jackson,
Mississippi, comprising 37,551 square feet of office and workshop facilities
and in Calgary, Alberta, Canada comprising 15,000 square feet of office space
and maintenance facilities. Additionally, the Company owns approximately two
acres in Calgary, Alberta, Canada used for equipment storage.
ITEM 3. LEGAL PROCEEDINGS
As of September 30, 1997, the Company was not a party to, nor was its property
the subject of any material pending legal proceedings, as defined by relevant
rules and regulations of the Securities and Exchange Commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended July 31, 1997.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 prices for the
common stock on the New York Stock Exchange and the American Stock Exchange, as
appropriate, for the periods shown.
<TABLE>
<CAPTION>
Period High Low
----------- ------- -------
<S> <C> <C> <C>
1996 1st Quarter $ 6 3/8 $ 4 3/4
2nd Quarter 8 3/4 5 3/8
3rd Quarter 15 7/8 6 1/4
4th Quarter 18 1/4 11
1997 1st Quarter $21 1/2 $11 1/2
2nd Quarter 25 1/4 16 1/2
3rd Quarter 21 1/4 15 1/2
4th Quarter 26 5/8 18 1/8
</TABLE>
On September 30, 1997, the last reported sale price of the Company's common
stock on the New York Stock Exchange was $42 9/16 per share. On September 30,
1997, the approximate number of holders of record of common stock was 190.
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 agreement, due July 1998, prohibits
the payment of cash dividends. (See Note 7 of Notes to the Consolidated
Financial Statements.)
On April 1, 1997 the Company issued 10,000 shares of its common stock to an
executive officer of the Company in conjunction with an employment agreement
and in exchange for services to be rendered over the following three years-
Such issuance of common stock was exempt from registration pursuant to section
4(2) of the Securities Act.
10
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of July
31, 1997 and for each of the five years in the period ended July 31, 1997,
which has been restated for the Combination (See Note 2 of Notes to
Consolidated Financial Statements) which was accounted for as a pooling of
interests. The Balance Sheet Data as of July 31, 1993 has been derived from the
unaudited consolidated financial statements of the Company. In management's
opinion, the balance sheet data contains all adjustments necessary to present
fairly the Company's financial position as of July 31, 1993.
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, 1993, 1994 and 1995 have been
combined with VES' results of operations for fiscal years ended October 31,
1993, 1994 and 1995, respectively. To conform year ends, Digicon's results of
operations for the year ended July 3 1, 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, 1,995
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>
Years Ended July 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA;
Revenues $ 146,090 $ 178,392 $ 215,630 $ 250,596 $ 362,715
Costs and expenses:
Operating expenses:
Cost of services 121,873 144,984 170,424 198,711 271,656
Restructuring 838
Write-off/write down for impairment of assets 5,235 3,628
Depreciation and amortization 11,741 19,119 23,732 26,921 40,631
Selling. general and administrative 4,797 6,296 5,855 7,255 11,408
Interest 1,928 3,213 5,170 5,466 7,484
Merger related costs 3,666 597
Gain on sale of investment in FSU joint ventures (4,370)
Other (210) (1,833) 232 546 630
--------- --------- --------- --------- ---------
Total costs and expenses 140,129 177,852 201,043 246,193 332,406
========= ========= ========= ========= =========
Income before provision for income taxes and equity
in (earnings) loss of 50% or less-owned companies
and joint ventures 5,961 540 14,587 4,403 30,309
Provision for income taxes 3,183 5,929 3,807 2,009 6,062
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures 2,204 4,965 5,186 1,113 (878)
--------- --------- --------- --------- ---------
Net income (loss) $ 574 $ (10,354) $ 5,594 $ 1,281 $ 25,125
========= ========= ========= ========= =========
Net income (loss) per share $ .05 $ .66 $ .31 $ .07 $ 1.33
========= ========= ========= ========= =========
Weighted average shares 11,874 15,633 17,771 17,982 18,898
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of July 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ------ -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 9,704 $ 16,794 14,830 $ 22,479 $122,070
Total assets 141,464 171,814 184,340 198,592 381,261
Long-term debt (including current maturities) 30,890 31,104 36,788 41,090 75,971
Stockholders' equity 69,380 94,517 98,000 105,923 221,301
</TABLE>
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues. For fiscal 1997, total revenues increased 45% from $250.6 million to
$362.7 million. Land and transition zone acquisition revenues increased 49%
from $117.7 million to $175.8 million as a result of higher demand, additional
capacity of 9,000 channels and operating efficiencies from upgraded and
standardized equipment. Demand improved significantly in Canada and remained
high during the spring break-up period. Contracts in the Company's other
markets had longer terms, larger channel requirements, better prices and
improved weather protection clauses. Marine acquisition revenues increased 19%
from $54.4 million to $64.4 million primarily due to increased utilization of
the Company's vessels, higher productivity from the upgrade to Syntron
equipment and the addition of the Polar Princess in the first quarter and
another short-term chartered vessel in the fourth quarter. Data processing
operations increased 33% from $55.6 million to $74.1 million due to increased
capacity, increased productivity and increased volumes of data available for
processing. The Company has substantially upgraded its processing centers,
installed a NEC supercomputer in Houston and opened new centers in Abu Dhabi,
Australia, Ecuador and Oklahoma. Multi-client data sales increased 110% from
$23.0 million to $48.3 million due to expanding customer interest in the Gulf
of Mexico. especially deepwater and sub-salt areas, and North Sea multi-client
data surveys.
Operating Expenses. Costs of services increased 37% from $198.7 million to
$271.7 million, but as a percent of revenues decreased from 79% to 75%. The
improvement in operating margins is attributable to higher prices as a result
of increased market demand, better equipment utilization and higher
productivity for all service groups as discussed above.
Depreciation and Amortization. Depreciation and amortization expense increased
51% from $26.9 million to $40.6 million due to the extensive 1997 capital
expenditure program.
Selling, General and Administrative, Selling, general and administrative
expenses increased 57% from $7.3 million to $11.4 million, resulting primarily
from costs incurred in implementing new administrative and accounting systems,
pursuing a more aggressive marketing strategy and from incentive compensation
as a result of the improved performance of the Company,
Interest. Interest expense increased 37% from $5.5 million to $7.5 million due
to increased debt levels required to finance the Company's 1997 capital
expenditure program. The Company issued $75 million of senior notes during the
current year.
Merger Related Costs. Merger related costs consist primarily of one month of
investment banking and professional fees and expenses incurred in connection
with the Combination.
Income Taxes- Provision for income taxes increased from $2.0 million to $6.1
million as a result of increased profitability of the Company, however, the
effective tax rate was reduced in the current year by the write-off of certain
of the Company's investments.
Equity in (earnings) loss. Equity in (earnings) loss is related to the
Indonesian joint venture. An increase in marine acquisition surveys and the
sale of multi-client data library account for the increased profitability of
the joint venture in the current year.
12
<PAGE> 15
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. See Note 2 of Notes to the Consolidated Financial
Statements.
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 for social security taxes and
employee compensation. 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. The Indonesian joint venture recorded losses on abandonment of
seismic data processing operations in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are cash, short-term investments
and cash flow from operations which all increased in fiscal 1997 due to
increased operating activity and completion of two public financings. External
sources include the revolving credit facility, public financings, 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
13
<PAGE> 16
foreign receivables is generally longer than for comparable domestic accounts.
Approximately 50% of revenues for the year ended July 31, 1997 were
attributable to the Company's foreign operations and export sales. 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, partially funded multi-client data
surveys generally require greater amounts of working capital than contract
work. Depending on the timing of future sales of the data and the collection of
the proceeds from such sales, the Company's liquidity will be affected;
however, the Company believes that these non-exclusive surveys have good
long-term sales, earnings and cash flow potential.
Capital expenditures totaled $96.1 million during fiscal 1997. Of this amount
approximately $10.3 million represented capital spending necessary to maintain
the Company's operating equipment. The remainder was for discretionary capital
spending, including the replacement of older operating equipment, with a view
of substantially enhancing operating efficiency, and the addition of equipment
to meet increased demand for seismic services. The Company's capital
expenditure program for 1998 is $75.0 million and includes expenditures of
$26.0 million to maintain or replace the Company's current operating equipment
and $49.0 million to expand capacity. At July 31, 1997, the Company had open
purchase commitments in the amount of approximately $14.0 million related to
these expenditures. The Company spent $3.7 million in fiscal 1997 and plans to
spend $4.6 million in fiscal 1998 for research and development.
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. The Company is in
compliance with all covenants of the agreement and has no outstanding advances
at July 31, 1997.
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. The Company is in compliance with all covenants of the
agreement at July 31, 1997. Upon a change in 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 capital expenditures for fiscal 1997.
In July 1997, the Company completed a public offering (the "Offering") of
3,450,000 shares of common stock (including the underwriters' overallotment
option of 450,000 shares). A portion of the net proceeds from the Offering of
$76.4 million was used for 1997 capital expenditures and the remainder will be
used to fund a portion of the Company's fiscal 1998 $75.0 million capital
expenditure program and for other general corporate purposes, including working
capital, possible repurchases of outstanding Senior Notes and possible
acquisitions. 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, 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.
14
<PAGE> 17
Since the Company's quasi-reorganization with respect to Digicon Inc. on July
31, 1991, the tax benefits of net operating loss carryforwards existing at the
date of the quasi-reorganization have been recognized through a direct addition
to paid-in capital, when realization is more likely than not. Additionally, the
utilization of the net operating loss carryforwards existing at the date of the
quasi-reorganization are subject to certain limitations. During 1997, the
Company recognized $9,867,000 related to these benefits, due to the increased
profitability of the Company during the current year and anticipated
profitability in future years. See Note 9 of Notes to the Consolidated
Financial Statements.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure and research and
development programs and meet its principal and interest obligations with
respect to outstanding indebtedness. The Company anticipates that cash and
short-term investments, net proceeds from the 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. 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.
15
<PAGE> 18
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Veritas DGC Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Veritas DGC Inc. and its subsidiaries at July 31, 1997 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement, An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
September 24, 1997
16
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Veritas DGC Inc.
We have audited the consolidated balance sheet of Veritas DGC Inc. and
subsidiaries as of July 31, 1996, and the related consolidated statements of
income, cash flows and changes in stockholders' equity for each of the two
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 sheet of Veritas Energy Services Inc. as of July 31, 1996,
or the related consolidated statements of income, cash flows and changes in
stockholders' equity of Veritas Energy Services Inc. for the year ended October
31, 1995 or for the twelve months ended July 31, 1996, which statements reflect
total assets of $57,793,000 as of July 31, 1996 and total revenues of
$109,996,000 for the year ended October 31, 1995 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 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, 1996 and the results of its operations and its cash flows for
each of the two years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
October 10, 1996
17
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Veritas Energy Services Inc.
We have audited the consolidated balance sheets of Veritas Energy Services Inc.
as of July 31, 1996 and the consolidated statements of income, retained
earnings and changes in financial position for the nine months ended July 31,
1996 and for the year ended October 31, 1995 (not presented separately herein).
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.
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 statement. 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 of July 31, 1996
and the results of its operations and the changes in its financial position for
the nine months ended July 31, 1996 and for the year ended October 31, 1995 in
accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
September 20, 1996
18
<PAGE> 21
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended July 31,
-------------------------------------
1995 1996 1997
--------- -------- ---------
<S> <C> <C> <C>
REVENUES $ 215,630 $250,596 $ 362,715
COSTS AND EXPENSES:
Cost of services 170,424 198,711 271,656
Write-off/write-down for impairment of assets 3,628
Depreciation and amortization 23,732 26,921 40,631
Selling, general and administrative 5,855 7,255 11,408
Other (income) expense:
Interest 5,170 5,466 7,484
Merger related costs 3,666 597
Gain on sale of investment in FSU joint ventures (4,370)
Other 232 546 630
--------- -------- ---------
Total costs and expenses 201,043 246,193 332,406
--------- -------- ---------
Income before provision for income taxes and equity in
(earnings) loss of 50% or less-owned companies and
joint ventures 14,587 4,403 30,309
Provision for income taxes 3,807 2,009 6,062
Equity in (earnings) loss of 50% or less-owned companies
and joint ventures 5,186 1,113 (878)
--------- -------- ---------
NET INCOME $ 5,594 $ 1,281 $ 25,125
========= ======== =========
PER SHARE OF COMMON STOCK:
Earnings per share $ .31 $ .07 $ 1.33
========= ======== =========
Weighted average shares 17,771 17,882 18,898
========= ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 22
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for par value and number of shares)
<TABLE>
<CAPTION>
July 31,
------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 10,072 $ 71,177
Restricted cash investments 327 550
Accounts and notes receivable (net of allowance for doubtful accounts: 1996, $740;
1997, $646) 65,447 120,946
Materials and supplies inventory 1,659 2,333
Prepayments and other 8,199 10,429
--------- ---------
Total current assets 85,704 205,435
Property and equipment:
Seismic equipment 103,899 156,264
Data processing equipment 34,403 54,516
Leasehold improvements and other 26,802 29,978
--------- ---------
Total 165,104 240,758
Less accumulated depreciation 86,094 108,004
--------- ---------
Property and equipment - net 79,010 132,754
Multi-client data library 25,628 20,904
Investment in and advances to joint ventures 1,463 2,908
Goodwill (net of accumulated amortization: 1996,$2,214; 1997,$2,725) 3,674 3,163
Deferred tax asset 6,385
Other assets 3,113 9,712
--------- ---------
Total $ 198,592 $ 381,261
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,739 $ 383
Accounts payable - trade 27,454 39,007
Accrued interest 313 2,188
Other accrued liabilities 19,905 38,669
Income taxes payable 1,814 3,118
--------- ---------
Total current liabilities 63,225 83,365
Non-current liabilities:
Long-term debt - less current maturities 27,351 75,588
Other non-current liabilities 2,093 1,007
--------- ---------
Total noncurrent liabilities 29,444 76,595
Commitments and contingent liabilities (See Note 11)
Stockholders' equity:
Preferred stock, $.01 par value; authorized: 1,000,000 shares; none issued
Common stock, $.0l par value; authorized:40,000,000 shares; issued: 11,334,352 and
19,982,040 shares (excluding 7,023,701 and 2,367,071 Exchangeable Shares,
respectively) at July 31, 1996 and 1997, respectively 113 200
Additional paid-in capital 104,469 194,764
Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.) 2,275 27,400
Cumulative foreign currency translation adjustment (934) (1,063)
--------- ---------
Total stockholders' equity 105,923 221,301
--------- ---------
Total $ 198,592 $ 381,261
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 23
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
For the Years Ended July 31,
-------------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,594 $ 1,281 $ 25,125
Non-cash items included in income:
Write-off/write-down for impairment of assets 3,628
Depreciation and amortization 23,732 26,921 40,631
Amortization of warrants issued with short-term related party loans 89
Amortization of deferred gain on sale/leaseback (898) (103)
Loss on disposition of property and equipment 919 875 1,151
Equity in (earnings) loss of 50% or less-owned companies and joint ventures 5,186 1,113 (878)
Gain on sale of investment in FSU joint ventures (4,370)
Write-down of multi-client data library to market 1,786 1,774 2,604
Deferred tax asset 2,902
Other (325) 61 610
Change in operating assets/liabilities (exclusive of the effects of the acquisition of
DataGraphics Ltd. in 1995):
Accounts and notes receivable (8,230) (9,466) (55,499)
Materials and supplies inventory 235 (241) (674)
Prepayments and other (3,044) (1,807) (2,230)
Multi-client data library (11,262) 574 2,120
Other 731 851 (4,282)
Accounts payable - trade (4,988) 952 11,003
Accrued interest 117 (96) 1,875
Other accrued liabilities 7,837 796 18,764
Income taxes payable 1,721 (227) 1,304
Other noncurrent liabilities (615) (1,541) (1,116)
Adjustment to conform fiscal year of Veritas Energy Services Inc. (5,268)
-------- -------- ---------
Total cash provided by operating activities 14,215 20,077 43,410
FINANCING ACTIVITIES:
Payments of secured term loans (10,854)
Payments of long-term debt (9,634) (11,437) (24,976)
Borrowings from long-term debt 531 1,500 781
Net borrowings (payments) under credit agreements 1,676 (2,665) (11,458)
Borrowings from senior notes 75,000
Debt issue costs (2,765)
Net proceeds from sale of common stock (44) 4,470 80,515
Net proceeds from sale of treasury stock 3,984 3,972
Borrowings of short-term related party loans 30
Payments of short-term related party loans (2,725)
-------- -------- ---------
Total cash provided (used) by financing activities (6,182) (4,160) 106,243
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments (350) 343 (223)
Increase in investment in and advances to joint ventures (4,231) (2,372) (567)
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 (19,231) (14,459) (89,112)
Sale of property and equipment 1,651 668 1,037
Purchase of DataGraphics Ltd. (407)
-------- -------- ---------
Total cash used by investing activities (13,568) (15,820) (88,865)
Currency (gain) loss on foreign cash 72 (107) 317
-------- -------- ---------
Change in cash and cash equivalents (5,463) (10) 61,105
Beginning cash and cash equivalents balance 15,545 10,082 10,072
-------- -------- ---------
Ending cash and cash equivalents balance $ 10,082 $ 10,072 $ 71,177
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE> 24
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,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in property and equipment for:
Accounts and notes receivable - deferred credits utilized $ 2,045 $ 866
Execution of equipment purchase obligations 12,024 16,963 $ 6,388
Accounts payable - trade 334 572 550
Increase in prepayments on property and equipment for notes payable 601
Increase in assets/liabilities due to purchase of DataGraphics 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 2,309
Accounts and note receivable from FSU joint ventures (409)
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
Utilization of net operating losses existing prior to the
quasi-reorganization resulting in an increase (decrease) in:
Deferred tax asset valuation allowance (9,867)
Additional paid-in capital 9,867
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest -
Senior notes 3,496
Equipment purchase obligations 1,280 1,878 673
Secured term loans 635 506 274
Credit agreements 1,723 1,843 403
Short-term related party loans 199
Other 1,388 1,286 656
Income taxes 2,276 5,086 1,891
</TABLE>
See Notes to Consolidated Financial Statements
22
<PAGE> 25
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended July 31, 1995, 1996 and 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
Treasury Stock, Accumulated Cumulative
Common Stock Issued At Cost Earnings (Deficit) Foreign
-------------------- --------------------- Additional (from August 1, Currency
Par Paid-In 1991 with respect Translation
Shares Value Shares Amount Capital to Digicon Inc.) Adjustment
---------- ------ ----------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1994 31,352,273 $ 314 $ 98,240 $ (3,664) $ (373)
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)
Common stock issued for
exchangeable stock (See Note 2) 4,645,968 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 360,387 3 3,121
Common stock issued for cash, net of
issue costs 3,450,000 35 76,416
Registration and filing costs (91)
Utilization of net operating loss
carryforwards existing prior to quasi-
reorganization 9,867
Cumulative foreign currency translation
adjustment (129)
Net income 25,125
---------- ------ ----------- ------- --------- -------- ---------
BALANCE, JULY 31, 1997 19,982,040 $ 200 $ $ 194,764 $ 27,400 $ (1,063)
========== ====== =========== ======= ========= ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE> 26
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Veritas DGC Inc. (the "Company") provides seismic data acquisition, data
processing and multi-client data surveys to the oil and gas industry in
selected markets worldwide. The accompanying consolidated financial statements
include the accounts of Veritas DGC Inc., formerly Digicon Inc. ("Digicon"),
and all majority-owned domestic and foreign subsidiaries. Investments 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. All
financial information for all periods presented prior to the merger on August
30, 1996 between 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.
