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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VERITAS DGC INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE (State or other 1382 (Primary Standard Industrial 76-0343152 (I.R.S. Employer
jurisdiction of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098-3982
(713) 512-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ANTHONY TRIPODO
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098-3982
(713) 512-8300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of Communications to:
T. WILLIAM PORTER
PORTER & HEDGES, L.L.P.
700 LOUISIANA, 35TH FLOOR
HOUSTON, TEXAS 77002-2764
(713) 226-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE SENIOR AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED NOTE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Senior Notes due 2003, Series C............. $60,000,000 100% $60,000,000 $16,680
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</TABLE>
(1) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PRELIMINARY PROSPECTUS
VERITAS LOGO
VERITAS DGC INC.
ISSUER
Exchange Offer of
9 3/4% Senior Notes Due 2003, Series C
For All Outstanding 9 3/4% Senior Notes Due 2003, Series B
THE REGISTERED NOTES
- - The terms of the notes to be issued are substantially identical in all
material respects to the outstanding notes, except for certain transfer
restrictions, registration rights and liquidated damages provisions relating
to the outstanding notes.
- - Interest accrues from October 28, 1998 at the rate of 9 3/4% per annum,
payable semi-annually in arrears on each April 15 and October 15, beginning
April 15, 1999.
- - The notes are unsecured and will rank equally with our existing $75.0 million
of 9 3/4% Senior Notes due 2003 (the "Series A Notes") and all senior
indebtedness and other liabilities and senior to all subordinated
indebtedness.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - Expires at 5:00 p.m., Boston, Massachusetts time, on [ ], 1998, unless
extended.
- - Not subject to any condition other than that the Exchange Offer not violate
applicable law or any applicable interpretation of the Staff of the Securities
and Exchange Commission.
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged for an equal principal amount of notes which are registered under
the Securities Act of 1933.
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the Exchange Offer.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE EXCHANGE NOTES TO BE DISTRIBUTED IN THE EXCHANGE
OFFER NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Subject to completion, dated November 23, 1998.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 (the "Registration Statement") with respect
to the 9 3/4% Senior Notes due 2003, Series C (the "registered notes"). This
Prospectus, which is a part of the Registration Statement, omits certain
information included in the Registration Statement. You may read and copy the
Registration Statement, including the attached exhibits, and any reports,
statements or other information that we file at the SEC's public reference room
in Washington, D.C. You may also obtain information about the Company from the
following regional offices of the SEC: Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Copies of
such material can be obtained by mail from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at
prescribed rates. Our SEC filings are also available to the public on the SEC's
home page on the Internet at http://www.sec.gov.
We file annual, quarterly, proxy statements, and other information with the SEC.
In the event that we are no longer required to do so, we have agreed to file
with the SEC (unless the SEC will not accept such a filing) and provide to the
Trustee and the holders of Notes annual reports and the information, documents
and other reports otherwise required pursuant to Sections 13 and 15(d) of the
Exchange Act. For additional information, please refer to the section entitled
"Description of the Notes -- Certain Covenants -- Reports" located elsewhere in
this Prospectus.
FORWARD-LOOKING STATEMENTS
The statements included in this Prospectus, other than Statements of historical
facts, are forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Those statements include,
among other things, the discussions of our business strategy and expectations
concerning industry conditions, market position, future operations, margins,
profitability, liquidity and capital resources. These statements are included in
the sections captioned "Summary," "Risk Factors," "The Company," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this Prospectus. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe"
or the negative thereof or variations thereon or similar terminology. Although
we believe that the expectations reflected in such statements are reasonable, we
can give no assurance that such expectations will be correct. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures or other aspects of operating results. We are cautioned not to
place undue reliance on
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these forward-looking statements, which speak only as of the date of this
Prospectus. Our operations are subject to a number of uncertainties, risks and
other influences, many of which are outside our control and any one of which, or
a combination of which, could cause our actual results of operations to differ
materially from the forward looking statements. Important factors that could
cause actual results to differ materially from the our expectations are
disclosed in "Risk Factors" and elsewhere in this Prospectus.
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PROSPECTUS SUMMARY
This summary highlights selected information from this Prospectus, but does not
contain all information that is important to you. This Prospectus includes
specific terms of the Exchange Offer, as well as information regarding our
business and detailed financial data. We encourage you to read the detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus in their entirety. Except as otherwise
required by the context, references in this Prospectus to "we," "us," "Issuer,"
or the "Company" refer to Veritas DGC Inc. and its subsidiaries and give effect
to our August 30, 1996 business combination with Veritas Energy Services Inc.
("VES"). The term "outstanding notes" refers to the 9 3/4% Senior Notes due
2003, Series B that were issued on October 28, 1998. The term "registered notes"
refers to the 9 3/4% Senior Notes due 2003, Series C. The term "Notes" refers to
the outstanding notes and the registered notes collectively.
THE EXCHANGE OFFER
On October 28, 1998, we completed the private offering of $60.0 million
aggregate principal amount of 9 3/4% Senior Note due 2003, Series B.
The Company entered into a Registration Rights Agreement with the placement
agent in the private offering in which we agreed, among other things, to deliver
to you this Prospectus and to complete the Exchange Offer on or prior to April
12, 1999. You are entitled to exchange in the Exchange Offer your notes for
registered notes with substantially identical terms. If the Exchange Offer is
not completed on or prior to April 12, 1999, you will be entitled to liquidated
damages at the rate of .05 per $1,000 principal amount of outstanding notes
held. You should read the discussion under the heading "Summary of Terms of the
Exchange Notes" and "Description of the Exchange Notes" for further information
regarding the registered notes.
We believe that the registered notes issued in the Exchange Offer may be resold
by you without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1933, subject to certain conditions. You
should read the discussion under the headings "Summary of the Exchange Offer"
and "The Exchange Offer" for further information regarding the Exchange Offer
and resale of notes.
THE COMPANY
GENERAL
We are a leading provider of seismic data acquisition, data processing,
multi-client data surveys and information services to the oil and gas industry
in selected markets worldwide. Oil and gas companies use seismic data to
identify suitable locations for drilling exploratory wells and, increasingly, in
reservoir management for the development and production of oil and gas reserves.
We acquire seismic data on land and in marine, and in marsh, swamp and tidal
("transition zone") environments and process data acquired by our crews and
crews of other operators. We acquire seismic data both on an exclusive
contractual basis for our customers and on our own behalf for licensing to
multiple customers on a non-exclusive basis. For the fiscal year ended July 31,
1998, our revenues and EBITDA (i.e., earnings
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before interest, taxes, depreciation, amortization and equity in (earnings) loss
of 50% or less-owned companies and joint ventures) were $529.0 million and
$163.6 million, respectively.
INDUSTRY CONDITIONS
In recent years, worldwide demand for three-dimensional ("3D") seismic surveys
by major oil and gas companies and independent producers has increased. 3D
seismic data provides greater precision and improved subsurface resolution and
assists 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.
Overall demand for seismic services is dependent upon the level of expenditures
by oil and gas companies for exploration, production, development and field
management activities, which is partially dependent on present and expected
future oil and natural gas prices. Currently, the price for oil and natural gas
is low. Low oil and natural gas prices and reductions capital expenditures could
have an adverse effect on the demand for our services, results of operations and
cash flows.
COMPANY 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 two-dimensional ("2D") seismic data.
The seismic data is used to produce computer-generated images and cross-
sections of the subsurface strata. These are then analyzed and interpreted by
customers' geophysicists and 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.
Land and transition zone data acquisition. Our land and transition zone
data acquisition crews consist of a surveying unit, an explosives or mechanical
vibrating unit and a recording unit. Our land and transition zone data
acquisition crews are currently operating in six countries. In fiscal 1998, land
and transition zone data acquisition accounted for approximately 43% of our
revenues.
Marine data acquisition. Our marine data acquisition crews operate
primarily on chartered vessels equipped with a full complement of seismic,
navigational and communications equipment. All of our seismic vessels are
capable of performing 2D seismic surveys. Three vessels working in a multi-boat
configuration are equipped to perform 3D surveys and three are equipped to
independently perform 3D surveys. In fiscal 1998, marine data acquisition
accounted for approximately 16% of our revenues.
Data processing. We currently operate 20 data processing centers. These
centers process data acquired by our crews, as well as crews of other operators.
Because they are designed primarily to process large-scale offshore surveys,
three of these centers operate NEC supercomputers supported by high speed
networks. The other 17 centers, which are utilized mainly for smaller scale land
seismic
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surveys, operate data processing systems equipped primarily with Sun
Microsystems workstations. In fiscal 1998, data processing accounted for
approximately 18% of our revenues.
Licensing of multi-client data surveys. We also acquire and process seismic
data by conducting surveys either partially or wholly funded by multiple
customers. This way we are able to retain ownership of the data and license this
data on a non-exclusive basis. In fiscal 1998, the licensing of multi-client
data surveys accounted for 23% of our revenues. However, this does not include
the portion of our revenues recognized prior to completion of a multi-client
data survey. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
BUSINESS STRATEGY
Our objective is to enhance our position as a leading provider of seismic
services while maximizing earnings and cash flow. The key elements of our
strategy are as follows:
- - INVEST IN LEADING TECHNOLOGY. We intend to maintain technological capabilities
that are equal to or better than our competitors. Our investment in technology
has resulted in increased operating efficiency and capacity. $78.8 million of
capital expenditures is budgeted for this purpose in fiscal 1999.
Land and transition zone data acquisition. Our transition zone crews are
equipped with Input/output System Two Remote Seismic Recorder ("I/O System
Two-RSR") equipment, and land crews employer either I/O System Two or
Sercel 388 equipment. We have budgeted for fiscal 1999 approximately $18.8
million for further system upgrades and additions.
Marine data acquisition. Eight of our seismic data acquisition vessels have
been upgraded to Syntron recording systems. The Veritas Viking, a new
chartered flagship vessel constructed to our specifications, entered
service during fiscal 1998. A second Viking class vessel is under
construction and is expected to enter service late in fiscal 1999. Each is
capable of deploying more than 12 seismic streamer cables. We have budgeted
$34.0 million for seismic, navigation and communication equipment
installation on these and other vessels during fiscal 1999. We are
considering the acquisition of an ownership interest in these two Viking
class vessels at a total potential cost of $9.0 million, which is in
addition to the fiscal 1999 capital budget.
Data processing. Our seismic data processing centers employ the latest
technology. To improve the speed and capacity in processing large 3D marine
surveys, we recently installed NEC supercomputers in our Singapore (July
1998), Crawley, England (August 1997) and Houston (July 1996) processing
centers. Additional equipment purchases aggregating approximately $25.0
million are budgeted for fiscal 1999.
- - INVEST IN MULTI-CLIENT DATA LIBRARY. At July 31, 1998, our multi-client data
library included approximately 1.8 million line kilometers of seismic survey
data. We intend to continue our increasing emphasis on multi-client surveys
and expect to increase the book carrying value of our multi-client data
library.
- - FOCUS ON SELECT GEOGRAPHIC MARKETS. We deploy land and transition zone crews
and seismic vessels in geographic areas where we can establish and main-
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tain a strong competitive presence. Eleven land and transition zone crews are
operating in North America, where we maintain a significant market share.
Currently, a majority of the Company's vessels are operating in the Gulf of
Mexico.
- - MAINTAIN FLEXIBLE MARINE OPERATIONS. In our marine seismic data acquisition
activities, we presently operate eight chartered vessels, seven of which have
unexpired charter terms ranging from one to three years, subject to renewal at
our option in most instances. We currently own one vessel and may acquire an
interest in the two Viking class vessels referred to above. We seek to
maintain a balance between chartered and owned vessels, with a view to
reducing vessel costs in times of low demand, while retaining the flexibility
to relocate our marine seismic equipment onto vessels that may better meet
customers' evolving requirements. In general, we also seek to operate a
technically balanced fleet of vessels with operating characteristics that
efficiently serve those markets experiencing the greatest demand.
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SUMMARY OF THE EXCHANGE OFFER
Registration Rights
Agreement.................... You are entitled to exchange your outstanding
notes for registered notes with substantially
identical terms. The Exchange Offer is intended
to satisfy these rights. After the Exchange
Offer is complete, you will no longer be
entitled to any exchange or registration rights
with respect to your outstanding notes.
The Exchange Offer........... We are offering to exchange $1,000 principal
amount of our 9 3/4% Senior Notes due 2003,
Series C which have been registered under the
Securities Act of 1933 for each $1,000 principal
amount of our outstanding 9 3/4% Senior Notes
due 2003, Series B which were issued in October
1998 in a private offering. In order to be
exchanged, an outstanding note must be properly
tendered and accepted. All outstanding notes
that are validly tendered and not validly
withdrawn will be exchanged.
As of this date there is $60.0 million principal
amount of notes outstanding.
We will issue registered notes promptly after
the expiration of the Exchange Offer.
Resales...................... We believe that the registered notes issued in
the Exchange Offer may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act of
1933 provided that:
- the registered notes are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of registered notes issued
to you; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any
registered note issued to you without delivering
a prospectus meeting the requirements of the
Securities Act of 1933 or without an exemption
from registration of your notes from such
requirements, you may incur liability under the
Securities Act of 1933. We do not assume or
indemnify you against such liability.
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Each broker-dealer that is issued registered
notes in the Exchange Offer for its own account
in exchange for outstanding notes which were
acquired by that broker-dealer as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
of 1933, as amended, in connection with any
resale of the registered notes issued in the
Exchange Offer. A broker-dealer may use this
Prospectus for an offer to resell, resale or
other retransfer of the registered notes issued.
Expiration Date.............. The Exchange Offer will expire at 5:00 p.m.,
Boston, Massachusetts time, ,
, unless we decide to extend the expiration
date.
Conditions to the Exchange
Offer...................... The Exchange Offer is not subject to any
condition other than that the Exchange Offer not
violate applicable law or any applicable
interpretation of the Staff of the Securities
and Exchange Commission.
Procedures for Tendering
Outstanding Notes held in
the Form of Book-Entry
Interests.................. The outstanding notes were issued as a global
security in bearer form without interest
coupons. The outstanding notes were deposited
with State Street Bank and Trust Company, as
depositary, when they were issued. State Street
Bank and Trust Company issued a certificateless
depositary interest in each outstanding note,
which represents a 100% interest in the note, to
The Depositary Trust Company ("DTC"). Beneficial
interests in the outstanding notes, which are
held by direct or indirect participants in DTC
through the certificateless depositary interests
(the "Book-Entry Interests"), are shown on, and
transfers of the outstanding notes can be made
only through, records maintained in book-entry
form by DTC (with respect to its participants)
and its participants.
If you wish to tender your outstanding notes
pursuant to the Exchange Offer, you must
transmit to State Street Bank and Trust Company,
as exchange agent, on or prior to the Expiration
Date:
either
- a properly completed and duly executed Letter
of Transmittal, which accompanies this
Prospectus, or a facsimile of the Letter of
Transmittal, including all
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other documents required by the Letter of Transmittal, to the Exchange Agent at
the address set forth on the cover page of the Letter of Transmittal and one or
more outstanding certificated notes; or
- a timely confirmation of book-entry transfer
of your outstanding notes into the Exchange
Agent's account at DTC, pursuant to the
procedure for book-entry transfers described
in this Prospectus under the heading "The
Exchange Offer -- Book-Entry Transfer," must
be received by the Exchange Agent on or prior
to the Expiration Date; or
- the documents necessary for compliance with
the guaranteed delivery procedures described
below.
Procedures for Tendering
Definitive Certificated
Notes...................... Subject to certain conditions, if you are a
holder of Book-Entry Interests in the
outstanding notes, you are entitled to receive,
in exchange for your Book-Entry Interests,
certificated notes which are in equal principal
amounts to your Book-Entry Interests. However,
as of this date, no certificated notes were
issued and outstanding.
Special Procedures for
Beneficial Owners.......... If you are the beneficial owner of Book-Entry
Interests and your name does not appear on a
security position listing of DTC as the holder
of such Book-Entry Interests or if you are a
beneficial owner of certificated notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender such Book-Entry Interests
or certificated notes in the Exchange Offer, you
should contact such person in whose name your
Book-Entry Interests or certificated notes are
registered promptly and instruct such person to
tender on your behalf.
Guaranteed Delivery
Procedures................... If you wish to tender your outstanding notes and
time will not permit your required documents to
reach the Exchange Agent by the Expiration Date,
or the procedure for book-entry transfer cannot
be completed on time or certificates for
outstanding notes cannot be delivered on time,
you may tender your outstanding notes pursuant
to the procedures described in this Prospectus
under the heading "The Exchange Offer --
Guaranteed Delivery Procedures."
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Withdrawal Rights............ You may withdraw the tender of your notes at any
time prior to 5:00 p.m., Boston Massachusetts
time, on , .
Certain U.S. Federal Income
Tax Considerations......... The exchange of notes will not be a taxable
event for United States federal income tax
purposes. You will not recognize any taxable
gain or loss or any interest income as a result
of such exchange.
Use of Proceeds.............. We will not receive any proceeds from the
issuance of registered notes pursuant to the
Exchange Offer. We will pay all expenses
incident to the Exchange Offer.
Exchange Agent............... State Street Bank and Trust Company is serving
as exchange agent in connection with the
Exchange Offer.
SUMMARY OF TERMS OF THE REGISTERED NOTES
The form and terms of the registered notes to be issued in the Exchange Offer
are the same as the form and terms of outstanding notes except that the
registered notes will be registered under the Securities Act of 1933 and,
therefore, will not bear legends restricting their transfer and will not be
entitled to the benefit of the Registration Rights Agreement. The registered
notes will evidence the same debt as the outstanding notes and the outstanding
notes are and the registered notes will be governed by the same indenture.
Aggregate Amount............. $60.0 million principal amount of 9 3/4% Senior
Notes due 2003, Series C of Veritas DGC Inc.
Maturity..................... October 15, 2003.
Yield and Interest........... Interest on the notes will be payable in cash at
a rate of 9.75% per year, semi-annually in
arrears on each April 15 and October 15,
beginning on April 15, 1999.
Optional Redemption.......... On or after October 15, 2000, the notes will be
redeemable, at our option, in whole or in part,
at any time or from time to time, at the
redemption prices described in this Prospectus
under the heading "Description of the Exchange
Notes -- Redemption" plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, prior to October 15, 1999, notes
having a principal amount of up to $15.0 million
may be redeemed with the proceeds of certain
public offerings of equity in our company.
Ranking...................... The registered notes:
- are unsecured indebtedness of Veritas DGC
Inc.;
- rank equal in right of payment with all of our
existing and future unsubordinated
indebtedness;
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- are senior in right of payment to all of our
existing and future subordinated indebtedness;
- will be effectively subordinated to certain of
our secured indebtedness to the extent of such
security interests; and
- will be junior to all existing and future
liabilities (including trade payables) of our
subsidiaries.
Certain Covenants............ The indenture under which the outstanding notes
have been and the registered notes are being
issued contains certain covenants for your
benefit which, among other things and subject to
certain exceptions, restrict our ability to:
- incur indebtedness;
- make certain payments;
- issue capital stock of certain of our
subsidiaries;
- issue guarantees;
- enter into transactions with stockholders and
affiliates;
- create liens;
- engage in sale-leaseback transactions;
- sell assets; and
- with respect to Veritas DGC Inc., consolidate,
merge or sell all or substantially all of
their assets.
Change of Control............ Upon a change of control of Veritas DGC Inc., we
are required to make an offer to purchase the
registered notes from you at a purchase price
equal to 101% of their aggregate principal
amount on the date of purchase, plus accrued
interest, if any.
Form of Exchange Notes....... The registered notes issued in the Exchange
Offer will be represented by one or more
permanent global securities in bearer form
deposited with State Street Bank and Trust
Company, as book-entry depositary, for the
benefit of DTC. You will not receive registered
notes in certificated form unless one of the
events set forth under the heading "Description
of the Exchange Notes -- Book-Entry; Delivery
and Form" occurs. Instead, beneficial interests
in the registered notes will be shown on, and
transfers of these will be effected only
through, records maintained in book-entry form
by DTC with respect to its participants.
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RISK FACTORS
See "Risk Factors" immediately following this summary, for a discussion of
certain factors that you should consider in connection with your investment in
the registered notes to be issued in the Exchange Offer.
PRINCIPAL EXECUTIVE OFFICE
Our principal offices are located at 3701 Kirby Drive, Suite 112, Houston, Texas
77098, and our telephone number is (713) 512-8300.
You should rely only on the information provided in this Prospectus. No person
has been authorized to provide you with different information.
We are not making an offer to exchange notes in any jurisdiction where the offer
is not permitted.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
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RISK FACTORS
An investment in the registered notes to be issued pursuant to this
Prospectus (the "Exchange Notes") is subject to a number of risks. You should
carefully consider the following factors, as well as the more detailed
descriptions cross-referenced to the body of the Prospectus and the other
matters described in this Prospectus, in evaluating Veritas DGC Inc. (the
"Issuer" and, together with its direct and indirect subsidiaries, the "Company")
and the Company's business. The term "Note" or "Notes" includes the outstanding
notes (the "Old Notes") and the Exchange Notes.
DEPENDENCE ON SUBSIDIARIES; HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
The Company is principally a holding company and its material assets
consist primarily of stock in its subsidiaries. Consequently, the Company's
ability to service its debt obligations, including the Notes, depends on the
earnings of its subsidiaries and on its ability to receive funds from such
subsidiaries through dividends, repayment of intercompany notes or other
payments. In addition, the ability of the Company's subsidiaries to pay
dividends, repay intercompany notes or make other advances to the Company is
subject to statutory restrictions, state and foreign tax considerations, and the
terms of the Bank Credit Agreement (as defined) and other agreements governing
the Company's subsidiaries. See "Description of Certain Indebtedness -- Bank
Credit Agreement."
Because the Company is a holding company and the Notes are not guaranteed
by any of its subsidiaries, the Notes are effectively subordinated to all
existing and future liabilities of the Company's subsidiaries. Without limiting
the generality of the foregoing, the Notes will be effectively subordinated to
the trade creditors of the Company's subsidiaries. Immediately after the
Exchange Offer, the Company's subsidiaries will have no material Indebtedness.
RESTRICTIVE COVENANTS
The terms of the Bank Credit Agreement, the Indenture, and the indenture
governing the Series A Notes impose operating and financing restrictions on the
Company. These restrictions affect, and in many respects limit or prohibit, the
Company's ability to incur additional indebtedness, pay dividends or repurchase
stock or make other distributions, create liens, make certain investments, sell
assets, or enter into mergers or consolidations. The Bank Credit Agreement
requires the Company to comply with certain financial ratios and tests. These
restrictions could limit the ability of the Company to plan for or react to
market conditions or meet extraordinary capital needs or otherwise could
restrict corporate activities. See "Description of Notes -- Certain Covenants"
and "Description of Certain Indebtedness." There can be no assurance that such
restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities.
Moreover, any default under the documents governing the indebtedness of the
Company could have a significant adverse effect on the market value of the
Notes.
LEVERAGE AND LIQUIDITY
At July 31, 1998, after the issuance of the Notes and the application of
the net proceeds from the Offering, the Company had total consolidated debt of
approximately
14
<PAGE> 16
$135.6 million and a ratio of total consolidated debt to total capitalization of
approximately 32%. The Company's leverage could have important consequences to
holders of the Notes. It may limit the Company's ability to obtain financing in
the future for working capital, capital expenditures and general corporate
purposes may be impaired. A substantial portion of the Company's cash flow from
operations must be dedicated to the payment of the principal and interest on its
indebtedness. The Company's leverage may make it more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures.
Based on current market and operating conditions, the Company expects that
it will be able to service the interest and principal obligations on its
indebtedness as well as its working capital needs and to fund its capital
expenditures and other operating expenses out of cash flow from operations and
available borrowings under the Bank Credit Agreement. However, there can be no
assurance that the Company's business will continue to generate sufficient cash
flow to meet these requirements. If the Company is unable to generate sufficient
cash flow from operations to service its debt and capital expenditures, it may
be required to sell assets, reduce capital expenditures, refinance all or a
portion of its existing debt (including the Notes) or obtain additional
financing. There can be no assurance that any such asset sales or refinancing
would be possible or that any additional financing could be obtained. The
Company's ability to meet its debt service obligations will be dependent upon
its future performance which, in turn, will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.
ENERGY INDUSTRY SPENDING
Demand for the Company's seismic services depends upon the level of capital
expenditures by oil and gas companies for exploration, production, development
and field management activities. These activities depend in part on oil and gas
prices, expectations about future prices, the cost of exploring for, producing
and delivering oil and gas, the sale and expiration dates of leases in the
United States and abroad, local and international political, regulatory and
economic conditions and the ability of oil and gas companies to obtain capital.
In addition, a decrease in oil and gas expenditures could result from such
factors as unfavorable tax and other legislation or uncertainty concerning
national energy policies. As reflected by the recent decline in hydrocarbon
commodity prices, the level of oil and gas industry activity has declined from
levels experienced in recent years. Decreased oil and gas activity could have a
significant adverse effect upon the demand for the Company's services and the
Company's results of operations and cash flows.
COMPETITION FOR SEISMIC BUSINESS
Competition among seismic contractors historically is and will continue to
be high. Competitive factors include price, crew experience, equipment
availability, technological expertise and reputation for quality and
dependability. Certain of the Company's major competitors operate more data
acquisition crews than the Company, have substantially greater revenues than the
Company and are subsidiaries or divisions of major industrial enterprises having
far greater financial and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully against its
competitors for contracts to conduct seismic surveys and process data. See
"Business -- Competition and Other Business Conditions."
15
<PAGE> 17
HAZARDOUS OPERATING CONDITIONS
The Company's data acquisition activities involve operating under extreme
weather and other hazardous conditions. Accordingly, these operations are
subject to risks of delays in performing services and to damage to property and
injury to personnel from such causes as fires, adverse weather and accidental
explosions. The Company carries insurance against these risks (other than
against weather related delays in data acquisition activities not involving
property loss or damage) in amounts that it considers adequate. The Company may
not, however, be able to obtain insurance against certain risks or for certain
equipment located from time to time in certain areas of the world.
