<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
VERITAS DGC INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: Common
Shares of Enertec Resource Services Inc.
(2) Aggregate number of securities to which transaction applies: 6,931,666
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
<TABLE>
<C> <C> <S>
6,931,666 -- No. of Enertec Common Shares
multiplied
by,
US$4.03 -- Average of the high and low prices reported on The Toronto
US$27,938,987 Stock Exchange for Enertec Common Shares (C$6.05) on April
9, 1999, adjusted to a U.S. dollar equivalent (exchange rate
0.6662)
</TABLE>
(4) Proposed maximum aggregate value of transaction: $27,938,987
(5) Total fee paid: $5,588
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
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<PAGE> 2
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- --------------------------------------------------------------------------------
VERITAS DGC INC.,
VERITAS ENERGY SERVICES INC.
-AND-
ENERTEC RESOURCE SERVICES INC.
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS OF VERITAS DGC INC.,
INCLUDING EXCHANGEABLE SHAREHOLDERS OF
VERITAS ENERGY SERVICES INC.,
NOTICE OF SPECIAL MEETING
OF EXCHANGEABLE SHAREHOLDERS
OF VERITAS ENERGY SERVICES INC.
-AND-
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND OPTIONHOLDERS
OF ENERTEC RESOURCE SERVICES INC.
-AND-
NOTICE OF PETITION
-AND-
JOINT MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
WITH RESPECT TO AN ARRANGEMENT INVOLVING
VERITAS DGC INC.,
VERITAS ENERGY SERVICES INC.
-AND-
ENERTEC RESOURCE SERVICES INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 3
VERITAS DGC INC.
3701 Kirby Drive
Houston, Texas 77098
Dear Veritas DGC Inc. Stockholder and Veritas Energy Services Inc.
Exchangeable Shareholder:
You are cordially invited to attend a special meeting of the stockholders
of Veritas DGC Inc. ("Veritas DGC"), including the holders of exchangeable
shares of Veritas Energy Services Inc. ("VESI"), a wholly-owned subsidiary of
Veritas DGC, to be held on , , 1999 at (local
time), at Veritas DGC's offices located at 3701 Kirby Drive, Houston, Texas
77098.
The special meeting is important because we are asking you to approve a
proposal to amend our Restated Certificate of Incorporation (the "Charter
Amendment") to authorize a new series of special voting stock and to eliminate
provisions that restrict the issuance of certain securities. Upon approval of
these changes, we plan to acquire Enertec Resource Services Inc. ("Enertec"), a
company based in Alberta, Canada, pursuant to a Combination Agreement between
Veritas DGC, VESI and Enertec dated March 30, 1999. Following the transaction,
Enertec will be wholly-owned by VESI, and all of the former holders of Enertec
common shares will hold Series 1 Exchangeable Shares issued by VESI. The details
of the proposed transaction are included in the Joint Proxy Statement. Also
included is a form of proxy. Please review the Joint Proxy Statement carefully
as it has been prepared to help you make an informed decision.
Your board of directors has unanimously approved the Charter Amendment. The
board recommends that you vote FOR the Amendment. If the Charter Amendment is
not approved, the acquisition of Enertec cannot be closed. YOUR VOTE IS
IMPORTANT.
Even if you do not attend the special meeting, it is important that your
shares be voted. Please vote by promptly completing and mailing the enclosed
proxy card so that your shares will be represented at the special meeting and
voted as you wish.
Sincerely,
David B. Robson,
Chairman and Chief Executive Officer
, 1999
<PAGE> 4
VERITAS DGC INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is given that a special meeting of the stockholders of Veritas DGC
Inc. ("Veritas DGC"), including the holders of exchangeable shares of Veritas
Energy Services Inc. ("VESI"), a wholly-owned subsidiary of Veritas DGC, will be
held at the offices of Veritas DGC, 3701 Kirby Drive, Houston, Texas 77098, on
, , 1999 at (local time), for the following
purposes:
1. To consider and vote upon amendments to Veritas DGC's Restated
Certificate of Incorporation to, among other things, designate a new
series of special voting stock consisting of one share and eliminate
certain restrictive provisions regarding the issuance of additional
series of ordinary shares; and
2. To transact such other business as may properly be presented to the
special meeting.
Veritas DGC, VESI and Enertec Resource Services Inc. will not be able to
close the Combination Agreement described in the Joint Proxy Statement if the
Veritas DGC stockholders and the VESI exchangeable stockholders do not approve
the proposal to amend the Restated Certificate of Incorporation.
Stockholders of record as of the close of business on , 1999,
will be entitled to notice of and to vote at the special meeting. A
stockholders' list will be available on , 1999, and may be inspected
during normal business hours prior to the special meeting at the offices of
Veritas DGC, 3701 Kirby Drive, Houston, Texas 77098.
If you do not expect to be present at the special meeting, please sign and
date the enclosed proxy and return it promptly in the enclosed stamped envelope.
The prompt return of proxies will ensure a quorum and save the company the
expense of further solicitation.
By Order of the Board of Directors,
Larry L. Worden
Secretary
, 1999
<PAGE> 5
VERITAS ENERGY SERVICES INC.
715 Fifth Avenue, S.W.
Calgary, Alberta, Canada T2P 5A2
, 1999
Dear Exchangeable Shareholder:
You are cordially invited to attend a special meeting of the exchangeable
shareholders of Veritas Energy Services Inc. ("VESI") to be held on ,
, 1999 at (Calgary time) at , Calgary, Alberta,
Canada.
The special meeting is important because we are asking you to approve an
arrangement which will lead to a combination of Enertec Resource Services Inc.
("Enertec"), VESI and your parent company, Veritas DGC Inc. ("Veritas DGC"). The
arrangement also includes amendments to certain terms of the VESI Exchangeable
Shares which are necessary for completion of the combination and would allow
Veritas DGC and VESI to complete transactions of a similar type in the future
without the approval of the holders of VESI Exchangeable Shares.
The details of the proposed transaction are included in the Joint Proxy
Statement. Also included is a form of proxy. Please review the Joint Proxy
Statement carefully as it has been prepared to help you make an informed
decision.
If the proposed transaction is completed, Enertec shareholders will
transfer each of their Enertec common shares to VESI and the sole consideration
received therefor will be 0.345 of a Series 1 Exchangeable Share (a
newly-created class of shares) of VESI. Each Series 1 Exchangeable Share is
exchangeable for one share of Veritas DGC common stock.
Following the transaction, Enertec will be wholly-owned by VESI, and all of
the former holders of Enertec common shares will hold Series 1 Exchangeable
Shares issued by VESI.
David B. Robson, president of VESI and chairman and chief executive officer
of Veritas DGC, and the holder of approximately 86% of the outstanding VESI
Exchangeable Shares entitled to vote, has agreed to vote in favor of the
arrangement with Enertec. As such, approval of the VESI proposal is effectively
assured.
Your board of directors has unanimously recommended that you vote in favor
of the special resolution concerning the arrangement and the combination of
Veritas DGC, VESI and Enertec.
We hope that you will be able to attend the special meeting. However, if
you are unable to attend the special meeting in person, we urge you to complete
the enclosed form of proxy and return it, not later than the time specified in
the Notice of Special Meeting of Exchangeable Shareholders, in the postage-paid
envelope provided.
Yours very truly,
David B. Robson
President
<PAGE> 6
VERITAS ENERGY SERVICES INC.
NOTICE OF SPECIAL MEETING OF EXCHANGEABLE SHAREHOLDERS
Notice is hereby given that a special meeting of the holders of
exchangeable shares of Veritas Energy Services Inc. ("VESI") will be held at
(Calgary time) on , , 1999 at , Calgary,
Alberta, Canada for the following purposes:
1. To consider, pursuant to an order (the "Interim Order") of the Court
of Queen's Bench of Alberta dated , 1999 and, if deemed
advisable, to pass, with or without variation, a special resolution
(the "Arrangement Resolution") to approve an arrangement (the
"Arrangement") under section 186 of the Business Corporations Act
(Alberta) (the "ABCA"), all as more particularly described in the
accompanying Joint Management Information Circular and Proxy
Statement (the "Joint Proxy Statement"); and
2. To transact such further or other business as may properly come
before the special meeting or any adjournment or adjournments
thereof.
Specific details of the matters to be put before the special meeting are
set out in the Joint Proxy Statement, which forms part of this notice. The full
text of the Arrangement Resolution is attached as Annex A to the Joint Proxy
Statement.
Pursuant to the Interim Order, a copy of which is attached as Annex C to
the Joint Proxy Statement, holders of VESI Exchangeable Shares have been granted
the right to dissent in respect of the Arrangement. If the Arrangement becomes
effective, a dissenting shareholder will be entitled to be paid the fair value
of the VESI Exchangeable Shares held by such holder if the secretary of VESI or
the chairman of the special meeting shall have received from such dissenting
holder at or before the special meeting a written objection to the Arrangement
Resolution and the dissenting holder shall have otherwise complied with the
provisions of section 184 of the ABCA. The dissent right is described in the
accompanying Joint Proxy Statement and the full text of section 184 of the ABCA
is attached as Annex I to the Joint Proxy Statement. ONLY REGISTERED
SHAREHOLDERS MAY DISSENT. FAILURE TO STRICTLY COMPLY WITH THE REQUIREMENTS SET
OUT IN SECTION 184 OF THE ABCA MAY RESULT IN THE LOSS OF ANY RIGHT TO DISSENT.
David B. Robson, president of VESI and chairman and chief executive officer
of Veritas DGC Inc. and the holder of approximately 86% of the outstanding VESI
Exchangeable Shares entitled to vote, has agreed with Enertec Resource Services
Inc. to vote his VESI Exchangeable Shares in favor of the Arrangement
Resolution. As a result, approval of the Arrangement Resolution by the holders
of VESI Exchangeable Shares is effectively assured.
Each person who is a holder of record of VESI Exchangeable Shares at the
close of business on , 1999, is entitled to notice of, and to attend
and vote at, the special meeting and any adjournment or postponement thereof,
provided that to the extent a person has transferred any VESI Exchangeable
Shares after the record date and the transferee of such shares establishes that
such transferee owns such shares and demands not later than ten days before the
special meeting to be included in the list of holders eligible to vote at the
special meeting, such transferee will be entitled to vote such shares at the
special meeting. Veritas DGC Inc. may not vote the VESI Exchangeable Shares it
holds at the special meeting. However, the VESI Exchangeable Shares held by
Veritas DGC Inc. will be included in determining if a quorum is present at the
special meeting.
DATED at Calgary, Alberta, , 1999.
By Order of the Board of Directors,
Lori Woynarski
Secretary
HOLDERS OF VESI EXCHANGEABLE SHARES ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. TO BE EFFECTIVE,
PROXIES MUST BE RECEIVED BY CIBC MELLON TRUST COMPANY NOT LATER THAN NOON
(CALGARY TIME) , 1999, OR, IF THE SPECIAL MEETING IS ADJOURNED, NOT
LATER THAN 24 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME
OF THE SPECIAL MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
<PAGE> 7
ENERTEC RESOURCE SERVICES INC.
800, 615 Macleod Trail S.E.
Calgary, Alberta, Canada T2P 4T8
, 1999
Dear Enertec Shareholder and Enertec Optionholder:
You are cordially invited to attend a special meeting of shareholders and
optionholders of Enertec Resource Services Inc. ("Enertec"), to be held on
, , 1999 at (Calgary time) at , Calgary,
Alberta, Canada.
The special meeting is important because we are asking you to approve an
arrangement which will lead to a combination of Enertec, Veritas Energy Services
Inc. ("VESI") and Veritas DGC Inc. ("Veritas DGC").
The details of the proposed transaction are included in the Joint Proxy
Statement. Also included is a form of proxy and a form of letter of transmittal
for Enertec shareholders to enable you to receive Series 1 Exchangeable Shares
of VESI. Please review the Joint Proxy Statement carefully as it has been
prepared to help you make an informed decision.
If the proposed transaction is completed, Enertec shareholders will
transfer each of their Enertec common shares to VESI and the sole consideration
received therefor will be 0.345 (the "Exchange Ratio") of a Series 1
Exchangeable Share of VESI, an Alberta corporation and a subsidiary of Veritas
DGC. Each Series 1 Exchangeable Share is exchangeable for one share of Veritas
DGC common stock. Each Series 1 Exchangeable Share will also entitle its holder
to receive dividends equivalent to any dividends paid on Veritas DGC common
stock and will carry the right to vote at meetings of the stockholders of
Veritas DGC. Holding Series 1 Exchangeable Shares rather than Veritas DGC common
stock may appeal to Enertec shareholders resident in Canada for certain Canadian
tax reasons, which are summarized in the Joint Proxy Statement.
Following the transaction, Enertec will be wholly-owned by VESI, and all of
the former holders of Enertec common shares will hold Series 1 Exchangeable
Shares issued by VESI.
If the proposed transaction is completed, each Enertec option will be
exchanged for an option to purchase a number of whole shares of Veritas DGC
common stock equal to the number of Enertec common shares subject to the Enertec
option multiplied by the Exchange Ratio, rounded down to the nearest whole
number of shares, at an exercise price per share of Veritas DGC common stock
equal to the exercise price per share of such Enertec option divided by the
Exchange Ratio, adjusted into a U.S. dollar equivalent at the time of closing.
The exercise price will be decreased by the amount attributable to any rounding
down of shares.
After considering many different factors which are reviewed in detail in
the Joint Proxy Statement, including, among other things, the opinion of CIBC
Wood Gundy Securities Inc., an investment banking firm engaged by Enertec, that
the consideration to be received by the Enertec shareholders in the transaction
is fair from a financial point of view, your board of directors has unanimously
recommended that you vote in favor of the special resolution concerning the
arrangement and the combination of Veritas DGC, VESI and Enertec.
We hope that you will be able to attend the special meeting. However, if
you are unable to attend the special meeting in person, we urge you to complete
the enclosed form of proxy and return it, not later than the time specified in
the Notice of Special Meeting of Shareholders and Optionholders, in the
postage-paid envelope provided.
Yours very truly,
Murray A. Olson
President and Chief Executive Officer
<PAGE> 8
ENERTEC RESOURCE SERVICES INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND OPTIONHOLDERS
Notice is hereby given that a special meeting of the shareholders and
optionholders of Enertec Resource Services Inc. ("Enertec") will be held at
(Calgary time) on , , 1999 at , Calgary,
Alberta, Canada for the following purposes:
1. To consider, pursuant to an order (the "Interim Order") of the Court
of Queen's Bench of Alberta dated , 1999 and, if deemed
advisable, to pass, with or without variation, a special resolution
(the "Arrangement Resolution") to approve an arrangement (the
"Arrangement") under section 186 of the Business Corporations Act
(Alberta) (the "ABCA"), all as more particularly described in the
accompanying Joint Management Information Circular and Proxy
Statement (the "Joint Proxy Statement"); and
2. To transact such further or other business as may properly come
before the special meeting or any adjournment or adjournments
thereof.