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.
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain prior year balances have been reclassified for consistent presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and short-term investments,
restricted cash investments, accounts and notes receivable, accounts payable
and debt. The fair market value of the $75.0 million senior notes and related
interest payable is $78.7 million based on the present value of total payments
due at the high yield corporate bond rate at July 31, 1997. The carrying value
is a reasonable estimate of fair value for all other instruments.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 utilizing the treasury stock method and average market prices
that would have been outstanding if dilutive potential common shares had been
issued. In addition, previously reported earnings per share must be restated.
This statement is effective for interim and annual reporting 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 the average market price for the period
instead of the higher of the average market price or the end of period price.
In addition, diluted earnings per share will be presented for all prior periods
where fully diluted earnings per share were not previously reported 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.
24
<PAGE> 27
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement requires disclosure in both annual and interim reporting of the
reporting period's comprehensive income (changes in equity from non-owner
sources), net of the related tax effect, on the face of the consolidated
statement of income, consolidated statement of changes in stockholders' equity
or in a separate statement of comprehensive income and the accumulated balance
of other comprehensive income (comprehensive income excluding net income) as a
separate component in the stockholders' equity section of the consolidated
balance sheet. Classifications included in the accumulated balance are
disclosed on the face of the consolidated balance sheet or statement of changes
in stockholders' equity or in notes to the consolidated financial statements.
The Company's sources of comprehensive income include net income and cumulative
foreign currency translation adjustments. The Company will be required to
implement this statement in fiscal year 1999. Management has not completed its
assessment of how it will present the required information.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" which will supersede SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". It will require
the Company to disclose certain financial information in both annual and
interim reporting about "operating segments" which are components of a company
that are evaluated regularly by management in deciding how to allocate its
resources and in assessing its performance. It also requires disclosure about
the countries from which the Company derives its revenues and in which it
employs its long-lived assets. Major customers will continue to be disclosed.
The Company will be required to implement this statement in fiscal year 1999.
Management has not completed its assessment of how the adoption of this
statement will affect its existing segment disclosures.
TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the United States ("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. 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 their functional currency and translate all assets and liabilities at
year-end exchange rates and operating results at average exchange rates
prevailing during the year. Adjustments resulting from the translation of
assets and liabilities are recorded in the cumulative foreign currency
translation adjustment account in stockholders' equity.
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 $327,000 and $550,000 at July 31,
1996 and 1997, respectively, were pledged as collateral on certain bank
guarantees related to contracts entered into in the normal course of business.
25
<PAGE> 28
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
ACCOUNTS RECEIVABLE
Included in accounts and notes receivable at July 31, 1996 and 1997 are
unbilled amounts of approximately $12,682,000 and $17,308,000, 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 five to seven months. The Company capitalizes associated
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.
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.
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 $517,000 at July 31, 1996. There were no unamortized
mobilization costs at July 31, 1997.
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.
26
<PAGE> 29
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
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 from data acquisition and data processing services are recognized on
the percentage-of-completion method measured by the amount of data collected or
processed to the total amount of data to be collected or processed or by time
incurred to total time expected to be incurred. Sales from the licensing of
multi-client data surveys are recognized upon delivery of such data based upon
agreed rates set forth in the contract.
DEPRECIATION
Depreciation is computed using the straight-line method based on estimated
useful lives as follows:
<TABLE>
<CAPTION>
Estimated Useful
Life
----------------
<S> <C>
Seismic equipment 4-5
Data processing equipment 3-6
Leasehold improvements and other 3-10
</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
property and equipment retired or disposed of is included in other costs and
expenses. (See Note 16.)
In fiscal 1996, the Company recognized impairment of assets in the amount of
$3,628,000 or $.20 per share (as restated for the Reverse Split), respectively.
(See Notes 13 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, 1995, 1996 and 1997 were
$3,589,000, $3,193,000 and $3,725,000, respectively.
STOCK-BASED COMPENSATION
The Company maintains stock-based compensation plans that are accounted for
using the intrinsic value based method allowed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Under that method, no compensation expense is recorded in the
accompanying consolidated financial statements since the exercise price of the
related stock options approximates fair market value on the date of grant. As
required by SFAS No. 123, "Accounting for Stock-Based Compensation", the effect
on net income and earnings per share of compensation expense that would have
been recorded using the fair value based method is reported through disclosure.
(See Note 12.) The fair value of options on the date of grant under the fair
value based method is determined using the Black-Scholes option valuation
method.
27
<PAGE> 30
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
EARNINGS PER SHARE
Earnings 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 13) and shares issuable upon exchange of the Veritas
Energy Services Inc. Exchangeable Stock (see Note 2).
Primary earnings per share is computed based on the weighted average number of
shares of common stock, Exchangeable Stock (see Note 2) and common stock
equivalents. Common stock equivalents include (i) stock options (see Note 12)
and (ii) warrants (see Note 14). 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%.
Fully diluted earnings per share is not presented for the years ended July 31,
1995, 1996 and 1997 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 12.) The VES
articles of amalgamation were amended to reduce the number of authorized VES
common shares to one which is 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 the differing year ends of Digicon and VES, results
of operations for dissimilar year ends have been combined. Digicon's results of
operations for the year ended July 31, 1995 have been combined with VES'
results of operations for the year ended October 31, 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.
28
<PAGE> 31
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
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, 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,
decreasing net income by approximately $25,000 and $173,000 for the years ended
July 31, 1995 and 1996, respectively, and (ii) reverse the effect of a prior
period adjustment, increasing net income by approximately $314,000 and $102,000
for the years ended July 31, 1995 and 1996, respectively. Reclassification of
$25,493,000 and $28,842,000 for the years ended July 31, 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,
----------------------------
1995 1996
----------- -----------
(In thousands, except per
share amounts)
<S> <C> <C>
Revenues:
Digicon $ 131,127 $ 160,847
VES 109,996 118,591
Reclassifications (25,493) (28,842)
--------- ---------
Total $ 215,630 $ 250,596
========= =========
Net income:
Digicon $ 2,778 $ 385
VES 2,527 967
Adjustments 289 (71)
--------- ---------
Total $ 5,594 $ 1,281
========= =========
Net income per share:
As previously reported .25 $ .03
========= =========
As restated $ .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 and 1997, the Company incurred and
expensed $3,666,000 and $597,000, respectively, of costs associated with the
Combination. These costs consist primarily of professional fees and include
$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.
29
<PAGE> 32
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
3. INVESTMENT IN INDONESIAN JOINT VENTURE
Summarized financial information for the Company's 80% owned Indonesian joint
venture (P.T. Digicon Mega Pratama) which is accounted for under the equity
method due to provisions in the joint venture agreement that give minority
shareholders the right to exercise control is as follows:
<TABLE>
<CAPTION>
July 31,
----------------------
1996 1997
-------- --------
(In thousands of dollars)
<S> <C> <C>
Current assets $ 1,831 $ 3,697
Property and equipment, net 60
Multi-client data library 617 228
-------- --------
Total assets $ 2,448 $ 3,985
======== ========
Current liabilities $ 878 $ 1,077
Advances from affiliates 14,532 14,784
Stockholders' deficit:
Common stock 2,576 2,576
Accumulated deficit (15,538) (14,452)
-------- --------
Total stockholders' deficit (12,962) (11,876)
-------- --------
Total liabilities and
stockholders' deficit $ 2,448 $ 3,985
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended July 31,
---------------------------------
1995 1996 1997
------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C>
Revenues $ 1,443 $ 2,927 $ 7,240
Cost and expenses:
Cost of services 5,368 3,429 6,424
Depreciation and amortization 430
Other 196 (15) (62)
------- ------- -------
Total 5,994 3,414 6,362
------- ------- -------
Income (loss) before provision
for income taxes (4,551) (487) 878
Provision for income taxes (359) (166)
------- ------- -------
Net income (loss) $(4,910) $ (653) $ 878
======= ======= =======
</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 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 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.
30
<PAGE> 33
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
The investments were being accounted for under the equity method. The FSU joint
ventures generated total revenues of approximately $6,994,000 and a net loss of
approximately $2,954,000 during the year ended July 31, 1995. The Company's
share of the net loss was approximately $1,477,000 during the year ended July
31, 1995. 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 year ended July 31, 1995 was $392,000.
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 fiscal 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.
31
<PAGE> 34
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
7. Long-term Debt
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
July 31,
-----------------
1996 1997
------ ------
(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 July 31, 1997) $11,458
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 obligations maturing through September
2000, at a weighted average rate of 9.16% at July
31, 1997 19,319 971
Mortgage note payable due October 2005, at 10% 241
------- -------
Total 41,090 75,971
Less current maturities 13,739 383
------- -------
Due after one year $27,351 $75,588
------- -------
</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 part,
on or after October 15, 2000. Under certain conditions, the Company 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 in
June 1997 was amended to provide advances up to $25.0 million of which $20.0
million are secured by substantially all of the receivables of the Company.
Advances 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 at prime plus 3/4% was with a commercial
bank, was due in 36 equal monthly installments of $166,667 plus interest 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 at prime plus 1/2% 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 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.
32
<PAGE> 35
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
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 equal 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.
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> <C>
1998 $ 383
1999 316
2000 240
2001 32
2002
Thereafter 75,000
----------------
Total $75,971
----------------
</TABLE>
8. Other Accrued Liabilities
Other accrued liabilities included $3,780,000 and $8,313,000 of accrued payroll
and benefits and $5,386,000 and $ 14,263,000 of deferred revenues as of July
31, 1996 and 1997, respectively.
9. Income Taxes
Pretax income was taxed under the following jurisdictions:
<TABLE>
<CAPTION>
For the Years Ended July 31,
-------------------------------
1995 1996 1997
------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C>
U.S. $(11,001) $ 9,457 $ 21,098
Foreign 25,588 (5,054) 9,211
-------- --------- --------
Total $ 14,587 $ 4,403 $ 30,309
-------- --------- --------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Years Ended July 31,
----------------------------
1995 1996 1997
------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C>
Current - U.S. $ 277 $ 192 $ (474)
Deferred - U.S. (264) 395 886
Current - Foreign 4,320 2,555 3,634
Deferred - Foreign (526) (1,133) 2,016
-------- -------- -------
Total $ 3,807 $ 2,009 $ 6,062
-------- -------- -------
</TABLE>
33
<PAGE> 36
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
A reconciliation of income tax expense computed at the U.S. statutory rate to
the provision reported in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
For the Years Ended July 31,
---------------------------------
1995 1996 1997
------- ------- -------
(In thousands of dollars)
<S> <C> <C> <C>
Income tax at the statutory rate $ 5,105 $ 1,541 $ 10,608
Increase (reduction) in taxes resulting from:
Foreign earnings taxed at other than the U.S. statutory rate (93) (131) 2,307
Write-off of investment (5,775) (4,734) (10,126)
Contingency 2,327
Foreign losses with no tax recovery 2,505 4,985
Foreign withholding tax (net of U.S. tax benefit) 1,400 274 402
Foreign exchange capital loss 148 51
Permanent differences 258 315 363
Other 259 (292) 181
-------- --------- --------
Total $ 3,807 $ 2,009 $ 6,062
-------- -------- --------
</TABLE>
Deferred taxes result from the effect of transactions that are recognized in
different periods for financial and tax reporting purposes. The primary
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
July 31,
-------------------------
1996 1997
-------- ---------
(In thousands of dollars)
<S> <C> <C>
Deferred tax assets:
Difference between book and tax basis of property and equipment $ 3,107 $ 1,713
Difference between book and tax basis of multi-client data library 8,443 13,871
Net operating loss carryforwards 45,902 37,539
Tax credit carryforwards 3,580 1,629
Other 1,304 (630)
-------- ---------
Total 62,336 54,122
Deferred tax liabilities:
Other (1,955) (1,425)
--------- ---------
Net deferred tax asset 60,381 52,697
Valuation allowance (60,957) (46,312)
--------- ---------
Net deferred tax asset (liability) $ (576) $ 6,385
--------- ---------
</TABLE>
A valuation allowance is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The valuation
allowance is then adjusted when the realization of deferred tax assets becomes
more likely than not. Adjustments are also made to recognize the expiration of
net operating loss and investment tax credit carryforwards, with equal and
offsetting adjustments to the related deferred tax asset. Should the Company's
income projections result in the conclusion that realization of additional
deferred tax asset is more likely than not, further adjustments to the
valuation allowance will be made. Since the Company's quasi-reorganization with
respect to Digicon Inc. on July 31, 1991, the tax benefits of net operating
loss carryforwards existing at the date of the quasi- reorganization have been
recognized through a direct addition to paid-in capital, when realization is
more likely than not. The reduction of approximately $14,645,000 in the
valuation allowance during the current period resulted primarily from
recognition of the expected utilization of net operating loss carryforwards
generated prior to the quasi-reorganization, the expiration of net operating
loss carryforwards and adjustments to net operating loss carryforwards from the
settlement of audits.