INVESTMENT IN MULTI-CLIENT DATA LIBRARY
The Company has invested significant amounts in acquiring and processing
its multi-client data (book value of $51.1 million at July 31, 1998), and
expects to continue doing so for the foreseeable future. Although the Company
normally obtains prefunding commitments for a majority of the cost of acquiring
and processing such surveys, future data licensing to multiple customers may not
fully recoup its costs. In recent years the Company has generally received
prefunding commitments in excess of 70% of the cost of acquiring and processing
such surveys, current industry conditions could result in reduced commitment
levels in the future. Other factors affecting the Company's ability to recoup
its costs include possible technological, regulatory or other industry or
general economic developments, any of which could render all or portions of the
Company's library of multi-client data obsolete or otherwise impair its value.
In addition, the timing of multi-client data licensing its typically less
dependable from period to period than are revenues from surveys performed on an
exclusive contract basis for single customers.
HIGH FIXED COSTS; CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE
The Company's business has high fixed costs, and downtime or low
productivity due to reduced demand, weather interruptions, equipment failures or
other causes can result in significant operating losses. In recent periods, the
Company's contracts for data acquisition have been on a turnkey or time basis.
Under the turnkey methods, payments for data acquisition services are based upon
the amount of data collected, and the Company bears substantially all of the
risk of business interruption caused by inclement weather and other hazards.
When the time method is used, the risk of business interruptions is shared in
agreed percentages by the Company and the customer.
Seismic data acquisition and processing is a capital intensive business.
The development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements in recent years and the
Company expects this trend to continue. There can be no assurance that
manufacturers of seismic equipment will not develop new systems that have
competitive advantages over systems now in use that either render the Company's
current equipment obsolete or require the Company to make significant unplanned
capital expenditures to maintain its competitive position. The Company intends
to continue to upgrade its data acquisition and processing equipment as often as
necessary to enhance or maintain its competitive position. However, to do so may
require large expenditures of capital in addition to the Company's planned
capital expenditures. There can be no assurance that the Company will have the
necessary capital
16
<PAGE> 18
or that financing will be available on favorable terms. If the Company is unable
to raise the funds necessary for its capital expenditure program and to upgrade
its data acquisition and processing equipment to the extent necessary, the
Company may be materially and adversely affected.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
In fiscal 1997 and 1998, 50% and 47%, respectively, of the Company's
revenues were derived from international operations and export sales.
International operations are subject in varying degrees, to risks inherent in
doing business abroad. These risks include the possibility of unfavorable
circumstances arising from host country laws or regulations. In addition,
foreign operations include risks of partial or total expropriation; currency
exchange rate fluctuations and restrictions on currency repatriation; the
disruption of operations from labor and political disturbances, insurrection or
war; and the requirements of partial local ownership of operations in certain
countries. To minimize such risks, the Company generally denominates its
contracts in U.S. dollars and in other currencies it believes to be stable. The
Company also obtains insurance against war, expropriation, confiscation and
nationalization when such insurance is available and when management considers
it advisable to do so. Insurance coverage is not always available, and when
available, is subject to unilateral cancellation by the insuring companies on
short notice.
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's operations are subject to a variety of foreign, federal,
state and local laws and regulations, including laws and regulations relating to
the protection of the environment. The Company is required to invest financial
and managerial resources to comply with such laws and related permit
requirements in its operations and anticipates that it will continue to do so in
the future. In recent years, an increased number of the Company's data
acquisition contracts have required customers to obtain all necessary permits.
Customers' failure to timely obtain the required permits may result in crew
downtime and operating losses. To date, the Company's cost of complying with
governmental regulation has not been material, but the fact that laws or
regulations are changed frequently makes it impossible for the Company to
predict the cost or impact of changes to existing laws and regulations on its
future operations. The Company may be adversely affected by changes to existing
laws or regulations or the adoption of new laws or regulations curtailing
offshore drilling for oil and gas or imposing more stringent restrictions on
seismic operations.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase the outstanding Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the date of
repurchase. There can be no assurance that the Company will have sufficient
funds available or will be permitted by its other debt agreements to repurchase
the Notes upon the occurrence of a Change of Control. In addition, in the event
of a Change of Control, the Company will be required to offer to repurchase the
existing Series A Notes and may be required to retire other outstanding
indebtedness, any of which may cause a default under the Bank Credit Agreement.
The inability to repurchase all of the tendered Notes would constitute an
17
<PAGE> 19
Event of Default (as defined herein) under the Indenture. See "Description of
Senior Notes -- Certain Covenants -- Change of Control."
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes constitute a new issue of securities with no established
trading market. The Company does not intend to list the Exchange Notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market Systems. The initial purchaser advised the Company that
it presently intends to make a market in the Exchange Notes. However, the
initial purchaser is not obligated to do so and any market-making activities
with respect to the Exchange Notes may be discontinued at any time without
notice. Accordingly, no assurance can be given that an active market will
develop for the Exchange Notes or as to the liquidity of or the trading market
for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time. If a
public trading market develops for the Exchange Notes, future trading prices of
the Exchange Notes (which could be at a discount to the principal amount hereof)
will depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and financial condition and the
market for similar securities.
The liquidity of, and trading market for, the Exchange Notes may also be
materially and adversely affected by declines in the market for high yield
securities generally. Such a decline may materially and adversely affect such
liquidity and trading independent of the financial performance of, and prospects
for, the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE
The issuance of the Exchange Notes in exchange for the Old Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of Old Notes desiring to tender
such Old Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Old Notes for exchange.
Old Notes that are not tendered following the consummation of the Exchange Offer
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to provide for the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of such Old
Notes. In addition, any holder of Old Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that Old
Notes are tendered in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Old Notes could be adversely affected. See "The Exchange
Offer." Each broker or dealer that receives Exchange Notes for its own account
in exchange for Old Notes where such Exchange Notes were acquired by such broker
or dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
18
<PAGE> 20
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of July 31, 1998, as adjusted to reflect the sale of the Old Notes
and the Exchange Offer.
<TABLE>
<CAPTION>
JULY 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 98,239
========
Long-term debt including current maturities(1):
Equipment purchase obligations............................ $ 561
Bank Credit Agreement.....................................
Series A Notes............................................ 75,000
9 3/4% Senior Notes due 2003, Series C.................... 60,000
--------
Total long-term debt including current
maturities........................................ 135,561
Stockholders' equity........................................ 291,696
--------
Total capitalization........................................ $427,257
========
</TABLE>
- ---------------
(1) For a further description of the terms of the Company's long-term debt, see
Note 4 of Notes to Consolidated Financial Statements.
20
<PAGE> 22
VERITAS DGC INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for each of the five years in the period ended July 31, 1998, which have
been derived from the audited consolidated financial statements of the Company,
except that the balance sheet data as of July 31, 1994 was derived from the
unaudited consolidated financial statements of the Company. In the opinion of
the Company's management the balance sheet data as of July 31, 1994 include all
adjustments necessary to present fairly the financial condition of the Company
at such date. The consolidated financial statements and related notes thereto as
of and for the two years ended July 31, 1998 are included elsewhere herein,
which statements have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report is included elsewhere herein, and the consolidated
financial statements and related notes thereto for the year ended July 31, 1996
are included elsewhere herein, which statements have been audited by Deloitte &
Touche LLP, independent auditors, whose report is included elsewhere herein.
As a result of the differing year ends of the Company and VES, results of
operations for dissimilar year ends have been combined. The Company's results of
operations for fiscal years ended July 31, 1994 and 1995 have been combined with
VES' results of operations for fiscal years ended October 31, 1994 and 1995,
respectively. To conform year ends, the Company's results of operations for the
year ended July 31, 1996 have been combined with VES' results of operations for
the twelve months ended July 31, 1996. Accordingly, VES' operating results for
the period August 1, 1995 through October 31, 1995 are included in the years
ended July 31, 1995 and 1996. An adjustment in an amount equal to the results of
operations for the three-month period is included in the consolidated statements
of changes in stockholders' equity. VES' revenues, net income, earnings per
share and earnings per share assuming dilution were $22,150,000, $936,000 and
$.05, respectively, for the period August 1, 1995 through October 31, 1995.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $178,392 $215,630 $250,596 $362,715 $528,959
Costs and expenses:
Cost of services........................ 144,984 170,424 198,711 271,656 346,896
Restructuring........................... 838
Write-off/write-down for impairment of
assets................................ 5,235 3,628
Depreciation and amortization........... 19,119 23,732 26,921 40,631 56,121
Selling, general and administrative..... 6,296 5,855 7,255 11,408 18,758
Interest................................ 3,213 5,170 5,466 7,484 7,318
Merger related costs.................... 3,666 597
Gain on sale of investment in FSU joint
ventures.............................. (4,370)
Other................................... (1,833) 232 546 630 (338)
-------- -------- -------- -------- --------
Total.............................. 177,852 201,043 246,193 332,406 428,755
-------- -------- -------- -------- --------
Income before provision for income taxes
and equity in (earnings) loss of 50% or
less-owned companies and joint
ventures................................ 540 14,587 4,403 30,309 100,204
Provision for income taxes................. 5,929 3,807 2,009 6,062 34,218
Equity in (earnings) loss of 50% or
less-owned companies and joint
ventures................................ 4,965 5,186 1,113 (878) (972)
-------- -------- -------- -------- --------
Net income (loss).......................... $(10,354) $ 5,594 $ 1,281 $ 25,125 $ 66,958
======== ======== ======== ======== ========
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.................. $ 15,545 $ 10,082 $ 10,072 $ 71,177 $ 40,089
Working capital............................ 16,794 14,830 22,479 121,702 106,040
Property and equipment -- net.............. 68,423 75,379 79,010 132,754 174,920
Multi-client data library.................. 18,500 27,976 25,628 20,904 51,143
Total assets............................... 171,814 184,340 198,592 385,089 478,490
Long-term debt (including current
maturities)............................. 31,104 36,788 41,090 75,971 75,561
Stockholders' equity....................... 94,517 98,000 105,923 221,301 291,696
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED HISTORICAL FINANCIAL DATA AND
RATIOS:
EBITDA(1)................................. $ 28,945 $ 39,119 $ 44,084 $ 79,021 $ 163,643
Cash flows from operating activities...... 7,130 14,215 20,077 43,410 62,970
Cash flows from financing activities...... 27,168 (6,182) (4,160) 106,243 3,994
Cash flows from investing activities...... (23,966) (13,568) (15,820) (88,865) (95,584)
Capital expenditures...................... 29,772 33,634 32,860 96,050 99,549
Investments in multi-client data
library................................ 16,019 21,360 14,906 26,213 63,328
Ratio of earnings to fixed charges(2)..... .6x 1.7x 1.2x 2.6x 4.7x
SELECTED PRO FORMA FINANCIAL DATA AND
RATIOS(3):
EBITDA/Interest expense................... 12.2x
Debt/EBITDA............................... .8x
Ratio of earnings to fixed charges(2)..... 3.8x
Interest expense.......................... $ 13,438
OPERATING DATA (AT PERIOD END):
Land crews in operation................... 16 15 14 16 16
Land crews system channels................ 14,526 17,200 18,708 27,000 31,000
Marine vessels in operation............... 5 6 7 8 9
Data processing centers in operation...... 17 17 16 20 20
</TABLE>
- ---------------
(1) EBITDA represents income before provision for income taxes and equity in
(earnings) loss of 50% or less-owned companies and joint ventures plus
restructuring costs plus write-off/write-down for impairment of assets plus
depreciation and amortization plus interest expense plus merger related
costs less gain on sale of investment in certain FSU joint ventures. EBITDA
is presented not as an alternative measure of operating results or cash flow
from operations (as determined in accordance with generally accepted
accounting principles), but rather to provide additional information related
to the debt servicing ability of the Company.
(2) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as income (loss) of the Company from continuing operations
before income taxes and fixed charges. Fixed charges consist of interest
expense, including capitalized interest, amortization of loan fees, and the
portion of rental expense pursuant to operating leases deemed to be
representative of the interest component. For the year ended July 31, 1994,
earnings were insufficient to cover fixed charges by $4.4 million.
(3) After giving effect to the issuance of the Notes.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Selected Consolidated
Financial Data included elsewhere herein.
GENERAL
The Company's business is divided into four classes of services: (i) land
and transition zone data acquisition; (ii) marine data acquisition; (iii) data
processing; and (iv) licensing of multi-client data surveys. In August 1996, the
Company completed the Combination with VES, which has been accounted for as a
pooling of interests.
The Company acquires and processes seismic data on either an exclusive
contract basis or a multi-client basis. In general, multi-client data surveys
are prefunded by customers prior to or during the acquisition and processing
phase and recognized as marine acquisition, land acquisition or data processing
revenues. After the survey is completed, sales are recognized as licensing of
multi-client data revenues.
With respect to multi-client data surveys, the Company typically obtains
non-cancelable prefunding for a majority (70% or more in recent years) of the
costs of such surveys from customers who desire to obtain seismic data in a
particular area; however, changing market conditions could reduce commitment
levels in the future. As a result, often the Company assumes the risk that
future licensing of such data may not ultimately cover 100% of its cost. A
portion of the costs of acquiring and processing multi-client data are
capitalized and later expensed based on a percentage of total estimated costs to
total estimated revenues multiplied by actual revenues. Two years after a survey
is completed, any remaining capitalized costs are expensed over a period not to
exceed twenty-four months. The Company periodically reviews the carrying value
of the multi-client data library to assess whether there has been a permanent
impairment of value and records losses when the total estimated costs exceed
total estimated sales or when it is determined that estimated sales would not be
sufficient to cover the carrying value of the asset.
RESULTS OF OPERATIONS
Fiscal 1998 Compared with Fiscal 1997
Revenues. For fiscal 1998, revenues increased 46% from $362.7 million to
$529.0 million. Although all service groups improved, multi-client data library
sales showed the largest increase at 151%, from $48.4 million to $121.3 million.
During the past two years, as oil and gas companies have moved toward multi-
client surveys to reduce finding costs, the Company has significantly increased
its data library. Sales from the data library primarily involved marine surveys
in the deepwater Gulf of Mexico and the north Atlantic.
Land and transition zone acquisition revenues increased 31% from $175.8
million to $229.8 million as a result of additional recording capacity,
including the purchase in late fiscal 1997 of equipment to configure up to two
crews in Oman and the addition of one crew in Latin America. In Canada, warmer
than usual winter conditions, an extended spring breakup period and a decrease
in deep gas seismic activity had a negative impact on revenues.
Marine acquisition revenues increased 33% from $64.4 million to $85.9
million even though five vessels were in drydock approximately one month each
for regularly scheduled maintenance at various times during the year. The
increase in marine revenues was primarily due to the deployment of additional
streamer capacity and an increase in demand for multi-client surveys,
particularly in the Gulf of Mexico. In addition, beginning June 1998, the
Company chartered the Veritas Viking, a new vessel, which set Company production
records in the brief period it operated during the year.
Data processing revenues increased 24% from $74.1 million to $92.0 million
as a result of increases in market activity, volume of data acquired in 3D
surveys and demand for computer intensive processes such as prestack time and
depth migration. The Company has substantially upgraded its processing centers,
including
23
<PAGE> 25
the addition of NEC supercomputers in Crawley, England and Singapore and several
multi-noded workstations, to meet this increased demand.
Operating Expenses. Costs of services increased 28% from $271.7 million to
$346.9 million; but, as a percentage of revenues decreased from 75% to 66%. The
improvement in operating margins is mainly attributable to significant sales and
performance of multi-client data surveys that generally have higher margins.
Data processing operating margins also showed improvement due to more efficient
equipment. Marine contract and land and transition zone margins remained
relatively constant.
Depreciation and Amortization. Depreciation and amortization expense
increased 38% from $40.6 million to $56.1 million due to the large increase in
capital expenditures over the past two years.
Selling, General and Administrative. Selling, general and administrative
expenses increased 65% from $11.4 million to $18.8 million resulting primarily
from the addition of staff to support the Company's expanded operations and
costs incurred in implementing new administrative and accounting systems and a
more aggressive marketing strategy.
Interest. Compared with fiscal 1997, interest expense remained relatively
constant in fiscal 1998. Fiscal 1998 interest expense was benefitted by
capitalizing $800,000 of interest incurred in connection with the cost of
outfitting the Veritas Viking.
Other (Income) Expense. Other (income) expense increased from a loss of
$630,000 to income of $338,000 primarily from interest income earned on higher
average cash balances. This increase was partially offset by net foreign
currency losses resulting from fluctuations in foreign money markets.
Income Taxes. Provision for income taxes increased from $6.1 million to
$34.2 million as a result of the Company's increased profitability. The
effective tax rate increased from 20% to 34%. The fiscal 1997 tax rate was
benefitted by the write-off of certain of the Company's investments in the prior
year.
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 $117.6 million to $175.8 million as a result of higher demand, additional
capacity of 9,000 channels and operating efficiencies realized 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 than in prior years.
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, 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 increases in capacity, productivity and volumes of data available
for processing. The Company substantially upgraded its processing centers,
installed an 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 $48.4 million
due to expanding customer interest in the Gulf of Mexico, especially deepwater
and sub-salt areas, and increased demand for North Sea multi-client data
surveys.
Operating Expenses. Costs of services increased 37% from $198.7 million to
$271.7 million, but as a percentage of revenues decreased from 79% to 75%. The
improvement in operating margins is attributable to higher prices due to
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.
24
<PAGE> 26
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 Company's improved performance.
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 Series A Notes during the
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 the Company's increased profitability. 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.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses
The Company's internal sources of liquidity are cash, short-term
investments and cash flow from operations. External sources include the
unutilized portion of the Bank Credit Agreement, public financing, equipment
financing and trade credit.
In October 1996, the Company completed a $75.0 million public offering of
Series A Notes. The net proceeds from the Series A Notes were used to retire
outstanding indebtedness of the Company and fund a portion of the Company's
capital expenditures in fiscal 1997. The indenture relating to the Series A
Notes contains certain covenants, similar to those to be contained in the
Indenture relating to the Notes. See "Description of Senior Notes -- Certain
Covenants".
In July 1998, the Company obtained a new revolving credit facility due July
2001 from commercial banks that provides for advances of up to $50.0 million.
Advances are limited by a borrowing base and bear interest, at the Company's
election, at LIBOR or prime rate plus a margin based on certain ratios
maintained by the Company. The Bank Credit Agreement is unsecured, but is
subject to a "springing lien" on the Company's accounts receivable. Currently,
the borrowing base exceeds the maximum commitment. Covenants in the agreement
limit, among other things, the Company's right to take certain actions,
including creating indebtedness. In addition, the agreement requires the Company
to maintain certain financial ratios. The Company is in compliance with all
covenants of the agreement and there were no outstanding advances as of July 31,
1998. See "Description of Certain Indebtedness."
The Company requires significant amounts of working capital to support its
operations and to fund capital spending and research and development programs.
The Company's foreign operations require greater amounts of working capital than
similar domestic activities, as the average collection period for foreign
receivables is generally longer than for comparable domestic accounts. In
addition, receivables denominated in foreign currencies are subject to
fluctuations in foreign money markets. Approximately 47% of revenues for the
year ended July 31, 1998 were attributable to the Company's foreign operations.
The Company has also increased its participation in multi-client data surveys
and has significantly expanded its multi-client data library. 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.
The Company's liquidity will be affected by the timing of future sales of the
data and the collection of the proceeds from such sales.
The Company's capital budget for fiscal 1999 is $78.8 million, which
includes expenditures of approximately $30.0 million to maintain or replace the
Company's current operating equipment and approximately $49.0 million to expand
capacity, including the outfitting of a new Viking class marine seismic
25
<PAGE> 27
vessel which is presently under construction and expected to enter service
during fiscal 1999. Research and development costs are estimated to be $8.2
million in fiscal 1999.
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, cash flow from operations, the unutilized portion of the
Bank Credit Agreement and other borrowings permitted by the Indenture, the
indenture relating to the Series A Notes and the Bank Credit Agreement will
provide sufficient liquidity to fund these requirements through at least fiscal
1999. However, the Company's ability to meet its obligations depends on its
future performance, which, in turn, is subject to general economic conditions,
business and other factors beyond the Company's control. For example, due to the
recent environment of low hydrocarbon commodity prices, the level of exploration
and production activity and capital expenditures in the oil and gas industry has
decreased and may continue at a decreased level during fiscal 1999, which may
affect exploration budgets allocated to seismic expenditures. If the Company is
unable to generate sufficient cash flow from operations or otherwise to comply
with the terms of the Bank Credit Agreement, the indenture relating to the
Series A Notes 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.
Other
The Company has prepared a formal plan to address Year 2000 issues as they
relate to the Company's business and its operations. In accordance with that
plan, the Company has evaluated the hardware and software used to support the
Company's activities, such as seismic data acquisition and processing equipment
and accounting and payroll systems. In the ordinary course of business, the
Company has replaced a significant amount of its hardware and software with Year
2000 compliant systems. A replacement schedule has been prepared for its
remaining non-compliant systems and an ongoing monitoring program and
contingency procedures in the event of unanticipated non-compliance problems
have been established. The Company has mailed its suppliers and customers an
internally prepared questionnaire regarding Year 2000 issues. Approximately 95%
of the questionnaires have been returned and indicate a state of readiness. The
remaining 5% do not pertain to critical systems. As of July 31, 1998, the
Company estimates that approximately 80% of its plan has been implemented. The
Company anticipates that it will complete its plan, including any necessary
remedial action, by June 30, 1999 and is not aware of any material contingencies
or costs that will be incurred. The Company's costs incurred with the
implementation of its Year 2000 plan have been nominal.
Since the Company's quasi-reorganization 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 is subject to certain limitations. During the year ended
July 31, 1998, the Company recognized $1.6 million related to these benefits due
to the Company's increased profitability during the 1998 fiscal year and
anticipated profitability in the 1999 fiscal year. See Note 6 of Notes to
Consolidated Financial Statements.
The Company maintains operations in Europe, which are predominantly
conducted from its U.K. offices. Although the U.K. has not currently elected to
convert to the new "euro" currency, the Company does have transactions with
companies in countries that will adopt the new currency. The Company has made a
preliminary assessment and does not anticipate any material effect to the
financial statements as a result of the new currency.
See Note 1 of Notes to Consolidated Financial Statements regarding new
accounting pronouncements not yet adopted.
26
<PAGE> 28
BUSINESS
GENERAL
The Company is a leading provider of seismic data acquisition, data
processing, multi-client data surveys and information services 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 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. For the fiscal
year ended July 31, 1998, the Company had revenues and EBITDA of $529.0 million
and $163.6 million, respectively.
INDUSTRY CONDITIONS
In recent 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.
Overall demand for seismic services is dependent upon the level of
expenditures by oil and gas companies for exploration, production, development
and field management activities, which depends in part on present and expected
future oil and natural gas prices. The oil and gas industry is currently
operating in an environment of low hydrocarbon commodity prices and a resulting
reduced level of industry activity. Low hydrocarbon commodity prices and reduced
industry expenditures could have an adverse effect on the demand for the
Company's services, results of operations and cash flows.
COMPANY 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 data, which are used to
produce computer-generated images and cross-sections of the subsurface strata.
These are then analyzed and interpreted by customers' geophysicists and 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.
Land and transition zone data acquisition. The Company's land and
transition zone data acquisition crews consist of a surveying unit that lays out
the lines to be recorded, an explosives or mechanical vibrating unit and a
recording unit that lays out the geophones and recording instruments. The
Company utilizes helicopters to aid its crews in seismic data acquisition in
situations where such use will reduce overall costs and improve productivity.
The Company's land and transition zone data acquisition services are currently
conducted by 18 seismic crews operating in the following countries: United
States -- 8 crews; Canada -- 3 crews; Argentina -- 2 crews; Bolivia -- 2 crews;
Oman -- 2 crews; and Madagascar -- 1 crew. In fiscal 1998, land and transition
zone data acquisition accounted for approximately 43% of the Company's revenues.
Marine data acquisition. The Company's marine data acquisition crews
operate primarily on chartered vessels equipped with a full complement of
seismic, navigational and communications equipment. The Company currently
operates nine vessels, with five located in the Gulf of Mexico and one located
in each of Australia, Cambodia, Canada and the North Sea. All the Company's nine
seismic vessels are capable of performing 2D seismic surveys. Three vessels
working in a multi-boat configuration are equipped to perform
27
<PAGE> 29
3D surveys and three are equipped to independently perform 3D surveys. In fiscal
1998, marine data acquisition accounted for approximately 16% of the Company's
revenues.
Data processing. The Company currently operates 20 data processing centers.
These centers process data acquired by the Company's own crews, as well as crews
of other operators. Because they are configured primarily for processing
large-scale offshore surveys, three of these centers operate NEC supercomputers
supported by high speed networks. The other 17 centers, which are utilized
mainly for smaller scale land seismic surveys, operate data processing systems
equipped primarily with Sun Microsystems workstations. In fiscal 1998, data
processing accounted for approximately 18% of the Company's revenues.
Licensing of multi-client data surveys. The Company also acquires and
processes seismic data for its own account by conducting surveys either
partially or wholly funded by multiple customers. In this mode of operation, the
Company retains ownership of the data and licenses this data on a non-exclusive
basis. In fiscal 1998, the licensing of multi-client data surveys accounted for
23% of the Company's revenues. However, this percentage does not include the
portion of the Company's data acquisition and processing revenues that is
recognized prior to completion of a multi-client data survey. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
BUSINESS STRATEGY
The Company's objective is to enhance its position as a leading provider of
seismic services while seeking to maximize earnings and cash flow. To achieve
these goals, the Company employs the following business strategy:
INVEST IN LEADING TECHNOLOGY. The Company intends to continue to
upgrade its data acquisition and processing equipment as often as necessary
to maintain technological capabilities that are comparable or superior to
those of its competitors. From the beginning of fiscal 1994 through fiscal
1998, the Company invested approximately $292 million primarily to replace
or substantially upgrade its principal geophysical operating assets. This
investment in the latest available seismic technology has resulted in
increased operating efficiency and capacity. An additional $78.8 million of
capital expenditures is budgeted for fiscal 1999.