Specific details of the matters to be put before the special meeting are
set out in the Joint Proxy Statement, which forms part of this notice. The full
text of the Arrangement Resolution is attached as Annex A to the Joint Proxy
Statement.
Pursuant to the Interim Order, a copy of which is attached as Annex C to
the Joint Proxy Statement, holders of Enertec common shares and Enertec options
have been granted the right to dissent in respect of the Arrangement. If the
Arrangement becomes effective, a dissenting shareholder or optionholder will be
entitled to be paid the fair value of the Enertec common shares or Enertec
options held by such holder if the secretary of Enertec or the chairman of the
special meeting shall have received from such dissenting holder at or before the
special meeting a written objection to the Arrangement Resolution and the
dissenting holder shall have otherwise complied with the provisions of section
184 of the ABCA. The dissent right is described in the accompanying Joint Proxy
Statement and the full text of section 184 of the ABCA is attached as Annex I to
the Joint Proxy Statement. ONLY REGISTERED SHAREHOLDERS OR OPTIONHOLDERS MAY
DISSENT. FAILURE TO STRICTLY COMPLY WITH THE REQUIREMENTS SET OUT IN SECTION 184
OF THE ABCA MAY RESULT IN THE LOSS OF ANY RIGHT TO DISSENT.
Each person who is a holder of record of Enertec common shares or Enertec
options at the close of business on , 1999, is entitled to notice of,
and to attend and vote at, the special meeting and any adjournment or
postponement thereof, provided that to the extent a person has transferred any
Enertec common shares after the record date and the transferee of such shares
establishes that such transferee owns such shares and demands not later than ten
days before the special meeting to be included in the list of holders eligible
to vote at the special meeting, such transferee will be entitled to vote such
shares at the special meeting.
DATED at Calgary, Alberta, , 1999.
By Order of the Board of Directors,
Peter H. Ryder
Vice President and Chief Financial Officer
SHAREHOLDERS AND OPTIONHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. TO BE EFFECTIVE, PROXIES
MUST BE RECEIVED BY MONTREAL TRUST COMPANY OF CANADA, NOT LATER THAN NOON
(CALGARY TIME) , 1999, OR, IF THE SPECIAL MEETING IS ADJOURNED, NOT
LATER THAN 24 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME
OF THE SPECIAL MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
<PAGE> 9
ACTION NO.
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF SECTION 186 OF THE BUSINESS CORPORATIONS ACT,
S.A. 1981, c.B-15, AS AMENDED
AND IN THE MATTER OF AN ARRANGEMENT PROPOSED BY
ENERTEC RESOURCE SERVICES INC. AND VERITAS ENERGY SERVICES INC. INVOLVING
ENERTEC RESOURCE SERVICES INC., ITS SHAREHOLDERS
AND OPTIONHOLDERS, VERITAS ENERGY SERVICES INC., ITS EXCHANGEABLE
SHAREHOLDERS AND VERITAS DGC INC.
NOTICE OF PETITION
NOTICE IS HEREBY GIVEN that a petition (the "Petition") has been filed with
the Court of Queen's Bench of Alberta, Judicial District of Calgary (the
"Court"), by Enertec Resource Services Inc. ("Enertec") and Veritas Energy
Services Inc. ("VESI") with respect to a proposed arrangement (the
"Arrangement") under Section 186 of the Business Corporations Act, S.A. 1981,
c.B-15, as amended (the "ABCA"), involving Enertec, its shareholders and
optionholders, VESI, its exchangeable shareholders, and Veritas DGC Inc.
("Veritas DGC"), which Arrangement is described in greater detail in the Joint
Management Information Circular and Proxy Statement of Enertec, VESI and Veritas
DGC dated , 1999 accompanying this Notice of Petition.
AND NOTICE IS FURTHER GIVEN that the said Petition will be heard before the
presiding Chambers Justice at the Court House, 611-4th Street S.W., Calgary,
Alberta, Canada, on the day of , 1999 at (Calgary time)
or as soon thereafter as counsel may be heard.
At the hearing of the Petition, Enertec and VESI intend to seek the
following:
(i) a declaration that the terms and conditions of the Arrangement are
fair to the persons affected;
(ii) an order approving the Arrangement pursuant to the provisions of
Section 186 of the ABCA;
(iii) a declaration that the Arrangement will, upon the filing of Articles
of Arrangement under the ABCA and the issuance of the Certificates
of Amendment under the ABCA, be effective under the ABCA in
accordance with its terms; and
(iv) such other further orders, declarations and directions as the Court
may deem just.
ANY SECURITYHOLDER OF ENERTEC OR VESI OR OTHER INTERESTED PARTY DESIRING TO
SUPPORT OR OPPOSE THE PETITION MAY APPEAR AT THE TIME OF HEARING IN PERSON OR BY
COUNSEL FOR THAT PURPOSE, PROVIDED SUCH SECURITYHOLDER OR OTHER INTERESTED PARTY
FILES WITH THE COURT AND SERVES UPON ENERTEC AND VESI, ON OR BEFORE ,
1999, A NOTICE OF INTENTION TO APPEAR, TOGETHER WITH ANY EVIDENCE OR MATERIALS
WHICH ARE TO BE PRESENTED TO THE COURT, SETTING OUT SUCH SECURITYHOLDER'S OR
INTERESTED PARTY'S ADDRESS FOR SERVICE BY ORDINARY MAIL AND INDICATING WHETHER
SUCH SECURITYHOLDER OR INTERESTED PARTY INTENDS TO SUPPORT OR OPPOSE THE
PETITION OR MAKE SUBMISSIONS. Service on Enertec or VESI is to be effected by
delivery to the solicitors for Enertec or VESI at the addresses set forth below.
AND NOTICE IS FURTHER GIVEN that, at the hearing and subject to the
foregoing, securityholders and any other interested person will be entitled to
make representations as to, and the Court will be requested to consider, the
fairness of the Arrangement. If you do not attend, either in person or by
counsel, at that time, the Court may approve or refuse to approve the
Arrangement as presented, or may approve it subject to such terms and conditions
as the Court shall deem fit, without any further notice.
AND NOTICE IS FURTHER GIVEN that the Court, by an Interim Order dated
, 1999 has given directions as to the calling and holding of the
special meetings of the securityholders of Enertec and VESI for the purpose of
such securityholders voting upon the special resolution to approve the
Arrangement and, in particular, has directed that Enertec shareholders and
optionholders and VESI exchangeable shareholders shall have the right to dissent
under the provisions of Section 184 of the ABCA upon compliance with the terms
of the Interim Order.
<PAGE> 10
AND NOTICE IS FURTHER GIVEN that a copy of the said Petition and other
documents in the proceedings will be furnished to any shareholder or
optionholder of Enertec or other interested party requesting the same by the
undermentioned solicitors for Enertec upon written request delivered to such
solicitors as follows:
Fraser Milner
30th Floor, 237 - 4th Ave. S.W.
Calgary, Alberta
T2P 4X7
Attention: David R.J. Lefebvre
AND NOTICE IS FURTHER GIVEN that a copy of the said Petition and other
documents in the proceedings will be furnished to any exchangeable shareholder
of VESI or other interested party requesting the same by the undermentioned
solicitors for VESI upon written request delivered to such solicitors as
follows:
Bennett Jones
4500 Bankers Hall East
855 Second Street S.W.
Calgary, Alberta
T2P 4K7
Attention: Neil H. Stevenson
DATED at the City of Calgary, in the Province of Alberta, this day of
, 1999.
ENERTEC RESOURCE SERVICES INC.
Murray A. Olson
President and Chief Executive Officer
VERITAS ENERGY SERVICES INC.
David B. Robson
President
<PAGE> 11
VERITAS DGC INC.
VERITAS ENERGY SERVICES INC.
ENERTEC RESOURCE SERVICES INC.
JOINT MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT
This Joint Proxy Statement is being furnished to holders of common shares
and options to purchase common shares of Enertec Resource Services Inc., an
Alberta corporation ("Enertec"), in connection with the solicitation of proxies
by the Enertec board of directors for use at the Enertec meeting to be held at
(Calgary time) on , 1999, at , Calgary, Alberta,
Canada, and any adjournment or postponement thereof.
This Joint Proxy Statement is also being furnished to holders of common
stock, par value US$0.01 per share, of Veritas DGC Inc., a Delaware corporation
("Veritas DGC"), including holders of exchangeable shares of Veritas Energy
Services Inc., an Alberta corporation ("VESI"), in connection with the
solicitation of proxies by the Veritas DGC board of directors for use at the
Veritas DGC meeting to be held at (Houston time) on , 1999
at Veritas DGC's principal executive offices, 3701 Kirby Drive, Houston, Texas
77098, and any adjournment or postponement thereof.
This Joint Proxy Statement is also being furnished to holders of
exchangeable shares of VESI in connection with the solicitation of proxies by
the VESI board of directors for use at the VESI meeting to be held at
(Calgary time) on , 1999 at , Calgary, Alberta, Canada, and
at any adjournment or postponement thereof.
This Joint Proxy Statement and the accompanying forms of proxy are first
being mailed to securityholders of Enertec, Veritas DGC and VESI on or about
, 1999.
All information in this Joint Proxy Statement relating to Enertec has been
supplied by Enertec, and all information relating to Veritas DGC and VESI has
been supplied by Veritas DGC.
SEE, "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO APPROVAL OF THE PROPOSALS.
------------------------
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Joint Proxy Statement does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities, or the
solicitation of a proxy, by any person in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such an offer or solicitation of an offer or proxy
solicitation. Neither delivery of this Joint Proxy Statement nor any
distribution of the securities referred to in this Joint Proxy Statement shall,
under any circumstances, create an implication that there has been no change in
the information set forth herein since the date of this Joint Proxy Statement.
------------------------
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES... i
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS....... i
SUMMARY.......................................... 1
COMPARATIVE MARKET PRICE DATA.................... 7
RISK FACTORS..................................... 8
COMPARATIVE PER SHARE DATA....................... 10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
DATA........................................... 12
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS..................................... 15
THE MEETINGS..................................... 21
THE TRANSACTION.................................. 25
Background..................................... 25
Reasons for the Transaction.................... 26
Recommendations of Boards of Directors......... 26
Business Combination Costs..................... 27
Opinion of CIBC Wood Gundy Securities Inc...... 27
Transaction Mechanics.......................... 33
The Combination Agreement...................... 35
Other Agreements............................... 38
Court Approval of the Arrangement and
Completion of the Transaction................ 38
Anticipated Accounting Treatment............... 39
Procedures for Transfer by Enertec Shareholders
and Enertec Optionholders.................... 39
Stock Exchange Listings........................ 40
Eligibility for Investment in Canada........... 40
Regulatory Matters............................. 40
Resale of Series 1 Exchangeable Shares and
Veritas DGC Common Stock Received in the
Transaction.................................. 40
THE COMPANIES AFTER THE TRANSACTION.............. 42
The Combination -- General..................... 42
Veritas DGC Capital Stock...................... 42
VESI Share Capital............................. 43
Support Agreement.............................. 46
Voting and Exchange Trust Agreement............ 47
Delivery of Veritas DGC Common Stock........... 48
Call Rights.................................... 48
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO
ENERTEC SHAREHOLDERS........................... 51
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO
ENERTEC OPTIONHOLDERS.......................... 60
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
TO ENERTEC SHAREHOLDERS........................ 61
VERITAS DGC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 65
BUSINESS OF VERITAS DGC.......................... 70
General........................................ 70
Industry Conditions............................ 70
Company Overview............................... 70
Business Strategy.............................. 71
Services and Markets........................... 72
Technology and Capital Expenditures............ 75
Competition and Other Business Conditions...... 76
Backlog........................................ 76
Significant Customers.......................... 76
Employees...................................... 76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Officers and Directors of Veritas
DGC.......................................... 77
Executive Compensation......................... 79
Employment Agreements.......................... 80
Security Ownership of Certain Beneficial Owners
and Management............................... 81
Description of Veritas DGC Capital Stock....... 82
Legal Proceedings.............................. 83
Auditors, Registrar and Transfer Agent......... 83
BUSINESS OF VESI................................. 84
General........................................ 84
Auditors, Registrar and Transfer Agent......... 84
ENERTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 85
BUSINESS OF ENERTEC.............................. 90
Organizational Information..................... 90
Company Overview............................... 90
Seismic Data Acquisition....................... 91
Seismic Data Processing........................ 92
Marine Services................................ 92
Safety......................................... 93
Premises....................................... 93
Customers...................................... 93
Competition.................................... 94
Research and Development....................... 94
Employees...................................... 94
Directors and Officers......................... 95
Management..................................... 95
Security Ownership of Certain Beneficial Owners
and Management............................... 97
Executive Compensation......................... 98
Description of Enertec Share Capital........... 100
Legal Proceedings.............................. 101
Auditors, Registrar and Transfer Agent......... 101
COMPARISON OF STOCKHOLDER RIGHTS................. 102
DISSENTING SHAREHOLDERS' AND OPTIONHOLDERS'
RIGHTS......................................... 108
PROPOSED VERITAS DGC
CHARTER AMENDMENT.............................. 111
LEGAL MATTERS.................................... 113
WHERE YOU CAN FIND MORE INFORMATION.............. 113
APPROVAL OF PROXY STATEMENT BY
VERITAS ENERGY SERVICES INC.
BOARD OF DIRECTORS AND CERTIFICATE............. 114
APPROVAL OF PROXY STATEMENT BY
ENERTEC RESOURCE SERVICES INC.
BOARD OF DIRECTORS AND CERTIFICATE............. 114
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....... F-1
ANNEX A -- Forms of Arrangement Resolutions
ANNEX B -- Combination Agreement
ANNEX C -- Interim Order
ANNEX D -- Plan of Arrangement, Class A
Exchangeable Share Provisions and
Series 1 Exchangeable Share Provisions
ANNEX E -- Form of Support Agreement
ANNEX F -- Form of Voting and Exchange Trust
Agreement
ANNEX G -- Restated Certificate of Incorporation
of Veritas DGC
ANNEX H -- CIBC Wood Gundy Fairness Opinion
ANNEX I -- Section 184 of the ABCA
</TABLE>
<PAGE> 13
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The consolidated financial statements and the summaries of historical
consolidated financial information of Enertec in this Joint Proxy Statement are
reported in Canadian dollars and have been prepared in accordance with Canadian
GAAP, which differs in certain material respects from U.S. GAAP. See Note 11 of
the Notes to Enertec Consolidated Financial Statements, which presents a
reconciliation of the consolidated financial statements from Canadian GAAP to
U.S. GAAP.
The consolidated financial statements, the pro forma consolidated financial
statements, and the summaries of historical consolidated financial information
of Veritas DGC in this Joint Proxy Statement are reported in U.S. dollars and
have been prepared in accordance with U.S. GAAP.
UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S.
DOLLARS.