34
<PAGE> 37
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
As of July 31, 1997, the Company has U.S. net operating loss carryforwards of
approximately $82,742,000, investment tax credit carryforwards of approximately
$1,026,000 and an alternative minimum tax credit carryforward of approximately
$603,000. Approximately $58,200,000 of net operating loss carryforwards and all
of the investment tax credit carryforwards existed prior to the quasi-
reorganization.
The alternative minimum tax credit has an indefinite carryforward period. The
following schedule sets forth the expiration dates of the net operating loss
and investment tax credit carryforwards:
<TABLE>
<CAPTION>
Fiscal Year Annual Expiration
----------- -------------------------
Net Investment
Operating Tax
Loss Credit
--------- ----------
(In thousands of dollars)
<S> <C> <C>
1998 $ 692
1999 $ 6,987 315
2000 9,406 19
2001 30,032
2003 4,222
2004 6,355
2005 1,198
2006 1,347
2007 2,505
2009 7,994
2010 2,710
2011 9,986
--------- ---------
Total $82,742 $ 1,026
--------- ---------
</TABLE>
Internal Revenue Service regulations restrict the utilization of U.S. net
operating loss carryforwards and other tax benefits (such as investment tax
credits) 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 utilization of U.S. net
operating loss carryforwards existing at the date of the "ownership change"
will be limited to approximately $4,041,000 per year, which if unutilized may
be carried forward. This limitation had no effect on the provision for income
taxes for the years ended July 31, 1995 and 1996. In the year ended July 31,
1997, the Company utilized $15,079,000 of limitation carryovers. At July 31,
1997, the accumulated unused limitation on net operating loss carryforwards and
other tax benefits existing at the date of the "ownership change" was
approximately $6,092,000.
Foreign operations had net operating loss carryforwards of approximately
$25,623,000 at July 31, 1997, of which approximately $15,713,000 existed prior
to the quasi-reorganization. Approximately $17,918,000 of the total foreign net
operating loss carryforwards are related to United Kingdom operations, has an
indefinite carryforward period, and is available to offset future profits in
the Company's current trade or business. Approximately $14,553,000 of the
United Kingdom net operating loss carryforwards existed prior to the
quasi-reorganization.
The Company considers the undistributed earnings of its foreign subsidiaries to
be permanently reinvested. The Company has not provided deferred U.S. income
tax on those earnings, as it is not practicable to estimate the amount of
additional tax that might be payable should these earnings be remitted or
deemed remitted as dividends or if the Company should sell its stock in the
subsidiaries.
35
<PAGE> 38
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
10. 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, 1997, remaining discounts in the amount
of $2,864,000 were available to such customer and the remaining unrecognized
deferred revenue is $267,000.
The Company also has $962,000 and $5,022,000 at July 31, 1996 and 1997,
respectively, included in accounts payable-trade 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.
11. Commitments and Contingent Liabilities
Total rentals of vessels, equipment and office facilities charged to operations
amounted to $27,651,000, $28,210,000 and $37,332,000 for the years ended July
31, 1995, 1996 and 1997, 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 Year Minimum Rentals
----------- ---------------
(In thousands of dollars)
<S> <C> <C>
1998 $25,362
1999 18,550
2000 12,220
2001 2,817
2002 1,358
2003-2013 10,633
</TABLE>
In connection with the Company's 1998 capital expenditure program, the Company
has commitments of approximately $14,000,000 outstanding at July 31, 1997.
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).
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 $1.4 million
and $1.0 million for the policy years ended August 31, 1995 and 1996,
respectively. The policy for year ended August 31, 1997, was issued under a
guaranteed cost program and, accordingly, there is no deductible. Management
has evaluated the
36
<PAGE> 39
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
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 material adverse impact on the financial position of
the Company.
The Company has letters of credit in the amount of $572,000 at July 31,1997
that will expire upon the completion of certain events relating to specific
contracts.
12. Employee Benefits
The Company maintains a 401(k) plan in which employees of the Company's
majority-owned domestic subsidiaries and certain foreign subsidiaries are
eligible to participate. However, employees of 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 $9,500 per year. Generally, the Company will contribute an amount equal to
one-half of the employee's contribution of up to $8,000 or 8% 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. The Company's
matching contributions to the 401(k) plan were $281,000 in 1995, $314,000 in
1996 and $426,000 in 1997.
37
<PAGE> 40
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
The Company initiated an employee nonqualified stock option plan on September
1, 1992. Options are granted to officers and key employees, are exercisable no
earlier than six months after the date of grant and generally vest over a
period of time. The exercise price for each option 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 Company has
authorized 1,158,333 shares of post-Reverse Split common stock to be issued
under the plan. The exercise prices and number of options existing prior to
January 17, 1995 have been adjusted for the Reverse Split. (See Note 13).
<TABLE>
<CAPTION>
For the Years Ended July 31,
-----------------------------------------------------------------------------------
1995 1996 1997
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 489,333 $13.50 423,000 $13.26 405,323 $ 9.78
Options granted 13,333 $ 6.00 195,500 $ 5.25 777,241 $19.375
Options exercised (181,497) $13.50 (199,995) $10.22
Options forfeited (79,666) $13.50 (31,680) $ 6.99 (34,743) $17.43
-------- ------ -------- ------ -------- -------
Ending balance 423,000 $13.26 405,323 $ 9.78 947,826 $17.28
======== ====== ======== ====== ======== =======
Options exercisable 423,000 $13.26 234,823 $13.07 198,998 $ 9.38
======== ====== ======== ====== ======== =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Range of exercise prices of outstanding
options $6.00-$13.50 $5.25-$13.50 $5.25-$19.375
Weighted average remaining contractual life
of outstanding options 6.0 years 7.0 years 9.2 years
Weighted average fair value of options
granted during the year under the fair
value based method $ 4.34 $3.48 $12.31
Assumptions used to determine weighted
average fair value of options granted
during the year using the Black-Scholes
option valuation method:
Risk-free interest rate 7.75% 6.10% 6.64%
Expected life 10 years 10 years 10 years
Expected volatility 50.3% 48.8% 50.2%
Expected dividends None None None
</TABLE>
38
<PAGE> 41
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
The Company also initiated a stock option plan for non-employee directors
(the "Director Plan") providing for stock options to be granted to each
non-employee director of the Company. The Director Plan, as amended, provides
that every other year, beginning in 1997, each eligible director shall be
granted an option to purchase 10,000 shares of the Company's post-Reverse Split
common stock. The exercise price for each option granted shall be fair market
value, as defined. Options vest 25% per year on the anniversary of the date of
grant over four years. Options expire from six to ten years from the date of
grant. The Company has authorized 600,000 shares of post-Reverse Split common
stock to be issued under the Director Plan. The exercise prices and number of
options existing prior to January 17, 1995 have been adjusted for the Reverse
Split. (See Note 13.)
<TABLE>
<CAPTION>
For the Years Ended July 31,
-----------------------------------------------------------------------------------
1995 1996 1997
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 36,667 $10.07 56,665 $ 7.98 76,659 $ 7.66
Options granted 19,998 $ 4.13 19,994 $ 6.76 60,000 $19.375
Options exercised (43,327) $ 6.68
------ ------ ------ ------ ------ -------
Ending balance 56,665 $ 7.98 76,659 $ 7.66 93,332 $15.65
====== ====== ====== ====== ====== =======
Options exercisable 56,665 $ 7.98 76,659 $ 7.66 33,332 $ 8.93
====== ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Range of exercise prices of outstanding
options $4.13-$12.87 $4.13-$12.87 $4.13-$19.375
Weighted average remaining contractual life
of outstanding options 8.0 years 7.5 years 8.7 years
Weighted average fair value of options
granted during the year under the fair
value based method $2.35 $4.43 $12.20
Assumptions used to determine weighted
average fair value of options granted
during the year using the Black-Scholes
option valuation method:
Risk-free interest rate 7.47% 5.49% 6.64%
Expected life 6 years 6 years 10 years
Expected volatility 50.3% 48.8% 50.2%
Expected dividends None None None
</TABLE>
39
<PAGE> 42
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995,1996 and 1997
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>
For the Years Ended July 31,
-----------------------------------------------------------------------------------
1995 1996 1997
--------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 224,680 $ 7.28 397,598 $ 7.28 355,858 $ 6.59
Options granted 200,016 $ 7.28 184,666 $ 5.82
Options exercised (206,674) $ 7.21 (117,063) $ 6.63
Options forfeited (27,098) $ 7.28 (19,732) $ 7.28 (3,589) $ 7.28
------- -------- -------- -------- -------- --------
Ending balance 397,598 $ 7.28 355,858 $ 6.59 235,206 $ 6.56
======= ======== ======== ======== ======== ========
Options exercisable 397,598 $ 7.28 355,858 $ 6.59 235,206 $ 6.56
======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Range of exercise price of outstanding
options $7.28 $5.82-$7.28 $5.82-$7.28
weighted average remaining contractual life
of outstanding options 8.5 years 8.3 years 7.2 years
Weighted average fair value of options
granted during the year under the fair
value based method $5.18 $3.76
Assumptions used to determine weighted
average fair value of options granted
during the year using the Black-Scholes
option valuation method:
Risk-free,interest rate 7.75% 5.97%
Expected life 10 years 10 years
Expected volatility 50.3% 48.8%
Expected dividends None None
</TABLE>
The effect on net income and earnings per share of compensation expense
relating to the stock-based compensation plans described above that would have
been recorded using the fair value based method is as follows:
<TABLE>
<CAPTION>
For the Years Ended July 31,
-------------------------------------------
1995 1996 1997
------------ ------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income reported $ 5,594 $1,281 $25,125
======= ====== =======
Pro forma net income $ 4,954 $ 692 $24,138
======= ====== =======
Earnings per share reported $ 0.31 $ 0.07 $ 1.33
======= ====== =======
Pro forma earnings per share $ 0.28 $ 0.04 $ 1.28
======= ====== =======
</TABLE>
The effect on net income and earnings per share may not be representative of
the effects on future net income and earnings per share because some options
vest over several years and additional awards may be granted.
40
<PAGE> 43
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
The Company maintains a contributory defined benefit pension plan (the "Pension
Plan") for eligible participating employees in the 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 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,
-------------------------------------------
1995 1996 1997
----------- ----------- ----------
(In thousands of dollars)
<S> <C> <C> <C>
Service costs (benefits earned during the period) $ 275 $ 224 $ 238
Interest costs on projected benefit obligation 253 292 384
Return on assets (275) (312) (392)
Net amortization and deferral 5 5 5
----------- ----------- ----------
Net periodic pension costs $ 258 $ 209 $ 235
=========== =========== ==========
</TABLE>
The funded status of the Pension Plan is as follows:
<TABLE>
<CAPTION>
July 31,
-----------------------
1996 1997
------- -------
(In thousands of dollars)
<S> <C> <C>
Plan assets at fair value $ 4,029 $ 5,277
Actuarial present value of accumulated vested benefit obligations 3,696 4,726
Effect of future salary increases 633 753
------- -------
Projected benefit obligation 4,329 5,479
------- -------
Projected benefit obligation in excess of plan assets (300) (202)
Unrecognized prior service cost 179 49
------- -------
Pension liability $ (121) $ (153)
======= =======
</TABLE>
The weighted average assumptions used to determine the projected benefit
obligation and the expected long-term rate of return on assets are as follows:
<TABLE>
<CAPTION>
For the Years Ended July 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate 8.5% 8.5% 8.0%
Rates of increase in compensation levels 6.5% 6.5% 6.0%
Expected long-term rate of return on assets 9.0% 9.0% 8.5%
</TABLE>
13. Common and Preferred Stock
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.
41
<PAGE> 44
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
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.
See 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.
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, may issue up to
one million shares of authorized preferred stock, par value, $.Ol, in one or
more series and 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, 1997.
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 Stock
(see Note 2) to shareholders of record at the close of business on June 12,
1997 and designated 400,000 shares of the authorized preferred stock as a
class 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.
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 13.)
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 may 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
42
<PAGE> 45
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
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 a previously outstanding secured term loan, the Company
issued 113,333 warrants exercisable at a price of $6.00 per share. The warrants
were exercised in December 1996.
In conjunction with previously outstanding short-term related party loans, the
Company issued warrants to purchase 120,000 common shares to the lenders of
which 78,000 have been exercised. The remaining warrants are exercisable for
cash at a price of $4.50 per share and expire July 26, 1999.
15. Write-off/write-down of Assets
In connection with the Combination, management committed the Company to a plan
to upgrade its seismic data processing hardware. Certain equipment was
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.
16. Other Costs and Expenses
Other costs and expenses consist of the following:
<TABLE>
<CAPTION>
For the Years Ended July 31,
-----------------------------
1995 1996 1997
--------- ------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
Net foreign currency exchange (gains) losses $ 290 $ (156) $ 46
Net loss on disposition of property and equipment 919 875 1,151
Interest income (943) (547) (552)
Other (34) 374 (15)
------- ------- -------
Total $ 232 $ 546 $ 630
======= ======= =======
</TABLE>
43
<PAGE> 46
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
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,
1995, 1996 and 1997, 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, 1995:
Geographic areas:
Europe & Middle East $ 20,230 $ 579 $ 20,809 $ 2,631 $ 11,976
Far East 25,918 22 25,940 3,220 21,199
South America 37,867 83 37,950 671 26,735
Canada 44,297 148 44,445 4,998 27,617
Eliminations (601) (601)
--------- --------- -------- ------- --------
Totals 128,312 231 128,543 11,520 87,527
United States 87,318* 387 87,705* 9,954 90,522
Eliminations (618) (618)
--------- --------- -------- ------- --------
Totals 215,630 215,630 21,474 178,049
Corporate expenses (5,855)
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 $8,317,000 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 $13,503,000 for United States.
44
<PAGE> 47
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
<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 $ 8,065 $ 35,463
Far East 30,558 30,558 1,745 23,590
South America 36,346 92 36,438 (1,289) 29,758
Canada 47,423 87 47,510 4,079 30,666
--------- --------- -------- -------- --------
Totals 151,721 1,711 153,432 12,600 119,477
United States 98,875* 61 98,936* 8,736 77,561
Eliminations (1,772) (1,772)
--------- --------- -------- -------- --------
Totals 250,596 $250,596 21,336 197,038
Corporate expenses (7,255)
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)
included 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 $7,688,000 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.
45
<PAGE> 48
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995,1996 and 1997
<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 31,1997:
Geographic areas:
Europe & Middle East $ 45,201 $ 9,982 $ 55,183 $ 14,153 $ 44,487
Far East 30,203 30,203 2,661 30,538
South America 51,157 51,157 1,884 29,052
Canada 52,141 2,698 54,839 2,763 31,924
Eliminations (2,705) (2,705)
----------- ------- --------- --------- ---------
Totals 178,702 9,975 188,677 21,461 136,001
United States 184,013* 169 184,182* 28,967 166,696
Eliminations (10,144) (10,144)
----------- ------- --------- --------- ---------
Totals 362,715 362,715 50,428 302,697
Corporate expenses (11,408)
Interest (7,484)
Merger related costs (597)
Other (630)
Income taxes (6,062)
Investments in 50% or less-owned
companies and joint ventures 878 2,908
Corporate assets 75,656
----------- ------- --------- --------- ---------
Totals $ 362,715 $ $ 362,715 $ 25,125 $ 381,261
=========== ======= ========= ========= =========
</TABLE>
- ----------------
*Includes export sales of $4,115.
There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1997. Depreciation and amortization expense was
$3,757,000 for Europe & Middle East; $2,996,000 for Far East; $4,550,000 for
South America; $8,961,000 for Canada and $20,367,000 for United States. Capital
expenditures were $15,919,000 for Europe & Middle East; $6,845,000 for Far
East; $4,883,000 for South America; $6,560,000 for Canada and $61,843,000 for
United States.
46
<PAGE> 49
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
18. Related Party Transactions
In fiscal 1995, the Company paid certain shareholders $376,000 in interest and
fees related to short-term related party loans. The loans were repaid in full
in June 1995.