Land and transition zone data acquisition. The Company's transition
zone crews are equipped with I/O System Two-RSR equipment, and land
crews employ either I/O System Two or Sercel 388 equipment. The Company
has budgeted for fiscal 1999 approximately $18.8 million for further
system upgrades and additions.
Marine data acquisition. Eight of the Company's nine seismic data
acquisition vessels have been upgraded to Syntron recording systems. The
Veritas Viking, a new chartered flagship vessel constructed to Company
specifications, entered service during fiscal 1998. A second Viking
class vessel is under construction and is expected to enter service late
in fiscal 1999. Each is capable of deploying more than 12 seismic
streamer cables. The Company has budgeted $34.0 million for seismic,
navigation and communication equipment installation on these and other
vessels during fiscal 1999. The Company is considering the acquisition
of an ownership interest in these two Viking class vessels at a total
potential cost of $9.0 million, which is in addition to the fiscal 1999
capital budget.
Data processing. The Company's 20 seismic data processing centers
employ the latest available technology. To improve its speed and
capacity in processing large 3D marine surveys, the Company has recently
installed NEC supercomputers in its Houston (July 1996), Singapore (July
1998) and Crawley, England (August 1997) processing centers. Additional
equipment purchases aggregating approximately $25.0 million are budgeted
for fiscal 1999.
INVEST IN MULTI-CLIENT DATA LIBRARY. At July 31, 1998, the Company's
multi-client data library, which is owned by the Company and licensed to
customers on a non-exclusive basis, included approximately 1.8 million line
kilometers of seismic survey data. Due to increased industry demand for
multi-client surveys in fiscal 1998, revenue from data library sales for
the year aggregated approximately
28
<PAGE> 30
$121.3 million, a 151% increase over such sales in fiscal 1997. The Company
intends to continue its recent and increasing emphasis on multi-client
surveys and expects to increase the book carrying value of its multi-client
data library from $51.1 million at July 31, 1998 to approximately $90.0
million by the end of fiscal 1999. The relatively expensive cost of
acquiring and processing seismic data has prompted many oil and gas
companies to participate in multi-client surveys to reduce geophysical
expenses, particularly in light of current conditions in the oil and gas
industry.
FOCUS ON SELECT GEOGRAPHIC MARKETS. The Company deploys its land and
transition zone crews and seismic vessels in geographic areas where it can
establish and maintain a strong competitive presence. Of the 18 land and
transition zone crews presently operated by the Company, eleven are
operating in North America, where the Company maintains a significant
market share. Currently, a majority of the Company's vessels are operating
in the Gulf of Mexico.
MAINTAIN FLEXIBLE MARINE OPERATIONS. In its marine seismic data
acquisition activities, the Company presently operates eight chartered
vessels, seven of which have unexpired charter terms ranging from one to
three years, subject to renewal at the Company's option in most instances.
It currently owns one vessel and may acquire an interest in the two Viking
class vessels referred to above. The Company seeks to maintain a balance
between chartered and owned vessels, with a view to reducing vessel costs
in times of low demand, while retaining the flexibility to relocate its
marine seismic equipment onto vessels that may better meet customers'
evolving requirements. In general, the Company also seeks to operate a
technically balanced fleet of vessels with operating characteristics that
efficiently serve those markets experiencing the greatest demand.
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 15 land
crews, three transition zone crews and nine marine crews in selected markets
worldwide. The Company also operates 20 seismic data processing facilities,
located in major oil and gas centers around the world. When performing
geophysical services under contract for oil and gas companies, the Company may
be employed to acquire and/or process geophysical data. Under these
arrangements, the Company's entire work-product belongs to the contracting
party. The Company also acquires and processes geophysical data for its own
account, preserving its work-product in a data library for later licensing on a
non-exclusive basis. When acquiring data for its library, the Company seeks
pre-funding commitments for a large portion 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>
YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES BY SERVICE GROUP(1)
Land and transition zone acquisition................. $117,667 $175,837 $229,754
Marine acquisition................................... 54,360 64,429 85,852
Data processing...................................... 55,566 74,107 91,999
Data library sales................................... 23,003 48,342 121,354
-------- -------- --------
Total...................................... $250,596 $362,715 $528,959
======== ======== ========
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES BY GEOGRAPHICAL AREA
United States(2)..................................... $ 98,875 $184,013 $281,223
Canada............................................... 47,423 52,141 47,059
Latin America........................................ 36,346 51,157 93,494
Europe............................................... 37,394 42,798 51,089
Middle East.......................................... 2,403 13,632
Asia Pacific......................................... 30,558 30,203 42,462
-------- -------- --------
Total...................................... $250,596 $362,715 $528,959
======== ======== ========
</TABLE>
- ---------------
(1) Revenues from data acquisition and data processing services are recognized
based on contractual rates set forth in the related contract if the contract
provides a separate rate for each service provided. If the contract only
provides a rate for the overall service, revenues are recognized based on
the percentage of each service group's cost to total cost.
(2) Includes export sales of $4,774, $4,115 and $458 in fiscal 1996, 1997 and
1998, respectively.
In fiscal 1996, 1997 and 1998, 62%, 50% and 47%, respectively, of the
Company's revenues were attributable to international operations and export
sales. See Note 16 of Notes to 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 method or a time basis. 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 risks of business interruption (except for
interruptions caused by failure of the Company's equipment) are shared in agreed
percentages by the Company and the customer. In each case, progress payments are
usually required unless it is expected that the job can be accomplished in a
brief period.
Land and Transition Zone Acquisition
The Company's land and transition zone acquisition services are performed
with seismic equipment using the latest technology. The equipment is capable of
collecting both 2D and 3D data, has a combined recording capacity of
approximately 31,000 channels and can be configured to operate up to 22 crews. A
majority of the Company's land and transition zone acquisition services involve
3D surveys. The Company is currently operating a total of 18 crews located as
follows: eight in the United States, three in Canada, two each in Argentina,
Bolivia, and Oman and one in Madagascar.
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 a 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
30
<PAGE> 32
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.
Marine Acquisition
Marine acquisition services are carried out by the Company's crews
operating from chartered vessels (except the Acadian Searcher, which was
purchased in December 1997) which have been modified or equipped to the
Company's specifications. All of the nine vessels operated by the Company are
equipped to perform 2D seismic surveys, and six of the vessels are also equipped
to perform 3D surveys. During the last several years, a majority of the marine
seismic data acquisition services performed by the Company involved 3D surveys.
The following table sets forth certain information concerning the geophysical
vessels currently operated by the Company:
<TABLE>
<CAPTION>
YEAR
ENTERED CURRENT
VESSEL SERVICE LOCATION LENGTH BEAM
- ------ ------- ----------------- -------- -------
<S> <C> <C> <C> <C>
Offshore
Acadian Searcher...................... 1983 Australia 217 feet 44 feet
Ross Seal............................. 1987 Offshore Cambodia 176 feet 38 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
Professor Kurentsov................... 1997 Offshore Canada 225 feet 41 feet
Seabulk Veritas....................... 1997 Gulf of Mexico 194 feet 40 feet
Veritas Viking........................ 1998 North Sea 305 feet 72 feet
</TABLE>
The Polar Search, Polar Princess and Professor Kurentsov are chartered from
a ship operator for initial terms which expire in January 2000, February 2000
and August 2001, respectively. The Veritas Viking is chartered from a ship owner
on an initial term which expires in June 2006. The Company's other chartered
vessels are operated under short-term charter arrangements expiring at various
times through 1999. These charters contain certain options for the Company to
extend terms 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.
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, three of the Company's vessels are equipped with multiple
streamers and multiple energy sources, which acquire more lines of data with
each pass, reducing completion time 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 with cables towed by each
of the master and two slave vessels. The Veritas Viking, the Company's largest
vessel, entered service in fiscal 1998 and is capable of deploying
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<PAGE> 33
more than 12 seismic streamer cables. The Company has signed an eight-year
charter for another Viking class vessel, a sister ship to the Veritas Viking,
which is expected to begin service in June 1999.
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 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 chartered vessels, which are operated by the
captain and personnel who are employees of the vessel owner.
Data Processing
The Company currently operates 20 seismic data processing centers capable
of processing 2D and 3D data. A majority of the Company's data processing
services are performed on 3D seismic data. At each of the centers, data received
from the field, both from the Company and other geophysical contractors, 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. The Company's data processing centers have opened at
various times from 1966 through 1998 and are located in Houston (two locations),
Irving, Austin and Midland, Texas; Denver, Colorado; Oklahoma City, Oklahoma;
Santa Cruz, Bolivia; Singapore; Crawley, England; Calgary, Canada; Brisbane 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.
To improve its speed and capacity in processing large 3D surveys, the
Company installed an NEC supercomputer in its Houston processing center in July
1996. The success of this first system led to the installation of a second in
the Crawley center in August 1997 and a third in Singapore in July 1998. These
supercomputer installations act as global resources for all of the Company's
data processing operations.
Data Library Sales
The Company often acquires and processes data for its own account for sales
to customers on a non-exclusive basis. The Company seeks pre-funding commitments
from multiple customers for a large portion of the cost of these surveys thereby
lowering investment risk. In recent years, the Company has generally received
commitments in excess of 70%; however, changing market conditions could reduce
commitment levels in the future. Once acquired and processed, these surveys are
then licensed for use to other customers on a non-exclusive basis. Factors
considered in determining whether to undertake such surveys include the
availability of initial participants to underwrite a percentage of the costs,
the location to be surveyed, the probability and timing of future lease
concession and development activity in the area and the availability, quality
and price of competing data.
The relatively expensive cost of acquiring and processing 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, the
north Atlantic and Asia Pacific, as well as onshore in Mississippi, Wyoming and
Texas. As of July 31, 1998, the Company's multi-client data library included
approximately 1.8 million line kilometers of survey data.
32
<PAGE> 34
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 60 persons in its research and
development activities, substantially all of whom are scientists, engineers or
programmers. During fiscal 1996, 1997 and 1998, research and development
expenditures were $3.2 million, $3.7 million, and $6.2 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 $78.8 million, and another $8.2 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, 1998, and its budgeted capital
expenditures for the year ending July 31, 1999.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------------------------
1996 1997 1998 1999
------- ------- ------- --------
BUDGETED
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land and transition zone acquisition........... $15,020 $38,024 $29,207 $18,771
Marine acquisition............................. 7,757 34,482 43,599 34,002
Data processing................................ 8,394 19,743 24,701 25,030
Other.......................................... 1,689 3,801 2,042 983
------- ------- ------- -------
Total................................ $32,860 $96,050 $99,549 $78,786(1)
======= ======= ======= =======
</TABLE>
- ---------------
(1) Of this amount, approximately $30.0 million represents capital spending
necessary to maintain the Company's operating equipment, and the remainder
is allocated for discretionary capital spending.
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 Baker
Hughes Inc.), Geco-Prakla (a division of Schlumberger), Compagnie Generale
Geophysique and Petroleum Geo-Services ASA. Management believes the Company is
the fourth largest provider of geophysical services based on associated
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
33
<PAGE> 35
equipment. The Company carries insurance against the destruction of, or damage
to, its chartered vessels, geophysical equipment and property and injury to
persons 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, 1998, the Company's backlog of commitments for services was
$299.8 million, compared with $257.3 million at July 31, 1997. It is anticipated
that a majority of the July 31, 1998 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, 1996, 1997 and 1998.
EMPLOYEES
At July 31, 1998, the Company had approximately 4,000 full-time employees.
With the exception of 350 unionized employees working at the Singapore data
processing center or on Argentina land crews, 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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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The table below sets forth certain information regarding the Company's
executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
David B. Robson................... 59 Chairman of the Board and Chief Executive Officer,
Director
Stephen J. Ludlow................. 48 President and Chief Operating Officer, Director
Lawrence C. Fichtner.............. 53 Executive Vice President -- Corporate Communications,
Director
Anthony Tripodo................... 46 Executive Vice President, Chief Financial Officer and
Treasurer
Rene M.J. VandenBrand............. 40 Vice President -- Business Development
Clayton P. Cormier................ 66 Director
Ralph M. Eeson.................... 50 Director
James R. Gibbs.................... 54 Director
Steven J. Gilbert................. 51 Director
Brian F. MacNeill................. 59 Director
Douglas B. Thompson............... 49 Director
Jack C. Threet.................... 70 Director
</TABLE>
David B. Robson. Mr. Robson has been chairman of the board and chief
executive officer of the Company since consummation of the Combination in August
1996. Prior thereto, he held similar positions with VES or its predecessors
since 1974.
Stephen J. Ludlow. Mr. Ludlow became president and chief operating officer
of the Company in August 1996, upon consummation of the Combination. He has been
employed by the Company for 25 years and served as president and chief executive
officer of the Company from 1994 to 1996. Prior to 1994, he served as executive
vice president of the Company for four years following eight years of service in
a variety of progressively more responsible management positions, including
several years of service as the executive responsible for operations in Europe,
Africa and the Middle East.
Lawrence C. Fichtner. Mr. Fichtner became executive vice
president -- corporate communications of the Company in August 1996. Prior
thereto, he had been executive vice president of VES or its predecessors since
1978. During the ten years prior to joining VES, he held various positions as a
geophysicist with Geophysical Services Inc., Texaco Exploration Ltd. and Bow
Valley Exploration Ltd.
Anthony Tripodo. Mr. Tripodo was appointed executive vice president, chief
financial officer, and treasurer of the Company in April 1997. Prior to joining
the Company, he was employed by Baker Hughes Inc. for sixteen years in various
financial management capacities, most recently as vice president of finance and
administration for its Baker Performance Chemicals unit. Prior to his service
with Baker Hughes, Mr. Tripodo was employed by the accounting firm of Price
Waterhouse from 1974 to 1980.
Rene M.J. VandenBrand. Mr. VandenBrand became vice president -- business
development of the Company in August 1996. Prior thereto, he had been vice
president -- finance and secretary of VES since November 1995, following two
years of service in comparable positions with Taro Industries Limited. He was
previously a partner of Coopers & Lybrand Chartered Accountants in Calgary.
Clayton P. Cormier. Mr. Cormier is currently a financial and insurance
consultant. From 1986 to 1991, Mr. Cormier was a senior vice president in the
oil and gas division of Johnson & Higgins, an insurance broker, and previously
served as chairman of the board, president, and chief executive officer of Ancon
Insurance Company, S.A. and as an assistant treasurer of Exxon Corporation.
Ralph M. Eeson. Mr. Eeson has been co-owner and chairman of the board of
Kids Only Clothing Club Inc., a manufacturer and direct seller of children's
clothing, since 1991. From 1977 to 1991, he was a senior partner at Code Hunter,
Barristers and Solicitors, Calgary.
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<PAGE> 37
James R. Gibbs. Mr. Gibbs has been president and chief executive officer of
Frontier Oil Corporation, formerly Wainoco Oil Corporation ("Frontier"), since
1992 and has been employed by Frontier for more than fifteen years. Frontier is
a wholesale refining company that operates in the Rocky Mountains of the United
States. Mr. Gibbs is a director of Smith International, Inc. and is an advisory
director of Frost Bank -- Houston.
Steven J. Gilbert. Mr. Gilbert is chairman of Gilbert Global Equity
Partners, L.P. From 1992 to 1997 he was managing general partner of Soros
Capital L.P., the principal venture capital and leveraged transaction entity of
Quantum Group of Funds and was a principal advisor to Quantum Industrial
Holdings Ltd. He has also been the managing director of Commonwealth Capital
Partners, L.P., a private equity investment fund. From 1984 to 1988, Mr. Gilbert
was the managing general partner of Chemical Venture Partners, which he founded.
Mr. Gilbert is a director of NFO Worldwide, Inc., The Asian Infrastructure Fund,
Peregrine Indonesia Fund, Inc., Terra Nova (Bermuda) Holdings Ltd., Sydney
Harbour Casino Holdings, Ltd. and UroMed Corporation.
Brian F. MacNeill. Mr. MacNeill has been president and chief executive
officer of Enbridge Inc., a crude oil and liquids transportation and natural gas
distribution company, formerly named IPL Energy, Inc. ("IPL"), since 1991. He
was executive vice president and chief operating officer of IPL from 1990 to
1991 and previously served as chief financial officer of Interhome Energy, Inc.
and Home Oil Company Limited and as vice president and treasurer of Hiram Walker
Resources Ltd.
Douglas B. Thompson. Mr. Thompson served as chairman of the board of the
Company from May 1994 until consummation of the Combination in August 1996. He
is a private investor and serves as chairman of the board of Chandler
Engineering Company LLC, a privately-held oilfield equipment manufacturer. He
also served as chairman of the board of WellTech, Inc., a privately-held
workover drilling company, until its sale in March 1996.
Jack C. Threet. Mr. Threet is founder and chief executive officer of Threet
Energy Incorporated, a privately held oil and gas concern. Prior to his
retirement from Shell Oil Company in 1987, Mr. Threet was vice president for
exploration of Shell Oil Company and a member of the boards of directors of
several affiliates of Shell Oil Company.
36
<PAGE> 38
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on October 28, 1998, to the Initial
Purchaser and were subsequently resold to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. In connection with the sale of
the Old Notes, the Company entered into the Registration Rights Agreement, which
required, among other things, that the Company (i) use its best efforts to cause
a registration statement with respect to the Exchange Offer to become effective
under the Securities Act on or before February 25, 1999 and (ii) upon the
effectiveness of that registration statement, offer to the Holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
Exchange Notes, which would be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). The Registration
Rights Agreement is incorporated by reference herein as an exhibit to the
Registration Statement of which this Prospectus is a part and can be copied or
reviewed as set forth under "Where You Can Find More Information." The term
"Holder" with respect to the Exchange Offer means any person in whose name the
Old Notes are registered or any other person who has obtained a properly
completed bond power from the registered holder.
Because the Exchange Offer is for any and all Old Notes, the number of Old
Notes tendered and exchanged in the Exchange Offer will reduce the principal
amount of Old Notes outstanding. Following the consummation of the Exchange
Offer, Holders of the Old Notes who do not tender their Old Notes generally will
not have any further registration rights under the Registration Rights
Agreement, and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected. The Old Notes are currently eligible for sale
pursuant to Rule 144A through the PORTAL System of the National Association of
Securities Dealers, Inc. Because the Company anticipates that most holders of
Old Notes will elect to exchange such Old Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any Old Notes
remaining after the consummation of the Exchange Offer may be substantially
reduced.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m. Boston, Massachusetts
time, on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The Form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture.
Holders of Old Notes do not have any appraisal or dissenter's rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the Exchange Notes from the Company.
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<PAGE> 39
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates, if any, for any such unaccepted Old Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees, or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., Boston, Massachusetts
time, on , 199 , unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., Boston, Massachusetts time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered Holders, and, depending upon the significance of the amendment
and the manner of disclosure to the registered Holders, the Company will extend
the Exchange Offer for a period of five to ten business days if the Exchange
Offer would otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective the Shelf Registration
Statement (as defined in the Registration Rights Agreement) within the time
periods set forth herein, liquidated damages will accrue and be payable on the
Old Notes either temporarily or permanently. See "Description of Exchange
Notes -- Registrations Rights; Liquidated Damages."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. A holder of the
Old Notes may tender such Old Notes by (i) properly completing, signing, and
dating a Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with any corresponding certificate or
certificates representing the Old Notes being tendered (if in certificated form)
and any required guarantees, to the Exchange Agent at its address set forth in
the Letter of Transmittal on or prior to the Expiration Date (or complying with
the procedure for book-entry transfer described below), or (ii) complying with
the guaranteed-delivery procedures described below.
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<PAGE> 40
Any participant in DTC's Book-Entry Transfer Facility system may tender
such Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's automated tender offer program
("ATOP"). Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, an Agent's Message (as
defined herein), must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., Boston, Massachusetts time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT. See "-- Book-Entry Transfer".
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefore
are to be issued (and any untendered Old Notes are to be reissued) in the name
of the registered holder (which term, for the purposes described herein, shall
include any participant in DTC (also referred to as a book-entry facility) whose
name appears on a security listing as the owner of Old Notes), the signature of
such signers need not be guaranteed. In any other case, the tendered Old Notes
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Company and duly executed by the registered holder, and the
signature on the endorsement or instrument of transfer must be guaranteed by an
eligible guarantor institution that is a member of or a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion Program or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution"). If the Exchange Notes or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL, THE OLD NOTES AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS,
BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY
THE EXCHANGE AGENT. IF OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT THE
DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., BOSTON, MASSACHUSETTS TIME,
ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE COMPANY OR DTC. ONLY HOLDERS OF OLD NOTES MAY TENDER SUCH OLD NOTES IN THE
EXCHANGE OFFER. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS COMMERCIAL
BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominees and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram, or facsimile
transmission to similar effect from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram, or facsimile
transmission to similar effect by an Eligible Institution will be made only
against submission of a duly signed Letter of Transmittal (and any other
required documents) and deposit of the tendered Old Notes.
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<PAGE> 41
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company, in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
not in proper form or the acceptance for exchange of which may, in the opinion
of counsel for the Company, be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of any Old Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent, nor any other person
shall be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of the transfer of such Old Notes into the Exchange
Agent's account at DTC, a properly completed and duly executed Letter of
Transmittal (or, with respect to DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such book-entry transfer facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, if the Old Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent has confirmed with DTC that
any financial institution that is a participant in DTC's system may utilize
DTC's ATOP to tender Old Notes. The Company further understands that the
Exchange Agent will request, within two business days after the date the
Exchange Offer commences, that DTC establish an account with respect to the Old
Notes for the purpose of facilitating the Exchange Offer, and any participant
may make book-entry delivery of Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account in accordance with DTC's ATOP procedures
for transfer. However, the exchange of the Old Notes so tendered will be made
only after timely confirmation (a "Book-Entry Confirmation") of such book-entry
transfer and timely receipt by the Exchange Agent of an Agent's Message (as
defined in the next sentence), and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by DTC and
received by the Exchange Agent and forming a part of Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from a participant
tendering Old Notes which are the subject to such Book-Entry Confirmation and
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
such participant.
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<PAGE> 42
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing the Old
Notes (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the Depository) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form of or transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agents account at the
Depository) and all other documents required by the Letter of Transmittal,
are received by the Exchange Agent within five business days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., Boston, Massachusetts time, on the Expiration
Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., Boston, Massachusetts
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
notes transferred by book-entry transfer, the name and number of the account at
the Depository to be credited), (iii) be signed by the Holder in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time or receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no Exchange Notes
will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
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<PAGE> 43
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "-- Withdrawal Rights") or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered Holders, and,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, the Company will extend the Exchange Offer for a period
of five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
State Street Bank and Trust Company will act as Exchange Agent for the
Exchange Offer.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Old Notes and requests
for copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
<TABLE>
<S> <C>
By registered or certified mail: By overnight or hand delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attn: Kellie Mullen Attn: Kellie Mullen
By facsimile (eligible institutions only): For telephone inquiries:
State Street Bank and Trust Company (617) 664-5587
Corporate Trust Department
Attn: Kellie Mullen
(617) 664-5290
</TABLE>
FEES AND EXPENSES
The expenses of the Exchange Offer will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
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<PAGE> 44
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other Registration expenses, including fees and expenses of the Trustee, fueling
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered Holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other person) will be payable by the tendering
Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is the aggregate principal amount, as reflected in the Company's
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized in connection with the Exchange Offer.
The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993) (the
"Shearman & Sterling Letter"), Morgan Stanley & Co. Incorporated, SEC No-Action
Letter (available June 5, 1991) (the "Morgan Stanley Letter"), Exxon Capital
Holdings Corporation, SEC No-Action Letter (available April 13, 1989) (the
"Exxon Capital Letter") and similar letters, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any person receiving
such Exchange Notes, whether or not such person is the holder (other than any
such holder or other person which is (i) a broker-dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making or other trading
activities, or (ii) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act (collectively, "Restricted Holders")) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (a) such Exchange Notes are acquired in the
ordinary course of business of such holder or other person (b) neither such
holder nor such other person is engaged in or intends to engage in a
distribution of such Exchange Notes and (c) neither such holder nor other person
has any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. If any person were to be participating in
the Exchange Offer for the purposes of participating in a distribution of the
Exchange Notes in a manner not permitted by the Commission's interpretation,
such person (a) could not rely upon the Shearman & Sterling Letter, the Morgan
Stanley Letter, the Exxon Capital Letter or similar letters and (b) in the
absence of an exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Failure to comply with any of the foregoing conditions may
result in a holder incurring liabilities under the Securities Act for which such
holder is not indemnified by the Company. Each broker or dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
activities, must acknowledge that it will deliver a prospectus in connection
with any sale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Old Notes if such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed to
make this Prospectus available to any broker-dealer for use in connection with
any such resale. The Exchange
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<PAGE> 45
Offer is not being made to, nor will the Company accept surrenders for exchange
from, holders of Old Notes in any jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in compliance with the securities or blue
sky laws of such jurisdiction. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Old Notes who do not tender their Old Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Old Notes that does not exchange that
Holder's Old Notes for Exchange Notes will continue to hold the untendered Old
Notes and will be entitled to all the rights and limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) pursuant to an effective registration statement under the Securities Act,
(iii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iv)
outside the Untied States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Old Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Old Notes.
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<PAGE> 46
DESCRIPTION OF NOTES
The Old Notes were issued under the Indenture and the Notes also will be
issued under the Indenture. The following discussion of certain provisions of
the Indenture and the terms of the Notes is a summary only and does not purport
to be complete discussion of the terms of the Notes. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Accordingly, the following discussion is qualified in its entirety by
reference to the provisions of the Indenture and the Notes including the
definition therein of certain terms used below with their initial letters
capitalized.