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS
For each period, the following table provides the high and low exchange
rates for one Canadian dollar expressed in U.S. dollars, the average of such
exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based upon the noon buying rate in New
York City for cable transfers in Canadian dollars, as certified for customer
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"):
<TABLE>
<CAPTION>
TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, FOUR-MONTH PERIOD
----------------------------------------------- ENDED JANUARY 31,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
High........................ 0.7564 0.7445 0.7462 0.7458 0.7093 0.6625
Low......................... 0.7223 0.7096 0.7274 0.7158 0.6351 0.6480
Average..................... 0.7368 0.7277 0.7327 0.7288 0.6852 0.6543
Period End.................. 0.7457 0.7438 0.7342 0.7234 0.6552 0.6625
</TABLE>
On , 1999, the exchange rate for one Canadian dollar expressed in
U.S. dollars based on the Noon Buying Rate was .
For each period, the following table provides the high and low exchange
rates for one U.S. dollar expressed in Canadian dollars, the average of such
exchange rates on the last date of each month during such period, and the
exchange rate at the end of such period, based upon the noon spot rate of the
Bank of Canada (the "Noon Spot Rate"):
<TABLE>
<CAPTION>
TWELVE-MONTH PERIOD ENDED JULY 31, SIX-MONTH PERIOD
------------------------------------------ ENDED JANUARY 31,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
High............................. 1.3953 1.4235 1.3860 1.3995 1.5111 1.5765
Low.............................. 1.2878 1.3408 1.3282 1.3306 1.3714 1.4997
Average.......................... 1.3530 1.3762 1.3609 1.3690 1.4332 1.5337
Period End....................... 1.3832 1.3697 1.3748 1.3814 1.5111 1.5074
</TABLE>
On , 1999, the exchange rate for one U.S. dollar expressed in
Canadian dollars based on the Noon Spot Rate was .
i
<PAGE> 14
SUMMARY
This summary may not contain all the information that is important to you.
For more information on the "Transaction" contemplated by the Combination
Agreement and its terms, you should read this entire document and its
attachments. The following is a summary of certain information contained
elsewhere in this Joint Proxy Statement. See "Where You Can Find More
Information" (page 113).
THE COMPANIES
Veritas DGC................ Veritas DGC was founded in 1965 and provides
seismic data acquisition services, data processing
services, multi-client data surveys and information
services to the oil and gas industry in selected
markets worldwide. Veritas DGC acquires seismic
data in land, in marine and in marsh, swamp and
tidal environments and processes data acquired by
its own crews and crews of other operators. Veritas
DGC's principal executive offices are located at
3701 Kirby Drive, Houston, Texas 77098, and its
telephone number is (713) 512-8300.
VESI....................... VESI was founded in 1974 and provides land-based
seismic data acquisition services, seismic data
processing services and exploration and development
information services in Canada. VESI was acquired
by Veritas DGC in August 1996. VESI's principal
executive offices are located at 715 Fifth Avenue
S.W., Calgary, Alberta, Canada T2P 5A2, and its
telephone number is (403) 205-6000.
Enertec.................... Enertec was founded in 1982 and provides seismic
data acquisition services in land and shallow
marine environments, seismic data processing and
marine geophysical surveying and positioning
services primarily in North America. Enertec's
principal executive offices are located at 800, 615
Macleod Trail S.E., Calgary, Alberta, Canada, T2G
4T8, and its telephone number is (403) 261-8989.
THE MEETINGS AND THE APPROVAL PROCESS GENERALLY
DATE, TIME AND PLACE
Veritas DGC. The Veritas DGC meeting will be held on , 1999, at
its principal executive offices, 3701 Kirby Drive, Houston, Texas 77098 at
(Houston time).
VESI. The VESI meeting will be held on , 1999, at ,
Calgary, Alberta, Canada at (Calgary time).
Enertec. The Enertec meeting will be held on , 1999, at
, Calgary, Alberta, Canada at (Calgary time).
PURPOSES OF THE MEETINGS
Veritas DGC. The purpose of the Veritas DGC meeting is to consider and
vote upon (1) a proposal to approve the amendment to the Veritas DGC Restated
Certificate of Incorporation and (2) such other business as may be properly
presented to the meeting.
VESI. The purpose of the VESI meeting is to consider and vote upon (1) a
proposal to approve the arrangement of Enertec and VESI and (2) such other
business as may be properly presented to the meeting.
Enertec. The purpose of the Enertec meeting is to consider and vote upon
(1) a proposal to approve the arrangement of Enertec and VESI and (2) such other
business as may be properly presented to the meeting.
1
<PAGE> 15
WHO CAN VOTE AT THE MEETINGS
Veritas DGC. Only record holders of Veritas DGC Common Stock and VESI
Exchangeable Shares at the close of business on , 1999 are entitled to
notice of and to vote at the Veritas DGC meeting. On that date, there were
shares of Veritas DGC Common Stock outstanding and VESI
Exchangeable Shares outstanding. The Veritas DGC Common Stock and VESI
Exchangeable Shares vote together as a single class. Each share will have one
vote on each matter acted upon at the Veritas DGC meeting. Veritas DGC may not
vote the VESI Exchangeable Shares it holds.
VESI. Only registered holders of VESI Exchangeable Shares at the close of
business on , 1999 are entitled to notice of and to vote at the VESI
meeting. However, if a person transfers any VESI Exchangeable Shares after such
date and the transferee of the shares establishes ownership of the shares and
demands within ten days before the VESI meeting to be included in the list of
shareholders who can vote at the VESI meeting, the transferee will be entitled
to vote the shares. On that date, there were VESI Exchangeable Shares
outstanding. Each VESI Exchangeable Share will have one vote on each matter
acted upon at the VESI meeting. Veritas DGC may not vote the VESI Exchangeable
Shares held by it at the VESI meeting. However, the VESI Exchangeable Shares
held by Veritas DGC will be counted for the purpose of determining if a quorum
is present.
Enertec. Only registered holders of Enertec Common Shares and Enertec
Options at the close of business on , 1999 are entitled to notice of
and to vote at the Enertec meeting. However, if a person transfers any Enertec
Common Shares after such date and the transferee of the shares establishes
ownership of the shares and demands within ten days before the Enertec meeting
to be included in the list of shareholders who can vote at the Enertec meeting,
the transferee will be entitled to vote the shares. On that date, there were
Enertec Common Shares and Enertec Options outstanding. Each
Enertec Common Share and Enertec Option will have one vote on each matter acted
upon at the Enertec meeting.
WHO MUST APPROVE THE TRANSACTION
Veritas DGC. The presence, in person or by proxy, at the Veritas DGC
meeting of the holders of a majority of the outstanding Veritas DGC Common Stock
and VESI Exchangeable Shares, together as a single class, is necessary for a
quorum. The affirmative vote by holders of a majority of the outstanding Veritas
DGC Common Stock and VESI Exchangeable Shares, together as a single class, is
required to approve the amendment to the Veritas DGC Restated Certificate of
Incorporation.
VESI. The presence, in person or by proxy, at the VESI meeting of the
holders of a majority of the outstanding VESI Exchangeable Shares is necessary
for a quorum. The affirmative vote by holders of at least two-thirds of the VESI
Exchangeable Shares present or represented at the meeting is required to approve
the arrangement of Enertec and VESI. The arrangement has been consented to in
writing by Veritas DGC, as the sole holder of the common shares of VESI.
David B. Robson, president of VESI and chairman and chief executive officer
of Veritas DGC, holds approximately 86% of the outstanding VESI Exchangeable
Shares entitled to vote and has agreed with Enertec to vote such shares in favor
of the arrangement of Enertec and VESI. As a result, approval of the arrangement
of Enertec and VESI by holders of VESI Exchangeable Shares is effectively
assured.
Enertec. The presence, in person or by proxy, at the Enertec meeting of at
least two Enertec shareholders is necessary for a quorum. The affirmative vote
by holders of at least two-thirds of the Enertec Common Shares and Enertec
Options, together as a single class, present or represented at the meeting, is
required to approve the arrangement of Enertec and VESI.
2
<PAGE> 16
BOARDS OF DIRECTORS RECOMMEND APPROVAL
Veritas DGC. The Veritas DGC board of directors unanimously recommends
that the Veritas DGC stockholders and VESI exchangeable shareholders vote to
approve the amendment to the Veritas DGC Restated Certificate of Incorporation.
VESI. The VESI board of directors believes that the Transaction is in the
best interests of the VESI exchangeable shareholders. It unanimously recommends
that the VESI exchangeable shareholders vote to approve the arrangement of
Enertec and VESI.
Enertec. The Enertec board of directors believes that the Transaction is
in the best interests of the Enertec shareholders and Enertec optionholders. It
unanimously recommends that the Enertec shareholders and Enertec optionholders
vote to approve the arrangement of Enertec and VESI.
See, "The Transaction -- Recommendations of Boards of Directors" (page 26).
CIBC WOOD GUNDY SECURITIES INC. SAYS TRANSACTION FINANCIALLY FAIR TO ENERTEC
SHAREHOLDERS
CIBC Wood Gundy Securities Inc. has rendered an opinion to the Enertec
board of directors that the consideration to be received by the Enertec
shareholders in the Transaction is fair, from a financial point of view, to the
Enertec shareholders.
See, "The Transaction -- Opinion of CIBC Wood Gundy Securities Inc." (pages
27 through 33) and the full text of the opinion rendered by CIBC Wood Gundy
Securities Inc. set forth in Annex H.
THE TRANSACTION
REASONS FOR THE TRANSACTION
Advantages. The board of directors of each of Veritas DGC, VESI and
Enertec believe the Transaction will allow the companies to combine their
resources to enhance their ability to compete in certain markets in an evolving
seismic data acquisition and processing services industry. The board of
directors of each of Veritas DGC, VESI and Enertec considered the following
material factors in making their recommendations.
- From March 1998 to March 1999, the Baker Hughes rotary rig count for
North America decreased from 942 to 543, a 43% decline. During 1998 and
early 1999, oil and natural gas prices significantly decreased. These
factors have caused an oversupply of seismic data acquisition crews and
seismic processing services and downward pressure on the pricing of
services. The companies estimate that overall exploration and production
spending will decline 25% to 30% in 1999 as compared to 1998 and that
demand for geophysical services onshore North America will decline by a
greater proportion. The companies believe that market conditions require
a consolidation of crews, equipment and services to enable them to
operate more profitably in these markets.
- The Transaction would allow the companies to integrate their operations,
allowing the combined company to be more cost effective and therefore
more competitive in delivering acquisition and processing services. This
is particularly true in Canada, where management believes that the
Transaction will result in the combined company being the leading
seismic contractor.
- Management of each of the companies believes that consolidation within
the seismic industry is required as a result of increased capital
requirements to fund modernization of seismic equipment because of
rapidly changing technology and increased investment in large data
library projects.
- The combined company will gain "critical mass" that will better position
it to compete with other large seismic companies.
In addition to the joint considerations, the Enertec board considered the
following additional factors:
- The arrangement of Enertec and VESI is structured to provide Enertec
shareholders and Enertec optionholders with a security which has a
significantly larger market capitalization and better liquidity.
3
<PAGE> 17
- The Transaction creates the potential for Enertec, Enertec shareholders
and Enertec optionholders to benefit through the combined company's
access to U.S. capital markets, which may lower its cost of capital.
- The Transaction creates potential for Enertec, Enertec shareholders and
Enertec optionholders to benefit from the combined company's more
diverse geophysical product offerings and its established presence in
selected markets worldwide.
Disadvantages. The board of directors of each of Veritas DGC, VESI and
Enertec considered the following additional factors:
- The success of the combined company in the markets in which Enertec
competes will be partially dependent on the successful integration of
the companies.
- The companies have overlapping operations in certain land processing and
acquisition businesses which will result in integration costs for the
combined company.
TRANSFER OF ENERTEC COMMON SHARES
The arrangement of Enertec and VESI provides that each Enertec Common Share
will be transferred to VESI and the sole consideration received therefor will be
0.345 of a Series 1 Exchangeable Share of VESI.
Holders of such Series 1 Exchangeable Shares will have the right to later
exchange those shares for the same number of shares of Veritas DGC Common Stock.
After all exchanges of Series 1 Exchangeable Shares for Veritas DGC Common
Stock, the former Enertec shareholders will own approximately 2,391,425 shares
of Veritas DGC Common Stock, being approximately 9.5% of the outstanding Veritas
DGC Common Stock. The Series 1 Exchangeable Shares are subject to redemption and
other rights in favor of Veritas DGC and VESI, including the automatic
redemption of the shares which is initially set for the tenth anniversary of the
Transaction. See "The Companies After the Transaction -- VESI Share Capital --
Series 1 Exchangeable Shares of VESI (pages 44 and 45).
TREATMENT OF ENERTEC OPTIONS
Each Enertec Option will be exchanged for an option to purchase shares of
Veritas DGC Common Stock. The number of shares of Veritas DGC Common Stock
subject to the option will be determined by multiplying the number of Enertec
Common Shares subject to the option by 0.345 rounded down to the nearest whole
number of shares, at an exercise price per share of Veritas DGC Common Stock
equal to the exercise price per share of the Enertec Option, divided by 0.345,
adjusted into a United States dollar equivalent at the time of closing. The
exercise price will be decreased by the amount attributable to any rounding down
of shares.
4
<PAGE> 18
OWNERSHIP STRUCTURE BEFORE AND AFTER TRANSACTION
The following diagrams set forth the ownership structure of the parties to
the arrangement before and after the Transaction.
[Ownership Structure Diagram]
EFFECTIVE TIME OF THE TRANSACTION
It is anticipated that the Transaction will become effective after the
required securityholder, court and regulatory approvals have been obtained and
all other conditions to the Transaction are met. It is presently anticipated
that the Transaction will become effective on or about June 30, 1999.
CONDITIONS TO THE TRANSACTION
The Transaction is subject to the satisfaction of various conditions,
including required securityholder, court and regulatory approvals. See, "The
Transaction -- The Combination Agreement" (pages 35 through 38).
REGULATORY REQUIREMENTS
The Transaction is subject to the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and on April 12, 1999, Veritas DGC and Enertec made
premerger filings under the act with the Federal Trade Commission and the
Antitrust Division of the Department of Justice. The Transaction is conditioned
upon the termination of the waiting period under the act.
5
<PAGE> 19
ANTICIPATED ACCOUNTING TREATMENT
The Transaction is anticipated to be accounted for using the pooling of
interests method of accounting under U.S. GAAP. See, "The Transaction --
Anticipated Accounting Treatment" (page 39).
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
The Combination Agreement provides that all rights to indemnification for
Enertec officers and directors will survive the arrangement of Enertec and VESI
and remain in full force in accordance with applicable law, Enertec's and each
of its subsidiaries' charter documents and bylaws, and any agreements with such
directors and officers.
Prior to closing, the coverage provided under Enertec's directors' and
officers' liability insurance will be extended for a period of five years from
the closing date.
BUSINESS COMBINATION COSTS
The companies expect to incur non-recurring business combination costs
estimated to be $2.7 million within the 12-month period following the closing.