In fiscal 1995, the Company performed certain data acquisition, processing,
marketing and training services for various co-venturers and recorded sales in
the amount of $ 1,633,000.
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, 1995, 1996 and 1997, the Company
charged P.T. Digicon $607,000, $1,207,000 and $1,429,000, respectively, 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 $14,532,000 and $14,784,000 at July 31, 1996 and
1997, respectively, have no formal repayment terms and do not bear interest.
19. Selected Unaudited Quarterly Financial Data
<TABLE>
<CAPTION>
For the Year Ended July 31, 1996
------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 59,824 $ 62,719 $59,140 $ 68,913
Operating expenses:
Cost of services 46,806 53,297 45,001 53,607
Write-off/write-down for impairment of assets 3,628
Depreciation and amoritization 6,352 6,695 6,953 6,921
Selling, general and administrative 1,580 1,824 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 3,683 (412) 4,005 (2,873)
Net income (loss) 1,690 1,269 2,823 (4,501)
Net income (loss) per share of common stock* .10 .07 .16 (.25)
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended July 31, 1997
------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 76,405 $ 90,691 $ 86,843 $108,776
Cost of services 58,320 67,982 63,344 82,010
Depreciation and amoritization 8,692 9,828 10,142 11,969
Selling, general and administrative 1,950 2,432 3,221 3,805
Merger related costs 597
Income before provision for income taxes and equity in
(earnings) loss of 50% or less-owned companies and joint
ventures 5,839 7,950 7,497 9,023
Net income 5,168 6,507 6,086 7,364
Net income per share of common stock* .28 .35 .32 .37
</TABLE>
* Reported quarterly earnings (loss) per share is based on each quarter's
weighted shares outstanding. The quarters may not total to the reported
annual earnings per share due in part to fluctuations in common shares
outstanding.
47
<PAGE> 50
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Previously reported on Form 8-K, as amended by Form 8-K/A, filed on November
27, 1996 and December 4, 1996, respectively.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated by reference to the material
appearing under the heading "Election of Directors" in the Proxy Statement for
the 1997 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the material
appearing under the heading "Other Information - Executive Compensation" in the
Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item l2. Security Ownership Of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the material
appearing under the heading "Election of Directors" and "Other Information -
Certain Stockholders" in the Proxy Statement for the 1997 Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the material
appearing under the heading "Other Information - Certain Transactions" in the
Proxy Statement for the 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Accountants 16
Consolidated Statements of Income for the Three Years Ended July 31, 1997 19
Consolidated Balance Sheets as of July 31, 1996 and 1997 20
Consolidated Statements of Cash Flows for the Three Years Ended July 31, 1997 21
Consolidated Statements of Changes in Stockholders' Equity for the Three Years
Ended July 31, 1997 23
Notes to Consolidated Financial Statements 24
</TABLE>
CONSOLIDATED FINANCIAL SCHEDULES
All other financial statement schedules are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or the notes thereto.
Individual financial statements of 50% or less-owned companies and joint
ventures accounted for by the equity method have been omitted because such 50%
or less-owned companies and joint ventures, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
48
<PAGE> 51
FORM 8-K REPORTS DURING THE QUARTER ENDED JULY 31, 1997
Form 8-K was filed on May 27, 1997 with respect to the Rights Agreement dated
May 15, 1997 between Veritas DGC Inc. and ChaseMellon Shareholder Services,
L.L.C.
EXHIBIT INDEX
Exhibit
-------
2) Combination Agreement dated as of May 10, 1996, between Digicon
Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon
Inc.'s Current Report on Form 8-K dated May 10, 1996 is
incorporated herein by reference.)
3-A) Restated Certificate of Incorporation with amendments of Digicon
Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s
Current Report on Form 8-K dated September 16, 1996 is
incorporated herein by reference.)
3-B) Certificate of Ownership and Merger of New Digicon Inc. and
Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration
Statement No. 33-43873 dated November 12, 1991 is incorporated
herein by reference.)
3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C
to Digicon Inc.'s Registration Statement No. 33-43873 dated
November 12, 1991 is incorporated herein by reference).
4-A) Specimen certificate for Senior Notes. (Included as part of
Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration
Statement No. 333-12481 dated September 20, 1996 is incorporated
herein by reference.)
4-B) Form of Trust Indenture relating to the 9 3/4% Senior Notes due
2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet
National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s
Registration Statement No. 333-12481 dated September 20, 1996 is
incorporated herein by reference.)
4-C) Specimen Veritas DOC Inc. Common Stock certificate. (Exhibit 4-C
to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996
is incorporated herein by reference.)
4-D) Rights Agreement between Veritas DGC Inc. and ChaseMellon
Shareholder Services, L.L.C. dated as of May 15, 1997. (Exhibit
4.1 of Veritas DGC Inc.'s Current Report on Form 8-K filed
May 27, 1997 is incorporated herein by reference.)
9) Voting and Exchange Trust Agreement dated August 30, 1996, among
Digicon Inc., Veritas Energy Services Inc. and the R-M Trust
Company. (Exhibit 9.1 of Veritas DGC Inc.'s Current Report on
Form 8-K, dated September 16, 1996 is incorporated herein by
reference.)
10-A) Salary Continuation Agreement executed by Richard W. McNairy.
(Exhibit 10-E of Digicon Inc.'s Form 10-K for the year ended
July 31, 1994 is incorporated herein by reference.)
10-B) Employment Agreement executed by Stephen J. Ludlow. (Exhibit
10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April
30, 1997 is incorporated herein by reference.)
10-C) Asset Purchase Agreement dated August 31, 1994, among Syntron,
Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS
Inc. and Digicon Inc. (Exhibit 10-M of Digicon Inc.'s Form 10-K
for the year ended July 31, 1994 is incorporated herein by
reference.)
*10-D) Amended and Restated 1992 Non-Employee Director Stock Option
Plan.
49
<PAGE> 52
*10-E) Amended and Restated 1992 Employee Nonqualified Stock Option
Plan.
10-F) Support Agreement dated August 30, 1996, between Digicon Inc.
and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC
Inc.'s Current Report on Form 8-K, dated August 30, 1996 is
incorporated herein by reference.)
10-G) Credit Agreement dated July 18, 1996, among Digicon Inc. and
Digicon Geophysical Corp., Digicon/GFS Inc., Digicon
Geophysical Limited and Digicon Exploration, Ltd., as
Borrowers, each of the banks named therein, and Wells Fargo
Bank (Texas), National Association, as issuing bank, as a bank
and as agent for the banks (the "Credit Agreement") (Exhibit
10-G of Veritas DGC Inc.'s Amendment No. 1 to Registration
Statement No. 333-12481, dated October 2, 1996 is incorporated
herein by reference.)
10-H) Letter dated September 27, 1996, from Wells Fargo Bank (Texas),
National Association, agreeing to amend the Credit Agreement.
(Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to
Registration Statement No. 333-12481, dated October 2, 1996 is
incorporated herein by reference.)
10-I) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I
to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 20,
1997 is incorporated herein by reference.)
10-J) Letter dated May 28, 1997, from Wells Fargo Bank (Texas),
National Association, agreeing to amend the Credit Agreement.
(Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter
ended April 30, 1997 is incorporated herein by reference.)
*10-K) Severance Agreement between Veritas DGC Inc. and Richard W.
McNairy.
*10-L) Employment Agreement executed by David B. Robson.
*10-M) Employment Agreement executed by Lawrence C. Fichtner.
*10-N) Employment Agreement executed by Rene M.J. VandenBrand.
*10-O) Restricted Stock Agreement dated April 1, 1997 between Veritas
DGC Inc. and Tony Tripodo.
*11) Computation of income per common and common equivalent share.
16) Letter regarding change in certifying accountants (Exhibit 16.1
of Veritas DGC Inc.'s Current Report on Form 8-K, as amended by
Form 8-K/A dated November 27, 1996 and December 4, 1996,
respectively, is incorporated herein by reference.)
*21) Subsidiaries of the Registrant.
*23-A) Consent of Price Waterhouse LLP.
*23-B) Consent of Price Waterhouse, Chartered Accountants.
*23-C) Consent of Deloitte & Touche LLP.
*27) Financial Data Schedule.
* Filed herewith
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized, on the 16th day of
October, 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 Exchange Act of 1934, the
following persons on behalf of the Registrant in the indicated capacities have
signed this report below on the 16th day of October 1997.
Signature Title
--------- -----
Chairman of the Board and Chief
/s/ DAVID B. ROBSON Executive Officer, Director
- ------------------------------
David B. Robson
President and Chief Operating Officer,
/s/ STEPHEN J. LUDLOW Director
- ------------------------------
Stephen J. Ludlow
Executive Vice President - Corporate
/s/ LAWRENCE C. FICHTNER Communications, Director
- ------------------------------
Lawrence C. Fichtner
Executive Vice President, Chief Financial
/s/ ANTHONY TRIPODO and Accounting Officer and Treasurer
- ------------------------------
Anthony Tripodo
Director
- ------------------------------
Clayton P. Cormier
Director
- ------------------------------
Ralph M. Eeson
Director
- ------------------------------
Steven J. Gilbert
Director
- ------------------------------
Brian F. MacNeill
/s/ DOUGLAS B. THOMPSON Director
- ------------------------------
Douglas B. Thompson
/s/ JACK C. THREET Director
- ------------------------------
Jack C. Threet
51
<PAGE> 54
INDEX TO EXHIBITS
Exhibit
-------
2) Combination Agreement dated as of May 10, 1996, between Digicon
Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon
Inc.'s Current Report on Form 8-K dated May 10, 1996 is
incorporated herein by reference.)
3-A) Restated Certificate of Incorporation with amendments of Digicon
Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s
Current Report on Form 8-K dated September 16, 1996 is
incorporated herein by reference.)
3-B) Certificate of Ownership and Merger of New Digicon Inc. and
Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration
Statement No. 33-43873 dated November 12, 1991 is incorporated
herein by reference.)
3-C) By-laws of New Digicon Inc. dated June 24, 1991, (Exhibit 3-C
to Digicon Inc.'s Registration Statement No. 33-43873 dated
November 12, 1991 is incorporated herein by reference).
4-A) Specimen certificate for Senior Notes. (Included as part of
Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration
Statement No. 333-12481 dated September 20, 1996 is incorporated
herein by reference.)
4-B) Form of Trust Indenture relating to the 9-3/4% Senior Notes due
2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet
National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s
Registration Statement No. 333-12481 dated September 20, 1996 is
incorporated herein by reference.)
4-C) Specimen Veritas DOC Inc. Common Stock certificate. (Exhibit 4-C
to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996
is incorporated herein by reference.)
4-D) Rights Agreement between Veritas DOC Inc. and ChaseMellon
Shareholder Services, L.L.C. dated as of May 15, 1997. (Exhibit
4.1 of Veritas DOC Inc.'s Current Report on Form 8-K filed
May 27, 1997 is incorporated herein by reference.)
9) Voting and Exchange Trust Agreement dated August 30, 1996, among
Digicon Inc., Veritas Energy Services Inc. and the R-M Trust
Company. (Exhibit 9.1 of Veritas DGC Inc.'s Current Report on
Form 8-K, dated September 16, 1996 is incorporated herein by
reference.)
10-A) Salary Continuation Agreement executed by Richard W. McNairy.
(Exhibit 10-E of Digicon Inc.'s Form 10-K for the year ended
July 31, 1994 is incorporated herein by reference.)
10-B) Employment Agreement executed by Stephen J. Ludlow. (Exhibit
10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April
30, 1997 is incorporated herein by reference.)
10-C) Asset Purchase Agreement dated August 31, 1994, among Syntron,
Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS
Inc. and Digicon Inc. (Exhibit 10-M of Digicon Inc.'s Form 10-K
for the year ended July 31, 1994 is incorporated herein by
reference.)
*10-D) Amended and Restated 1992 Non-Employee Director Stock Option
Plan.
<PAGE> 55
*10-E) Amended and Restated 1992 Employee Nonqualified Stock Option
Plan.
10-F) Support Agreement dated August 30, 1996, between Digicon Inc.
and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC
Inc.'s Current Report on Form 8-K, dated August 30, 1996 is
incorporated herein by reference.)
10-G) Credit Agreement dated July 18, 1996, among Digicon Inc. and
Digicon Geophysical Corp., Digicon/GFS Inc., Digicon
Geophysical Limited and Digicon Exploration, Ltd., as
Borrowers, each of the banks named therein, and Wells Fargo
Bank (Texas), National Association, as issuing bank, as a bank
and as agent for the banks (the "Credit Agreement") (Exhibit
10-G of Veritas DGC Inc.'s Amendment No. I to Registration
Statement No. 333-12481, dated October 2, 1996 is incorporated
herein by reference.)
10-H) Letter dated September 27, 1996, from Wells Fargo Bank (Texas),
National Association, agreeing to amend the Credit Agreement.
(Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to
Registration Statement No. 333-12481, dated October 2, 1996 is
incorporated herein by reference.)
10-I) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I
to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 20,
1997 is incorporated herein by reference.)
10-J) Letter dated May 28, 1997, from Wells Fargo Bank (Texas),
National Association, agreeing to amend the Credit Agreement.
(Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter
ended April 30, 1997 is incorporated herein by reference.)
*10-K) Severance Agreement between Veritas DGC Inc. and Richard W.
McNairy.
*10-L) Employment Agreement executed by David B. Robson.
*10-M) Employment Agreement executed by Lawrence C. Fichtner.
*10-N) Employment Agreement executed by Rene M.J. VandenBrand.
*10-O) Restricted Stock Agreement dated April 1, 1997 between Veritas
DGC Inc. and Tony Tripodo.
*11) Computation of income per common and common equivalent share.
16) Letter regarding change in certifying account (Exhibit 16.1 of
Veritas DGC Inc.'s Current Report on Form 8-K, as amended by
Form 8-K/A dated November 27, 1996 and December 4, 1996,
respectively, is incorporated herein by reference.)
*21) Subsidiaries of the Registrant.
*23-A) Consent of Price Waterhouse LLP.
*23-B) Consent of Price Waterhouse, Chartered Accountants.
*23-C) Consent of Deloitte & Touche LLP.
*27) Financial Data Schedule.
* Filed herewith
<PAGE> 1
EXHIBIT 10-D
VERITAS DGC INC.
(FORMERLY DIGICON INC.)
1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED AND RESTATED FEBRUARY 17,1997)
1. Purpose of the Plan. The purpose of the Veritas DGC Inc. 1992
Non-Employee Director Stock Option Plan ("Plan") is to attract the
services of experienced and knowledgeable non-employee directors and
provide an opportunity for ownership by such non-employee directors of
the common stock, $.01 par value ("Common Stock"), of Veritas DGC
Inc., a Delaware corporation ("Company").
2. Administration of the Plan. The Plan shall be administered by the
Board of Directors of the Company or any committee duly appointed
thereby ("Board"). Subject to the terms of the Plan, the Board shall
have the power to interpret the provisions and supervise the
administration of the Plan. All decisions made by the Board pursuant
to the provisions of the Plan shall be made by a majority of its
members at a duly held regular or special meeting or by written
consent in lieu of any such meeting.
3. Stock Reserved for the Plan. The maximum number of shares of Common
Stock which may at any time be subject to outstanding options issued
under the Plan is 600,000. The Company shall reserve for issuance
pursuant to the Plan such number of shares of Common Stock as may from
time to time be subject to options granted pursuant to the Plan.
Should any option expire or be canceled prior to its exercise in full,
the shares theretofore subject to such option may again be made
subject to an option under the Plan.
4. Grant of Options. Each director of the Company who is not otherwise an
employee of the Company or any of the Company's subsidiaries (as
defined in Section 425(f) of the Internal Revenue Code of 1986, (as
amended) (hereinafter referred to as an "Eligible Director") and (who
is a member of the Board after December 31, 1996)(the "Effective
Date") shall be granted on each Date of Grant (as defined below)
(provided that on such Date of Grant such Eligible Director is a
member of the Board) one option to acquire to 10,000 shares of Common
Stock (the "Option"). The exercise price per share of Common Stock of
the Option granted to an Eligible Director shall be the Fair Market
Value of the Common Stock on the Date of Grant.