The Old Notes and the Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, Holders of
Old Notes who do not exchange their Old Notes for Notes will vote together with
Holders of Notes for all relevant purposes under the Indenture. In that regard,
the Indenture requires that certain actions by the Holders thereunder must be
taken, and certain rights must be exercised, by specified minimum percentage of
the aggregate principal amount of the outstanding Notes. In determining whether
Holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Old Notes that remain outstanding after the Exchange Offer will be aggregated
with the Notes, and the Holders of such Old Notes and the Notes will vote
together as a single series for all such purposes. Accordingly, all references
herein to specified percentages in aggregate principal amount of the outstanding
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentages in aggregate principal amount of the Old Notes and
the Notes then outstanding.
The Old Notes are, and the Notes will be, the only securities outstanding
under the Indenture.
GENERAL
The Notes will be senior unsecured obligations of the Company limited to
$60.0 million aggregate principal amount. The Old Notes were and the Notes will
be issued only in registered form, without coupons, in denominations of $1,000
and integral multiples thereof. Principal of, premium, if any, and interest on
the Notes will be payable, and the Notes will be transferable, at the office or
agency of the Company maintained for such purposes, which in the case of
payments on the Notes initially will be the corporate trust office or agency of
the Trustee maintained at State Street Bank and Trust Company, N.A., attn:
Corporate Trust Window, 61 Broadway, 15th Floor, New York, New York 10006. No
service charge will be made for any transfer, exchange or redemption of the
Notes, but the Company or the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge that may be payable in connection
therewith.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on October 15, 2003. Interest on the Notes will
accrue from October 28, 1998 at the rate of 9 3/4% per annum and will be payable
semiannually in cash in arrears on April 15 and October 15 of each year,
commencing April 15, 1999, to the Persons in whose name the Notes are registered
in the Note Register at the close of business on the April 1 or October 1 next
preceding such interest payment date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after October 15, 2000, upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest to the date of redemption (subject to the right of Holders of record on
the relevant record date to
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<PAGE> 47
receive interest due on an interest payment date that is on or prior to the date
of redemption), if redeemed during the 12-month period beginning on October 15
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000........................................................ 104.875%
2001........................................................ 102.438%
2002 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to October 15, 1999,
up to 25% of the aggregate principal amount of the Notes will be redeemable, at
the option of the Company, from the Net Cash Proceeds of a Public Equity
Offering, at a redemption price equal to 109.75% of the principal amount
thereof, together with accrued and unpaid interest to the date of redemption,
provided that at least $45.0 million of the principal amount of the Notes
remains outstanding immediately after such redemption and that such redemption
occurs within 60 days following the closing of such Public Equity Offering.
In the event that less than all of the Notes are to be redeemed, the
particular Notes (or any portion thereof that is an integral multiple of $1,000)
to be redeemed shall be selected not less than 30 nor more than 60 days prior to
the date of redemption by the Trustee, from the outstanding Notes not previously
called for redemption, pro rata, by lot or by any other method the Trustee shall
deem fair and appropriate.
Mandatory Redemption. The Company will not be required to make mandatory
redemption or sinking fund payments with respect to the Notes.
Offers to Purchase. As described below, (a) upon the occurrence of a Change
of Control, the Company will be obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase and (b) upon certain sales or other dispositions of
assets, the Company may be obligated to make offers to purchase Notes with a
portion of the Net Available Proceeds of such sales or other dispositions at a
purchase price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase. See "-- Certain
Covenants -- Change of Control" and "-- Limitation on Asset Sales."
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with the Company's existing $75.0 million of
Series A Notes and with all indebtedness and other liabilities of the Company
that are not by their terms subordinated to other Indebtedness. The Notes,
however, will be effectively subordinated to secured Indebtedness of the Company
with respect to the assets securing such Indebtedness. At July 31, 1998, the
Company had $75.6 million principal amount of Indebtedness outstanding, all of
which is unsecured. Because the Company is a holding company and the Notes are
not guaranteed by any of its Subsidiaries, the Notes are effectively
subordinated to all existing and future liabilities of the Company's
Subsidiaries, including both senior and subordinated Indebtedness of these
Subsidiaries, and regardless of whether such liabilities are secured or
unsecured. Immediately after the Exchange Offer, the Subsidiaries will have no
material Indebtedness. However, certain of the subsidiaries are guarantors under
the Credit Facility. See "Capitalization" and "Description of Certain
Indebtedness -- Bank Credit Agreement." Subject to certain limitations, the
Company and its Subsidiaries may incur additional Indebtedness in the future.
See "Risk Factors -- Dependence on Subsidiaries; Holding Company Structure;
Effective Subordination" and "-- Certain Covenants -- Limitation on Indebtedness
and Disqualified Capital Stock."
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness and Disqualified Capital Stock. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, create,
incur, issue, assume, guarantee or in any manner become
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<PAGE> 48
directly or indirectly liable for the payment of (collectively, "incur") any
Indebtedness (including any Acquired Indebtedness but excluding any Permitted
Indebtedness) or any Disqualified Capital Stock, unless, on a pro forma basis
after giving effect to such incurrence and the application of the proceeds
therefrom, the Consolidated Fixed Charge Coverage Ratio for the four full
quarters immediately preceding such event, taken as one period, would have been
equal to or greater than 2.5 to 1.0.
(b) The Company will not incur any Indebtedness that is expressly
subordinated to any other Indebtedness of the Company unless such Indebtedness,
by its terms or the terms of any agreement or instrument pursuant to which such
Indebtedness is issued or outstanding, is also expressly made subordinate to the
Notes at least to the extent it is subordinated to such other Indebtedness.
(c) The Company will not permit any of its Restricted Subsidiaries to incur
any Indebtedness (excluding Permitted Indebtedness referred to in clauses (i)
and (vi) (to the extent consisting of Indebtedness to the Company) of the
definition thereof and Permitted Subsidiary Indebtedness) or to issue any
Preferred Stock.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any other distribution to
holders of, any shares of Capital Stock of the Company (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock of the Company or in options, warrants or other rights to purchase
Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Restricted Subsidiary or except pursuant to a Permitted Investment) or any
options, warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness, except in any case out of the Net Cash Proceeds of any
Permitted Indebtedness referred to in clause (ix) of the definition
thereof; or
(iv) make any Restricted Investment;
(such payments or other actions described in clauses (i) through (iv) being
collectively referred to as "Restricted Payments"), unless at the time of
and after giving effect to the proposed Restricted Payment (the amount of
any such Restricted Payment, if other than cash, shall be the amount
determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution):
(1) no Default or Event of Default shall have occurred and be
continuing,
(2) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in accordance with paragraph (a) of the
"-- Limitation on Indebtedness and Disqualified Capital Stock" covenant,
and
(3) the aggregate amount of all Restricted Payments declared or made
after the Series A Issue Date shall not exceed the sum (without
duplication) of the following:
(A) 50% of the Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on August 1, 1996 and
ending on the last day of the Company's last fiscal quarter ending prior
to the date of such proposed Restricted Payment (or, if such
Consolidated Net Income is a loss, minus 100% of such loss),
(B) the aggregate Net Cash Proceeds received after the Series A
Issue Date by the Company from the issuance or sale (other than to any
of its Restricted Subsidiaries) of shares of Qualified Capital Stock of
the Company or any options, warrants or rights to purchase such shares
of Qualified Capital Stock of the Company,
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<PAGE> 49
(C) the aggregate Net Cash Proceeds received after the Series A
Issue Date by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company,
(D) the aggregate Net Cash Proceeds received after the Series A
Issue Date by the Company from the issuance or sale (other than to any
of its Restricted Subsidiaries) of Indebtedness or shares of
Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock of the Company, together with the aggregate
cash received by the Company at the time of such conversion or exchange,
(E) to the extent not otherwise included in Consolidated Net
Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or a Restricted
Subsidiary after the Series A Issue Date from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary (valued in each case as provided in the definition
of Investment), not to exceed in the case of any Unrestricted Subsidiary
the total amount of Investments (other than Permitted Investments) in
such Unrestricted Subsidiary made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary that which was previously
treated as a Restricted Payment, and
(F) $2.5 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii) and (iii) below) no Default or Event of Default shall have occurred and be
continuing:
(i) the payment of any dividend on any Capital Stock of the Company or
any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above (and such payment shall be deemed to have
been paid on such date of declaration for purposes of any calculation
required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds
from, a substantially concurrent issuance and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
and
(iii) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Cash Proceeds from, a
substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company.
The actions described in clauses (i), (ii) and (iii) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be made in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (3) of paragraph (a), provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce
the amount that would otherwise be available under clause (3) of paragraph (a)
when declared, but not also when subsequently paid pursuant to such clause (i).
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (i) will not permit any Restricted Subsidiary to issue
or sell any Capital Stock to any Person other than the Company or a Wholly Owned
Restricted Subsidiary and (ii) will not permit any Person other than the Company
or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any
Restricted Subsidiary, in each case except with respect to a Wholly Owned
Restricted Subsidiary as described in the definition of "Wholly Owned Restricted
Subsidiary." The sale of all of the Capital Stock of any Restricted Subsidiary
is permitted by this covenant but is subject to the limitations described under
"-- Limitations on Asset Sales."
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<PAGE> 50
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction unless the Company or such Restricted Subsidiary, as the case may
be, would be able to incur Indebtedness (not including the incurrence of
Permitted Indebtedness) pursuant to and in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the
covenants described in paragraphs (a) and (c) under "-- Limitation on
Indebtedness and Disqualified Capital Stock," the Company or such Restricted
Subsidiary receives proceeds from such Sale/ Leaseback Transaction at least
equal to the fair market value of the property or assets subject thereto (as
determined in good faith by the Company's Board of Directors, whose
determination in good faith and evidenced by a Board Resolution will be
conclusive) and the Company applies an amount in cash equal to the Net Available
Proceeds of the Sale/Leaseback Transaction in accordance with the provisions of
the "Limitation on Asset Sales" covenant as if such Sale/Leaseback Transaction
were an Asset Sale.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets or property
or the rendering of any services) with, or for the benefit of, any Affiliate of
the Company (other than the Company or a Restricted Subsidiary), unless (i) such
transaction or series of transactions is on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
would be available in a comparable arm's length transaction with unrelated third
parties, (ii) with respect to any one transaction or series of related
transactions involving aggregate payments in excess of $1.0 million but less
than $5.0 million in the aggregate, the Company delivers an Officers'
Certificate to the Trustee certifying that (A) such transaction or series of
related transactions complies with clause (i) above and (B) such transaction or
series of related transactions has been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company, and (iii)
with respect to any one transaction or series of related transactions involving
aggregate payments in excess of $5.0 million, the Company delivers an Officers'
Certificate to the Trustee certifying to the two matters referred to in clause
(ii) above and that the Company has obtained a written opinion from an
independent nationally recognized investment banking firm or appraisal firm
specializing or having a speciality in the type and subject matter of the
transaction or series of related transactions at issue, which opinion shall be
to the effect set forth in clause (i) above or shall state that such transaction
or series of related transactions is fair from a financial point of view to the
Company or such Restricted Subsidiary; provided, however, that the foregoing
restriction shall not apply to (w) loans or advances to officers, directors and
employees of the Company or any Restricted Subsidiary made in the ordinary
course of business and consistent with past practices of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $1.0 million
outstanding at any one time, (x) indemnities of officers, directors and
employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions, (y) the payment of reasonable and customary regular fees
to directors of the Company or any of its Restricted Subsidiaries who are not
employees of the Company or any Affiliate and (z) the Company's employee
compensation and other benefit arrangements.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective property or assets, whether owned
on the Series A Issue Date or acquired thereafter, or any income, profits or
proceeds therefrom, to secure any Indebtedness of the Company or such Restricted
Subsidiary, unless prior to, or contemporaneously therewith, the Notes are
equally and ratably secured; provided, however, that if such Indebtedness is
expressly subordinated to the Notes, the Lien securing such Indebtedness will be
subordinated and junior to the Lien securing the Notes, with the same relative
priority as such Indebtedness has with respect to the Notes. The foregoing
covenant will not apply to any Lien securing Acquired Indebtedness, provided
that any such Lien extends only to the property or assets that were subject to
such Lien prior to the related acquisition by the Company or such Restricted
Subsidiary and was not created, incurred or assumed in contemplation of such
transaction. The incurrence of additional secured Indebtedness by the Company
and its Restricted Subsidiaries is subject to further limitations on the
incurrence of Indebtedness as described under "-- Limitation on Indebtedness and
Disqualified Capital Stock."
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<PAGE> 51
Change of Control. Upon the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase all of the then outstanding Notes
(a "Change of Control Offer"), and will purchase, on a Business Day (the "Change
of Control Purchase Date"), not more than 60 nor less than 30 days following
such Change of Control, all of the then outstanding Notes validly tendered
pursuant to such Change of Control Offer and not withdrawn, at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the
Change of Control Purchase Date. The Change of Control Offer is required to
remain open for at least 20 Business Days and until the close of business on the
fifth Business Day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company will, not
later than the 30th day after the Change of Control, mail to the Trustee and
each Holder a notice of the Change of Control Offer, which notice shall govern
the terms of the Change of Control Offer and shall state, among other things,
the procedures that Holders must follow to accept the Change of Control Offer.
The Series A Indenture provides that upon the occurrence of a Change of
Control (as defined therein), the Company will be required to make an offer to
the holders of the Series A Notes to repurchase any or all of the Series A Notes
at a purchase price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase. Further, the
occurrence of a Change of Control may result in lenders under the Credit
Facility having the right to require the Company to repay all Indebtedness
outstanding thereunder. There can be no assurance that the Company will have
available funds sufficient to repay all Indebtedness owing under the Credit
Facility or to fund the purchase of Series A Notes or the Notes upon a Change of
Control. In the event a Change of Control occurs at a time when the Company does
not have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes delivered by Holders seeking to accept the Change of
Control Offer, an Event of Default would occur under the Indenture. The
definition of Change of Control includes an event by which the Company sells,
conveys, transfers, leases or otherwise disposes of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries, taken
as a whole; the phrase "all or substantially all" is subject to applicable legal
precedent and, as a result, in the future there may be uncertainty as to whether
or not a Change of Control has occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if another Person makes the Change of Control Offer at the
same purchase price, at the same time and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer to be made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, in the event
that a Change of Control occurs and the Company is required to purchase Notes as
described above. The existence of a Holder's right to require, subject to
certain conditions, the Company to repurchase its Notes upon a Change of Control
may deter a third party from acquiring the Company in a transaction that
constitutes, or results in, a Change of Control.
Limitation on Asset Sales. (a) The Company will not, and will not permit
any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination in good
faith shall be conclusive and evidenced by a Board Resolution), (ii) at least
80% of the consideration received by the Company or the Restricted Subsidiary,
as the case may be, in respect of such Asset Sale consists of cash or Cash
Equivalents and (iii) the Company delivers to the Trustee an Officers'
Certificate certifying that such Asset Sale complies with clauses (i) and (ii).
The amount (without duplication) of any Indebtedness (other than Subordinated
Indebtedness) of the Company or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Restricted Subsidiary, as the case may be, is unconditionally
released by the holder of such Indebtedness, shall be deemed to be cash or Cash
Equivalents for purposes of clause (ii) and shall also
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<PAGE> 52
be deemed to constitute a repayment of, and a permanent reduction in, the amount
of such Indebtedness for purposes of the following paragraph.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or any Restricted Subsidiary may either, no later than 210 days
after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the
Company or any Restricted Subsidiary, provided, in each case, that the related
loan commitment (if any) is thereby permanently reduced by the amount of such
Indebtedness so repaid, or (ii) invest all or any part of the Net Available
Proceeds thereof in properties and assets that replace the properties or assets
that were the subject of such Asset Sale or in other properties or assets that
will be used in the business of the Company and its Restricted Subsidiaries. The
amount of such Net Available Proceeds not applied or invested as provided in
this paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $5.0
million, the Company will be required to make an offer to purchase, from all
Holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of the amount (the
"Payment Amount") of such Excess Proceeds.
(ii) The offer price for the Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of the Notes
tendered pursuant to a Net Proceeds Offer is less than the Payment Amount
relating thereto (such shortfall constituting a "Net Proceeds Deficiency"),
the Company may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitation
on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis.
(iv) Upon completion of such Net Proceeds Offer, the amount of Excess
Proceeds shall be reset to zero.
The Company will not permit any Restricted Subsidiary to enter into or
suffer to exist any agreement that would place any restriction of any kind
(other than pursuant to law or regulation) on the ability of the Company to make
a Net Proceeds Offer following any Asset Sale. The Company will comply with Rule
14e-1 under the Exchange Act, and any other securities laws and regulations
thereunder, if applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or suffer to exist or allow to
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock, or make payments on any
Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to
make loans or advances to the Company or any other Restricted Subsidiary, (c) to
transfer any of its property or assets to the Company or any other Restricted
Subsidiary or (d) to guarantee the Notes (any such restrictions being
collectively referred to herein as a "Payment Restriction"), except in any such
case for such encumbrances or restrictions existing under or by reason of (i)
the Indenture, the Series A Indenture, the Credit Facility or any other
agreement in effect or entered into on the Series A Issue Date, or (ii) any
agreement, instrument or charter of or in respect of a Restricted Subsidiary
entered into prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary and outstanding on such date and not entered into in
connection with or in contemplation of becoming a Restricted Subsidiary,
provided such consensual encumbrance or restriction is not applicable to any
properties or assets other than those owned or
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held by the Restricted Subsidiary at the time it became a Restricted Subsidiary
or subsequently acquired by such Restricted Subsidiary other than from the
Company or any other Restricted Subsidiary, or (iii) pursuant to an agreement
effecting a modification, renewal, refinancing, replacement or extension of any
agreement, instrument or charter (other than the Indenture or Series A
Indenture) referred to in clause (i) or (ii) above, provided, however, that the
provisions relating to such encumbrance or restriction are not materially less
favorable to the Holders of the Notes than those under or pursuant to the
agreement, instrument or charter so modified, renewed, refinanced, replaced or
extended, or (iv) customary provisions restricting the subletting or assignment
of any lease or the transfer of copyrighted or patented materials, or (v)
provisions in agreements that restrict the assignment of such agreements or
rights thereunder, or (vi) the sale or other disposition of any properties or
assets subject to a Lien securing Indebtedness.
Limitation on Conduct of Business. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the business being conducted on the Series A Issue Date and
such other businesses as are reasonably necessary or desirable to facilitate the
conduct and operation of such businesses.
Reports. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee (with exhibits), and
provide to each Holder of Notes (without exhibits), without cost to such Holder,
copies of such reports and documents within 15 days after the date on which the
Company files such reports and documents with the Commission or the date on
which the Company would be required to file such reports and documents if the
Company were so required and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the Exchange
Act, to supply at its cost copies of such reports and documents (including any
exhibits thereto) to any Holder of Notes promptly upon written request.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "-- Certain Definitions" describes the
circumstances under which a Subsidiary of the Company may be designated as an
Unrestricted Subsidiary by the Board of Directors of the Company.
Limitation on Redemption and Other Repayments of Notes and Series A
Notes. The Company will not optionally make any principal payment on, or redeem,
repurchase, defease (including both legal and covenant defeasance) or otherwise
acquire or retire for value (other than through open market or privately
negotiated purchases) prior to any scheduled principal payment, scheduled
sinking fund payment or stated maturity (collectively, for purposes of this
covenant only, "redeem," and such action being a "redemption") the Notes unless,
substantially concurrently with such redemption, the Company redeems (or, if
such redemption requires the consent of the holders of the Series A Notes,
offers to redeem) an aggregate principal amount of the Series A Notes (rounded
to the nearest integral multiple of $1,000) equal to the product of (i) a
fraction, the numerator of which is the aggregate principal amount of Notes to
be so redeemed (or for which such offer to redeem will be made) and the
denominator of which is the aggregate principal amount of Notes outstanding
immediately prior to such proposed redemption and (ii) the aggregate principal
amount of the Series A Notes outstanding immediately prior to such proposed
redemption.
The Company will not optionally redeem (other than through open market or
privately negotiated transactions) the Series A Notes unless, substantially
concurrently with such redemption, the Company redeems (or, if such redemption
requires the consent of the holders of the Notes, offers to redeem) an aggregate
principal amount of the Notes (rounded to the nearest integral multiple of
$1,000) equal to the product of (i) a fraction, the numerator of which is the
aggregate principal amount of the Series A Notes to be so redeemed (or for which
such offer to redeem will be made) and the denominator of which is the aggregate
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principal amount of the Series A Notes outstanding immediately prior to such
proposed redemption and (ii) the aggregate principal amount of the Notes
outstanding immediately prior to such proposed redemption.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or group of Affiliated Persons, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto (i) either (A) if the transaction is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (B) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company or its Restricted Subsidiaries, as the case
may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed
of (any such surviving Person or transferee Person being the "Surviving Entity")
shall be a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia and shall, in
either case, expressly assume by a supplemental indenture to the Indenture
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and, in each
case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company or any of its Restricted Subsidiaries which becomes
an obligation of the Company or any of its Restricted Subsidiaries in connection
with or as a result of such transaction or transactions as having been incurred
at the time of such transaction or transactions), no Default or Event of Default
shall have occurred and be continuing; (iii) except in the case of the
consolidation or merger of any Restricted Subsidiary with or into the Company,
immediately after giving effect to such transaction or transactions on a pro
forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or transactions; (iv) except in the case of the consolidation or
merger of the Company with or into a Restricted Subsidiary or any Restricted
Subsidiary with or into the Company or another Restricted Subsidiary,
immediately before and immediately after giving effect to such transaction or
transactions on a pro forma basis (assuming that the transaction or transactions
occurred on the first day of the period of four fiscal quarters ending
immediately prior to the consummation of such transaction or transactions, with
the appropriate adjustments with respect to the transaction or transactions
being included in such pro forma calculation), the Company (or the Surviving
Entity if the Company is not the continuing obligor under the Indenture) could
incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the first paragraph of the "-- Limitation on Indebtedness and
Disqualified Capital Stock" covenant; (v) if any of the properties or assets of
the Company or any of its Restricted Subsidiaries would upon such transaction or
series of related transactions become subject to any Lien (other than a
Permitted Lien), the creation and imposition of such Lien shall have been in
compliance with the "Limitation on Liens" covenant; and (vi) the Company (or the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, (a) an Officers' Certificate stating that such
consolidation, merger, transfer, lease or other disposition and any supplemental
indenture in respect thereto comply with the requirements under the Indenture
and (b) an Opinion of Counsel stating that the requirements of clause (i) of
this paragraph have been satisfied.
Upon any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis in accordance with the foregoing, in which the Company is not
the continuing corporation, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if the Surviving Entity had been named as
the
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Company therein, and thereafter the Company, except in the case of a lease, will
be discharged from all obligations and covenants under the Indenture and the
Exchange Notes and may be liquidated and dissolved.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Notes, whether such payment is due at Stated Maturity, upon
redemption, upon repurchase pursuant to a Change of Control Offer or a Net
Proceeds Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest or
Liquidated Damages on any of the Notes, when due, and the continuance of
such default for a period of 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of the
"Limitation on Asset Sales" covenant; or
(iv) the Company shall fail to perform or observe any other term,
covenant or agreement contained in the Notes or the Indenture (other than a
default specified in (i), (ii) or (iii) above) for a period of 30 days
after written notice of such failure stating that it is a "notice of
default" under the Indenture and requiring the Company to remedy the same
shall have been given (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or
interest on any Indebtedness of the Company (other than the Notes) or any
Restricted Subsidiary for money borrowed when due, or any other default
resulting in acceleration of any Indebtedness of the Company or any
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $5.0 million and
provided, further, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of
10 days from the continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, as the case may be, such
Event of Default under the Indenture and any consequential acceleration of
the Notes shall be automatically rescinded, so long as such rescission does
not conflict with any judgment or decree; or
(vi) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$5.0 million over the coverage under applicable insurance policies and
either (A) commencement by any creditor of an enforcement proceeding upon
such judgment (other than a judgment that is stayed by reason of pending
appeal or otherwise) or (B) the occurrence of a 30-day period during which
a stay of such judgment or order, by reason of pending appeal or otherwise,
was not in effect; or
(vii) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) adjudging the Company or any Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or any Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Restricted Subsidiary or of a
substantial part of its consolidated assets, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
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(viii) the commencement by the Company or any Restricted Subsidiary of
a voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated bankrupt or insolvent, or the consent
by the Company or any Restricted Subsidiary to the entry of a decree or
order for relief in respect thereof in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any Restricted Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or any Restricted Subsidiary or of any substantial part of
its consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking of
corporate action by the Company or any Restricted Subsidiary in furtherance
of any such action.
If an Event of Default (other than as specified in clause (vii) or (viii)
above) shall occur and be continuing, the Trustee, by written notice to the
Company, or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Trustee and the Company, may,
and the Trustee upon the request of the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding shall, declare the
principal of, premium, if any, accrued and unpaid interest and Liquidated
Damages, if any, on all of the Notes due and payable immediately, upon which
declaration all amounts payable in respect of the Notes shall be immediately due
and payable. If an Event of Default specified in clause (vii) or (viii) above
occurs and is continuing, then the principal of, premium, if any, accrued and
unpaid interest and Liquidated Damages, if any, on all of the Notes shall become
and be immediately due and payable without any declaration, notice or other act
on the part of the Trustee or any Holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
and annul such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Notes, (iii) the principal of and premium and Liquidated Damages, if any, on
any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest, overdue principal and overdue Liquidated Damages, if any, at the rate
borne by the Notes (without duplication of any amount paid or deposited pursuant
to clause (ii) or (iii)); (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the non-payment of principal of, premium, if any, interest
or Liquidated Damages, if any, on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless such Holder has notified the
Trustee of a continuing Event of Default and the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the Notes and the Indenture, the Trustee has failed to institute
such proceeding within 60 days after receipt of such notice and the Trustee,
within such 60-day period, has not received directions inconsistent with such
written request by Holders of a majority in aggregate principal amount of the
outstanding Notes. Such limitations will not apply, however, to a suit
instituted by the Holder of a Note for the enforcement of the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on such
Note on or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee will be required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to
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the provisions of the Indenture relating to the duties of the Trustee in case an
Event of Default shall occur and be continuing, the Trustee will not be under
any obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders unless such Holders shall have
offered to the Trustee reasonable security or indemnity. Subject to certain
provisions concerning the rights of the Trustee, the Holders of a majority in
aggregate principal amount of the outstanding Senior Notes will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each Holder notice of the Default or
Event of Default within 60 days after the occurrence thereof. Except in the case
of a Default or an Event of Default in payment of principal of, premium, if any,
interest or Liquidated Damages, if any, on any Senior Notes, the Trustee may
withhold the notice to the Holders of the Senior Notes if the Trustee determines
in good faith that withholding the notice is in the interest of the Holders of
the Senior Notes.