This estimate includes costs relating to employee severance ($1.5 million) and
integration costs relating to overlapping operations in land processing and
acquisition operations ($300,000). In addition, in connection with the
Transaction, the companies expect to incur aggregate costs for professional fees
of approximately $800,000 and filing fees of approximately $100,000. Using a tax
rate of 36%, the after tax expense of these costs is estimated to be $1.7
million.
CERTAIN TAX CONSIDERATIONS
A Canadian tax deferral may be available to certain Enertec shareholders
who receive Series 1 Exchangeable Shares in exchange for their Enertec Common
Shares for so long as they hold Series 1 Exchangeable Shares. Such Enertec
shareholders generally will recognize a capital gain or capital loss for
Canadian federal income tax purposes upon the exchange of their Series 1
Exchangeable Shares for shares of Veritas DGC Common Stock. Where the exchange
is made with VESI (on a redemption or retraction), such shareholders will also
realize a deemed dividend. There are certain conditions and limitations on
qualifying for a Canadian tax deferral including, in some circumstances, filing
a tax election. The forms necessary to make such an election may be obtained
from Revenue Canada. If an Enertec shareholder wishes to file a tax election, a
completed tax election form must be received by VESI no later than 90 days after
closing of the Transaction.
See "Canadian Federal Income Tax Considerations to Enertec Shareholders"
and "United States Federal Income Tax Considerations to Enertec Shareholders"
(pages 51 through 64).
DISSENTERS' RIGHTS
Under Delaware law, Veritas DGC stockholders and VESI exchangeable
shareholders will not have appraisal or dissenters' rights related to the
Transaction. Under Alberta law, Enertec shareholders, Enertec optionholders and
VESI exchangeable shareholders will have certain appraisal or dissenters'
rights. See "Dissenting Shareholders' and Optionholders' Rights" (page 108).
RISK FACTORS
Before deciding how you should vote at the meetings, you should review
"Risk Factors" (pages 8 and 9).
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Joint Proxy Statement includes "forward looking statements" within the
meaning of the United States Securities Act of 1933 and Section 21E of the
United States Securities Exchange Act of 1934. All statements other than
statements of historical fact included in this Joint Proxy Statement are forward
looking statements. Such forward looking statements include, without limitation,
statements under "Business of Veritas DGC," "Business of Enertec," "Veritas DGC
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Enertec Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Risk Factors." Although each company
believes that the expectations reflected in the forward looking statements are
reasonable, they can give no assurance that the expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from these expectations are disclosed in this Joint Proxy Statement.
6
<PAGE> 20
COMPARATIVE MARKET PRICE DATA
The following table sets forth the high and low sales prices of the Veritas
DGC Common Stock, traded under the symbol "VTS" on the New York Stock Exchange
("NYSE"), and of the Enertec Common Shares, traded under the symbol "ERS" on The
Toronto Stock Exchange ("TSE"), for the periods indicated. Prior to September,
1996, the Veritas DGC Common Stock was traded on the American Stock Exchange.
The quotations are as reported in published financial sources.
<TABLE>
<CAPTION>
VERITAS DGC ENERTEC
----------- -------
HIGH LOW HIGH LOW
-------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1996 Fiscal Year 1996
Quarter ended October 31... US$ 6 3/8 US$ 4 3/4 Quarter ended December 31.... C$ 3.95 C$ 2.85
Quarter ended January 31... 8 3/4 5 3/8 Quarter ended March 31....... 3.90 3.30
Quarter ended April 30..... 15 7/8 6 1/4 Quarter ended June 30........ 4.80 3.60
Quarter ended July 31...... 18 1/4 11 Quarter ended September 30... 4.15 3.40
Fiscal Year 1997 Fiscal Year 1997
Quarter ended October 31... 21 1/2 11 1/2 Quarter ended December 31.... 6.10 3.80
Quarter ended January 31... 25 1/4 16 1/2 Quarter ended March 31....... 9.95 5.75
Quarter ended April 30..... 21 1/4 15 1/2 Quarter ended June 30........ 12.50 8.75
Quarter ended July 31...... 26 5/8 18 1/8 Quarter ended September 30... 17.75 10.75
Fiscal Year 1998 Fiscal Year 1998
Quarter ended October 31... 50 1/8 25 Quarter ended December 31.... 21.50 10.25
Quarter ended January 31... 47 5/16 26 1/2 Quarter ended March 31....... 14.00 7.50
Quarter ended April 30..... 54 1/2 36 Quarter ended June 30........ 11.25 7.50
Quarter ended July 31...... 60 7/8 30 7/16 Quarter ended September 30... 9.00 5.25
Fiscal Year 1999 Fiscal Year 1999
Quarter ended October 31... 34 9/16 10 5/8 Quarter ended December 31.... 6.60 3.80
Quarter ended January 31... 23 15/16 11 13/16 Quarter ended March 31....... 7.50 3.75
Quarter ended April 30 Quarter ended June 30
(through April 9)....... 15 13/16 8 3/4 (through April 9)....... 6.85 5.50
</TABLE>
On February 19, 1999, the last full trading day prior to the public
announcement by Veritas DGC and Enertec of the proposed Transaction, the last
reported sales price on the NYSE of the Veritas DGC Common Stock was US$10 1/16,
and the high and low sales prices were US$10 15/16 and US$10 1/16, respectively.
The last reported sales price of the Enertec Common Shares on the TSE on the
same day was C$3.90, and the high and low sales prices were C$3.95 and C$3.90,
respectively. On , 1999, the last reported sales price per share of
the Veritas DGC Common Stock was US$ , and the last reported sales
price of the Enertec Common Shares was C$ .
On , 1999, there were shares of Veritas DGC Common
Stock outstanding and held of record by stockholders and
Enertec Common Shares outstanding and held of record by shareholders.
DIVIDEND POLICIES
Historically, Veritas DGC and Enertec have not paid dividends on their
capital stock and have no present plans to pay dividends. The payment of any
future dividends on Veritas DGC Common Stock would depend, among other things,
upon the current and retained earnings and financial condition of Veritas DGC,
and upon a determination by its board of directors that the payment of dividends
would be desirable. In addition, the payment of dividends is restricted by the
indenture governing Veritas DGC's 9 3/4% Senior Notes due 2000, the indenture
governing its 9 3/4% Series Notes due 2003, Series C, and its principal
revolving credit facility.
7
<PAGE> 21
RISK FACTORS
The following risk factors should be carefully considered before deciding
how to vote your securities. They should be reviewed together with the other
information in this Joint Proxy Statement. Some of these risk factors relate
directly to the Transaction, while others will be present in the combined
company's business independent of the Transaction. If any of the following risks
occur, the business, financial condition or results of operations of the
combined company could be materially harmed. In that case, the trading price of
the combined company's stock could decline.
DECREASES IN ENERGY INDUSTRY SPENDING COULD ADVERSELY AFFECT OUR BUSINESS
The seismic business is substantially dependent upon the level of capital
expenditures by oil and gas companies. As a result of the decline in hydrocarbon
commodity prices in 1998 and early 1999, the level of overall oil and gas
industry activity has declined from levels experienced in recent years. If the
capital spending of the combined company's customers decreases in line with
overall recent industry trends, it would likely have a significant adverse
effect upon the demand for the combined company's services and its results of
operations.
INTENSE PRICE COMPETITION IN A SLACK MARKET COULD ADVERSELY AFFECT OUR BUSINESS
Competition among seismic contractors historically is and will continue to
be intense. Competitive factors in recent years have included price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability. Certain competitors operate more data acquisition
crews than the combined company and have substantially greater financial and
other resources. These larger and better financed operators could enjoy an
advantage over the combined company if the competitive environment for contract
awards shifts to one characterized principally by intense price competition.
MULTI-CLIENT DATA LIBRARY COULD BECOME IMPAIRED DUE TO WEAK DEMAND OR
TECHNOLOGICAL OBSOLESCENCE
The combined company has invested significant amounts in acquiring and
processing multi-client data, and expects to continue doing so for the
foreseeable future. Although Veritas DGC has typically recovered all the costs
of such surveys, there is no assurance that the combined company will continue
to be able to do so in the future. Technological, regulatory or other industry
or general economic developments could render all or portions of the combined
company's library of multi-client data obsolete or otherwise impair its value.
HIGH LEVELS OF FIXED COSTS COULD RESULT IN OPERATING LOSSES
The seismic business is characterized by 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.
FUTURE TECHNOLOGICAL ADVANCES COULD IMPAIR OPERATING ASSETS OR REQUIRE
SUBSTANTIAL UNBUDGETED CAPITAL EXPENDITURES
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 this
trend is expected to continue. Manufacturers of seismic equipment may develop
new systems that have competitive advantages over systems now in use that could
render the combined company's current equipment obsolete, requiring significant
unplanned capital expenditures to maintain the combined company's competitive
position. Under such circumstances, there can be no assurance that any required
financing would be available on favorable terms.
VERITAS DGC SHARE PRICE WILL FLUCTUATE
The market value of the shares that Enertec shareholders receive will
likely differ from the trading price of the Veritas DGC Common Stock prior to
the date of this Joint Proxy Statement. This is because the per share price of
Veritas DGC Common Stock fluctuates as a result of a number of variables,
including its financial performance and general market and economic conditions.
In the Transaction, each Enertec Common Share will
8
<PAGE> 22
be transferred for 0.345 of a Series 1 Exchangeable Share. This exchange ratio
is fixed. The exchange ratio will not be adjusted in the event of any increase
or decrease in the market price of Enertec Common Shares or Veritas DGC Common
Stock.
INTEGRATION OF THE COMBINED COMPANY COULD ADVERSELY IMPACT CERTAIN OPERATIONS
In evaluating the terms of the Transaction, each company analyzed the
other's businesses and made assumptions concerning future operations and
operations of the combined company. One principal assumption was that through
consolidation of operations, the combined company would be in a better
competitive position in certain markets. This may not be achieved unless the
companies are successfully combined in a timely manner.
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS
Veritas DGC's and Enertec's seismic operations and quarterly financial
results historically have been subject to seasonal fluctuation. Both companies
attempt to deploy crews and equipment into regions having opposing seasons or
less severe weather conditions, in order to reduce the impact of seasonal
fluctuations.
In addition to seasonality, each company historically has experienced
quarterly fluctuations in operating results. Operating results in any fiscal
quarter may vary as a result of (1) the magnitude of certain contracts for the
acquisition or sale of data, (2) customers' budgetary cycles and (3) with
respect to Veritas DGC, seismic data sales occurring as a result of offshore
lease sales.
WE OPERATE UNDER HAZARDOUS CONDITIONS
Seismic data acquisition activities involve operating under extreme weather
and other hazardous conditions. These operations are subject to risks of loss to
property and injury to personnel from such causes as fires and accidental
explosions. Veritas DGC and Enertec carry insurance against these risks in
amounts they consider adequate. The combined 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.
INTERNATIONAL OPERATIONS POSE ADDITIONAL RISKS
In recent years, more of Veritas DGC's revenues have been derived from
international operations and export sales, which are subject to risks of doing
business abroad. These risks include the possibility of unfavorable changes in
tax or other laws. 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, each
company generally denominates its international contracts in U.S. dollars and
other currencies it believes to be stable. Each company also obtains insurance
against war, expropriation, confiscation and nationalization when such insurance
is available and when management considers it advisable to do so. This coverage
is not always available and, when available, is subject to cancellation by the
insuring companies on short notice.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION
The combined company's operations will be subject to a variety of federal,
provincial, state, foreign and local laws and regulations, including
environmental laws. The combined company will invest financial and managerial
resources to comply with these laws and related permit requirements in its
operations. In recent years, an increased number of data acquisition contracts
have provided for customers to obtain all necessary permits. Customers' failure
to obtain the required permits in a timely manner may result in crew downtime
and operating losses. In the past, Veritas DGC's and Enertec's cost of complying
with governmental regulation has not been material, but the fact that laws or
regulations change frequently makes it impossible to predict the impact on the
combined company's future operations. The adoption of laws and regulations which
have the effect of curtailing exploration by oil and gas companies could
adversely affect the combined company's operations by reducing the demand for
its geophysical services.
9
<PAGE> 23
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Veritas
DGC and Enertec and combined per share data on an unaudited pro forma basis
after giving effect to the Transaction. This data should be read in conjunction
with "Selected Historical Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Statements" and the separate Consolidated Financial
Statements of Veritas DGC and Enertec and the notes thereto. The unaudited pro
forma consolidated financial data are not necessarily indicative of the
operating results that would have been achieved had the Transaction been in
effect as of the beginning of the periods presented and should not be construed
as representative of future operations.
VERITAS DGC -- HISTORICAL -- U.S. GAAP (US$)(1)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JULY 31, ENDED
------------------------- JANUARY 31,
1996 1997 1998 1999
----- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Earnings per common share........................... $0.07 $ 1.33 $ 2.96 $ 0.84
Earnings per common share -- assuming dilution...... $0.07 $ 1.30 $ 2.87 $ 0.83
Book value per common share......................... -- -- $13.71 $14.48
</TABLE>
ENERTEC -- HISTORICAL -- CANADIAN GAAP (C$)(1)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED
------------------------- JANUARY 31,
1996 1997 1998 1999
----- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Earnings (loss) per share -- basic.................. $0.16 $ 0.99 $ 0.80 $(0.10)
Earnings (loss) per share -- fully diluted.......... $0.15 $ 0.91 $ 0.75 $(0.10)
Book value per common share......................... -- -- $ 6.02 $ 5.88
</TABLE>
ENERTEC -- HISTORICAL -- U.S. GAAP (C$)(1)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED
------------------------- JANUARY 31,
1996 1997 1998 1999
----- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Earnings (loss) per common share.................... $0.16 $ 0.93 $ 0.86 $(0.09)
Earnings (loss) per common share -- assuming
dilution.......................................... $0.15 $ 0.90 $ 0.82 $(0.09)
Book value per common share......................... -- -- $ 6.02 $ 5.84
</TABLE>
CONSOLIDATED -- UNAUDITED PRO FORMA -- U.S. GAAP (US$)(1)(2)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
JULY 31, ENDED
------------------------- JANUARY 31,
1996 1997 1998 1999
----- ------ ------ -----------
<S> <C> <C> <C> <C>
Earnings per common share........................... $0.10 $ 1.40 $ 2.83 $ 0.74
Earnings per common share -- assuming dilution...... $0.10 $ 1.36 $ 2.74 $ 0.73
Book value per common share......................... -- -- -- $14.06
</TABLE>
10
<PAGE> 24
EQUIVALENT CONSOLIDATED PER ENERTEC SHARE -- UNAUDITED PRO FORMA -- U.S. GAAP
(US$)(1)(2)(3)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JULY 31, ENDED
------------------------- JANUARY 31,
1996 1997 1998 1999
----- ------ ------ -----------
<S> <C> <C> <C> <C>
Earnings per common share........................... $0.03 $ 0.48 $ 0.98 $ 0.26
Earnings per common share -- assuming dilution...... $0.03 $ 0.47 $ 0.95 $ 0.25
Book value per common share......................... -- -- -- $ 4.85
</TABLE>
- ---------------
(1) As a result of the differing year ends of Veritas DGC and Enertec, results
of operations for dissimilar year ends have been combined. Veritas DGC's
results of operations for fiscal years ended July 31, 1996, 1997 and 1998
have been combined with Enertec's results for fiscal years ended September
30, 1996, 1997 and 1998. Veritas DGC's results for the six months ended
January 31, 1998 and 1999 have been combined with Enertec's results for the
same periods.