Special Provision for Newly-Elected Directors. In the case of a
director who is initially elected or appointed to the Board between
Dates of Grant, the Board may in its discretion grant an option to
such newly elected or appointed director for a number of shares of
Common Stock not to exceed 10,000; provided that any such option shall
have an exercise price of at least equal to the fair market value of
the Common Stock on its date of grant.
For the purposes of this paragraph 4, the following terms shall have
the following meanings:
<PAGE> 2
(x) "Date of Grant" means March 11, 1997, and
thereafter the date of the first meeting of the Board
in each odd numbered year after the Effective Date on
which an Eligible Director is a member of the Board.
(y) "Fair Market Value" of a share of Common
Stock on any date shall be (i) the closing sales
price on the Date of Grant of a share of Common Stock
as reported on the principal securities exchange on
which shares of the Common Stock have been listed or
admitted to trading or (ii) if not so reported, the
average of the average closing bid and asked prices
for a share of Common Stock on the Date of Grant as
quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or
(iii) if not, quoted on the NASDAQ, the average of
the average closing bid and asked prices for a share
of Common Stock on the Date of Grant as quoted by the
National Association of Securities Dealers' OTC
Bulletin Board System. If the price of a share of
Common Stock shall not be so reported, the Fair
Market Value of a share of Common Stock shall be
determined by the Board in its absolute discretion.
5. Option Agreement. Each Option granted under the Plan shall be
evidenced by an agreement, in a form approved by the Board, which
shall be subject to the terms and conditions of the Plan. Any
agreement may contain such other terms, provisions and conditions as
may be determined by the Board and that are not inconsistent with the
Plan.
6. Term of Options. Each Option granted will be exercisable as to 25% of
the shares of Common Stock covered by such Option at any time after
the first anniversary of the Date of Grant and as to an additional 25%
on each anniversary thereafter until the fifth anniversary of the Date
of Grant, following which the Option will be exercisable in full;
provided, however, that no Option shall be exercisable after the
expiration of ten years from the Date of Grant; and, provided further,
that each Option shall be subject to earlier termination, expiration
or cancellation as provided in the Plan.
7. Procedure for Exercise. Options shall be exercised by written notice
to the Company setting forth the number of shares of Common Stock with
respect to which the Option is to be exercised and specifying the
address to which the certificates for such shares are to be mailed.
Such notice shall be accompanied by cash or certified check, bank
draft, or postal or express money order payable to the order of the
Company in an amount equal to the product obtained by multiplying
the Option exercise price times the number of shares of the Common
Stock with respect to which the Option is then being exercised. As
promptly as practicable after receipt of such written notification and
payment, the Company shall deliver to the optionee a certificate or
certificates for the number of shares with respect to which such
Option has been so exercised, issued in the optionee's name; provided,
however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the optionee, at
the address specified pursuant to this paragraph 7.
<PAGE> 3
8. Assignability. An Option shall not be assignable or otherwise
transferable except by will, by the laws of descent and distribution
or pursuant to a qualified domestic relations order ("QDRO") as
defined by the Internal Revenue Code of 1986, as amended, and the
rules and regulations in effect from time to time thereunder and Title
I of the Employee Retirement Income Security Act, as amended, and the
rules and regulations in effect from time to time thereunder. During
an optionee's lifetime an Option shall be exercisable only by the
optionee.
9. Effect of Termination.
(i) In the event of the death of an optionee, the Options granted
to him may be exercised (to the extent he would have been
entitled to do so at the date of his death) at any time and
from time to time by the executor or administrator of his
estate or by the person or persons to whom his rights under
the Options shall pass by will or the laws of descent and
distribution, but in no event may the Option be exercised
after the earlier of (i) one year from the optionee's death or
(ii) its expiration.
(ii) If an optionee ceases to be a director of the Company, the
Options granted to him may be exercised (to the extent he
would have been entitled to do so at the date that he ceases
to be a director) at any time and from time to time thereafter
prior to the earlier of (i) one year from the optionee's
cessation of service as a director or (ii) expiration of the
Option.
(iii) No transfer of an Option by an optionee by will or by the laws
of descent and distribution or pursuant to a QDRO shall be
effective to bind the Company unless the Company shall have
been furnished with written notice of the same and an
authenticated copy of the will, the QDRO and such other
evidence as the Board may deem necessary to establish the
validity of the transfer and the acceptance of the transferee
or transferees of the terms and conditions of such Option and
the terms and provisions of the Plan.
10. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to shares covered by an Option until the date
of issuance of a stock certificate or certificates for such shares of
Common Stock.
11. Extraordinary Corporate Transactions. New options may be substituted
for the Options granted under the Plan, or the Company's duties as to
Options outstanding under the Plan may be assumed, by a corporation
other than the Company, or by a parent or subsidiary of the Company,
or such corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like
occurrence in which the Company is involved. Notwithstanding the
foregoing or the provisions of paragraph 15 hereof, in the event such
corporation, or parent or subsidiary of the Company or such
corporation, does not substitute new Options for, and substantially
equivalent to, the Options granted hereunder, or assume the Options
granted hereunder, the Options granted hereunder shall be canceled,
immediately
<PAGE> 4
prior to the effective date of such event, and, in full consideration
of such cancellation, and the optionee to whom the Option was granted
shall be paid an amount in cash equal to the excess of (i) the value,
as determined by the Board in its absolute discretion, of the property
(including cash) received by the holder of a share of Common Stock as
a result of such event less (ii) the exercise price of the Option.
12. Change, of Control. If, at any time, a person, entity or group
(including, in each case, all other persons, entities or groups
controlling, controlled by, or under common control with or acting in
concert or concurrently with, such person, entity or group) shall
hold, purchase or acquire beneficial ownership (including without
limitation power to vote) of 50% or more of the then outstanding
shares of the Company's Common Stock, then any portion of the Options
which have not yet become exercisable shall thereupon become
immediately exercisable, and, except with respect to the limitations
set forth in paragraph 6 hereof, the limitations set forth above as to
the earliest date at which an option may be exercised shall thereupon
become null and void and of no further effect whatsoever.
13. Investment Representation. Each option agreement shall contain an
agreement that, upon demand by the Board for such a representation,
the optionee (or any person acting under paragraph (9(i)) shall
deliver to the Company at the time of any exercise of an option a
written representation that the shares to be acquired upon such
exercise are to be acquired for investment and not for resale or with
a view to the distribution thereof or such other representation as the
Board deems advisable. Upon such demand, delivery of such
representation, prior to the delivery of any shares issued upon
exercise of an Option and prior to the expiration of the option
period, shall be a condition precedent to the right of the optionee or
such other person to purchase any shares.
14. Amendments or Termination. The Board may amend, alter or discontinue
the Plan; provided, however, that, without the approval of the
Company's stockholders, no amendment shall (i) increase the number of
shares subject to the Plan; (ii) modify the requirements as to
eligibility for participation in the Plan; or (iii) modify the number
or time at which Options may be granted.
15. Changes in Company's Capital Structure. The existence of outstanding
Options shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issuance of Common Stock or any bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any reorganization or other corporate act or proceeding,
whether of a similar character or otherwise; provided, however, that
if the outstanding shares of Common Stock of the Company shall at any
time be changed or exchanged by declaration of a stock dividend, stock
split, combination of shares, or recapitalization, the number and kind
of shares then subject to any outstanding Option shall be
appropriately and equitably adjusted so as to maintain the
proportionate
<PAGE> 5
number of shares without changing the aggregate option price of any
outstanding Option.
16. Compliance with Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to
sell and deliver shares under such Options, shall be subject to all
applicable federal and state laws, rules and regulations and to such
approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common
Stock prior to the completion of any registration or qualification of
such shares under any federal or state law, or any ruling or
regulation of any government body or national securities exchange
which the Company shall, in its sole discretion, determine to be
necessary or advisable.
17. Effective Date and Term of the Plan. The Plan was adopted by the Board
of Directors on October 29, 1992, and approved by the stockholders of
the Company at the annual meeting on December 17, 1992, and amended
and restated by the Board on February 17, 1997.
<PAGE> 1
EXHIBIT 10-E
VERITAS DGC INC.
AMENDED AND RESTATED
1992 EMPLOYEE NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1992 Employee Nonqualified Stock Option Plan (the
"Plan") of Veritas DGC Inc. (the "Company") (formerly known as Digicon Inc.) is
to provide officers and other key employees with a continuing proprietary
interest in the Company. The Plan is intended to advance the interests of the
Company by enabling it (i) to increase the interest in the Company's welfare of
those members of management who share the primary responsibility for the
management, growth, and protection of the business of the Company, (ii) to
furnish an incentive to such persons to continue their services to the Company,
(iii) to provide a means through which the Company may continue to induce able
management personnel to enter its employ, and (iv) to provide a means through
which the Company may effectively compete with other organizations offering
similar incentive benefits in obtaining and retaining the services of competent
management personnel.
2. STOCK SUBJECT TO THE PLAN.
The Company may grant from time to time options to purchase shares of
the Company's authorized but unissued common stock, par value $.01 per share,
or treasury shares of the common stock. Subject to adjustment as provided in
Section 11 hereof, the aggregate number of shares which may be issued or
covered by options pursuant to the Plan is 1,158,333 shares, as adjusted for
the one for three reverse stock split effective January 17, 1995. Shares of
common stock applicable to options which have expired unexercised or terminated
for any reason may again be subject to an option or options under the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee
of the Company's board of directors (the "Committee"). The board of directors
may, from time to time, remove members from or add members to the Committee.
Vacancies in the Committee, however caused, shall be filled by the board of
directors. No member of the Committee shall be eligible to receive options
under the Plan. The Committee shall select one of its members chairman and
shall hold meetings at such times and places as it may determine. The
Committee may appoint a secretary and, subject to the provisions of the Plan
and to policies determined by the board of directors, may make such rules and
regulations for the conduct of its business as it shall deem advisable. A
majority of the Committee shall constitute a quorum. All action of the
Committee shall be taken by a majority of its members. Any action may be taken
by a written instrument signed by a majority of the members, and action so
taken shall be fully as effective as if it had been taken by a vote of the
majority of the members at a meeting duly called and held.
(b) Subject to the express terms and conditions of the Plan, the
Committee shall have full power to construe or interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it and to make
all other determinations necessary or advisable for its administration.
<PAGE> 2
(c) Subject to the provisions of Sections 4 and 5 hereof, the
Committee may, from time to time, determine which employees of the Company or
subsidiary corporations shall be granted options under the Plan, the number of
shares subject to each option, and the time or times at which options shall be
granted.
(d) The Committee shall report to the board of directors the names
of employees granted options, and the number of option shares subject to, and
the terms and conditions of, each option.
(e) No member of the board of directors or of the Committee shall
be liable for any action or determination made in good faith with respect to
the Plan or any option.
4. ELIGIBILITY.
Only full-time salaried officers and other key personnel of the
Company and of its majority-owned subsidiaries shall be eligible to participate
in the Plan. In determining the employees to whom options shall be granted and
the number of shares to be covered by each option, the Committee may take into
account the nature of the services rendered by the respective employees, their
present and potential contributions to the success of the Company, and such
other factors as the Committee in its discretion shall deem relevant. The
Company shall effect the granting of options under the Plan in accordance with
the determination made by the Committee.
5. PRICE OF OPTIONS.
The option price per share shall be not 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 thirty trading
days ending on the trading day next preceding the date the option is granted.
Fair market value on any day shall be deemed to be the last reported sale price
of the common stock on the principal stock exchange on which the Company's
common stock is traded on that date. If no trading occurred on such date, or,
if at the time the common stock shall not be listed for trading, fair market
value shall be deemed to be the mean between the quoted bid and asked prices
for the common stock on such exchange or in the over-the-counter market, as the
case may be, on that date.
6. TERM OF OPTION.
No option shall be exercisable after the expiration of ten years from
the date the option is granted.
7. EXERCISE OF OPTIONS.
(a) General. Except as provided below, each option may be
exercised at such times and in such amounts as the Committee in its discretion
may provide. No option may be exercised prior to six months from the date of
grant.
<PAGE> 3
(b) Manner of Exercising Options. Shares of common stock
purchased under options shall at the time of purchase be paid for in full. To
the extent that the right to purchase shares has accrued hereunder, options may
be exercised from time to time by written notice to the Company stating the
full number of shares with respect to which the option is being exercised, and
the time of delivery thereof, which shall be at least 15 days after the giving
of such notice unless an earlier date shall have been mutually agreed upon. At
such time, the Company shall, without transfer or issue tax to the optionee (or
other person entitled to exercise the option) deliver to the optionee (or to
such other person) at the principal office of the Company, or such other place
as shall be mutually acceptable, a certificate or certificates for such shares
against prior payment of the option price in full on the date of notice of
exercise for the number of shares to be delivered by certified or official bank
check or the equivalent thereof acceptable to the Company; provided, however,
that the time of such issuance and delivery may be postponed by the Company for
such period as may be required for it with reasonable diligence to comply with
any requirements of law, the listing requirements of the New York Stock
Exchange or any other exchange on which the common stock may then be listed.
If the optionee (or other person entitled to exercise the option) fails to pay
for all or any part of the number of shares specified in such notice or to
accept delivery of such shares upon tender of delivery thereof, the right to
exercise the option with respect to such undelivered shares shall be
terminated.
8. NON-ASSIGNABILITY OF OPTION RIGHTS.
No option granted under the Plan shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an optionee, the option shall be exercisable only by him.
9. TERMINATION OF EMPLOYMENT.
Except as otherwise provided in this paragraph, options shall
terminate 90 days following the termination of the optionee's employment with
the Company for any reason, but shall be exercisable following termination only
to the extent that the option had become vested on the termination date. In
the event that the optionee retires from the Company (at or after normal
retirement age) the optionee shall have the right, subject to the provisions of
Section 6, to exercise his option at any time within one year after such
termination, to the extent that such option had become vested on the
termination date. If, however, the optionee shall die in the employment of the
Company, then for the lesser of the maximum period during which such option
might have been exercisable or one year after the date of death, his estate,
personal representative, or beneficiary shall have the same right to exercise
the option of such employee as he would have had if he had survived and
remained in the employment of the Company. For purposes of this Section 9,
employment by any majority-owned subsidiary corporation of the Company shall be
deemed employment by the Company.
In the discretion of the Committee, a leave of absence approved in
writing by the board of directors of the Company shall not be deemed a
termination of employment; however, no option may be exercised during such
leave of absence.
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<PAGE> 4
10. CHANGE OF CONTROL.
Subject to the provisions of Section 17 hereof as to VES Options (as
defined in Section 17), with respect to options granted prior to March 11,
1997, if, at any time, a person, entity or group (including, in each case, all
other persons, entities or groups controlling, controlled by, or under common
control with or acting in concert or concurrently with, such person, entity or
group) shall hold, purchase or acquire beneficial ownership of (including,
without limitation, power to vote) 50% or more of the then outstanding shares
of the Company's common stock (a "Change in Control"), any portion of such
options which have not yet become exercisable shall thereupon become
immediately exercisable, and, except with respect to the limitations set forth
in Section 6 hereof, the limitations set forth above as to the earliest date at
which an option may be exercised shall thereupon become null and void and of no
further effect whatsoever. With respect to options granted on or after March
11, 1997, if a Change in Control occurs, then the Committee may, in its sole
discretion, declare that all or any portion of the options which have not yet
become exercisable shall thereupon become immediately exercisable, and, except
with respect to the limitations set forth in Section 6 hereof, upon such a
declaration, the limitations set forth above as to the earliest date at which
an option may be exercised shall thereupon become null and void and of no
further effect whatsoever with respect to the options subject to such
declaration. In addition, the Committee may, in its sole discretion, provide
in any option agreement relating to a grant of options on or after March 11,
1997 pursuant to the Plan that, upon such a Change in Control, all or any
portion of the options subject to said option agreement which have not yet
become exercisable shall thereupon become immediately exercisable.