The Company will be required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company will also be
required to notify the Trustee within 10 days of any Default or Event of
Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes (such action being a "legal
defeasance"). Such legal defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes and to have been discharged from all their other obligations with respect
to the Notes, except for (i) the rights of Holders of outstanding Notes to
receive payment in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such Notes when such payments are due, (ii) the
Company's obligations to replace any temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of the Notes, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the legal
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company with
respect to certain covenants that are set forth in the Indenture, some of which
are described under "-- Certain Covenants" above, and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Notes (such action being a "covenant defeasance"). In the event
covenant defeasance occurs, certain events (not including nonpayment,
bankruptcy, insolvency and reorganization events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
interest and Liquidated Damages, if any, on the outstanding Notes to redemption
or maturity; (ii) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance or covenant defeasance had not
occurred (in the case of legal defeasance, such opinion must refer to and be
based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit or insofar as
clauses (vii) and (viii) under the first paragraph of "Events of Default" are
concerned, at any time during the period ending on the 91st day after the date
of deposit; (iv) such legal defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest under the Indenture or the Trust
Indenture Act with respect to any securities of the Company; (v) such legal
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material
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agreement or instrument to which the Company is a party or by which it is bound;
and (vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel satisfactory to the Trustee, which, taken
together, state that all conditions precedent under the Indenture to either
legal defeasance or covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all outstanding Exchange Notes when (i) either (a) all the Notes theretofore
authenticated and delivered (except lost, stolen, mutilated or destroyed Notes
which have been replaced or paid and Notes for whose payment money or certain
United States government obligations have theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at their
Stated Maturity within one year, or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, interest and Liquidated Damages, if any, on the
Notes to the date of deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be,
together with instructions from the Company irrevocably directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel which, taken together, state that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Holders of the Notes, amend or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act or making any change that does not
materially adversely affect the rights of any Holder of Notes. Other amendments
and modifications of the Indenture or the Notes may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority of the
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, premium, if any, or interest on any Note, (c) change the
coin or currency of payment of principal of, premium, if any, interest or
Liquidated Damages, if any, on any Note, (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any Note, (e) reduce
the above-stated percentage of aggregate principal amount of outstanding Notes
necessary to modify or amend the Indenture, (f) reduce the percentage of
aggregate principal amount of outstanding Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, (h) change the ranking of the Notes in
a manner adverse to the Holders or expressly subordinate in right of payment the
Notes to any other Indebtedness or (i) amend, change or modify the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale or modify any of the provisions or definitions with respect
thereto.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal of, premium, if any, interest or Liquidated
Damages on the Notes, or in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the Holder of
each Note outstanding.
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THE TRUSTEE
State Street Bank and Trust Company serves as trustee under the Indenture
and the Series A Indenture.
The Indenture (including provisions of the Trust Indenture Act incorporated
by reference therein) contains limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture will permit
the Trustee to engage in other transactions; provided, however, if it acquires
any conflicting interest (as defined in the Trust Indenture Act) it must
eliminate such conflict or resign.
As mandated by the Trust Indenture Act, should a default occur with respect
to either the Series A Notes or the Notes, State Street Bank and Trust Company
would be required to resign as trustee under the Series A Indenture or the
Indenture within 90 days of such default unless it were cured, waived or
otherwise eliminated.
GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company at 3701 Kirby Drive, Suite 112,
Houston, Texas 77098-3982.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of properties or assets from such Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any other Restricted Subsidiary, (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries or (c) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than transfers of cash, Cash
Equivalents, accounts receivable or other properties or assets in the ordinary
course of business or transfers in accordance with the proviso to clause (vi) of
the definition of Permitted Investments. For the purposes of this definition,
the term "Asset Sale" also shall not include any of the following: (i) any
transfer of properties or assets (including Capital Stock) that is governed by,
and made in accordance with, the provisions described under "-- Merger,
Consolidation and Sale of Assets"; (ii) any transfer of properties or assets to
an Unrestricted Subsidiary, if permitted under the "Limitation on Restricted
Payments" covenant; (iii) sales of damaged, worn-out or obsolete equipment or
assets that, in the Company's
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reasonable judgment, are either (x) no longer used or (y) no longer useful in
the business of the Company or its Restricted Subsidiaries; (iv) any lease of
any property entered into in the ordinary course of business and with respect to
which the Company or any Restricted Subsidiary is the lessor, except any such
lease that provides for the acquisition of such property by the lessee during or
at the end of the term thereof for an amount that is less than the fair market
value thereof at the time the right to acquire such property is granted; and (v)
any transfers that, but for this clause (v), would be Asset Sales, if (A) the
Company elects to designate such transfers as not constituting Asset Sales and
(B) after giving effect to such transfers, the aggregate fair market value of
the properties or assets transferred in such transaction or any such series of
related transactions so designated by the Company does not exceed $500,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of rent required to
be paid by such Person under the lease during the primary term thereof, without
giving effect to any renewals at the option of the lessee, discounted from the
respective due dates thereof to such date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. As used in the preceding
sentence, the "net amount of rent" under any such lease for any such period
shall mean the sum of rental and other payments required to be paid with respect
to such period by the lessee thereunder, excluding any amounts required to be
paid by such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person (for
purposes of the Indenture the Exchangeable Shares of VES shall be treated as
Capital Stock of the Company, for which they are exchangeable, and shall not be
treated as Capital Stock of VES).
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million or any commercial
bank organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development and has total assets in
excess of $500 million; (iii) commercial paper with a maturity of 180 days or
less issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-l by Moody's; (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any
commercial bank meeting the specifications of clause
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(ii) above; (v) overnight bank deposits and bankers acceptances at any
commercial bank meeting the qualifications specified in clause (ii) above; (vi)
demand and time deposits and certificates of deposit with any commercial bank
organized in the United States not meeting the qualifications specified in
clause (ii) above, provided that such deposits and certificates support bond,
letter of credit and other similar types of obligations incurred in the ordinary
course of business; and (vii) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (v) above.
"Change of Control" means the occurrence of any event or series of events
by which: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of
the total Voting Stock of the Company, (b) the Company consolidates with or
merges into another Person or any Person consolidates with, or merges into, the
Company, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities or
other property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is changed into or exchanged for Voting Stock of the
surviving or resulting Person that is Qualified Capital Stock and (ii) the
holders of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than a majority of the Voting Stock of the
surviving or resulting Person immediately after such transaction; (c) the
Company, either individually or in conjunction with one or more Restricted
Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise disposes
of, or the Restricted Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital Stock of the
Restricted Subsidiaries, to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); (d) during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of two-thirds of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (e) the liquidation or dissolution of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
on a pro forma basis of (a) the sum of Consolidated Net Income, Consolidated
Fixed Charges, Consolidated Income Tax Expense, and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income, in each case, for such
period, of the Company and its Restricted Subsidiaries on a consolidated basis,
all determined in accordance with GAAP, to (b) the sum of such Consolidated
Fixed Charges for such period; provided, however, that (i) the Consolidated
Fixed Charge Coverage Ratio shall be calculated on a pro forma basis assuming
that (A) the Indebtedness to be incurred (and all other Indebtedness incurred
after the first day of such period of four full fiscal quarters referred to in
the covenant described in paragraph (a) under "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" through
and including the date of determination), and (if applicable) the application of
the net proceeds therefrom (and from any other such Indebtedness), including to
refinance other Indebtedness, had been incurred on the first day of such four
quarter period and, in the case of Acquired Indebtedness, on the assumption that
the related transaction (whether by means of purchase, merger or otherwise) also
had occurred on such date with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation and (B) any acquisition
or disposition by the Company or any Restricted Subsidiary of any properties or
assets outside the ordinary course of business, or any repayment of any
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
prior to the Stated Maturity thereof, in either case since the first day of such
period of four full fiscal quarters through and including the date of
determination, had been consummated on such first day of such four-quarter
period, (ii) in making such computation, the Consolidated Fixed Charges
attributable to interest on any Indebtedness required to be computed on a pro
forma basis in accordance with
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the covenant described in paragraph (a) under "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" and (A)
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period and
(B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest, shall be computed by applying, at the option of the Company,
either the fixed or floating rate, (iii) in making such computation, the
Consolidated Fixed Charges attributable to interest on any Indebtedness under a
revolving credit facility required to be computed on a pro forma basis in
accordance with the covenant described in paragraph (a) under "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period, provided that such average daily balance shall be reduced by
the amount of any repayment of Indebtedness under a revolving credit facility
during the applicable period, which repayment permanently reduced the
commitments or amounts available to be reborrowed under such facility, (iv)
notwithstanding clauses (ii) and (iii) of this proviso, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be deemed to
have accrued at the rate per annum resulting after giving effect to the
operation of such agreements, and (v) if after the first day of the period
referred to in clause (a) of this definition the Company has permanently retired
any Indebtedness out of the Net Cash Proceeds of the issuance and sale of shares
of Qualified Capital Stock of the Company within 30 days of such issuance and
sale, Consolidated Fixed Charges shall be calculated on a pro forma basis as if
such Indebtedness had been retired on the first day of such period.
"Consolidated Fixed Charges" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (A) any amortization of debt discount,
(B) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (C) the interest portion of any deferred payment
obligation constituting Indebtedness, (D) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (E) all accrued interest, in each case to the extent attributable
to such period, (b) to the extent any Indebtedness of any Person (other than the
Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid (to the extent not
accrued in a prior period) or accrued by such other Person during such period
attributable to any such Indebtedness, in each case to the extent attributable
to that period, (c) the aggregate amount of the interest component of
Capitalized Lease Obligations paid (to the extent not accrued in a prior
period), accrued or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period, (d) the aggregate amount of
dividends paid (to the extent not accrued in a prior period) or accrued on
Preferred Stock or Disqualified Capital Stock of the Company and its Restricted
Subsidiaries, to the extent such Preferred Stock or Disqualified Capital Stock
is owned by Persons other than the Company or any Restricted Subsidiary and (e)
one-third of the rental expense (including without limitation marine vessel
charter payments) under operating leases with remaining noncancellable terms of
at least one year (excluding leases in respect of office space) of the Company
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, less (ii), to the extent included in clause (i)
above, amortization of capitalized debt issuance costs of the Company and its
Restricted Subsidiaries during such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of
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the amount of dividends or other distributions actually paid to the Company or
any of its Restricted Subsidiaries in cash by such other Person during such
period (regardless of whether such cash dividends or distributions are
attributable to net income (or net loss) of such Person during such period or
during any prior period), (d) net income (or net loss) of any Person (other than
VES) combined with the Company or any of its Restricted Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (e) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of its net income is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (f) income resulting from transfers of assets received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary, and (g)
for the fiscal year ended July 31, 1996, merger related costs reflected in the
Company's consolidated financial statements.
"Consolidated Net Tangible Assets" means, at any date, the aggregate amount
of assets included on the most recent consolidated balance sheet of the Company
and its Restricted Subsidiaries, less (i) without duplication, applicable
reserves and other properly deductible items and after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, and (ii) current liabilities (other than
current liabilities constituting Indebtedness for borrowed money), as determined
in accordance with GAAP.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less (without duplication) the amount of such
stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of the Company and its Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses (excluding
non-cash expenses related to multi-client seismic data sales and write-offs and
write-downs related to the Company's multi-client seismic data library) of the
Company and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge for which an accrual of or reserve for cash
charges for any future period is required).
"Credit Facility" means, for purposes of this "Description of Notes" only,
that certain Credit Agreement dated as of July 18, 1996 among the Company, the
Subsidiaries of the Company named therein, as Borrowers, each of the banks named
therein as Lenders, and Wells Fargo Bank (Texas) National Association, as Agent
for the Lenders, as such Credit Facility was in effect at the Series A Issue
Date.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed or repurchased, in whole or in part,
prior to the final Stated Maturity of the Senior Notes or is redeemable at the
option of the holder thereof at any time prior to such final Stated Maturity, or
is convertible into or exchangeable for debt securities at any time prior to
such final Stated Maturity. For purposes of the covenant described in paragraph
(a) under "-- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock," Disqualified Capital Stock shall be
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valued at the greater of its voluntary or involuntary maximum fixed redemption
or repurchase price plus accrued and unpaid dividends. For such purposes, the
"maximum fixed redemption or repurchase price" of any Disqualified Capital Stock
which does not have a fixed redemption or repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were redeemed or repurchased on the date of
determination, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Disqualified Capital Stock; provided, however, that if such Disqualified Capital
Stock is not at the date of determination permitted or required to be redeemed
or repurchased, the "maximum fixed redemption or repurchase price" shall be the
book value of such Disqualified Capital Stock.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"Exchange Notes" means the 9 3/4% Senior Notes due 2003, Series C issued
pursuant to the Exchange Offer.
"Foreign Restricted Subsidiaries" means Digicon (Nigeria) Limited, Digicon
(Malaysia) Sdn. Bhd., Digital Exploration (Nigeria) Limited and P. T. Digicon
Mega Pratama.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business) and all liabilities of such Person incurred in connection
with any letters of credit, bankers' acceptances or other similar credit
transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, outstanding on the date of the
Indenture or thereafter, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) the Attributable Indebtedness
respecting all Capitalized Lease Obligations of such Person, (e) all
Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
the amount of the obligation so secured), (f) all guarantees by such Person of
Indebtedness referred to in this definition,
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(g) all obligations of such Person under or in respect of Currency Hedge
Obligations and Interest Rate Protection Obligations and (h) deferred credits
respecting discontinued services.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
Interest Rate Protection Obligations and Currency Hedge Obligations, but only to
the extent that the same constitute Permitted Indebtedness and (c) endorsements
of negotiable instruments and documents in the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or in the Indenture provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale, (iii)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the properties or assets
subject to the Asset Sale or having a Lien thereon and (iv) appropriate amounts
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee; provided, however, that any amounts remaining after
adjustments, revaluations or liquidations of such reserves shall constitute Net
Available Proceeds.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or
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placement agents' fees, discounts or commissions and brokerage, consultant and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or any Restricted Subsidiary incurred in connection
with the acquisition by the Company or such Restricted Subsidiary of any
property or assets and as to which (a) the holders of such Indebtedness agree
that they will look solely to the property or assets so acquired and securing
such Indebtedness for payment on or in respect of such Indebtedness, and neither
the Company nor any Subsidiary (other than an Unrestricted Subsidiary) (i)
provides credit support, including any undertaking, agreement or instrument
which would constitute Indebtedness or (ii) is directly or indirectly liable for
such Indebtedness, and (b) no default with respect to such Indebtedness would
permit (after notice or passage of time or both), according to the terms
thereof, any holder of any Indebtedness of the Company or a Restricted
Subsidiary to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and the
transfer of the Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness (and any guarantee thereof) under one or more working
capital credit facilities with banks and other financial institutions in an
aggregate principal amount at any one time outstanding not to exceed $20
million, less any amounts derived from Asset Sales and applied to the
permanent reduction of the Indebtedness under any such credit facilities as
contemplated by the "Limitation on Asset Sales" covenant (the "Maximum Bank
Credit Amount");
(ii) Indebtedness under the Notes and the Series A Notes;
(iii) Indebtedness outstanding or in effect on the Series A Issue Date
(and not repaid or defeased with the proceeds of the offering of the Series
A Notes);
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (1) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted
by paragraph (a) of the "Limitation on Indebtedness and Disqualified
Capital Stock" covenant, and (2) the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of such Indebtedness to which such Interest Rate Protection Obligations
relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (1)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a)
of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant
or to the foreign currency cash flows reasonably expected to be generated
by the Company and its Restricted Subsidiaries, and (2) the notional
principal amount of such Currency Hedge Obligations does not exceed the
principal amount of such Indebtedness and the amount of such foreign
currency cash flows to which such Currency Hedge Obligations relate;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or
a Wholly Owned Restricted Subsidiary; provided, however, that upon any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly Owned Restricted Subsidiary ceasing to be
a Wholly Owned Restricted Subsidiary or any other subsequent transfer of
any such Indebtedness (except to the Company or a Wholly Owned Restricted
Subsidiary), such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of paragraph
(a) of the "Limitation on Indebtedness and Disqualified Capital Stock"
covenant at the time the Wholly Owned Restricted Subsidiary in question
ceased to be a Wholly Owned Restricted Subsidiary or the time such
subsequent transfer occurred;
(vii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company in the ordinary course of business,
including guaranties or obligations of the Company with
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respect to letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money borrowed);
(viii) Non-Recourse Indebtedness;
(ix) any renewals, substitutions, refinancing or replacements (each,
for purposes of this clause (ix), a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness incurred pursuant to clause (ii)
or (iii), including any successive refinances by the Company or such
Restricted Subsidiary, so long as (A) any such new Indebtedness shall be in
a principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing, (B) in the case of
any refinancing of Indebtedness (including the Notes) that is pari passu
with or subordinated in right of payment to the Notes, then such new
Indebtedness is pari passu with or subordinated in right of payment to the
Notes at least to the same extent as the Indebtedness being refinanced and
(C) such new Indebtedness has an Average Life equal to or longer than the
Average Life of the Indebtedness being refinanced and a final Stated
Maturity that is at least 91 days later than the final Stated Maturity of
the Indebtedness being refinanced; and
(x) any additional Indebtedness in an aggregate principal amount not
in excess of $5 million at any one time outstanding and any guarantee
thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the "Limitation on Asset
Sales" covenant; (v) Investments made in the ordinary course of business in
prepaid expenses, lease, utility, workers' compensation, performance and other
similar deposits; (vi) Investments in stock, obligations or securities received
in settlement of debts owing to the Company or any Restricted Subsidiary as a
result of bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of the Company or any Restricted
Subsidiary, in each case as to debt owing to the Company or any Restricted
Subsidiary that arose in the ordinary course of business of the Company or any
such Restricted Subsidiary, provided that any stocks, obligations or securities
received in settlement of debts that arose in the ordinary course of business
(and received other than as a result of bankruptcy or insolvency proceedings or
upon foreclosure, perfection or enforcement of any Lien) that are, within 30
days of receipt, converted into cash or Cash Equivalents shall be treated as
having been cash or Cash Equivalents at the time received; and (vii) Investments
in joint ventures, partnerships or Affiliates in an aggregate amount not to
exceed at any one time $7.5 million.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Series A Issue Date;
(b) Liens securing the Series A Notes and Notes;
(c) Liens in favor of the Company;
(d) Liens on accounts receivable, notes receivable, chattel paper or
inventory securing Indebtedness under one or more working capital
facilities with banks or other financial institutions that does not, in the
aggregate, exceed the greater of (x) 10% of the Company's Consolidated Net
Tangible Assets or (y) the amounts permitted pursuant to clause (i) of the
definition of Permitted Indebtedness;
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(e) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (ix) of the definition of "Permitted
Indebtedness" incurred as a refinancing of any Indebtedness secured by
Liens described in clause (a) or (d) of this definition;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) any interest or title of a lessor under any Capitalized Lease
Obligation (to the extent the Attributable Indebtedness related thereto
constitutes Indebtedness permitted to be incurred under the terms of the
Indenture) or operating lease;
(j) purchase money Liens; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of the Company or any Restricted Subsidiary other than the property or
assets so acquired and any proceeds therefrom and (ii) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition;
(k) Liens securing obligations under or in respect of either Currency
Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
setoff; and
(o) Liens securing Non-Recourse Indebtedness; provided, however, that
the related Non-Recourse Indebtedness shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets acquired by the Company or any Restricted Subsidiary
with the proceeds of such Non-Recourse Indebtedness.
"Permitted Subsidiary Indebtedness" means, with respect to Restricted
Subsidiaries, Indebtedness in an aggregate principal amount at any time
outstanding up to the excess, if any, of (A) 10% of the Company's Consolidated
Net Tangible Assets over (B) the greater of $20.0 million or the aggregate
principal amount of outstanding secured Indebtedness of the Company incurred in
compliance with clause (a) of the "-- Limitation on Indebtedness and
Disqualified Capital Stock" covenant.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of Common Stock of the
Company made after the Series A Issue Date pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-8 or otherwise relating to
equity securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Restricted Investment" means (without duplication) (i) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary" and (ii) any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by the Company or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or one of its Restricted Subsidiaries.
"Series A Indenture" means the Indenture dated as of October 23, 1996
between the Company and State Street Bank and Trust Company (as successor to
Fleet National Bank), as Trustee, providing for the issuance of the Series A
Notes in the aggregate principal amount of $75,000,000, as such may be amended
and supplemented from time to time.
"Series A Issue Date" means the date on which the Series A Notes were
originally issued under the Series A Indenture.
"Series A Notes" means the Company's 9 3/4% Senior Notes due October 15,
2003 issued October 23, 1996, pursuant to the Series A Indenture, as such may be
amended or supplemented from time to time.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such
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Subsidiary; (b) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity; (c) such designation as an Unrestricted
Subsidiary would be permitted under the "Limitation on Restricted Payments"
covenant; and (d) such designation shall not result in the creation or
imposition of any Lien on any of the properties or assets of the Company or any
Restricted Subsidiary (other than any Permitted Lien or any Lien the creation or
imposition of which shall have been in compliance with the "Limitation on Liens"
covenant); provided, however, that with respect to clause (a), the Company or a
Restricted Subsidiary may be liable for Indebtedness of an Unrestricted
Subsidiary if (x) such liability constituted a Permitted Investment or a
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence, or (y) the liability would be
a Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing a Board Resolution with the
Trustee giving effect to such designation. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation on a pro forma basis, (i) no
Default or Event of Default shall have occurred and be continuing, (ii) the
Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under the first paragraph of the
"Limitation on Indebtedness and Disqualified Capital Stock" covenant and (iii)
if any of the properties and assets of the Company or any of its Restricted
Subsidiaries would upon such designation become subject to any Lien (other than
a Permitted Lien), the creation or imposition of such Lien shall have been in
compliance with the "Limitation on Liens" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means (a) any Restricted Subsidiary to
the extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary, and (b)
any Foreign Restricted Subsidiary so long as the direct or indirect ownership
interest of the Company therein is no less than at the Series A Issue Date.
BOOK ENTRY; DELIVERY AND FORM
The Old Notes were issued and the Exchange Notes will be issued in the form
of one or more permanent global certificates in definitive, fully registered
form (collectively, the "Global Note"). The Global Note will be deposited with,
or on behalf of, DTC and registered in the name of the nominee of DTC.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
DTC has advised the Company as follows: It is a limited-purpose trust
company which was created to hold securities for its participating organizations
(the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to the DTC's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial
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relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by DTC only through Participants or indirect participants.
DTC has also advised that pursuant to procedures established by it (i) upon
the issuance by the Company of the Exchange Notes, DTC will credit the accounts
of Participants with the principal amount of the Exchange Notes equivalent to
their interest in the Old Notes tendered for exchange, and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC (with
respect to Participants' interests), the Participants and the indirect
participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global Note is limited to such
extent.
So long as a nominee of DTC is the registered owner of the Global Note,
such nominee will be considered the sole owner or holder of the Notes for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in the Global Note will not be entitled to have Notes registered in
their names, will not receive or be entitled to receive physical delivery of
Notes in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Neither the Company, the Trustee, the paying agent nor the Notes registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Note, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Principal and interest payments on the Global Note registered in the name
of DTC's nominee will be made by the Company, either directly or through a
paying agent, to DTC's nominee as the registered owner of the Global Note. Under
the terms of the Indenture, the Company and the Trustee will treat the persons
in whose names the Notes are registered as the owners of such Notes for the
purpose of receiving payments of principal and interest on such Notes and for
all other purposes whatsoever. Therefore, neither the Company, the Trustee nor
any paying agent has any direct responsibility or liability for the payment of
principal or interest on the Notes to owners of beneficial interests in the
Global Note. DTC has advised the Company and the Trustee that its present
practice is, upon receipt of any payment of principal or interest to credit
immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Note as shown on the records of DTC. Payments by
Participants and indirect participants to owners of beneficial interests in the
Global Note will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name" and will be the responsibility of such
Participants or indirect participants.
As long as the Notes are represented by a Global Note, DTC's nominee will
be the holder of the Notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of the Notes. See "-- Certain
Covenants -- Change of Control" and "-- Limitation on Asset Sales." Notice by
Participants or indirect participants or by owners of beneficial interests in a
Global Note held through such Participants or indirect participants of the
exercise of the option to elect repayment of beneficial interests in Notes
represented by a Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to Participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment with respect
to a particular Note, the beneficial owner of such Note must instruct the broker
or other Participant or exercise a right to repayment. Different firms have
cut-off times for accepting instructions from their customers and, accordingly,
each beneficial owner should consult the broker or other Participant or indirect
participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to DTC. The Company will not be liable for any delay in
delivery of notices of the exercise of the option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Note if, and only if, DTC is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company within 90
days. In such an instance, an owner of a beneficial interest in the Global Note
will be entitled to have Notes equal in principal amount to such beneficial
interest registered in its name and will be
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entitled to physical delivery of such Notes in definitive form. Notes so issued
in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company entered into the Registration Rights Agreement pursuant to
which the Company agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to an offer to exchange the Old Notes for the Exchange Notes. If the
Exchange Offer is not consummated within 165 days following the issue date or if
any holder of Transfer Restricted Securities notifies the Company within 20
business days after the commencement of the Exchange Offer that (a) it is
prohibited by law or SEC policy from participating in the Exchange Offer or (b)
it may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus, and this Prospectus is not appropriate
or available for such resales or (c) it is a broker-dealer (including the
Initial Purchaser) and holds Old Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the SEC a Shelf
Registration Statement to cover resales of Transfer Restricted Securities by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with a shelf registration statement (the "Shelf
Registration Statement") to cover resales by the holders thereof. For purposes
of the foregoing, "Transfer Restricted Securities" means each Old Note until (i)
the date on which such Exchange Note has been exchanged by the person other than
a broker-dealer for a freely transferable Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of a Old
Note for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of this Prospectus, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act.