(2) Veritas DGC and Enertec expect to incur business combination costs
estimated to be $2.7 million within the 12-month period following
consummation of the Transaction. This estimate includes $1.5 million for
employee severance, $300,000 for integration costs, and $900,000 for
Transaction costs, consisting of $800,000 for professional fees and
$100,000 for filing fees. Using a tax rate of 36%, the after tax expense of
these costs is estimated to be $1.7 million.
(3) The equivalent consolidated per Enertec Common Share unaudited pro forma
data is calculated as the earnings before non-recurring charges per share
and book value per share multiplied by the exchange ratio of 0.345.
11
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
VERITAS DGC (INCLUDING VESI)
The following table sets forth selected historical consolidated financial
data for Veritas DGC for each of the five years in the period ended July 31,
1998 and for the six months ended January 31, 1998 and 1999. Such data for the
five years in the period ended July 31, 1998 has been derived from the audited
Consolidated Financial Statements of Veritas DGC, except that the balance sheet
data as of July 31, 1994 was derived from the unaudited consolidated financial
statements of Veritas DGC. In the opinion of Veritas DGC's management, the
balance sheet data as of July 31, 1994 include all adjustments necessary to
present fairly the financial condition of Veritas DGC at such date. The selected
historical consolidated financial data for the six month periods ended January
31, 1998 and 1999 has been derived from the unaudited consolidated financial
statements of Veritas DGC and include, in the opinion of Veritas DGC's
management, all adjustments necessary to present fairly the results of such
periods. Such data should be read in conjunction with "Veritas DGC Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Veritas DGC was formerly named Digicon Inc. ("Digicon"). On August 30,
1996, Digicon and VESI consummated a business combination whereby VESI became a
wholly owned subsidiary of Digicon and Digicon changed its name to Veritas DGC
Inc. As a result of the differing year ends of Digicon and VESI, results of
operations for dissimilar year ends have been combined. Digicon's results of
operations for fiscal years ended July 31, 1994 and 1995 have been combined with
VESI's results of operations for fiscal years ended October 31, 1994 and 1995,
respectively. To conform year ends, Digicon's results of operations for the year
ended July 31, 1996 have been combined with VESI's results of operations for the
twelve months ended July 31, 1996. Accordingly, VESI's 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. VESI's revenues, net income, earnings per
share and earnings per share assuming dilution were US$22,150,000, US$936,000,
US$0.05 and US$0.05, respectively, for the period August 1, 1995 through October
31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... US$178,392 US$215,630 US$250,596 US$362,715 US$528,959 US$265,755 US$248,451
Net income (loss)........... (10,354) 5,594 1,281 25,125 66,958 38,996 19,058
Earnings (loss) per common
share(1).................. (.66) .31 .07 1.33 2.96 1.74 .84
Earnings (loss) per common
share -- assuming
dilution(1)............... (.66) .31 .07 1.30 2.87 1.68 .83
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JULY 31, JANUARY 31,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............. US$ 16,794 US$ 14,830 US$ 22,479 US$121,702 US$106,040 US$146,157 US$143,417
Total assets................ 171,814 184,340 198,592 385,089 478,490 445,304 559,881
Long-term debt (including
current maturities)....... 31,104 36,788 41,090 75,971 75,561 75,751 135,415
Stockholders' equity(2)..... 94,517 98,000 105,923 221,301 291,696 264,482 309,681
</TABLE>
- ---------------
(1) All periods presented have been restated for a one for three reverse stock
split consummated on January 17, 1995.
(2) There were no payments of cash dividends during the five years ended July
31, 1998 or during the six months ended January 31, 1999.
12
<PAGE> 26
ENERTEC
The following table sets forth selected historical consolidated financial
data for Enertec for each of the five years in the period ended September 30,
1998 and for the six months ended January 31, 1998 and 1999. Such data for the
five years in the period ended September 30, 1998 has been derived from the
audited Consolidated Financial Statements of Enertec. The selected historical
consolidated financial data for the six month periods ended January 31, 1998 and
1999 has been derived from the unaudited consolidated financial statements of
Enertec and include, in the opinion of Enertec's management, all adjustments
necessary to present fairly the results of such periods. Such data should be
read in conjunction with "Enertec Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The statements of operations data for the six month period ended January
31, 1998 includes the results of operations for the period August 1, 1997
through September 30, 1997 which is also included in the selected historical
consolidated financial data for the year ended September 30, 1997 and the six
month period ended January 31, 1999 include the results of operations for the
period August 1, 1998 through September 30, 1998 which is also included in the
selected historical consolidated financial information for the year ended
September 30, 1998. See Note 1 to Notes to Unaudited Pro Forma Consolidated
Financial Statements for a reconciliation of Canadian GAAP in Canadian dollars
to U.S. GAAP in Canadian dollars.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JANUARY 31,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- --------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Canadian GAAP
Revenue(1).......................... C$43,710 C$ 64,564 C$76,160 C$111,567(2) C$95,832(3) C$51,618(2) C$37,525(3)
Net income (loss)................... 1,829 3,428 963 6,633(2) 5,829(3) 2,675(2) (682)(3)
Net income (loss) per common share
-- basic.......................... 0.46 0.59 0.16 0.99(2) 0.80(3) 0.36(2) (0.10)(3)
Net income (loss) per common share
-- fully diluted.................. 0.44 0.54 0.15 0.91(2) 0.75(3) 0.34(2) (0.10)(3)
U.S. GAAP
Revenue, gross...................... C$76,160 C$111,567(2) C$95,832(3) C$51,618(2) C$37,525(3)
Net income (loss)................... 963 6,261(4) 6,201(5) 2,651(4) (640)(5)
Net income (loss) per common
share............................. 0.16 0.93(4) 0.86(5) 0.36(4) (0.09)(5)
Net income (loss) per common share
-- assuming dilution.............. 0.15 0.90(4) 0.82(5) 0.34(4) (0.09)(5)
</TABLE>
13
<PAGE> 27
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
--------------------------------------------------------- JANUARY 31,
1994 1995 1996 1997 1998 1999
-------- --------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Canadian GAAP
Working capital (deficit)............... C$ 2,054 (C$ 1,559) C$ 412 C$ 8,969 C$ 6,038 C$ 4,073
Total assets............................ 31,345 39,583 40,353 52,551 57,519 60,097
Long-term debt.......................... 3,440 5,441 4,959 63 266 218
Shareholders' equity.................... 16,008 20,862 22,299 37,276 42,470 40,513
U.S. GAAP
Working capital (deficit)............... C$ 8,969 C$ 6,038 C$ 4,073
Total assets(6)......................... 52,179 57,519 59,780
Long-term debt.......................... 63 266 218
Shareholders' equity(6)................. 36,904 42,470 40,196
</TABLE>
- ---------------
(1) Revenue includes amounts billed to customers for reimbursable costs of
C$18,476,000, C$25,574,000 and C$19,120,000 for the years ended September
30, 1996, 1997 and 1998, respectively, and C$8,624,000 and C$10,405,000 for
the six months ended January 31, 1998 and 1999, respectively, which is not a
GAAP difference but rather a classification difference between Veritas DGC
and Enertec.
(2) Amounts include revenue, net income, net income per common share -- basic
and net income per common share -- fully diluted of C$16,388,000, C$700,000,
C$0.09 and C$0.09, respectively, for the period August 1, 1997 to September
30, 1997.
(3) Amounts include revenue, net income, net income per common share -- basic
and net income per common share -- fully diluted of C$12,976,000, C$176,000,
C$0.02 and C$0.02, respectively, for the period August 1, 1998 to September
30, 1998.
(4) Amounts include net income, net income per common share and net income per
common share assuming dilution of C$682,000, C$0.09 and C$0.09,
respectively, for the period August 1, 1997 to September 30, 1997.
(5) Amounts include net income, net income per common share and net income per
common share assuming dilution of C$534,000, C$0.08 and C$0.08,
respectively, for the period August 1, 1998 to September 30, 1998.
(6) In accordance with U.S. GAAP regarding deferred taxes, balances include
adjustments of C$372,000 and C$317,000 as of September 30, 1997 and January
31, 1999, respectively.
14
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements have
been prepared assuming the Transaction is accounted for as a pooling of
interests. Accordingly, such statements were prepared as if Veritas DGC and
Enertec were combined as of the beginning of the periods presented.
The following unaudited pro forma consolidated balance sheet as of January
31, 1999 and statements of income for the six months ended January 31, 1998 and
1999 are based on the unaudited consolidated financial statements of Veritas DGC
and Enertec and include, in the opinion of Veritas DGC's and Enertec's
management, all adjustments necessary to present fairly the results of such
periods and should be read in conjunction with Veritas DGC's and Enertec's
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The following unaudited pro forma consolidated statements of income
for the three years ended July 31, 1998 have been derived from, and should be
read in conjunction with, the audited Consolidated Financial Statements of
Veritas DGC and Enertec. The financial statements of Veritas DGC for the years
ended July 31, 1997 and 1998 were audited by PricewaterhouseCoopers LLP. The
financial statements of Veritas DGC for the year ended July 31, 1996 were
audited by Deloitte & Touche LLP. The financial statements of Enertec for the
years ended September 30, 1996, 1997 and 1998 were audited by KPMG LLP Chartered
Accountants. The reports of PricewaterhouseCoopers LLP, Deloitte & Touche LLP
and KPMG LLP Chartered Accountants are included with this Joint Proxy Statement.
As a result of the differing year ends of Veritas DGC and Enertec, results
of operations for dissimilar year ends have been combined. Veritas DGC's results
of operations for fiscal years ended July 31, 1996, 1997 and 1998 have been
combined with Enertec's results for fiscal years ended September 30, 1996, 1997,
and 1998. Veritas DGC's results for the six months ended January 31, 1998 and
1999 have been combined with Enertec's results for the same periods. The two
2-month periods of August 1 through September 30, 1997 and 1998 are also
included in Enertec's fiscal years 1997 and 1998. Revenues, net income, net
income per share and net income per share -- assuming dilution were $9,346,000,
$490,000, $0.02 and $0.02 for the period from August 1 through September 30,
1997 and were $5,334,000, $330,000, $0.01 and $0.01 for the period from August 1
through September 30, 1998.
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE PRESENTED FOR
ILLUSTRATIVE PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF ACTUAL RESULTS
OF OPERATIONS OR FINANCIAL POSITION THAT WOULD HAVE BEEN ACHIEVED HAD THE
TRANSACTION BEEN CONSUMMATED AT THE BEGINNING OF THE EARLIEST PERIOD PRESENTED,
NOR ARE THEY NECESSARILY INDICATIVE OF FUTURE RESULTS.
15
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................................... US$292,856 US$425,512 US$581,733 US$296,283 US$266,093
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of services(2)......................... 232,081 317,593 385,282 196,992 188,845
Write-off/write-down for impairment of
assets.................................... 3,628
Depreciation and amortization............... 32,380 46,794 62,475 29,017 37,463
Selling, general and administrative......... 9,719 15,297 21,558 10,262 10,416
Other (income) expense:
Interest.................................. 6,058 7,717 7,376 4,082 5,700
Merger related costs...................... 3,666 597
Other..................................... 539 247 (637) (1,190) (2,420)
---------- ---------- ---------- ---------- ----------
Total costs and expenses.............. 288,071 388,245 476,054 239,163 240,004
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes and
equity in (earnings) loss of 50% or
less-owned companies and joint ventures..... 4,785 37,267 105,679 57,120 26,089
Provision for income taxes.................... 1,673 8,453 35,592 17,051 7,418
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures................ 1,113 (878) (972) (723) 87
---------- ---------- ---------- ---------- ----------
Income before non-recurring charges........... US$ 1,999 US$ 29,692 US$ 71,059 US$ 40,792 US$ 18,584
========== ========== ========== ========== ==========
Income before non-recurring charges per common
share....................................... US$ 0.10 US$ 1.40 US$ 2.83 US$ 1.63 US$ 0.74
========== ========== ========== ========== ==========
Income before non-recurring charges per common
share -- assuming dilution.................. US$ 0.10 US$ 1.36 US$ 2.74 US$ 1.58 US$ 0.73
========== ========== ========== ========== ==========
Non-recurring charges after tax(5)............ US$ 1,728
==========
Non-recurring charges per common share........ US$ 0.07
==========
Non-recurring charges per common share --
assuming dilution........................... US$ 0.07
==========
Shares used to compute income before
non-recurring charges and non-recurring
charges per common share.................... 20,020 21,212 25,094 24,982 25,137
========== ========== ========== ========== ==========
Shares used to compute income before
non-recurring charges and non-recurring
charges per common share -- assuming
dilution.................................... 20,243 21,777 25,928 25,856 25,321
========== ========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
16
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1999
-----------------------------------------------------------
VERITAS DGC ENERTEC ADJUSTMENTS(2) PRO FORMA
----------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... US$ 75,056 US$ 892 US$ US$ 75,948
Restricted cash investments......... 280 280
Accounts and notes receivable....... 165,448 12,815 178,263
Materials and supplies inventory.... 3,967 3,967
Prepayments and other............... 8,711 333 9,044
Income taxes recoverable............ (131) 1,462 972(5) 2,303
---------- --------- ---------- ----------
Total current assets........ 253,331 15,502 972 269,805
Property and equipment -- net......... 171,385 20,065 191,450
Multi-client data library............. 94,812 1,478 96,290
Investment in and advances to joint
ventures............................ 1,673 1,673
Goodwill.............................. 2,403 2,873 5,276
Deferred tax asset.................... 19,687 (14) 19,673
Other assets.......................... 16,459 9 16,468
---------- --------- ---------- ----------
Total....................... US$559,750 US$39,913 US$ 972 US$600,635
========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................. US$ 280 US$ 116 US$ US$ 396
Current bank indebtedness........... 6,296 6,296
Accounts payable -- trade........... 30,086 4,931 35,017
Accrued interest.................... 3,780 3,780
Other accrued liabilities........... 75,768 1,474 2,700(5) 79,942
---------- --------- ---------- ----------
Total current liabilities... 109,914 12,817 2,700 125,431
Non-current liabilities:
Long-term debt -- less current
maturities....................... 135,135 144 135,279
Other non-current liabilities....... 5,020 5,020
---------- --------- ---------- ----------
Total non-current
liabilities............... 140,155 144 140,299
Stockholders' equity:
Common stock........................ 214 15,994 (15,970)(4) 238
Additional paid-in capital.......... 206,460 86 15,970 (4) 222,516
Accumulated earnings from August 1,
1991 with respect to Digicon
Inc.............................. 113,416 12,537 (1,728)(5) 124,225
Cumulative foreign currency
translation adjustment(3)........ (6,913) (1,665) (8,578)
Less: Unearned Compensation......... (620) (620)
Less: Treasury stock, at cost
(121,143 shares).............. (2,876) (2,876)
---------- --------- ---------- ----------
Total stockholders'
equity.................... 309,681 26,952 (1,728) 334,905
---------- --------- ---------- ----------
Total....................... US$559,750 US$39,913 US$ 972 US$600,635
========== ========= ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
17
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. Enertec's historical consolidated financial statements were prepared under
Canadian GAAP. These unaudited pro forma consolidated financial statements
contain certain adjustments to conform Enertec's consolidated financial
statements as of January 31, 1999 and for the three years ended September
30, 1998 and the six months ended January 31, 1998 and 1999 with U.S. GAAP.