11. ADJUSTMENT OF OPTIONS ON RECAPITALIZATION OR REORGANIZATION.
The aggregate number of shares of common stock on which options may be
granted to persons participating under the Plan, the aggregate number of shares
of common stock on which options may be granted to any one such person, the
number of shares thereof covered by each outstanding option, and the price per
share thereof in each such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of common stock of the
Company resulting from the subdivision or combination of shares or other
capital adjustments, or the payment of a stock dividend after the effective
date of this Plan, or other increase or decrease in such shares effected
without receipt of consideration by the Company; provided, however, that no
adjustment shall be made unless the aggregate effect of all such increases and
decreases occurring in any one fiscal year after the effective date of this
Plan will increase or decrease the number of issued shares of common stock of
the Company by 5% or more; and, provided, further, that any options to purchase
fractional shares resulting from any such adjustment shall be eliminated.
Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
any option granted hereunder shall pertain to and apply to the securities to
which a holder of the number of shares of common stock subject to option would
have been entitled had such option been exercised immediately preceding such
merger or consolidation; but a dissolution or liquidation of the Company, or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, shall cause every option
-4-
<PAGE> 5
outstanding hereunder to terminate, except that the surviving or resulting
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on its terms and conditions, both as to the
number of shares and otherwise.
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
12. AGREEMENTS BY OPTIONEE.
Each individual optionee shall agree:
(a) if requested by the Company, at the time of exercise of any
option, to execute an agreement stating that he is purchasing the shares
subject to option for investment purposes and not with a view to the resale or
distribution thereof;
(b) to authorize the Company to withhold from his gross pay any
tax which it believes is required to be withheld with respect to any benefit
under the Plan, and to hold as security for the amount to be withheld any
property otherwise distributable to the optionee under the Plan until the
amounts required to be withheld have been so withheld.
13. RIGHTS AS A SHAREHOLDER.
The optionee shall have no rights as a stockholder with respect to any
shares of common stock of the Company held under option until the date of
issuance of the stock certificates to him for such shares.
14. EFFECTIVE DATE.
The Plan was effective as of September 1, 1992, upon approval by the
holders of a majority of the shares of outstanding capital stock present at the
December 17, 1992 annual meeting of the Company's stockholders. The Plan was
amended by the board of directors on August 29, 1997, and amended and restated
by the board of directors on March 10, 1997.
15. AMENDMENTS.
(a) The board of directors may, from time to time, alter, suspend
or terminate the Plan, or alter or amend any and all option agreements granted
thereunder but only for one or more of the following purposes:
(1) to modify the administrative provisions of the Plan
or options; or
(2) to make any other amendment which does not materially
alter the intent or benefits of the Plan.
-5-
<PAGE> 6
(b) It is expressly provided that no such action of the board of
directors may, without the approval of the stockholders, alter the provisions
of the Plan or option agreements granted thereunder so as to:
(1) increase the maximum number of shares as to which
options may be granted under the Plan either to all persons
participating in the Plan or to any one such person;
(2) decrease the option price applicable to any options
granted under the Plan, provided, however, that the provisions of this
clause (2) shall not prevent the granting, to any person holding an
option under the Plan, of additional options under the Plan
exercisable at a lower option price; or
(3) alter any outstanding option agreement to the
detriment of the optionee, without his consent.
16. EMPLOYMENT OBLIGATION.
The granting of any option under this Plan shall not impose upon the
Company any obligation whatsoever to employ or to continue to employ any
optionee, and the right of the Company to terminate the employment of any
officer or other employee shall not be diminished or affected by reason of the
fact that an option has been granted to him under the Plan.
17. VES OPTIONS.
In order to carry out the terms of (i) the Combination Agreement dated
May 10, 1996, between the Company and Veritas Energy Services Inc. ("VES")
which was approved by the Company's stockholders at a special meeting held on
August 20, 1996 and (ii) the Plan of Arrangement under Part 15 of the Business
Corporations Act (Alberta) relating to the combination of the Company and VES
which, pursuant to an interim order of the Court of Queen's Bench of Alberta
date July 18, 1996, was approved at special meetings of VES optionholders and
shareholders held August 20, 1996, this Plan shall include under its terms each
of the options (the "VES Options") outstanding on the Effective Date (as
defined in the Combination Agreement) (which includes all outstanding options
granted under VES' Stock Option Plan for Directors, Officers and Key Employees
(the "VES Option Plan")) without any further action on the part of any holder
thereof (each a "VES Optionholder"). Effective as of the Effective Time, each
VES Option will be exercisable to purchase that number of shares of the
Company's common stock determined by multiplying the number of VES common
shares (the "VES Common Shares") subject to such VES Option at the Effective
Time by the Exchange Ratio (as defined in the Combination Agreement), at an
exercise price per share of such VES Option immediately prior to the Effective
Time, divided by the Exchange Ratio. On the Effective Date (as defined in the
Combination Agreement), such option price shall be converted into a United
States dollar equivalent based on the noon spot rate of exchange of the Bank of
Canada on such date. If the foregoing calculation results in an exchanged VES
Option being exercisable for a fractional share of the Company's common stock,
then the number of shares of the Company's common stock subject to such option
will be rounded down to the nearest whole number of shares and the total
exercise price for the option will be reduced by the exercise price of the
fractional share. The term, exercisability, vesting schedule and all other
terms and conditions of the VES Options will otherwise be unchanged and shall
operate in accordance with their terms, notwithstanding anything to the
contrary contained herein.
-6-
<PAGE> 1
EXHIBIT 10-K
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of the 1st day
of April, 1997, is by and between Veritas DGC Inc., a Delaware corporation (the
"Company"), and Richard W. McNairy ("Employee") whose address is 6519 Lussier,
Sugar Land, Texas 77479.
In consideration of the payments described below, the agreements set
forth in this Agreement and other good and valuable consideration, the
adequacy, mutuality, receipt and sufficiency of which are hereby acknowledged,
the Company and Employee hereby agree as follows:
1. Employment Agreements. All contracts, agreements and
understandings with respect to Employee's employment with the Company are
hereby terminated in their entirety including, without limitation, that certain
letter agreement, dated October 31, 1994, between the Company and Employee (the
"Letter Agreement"), and neither party shall have any further rights, duties or
obligations arising thereunder or any way attributable thereto except as
otherwise specifically provided herein.
2. Severance Payment. Subject to the last sentence of this
Section 2 and provided that Employee does not exercise his revocation right
provided in Section 4(b), on April 30, 1997, the Company shall pay to Employee
the sum of $283,654 (the "Severance Payment") by check or wire transfer of
immediately available funds to an account specified by Employee in writing. In
the event Employee exercises his revocation right provided in Section 4(b), he
shall have no right to receive, and the Company shall have no obligation to
pay, the Severance Payment. The Severance Payment and payments made by the
Company on behalf of Employee pursuant to Section 5(b) shall be in full
satisfaction of, and Employee hereby waives and relinquishes any and all rights
to receive, any and all other amounts owed by the Company to Employee, whether
arising under any contract, agreement, understanding or otherwise, including,
without limitation, any amounts due under the Letter Agreement, any right to
receive any salary, bonus or severance payments. Employee acknowledges and
agrees that all applicable withholding deductions, including those for
benefits, FICA and income taxes, will be withheld from the Severance Payment
and the Bonus Payment.
3. Release. (a) Employee hereby unconditionally, irrevocably
and forever releases and discharges the Company, its subsidiaries, their
respective officers, directors, shareholders, employees, agents and assigns and
all other persons, firms or entities in control of, under the direction of, or
associated with the Company (collectively, the "Company Representatives") from
any and all claims, causes of action, suits, charges, complaints, obligations,
liabilities, promises, agreements, contracts, damages, accrued benefits or
other liabilities of any kind or character, whether known or hereafter
discovered and whether arising in tort, contract, by law or otherwise
(collectively, "Claims"), arising from or in any way connected with or related
to Employee's employment with the Company or the termination of Employee's
employment with the Company, including, without limitation, any Claims arising
under or attributable to any state or federal law prohibiting discrimination
based on race, color, religion, sex, age or other protected classification,
<PAGE> 2
including without limitation, Title VII of the Civil Rights Act of 1964 (42
U.S.C. Section 3,000 et seq.), age discrimination under the Age Discrimination
Employment Act of 1967 (20 U.S.C. Section 621 et seq.) ("ADEA"), age
discrimination under the Texas Commission on Human Rights Act (Tex. Rev. Civ.
Stat. Ann. Art. 5221k), age discrimination under the Older Worker's Benefit
Protection Act, P.L. 101-433 (104 Stat. 978), wrongful termination in violation
of public policy or unlawful retaliation, and the Vocational Rehabilitation Act
of 1973 (29 U.S.C. Section 701 et seq.); provided that the foregoing release
shall not apply to any Claims attributable to any indemnity obligations of the
Company to Employee arising under the Company's charter or bylaws or pursuant
to any preexisting contractual indemnity by the Company in favor of Employee.
Employee voluntarily acknowledges and agrees that the consideration described
in this Agreement is sufficient payment for the full, final and complete
release stated herein and that no other promises or representations have been
made to him by the Company, any Company Representative or any other person
purporting to act on behalf the Company.
(b) The Company hereby unconditionally and irrevocably forever
releases and discharges Employee, his heirs and legal representatives, from and
against any and all Claims arising from or in any way connected with or related
to Employee's employment with the Company. The Company voluntarily
acknowledges and agrees that the consideration described in this Agreement is
sufficient payment for the full, final and complete release stated herein and
that no other promises or representations have been made by Employee, his
agents or representatives to the Company or any Company Representative.
4. Certain Acknowledgments and Right to Revoke.
(a) Voluntary Action, Etc. BY EXECUTING THIS AGREEMENT, EMPLOYEE
ACKNOWLEDGES AND AGREES AS FOLLOWS: (i) THAT HE HAS READ THIS AGREEMENT AND
UNDERSTANDS THAT THIS AGREEMENT CONTAINS A WAIVER OF RIGHTS AND CLAIMS THAT
EMPLOYEE MIGHT OTHERWISE HAVE AGAINST THE COMPANY, INCLUDING RIGHTS AND CLAIMS
UNDER THE ADEA; (ii) THAT HE HAS BEEN GIVEN A PERIOD OF LEAST TWENTY-ONE DAYS
WITHIN WHICH TO CONSIDER THIS AGREEMENT; (iii) THAT HE HAS BEEN ADVISED IN
WRITING TO CONSULT AN ATTORNEY OF HIS CHOICE PRIOR TO SIGNING THIS AGREEMENT
AND THAT HE HAS BEEN AFFORDED THE OPPORTUNITY TO CONSULT AN ATTORNEY OF HIS
CHOICE PRIOR TO SIGNING THIS AGREEMENT, (iv) THAT HE IS WAIVING RIGHTS AND
CLAIMS ONLY IN EXCHANGE FOR CONSIDERATION THAT IS IN ADDITION TO ANYTHING TO
WHICH HE IS ALREADY ENTITLED; AND (v) THAT HE HAS READ AND FULLY UNDERSTANDS
THE RELEASE IN SECTION 3 ABOVE AND EXECUTES THIS AGREEMENT FREELY AND
VOLUNTARILY WITHOUT THREAT, DURESS, COERCION, OR PROMISE OF ANY FUTURE
CONSIDERATION.
(b) Revocation. Employee shall have seven days following his
execution of this Agreement in which to revoke this Agreement, and anything
else in this agreement to the contrary
2
<PAGE> 3
notwithstanding, this Agreement shall not become effective or enforceable until
the revocation period has expired. In the absence of such revocation, this
Agreement shall become effective and enforceable on the eighth day following
Employee's execution of this Agreement.
5. Options and Benefits. (a) The Company and Employee
acknowledge that Employee was previously granted 8,333 options to purchase
shares of the Company's common stock, par value $.01 per share ("Stock
Options"), with an exercise price of $6.00 per share (of which 5,333 remain
unexercised) and 13,000 Stock Options with an exercise price of $5.25 per
share, which Stock Options are fully vested in accordance with the terms
thereof. In addition, on March 11, 1997, Employee was granted two additional
groups of Stock Options, one group being 13,333 Stock Options and the other
being 15,690 Stock Options, each with an exercise price of $19.375 per share.
With respect to the group of 13,333 Stock Options, the Company agrees that all
of said Stock Options shall be fully vested in Employee as of the date of grant
thereof and that the Company shall provide documentation to Employee evidencing
the full vesting thereof. With respect to the group of 15,690 Stock Options,
Employee acknowledges and agrees that none of said Stock Options will at any
time vest in Employee and that Employee shall not have any right to exercise
said Stock Options at any time. Solely for purpose of the exercise, but not the
vesting, provisions of the Stock Options vested in Employee on the date hereof,
Employee shall be deemed to be in the employ of the Company until March 31,
1998 (the "Deemed Employment Period"). Subject to the preceding provisions of
this Section 5, nothing herein shall affect, waive, terminate or release any
rights that Employee may have arising under any stock option agreements between
the Company and Employee. Subject to the first sentence of this Section 5(a),
Employee's rights with respect to any Stock Options held by him shall be
governed by the terms and provisions of any stock option agreements related
thereto and the 1992 Amended and Restated Employee Nonqualified Stock Option
Plan of the Company.
(b) Unless Employee gives notice to the Company pursuant to the
next sentence within ninety days following the date hereof, the Company shall
maintain in force and effect, at its sole expense and for the continued benefit
of Employee and Employee's dependents, for the period from the date hereof
through the earlier of (i) eighteen months from the date hereof, or (ii) the
commencement date of similar benefits from a new employer (the "Benefits
Termination Date"), all medical, dental, health and accident, hospitalization,
disability and other similar employee welfare benefit plans maintained by the
Company in which Employee was entitled to participate immediately prior to the
date hereof. If Employee's participation in any such benefit plan is barred,
the Company, at its sole cost and expense, shall arrange to have issued for the
benefit of Employee and his dependents individual policies of insurance
providing benefits substantially similar (on an after-tax basis) to those that
Employee is entitled to receive under such benefit plans for a period of
eighteen months or such lesser period as Employee shall remain unemployed.
Employee shall not be required to pay any premiums or other charges for such
policies. All payments made by the Company pursuant to this Section 5(b) shall
be credited against any obligation that the Company may have under applicable
law to provide such benefits to Employee following his termination of
employment with the Company, and, except as otherwise provided by applicable
law, after the Benefits
3
<PAGE> 4
Termination Date, the Company shall have no obligation further to provide any
such benefits to Employee. In addition, to the extent (i) the Company makes
similar payments with respect to its other senior executives and (ii) permitted
by applicable law, the Company will make its so-called "matching contribution"
to Employee's 401(k) Plan account in respect of the Company's fiscal year ended
July 31, 1997. The Company shall promptly notify Employee following the
payment of said contribution, if any. In the event the Company does not make
said contribution, either due to restrictions imposed by law or because the
Company did not make similar contributions to its other senior executives in
such fiscal year, Employee shall have no right to receive any other payment or
benefit in lieu of said contribution.
6. Confidentiality. From and after the date hereof, Employee
agrees not to disclose to any third person or use for any purpose any of the
Company's Proprietary Information (as hereinafter defined). For purposes of
this Agreement, "Proprietary Information" shall mean any information, data,
records, reports, documents and agreements relating to the Company, its
subsidiaries, its and their respective businesses or any Company Representative
disclosed to or received by Employee during the period of his employment with
the Company or during negotiation of his employment with the Company
(including, without limitation, customer lists, price discounts, sales
information, Company methods of doing business, accounting procedures,
production methods, engineering designs and any other items that are not
published for general distribution to the public); provided that "Proprietary
Information" shall not include (i) information which is or becomes generally
available to the public other than as a result of a disclosure in violation of
this Agreement and (ii) information disclosed pursuant to any applicable law,
rule, regulation or order. Employee agrees to keep the terms and conditions of
this Agreement confidential; provided that Employee may disclose the terms of
this Agreement to his spouse, attorney and accountant if he obtains the prior
agreement of such person to hold such information in confidence.
7. Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the termination of the
Deemed Employment Period.
8. Severability. If any provision of this Agreement shall be
adjudged by a court of competent jurisdiction to be void or unenforceable, that
finding shall in no way affect any other provision of this Agreement or the
validity or enforceability of this Agreement.
9. Further Assurances; Future Cooperation. Each party to this
Agreement agrees to do such things as may be reasonably requested by the other
party to this Agreement in order more effectively to consummate or document the
transactions contemplated by this Agreement.