If (a) the Company fails to file within 60 days, or cause to become
effective within 120 days, the Exchange Offer Registration Statement or (b) the
Company is obligated to file the Shelf Registration Statement and such Shelf
Registration Statement is not filed within 45 days, or declared effective within
105 days after the date on which the Company became so obligated or (c) the
Company fails to consummate the Exchange Offer within 45 days after the Exchange
Offer Effective Date or (d) after the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Transfer Restricted Securities in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) a
"Registration Default"), then the Company will pay Liquidated Damages to each
holder of Transfer Restricted Securities, during the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $0.05 per week per $1,000 principal amount of Old Notes constituting
Transfer Restricted Securities held by such holder for each week or portion
thereof that the Registration Default continues. The amount of the Liquidated
Damages will increase an additional $0.05 per week per $1,000 principal amount
of Old Notes constituting Transfer Restricted Securities for each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $0.30 per week per $1,000 principal amount of
Old Notes constituting Transfer Restricted Securities.
Under existing interpretations of the SEC, the Exchange Notes will be
freely transferable by holders other than affiliates of the Company without
further registration under the Securities Act if the holder of the Exchange
Notes represents that it (i) is acquiring the Exchange Notes in the ordinary
course of its business, (ii) has no arrangement or understanding with any person
to participate in the distribution of the Exchange Notes and (iii) is not an
affiliate of the Company, as such terms are interpreted by the SEC; provided,
however, that broker-dealers ("Participating Broker-Dealers") receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of unsold allotment from the
original sale of the Old
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Notes) with this Prospectus. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes.
Holders of the Old Notes will be required to make certain representations
to the Company (as described in the Letter of Transmittal) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Old Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company's principal credit arrangements (other than customary trade
credit) consist of the Bank Credit Agreement and the Series A Notes.
BANK CREDIT AGREEMENT
On July 27, 1998, the Company entered into a syndicated, senior credit
facility with Bank One, Texas, N.A., as agent (the "Bank Credit Agreement").
Certain of the Company's subsidiaries (collectively, the "Bank Guarantors") have
guaranteed the obligations of the Company under the Bank Credit Agreement. The
Bank Credit Agreement provides the Company with the ability to borrow up to
$50.0 million from time to time prior to July 27, 2001, subject to the borrowing
base described below, with up to $15.0 million of such amount available for
letters of credit. Interest under the Bank Credit Agreement accrues at a
variable rate, using (at the Company's election) either the Wall Street Journal
prime rate, or a rate based on the interbank Eurodollar market ("LIBOR") plus a
margin ranging from 0.625% to 1.375%, depending upon the Company's trailing
four-quarter debt to EBITDA ratio. Letters of credit accrue a letter of credit
fee equal to the margin described above for the LIBOR interest rate. The
indebtedness under the Bank Credit Agreement is unsecured but is subject to a
"springing lien" on the accounts receivable of the Borrower and the Bank
Guarantors which will arise upon the occurrence of an "Event of Default" under
the Bank Credit Agreement. The final maturity date of the Bank Credit Agreement
is July 27, 2001.
The Company's ability to borrow under the Bank Credit Agreement is subject
to a borrowing base based upon accounts receivable of the Company and certain of
its subsidiaries.
Among the various covenants that must be satisfied by the Company under the
Bank Credit Agreement are the following five financial covenants under which the
Company will not permit:
(i) consolidated tangible net worth to be less than the sum of 80% of
consolidated tangible net worth as July 27, 1998, plus (a) 50% of the
Company's consolidated net income, if positive, for the period from July
27, 1998, to the final day of the most recent period for which consolidated
financial information of the Company is available and (b) 100% of the sum
of (i) the net proceeds of any equity issued by the Company or any of its
subsidiaries (on a consolidated basis) after July 27, 1998, and (ii) equity
contributed to the Company or any of its subsidiaries (on a consolidated
basis) after July 27, 1998, in each case in connection with the purchase or
other acquisition by the Company or any subsidiary of the assets or stock
of any other entity;
(ii) the ratio of (a) EBITDA to (b) interest expense, the non-financed
portion of capital expenditures, and current maturities to funded debt, to
be less than 1.20 to 1.00;
(iii) the ratio of consolidated funded debt to total capitalization to
exceed 0.40 to 1.00;
(iv) the ratio of current assets to current liabilities to be less
than 1.50 to 1.00; and
(v) the ratio of consolidated funded debt to EBITDA to exceed 1.65 to
1.00.
The Bank Credit Agreement also contains provisions which, in general,
restrict the ability of the Company and its subsidiaries to (i) engage in new
lines of business other than the businesses in which they are
72
<PAGE> 74
currently engaged and other businesses reasonably related thereto, (ii) enter
into mergers or consolidations or asset sales or purchases, (iii) incur liens or
debts or make advances, investments or loans, (iv) enter into transactions with
affiliates other than at arm's-length basis in the ordinary course of business,
or (v) modify any certificate of incorporation or by-laws in a manner adverse to
the lenders.
Events of default under the Bank Credit Agreement include (i) non-payment
of amounts owing under the Bank Credit Agreement, (ii) misrepresentation, (iii)
breach of covenants, (iv) default with respect to other indebtedness, (v)
bankruptcy, (vi) default under, or non-effectiveness of, the security documents
covering the collateral, (vii) judgments in excess of $1,000,000, and (viii)
attachment, sequestration, or similar proceedings involving amounts in excess of
$1,000,000.
SERIES A NOTES
In October 1996, the Company consummated a public offering of $75.0 million
principal amount of the Series A Notes. The Notes are general unsecured senior
obligations of the Company ranking pari passu in right of payment with the
Series A Notes and with all other indebtedness and liabilities of the Company
that are not subordinated by their terms to other indebtedness of the Company
and senior in right of payment to all indebtedness of the Company that by its
terms is so subordinated. The terms of the Series A Notes are substantially
identical to the Notes. Among other things, the Series A Indenture provides that
upon a Change of Control, as defined in the Series A Indenture, each holder of
Series A Notes will have the right to require the Company to repurchase all or
any part of such holder's Series A Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest to the
date of purchase.
The Series A Indenture permits (and the Indenture will permit) the Company
and its subsidiaries to incur additional indebtedness, which may be secured by
liens on certain assets of the Company and its subsidiaries, subject to certain
limitations. See "Description of Exchange Senior Notes -- Certain
Covenants -- Limitation on Liens."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Service (the "IRS"), applicable Treasury regulations, judicial authority
and administrative rulings and practice. There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to Holders. Certain Holders of the Old
Notes (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who hold Old
Notes in connection with a hedging transaction, stradde, or conversion
transaction) may be subject to special rules not discussed below.
The issuance of the Exchange Notes to Holders of the Old Notes pursuant to
the terms set forth in this Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain or loss will be recognized by
Holders of the Old Notes upon receipt of the Exchange Notes, and ownership for
the Exchange Notes will be considered a continuation of ownership of the Old
Notes. For purposes of determining gain or loss upon the subsequent sale or
exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should be
the same as such Holder's basis in the Old Notes exchanged therefor. A Holder's
holding period for the Exchange Notes should include the Holder's holding period
for the Old Notes exchanged therefor. Each Holder's taxation of an Exchange Note
will be as for the Old Notes, and the issue price, original issue discount, bond
premium and market discount inclusion and other tax characteristics of the
Exchange Notes should be identical to the issue price, original issue discount,
bond premium and market discount inclusion and other tax characteristics of the
Old Notes exchanged therefor.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES IN THE EXCHANGE
OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
73
<PAGE> 75
STATE, LOCAL, OR FOREIGN TAX LAWS AND RECENT AND OF POSSIBLE FUTURE CHANGES IN
THE TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that acquires Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Note received in exchange
for Old Notes where such old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of time as such Broker-Dealers must comply with prospectus delivery
requirements of the Exchange Act in order to resell the Exchange Notes, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Note or a combination of such
methods or resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of time as such Broker-Dealers must comply with prospectus
delivery requirements of the Exchange Act in order to resell the Exchange Notes,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay
certain expenses incident to the Exchange Offer, other than commission or
concessions of any brokers or dealers, and will indemnify the holders of the Old
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Exchange Notes
offered hereby will be passed on for the Company by Porter & Hedges, L.L.P.,
Houston, Texas.
74
<PAGE> 76
EXPERTS
The consolidated financial statements of Veritas DGC Inc. as of July 31,
1997 and 1998 and for each of the two years in the period ended July 31, 1998
included in this Prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Veritas DGC Inc. for the year
ended July 31, 1996, included in this Registration Statement, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Veritas Energy Services Inc., as
of and for the nine months ended July 31, 1996, not separately presented in this
Prospectus, have been audited by Price Waterhouse, Chartered Accountants, whose
report thereon appears herein. Such financial statements, to the extent they
have been included in the financial statements of Veritas DGC Inc. for the year
ended July 31, 1996, have been so included in reliance on their report given on
the authority of said firm as experts in auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The documents (other than exhibits to such
documents unless specifically incorporated by reference) are available upon
written or oral request directed to Anthony Tripodo, Veritas DGC Inc., at the
Company's principal executive offices located at 3701 Kirby Drive, Suite 112,
Houston, Texas 77098-3982; telephone (713) 512-8300. In order to ensure timely
delivery of the documents, any request should be made five days before the
Expiration Date.
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 1-7427), are incorporated in
this Prospectus by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the year ended July 31, 1998;
(b) Current Report on Form 8-K, dated November 12, 1998; and
(c) All documents filed by the Company with the Commission pursuant to
sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the Offer to
Exchange.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents that have
been incorporated herein by reference (not including exhibits to the documents
that have been incorporated herein by reference unless such exhibits are
specifically incorporated by reference in the documents this Prospectus
incorporates). Requests should be directed to Veritas DGC Inc., attention:
Corporate Secretary, 3701 Kirby Drive, Suite 112, Houston, TX 77098-3982
(telephone number: (713) 512-8300).
75
<PAGE> 77
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants of PricewaterhouseCoopers
LLP....................................................... F-2
Independent Auditors' Report of Deloitte & Touche LLP....... F-3
Independent Auditors' Report of Price Waterhouse............ F-4
Consolidated Statements of Income for the years ended July
31, 1996, 1997 and 1998................................... F-5
Consolidated Balance Sheets as of July 31, 1997 and 1998.... F-6
Consolidated Statements of Cash Flows for the years ended
July 31, 1996, 1997 and 1998.............................. F-7
Consolidated Statements of Changes in Stockholders' Equity
for the years ended July 31, 1996, 1997 and 1998.......... F-9
Notes to Consolidated Financial Statements.................. F-10
</TABLE>
F-1
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Veritas DGC Inc.
In our opinion, the accompanying consolidated balance sheets 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 1998 and
the results of their operations and their cash flows for the years 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 1, 1998
F-2
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Veritas DGC Inc.
We have audited the consolidated statements of income, cash flows and
changes in stockholders' equity of Veritas DGC Inc. and subsidiaries for the
year 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 audit. 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 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 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 audit 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 audit and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of operations of Veritas DGC Inc. and
subsidiaries and its cash flows for the year ended July 31, 1996 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
October 10, 1996
F-3
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Veritas Energy Services Inc.
We have audited the consolidated statements of income, retained earnings
and changes in financial position of Veritas Energy Services Inc. 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 results of operations of the Company 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
F-4
<PAGE> 81
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $250,596 $362,715 $528,959
Costs and expenses:
Cost of services.......................................... 198,711 271,656 346,896
Write-off/write-down for impairment of assets............. 3,628
Depreciation and amortization............................. 26,921 40,631 56,121
Selling, general and administrative....................... 7,255 11,408 18,758
Other (income) expense:
Interest............................................... 5,466 7,484 7,318
Merger related costs................................... 3,666 597
Other.................................................. 546 630 (338)
-------- -------- --------
Total costs and expenses.......................... 246,193 332,406 428,755
-------- -------- --------
Income before provision for income taxes and equity in
(earnings) loss of 50% or less-owned companies and joint
ventures.................................................. 4,403 30,309 100,204
Provision for income taxes.................................. 2,009 6,062 34,218
Equity in (earnings) loss of 50% or less-owned companies and
joint ventures............................................ 1,113 (878) (972)
-------- -------- --------
Net income.................................................. $ 1,281 $ 25,125 $ 66,958
======== ======== ========
Per share:
Earnings per common share................................. $ .07 $ 1.33 $ 2.96
======== ======== ========
Weighted average common shares............................ 17,882 18,898 22,594
======== ======== ========
Earnings per common share -- assuming dilution............ $ .07 $ 1.30 $ 2.87
======== ======== ========
Weighted average common shares -- assuming dilution....... 18,095 19,364 23,315
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 82
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 71,177 $ 40,089
Restricted cash investments............................... 550 186
Accounts and notes receivable (net of allowance for
doubtful accounts: 1997, $646; 1998, $1,248)........... 120,946 151,820
Materials and supplies inventory.......................... 2,333 4,106
Prepayments and other..................................... 10,429 16,290
-------- --------
Total current assets.............................. 205,435 212,491
Property and equipment:
Seismic equipment......................................... 156,264 206,449
Data processing equipment................................. 54,516 72,925
Seismic ship.............................................. 7,534
Leasehold improvements and other.......................... 29,978 39,116
-------- --------
Total............................................. 240,758 326,024
Less accumulated depreciation.......................... 108,004 151,104
-------- --------
Property and equipment -- net..................... 132,754 174,920
Multi-client data library................................... 20,904 51,143
Investment in and advances to joint ventures................ 2,908 2,943
Goodwill (net of accumulated amortization: 1997, $2,725;
1998, $3,233)............................................. 3,163 2,655
Deferred tax asset.......................................... 10,213 19,157
Other assets................................................ 9,712 15,181
-------- --------
Total............................................. $385,089 $478,490
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 383 $ 289
Accounts payable -- trade................................. 39,007 42,493
Accrued interest.......................................... 2,188 2,234
Other accrued liabilities................................. 38,669 50,753
Income taxes payable...................................... 3,486 10,682
-------- --------
Total current liabilities......................... 83,733 106,451
Non-current liabilities:
Long-term debt -- less current maturities................. 75,588 75,272
Other non-current liabilities............................. 4,467 5,071
-------- --------
Total non-current liabilities..................... 80,055 80,343
Commitments and contingent liabilities (See Note 8)
Stockholders' equity:
Preferred stock, $.01 par value; authorized: 1,000,000
shares; none issued
Common stock, $.01 par value; authorized: 40,000,000
shares; issued: 19,982,040 and 21,278,653 shares
(excluding 2,367,071 and 1,505,915 Exchangeable Shares,
respectively) at July 31, 1997 and 1998,
respectively........................................... 200 213
Additional paid-in capital................................ 194,764 202,512
Accumulated earnings (from August 1, 1991 with respect to
Digicon Inc.).......................................... 27,400 94,358
Cumulative foreign currency translation adjustment........ (1,063) (3,660)
Less: Treasury stock, at cost; 50,000 shares at July 31,
1998................................................... (1,727)
-------- --------
Total stockholders' equity........................ 221,301 291,696
-------- --------
Total............................................. $385,089 $478,490
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 83
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 1,281 $ 25,125 $ 66,958
Non-cash items included in net income:
Write-off/write-down for impairment of assets.......... 3,628
Depreciation and amortization.......................... 26,921 40,631 56,121
Amortization of deferred gain on sale/leaseback........ (103)
Loss on disposition of property and equipment.......... 875 1,151 1,549
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures......................... 1,113 (878) (972)
Write-down of multi-client data library to market...... 1,774 2,604 689
Deferred taxes......................................... (924) (7,314)
Other.................................................. 61
Change in operating assets/liabilities:
Accounts and notes receivable.......................... (9,466) (55,499) (30,874)
Materials and supplies inventory....................... (241) (674) (1,773)
Prepayments and other.................................. (1,807) (2,230) (5,861)
Multi-client data library.............................. 574 2,120 (30,928)
Other.................................................. 851 (4,282) (5,598)
Accounts payable -- trade.............................. 952 11,003 1,043
Accrued interest....................................... (96) 1,875 46
Other accrued liabilities.............................. 796 18,764 12,084
Income taxes payable................................... (227) 1,672 7,196
Other non-current liabilities.......................... (1,541) 2,952 604
Adjustment to conform fiscal year of Veritas Energy
Services Inc........................................... (5,268)
-------- -------- --------
Total cash provided by operating activities....... 20,077 43,410 62,970
FINANCING ACTIVITIES:
Payments of secured term loans............................ (10,854)
Payments of long-term debt................................ (11,437) (24,976) (410)
Borrowings from long-term debt............................ 1,500 781
Net payments under credit agreements...................... (2,665) (11,458)
Borrowings from senior notes.............................. 75,000
Debt issue costs.......................................... (2,765)
Net proceeds from sale of common stock.................... 4,470 80,515 6,131
(Purchase) sale of treasury stock......................... 3,972 (1,727)
-------- -------- --------
Total cash provided (used) by financing
activities...................................... (4,160) 106,243 3,994
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments........ 343 (223) 364
(Increase) decrease in investment in and advances to joint
ventures............................................... (2,372) (567) 937
Purchase of property and equipment........................ (14,459) (89,112) (97,106)
Sale of property and equipment............................ 668 1,037 221
-------- -------- --------
Total cash used by investing activities........... (15,820) (88,865) (95,584)
Currency (gain) loss on foreign cash...................... (107) 317 (2,468)
-------- -------- --------
Change in cash and cash equivalents....................... (10) 61,105 (31,088)
Beginning cash and cash equivalents balance............... 10,082 10,072 71,177
-------- -------- --------
Ending cash and cash equivalents balance.................. $ 10,072 $ 71,177 $ 40,089
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 84
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,
------------------------------
1996 1997 1998
-------- -------- --------
<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............................................. $ 866 $ $
Execution of equipment purchase obligations............ 16,963 6,388
Accounts payable -- trade.............................. 572 550 2,443
Utilization of net operating losses existing prior to the
quasi-reorganization resulting in an increase
(decrease) in:
Deferred tax asset valuation allowance............... (9,867) (1,630)
Additional paid-in capital........................... 9,867 1,630
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest --
Senior notes......................................... 3,496 6,513
Equipment purchase obligations....................... 1,878 673 113
Secured term loans................................... 506 274
Credit agreements.................................... 1,843 403 53
Other................................................ 1,286 656 603
Income taxes........................................... 5,086 1,891 33,369
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 85
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK, ACCUMULATED CUMULATIVE
ISSUED AT COST EARNINGS 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, 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.................................. 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)
Common stock issued for exchangeable
stock.................................. 871,818 9 (9)
Common stock issued for cash upon
exercise of warrants................... 42,000 189
Common stock issued for cash under
employee stock option plan............. 326,731 3 3,925
Common stock issued for services under
restricted stock agreements............ 3,333 169
Common stock issued for cash under
employee stock purchase plan........... 52,731 1 1,864
Common stock reacquired for cash,
including fees......................... (50,000) (1,727)
Registration and filing costs............ (20)
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization................... 1,630
Cumulative foreign currency translation
adjustment............................. (2,597)
Net income............................... 66,958
---------- ---- -------- ------- -------- ------- -------
BALANCE, JULY 31, 1998................... 21,278,653 $213 (50,000) $(1,727) $202,512 $94,358 $(3,660)
========== ==== ======== ======= ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE> 86
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Veritas DGC Inc. (the "Company") provides seismic data acquisition, data
processing, multi-client data sales and exploration and development information
services to the petroleum 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. 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.
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 included in long-term debt and $2.2 million of related accrued interest is
$78.5 million based on the present value of total payments due at the high yield
corporate bond rate at July 31, 1998. The carrying value is a reasonable
estimate of fair value for all other instruments.
New Accounting Pronouncements Not Yet Adopted
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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
F-10
<PAGE> 87
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which will supersede the
disclosure requirements of SFAS No. 87, "Employers' Accounting for Pensions,"
SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement addresses disclosures only and will require the Company to provide a
reconciliation of the beginning and ending balances of the benefit obligation
and the fair value of plan assets in addition to disclosures already presented.
The Company will be required to implement this statement in fiscal year 1999.
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. 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. Remeasurement gains and losses are
included in the determination of net income and are reflected in other costs and
expenses. (See Note 13.)
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 $550,000 and $186,000 at July
31, 1997 and 1998, respectively, were pledged as collateral on certain bank
guarantees related to contracts entered into in the normal course of business.
Accounts Receivable
Included in accounts and notes receivable at July 31, 1997 and 1998 are
unbilled amounts of approximately $17,308,000 and $43,058,000, 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.
F-11
<PAGE> 88
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
Inventories
Inventories of materials and supplies are stated at the lower of average
cost or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, in years, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Seismic equipment........................................... 3-5
Data processing equipment................................... 3
Seismic ship................................................ 5
Leasehold improvements and other............................ 3-10
</TABLE>
Expenditures for routine repairs and maintenance are charged to expense as
incurred; expenditures for additions and improvements, including capitalized
interest, are capitalized and depreciated over the estimated useful life of the
related asset. The net gain or loss on property and equipment disposed of is
included in other costs and expenses. (See Note 13.)
In fiscal 1996, the Company recognized impairment of assets in the amount
of $3,628,000 or $.20 per common share and per common share -- assuming
dilution. (See Note 12.)
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 using the straight-line method 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.
F-12
<PAGE> 89
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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. There were no unamortized mobilization costs at July
31, 1997. Unamortized mobilization costs are shown as other assets and totaled
$818,000 at July 31, 1998.
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.
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.
Research and Development
Research and development costs are charged to expense when incurred.
Research and development costs for the years ended July 31, 1996, 1997 and 1998
were $3,193,000, $3,725,000 and $6,196,000, 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, compensation expense is recorded in the
accompanying consolidated financial statements when the quoted market price of
stock at the grant date or other measurement date exceeds the amount an employee
must pay to acquire the stock. 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 9.)
Earnings Per Share
All per share amounts contained herein have been restated in accordance
with SFAS No. 128, "Earnings per Share," which became effective for interim and
annual reporting periods ending after December 15, 1997. This statement requires
the computation of earnings per share based upon weighted average common shares
outstanding and earnings per share -- assuming dilution 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. (See Note 14.)
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
F-13
<PAGE> 90
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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 9.) 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 are 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 earnings per share and
earnings per share -- assuming dilution were $22,150,000, $936,000 and $0.05,
respectively, for the period August 1, 1995 through October 31, 1995.
Presented below is the effect of the pooling of interests on previously
reported results of operations for the year ended July 31, 1996. Amounts related
to VES have been converted into the Company's reporting currency, U.S. dollars,
using weighted average exchange rates prevailing during the period and reflect
adjustments for differences between U.S. and Canadian generally accepted
accounting principles ("GAAP") and reclassifications to conform financial
statement presentation. Canadian to U.S. GAAP adjustments include adjustments to
(i) write off foreign exchange losses on borrowings which are deferred and
amortized over the period of the debt, decreasing net income by approximately
$173,000 and (ii) reverse the effect of a prior period adjustment, increasing
net income by approximately $102,000. Reclassification of $28,842,000 has been
made to net amounts billed to customers for reimbursable costs against VES'
revenues.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31, 1996
--------------------------
REVENUES NET INCOME
--------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Digicon..................................................... $160,847 $ 385
VES......................................................... 118,591 967
Reclassifications........................................... (28,842)
Adjustments................................................. (71)
-------- ------
Total............................................. $250,596 $1,281
======== ======
</TABLE>
F-14
<PAGE> 91
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
The Company's earnings per share and earnings per share -- assuming
dilution as previously reported was $0.03 and its earnings per share and
earnings per share -- assuming dilution as restated is $0.07.
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.
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,
-------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets.............................................. $ 3,697 $ 2,740
Property and equipment, net................................. 60 613
Multi-client data library................................... 228
-------- --------
Total assets...................................... $ 3,985 $ 3,353
======== ========
Current liabilities......................................... $ 1,077 $ 410
Advances from affiliates.................................... 14,784 13,847
Stockholders' deficit:
Common stock.............................................. 2,576 2,576
Accumulated deficit....................................... (14,452) (13,480)
-------- --------
Total stockholders' deficit....................... (11,876) (10,904)
-------- --------
Total liabilities and stockholders' deficit....... $ 3,985 $ 3,353
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues................................................... $2,927 $7,240 $3,346
Cost and expenses:
Cost of services......................................... 3,429 6,424 2,378
Depreciation and amortization............................ 316
Other.................................................... (15) (62) (320)
------ ------ ------
Total............................................ 3,414 6,362 2,374
------ ------ ------
Income (loss) before provision for income taxes............ (487) 878 972
Provision for income taxes................................. 166
------ ------ ------
Net income (loss).......................................... $ (653) $ 878 $ 972
====== ====== ======
</TABLE>
F-15
<PAGE> 92
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
4. LONG-TERM DEBT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
JULY 31,
-----------------
1997 1998
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Senior notes due October 2003, at 9 3/4%.................... $75,000 $75,000
Equipment purchase obligations maturing through September
2000, at a weighted average rate of 9.29% at July 31,
1998...................................................... 971 561
------- -------
Total............................................. 75,971 75,561
Less current maturities..................................... 383 289
------- -------
Due after one year................................ $75,588 $75,272
======= =======
</TABLE>
The senior notes ("Series A Notes") are due in October 2003 with interest
payable semi-annually at 9 3/4%. The Series A 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 Series A 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 Series A Notes have the right to require the Company to
purchase all or a portion of such holder's Series A Note at a price equal to
101% of the aggregate principal amount. The Company has the right to redeem the
Series A 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 Series A Notes prior to October 15, 1999.