In addition, adjustments have been made to Enertec's historical
consolidated financial statements to conform to Veritas DGC's financial
statement presentation. The following tables reconcile Enertec's revenue,
net income, net income per share and net income per share -- assuming
dilution from Canadian GAAP in Canadian dollars to U.S. GAAP in U.S.
dollars and conforming to Veritas DGC's presentation.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JANUARY 31,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(In thousands of dollars, except for exchange rates)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF ENERTEC REVENUE
Enertec revenue -- Canadian and
U.S. GAAP....................... C$ 76,160 C$111,567 C$ 95,832 C$ 51,618 C$ 37,525
Adjustments to conform financial
statement presentation(a)....... (18,476) (25,574) (19,120) (8,624) (10,405)
--------- --------- --------- --------- ---------
Enertec revenue -- as conformed... C$ 57,684 C$ 85,993 C$ 76,712 C$ 42,994 C$ 27,120
Average currency exchange rate
applied for revenue............. 0.73261 0.73026 0.68795 0.71005 0.65052
--------- --------- --------- --------- ---------
Enertec revenue included in
Unaudited Pro Forma Consolidated
Financial Statements -- U.S.
GAAP............................ US$42,260 US$62,797 US$52,774 US$30,528 US$17,642
========= ========= ========= ========= =========
RECONCILIATION OF ENERTEC NET
INCOME (LOSS)
Enertec net income (loss) --
Canadian GAAP................... C$ 963 C$ 6,633 C$ 5,829 C$ 2,675 (C$ 682)
Canadian GAAP to U.S. GAAP
reconciling item:
Deferred taxes(c)............... (372) 372 (24) 42
--------- --------- --------- --------- ---------
Enertec net income (loss) -- U.S.
GAAP............................ C$ 963 C$ 6,261 C$ 6,201 C$ 2,651 (C$ 640)
Foreign currency translation
differences, net of tax(3)... 18 5 (197) (124) (16)
--------- --------- --------- --------- ---------
Enertec net income (loss) as
conformed....................... C$ 981 C$ 6,266 C$ 6,004 C$ 2,527 (C$ 656)
Average currency exchange rate
applied for revenue and
expense......................... 0.73191 0.72885 0.68304 0.71072 0.72256
--------- --------- --------- --------- ---------
Enertec net income (loss) included
in Unaudited Pro Forma
Consolidated Financial
Statements -- U.S. GAAP......... US$ 718 US$ 4,567 US$ 4,101 US$ 1,796 (US$ 474)
========= ========= ========= ========= =========
</TABLE>
18
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF ENERTEC'S NET
INCOME (LOSS) PER SHARE
Enertec net income (loss) per share
-- Canadian GAAP.................... C$ 0.16 C$0.15 C$ 0.99 C$0.91 C$ 0.80 C$0.75
Canadian GAAP to U.S. GAAP
reconciling items:
Treasury Stock Method(b)............ 0.04 0.02
Deferred Taxes(c)................... (0.06) (0.05) 0.06 0.05
------- ------- ------- ------- ------- -------
Enertec net income (loss) per share
-- U.S. GAAP........................ C$ 0.16 C$0.15 C$ 0.93 C$0.90 C$ 0.86 C$0.82
Foreign currency translation
difference, net of tax(3)......... 0.01 (0.03) (0.03)
------- ------- ------- ------- ------- -------
Enertec net income (loss) per share
as conformed........................ C$ 0.16 C$0.16 C$ 0.93 C$0.90 C$ 0.83 C$0.79
Effect of exchange ratio of 0.345.... 0.345 0.345 0.345 0.345 0.345 0.345
------- ------- ------- ------- ------- -------
Enertec net income (loss) per share
as exchanged........................ C$ 0.06 C$0.06 C$ 0.32 C$0.31 C$ 0.29 C$0.27
Average exchange rate applied for
revenue and expense................. 0.73191 0.73191 0.72885 0.72885 0.68304 0.68304
------- ------- ------- ------- ------- -------
Enertec net income (loss) per share
included in Unaudited Pro Forma
Consolidated Statements of
Operations -- U.S. GAAP............. US$0.04 US$0.04 US$0.23 US$0.23 US$0.20 US$0.19
======= ======= ======= ======= ======= =======
<CAPTION>
SIX MONTHS ENDED JANUARY 31,
------------------------------------------
1998 1999
------------------ --------------------
BASIC DILUTED BASIC DILUTED
------- ------- -------- --------
<S> <C> <C> <C> <C>
RECONCILIATION OF ENERTEC'S NET
INCOME (LOSS) PER SHARE
Enertec net income (loss) per share
-- Canadian GAAP.................... C$ 0.36 C$0.34 (C$ 0.10) (C$ 0.10)
Canadian GAAP to U.S. GAAP
reconciling items:
Treasury Stock Method(b)............
Deferred Taxes(c)................... 0.01 0.01
------- ------- -------- --------
Enertec net income (loss) per share
-- U.S. GAAP........................ C$ 0.36 C$0.34 (C$ 0.09) (C$ 0.09)
Foreign currency translation
difference, net of tax(3)......... (0.01) (0.01)
------- ------- -------- --------
Enertec net income (loss) per share
as conformed........................ C$ 0.35 C$0.33 (C$ 0.09) (C$ 0.09)
Effect of exchange ratio of 0.345.... 0.345 0.345 0.345 0.345
------- ------- -------- --------
Enertec net income (loss) per share
as exchanged........................ C$ 0.12 C$0.11 (C$ 0.03) (C$ 0.03)
Average exchange rate applied for
revenue and expense................. 0.71072 0.71072 0.72256 0.72256
------- ------- -------- --------
Enertec net income (loss) per share
included in Unaudited Pro Forma
Consolidated Statements of
Operations -- U.S. GAAP............. US$0.09 US$0.08 (US$0.02) (US$0.02)
======= ======= ======== ========
</TABLE>
- ---------------
(a) Enertec reports revenues including amounts billed to customers for
reimbursable costs. Veritas DGC reports revenues net of such amounts.
(b) Enertec reports fully diluted net income per share in accordance with
Canadian GAAP which requires, in determining the fully diluted weighted
average number of shares outstanding, the assumption that all outstanding
stock options are exercised. In calculating fully diluted earnings per
share, net income as reported is increased by the imputed earnings, after
income taxes, on the cash that would have been received on the exercise of
the options. For U.S. GAAP, in calculating diluted earnings per share, the
diluted weighted average number of shares outstanding is calculated using
the treasury method. Under this method, proceeds from the assumed exercise
of stock options which are in-the-money relative to the average price for
the period are assumed to be used to purchase outstanding shares at the
average market price for the period, this purchase reduces the number of
shares assumed to be issued on the exercise of the options.
(c) Enertec follows the deferral method of accounting for income taxes in
accordance with Canadian GAAP which relates the provision for income taxes
to the accounting income for the period. Under the deferral method, the
amount by which the tax provision differs from the amount of tax currently
payable is considered to represent the deferral to future periods of
benefits obtained or expenditures incurred in the current period and
accordingly is computed at current tax rates. The accumulated tax
allocation debit or credit is not adjusted to reflect subsequent changes in
tax rates. In the United States, statement of financial accounting
standards no. 109, accounting for income taxes (SFAS 109) requires the use
of the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred taxes are recognized for the future
tax consequences attributable to tax assets and liabilities measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is included in earnings in the period that includes the enactment
date.
2. There are no significant adjustments required to the historical
consolidated financial statements of Enertec or Veritas DGC to conform
accounting policies of the two companies.
19
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. Enertec's historical consolidated financial statements, which were reported
in Canadian dollars, have been converted using the Canadian dollar as the
functional currency for Enertec's operations in Canada and the U.S. dollar
as the functional currency for Enertec's operations in the U.S. Balance
sheet items (excluding common stock, contributed surplus and retained
earnings that have been converted at historical exchange rates) have been
converted using the exchange rate in effect at the end of Enertec's
reporting period. Revenue and expense items have been converted at weighted
average rates in effect during the reporting period. An adjustment has been
made to stockholders' equity to reflect the translation of Enertec's
Canadian operations to U.S. dollars and an adjustment has been made to the
statement of income to reflect the change in the reporting of the U.S.
operations from Canadian to U.S. dollars.
4. Common stock and additional paid-in capital have been adjusted assuming all
Series 1 Exchangeable Shares and VESI Exchangeable Shares are exchanged for
Veritas DGC Common Stock.
5. Veritas DGC and Enertec expect to incur business combination costs
estimated to be $2.7 million within the 12-month period following
consummation of the Transaction. This estimate includes $1.5 million for
employee severance, $300,000 for integration costs, and $900,000 for
Transaction costs, consisting of $800,000 for professional fees and
$100,000 for filing fees. The $2.7 million of costs have been tax effected
using a 36% rate and are estimated to result in an after tax expense of
approximately $1.7 million.
20
<PAGE> 34
THE MEETINGS
VERITAS DGC
Solicitation and Voting of Proxies. The accompanying Veritas DGC proxy is
solicited on behalf of the Veritas DGC board for use at the Veritas DGC meeting,
to be held at Veritas DGC's principal executive offices, 3701 Kirby Drive,
Houston, Texas 77098, on , 1999 at (Houston time). Only
holders of record of Veritas DGC Common Stock and VESI Exchangeable Shares at
the close of business on , 1999 will be entitled to vote at the
Veritas DGC meeting. Veritas DGC is not entitled to vote any VESI Exchangeable
Shares which it holds. At the close of business on the Veritas DGC record date,
there were shares of Veritas DGC Common Stock and VESI
Exchangeable Shares outstanding and entitled to vote. The shares vote together
as a single class, and each share entitles the holder to one vote on all matters
presented at the Veritas DGC meeting. A majority of the shares, present in
person or by proxy, will constitute a quorum for the transaction of business.
Abstentions and broker non-votes will be considered to be represented for
purposes of a quorum. This Joint Proxy Statement and the accompanying form of
proxy were first mailed to Veritas DGC stockholders and VESI exchangeable
shareholders on or about , 1999.
Revocability of Proxy. A stockholder who has given a proxy may revoke it
at any time before it is exercised at the Veritas DGC meeting, by (1) delivering
to the secretary of Veritas DGC (by any means, including facsimile) a written
notice stating that the proxy is revoked, (2) signing and so delivering a proxy
bearing a later date or (3) attending the Veritas DGC meeting and voting in
person (although attendance at the Veritas DGC meeting will not, by itself,
revoke a proxy).
Expenses of Proxy Solicitation. The expenses of soliciting proxies to be
voted at the Veritas DGC meeting will be paid by Veritas DGC. Following the
original mailing of the proxies and other soliciting materials, Veritas DGC
and/or its agents also may solicit proxies by mail, telephone, facsimile or in
person. Following the original mailing of the proxies and other soliciting
materials, Veritas DGC will request brokers, custodians, nominees and other
record holders of shares to forward copies of the proxy and other soliciting
materials to persons for whom they hold such shares and to request authority for
the exercise of proxies. In such cases, Veritas DGC, upon the request of the
record holders, will reimburse such holders for their reasonable expenses.
Voting Rights. Stockholders are entitled to one vote for each share held
as of the Veritas DGC record date. Stockholder approval of the amendment (the
"Charter Amendment") to the Veritas DGC Restated Certificate of Incorporation is
required by the Delaware General Corporation Law (the "DGCL"). Such approval
requires the affirmative vote of a majority of the outstanding Veritas DGC
Common Stock and VESI Exchangeable Shares voting as a single class.
Veritas DGC will count abstentions in tabulations of votes cast, and an
abstention, therefore, will have the same effect as a vote against the proposal.
Under Delaware case law, broker non-votes (shares which are present at the
meeting and for which a broker or nominee has received no instruction by the
beneficial owner as to how such owner wishes the shares to be voted) are counted
for purposes of determining whether a quorum is present at the meeting but are
not counted for purposes of determining whether a proposal has been approved.
Thus, a broker non-vote will have the same effect as a negative vote with regard
to the proposal to approve the Charter Amendment.
Auditors. PricewaterhouseCoopers LLP, certified public accountants, have
served as the independent accountants of Veritas DGC since November 1996.
Representatives of PricewaterhouseCoopers LLP plan to attend the Veritas DGC
meeting and will be available to answer questions. Its representatives will also
have an opportunity to make a statement at the meeting if they so desire,
although it is not expected that any statement will be made.
Stockholder Proposals. Any stockholder who wishes to submit a proposal for
action to be included in the proxy statement and form of proxy relating to
Veritas DGC's 1999 annual meeting of stockholders is required to submit such
proposal to Veritas DGC on or before July 5, 1999.
21
<PAGE> 35
VESI
Solicitation and Voting of Proxies. The accompanying VESI proxy is
solicited on behalf of the VESI board for use at the VESI meeting. The
solicitation of proxies will be primarily by mail but proxies may also be
solicited personally or by telephone by regular employees of VESI or Veritas DGC
without special compensation. The cost of solicitation will be borne by Veritas
DGC. Veritas DGC may also pay brokers or nominees holding VESI Exchangeable
Shares in their names or in the names of their principals for their reasonable
expenses in sending solicitation material to their principals.
Only registered VESI exchangeable shareholders at the close of business on
, 1999 will be entitled to vote at the VESI meeting, subject to the
provisions of the Business Corporations Act (Alberta) (the "ABCA") regarding
transfers of VESI Exchangeable Shares after the VESI record date. See the
"Notice of Special Meeting of Exchangeable Shareholders" accompanying this Joint
Proxy Statement. Veritas DGC may not vote any VESI Exchangeable Shares held by
it at the VESI meeting. However, such shares will be counted for the purpose of
determining if a quorum is present. At the close of business on the VESI record
date, there were VESI Exchangeable Shares outstanding.
A quorum of VESI exchangeable shareholders for the transaction of business
at the meeting consists of holders of at least 50% of the VESI Exchangeable
Shares present either in person or by duly appointed proxy.
To be effective, proxies must be received by CIBC Mellon Trust Company not
later than noon (Calgary time) on the day preceding the day of the VESI meeting,
or, if the VESI meeting is adjourned, not later than 24 hours (excluding
Saturdays, Sundays and holidays) before the time of the VESI meeting or any
adjournment or postponement thereof.