10. Binding Agreement; Captions. This Agreement is binding upon,
and shall inure to the benefit of, the parties to this Agreement and their
respective legal representatives, heirs, devisees, legatees, successors and
assigns. Titles and captions of or in this Agreement are inserted only as a
matter of convenience and for reference and in no way affect the scope of this
Agreement or the intent of its provisions.
4
<PAGE> 5
11. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof,
supersedes all prior agreements of any of the parties to this Agreement with
respect to its subject matter, including, without limitation, the Letter
Agreement, and may not be revoked, modified or amended except by a written
instrument signed by both parties.
12. Binding Arbitration. Should any dispute arise between the
parties with respect to this Agreement or the rights, duties and obligations of
the parties hereunder, each of the parties irrevocably agrees that the
exclusive remedy of each of them shall be to commence binding arbitration
proceedings under the rules of the American Arbitration Association, with any
such arbitration proceeding to be conducted in Houston, Texas, applying the
substantive law of the State of Texas. Each party agrees to deposit with the
neutral arbitrator an amount equal to 50% of the arbitrator's preliminary
estimate of the costs of arbitration (excluding counsel fees) as security for
costs. Actual costs of arbitration (including counsel fees of both parties)
shall be apportioned by the arbitrator in such a manner as he shall deem
equitable in light of any financial award.
13. Waiver; Governing Law; Counterparts. Failure of any party to
this Agreement at any time or times to require the performance of any provision
of this Agreement shall in no manner affect the right to enforce the same; and
the waiver by any party to this Agreement of any provision (or a breach of any
provision) of this Agreement, whether by conduct or otherwise, shall not be
deemed or construed either as a further or continuing waiver of any such
provision or breach or as a waiver of any other provision (or a breach of any
other provision) of this Agreement. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Texas. This
Agreement may be executed in two or more counterparts, each of which shall be
an original for all purposes, but all of which taken together shall constitute
but one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement is executed on April 21, 1997.
VERITAS DGC INC.
By: /s/ DAVID B. ROBSON
-----------------------------------
David B. Robson
Chairman of the Board and Chief
Executive Officer
RICHARD W. MCNAIRY
/s/ RICHARD W. MCNAIRY
------------------------------------
6
<PAGE> 1
EXHIBIT 10-L
THIS EMPLOYMENT AGREEMENT entered into as of the 1st day of April A.D.
1994.
BETWEEN:
VERITAS ENERGY SERVICES INC., a body corporate,
having an office at the City of Calgary, in the
Province of Alberta.
(hereinafter called the "Company")
OF THE FIRST PART
AND:
DAVID B. ROBSON ("Robson")
OF THE SECOND PART
WHEREAS the Company is engaged in the business of the acquisition and
processing of seismic data and other activities related to the oil and gas
industry and is desirous of engaging the services of Robson in the capacity of
President and Chief Executive Officer;
AND WHEREAS the Company and Robson have agreed to the compensation,
terms and conditions hereinafter set forth:
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants hereinafter contained, the parties hereto covenant and agree
as follows, namely:
<PAGE> 2
1. The Company agrees to retain the services of Robson and Robson hereby
agrees to provide managerial services to the Company for a period of nineteen
(19) months, commencing on the 1st day of April, A.D. 1994 and continuing
until the 31st day of October, A.D. 1995, at which time this Agreement shall be
automatically renewed for successive one (1) year periods on the anniversary
date of the Agreement unless terminated by either party hereto on written
notice to the other, such notice to be delivered at least thirty (30) days
prior to the expiry of the initial nineteen (19) month period or any renewal
thereof.
In the event that the Company gives notice of non-renewal, or of
termination, other than for just cause under Clause 5 hereof, Robson shall be
entitled to receive from the Company within thirty (30) days an amount equal to
24 months compensation at the rate set out in Clause 3 (a) (i) or any amendment
thereto.
2. Robson shall provide his managerial expertise to the Company which
shall include but not be limited to responsibility for the organization,
financial management, administrative, technical direction, personnel relations
and such other related duties and shall further devote his efforts, time,
attention and ability to the business and affairs of the Company on a full time
and exclusive basis. Robson shall not have any business interest which is in
direct competition with any business in the Company. If, in the reasonable
opinion of the Company, Robson does acquire or becomes a competitor of any
business of the Company, Robson agrees to immediately take such steps as may be
necessary to divest himself of such interest within thirty (30) days of receipt
of notice from the company to that effect.
<PAGE> 3
3. (a) The compensation package paid to Robson for its services
shall be as follows, namely:
(i) a monthly fee of Fifteen Thousand ($15,000.00) DOLLARS payable
in two equal instalments of Seven Thousand Five Hundred ($7,500.00) Dollars such
payments being due and payable on the 15th and last day of each month,
commencing April 15, 1994.
(ii) such further and additional payments to Robson by way of
bonuses, or other remuneration as from time to time determined by the Board of
Directors of the Company. Any such payments will be based on increased earnings
and cash flow per share achieved by Robson, and such other financial and
non-financial targets as the Board of Directors set from year to year.
4. Robson shall be reimbursed by the Company for all expenses actually and
properly incurred by him in connection with his duties hereunder and for all
such expenses he shall furnish statements and voucher to the Company. Robson
shall also have a vehicle for use in performing his duties hereunder and the
Company shall from time to time compensate him for expenses associated with the
said vehicle in a manner determined by the Board of Directors of the Company.
5. The parties hereto each agree that this Contract may be terminated by
the Company for just cause immediately upon the giving of written notice by the
Company to Robson specifying the effective date of termination and as well
specifying the event or events which constitute the "just cause" for
terminating this contract.
<PAGE> 4
6. In consideration of the fees payable to Robson hereunder, he agrees
that he shall not at any time during the term of this Agreement or thereafter
divulge to any person, firm or corporation the names of any or all of the
clients or customers of the Company nor shall he divulge to any person, firm or
corporation any special knowledge, methods or confidential information obtained
by him during the term of this Agreement.
7. Any notice to be given pursuant to this Agreement shall be sufficiently
given if served personally, or by facsimile transmission, or mailed, prepaid
and registered, addressed to the proper party as follows:
VERITAS ENERGY SERVICES INC.
3rd Floor - 615 Third Avenue S.W.
CALGARY, Alberta
DAVID B. ROBSON
Box 2, Site 3, RR #1
AIRDRIE, Alberta
The above addresses may be exchanged at any time hereafter by giving thirty
(30) days written notice as hereinbefore provided. The date of the receipt of
any such notice shall be deemed conclusively to be the date of delivery if such
notice is served personally or by facsimile transmission or if mailed, three
(3) days after such mailing. In the event of a known interruption of postal
service, service of notice shall be by delivery only.
8. This Agreement shall be governed by and construed under the laws of the
Province of Alberta.
<PAGE> 5
9. This Agreement shall enure to the benefit of and be binding upon the
Company and its successors and assigns.
10. The parties agree that they have expressed herein their understanding
and agreement covering the subject matter of this Agreement. It is expressly
agreed that no implied covenant, condition, term or reservation shall be read
into this Agreement relating to or concerning the subject matter hereof.
IN WITNESS WHEREOF the parties hereto have hereunto executed this
Agreement, all as of the day, month and year first above written.
VERITAS ENERGY SERVICES INC.
Per: /s/ John Friesen
______________________
DAVID B. ROBSON
Per: /s/ D. B. ROBSON
_____________________
<PAGE> 1
EXHIBIT 10-M
THIS EMPLOYMENT AGREEMENT entered into as of the 1st day of November
A.D. 1993.
BETWEEN:
VERITAS ENERGY SERVICES INC., a body corporate,
having an office at the City of Calgary, in the
Province of Alberta,
(hereinafter called the "Company")
OF THE FIRST PART
AND:
LAWRENCE C. FICHTNER ("Fichtner")
OF THE SECOND PART
WHEREAS the Company is engaged in the business of the acquisition and
processing of seismic data and other activities related to the oil and gas
industry and is desirous of engaging the services of Fichtner in the capacity
of Executive Vice-President;
AND WHEREAS the Company and Fichtner have agreed to the compensation,
terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants hereinafter contained, the parties hereto covenant and agree
as follows, namely:
<PAGE> 2
1. The Company agrees to retain the services of Fichtner and Fichtner
hereby agrees to provide managerial services to the Company for a period of
twenty-four (24) months, commencing on the 1st day of November, A.D. 1993 and
continuing until the 31st day of October, A.D. 1995, at which time this
Agreement shall be automatically renewed for successive one (1) year periods on
the anniversary date of the Agreement unless terminated by either party hereto
on written notice to the other, such notice to be delivered at least thirty
(30) days prior to the expiry of the initial twenty-four (24) month period or
any renewal thereof.
In the event that the Company gives notice of non-renewal, or of
termination, other than for just cause under Clause 5 hereof, Fichtner shall be
entitled to receive from the Company within thirty (30) days an amount equal to
24 months compensation at the rate set out in Clause 3(a)(i) or any amendment
thereto.
2. Fichtner shall provide his managerial expertise to the Company which
shall include but not be limited to duties including public relations,
marketing, operations, and such other related duties and shall further devote
his efforts, time, attention and ability to the business and affairs of the
Company on a full time and exclusive basis. Fichtner shall not have any
business interest which is in direct competition with any business of the
Company. If, in the reasonable opinion of the Company, Fichtner does acquire
or becomes a competitor of any business of the Company, Fichtner agrees to
immediately take such steps as may be necessary to divest himself of such
interest within (30) days of receipt of notice from the Company to that effect.
<PAGE> 3
3. (a) The compensation package paid to Fichtner for its services
shall be as follows, namely:
(i) a monthly fee of Twelve Thousand Five Hundred ($12,500.00)
DOLLARS payable in two equal installments of Six Thousand Two Hundred and Fifty
($6,250.00) Dollars such payments being due and payable on the 15th and last day
of each month, commencing on November 15, 1993.
(ii) such further and additional payments to Fichtner by way of
bonuses, or other remuneration as from time to time determined by the Board of
Directors of the Company. Any such payments will be based on increased earnings
and cash flow per share achieved by Fichtner, and such other financial and
non-financial targets as the Board of Directors set from year to year.
4. Fichtner shall be reimbursed by the Company for all expenses actually
and properly incurred by him in connection with his duties hereunder and for
all such expenses he shall furnish statements and voucher to the Company.
Fichtner shall also have a vehicle for use in performing his duties hereunder
and the Company shall from time to time compensate him for expenses associated
with the said vehicle in a manner determined by the Board of Directors of the
Company.
5. The parties hereto each agree that this Contract may be terminated by
the Company for just cause immediately upon the giving of written notice by the
Company to Fichtner specifying the effective date of termination and as well
specifying the event or events which constitute the "just cause" for
terminating this contract.
<PAGE> 4
6. In consideration of the fees payable to Fichtner hereunder, he agrees
that he shall not at any time during the term of this Agreement or thereafter
divulge to any person, firm or corporation the names of any or all of the
clients or customers of the Company nor shall he divulge to any person, firm or
corporation any special knowledge, methods or confidential information obtained
by him during the term of this Agreement.
7. Any notice to be given pursuant to this Agreement shall be sufficiently
given if serve personally, or by facsimile transmission, or mailed, prepaid
and registered, addressed to the proper party as follows:
VERITAS ENERGY SERVICES INC.
3rd Floor - 615 Third Avenue S.W.
CALGARY, Alberta
LAWRENCE C. FICHTNER
722 Riverdale Avenue S.W.
CALGARY, Alberta
The above addresses may be exchanged at any time hereafter by giving thirty
(30) days written notice as hereinbefore provided. The date of the receipt of
any such notice shall be deemed conclusively to be the date of delivery if such
notice is served personally or by facsimile transmission or if mailed, three
(3) days after such mailing. In the event of a known interruption of postal
service, service of notice shall be by delivery only.
8. This Agreement shall be governed by and construed under the laws of the
Province of Alberta.
<PAGE> 5
9. This Agreement shall enure to the benefit of and be binding upon the
Company and its successors and assigns.
10. The parties agree that they have expressed herein their understanding
and agreement covering the subject matter of this Agreement. It is expressly
agreed that no implied covenant, condition, term or reservation shall be read
into this Agreement relating to or concerning the subject matter hereof.
IN WITNESS WHEREOF the parties hereto have hereunto executed this
Agreement, all as of the day, month and year first above written.
VERITAS ENERGY SERVICES INC.
Per: /S/ D. B. ROBSON
____________________
LAWRENCE C. FICHTNER
Per: /S/ LAWRENCE C. FICHTNER
___________________
<PAGE> 1
EXHIBIT 10-N
THIS EMPLOYMENT AGREEMENT entered into as of the 30th day of August,
1996
BETWEEN:
VERITAS DGC INC., a body corporate having an office at the
City of Houston in the State of Texas, (hereinafter called the
"Company")
OF THE FIRST PART
- and -
RENE M.J. VANDENBRAND ("VandenBrand")
OF THE SECOND PART
WHEREAS the Company is engaged in the business of the acquisition and
processing of seismic data and other activities related to the oil and gas
industry and currently employs VandenBrand through its subsidiary, Veritas
Energy Services Inc; and
WHEREAS the Company is desirous of continuing the services of
VandenBrand, but has requested that VandenBrand relocate to the City of
Houston, Texas and assume the position of Vice President, Business Development
of the Company;
AND WHEREAS the Company and VandenBrand have agreed to the
compensation, terms and conditions hereafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants hereinafter contained, the parties hereto covenant and agree
as follows, namely:
1. (a) The Company agrees to continue the services of VandenBrand and
VandenBrand hereby agrees to continue providing managerial
services to the Company in the capacity of Vice-President,
Business Development of the Company for a period of twelve
(12) months, commencing on the 30th day of August 1996 and
continuing until the 29th day of August, 1997, at which time
this Agreement shall be automatically renewed for successive
one (1) year periods on the anniversary date of this Agreement
unless terminated by either party hereto on written notice to
the other, such notice to be delivered at least thirty (30)
days prior to the expiry of the initial twelve (12) month
period or any renewal thereof.
(b) In the event that the Company gives notice of non-renewal, or
of termination, other than for just cause under Section 5
hereof, VandenBrand shall be entitled to receive
<PAGE> 2
-2-
from the Company within thirty (30) days an amount equal to
twelve (12) months compensation at the rate set out in
Sections 3 (a)(i) and (ii) or any amendment thereto.
2. VandenBrand shall provide his managerial expertise to the Company
which shall include but not be limited to duties relating to the
matters of finance and business development, and other related duties
and shall further devote his efforts, time, attention and ability to
the business and affairs of the Company on a full time and exclusive
basis, Subject to the terms hereof, VandenBrand agrees to relocate
immediately to Houston, Texas and to perform such duties from such
location. VandenBrand shall not have any business interest which is in
direct competition with any business of the Company. If, in the
reasonable opinion of the Company, VandenBrand does acquire or becomes
a competitor of any business of the Company, VandenBrand agrees to
immediately take such steps as may be necessary to divest himself of
such interest within thirty (30) days of receipt of notice from the
Company to that effect.
3. (a) Subject to such increases as may be approved by the Company
from time to time, the compensation package paid to
VandenBrand for his services shall be as follows, namely:
(i) a monthly salary of TEN THOUSAND (U.S. $10,000)
UNITED STATES DOLLARS;
(ii) a monthly payment of TWO THOUSAND FIVE HUNDRED (U.S.
$2,500) UNITED STATES DOLLARS as a relocation
allowance to compensate for the additional cost of
living in Houston, Texas; and
(iii) such further and additional payments to VandenBrand
by way of bonuses, or other remuneration as from time
to time determined by the Board of Directors of the
Company. Any such payments will be based on increased
earnings and cash flow per share achieved by
VandenBrand, and such other financial and non-
financial targets as the Board of Directors set from
year to year.
(b) The Company will purchase, for each of VandenBrand, his spouse
and his two children one least cost airline ticket from
Calgary, Alberta to Houston, Texas.
(c) Upon departure to Houston, Texas, and at the expense of the
Company, VandenBrand, may ship, by ground transportation, all
personal effects.