The Company maintained a revolving credit agreement which matured in July
1998 with a commercial bank that provided advances up to $25.0 million of which
$20.0 million were secured by substantially all of the receivables of the
Company. Advances bore interest, at the Company's election, at LIBOR plus two
percent or prime rate and were defined by a borrowing formula. In July 1998, the
Company obtained a new revolving credit agreement due July 2001 with commercial
lenders to provide advances up to $50.0 million. Advances are limited by an
unsecured borrowing base and bear interest, at the Company's election, at LIBOR
or prime rate (8 1/2% at July 31, 1998) plus a margin based on certain ratios
maintained by the Company. Covenants in the agreement limit, among other things,
the Company's right to take certain actions, including creating indebtedness. In
addition, the agreement requires the Company to maintain certain financial
ratios. No advances were outstanding at July 31, 1997 and 1998 under the credit
agreements.
The Company's equipment purchase obligations represent installment loans
and capitalized lease obligations primarily related to computer and seismic
equipment.
Annual maturities of long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
ANNUAL
FISCAL YEAR MATURITIES
- ----------- -------------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
1999........................................................ $ 289
2000........................................................ 240
2001........................................................ 32
2004........................................................ 75,000
-------
Total............................................. $75,561
=======
</TABLE>
F-16
<PAGE> 93
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
No interest was capitalized during the years ended July 31, 1996 and 1997.
During the year ended July 31, 1998, the Company incurred interest costs of
$8,118,000. The Company capitalized $800,000 of this amount as a cost of
leasehold improvements to a chartered vessel.
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities included $8,313,000 and $12,216,000 of accrued
payroll and benefits and $14,263,000 and $19,196,000 of deferred revenues at
July 31, 1997 and 1998, respectively.
6. INCOME TAXES
Pretax income was taxed under the following jurisdictions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
----------------------------
1996 1997 1998
------- ------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
U.S.................................................... $ 9,457 $21,098 $ 90,690
Foreign................................................ (5,054) 9,211 9,514
------- ------- --------
Total........................................ $ 4,403 $30,309 $100,204
======= ======= ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current -- U.S.......................................... $ 192 $ 3,352 $36,616
Deferred -- U.S......................................... 395 (2,940) (5,469)
Current -- Foreign...................................... 2,555 3,634 4,952
Deferred -- Foreign (1,133) 2,016 (1,881)
------- ------- -------
Total......................................... $ 2,009 $ 6,062 $34,218
======= ======= =======
</TABLE>
F-17
<PAGE> 94
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income tax at the statutory rate........................ $ 1,541 $10,608 $35,071
Increase (reduction) in taxes resulting from:
Foreign earnings taxed at other than the U.S.
statutory rate..................................... (131) 1,806 (1,349)
Write-off of investment............................... (4,734) (6,300)
Contingency........................................... 2,327 1,036
Foreign losses with no tax recovery................... 4,985
Foreign tax credit.................................... (3,465)
U.S. tax on Subpart F income and dividends............ 1,685
Employee Nonqualified Stock Option Plan deduction..... (1,375)
U.S. tax on branch operations......................... 501 2,567
Prior year tax return to tax provision
reconciliation..................................... (3,826) (1,708)
Other................................................. 348 946 1,756
------- ------- -------
Total......................................... $ 2,009 $ 6,062 $34,218
======= ======= =======
</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,
-------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Difference between book and tax basis of property and
equipment.............................................. $ 1,713 $ 4,067
Difference between book and tax basis of multi-client data
library................................................ 13,871 20,402
Net operating loss carryforwards.......................... 37,539 36,111
Tax credit carryforwards.................................. 1,629 334
Other..................................................... (630) (693)
-------- --------
Total............................................. 54,122 60,221
Deferred tax liabilities.................................... (1,425) (259)
-------- --------
Net deferred tax asset...................................... 52,697 59,962
Valuation allowance......................................... (42,484) (40,805)
-------- --------
Net deferred tax asset...................................... $ 10,213 $ 19,157
======== ========
</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 assets is more likely than not, further adjustments to
the valuation allowance are made. Since the Company's quasi-reorganization with
respect to Digicon 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
F-18
<PAGE> 95
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
direct addition to paid-in capital, when realization is more likely than not.
The net reduction of approximately $1,679,000 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 and the expiration of investment tax credits.
As of July 31, 1998, the Company has U.S. net operating loss carryforwards
of approximately $77,964,000 and investment tax credit carryforwards of
approximately $334,000. Approximately $53,421,000 of net operating loss
carryforwards and all of the investment tax credit carryforwards existed prior
to the quasi-reorganization. The following schedule sets forth the expiration
dates of the U.S. net operating loss and investment tax credit carryforwards:
<TABLE>
<CAPTION>
INVESTMENT
U.S. NET TAX
FISCAL YEAR OPERATING LOSS CREDIT
----------- -------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
1999........................................................ $ 2,209 $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............................................. $77,964 $334
======= ====
</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 two "ownership changes" have occurred.
The first occurred in connection with the issuance of common stock through a
public offering made by the Company on January 6, 1992. The utilization of U.S.
net operating loss carryforwards existing at the date of the first "ownership
change" is limited to approximately $4,041,000 per year. The second "ownership
change" occurred on August 30, 1996 as a result of the stock acquisition of
Veritas Energy Services Inc. The utilization of U.S. net operating losses
incurred between the first and second ownership changes is limited to
approximately $8,875,000 per year, which includes the limitation of
approximately $4,041,000 from the first ownership change. The second limitation
also applies to the limitation from the first ownership change that accumulated
during the periods between the first and second ownership changes. During the
years ended July 31, 1997 and 1998, the Company utilized approximately
$10,983,000 and $8,875,000 of limitation carryover, respectively. As of July 31,
1998, approximately $11,492,000 of unused limitation carryover remained.
Foreign operations had net operating loss carryforwards of approximately
$25,187,000 at July 31, 1998, of which approximately $14,385,000 existed prior
to the quasi-reorganization. Approximately $16,677,000 of the total foreign net
operating loss carryforwards are related to United Kingdom operations, have an
indefinite carryforward period, and are available to offset future profits in
the Company's current trade or business. Approximately $13,312,000 of the United
Kingdom net operating loss carryforwards existed prior to the quasi-
reorganization. Approximately $4,186,000 of the total foreign net operating loss
carryforwards are related to Oman operations, were generated after the
quasi-reorganization and have a carryforward period of five years.
F-19
<PAGE> 96
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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.
7. 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, 1998, there was no
remaining unrecognized deferred revenue and remaining discounts in the amount of
$1,847,000 were available to such customer.
The Company also has $5,022,000 and $585,000 at July 31, 1997 and 1998,
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.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Total rentals of vessels, equipment and office facilities charged to
operations amounted to $28,210,000, $37,332,000 and $57,476,000 for the years
ended July 31, 1996, 1997 and 1998, 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>
1999........................................................ $37,636
2000........................................................ 25,214
2001........................................................ 13,081
2002........................................................ 10,066
2003........................................................ 9,988
2004-2013................................................... 27,544
</TABLE>
In connection with the Company's 1999 capital expenditure program, the
Company has commitments of approximately $3,000,000 outstanding at July 31,
1998.
On November 25, 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 1999).
The Company has an employment agreement with a former employee, who was
also a director, that contains a non-compete clause for a period of three years
ending December 31, 1998 during which time the former employee will receive
payments of $12,709 per month plus certain employee benefits.
F-20
<PAGE> 97
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
During 1993 the Company purchased occurrence-based workers compensation
insurance. The policies for the years ended August 31, 1997 and 1998 were issued
under a guaranteed cost program and, accordingly, there were no deductibles. The
policy for the year ended August 31, 1996 provided for a maximum deductible of
$1,000,000. Management has evaluated the adequacy of the accrual for the
liability for incurred but unreported workers compensation claims and has
determined that the ultimate resolution of any such claims would not have a
material adverse impact on the financial position of the Company.
The Company has letters of credit in the amount of $4,150,000 at July
31,1998 that will expire upon the completion of certain events relating to
specific contracts.
9. 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 $314,000 in 1996, $426,000 in
1997, and $679,000 in 1998.
The Company has an employee nonqualified stock option plan under which
options are granted to officers and key employees. Options generally vest over a
period of time and are exercisable over a ten-year period but may not be
exercised earlier than six months after the grant date. The exercise price for
each option shall not be less than the lesser of (i) the fair market value of
the common stock on the grant date or (ii) the average fair market value of the
common stock during the 30 trading days ending on the trading day next preceding
the grant date. The Company has authorized 1,158,333 shares of common stock to
be issued under the plan.
The Company also has a stock option plan for non-employee directors (the
"Director Plan") under which options are granted to non-employee directors of
the Company. The Director Plan provides that every other year each eligible
director shall be granted options to purchase 10,000 shares of the Company's
common stock. Options vest ratably over four years on the anniversary of the
grant date and are exercisable over ten years. The exercise price for each
option granted is fair market value, as defined. The Company has authorized
600,000 shares of common stock to be issued under the Director Plan.
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 November 2005.
F-21
<PAGE> 98
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1996
------------------------------------------
WEIGHTED
WEIGHTED AVERAGE GRANT
NUMBER OF AVERAGE DATE FAIR
SHARES EXERCISE PRICE VALUE
--------- -------------- -------------
<S> <C> <C> <C> <C>
Beginning balance............................ 877,263 $10.98
Options granted.............................. 400,160 $ 6.25 $ 6.25
Options exercised............................ (388,171) $12.35
Options forfeited............................ (51,412) $ 7.49
---------
Ending balance............................... 837,840 $ 8.30
=========
Options exercisable.......................... 667,340 $ 9.08
=========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1997
------------------------------------------
WEIGHTED
WEIGHTED AVERAGE GRANT
NUMBER OF AVERAGE DATE FAIR
SHARES EXERCISE PRICE VALUE
--------- -------------- -------------
<S> <C> <C> <C> <C>
Beginning balance............................ 837,840 $ 8.30
Options granted.............................. 837,241 $19.38 $19.38
Options exercised............................ (360,385) $ 8.82
Options forfeited............................ (38,332) $16.30
---------
Ending balance............................... 1,276,364 $15.18
=========
Options exercisable.......................... 467,536 $ 7.93
=========
</TABLE>
F-22
<PAGE> 99
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1998
----------------------------------------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE GRANT AVERAGE
NUMBER OF AVERAGE DATE FAIR CONTRACTUAL
SHARES EXERCISE PRICE VALUE LIFE IN YEARS
--------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Beginning balance........................... 1,276,364 $15.18
Options granted............................. 133,426 $30.95
Options exercised........................... (326,733) $11.94
Options forfeited........................... (60,518) $19.78
---------
Ending balance.............................. 1,022,539 $18.00
=========
Options exercisable......................... 366,482 $12.38
=========
Options granted by range of exercise price:
Exercise price less than market price..... 5,954 $38.30 $39.56
Exercise price equal to market price...... 125,444 $30.32 $30.32
Exercise price more than market price..... 2,028 $48.31 $47.57
---------
Options granted........................... 133,426
=========
Ending balance by range of exercise price:
$ 5.25 - $ 7.28........................... 196,201 $ 6.45 6.5
$13.50 - $20.25........................... 735,618 $18.93 8.6
$20.38 - $28.75........................... 33,205 $25.55 9.0
$36.06 - $52.81........................... 57,154 $41.17 9.3
$55.13 - $56.50........................... 361 $55.95 9.8
---------
Ending balance............................ 1,022,539
=========
Options exercisable by range of exercise
price:
$ 5.25 - $ 7.28........................... 196,201 $ 6.45
$13.50 - $20.25........................... 151,436 $17.14
$20.38 - $28.75........................... 6,280 $25.90
$36.06 - $52.81........................... 12,475 $40.89
$55.13 - $56.50........................... 90 $55.95
---------
Options exercisable....................... 366,482
=========
</TABLE>
The weighted average fair values of options granted are determined using
the Black-Scholes option valuation method assuming no expected dividends. Other
assumptions used are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate........................... 5.9% 6.6% 6.1%
Expected volatility............................... 48.8% 50.2% 49.6%
Expected life..................................... 8.7 years 10.0 years 10.0 years
</TABLE>
In conjunction with certain employment agreements, the Company issued
10,000 and 13,025 shares of restricted stock with weighted average grant date
fair values of $20.25 and $33.66 per share, respectively, during the years ended
July 31, 1997 and 1998, respectively, to certain individuals in exchange for
services rendered over a three-year period.
F-23
<PAGE> 100
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
On November 1, 1997, the Company initiated a compensatory employee stock
purchase plan for up to 500,000 shares of common stock. Participation is
voluntary and substantially all full-time employees meeting limited eligibility
requirements may participate. Contributions are made through payroll deductions
and may not be less than 1% or more than 15% of the participant's base pay as
defined. The participant's option to purchase common stock is deemed to be
granted on the first day and exercised on the last day of the fiscal quarter at
a price which is the lower of 85% of the market price on the first or last day
of the fiscal quarter. During the year ended July 31, 1998, 52,731 shares of
common stock were issued with a weighted average grant date fair value of $35.37
per share.
On June 9, 1998, the Company initiated a restricted stock plan for up to
50,000 shares. The eligibility of an employee and the terms and amount of the
grant are determined by the Board of Directors' Compensation Committee. During
the year ended July 31, 1998, 4,400 shares of restricted stock were issued at a
weighted average grant date fair value of $43.09 per share which will vest over
a three-year period.
No compensation expense relating to the stock-based compensation plans
described above was recognized for the year ended July 31, 1996. Compensation
expense was $23,000 and $506,000 for the years ended July 31, 1997 and 1998,
respectively. The effect on net income and earnings per share that would have
been recorded using the fair value based method is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------
1996 1997 1998
------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income reported...................................... $1,281 $25,125 $66,958
====== ======= =======
Pro forma net income..................................... $ 692 $24,138 $64,498
====== ======= =======
Earnings per common share reported....................... $ .07 $ 1.33 $ 2.96
====== ======= =======
Pro forma earnings per common share...................... $ .04 $ 1.28 $ 2.85
====== ======= =======
Earnings per common share -- assuming dilution
reported............................................... $ .07 $ 1.30 $ 2.87
====== ======= =======
Proforma earnings per common share -- assuming
dilution............................................... $ .04 $ 1.25 $ 2.77
====== ======= =======
</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.
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 4% 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
F-24
<PAGE> 101
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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,
----------------------------
1996 1997 1998
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service costs (benefits earned during the period)....... $ 224 $ 238 $ 457
Interest costs on projected benefit obligation.......... 292 384 441
Return on assets........................................ (312) (392) (695)
Net amortization and deferral........................... 5 5 224
----- ----- -----
Net periodic pension costs.............................. $ 209 $ 235 $ 427
===== ===== =====
</TABLE>
The funded status of the Pension Plan is as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Plan assets at fair value................................... $ 5,277 $ 6,443
Projected benefit obligation:
Actuarial present value of accumulated vested benefit
obligations............................................ 4,726 7,400
Effect of future salary increases......................... 753 1,492
------- -------
Total projected benefit obligation................ 5,479 8,892
------- -------
Projected benefit obligation in excess of plan assets....... (202) (2,449)
Unrecognized prior service cost............................. 49
Unrecognized net loss....................................... 2,243
------- -------
Pension liability........................................... $ (153) $ (206)
======= =======
</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,
----------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Discount rate.............................................. 8.5% 8.0% 6.5%
Rates of increase in compensation levels................... 6.5% 6.0% 4.5%
Expected long-term rate of return on assets................ 9.0% 8.5% 7.0%
</TABLE>
10. COMMON AND PREFERRED STOCK
The board of directors, without any action by the stockholders, may issue
up to one million shares of authorized preferred stock, par value, $.01, 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, 1998.
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
F-25
<PAGE> 102
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
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.
In July 1998, the board of directors approved a stock repurchase program
under which the Company is authorized to buy up to 1,000,000 shares of its
outstanding common stock in open market transactions. At July 31, 1998, the
Company had repurchased 50,000 shares at $34.50 per share.
11. WARRANTS
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 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 for cash at a
price of $4.50 per share to the lenders. As of July 31, 1998, all warrants have
been exercised.
12. 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.
13. OTHER COSTS AND EXPENSES
Other costs and expenses consist of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------
1996 1997 1998
------ ------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net foreign currency exchange (gains) losses............. $(156) $ 46 $ 2,333
Net loss on disposition of property and equipment........ 875 1,151 1,549
Interest income.......................................... (547) (552) (4,220)
Other.................................................... 374 (15)
----- ------ -------
Total.......................................... $ 546 $ 630 $ (338)
===== ====== =======
</TABLE>
F-26
<PAGE> 103
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
14. EARNINGS PER COMMON SHARE
Earnings per common share and earnings per common share -- assuming
dilution are computed as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income.............................................. $ 1,281 $25,125 $66,958
======= ======= =======
Weighted average common shares.......................... 17,882 18,898 22,594
======= ======= =======
Earnings per common share............................... $ .07 $ 1.33 $ 2.96
======= ======= =======
Weighted average common shares -- assuming dilution:
Weighted average common shares........................ 17,882 18,898 22,594
Shares issuable from assumed conversion of:
Options............................................ 86 432 721
Warrants........................................... 127 34
------- ------- -------
Total......................................... 18,095 19,364 23,315
======= ======= =======
Earnings per common share -- assuming dilution.......... $ .07 $ 1.30 $ 2.87
======= ======= =======
</TABLE>
Exchangeable Stock issued in the business combination between Digicon and
VES is included in both computations. (See Note 2.) Options to purchase 241,489
common shares at exercise prices ranging from $12 7/8 to $13 1/2 expiring
through November 2002 and 22,810 common shares at exercise prices ranging from
$42 to $56 1/2 expiring through July 2008 have been excluded from the
computation assuming dilution for the years ended July 31, 1996, and 1998,
respectively, because the options' exercise prices exceeded the average market
price of the underlying common shares. There were no anti-dilutive options for
the year ended July 31, 1997.
15. RELATED PARTY TRANSACTIONS
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, 1996, 1997 and 1998, the Company
charged P.T. Digicon $1,207,000, $1,429,000 and $368,000, 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 $14,784,000 and $13,847,000 at July 31, 1997 and
1998, respectively, have no formal repayment terms and do not bear interest.
F-27
<PAGE> 104
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
16. 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, 1996, 1997 and 1998, grouped by major geographic areas. Intersegment
sales between geographic areas are valued at current market prices.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1996
-----------------------------------------------------------------
REVENUES
-------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ -------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Geographic areas:
Europe................................ $ 37,394 $ 1,532 $ 38,926 $ 8,065 $ 35,463
Asia Pacific.......................... 30,558 30,558 1,745 23,590
Latin 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;
$1,127,000 for Asia Pacific and $410,000 for the United States. Depreciation and
amortization expense was $5,182,000 for Europe; $1,707,000 for Asia Pacific;
$4,655,000 for Latin America; $7,689,000 for Canada and $7,688,000 for the
United States. Capital expenditures were $4,088,000 for Europe; $6,795,000 for
Asia Pacific; $4,734,000 for Latin America; $3,657,000 for Canada and
$13,586,000 for the United States.
F-28
<PAGE> 105
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1997
-----------------------------------------------------------------
REVENUES
-------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ -------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Geographic areas:
Europe............................... $ 42,798 $ 9,982 $ 52,780 $ 14,756 $ 31,880
Middle East.......................... 2,403 2,403 (603) 12,607
Asia Pacific......................... 30,203 30,203 2,661 30,538
Latin 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....................... 79,484
-------- -------- -------- -------- --------
Totals....................... $362,715 $ $362,715 $ 25,125 $385,089
======== ======== ======== ======== ========
</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. During 1997, depreciation and amortization
expense was $2,818,000 for Europe; $939,000 for Middle East; $2,996,000 for Asia
Pacific; $4,550,000 for Latin America; $8,961,000 for Canada and $20,367,000 for
the United States. Capital expenditures were $4,783,000 for Europe; $11,136,000
for Middle East; $6,845,000 for Asia Pacific; $4,883,000 for Latin America;
$6,560,000 for Canada and $61,843,000 for the United States.
F-29
<PAGE> 106
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1998
-----------------------------------------------------------------
REVENUES
-------------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
------------ ------------ -------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Geographic areas:
Europe............................... $ 51,089 $ 6,819 $ 57,908 $ 18,945 $ 56,699
Middle East.......................... 13,632 13,632 (3,762) 12,243
Asia Pacific......................... 42,462 42,462 7,746 39,328
Latin America........................ 93,494 93,494 6,302 45,068
Canada............................... 47,059 112 47,171 1,616 23,581
Eliminations......................... (70) (70)
-------- ------- -------- -------- --------
Totals....................... 247,736 6,861 254,597 30,847 176,919
United States........................ 281,223* 4 281,227* 95,095 239,317
Eliminations......................... (6,865) (6,865)
-------- ------- -------- -------- --------
Totals....................... 528,959 528,959 125,942 416,236
Corporate expenses..................... (18,758)
Interest............................... (7,318)
Other.................................. 338
Income taxes........................... (34,218)
Investments in 50% or less-owned
companies and joint ventures......... 972 2,943
Corporate assets..................... 59,311
-------- ------- -------- -------- --------
Totals....................... $528,959 $ $528,959 $ 66,958 $478,490
======== ======= ======== ======== ========
</TABLE>
- ---------------
* Includes export sales of $458.
There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1998. During 1998, depreciation and amortization
expense was $4,062,000 for Europe; $4,415,000 for Middle East; $5,064,000 for
Asia Pacific; $5,478,000 for Latin America; $8,541,000 for Canada and
$28,561,000 for the United States. Capital expenditures were $34,942,000 for
Europe; $3,122,000 for Middle East; $15,071,000 for Asia Pacific; $7,057,000 for
Latin America; $5,494,000 for Canada and $33,863,000 for the United States.
F-30
<PAGE> 107
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
17. SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
<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
Gross profit.................................... 18,085 22,709 23,499 26,766
Merger related costs............................ 597
Net income...................................... 5,168 6,507 6,086 7,364
Earnings per common share*...................... .28 .35 .32 .37
Earnings per common share -- assuming
dilution*..................................... .27 .34 .32 .37
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1998
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $142,186 $123,569 $122,810 $140,394
Gross profit.................................... 48,933 42,765 47,429 42,936
Net income...................................... 21,319 17,677 16,062 11,900
Earnings per common share*...................... .95 .79 .71 .52
Earnings per common share -- assuming
dilution*..................................... .94 .76 .69 .51
</TABLE>
- ---------------
* Quarterly per share amounts may not total to annual per share amounts because
weighted average common shares for the quarter may vary from weighted average
common shares for the year.
F-31
<PAGE> 108
You should rely only on the information contained or incorporated by reference
in this Prospectus. We have not authorized anyone to provide you with different
information.
We are not offering the Exchange Notes in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this Prospectus as of any
date other than the date stated on the cover.
TABLE OF CONTENTS
------------------------------------------------------
<TABLE>
<S> <C>
Where You Can Find More Information..... 2
Forward-Looking Statements.............. 2
Prospectus Summary...................... 4
Risk Factors............................ 14
Use of Proceeds......................... 19
Capitalization.......................... 20
Selected Consolidated Financial Data.... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 27
Management.............................. 35
The Exchange Offer...................... 37
Description of Notes.................... 45
Description of Certain Indebtedness..... 72
Certain U.S. Federal Income Tax
Considerations........................ 73
Plan of Distribution.................... 74
Legal Matters........................... 74
Experts................................. 75
Incorporation of Certain Documents by
Reference............................. 75
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
EXCHANGE OFFER November , 1998
PROSPECTUS
[VERITAS LOGO]
VERITAS DGC INC.
Offer to Exchange
9 3/4% Senior Notes due 2003,
Series C
that have been Registered
Under the Securities Act of 1933
for its
9 3/4% Senior Notes due 2003,
Series B
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against reasonable expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action.
In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for reasonable expenses (including attorney's
fees), actually and reasonably incurred in connection with the defense or
settlement of such action, and the corporation may not indemnify for amounts
paid in satisfaction of a judgment or in settlement of the claim. In any such
action, no indemnification may be paid in respect of any claim, issue or matter
as to which such person shall have been adjudged liable to the corporation
except as otherwise approved by the Delaware Court of Chancery or the court in
which the claim was brought. In any other type of proceeding, the
indemnification may extend to judgments, fines and amounts paid in settlement,
actually and reasonably incurred in connection with such other proceeding, as
well as to expenses (including attorney's fees).
The statute permits indemnification if the person seeking indemnification
has acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, in the case of criminal
actions or proceedings, the person had no reasonable cause to believe his
conduct was unlawful. The statute contains additional limitations applicable to
criminal actions and to actions brought by or in the name of the corporation.
The determination of whether a person seeking indemnification has met the
required standard of conduct is to be made (1) by a majority vote of a quorum of
disinterested members of the Board of Directors, (2) by independent legal
counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (3) by the stockholders.
The Certificate of Incorporation and Bylaws of the Company require the
Company to indemnify the Company's directors and officers to the fullest extent
permitted under Delaware law, and to implement provisions pursuant to
contractual indemnity agreements the Company has entered into with its directors
and executive officers. The Company's Certificate of Incorporation limits the
personal liability of a director to the corporation or its stockholders to
damages for breach of the director's fiduciary duty.
The Company has purchased insurance on behalf of its directors and officers
against certain liabilities that may be asserted against, or incurred by, such
persons in their capacities as directors or officers of the registrant, or that
may arise out of their status as directors or officers of the registrant,
including liabilities under the federal and state securities laws.
ITEM 21. EXHIBITS
The following is a list of all of the exhibits filed as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 -- Purchase Agreement, dated October 23, 1998, between
Veritas DGC Inc. and Warburg Dillon Read LLC.
(Incorporated by reference to Exhibit 4.1 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
</TABLE>
II-1
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.2 -- Registration Rights Agreement, dated as of October 28,
1998, between Veritas DGC, Inc. and Warburg Dillon Read
LLC. (Incorporated by reference to Exhibit 4.2 to Veritas
DGC, Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.3 -- Indenture, dated as of October 28, 1998, between Veritas
DGC, Inc. and State Street Bank and Trust Company.