Appointment of Proxy and Discretionary Authority. A VESI EXCHANGEABLE
SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A SHAREHOLDER OF
VESI) OTHER THAN PERSONS DESIGNATED IN THE FORM OF PROXY ACCOMPANYING THIS JOINT
PROXY STATEMENT, AS NOMINEE TO ATTEND AND ACT FOR AND ON BEHALF OF SUCH
SHAREHOLDER AT THE VESI MEETING AND MAY EXERCISE SUCH RIGHT BY INSERTING THE
NAME OF SUCH PERSON IN THE BLANK SPACE PROVIDED ON THE FORM OF PROXY.
THE FORM OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT CONFERS
DISCRETIONARY AUTHORITY UPON THE PROXY NOMINEES WITH RESPECT TO AMENDMENTS OR
VARIATIONS TO THE MATTERS IDENTIFIED IN THE ACCOMPANYING NOTICE OF THE VESI
MEETING AND OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE VESI MEETING.
THE SHARES REPRESENTED BY PROXIES AT THE VESI MEETING WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS OF THE SHAREHOLDER ON ANY BALLOT THAT MAY BE
CALLED FOR AND, WHERE THE PERSON WHOSE PROXY IS SOLICITED SPECIFIES A CHOICE
WITH RESPECT TO ANY MATTER TO BE VOTED UPON, HIS OR HER SHARES SHALL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS SO MADE.
IF A VESI EXCHANGEABLE SHAREHOLDER APPOINTS A PERSON DESIGNATED BY
MANAGEMENT IN THE FORM OF PROXY AS NOMINEE AND DOES NOT DIRECT THE MANAGEMENT
NOMINEE TO VOTE EITHER FOR OR AGAINST THE MATTER OR MATTERS WITH RESPECT TO
WHICH AN OPPORTUNITY TO SPECIFY HOW THE SHARES REGISTERED IN THE NAME OF SUCH
SHAREHOLDER SHALL BE VOTED, THE PROXY SHALL BE VOTED FOR SUCH MATTER OR MATTERS
PROPOSED IN THIS JOINT PROXY STATEMENT.
Management knows of no matters to come before the VESI meeting other than
the matters referred to in the accompanying notice of the VESI meeting. However,
if any other matters which are not now known to management should properly come
before the VESI meeting, the shares represented by proxies in favor of
management nominees will be voted on such matters in accordance with the best
judgment of the proxy nominee.
Revocation of Proxies. PROXIES GIVEN BY VESI EXCHANGEABLE SHAREHOLDERS FOR
USE AT THE VESI MEETING MAY BE REVOKED AT ANY TIME PRIOR TO THEIR USE. A VESI
exchangeable shareholder giving a proxy may revoke the proxy (1) by instrument
in writing executed by the shareholder or by his or her attorney authorized in
writing, or, if the shareholder is a corporation, under its corporate seal by an
officer or attorney thereof duly authorized indicating the capacity under which
such officer or attorney is signing, and deposited either at the registered
office of VESI (as set forth in this Joint Proxy Statement) at any time up to
and including noon (Calgary time) on the last business day preceding the day of
the VESI meeting, or any adjournment or postponement thereof, or with
22
<PAGE> 36
the chairman of the VESI meeting on the day of such VESI meeting or adjournment
or postponement thereof, (2) by a duly executed proxy bearing a later date or
time than the date or time of the proxy being revoked, (3) by voting in person
at the VESI meeting (although attendance at the VESI meeting will not in and of
itself constitute a revocation of a proxy), or (4) in any other manner permitted
by law.
Required Votes. Holders of VESI Exchangeable Shares are entitled to one
vote for each share held. The special resolution, in the form of Annex A, in
respect of the proposed "Arrangement" of Enertec and VESI under Part 15 of the
ABCA, set forth in full in Annex D, must be approved by the affirmative vote of
not less than two-thirds of the votes cast by the holders of VESI Exchangeable
Shares present (in person or by proxy) and entitled to vote at the VESI meeting.
David B. Robson, president of VESI and chairman and chief executive officer of
Veritas DGC, holds approximately 86% of the outstanding VESI Exchangeable Shares
entitled to vote and has agreed with Enertec to vote such shares in favor of the
Arrangement. As a result, approval of the Arrangement by the VESI exchangeable
shareholders is effectively assured.
Veritas DGC, as the sole holder of VESI common shares, has consented to the
Arrangement.
ENERTEC
Solicitation and Voting of Proxies. The accompanying Enertec proxy is
solicited on behalf of the Enertec board for use at the Enertec meeting. The
solicitation of proxies will be primarily by mail but proxies may also be
solicited personally or by telephone by regular employees of Enertec without
special compensation. The cost of solicitation will be borne by Enertec. Enertec
may also pay brokers or nominees holding Enertec Common Shares in their names or
in the names of their principals for their reasonable expenses in sending
solicitation material to their principals.
Only registered Enertec shareholders and Enertec optionholders at the close
of business on , 1999 will be entitled to vote at the Enertec meeting,
subject to the provisions of the ABCA regarding transfers of Enertec Common
Shares after the Enertec record date. See the "Notice of Special Meeting of
Shareholders and Optionholders" accompanying this Joint Proxy Statement. At the
close of business on the Enertec record date, there were Enertec
Common Shares outstanding and Enertec Options outstanding in respect of an
additional Enertec Common Shares.
A quorum of Enertec shareholders and Enertec optionholders for the
transaction of business at the Enertec meeting is not less than two persons
present, either in person or by duly appointed proxy.
To be effective, proxies must be received by Montreal Trust Company of
Canada not later than noon (Calgary time) on the day preceding the day of the
Enertec meeting, or, if the Enertec meeting is adjourned, not later than 24
hours (excluding Saturdays, Sundays and holidays) before the time of the Enertec
meeting or any adjournment or postponement thereof.
Appointment of Proxy and Discretionary Authority. AN ENERTEC SHAREHOLDER
OR ENERTEC OPTIONHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER OR OPTIONHOLDER OF ENERTEC), OTHER THAN PERSONS DESIGNATED IN THE
FORM OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT, AS NOMINEE TO ATTEND AND
ACT FOR AND ON BEHALF OF SUCH SHAREHOLDER OR OPTIONHOLDER AT THE ENERTEC MEETING
AND MAY EXERCISE SUCH RIGHT BY INSERTING THE NAME OF SUCH PERSON IN THE BLANK
SPACE PROVIDED ON THE FORM OF PROXY.
THE FORM OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT CONFERS
DISCRETIONARY AUTHORITY UPON THE PROXY NOMINEES WITH RESPECT TO AMENDMENTS OR
VARIATIONS TO THE MATTERS IDENTIFIED IN THE ACCOMPANYING NOTICE OF THE ENERTEC
MEETING AND OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ENERTEC MEETING.
THE ENERTEC COMMON SHARES AND ENERTEC OPTIONS REPRESENTED BY PROXIES AT THE
ENERTEC MEETING WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
SHAREHOLDER OR OPTIONHOLDER ON ANY BALLOT THAT MAY BE CALLED FOR AND, WHERE THE
PERSON WHOSE PROXY IS SOLICITED SPECIFIES A CHOICE WITH RESPECT TO ANY MATTER TO
BE VOTED UPON, HIS OR HER SHARES OR OPTIONS SHALL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS SO MADE.
IF AN ENERTEC SHAREHOLDER OR ENERTEC OPTIONHOLDER APPOINTS A PERSON
DESIGNATED BY MANAGEMENT IN THE FORM OF PROXY AS NOMINEE AND DOES NOT DIRECT THE
MANAGEMENT NOMINEE TO VOTE EITHER FOR OR AGAINST THE MATTER OR MATTERS WITH
RESPECT TO WHICH AN OPPORTUNITY TO SPECIFY HOW THE SHARES OR OPTIONS REGISTERED
IN
23
<PAGE> 37
THE NAME OF SUCH SHAREHOLDER OR OPTIONHOLDER SHALL BE VOTED, THE PROXY SHALL BE
VOTED FOR SUCH MATTER OR MATTERS PROPOSED IN THIS JOINT PROXY STATEMENT.
Management of Enertec knows of no matters to come before the Enertec
meeting other than the matters referred to in the accompanying notice of the
Enertec meeting. However, if any other matters which are not now known to
management should properly come before the Enertec meeting, the shares and
options represented by proxies in favor of management nominees will be voted on
such matters in accordance with the best judgment of the proxy nominee.
Revocation of Proxies. PROXIES GIVEN BY ENERTEC SHAREHOLDERS OR ENERTEC
OPTIONHOLDERS FOR USE AT THE ENERTEC MEETING MAY BE REVOKED AT ANY TIME PRIOR TO
THEIR USE. An Enertec shareholder or Enertec optionholder giving a proxy may
revoke the proxy (1) by instrument in writing executed by the shareholder or
optionholder or by his or her attorney authorized in writing, or, if the
shareholder is a corporation, under its corporate seal by an officer or attorney
thereof duly authorized indicating the capacity under which such officer or
attorney is signing, and deposited either at the registered office of Enertec
(as set forth in this Joint Proxy Statement) at any time up to and including
4:00 p.m. (Calgary time) on the last business day preceding the day of the
Enertec meeting, or any adjournment or postponement thereof, or with the
chairman of the Enertec meeting on the day of such Enertec meeting or
adjournment or postponement thereof, (2) by a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked, (3) by
voting in person at the Enertec meeting (although attendance at the Enertec
meeting will not in and of itself constitute a revocation of a proxy), or (4) in
any other manner permitted by law.
Required Votes. Enertec shareholders and Enertec optionholders are
entitled to one vote for each share or option held. The special resolution, in
the form of Annex A, in respect of the proposed "Arrangement" of Enertec and
VESI under Part 15 of the ABCA, set forth in full Annex D, must be approved by
the affirmative vote of not less than two-thirds of the aggregate of the votes
cast by the holders of Enertec Common Shares and the holders of Enertec Options,
voting together as a class, present (in person or by proxy) and entitled to vote
at the Enertec meeting.
24
<PAGE> 38
THE TRANSACTION
BACKGROUND
In August 1996 Digicon Inc., now known as Veritas DGC, completed a
combination with VESI. Digicon's and VESI's seismic operations were
complementary, in that VESI operated primarily onshore in Canada and the
continental United States in its data acquisition operations and Digicon's
principal strength was marine operations in selected markets worldwide. As such,
the combination resulted in each company entering into additional geographic
markets, which lessened the seasonal and cyclical nature of each company's
business, and allowed the combined enterprise to more productively utilize its
assets. Another key component of the combination was achieving "critical mass"
that better positioned the combined company to compete with large competitors
and attract new capital to invest in the industry's rapidly changing technology.
Veritas DGC capitalized on most expected benefits of the combination. From
fiscal year 1996 to fiscal year 1998, combined revenues grew from $250.6 million
to $529 million, an increase of approximately 45% per year during the two year
period. Veritas DGC is now the fifth largest seismic service provider in the
world.
In early January 1999, in light of Veritas DGC's achievements since 1996
and the matters described in "-- Reasons for the Transaction," Murray A. Olson,
chief executive officer of Enertec, contacted David B. Robson, chairman and
chief executive officer of Veritas DGC, with a view to enhancing long-term value
for Enertec shareholders. On January 7, 1999, they met in Houston to determine
whether there was a mutual basis for continuing discussions. During the
remainder of January 1999, the two chief executive officers and other senior
management of each company continued discussions regarding a possible
combination of the companies. On January 26, 1999, the parties entered into a
confidentiality agreement and agreed to exchange information.
During early February 1999, Messrs. Robson and Olson continued negotiations
with respect to an appropriate structure and exchange ratio for the proposed
combination with the assistance of their respective financial, legal and
accounting advisors. On February 15, 1999, Messrs. Robson and Olson reached a
verbal agreement that the transaction should be structured so that Enertec
shareholders would receive Veritas DGC Common Stock or exchangeable shares, and
that the exchange ratio should be effectively 0.345 of a share of Veritas DGC
Common Stock for each Enertec Common Share.
On February 19, 1999, the Enertec board met and approved the exchange
ratio, subject to the conditions specified in a draft letter of intent provided
by Veritas DGC. On February 22, 1999, Veritas DGC and Enertec entered into a
non-binding letter of intent which was conditioned on a number of matters,
including board approvals, due diligence and the execution of a definitive
agreement.
Also on February 22, 1999, the Veritas DGC board met at a special meeting
convened to discuss the proposed transaction. At that meeting, the board
approved management proceeding with a further due diligence review based on the
exchange ratio negotiated. On the same date, a joint press release announcing
the signing of the letter of intent was issued.
On March 9, 1999, the Veritas DGC board unanimously approved the proposed
transaction, subject to conclusion of a definitive agreement, following
presentations as to (1) the results of the operational and legal due diligence
reviews and (2) the projected financial and accounting implications of the
proposed transaction.
On March 22, 1999, the Enertec board received and considered the fairness
opinion of CIBC Wood Gundy Securities Inc. that the exchange ratio is fair to
the Enertec shareholders from a financial point of view. The Enertec board, at
the March 22, 1999 meeting, then unanimously approved the proposed transaction,
subject to conclusion of a definitive agreement, following presentations as to
(1) the results of the operational and legal due diligence review and (2) the
projected financial and accounting implications of the proposed transaction.
Subsequent to the board meetings, negotiation of the combination agreement
among Veritas DGC, VESI and Enertec (the "Combination Agreement") continued and
culminated with the execution of the Combination Agreement effective March 30,
1999.
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<PAGE> 39
REASONS FOR THE TRANSACTION
Advantages. The board of directors of each of Veritas DGC, VESI and
Enertec believe the Transaction will allow the companies to combine their
resources to enhance their ability to compete in certain markets in an evolving
seismic data acquisition and processing services industry. The board of
directors of each of Veritas DGC, VESI and Enertec considered the following
material factors in making these recommendations:
- From March 1998 to March 1999, the Baker Hughes rotary rig count for
North America decreased from 942 to 543, a 43% decline. During 1998 and
early 1999, oil and natural gas prices significantly decreased. These
factors have caused an oversupply of seismic data acquisition crews and
seismic processing services and downward pressure on the pricing of
services. The companies estimate that overall exploration and production
spending will decline 25% to 30% in 1999 as compared to 1998 and that
demand for geophysical services onshore North America will decline by a
greater proportion. The companies believe that market conditions require
a consolidation of crews, equipment and services to enable them to
operate more profitably in these markets.
- The Transaction would allow the companies to integrate their operations,
allowing the combined company to be more cost effective and therefore
more competitive in delivering acquisition and processing services. This
is particularly true in Canada, where management of each of the
companies believes that the Transaction will result in the combined
company being the leading seismic contractor.
- Management of each of the companies believes that consolidation within
the seismic industry is required as a result of increased capital
requirements to fund modernization of seismic equipment because of
rapidly changing technology and increased investment in large data
library projects.
- The combined company will gain "critical mass" that will better position
it to compete with other large seismic companies.