(d) The Company will pay to VandenBrand a relocation bonus equal
to one month's salary. Such payment is to cover expenses
normally associated with household relocation and will be paid
at the end of the first month after relocation,
(e) The Company will select local temporary accommodation for
VandenBrand and his family and reimburse VandenBrand for
reasonable living expenses (excluding entertainment) for a
period of up to one month beginning on the date of arrival at
Houston, Texas.
<PAGE> 3
-3-
(f) Upon termination of this Agreement, in accordance with its
terms, the Company will purchase for each of VandenBrand, his
spouse and his two children one least cost airline ticket from
Houston, Texas to Calgary, Alberta and will pay costs similar
to those contemplated in paragraph (c) above or may, at
VandenBrand's discretion, pay to VandenBrand an amount of
money equivalent to the cost of the airline tickets and such
other costs.
(g) During the term of this Agreement and any tax year directly
associated with or affected by the term of this Agreement, the
Company will pay all reasonable fees associated with the
preparation of VandenBrand's foreign and home country returns
and forms for reporting income taxes, provided the tax
preparer is approved by the Company prior to the completion of
tax returns.
(h) During the term of this Agreement, the Company shall be
authorized by VandenBrand to withhold from Company-sourced
income appropriate withholding taxes and other source
deductions.
(i) The Company will purchase one (1) round trip least cost
airline ticket per year to Calgary, Alberta for each of
VandenBrand, his spouse and his two children.
4. VandenBrand shall be reimbursed by the Company for all expenses
actually and properly incurred by him in connection with his duties
hereunder and for all such expenses he shall furnish statements and
vouchers to the Company in accordance with the customary procedures of
the Company.
5. The parties hereto each agree that this Agreement may be terminated by
the Company for just cause immediately upon the giving of written
notice by the Company to VandenBrand specifying the effective date of
termination and as well specifying the event or events which
constitute the "just cause" for terminating this Agreement. For
purposes of this Agreement, "just cause" is defined as follows: a
determination by the Board of Directors that one of the following
events shall have occurred, (i) VandenBrand's material neglect of his
duties hereunder; (ii) the refusal by VandenBrand to follow reasonable
and lawful directions from the Board of Directors of the Company;
(iii) the engaging by VandenBrand in misconduct, or in acts of moral
turpitude, that in the judgment of the Board of Directors, acting
reasonably, is or are injurious to the Company; or (iv) the violation
by VandenBrand of the provisions of Section 6 hereof.
6. In consideration of the fees payable to VandenBrand hereunder, he
agrees that he shall not at any time during the term of this Agreement
or thereafter divulge to any person, firm or corporation the names of
any or all of the clients or customers of the Company nor shall he
divulge to any person, firm or corporation any special knowledge,
methods or confidential information obtained by him during the term of
this Agreement.
<PAGE> 4
-4-
7. Any notice to be given pursuant to this Agreement shall be
sufficiently given if served personally, or by facsimile transmission,
or mailed, prepaid and registered, addressed to the proper party as
follows:
VERITAS DOC INC.
("Personal & Confidential")
3701 Kirby Drive
Houston, Texas 77098
Attention: President and Chief Executive Officer
Facsimile: (713) 630-4456
RENE M.J. VANDENBRAND
c/o Veritas DOC Inc. ("Personal & Confidential")
3701 Kirby Drive
Houston, Texas 77098
Facsimile: (713) 630-4456
The above addresses may be exchanged at any time hereafter by giving
(30) days' written notice as herein before provided. The date of the
receipt of any such notice shall be deemed conclusively to be the date
of delivery if such notice is served personally or by facsimile
transmission or if mailed, three (3) days after such mailing. In the
event of a known interruption of postal service, service of notice
shall be by delivery only.
8. This Agreement shall be governed by and construed under the laws of
the State of Texas.
9. This Agreement shall enure to the benefit of and be binding upon the
Company and its successors and permitted assigns and upon VandenBrand
and his heirs, successors and permitted assigns. Neither party may
assign this Agreement without the prior written consent of the other.
10. The parties agree that they have expressed herein their entire
understanding and agreement covering the subject matter of this
Agreement. It is expressly agreed that no implied covenant, condition,
term or reservation shall be read into this Agreement relating to or
concerning the subject matter hereof.
IN WITNESS WHEREOF the parties hereto have hereunto executed this
Agreement, all as of the day, month and year first above written.
VERITAS DGC INC.
Per: /s/ D.B. ROBSON
-----------------------
/s/ RENE M.J. VANDENBRAND
----------------------------
RENE M.J. VANDENBRAND
<PAGE> 1
EXHIBIT 10-O
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT (this "Agreement") is made as of the
1st day of April, 1997, between Veritas DGC Inc., a Delaware corporation (the
"Employer"), and Tony Tripodo, an individual residing in Harris County, Texas
("Employee").
RECITALS
WHEREAS, Employee is employed by Employer.
WHEREAS, Employer and Employee desire that shares of stock of Employer
be issued to Employee, subject to this Agreement, as additional compensation to
Employee for his employment with Employer.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, Employer and Employee agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated:
a. "Board" shall mean the board of directors of the
Company.
b. "Cause" shall have the meaning ascribed to such term
in the Employment Agreement.
c. "Disability" shall have the meaning ascribed to such
term in the Employment Agreement.
d. "Employment Agreement" shall mean that certain
Employment Agreement of even date herewith between Employer and
Employee.
e. "Forfeiture Restrictions" shall mean any prohibitions
and restrictions set forth herein with respect to the sale or other
disposition of shares of Stock issued to Employee hereunder and the
obligation to forfeit and surrender such shares to Employer.
f. "Good Reason" shall have the meaning ascribed to such
term in the Employment Agreement.
g. "Stock" shall mean the common stock of Employer, $.01
par value.
h. "Restricted Shares" shall mean shares of Stock that
are subject to the Forfeiture Restrictions.
<PAGE> 2
2. Restricted Shares. The Employee agrees to accept the
Restricted Shares when issued and agrees with respect thereto as follows:
a. On the date of this Agreement, Employer shall cause
to be issued in Employee's name 10,000 shares of Stock as Restricted
Shares. A certificate evidencing the Restricted Shares shall be
issued by Employer in Employee's name, pursuant to which Employee
shall have, except for the Forfeiture Restrictions, all of the rights
of a stockholder of Employer with respect to such Restricted Shares,
including, without limitation, the right to receive any dividends or
distributions allocable thereto. The certificate shall be delivered
upon issuance to the Secretary of Employer or to such other depository
as may be designated by the Board as a depository for safekeeping
until the forfeiture of such Restricted Shares occurs or the
Forfeiture Restrictions lapse. On the date of this Agreement,
Employee shall deliver to Employer stock powers, endorsed in blank,
relating to the Restricted Shares. Upon the lapse of the Forfeiture
Restrictions without forfeiture, Employer shall cause a new
certificate or certificates to be issued without legend in the name of
Employee in exchange for the certificate evidencing the Restricted
Shares.
b. The Restricted Shares may not be sold, assigned,
pledged, exchanged, hypothecated or otherwise transferred, encumbered
or disposed of to the extent then subject to the Forfeiture
Restrictions. Further, the Restricted Shares may not be sold or
otherwise disposed of in any manner which would constitute a violation
of any applicable federal or state securities laws. Employee also
agrees (i) that Employer may refuse to register the transfer of the
Restricted Shares on the stock transfer records of Employer if such
proposed transfer would in the opinion of counsel satisfactory to
Employer constitute a violation of any applicable securities law and
(ii) that Employer may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the Restricted
Shares. The Forfeiture Restrictions shall be binding upon and
enforceable against any transferee of the Restricted Shares.
Certificates representing the Restricted Shares shall be legended as
follows to reflect the Forfeiture Restrictions and to assure
compliance with any applicable federal or state securities laws:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THAT CERTAIN RESTRICTED STOCK AGREEMENT BETWEEN THE
COMPANY AND TONY TRIPODO DATED APRIL 1, 1997. RESTRICTIONS ON
THE RIGHT TO OWN OR TRANSFER THE SHARES OF STOCK REPRESENTED
BY THIS CERTIFICATE HAVE BEEN IMPOSED PURSUANT TO SAID
RESTRICTED STOCK AGREEMENT. A COPY OF THE RESTRICTED STOCK
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY
AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS
CERTIFICATE UPON RECEIPT BY THE COMPANY AT ITS PRINCIPAL PLACE
OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE
HOLDER REQUESTING SUCH COPY.
-2-
<PAGE> 3
c. The Forfeiture Restrictions shall lapse as to the
Restricted Shares in accordance with the following schedule provided
that Employee has been continuously employed by Employer from the
effective date of this Agreement through the lapse date:
<TABLE>
<CAPTION>
Number of
Restricted Shares as to
Which Forfeiture
Lapse Date Restrictions Lapse
---------- ------------------
<S> <C>
April 1, 1998 3333
April 1, 1999 3333
April 1, 2000 3334
</TABLE>
Notwithstanding the foregoing provisions of this Section 2(c), in the
event Employee's employment with Employer is terminated prior to April
1, 2000 (i) by Employer without Cause, (ii) by Employee for Good
Reason or (iii) due to the death or Disability of Employee, then all
remaining Forfeiture Restrictions shall immediately lapse.
d. The existence of the Restricted Shares shall not
affect in any way the right or power of Employer to make or authorize
any adjustment, recapitalization, reorganization or other change in
Employer's capital structure or its business, any merger or
consolidation of Employer, any issue of debt or equity securities, the
dissolution or liquidation of Employer or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any
other corporate act or proceeding. The prohibitions of Section 2(b)
hereof shall not apply to the transfer of Restricted Shares pursuant
to a plan of reorganization of Employer, but the stock, securities or
other property received in exchange therefor shall also become subject
to the Forfeiture Restrictions and provisions governing the lapsing of
such Forfeiture Restrictions applicable to the original Restricted
Shares for all purposes of this Agreement and the certificates
representing such stock, securities or other property shall be
legended to show such restrictions.
e. To the extent that the receipt of the Restricted
Shares or the lapse of any Forfeiture Restrictions results in income
to Employee for federal or state income tax purposes, Employee shall
deliver to Employer at the time of such receipt or lapse, as the case
may be, such amount of money as Employer may require to meet its
obligation under applicable tax laws or regulations, and, if such
Employee fails to do so, Employer is authorized to withhold from any
cash or stock remuneration then or thereafter payable to Employee any
tax required to be withheld by reason of such resulting compensation
income.
-3-
<PAGE> 4
3. Consideration. As consideration for the issuance of the Restricted
Shares, Employee shall pay Employer the par value of such Restricted Shares.
4. Employment Relationship. For purposes of this Agreement,
Employee shall be considered to be in the employment of Employer as long as
Employee remains an employee of either Employer, any successor corporation or a
parent or subsidiary corporation (as defined in Section 424 of the Code) of
Employer or any successor corporation thereof. Any questions as to whether and
when there has been a termination of such employment, and the cause of such
termination, shall be determined by the Board and its determination shall be
final.
5. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Employer, Employee, any successors to Employer and all
persons lawfully claiming under the Employee.
6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original for all purposes but all of
which taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Employer has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Employee has executed
this Agreement, all as of the date first above written.
EMPLOYER:
VERITAS DGC INC.
By: /s/ DAVID B. ROBSON
--------------------------------
David B. Robson
Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
/s/ TONY TRIPODO
-----------------------------------
Tony Tripodo
-4-
<PAGE> 1
EXHIBIT 11
VERITAS DGC INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended July 31,
----------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
PRIMARY INCOME PER SHARE:
Weighted average shares of common stock outstanding(1) 17,771 17,882 18,898
Shares issuable from assumed conversion of:
Warrants 7 105 33
Stock options 1 21 393
------- ------- -------
Weighted average shares outstanding, as adjusted 17,779(2) 18,008(2) 19,324(2)
======= ======= =======
Primary income per share $ .31 $ .07 $ 1.30
======= ======= =======
FULLY DILUTED INCOME PER SHARE:
Weighted average shares of common stock outstanding(l) 17,771 17,882 18,898
Shares issuable from assumed conversion of:
Warrants 7 127 34
Stock options 1 86 432
------- ------- -------
Weighted average shares outstanding, as adjusted 17,779(2) 18,095(2) 19,364(2)
======= ======= =======
Fully diluted income per share $ .31 $ .07 $ 1.30
======= ======= =======
NET INCOME FOR PRIMARY AND PRIMARY AND FULLY DILUTED COMPUTATION $ 5,594 $ 1,281 $25,125
======= ======= =======
</TABLE>
(1) Weighted average shares of common stock outstanding for all periods have
been restated for a one-for-three reverse stock split consummated on
January 17, 1995.
(2) This calculation is submitted in accordance with Item 601(b) 11 of
Regulation S-K although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because warrants and options result in dilution of less
than 3%.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of the Registrant at July 31, 1997
owned by the Registrant or one or more of its other subsidiaries:
State or Country
Corporate Name of Subsidiary of Incorporation
------------------------------- ----------------
Veritas Energy Services Inc. Canada
Veritas DGC Land Ltd. Canada
Canex Information Services Ltd. Canada
Veritas Seismic (1987) Ltd. Canada
Veritas Energy Services (US) Inc. Canada
Veritas Energy Services Partnership Canada
Digicon Geophysical Corp. Delaware
Digicon Exploration, Ltd. Delaware
Digicon Geophysical Limited United Kingdom
Veritas DGC Land Inc. Delaware
Veritas Seismic S.A. Venezuela
AirJac Drilling, Inc. Delaware
Digicon (Malaysia) Sdn. Bhd. Malaysia
Digicon (Asia) Sdn. Bhd, Brunei
Digicon de Venezuela C.A. Venezuela
Digicon (Canada) Inc. Canada
Digicon (Far East) Pte. Ltd. Singapore
Digital Exploration (Nigeria) Limited Nigeria
Seismic Company of America, Inc. Delaware
Euroseis, Inc. Delaware
Digicon Finance N.V. Netherlands Antilles
<PAGE> 1
EXHIBIT 23a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-09679) and the Registration Statements on Form
S-3 (No. 33-63875, No. 333-10517, No. 333-17517) of Veritas DGC Inc., of our
report dated September 24, 1997 appearing on page 16 of Veritas DGC Inc.'s
Annual Report on Form 10-K for the year ended July 31, 1997.
PRICE WATERHOUSE LLP
October 14, 1997
<PAGE> 1
EXHIBIT 23b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-09679) and the Registration Statements on Form
S-3 (No. 33-63875, No. 333-10517 and No. 333-17517) of Veritas DGC Inc., on our
report dated September 20, 1996 appearing on page 18 of Veritas DGC Inc.'s
Annual Report on Form 10-K for the year ended July 31, 1997.
PRICE WATERHOUSE
Chartered Accountants
October 14, 1997
<PAGE> 1
EXHIBIT 23C
CONSENT OF INDEPENDENT AUDITORS'
We consent to the incorporation by reference in Registration Statement No.
33-63875 on Form S-3, Registration Statement No. 333-09679 on Form S-8,
Registration Statement No. 333-10517 on Form S-3 and Registration Statement No.
333-17517 on Form S-3 of our report dated October 10, 1996 on the consolidated
balance sheet of Veritas DGC Inc. and subsidiaries as of July 31, 1996 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the two years in the period ended July 31,
1996 appearing in this Annual Report on Form 10-K for the year ended July 31,
1997.
DELOITTE & TOUCHE LLP
Houston, Texas
October 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) VERITAS
DGC INC.'S FORM 10-K FOR THE YEAR ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 71,177
<SECURITIES> 0
<RECEIVABLES> 121,592
<ALLOWANCES> 646
<INVENTORY> 2,333
<CURRENT-ASSETS> 205,435
<PP&E> 240,758
<DEPRECIATION> 108,004
<TOTAL-ASSETS> 381,261
<CURRENT-LIABILITIES> 83,365
<BONDS> 75,588
0
0
<COMMON> 200
<OTHER-SE> 221,101
<TOTAL-LIABILITY-AND-EQUITY> 381,261
<SALES> 0
<TOTAL-REVENUES> 362,715
<CGS> 0
<TOTAL-COSTS> 332,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,484
<INCOME-PRETAX> 30,309
<INCOME-TAX> 6,062
<INCOME-CONTINUING> 25,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,125
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
</TABLE>