(Incorporated by reference to Exhibit 4.3 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
5.1* -- Opinion of Porter & Hedges, L.L.P., with respect to the
legality of the securities filed herewith.
12.1* -- Statement recomputation of ratio of earnings to fixed
charges.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of PricewaterhouseCoopers, Chartered Accountants.
23.3* -- Consent of Deloitte & Touche LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5.1 Opinion).
24.1* -- Power of Attorney (included on signature page).
25.1* -- Statement of Eligibility of Trustee.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 111
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 112
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David B. Robson, Stephen J. Ludlow and Anthony
Tripodo, and each of them, either of whom may act without joinder of the other,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all pre- and post-effective amendments and
supplements to this Registration Statement, and to file the same, or caused to
be filed the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on November 23, 1998.
VERITAS DGC INC.
By: /s/ DAVID B. ROBSON
----------------------------------
David B. Robson
Chairman of the Board,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the 23rd day of November, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DAVID B. ROBSON Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer and Director
David B. Robson
/s/ STEPHEN J. LUDLOW President, Chief Operating Officer and
- ----------------------------------------------------- Director
Stephen J. Ludlow
/s/ LAWRENCE C. FICHTNER Executive Vice President, Corporate
- ----------------------------------------------------- Communications and Director
Lawrence C. Fichtner
/s/ ANTHONY TRIPODO Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Treasurer (principal financial
Anthony Tripodo and accounting officer)
Director
- -----------------------------------------------------
Clayton P. Cormier
/s/ RALPH M. EESON Director
- -----------------------------------------------------
Ralph M. Eeson
/s/ JAMES R. GIBBS Director
- -----------------------------------------------------
James R. Gibbs
Director
- -----------------------------------------------------
Steven J. Gilbert
/s/ BRIAN F. MACNEILL Director
- -----------------------------------------------------
Brian F. MacNeill
Director
- -----------------------------------------------------
Douglas B. Thompson
Director
- -----------------------------------------------------
Jack C. Threet
</TABLE>
II-5
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 -- Purchase Agreement, dated October 23, 1998, between
Veritas DGC Inc. and Warburg Dillon Read LLC.
(Incorporated by reference to Exhibit 4.1 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.2 -- Registration Rights Agreement, dated as of October 28,
1998, between Veritas DGC, Inc. and Warburg Dillon Read
LLC. (Incorporated by reference to Exhibit 4.2 to Veritas
DGC, Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.3 -- Indenture, dated as of October 28, 1998, between Veritas
DGC, Inc. and State Street Bank and Trust Company.
(Incorporated by reference to Exhibit 4.3 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
5.1* -- Opinion of Porter & Hedges, L.L.P., with respect to the
legality of the securities filed herewith.
12.1* -- Statement recomputation of ratio of earnings to fixed
charges.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of PricewaterhouseCoopers, Chartered Accountants.
23.3* -- Consent of Deloitte & Touche LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5.1 Opinion).
24.1* -- Power of Attorney (included on signature page).
25.1* -- Statement of Eligibility of Trustee.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 5.1
November 19, 1998
Veritas DGC Inc.
3701 Kirby Drive
Houston, Texas 77098-3982
Re: Opinion as to legality of 9 3/4% Senior Notes due 2003, Series C
Ladies and Gentlemen:
We have examined the certificate of incorporation, the bylaws, and the
corporate proceedings of Veritas DGC Inc., a Delaware corporation (the
"Company"), relating to the registration under the Securities Act of 1933, as
amended, of $60,000,000 aggregate principal amount of 9 3/4% Senior Notes due
2003, Series C (the "Exchange Notes"), to be issued pursuant to an Indenture,
dated as of October 28, 1998, between the Company and State Street Bank & Trust
Company, as Trustee (the "Indenture"), and the qualification of the Indenture
under the Trust Indenture Act of 1939, as amended, on behalf of the Company. The
Exchange Notes will be issued in exchange for the Company's outstanding 9 3/4%
Senior Notes due 2003, Series B on the terms set forth in the prospectus
contained in the Registration Statement and the Letter of Transmittal filed as
an exhibit thereto (the "Exchange Offer"). In giving this opinion, we have made
such other examinations as we deem necessary in the premises and from such
examinations we are of the opinion that:
1. The Indenture has been duly authorized by all necessary corporate
action, on the part of the Company, and it constitutes a legal, valid,
and binding agreement of the Company enforceable in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other laws relating to or affecting
enforcement of creditors' rights generally, and except that remedies
of specific performance and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the
court.
2. When issued, the Exchange Notes will have been duly authorized by all
necessary corporate action on the part of the Company, and when
authenticated, delivered in accordance with the terms of the Exchange
Offer and the Indenture, will be legal, valid, and binding obligations
of the Company, respectively, entitled to the benefits of the
Indenture and enforceable in accordance with its and their terms,
except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other laws relating to or affecting enforcement of
creditors' rights generally, and except that remedies of specific
performance and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included as a part of the Registration Statement.
This opinion is conditioned upon the Registration Statement being declared
effective and upon compliance by the Company with all applicable provisions of
the Securities Act of 1933, as amended, and such state securities rules,
regulations and laws as may be applicable.
Very truly yours,
/s/ PORTER & HEDGES, L.L.P.
PORTER & HEDGES, L.L.P.
<PAGE> 1
EXHIBIT 12
VERITAS DGC INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before provision for income tax and equity in (earnings) $ 540 $14,587 $ 4,403 $30,309 $100,204
loss of 50% or less-owned companies and joint ventures
Equity in (earnings) loss of 50% or less-owned companies and
joint ventures 4,965 5,186 1,113 (878) (972)
Capitalized interest (800)
------ ------- ------- ------- --------
(4,425) 9,401 3,290 31,187 100,376
------ ------- ------- ------- --------
Fixed Charges:
Interest 3,213 5,170 5,466 7,484 7,318
Capitalized Interest 800
Rent 7,544 9,217 9,403 12,444 19,159
------ ------- ------- ------- --------
Total fixed charges 10,757 14,387 14,869 19,928 27,277
------ ------- ------- ------- --------
Earnings before income taxes, minority interest and fixed
charges $6,332 $23,788 $18,159 $51,115 $127,653
====== ======= ======= ======= ========
Ratio of earnings to fixed charges 0.6 1.7 1.2 2.6 4.7
====== ======= ======= ======= ========
</TABLE>
COMPUTATION OF PRO FORMA RATIO OF EARNINGS
TO FIXED CHARGES FOR 1998 AFTER
ADJUSTMENT FOR ISSUANCE OF THE NOTES
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Pro forma
---------
<S> <C>
Earnings before income taxes, minority interest and fixed
charges, as above $127,653
========
Fixed charges, as above 27,277
Adjustment:
Estimated net increase in interest expense from issuance
of notes 6,120
--------
Total pro forma fixed charges $ 33,397
--------
Pro forma ratio of earnings to fixed charges 3.8
========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Veritas DGC Inc. (the Company) of our
report dated October 11, 1998 relating to the financial statements of the
Company, which appears in such Prospectus. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Financial Data."
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
November 20, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Veritas DGC Inc. (the Company) of our
report dated October 11, 1998 relating to the financial statements of the
Company, which appears in such Prospectus. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS
PRICEWATERHOUSECOOPERS
Chartered Accountants
Calgary, Alberta
November 20, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Veritas DGC Inc. on Form
S-4 of our report dated October 10, 1996, appearing in this prospectus, which is
part of this Registration Statement and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
November 20, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
VERITAS DGC INC.
(Exact name of obligor as specified in its charter)
DELAWARE (76-0343152)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TX 77098-3982
(Address of principal executive offices) (Zip Code)
SENIOR NOTES DUE 2003, SERIES C
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 19th day of November, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ SUSAN C. MERKER
---------------------------------
Susan C. Merker
Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Veritas DGC
Inc. of its Senior Notes due 2003, Series C, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ SUSAN C. MERKER
---------------------------------
Susan C. Merker
Vice President
Dated: November 19, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1998, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ..................... 1,553,703
Interest-bearing balances .............................................. 12,440,716
Securities ...................................................................... 9,436,138
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................................... 8,785,353
Loans and lease financing receivables:
Loans and leases, net of unearned income ......... 6,633,608
Allowance for loan and lease losses .............. 92,999
Allocated transfer risk reserve .................. 0
Loans and leases, net of unearned income and allowances ................ 6,540,609
Assets held in trading accounts ................................................. 1,267,679
Premises and fixed assets ....................................................... 491,928
Other real estate owned ......................................................... 100
Investments in unconsolidated subsidiaries ...................................... 1,278
Customers' liability to this bank on acceptances outstanding .................... 68,312
Intangible assets ............................................................... 231,294
Other assets .................................................................... 1,667,282
-----------
Total assets .................................................................... 42,484,392
===========
LIABILITIES
Deposits:
In domestic offices .................................................... 12,553,371
Noninterest-bearing ..................... 10,204,405
Interest-bearing ........................ 2,348,966
In foreign offices and Edge subsidiary ................................. 16,961,571
Noninterest-bearing ..................... 154,792
Interest-bearing ........................ 16,806,779
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary .................................... 8,182,794
Demand notes issued to the U.S. Treasury and Trading Liabilities ................ 0
Trading liabilities ............................................................. 883,096
Other borrowed money ............................................................ 361,141
Subordinated notes and debentures ............................................... 0
Bank's liability on acceptances executed and outstanding ........................ 68,289
Other liabilities ............................................................... 1,017,284
Total liabilities ............................................................... 40,027,546
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................................... 0
Common stock .................................................................... 29,931
Surplus ......................................................................... 455,288
Undivided profits and capital reserves/Net unrealized holding gains (losses) .... 1,964,924
Net unrealized holding gains (losses) on available-for-sale securities .......... 15,557
Cumulative foreign currency translation adjustments ............................. (8,854)
Total equity capital ............................................................ 2,456,846
-----------
Total liabilities and equity capital ............................................ 42,484,392
-----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
VERITAS DGC INC.
OFFER FOR ALL OUTSTANDING
9 3/4% SENIOR NOTES DUE 2003, SERIES B
IN EXCHANGE FOR
9 3/4% SENIOR NOTES DUE 2003, SERIES C
PURSUANT TO THE PROSPECTUS, DATED NOVEMBER ___, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. Boston, Massachusetts Time, ON
_______________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., BOSTON, MASSACHUSETTS TIME, ON THE EXPIRATION
DATE.
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Hand/Overnight Delivery: By Registered or Certified Mail: By Facsimile:
State Street Bank and Trust Company State Street Bank and Trust Company (617) 664-5290
Corporate Trust Department Corporate Trust Department
Two International Place, 4th Floor P.O. Box 778 Confirm by Telephone:
Boston, Massachusetts 02110 Boston, Massachusetts 02102-0078
Attn: Kellie Mullen Attn: Kellie Mullen (617) 664-5587
</TABLE>
Delivery of this instrument to an address other than as set forth
above, or transmission of instructions via facsimile number other than as set
forth above, will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received and reviewed
the Prospectus, dated November ___, 1998 (the "Prospectus") of Veritas DGC Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange the issued and outstanding $60,000,000 of 9 3/4% Senior Notes Due
2003, Series B (the "Old Notes") of the Company for a like principal amount of 9
3/4% Senior Notes Due 2003, Series C (the "Exchange Notes") of the Company.
Capitalized terms used but not defined herein have the respective meaning given
to them in the Prospectus.
For each Old Note accepted for exchange, the Holder of such Old Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Company reserves the right, at any time or from time
to time, to extend the Exchange Offer at its discretion, in which event the
term "Expiration Date" shall mean the latest time and date to which the
Exchange Offer is extended. The Company shall notify the Exchange Agent of any
extension by oral or written notice, followed by a public announcement thereof
no later than 9:00 a.m., Boston, Massachusetts time, on the next business day
after the previously scheduled Expiration Date. See "The Exchange
Offer--Expiration Date; Extensions; Amendments" section of the Prospectus.
The Letter is to be used if certificates of Old Notes are to be
forwarded herewith. See Instruction 1. If delivery of Old Notes is to be
made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company ("DTC") pursuant to the procedures set forth in
"The Exchange Offer--Procedures for Tendering Old Notes" section of the
Prospectus, Holders tendering Old Notes will acknowledge receipt and agree to
be bound by the terms of the Letter by tendering Old Notes via ATOP. DELIVERY
OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Holders of Old Notes whose certificates are not immediately available, or who
are unable to deliver their certificates and all other documents required by
this Letter, or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at DTC (a "Book-Entry Confirmation"), to the
Exchange Agent on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
<PAGE> 2
List below the Old Notes to which this Letter relates. If a space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(1) (2) (3)
Aggregate
Principal Principal
Name(s) and Address(es) of Registered Holder(s) Certificate Amount of Amount
(Please Fill in, if blank) Number(s)* Old Note(s) Tendered**
Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------
-----------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old
Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered
hereby must be in denominations of principal amount at maturity of $1,000 and any integral multiple
thereof. See Instruction 1.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE ENCLOSED HEREWITH
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------------
Account Number:
-------------------------------------------------------------
Transaction Code Number:
----------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
--------------------------------------------
Window Ticket Number (if any):
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------
Name of Eligible Institution which guaranteed delivery:
---------------------
If delivery by book-entry trustee through DTC:
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
2
<PAGE> 3
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO AND COMPLETE THE FOLLOWING:
Name:
-----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the Company.
The undersigned hereby further represents (i) that the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such
person is the undersigned, (ii) that neither the Holder of such Old Notes nor
any such other person is engaging in, or intends to engage in, a distribution
of the Exchange Notes, (iii) that neither the Holder of such Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and (iv) that neither
the Holder of such Old Notes nor any such other person is an "affiliate," as
defined in Rule 405 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "SEC"), contained in Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988) (the "Exxon Capital
Letter"), Morgan Stanley & Co., Inc., SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter") and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993) (the "Shearman & Sterling Letter"), that the
Exchange Notes issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by Holders
thereof (other than any such Holder that is (i) an "affiliate" of the Company
within the meaning of Rule 405 promulgated under the Securities Act or (ii) a
broker-dealer, except as provided below), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangements with any person to participate
in the distribution of such Exchange Notes. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Exchange Notes. If the undersigned
is a broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver
the Prospectus in connection with any resale of such Exchange Notes; however,
by so acknowledging and by delivering the Prospectus, the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The undersigned acknowledges that if the undersigned is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) the undersigned cannot rely on the position of the staff of
the SEC in the Exxon Capital Letter, the Morgan Stanley Letter, the Shearman &
Sterling Letter and similar SEC no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, in which case the registration statement
must contain the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Securities Act, and (ii) a
broker- dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act. If the undersigned or the person receiving the Exchange
Notes covered by this letter is an affiliate (as defined under Rule 405
promulgated under the Securities Act) of the Company, the undersigned
represents to the Company that the undersigned understands and acknowledges
that such Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives
4
<PAGE> 5
of the undersigned and shall not be affected by, and shall survive, the death,
incapacity or dissolution of the undersigned. This tender may be withdrawn
only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer--Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company), as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Old Notes tendered hereby and, in such event, the Old Notes not exchanged will
be returned to the undersigned at the address shown below the signature of the
undersigned.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the Exchange Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes
not exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the Holder's account maintained at DTC.
Similarly, unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, please send the Exchange Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
to the undersigned at the address shown above in the box entitled "Description
of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, OR BY COMPLETING A BOOK-ENTRY TRANSFER TO
THE EXCHANGE AGENT'S ACCOUNT VIA ATOP, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
5
<PAGE> 6
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
<S> <C>
To be completed ONLY if certificates for Old To be completed ONLY if certificates for Old
Notes not exchanged and/or Exchange Notes are to be Notes not exchanged and/or Exchange Notes are to be
issued in the name of and sent to someone other than sent to someone other than the person or persons whose
the person or persons whose signature(s) appear(s) on signature(s) appear(s) on this Letter or to such
this Letter. person or persons at an address other than shown in
the box entitled "Description of Old Notes" on this
Letter.
Issue: Exchange Notes and/or Old Notes to:
Mail: Exchange Notes and/or Old Notes to:
Name(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
Name(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
-------------------------------------------------------
(PLEASE TYPE OR PRINT)
-------------------------------------------------------
Address (PLEASE TYPE OR PRINT)
-----------------------------------------------
Address
-----------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(ZIP CODE)
-------------------------------------------------------
(ZIP CODE)
-------------------------------------------------------
(COMPLETE SUBSTITUTE FORM W-9)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF TOGETHER WITH THE CERTIFICATES FOR
THE OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS, OR A BOOK-ENTRY
CONFIRMATION, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., BOSTON, MASSACHUSETTS TIME,
ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON NEXT PAGE)
<TABLE>
<S> <C>
Dated:
--------------------------------------------------------------------------------------------------------------
X
------------------------------------------------- -------------------------------------------------
X
------------------------------------------------- -------------------------------------------------
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number
-----------------------------------------------------------------------------
If a Holder is tendering any Old Notes, this Letter must be signed by the registered Holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Notes or by any person(s) authorized to become registered Holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-----------------------------------------------------------------------------------------------------------
Address:
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Taxpayer Identification or Social Security No.:
---------------------------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUESTED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
--------------------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
---------------------------------------------------------------------------------------------------------------------
(TITLE)
---------------------------------------------------------------------------------------------------------------------
(NAME AND FIRM)
Dated:
--------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR: VERITAS DGC INC.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN IN TIN:
THE BOX AT RIGHT AND CERTIFY BY ---------------------------
SIGNING AND DATING BELOW Social Security Number or
Employer Identification
Number
- -------------------------------------------------------------------------------------------------------------
Part 2--TIN Applied For [ ]
-------------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT:
(1) the number shown on this form is my correct Taxpayer Identification
Form W-9 Number (or I am waiting for a number to be issued to me);
Department of the (2) I am not subject to backup withholding either because: (a) I am exempt
Treasury from backup withholding, or (b) I have not been notified by the
Internal Revenue Service Internal Revenue Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject
Payor's Request For to backup withholding; and
Taxpayer Identification
Number ("TIN") and (3) any other information provided on this form is true and correct.
Certification
SIGNATURE ...................................................... DATE ......
- -------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of under reporting of interest or dividends on your tax return and
you have not been notified by the IRS that you are no longer subject to backup withholding.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administrative Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by
the time of the exchange, 31 percent of all reportable payments to me
thereafter will be withheld until I provide the number.
--------------------------------- ---------------------------------
Signature Date
INSTRUCTIONS
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF
THE 9 3/4% SENIOR NOTES DUE 2003, SERIES B IN EXCHANGE FOR
THE 9 3/4% SENIOR NOTES DUE 2003, SERIES C OF VERITAS DGC INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES
The Letter is to be used if certificates of Old Notes are to be
forwarded herewith. If delivery of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at DTC pursuant to the
procedures set forth in "The Exchange Offer--Procedures for Tendering Old
Notes" section of the Prospectus, Holders tendering Old Notes will acknowledge
receipt and agree to be bound by the terms of the Letter by tendering Old Notes
via ATOP. Certificates for all physically tendered Old Notes or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof), must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering Holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Holders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to
the Exchange Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed-Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, if a Holder desires to tender Old Notes other than by
book-entry transfer, (i) such tender must be made through an Eligible
Institution (as defined herein), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Old Notes, the certificate number or numbers of any Old Notes which
will not be tendered by book-entry transfer, and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five business days after the Expiration Date, the certificates for all
physically tendered Old Notes, in proper form for transfer, and any other
documents required by the Letter, will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, and all other documents required by
this Letter, are received by the Exchange Agent within five business days after
the Expiration Date. In the case of a book-entry transfer, pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures," (i) the tender must be made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent must receive
a properly completed and duly executed Letter (or a facsimile thereof) and
confirmation from DTC of receipt by DTC of a Notice of Guaranteed Delivery via
ATOP, by which the tendering Holder will expressly acknowledge the receipt of,
and agree to be bound by, the Notice of Guaranteed Delivery, including a
guarantee that Book-Entry Confirmation will be received by the Exchange Agent
within five business days after the Expiration Date, and (iii) Book-Entry
Confirmation must be received by the Exchange Agent within five business days
after the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE OLD NOTES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY
THE EXCHANGE AGENT. IF OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT THE
DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., BOSTON, MASSACHUSETTS TIME,
ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY OR DTC. ONLY HOLDERS OF OLD NOTES MAY TENDER SUCH OLD NOTES IN
THE EXCHANGE OFFER. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS
COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR
SUCH HOLDERS.
9
<PAGE> 10
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER)
If less than all of the Old Notes evidenced by a submitted certificate
is to be tendered, the tendering Holder(s) should fill in the aggregate
principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount Tendered." A reissued certificate
representing the balance of untendered Old Notes will be sent to such tendering
Holder, unless otherwise provided in the appropriate box on this Letter,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES
If this Letter is signed by the registered Holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered Holder(s) of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered Holder, then endorsements of any certificates transmitted hereby
or separate bond powers are required. Signatures on such certificate(s) must
be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered
Holder(s) of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder(s) appear(s) on the
certificate(s) and signature on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST
COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY SUCH OTHER
ELIGIBLE INSTITUTION WITHIN THE MEANING OF RULE 17(A)(d)-15 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (COLLECTIVELY "ELIGIBLE
INSTITUTIONS").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (i) BY A REGISTERED HOLDER
OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN DTC'S SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING
AS THE HOLDER OF SUCH OLD NOTES) TENDERED WHO HAS NOT COMPLETED THE BOX
ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON
THIS LETTER OR (ii) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
10
<PAGE> 11
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
Tendering Holders of Old Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Old Notes not exchanged are to
be issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be credited to such account maintained at DTC as such
Holder may designate. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TAX IDENTIFICATION NUMBER
Federal income tax law may require that a tendering Holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
above, which in the case of a tendering Holder who is an individual, is his or
her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption, such tendering Holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, such
tendering Holder may be subject to backup withholding in an amount equal to 31%
of all reportable payments made after the exchange. If withholding results in
an overpayment of taxes, a refund may be obtained. Exempt Holders of Old Notes
(including among others, all corporations) are not subject to these backup
withholding requirements.
To prevent backup withholding, each tendering Holder of Old Notes
should provide its correct TIN by completing the "Substitute Form W-9" set
forth above, certifying that the TIN provided is correct and as to certain
other matters. If the tendering Holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such Holder should provide a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If the Old Notes are in more than one name or are not
in the name of the actual owner, such Holder should consult the instructions on
Internal Revenue Service Form W-9, which may be obtained from the Exchange
Agent, for additional guidance on which TIN to report. If such Holder does not
have a TIN, such Holder should apply for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN.
6. TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes in exchange for Exchange Notes pursuant to the Exchange
Offer. If however, Exchange Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered Holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS
The Company reserves the absolute right to waive satisfaction of any
or all conditions enumerated in the Prospectus.
11
<PAGE> 12
8. NO CONDITIONAL TENDERS
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Old Notes, by execution of this Letter, or
by tendering the Old Notes via ATOP, as the case may be, shall waive any right
to receive notice of the acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES
Any Holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
12
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
VERITAS DGC INC.
9 3/4% SENIOR NOTES DUE 2003, SERIES B
This form must be used by a holder of 9 3/4% Senior Notes due 2003,
Series B (the "Old Notes") of Veritas DGC Inc. (the "Company"), who wishes to
tender Old Notes to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer--Guaranteed Delivery Procedures" of
the Prospectus, dated November __, 1998 (the "Prospectus"), and in Instruction 1
to the related Letter of Transmittal. Any holder who wishes to tender Old Notes
pursuant to such guaranteed delivery procedures must ensure that the Exchange
Agent receives this notice of Guaranteed Delivery prior to the Expiration Date
of the Exchange Offer. Capitalized terms not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON, MASSACHUSETTS,
TIME, ON ________________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TO: STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT")
BY REGISTERED OR CERTIFIED MAIL:
State Street Bank and Trust Company
Corporate Trust Department
P. O. Box 778
Boston, Massachusetts 02102-0078
Attn: Kellie Mullen
BY HAND/OVERNIGHT DELIVERY:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attn: Kellie Mullen
BY FACSIMILE: (617) 664-5290
State Street Bank and Trust Company
Corporate Trust Department
Attn: Kellie Mullen
Confirm by telephone: (617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 1 of the Letter of Transmittal.
1
<PAGE> 2
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF
OLD NOTES OR ACCOUNT NUMBER AT THE AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
DEPOSITORY TRUST COMPANY REPRESENTED TENDERED
<S> <C> <C>
- ------------------------------------- --------------------------------- --------------------------------
- ------------------------------------- --------------------------------- --------------------------------
- ------------------------------------- --------------------------------- --------------------------------
- ------------------------------------- --------------------------------- --------------------------------
</TABLE>
PLEASE SIGN AND COMPLETE
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE
THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
x
- --------------------------------------------------- --------------------
x
- --------------------------------------------------- --------------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
-------------------------------------------------
Must be signed by the registered holder(s) of Old Notes exactly as
their name(s) appear on certificates for Old Notes or on a security position
listing, or by persons(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or the person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
GUARANTEE
The undersigned, a member of a registered national securities exchange,
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures," together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five business days after the Expiration Date.
2
<PAGE> 3
- ----------------------------------- -----------------------------------
Name of Firm Authorized Signature
- ----------------------------------- -----------------------------------
Address Title
Name:
- ----------------------------------- ------------------------------
(Please Type of Print)
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail, properly insured, with return
receipt requested is recommended. In all cases, sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 1 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Notes without alteration, enlargement, or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a participant of DTC whose
name appears on a security position listing as the owner of Notes, the signature
must correspond with the name shown on the security position listing as the
owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of DTC, this
Notice of Guaranteed Delivery must be accompanied by appropriate bond powers,
signed as the name of the registered holder(s) appears on the Old Notes or
signed as the name of the participant shown on DTC's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified herein and in the
Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Exchange Offer.
3