In addition to the joint considerations, the Enertec board considered the
following additional factors:
- The arrangement of Enertec and VESI is structured to provide Enertec
shareholders and Enertec optionholders with a security which has a
significantly larger market capitalization and better liquidity.
- The Transaction creates the potential for Enertec and Enertec
shareholders and Enertec optionholders to benefit through the combined
company's access to U.S. capital markets, which may lower its cost of
capital.
- The Transaction creates the potential for Enertec and Enertec
shareholders and Enertec optionholders to benefit from the combined
company's more diverse geophysical product offerings and its established
presence in selected markets worldwide.
Disadvantages. The board of directors of each of Veritas DGC, VESI and
Enertec considered the following additional factors:
- The success of the combined company in markets in which Enertec competes
will be partially dependent on the successful integration of the
companies.
- The companies have overlapping operations in certain land processing and
acquisition businesses which will result in integration costs for the
combined company.
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Veritas DGC. The Veritas DGC board of directors unanimously recommends
that the Veritas DGC stockholders and VESI exchangeable shareholders vote to
approve the Charter Amendment.
VESI. The VESI board of directors believes that the Transaction is in the
best interests of the VESI exchangeable shareholders. It unanimously recommends
that the VESI exchangeable shareholders vote to approve the Arrangement.
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<PAGE> 40
Enertec. The Enertec board of directors believes that the Transaction is
in the best interests of the Enertec shareholders and Enertec optionholders. It
unanimously recommends that the Enertec shareholders and Enertec optionholders
vote to approve the Arrangement.
In reaching the conclusions stated above, the boards of directors of
Veritas DGC, VESI and Enertec considered a number of factors including certain
advantages and disadvantages of proceeding with the Transaction. For a
discussion of these considerations, see, "-- Reasons for the Transaction."
BUSINESS COMBINATION COSTS
The companies expect to incur non-recurring business combination costs
estimated to be $2.7 million within the 12-month period following the closing.
This estimate includes costs relating to employee severance ($1.5 million) and
integration costs relating to overlapping operations in land processing and
acquisition operations ($300,000). In addition, in connection with the
Transaction the companies expect to incur aggregate costs for professional fees
of approximately $800,000 and filing fees of approximately $100,000. Using a tax
rate of 36%, the after tax expense of these costs is expected to be $1.7
million.
OPINION OF CIBC WOOD GUNDY SECURITIES INC.
THE FULL TEXT OF THE OPINION OF CIBC WOOD GUNDY SECURITIES INC. ("CIBC WOOD
GUNDY") DATED MARCH 30, 1999 (THE "OPINION") IS ATTACHED AS ANNEX H TO THIS
JOINT PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. ENERTEC
SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY FOR A
DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED, THE ASSUMPTIONS
AND QUALIFICATIONS MADE BY CIBC WOOD GUNDY IN RENDERING THE OPINION AND OTHER
FACTORS RELATING TO CIBC WOOD GUNDY'S ENGAGEMENT BY ENERTEC. THE SUMMARY OF THE
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
Enertec retained CIBC Wood Gundy as its exclusive financial advisor in
connection with the Transaction. In connection with this engagement, Enertec
requested CIBC Wood Gundy to render an opinion as to whether or not the
consideration to be received by the Enertec shareholders in the Transaction (the
"Transaction Consideration") was fair, from a financial point of view, to the
Enertec shareholders.
CIBC Wood Gundy delivered the Opinion as of March 30, 1999 to the Enertec
board to the effect that, as of the date of the Opinion, and subject to certain
assumptions, factors and limitations set forth in the Opinion, the Transaction
Consideration was fair, from a financial point of view, to the Enertec
shareholders.
The Opinion was prepared at the request of and for the use and benefit of
the Enertec board in connection with its consideration of the Transaction and
relates only to the fairness, from a financial point of view, of the Transaction
Consideration to the Enertec shareholders. The Opinion does not address any
other aspect of the Transaction or related transactions, nor does it address the
relative merits of the Transaction and any other transactions or business
strategies discussed by the Enertec board as alternatives to the Transaction, or
the decision of the Enertec board to proceed with the Transaction. The Opinion
does not constitute a recommendation to any shareholder of Enertec as to how
such shareholder should vote on the approval of the Transaction. The Opinion was
only one of many factors considered by the Enertec board in its evaluation of
the Transaction Consideration and the Transaction and should not be viewed as
determinative of the views of the Enertec board or management with respect to
the Transaction Consideration or the Transaction. CIBC Wood Gundy was not
requested to and did not make any recommendation to the Enertec board as to the
form or amount of the Transaction Consideration to Enertec shareholders
reflected in the Arrangement and the Combination Agreement, which was determined
through arm's-length negotiations between Enertec and Veritas DGC. In arriving
at its opinion, CIBC Wood Gundy did not ascribe a specific range of values to
Enertec, but made its determination as to the fairness, from a financial point
of view, to the Enertec shareholders of the Transaction Consideration on the
basis of financial and comparative analyses summarized below.
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<PAGE> 41
In connection with rendering the Opinion, CIBC Wood Gundy reviewed and
relied upon, or carried out, among other things, the following:
- a draft of the Combination Agreement dated March 29, 1999;
- public information including Enertec's audited annual financial
statements, interim reports and Annual Reports for each of the last
three consecutive fiscal years ending September 30, 1998, Annual
Information Form for the year ended September 30, 1998, Proxy
Information Circular dated January 22, 1999 and interim unaudited
financial statements for the three months ending December 31, 1998;
- public information including Veritas DGC's or predecessor entities'
Annual Reports, Forms 10-K, Forms 10-Q, Proxy Information Circulars and
related financial information for the three fiscal years ended July 31,
1998 and interim unaudited financial statements for the six months
ending January 31, 1999;
- certain information including financial forecasts for the fiscal year
ended September 30, 1999 for Enertec, and for the fiscal year ended July
31, 1999 and the interim six month period ending January 31, 2000 for
Veritas DGC, relating to the respective business, earnings, cash flow,
assets and prospects of Enertec and Veritas DGC, furnished to it by
Enertec and Veritas DGC, respectively;
- discussions with members of senior management of Enertec and Veritas DGC
concerning their respective businesses and prospects;
- historical market prices and trading activity for the Enertec Common
Shares and the Veritas DGC Common Stock, and comparative historical
market prices and trading activity of certain publicly traded companies
which it deemed to be relevant;
- the financial position and operating results of Enertec and Veritas DGC,
and those of certain publicly traded companies which it deemed to be
relevant;
- the financial terms of the Arrangement and the financial terms of
certain other business combinations which it deemed to be relevant;
- the merger premiums paid in recent mergers and acquisitions of public
companies deemed relevant;
- potential pro forma financial effects of the Arrangement on Enertec and
Veritas DGC;
- discussions with legal counsel to Enertec with respect to various
matters;
- letters of representation as to certain factual matters provided by
Enertec and Veritas DGC and addressed to it, dated March 30, 1999 in the
case of Enertec and dated March 22, 1999 in the case of Veritas DGC; and
- such other information, investigations and analyses as it considered
appropriate in the circumstances.
In rendering the Opinion, CIBC Wood Gundy relied upon and assumed the
completeness, accuracy and fair representation of all financial and other
information, data, advice, opinions and representations obtained by it from
public sources or provided to it by Enertec, Veritas DGC and their affiliates or
advisors or otherwise pursuant to its engagement and the Opinion was conditioned
upon such completeness, accuracy and fair representation. Subject to the
exercise of professional judgment and except as expressly described herein, CIBC
Wood Gundy did not attempt to verify independently the accuracy or completeness
of any such information, data, advice, opinions and representations. Senior
management of Enertec and Veritas DGC represented to CIBC Wood Gundy, in letters
delivered as of March 30, 1999 in the case of Enertec and as of March 22, 1999,
in the case of Veritas DGC, among other things, that the information, data,
opinions and other materials provided to it by or on behalf of Enertec or
Veritas DGC were complete and correct as of the date of such information and
that since the date of such information, there had been no material change,
financial or otherwise, in the position of Enertec or Veritas DGC, or in their
assets, liabilities (contingent or otherwise), businesses or operations and
there had been no changes of any material fact of a nature as to render the
information untrue or misleading in any material aspect.
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<PAGE> 42
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, CIBC Wood Gundy believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the Opinion.
The Opinion was rendered on the basis of securities markets, economic and
general business and financial conditions prevailing as of its date and the
condition and prospects, financial and otherwise, of Enertec and Veritas DGC as
they were reflected in the information and documents reviewed by CIBC Wood Gundy
and as they were represented to CIBC Wood Gundy in its discussions with the
respective management of each of Enertec and Veritas DGC. In its analyses and in
connection with its preparation of the Opinion, CIBC Wood Gundy made numerous
assumptions with respect to industry performance, general business, market and
economic conditions and other matters, many of which are beyond the control of
CIBC Wood Gundy or any party involved in the Arrangement. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. CIBC Wood Gundy was not authorized by Enertec
or its board of directors to solicit, nor did it solicit, third party
indications of interest for the acquisition or merger of Enertec.
Some of the summaries of financial analyses include information presented
in tabular format. In order to fully understand the financial analyses performed
by CIBC Wood Gundy, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses performed by CIBC Wood
Gundy. The following paragraphs summarize the significant analyses performed by
CIBC Wood Gundy in arriving at the Opinion.
Share Trading History. To provide contextual data and comparative market
data, CIBC Wood Gundy reviewed the history of the trading prices and volume for
the Enertec Common Shares and the Veritas DGC Common Stock, both separately and
in relation to a market index and two comparative company indices. The market
index used was the Standard & Poor's 500 Index. The comparative company indices
used were an index of twelve seismic services companies and an index of five
Canadian-based oilfield services companies. In addition, CIBC Wood Gundy
reviewed the historical relative relationship between the per share market
prices of the Enertec Common Shares and the Veritas DGC Common Stock and
compared this to the Transaction Consideration. CIBC Wood Gundy further noted
that the relationship of the Veritas DGC Common Stock to the Enertec Common
Shares at all times during the two periods presented below was never higher than
the Transaction Consideration.
<TABLE>
<CAPTION>
LAST TWELVE MONTHS ENDING AUGUST 1, 1998 --
MARCH 30, 1999 MARCH 30, 1999
------------------------- -----------------
<S> <C> <C>
Relative relationship.............. 0.104X -- 0.345X 0.141X -- 0.345X
</TABLE>
Selected Comparative Public Company Analysis. Using publicly available
information, CIBC Wood Gundy compared selected historical and projected
financial, operating and stock market performance data of Enertec and Veritas
DGC to the corresponding data of publicly traded seismic services companies that
included the following:
- Cie Generale de Geophysique
- Core Laboratories N.V.
- Dawson Geophysical Company
- Eagle Geophysical, Inc.
- GeoKinetics Inc.
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<PAGE> 43
- Input/Output Inc.
- Kelman Technologies Inc.
- Omni Energy Services Corp.
- Paradigm Geophysical Ltd.
- Petroleum Geo-Services, AS
- Seitel, Inc.
- TGS Nopec ASA
With respect to these companies, CIBC Wood Gundy noted that:
- all but one were listed on U.S. stock exchanges, unlike Enertec, and had
generally larger market values and greater trading liquidity than
Enertec; and
- the companies with U.S. listings, with generally larger market values
and with greater trading liquidity have generally traded at premium
multiples to those of Enertec.
Both Enertec and Veritas DGC operate businesses for which there are no
directly comparable companies. Accordingly, analysis of the results of the
foregoing was not simply mathematical nor necessarily precise; rather, it
involved complex consideration and judgments concerning differences in financial
and operating characteristics of companies and other factors that could affect
public trading values. Nonetheless, CIBC Woody Gundy believed the following six
seismic companies to be the most comparable to Enertec due to the greater
similarities of their business operations.
- Dawson Geophysical Company
- Eagle Geophysical, Inc.
- Paradigm Geophysical Ltd.
- Cie Generale de Geophysique
- Kelman Technologies Inc.
- GeoKinetics Inc.
In its analysis, CIBC Wood Gundy believed the multiples of 1998 and
estimated 1999 earnings before interest, taxes, depreciation and amortization
("EBITDA") and after-tax cash flow from operations ("CFFO"), which are widely
accepted measures of cash flow, and the most recent book values of assets and
shareholders' equity to be the most relevant for the comparative company trading
analysis. CIBC Wood Gundy determined the average multiples of these six selected
companies, which are presented below. Estimated 1999 net income, CFFO and EBITDA
were estimated by independent research analysts and compiled by CIBC Wood Gundy.
<TABLE>
<S> <C>
Enterprise Value to:
- -- 1998 EBITDA.............................................. 4.2X
- -- 1999 EBITDA.............................................. 4.4X
- -- Book Value of Assets..................................... 1.1X
Market Value to:
- -- 1998 Net Income.......................................... 12.7X
- -- 1998 CFFO................................................ 5.0X
- -- 1999 Net Income.......................................... 8.1X
- -- 1999 CFFO................................................ 6.6X
- -- Shareholders' Equity..................................... 0.8X
</TABLE>
CIBC Wood Gundy noted that prior to the announcement of the letter of
intent with respect to the Transaction, the indicated trading multiples of
Enertec were below the indicated range of average trading
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<PAGE> 44
multiples of the six comparative companies and that after the close of trading
on February 22, 1999, the date of the transaction announcement, and on March 30,
1999, the date of the Opinion, the indicated trading multiples of Enertec
generally fell within or at a premium to the average trading multiples of these.
By applying the corresponding multiples presented above to Enertec's 1998
EBITDA, net income and CFFO and estimated 1999 EBITDA, Net Income and CFFO and
book value of assets and shareholders' equity, CIBC Wood Gundy arrived at a
range of estimated fully-diluted equity values of C$2.67 to C$8.24 per share.
Selected Comparative Transaction Analysis. CIBC Wood Gundy reviewed
publicly available financial information for the following four mergers and
acquisitions involving oilfield services companies that CIBC Wood Gundy believed
to be reasonably comparable to the Transaction:
- Key Energy Services, Inc./Dawson Production Services, Inc.
- R&B Falcon Corp./Cliffs Drilling Co.
- Nabors Industries Inc./Bayard Drilling Technologies Inc.
- Nabors Industries Inc./Pool Energy Services Co.
CIBC Wood Gundy noted that there are no directly comparable transactions to
the Transaction.
For the comparative transactions, CIBC Wood Gundy calculated the following
average multiples for the acquisitions above:
<TABLE>
<S> <C>
Equity Purchase Price to:
- -- Last twelve months EBITDA................................ 7.7X
- -- Forward Consensus EBITDA................................. 5.8X
- -- Book Value of Assets..................................... 1.0X
Aggregate Purchase Price to:
- -- Last twelve months Net Income............................ 21.5X
- -- Last twelve months CFFO.................................. 6.2X
- -- Forward Consensus Net income............................. 21.6X
- -- Forward Consensus CFFO................................... 5.3X
- -- Shareholders' Equity..................................... 1.2X
</TABLE>
By applying the corresponding multiples of the comparative transactions
presented above to Enertec's 1998 Net Income, CFFO and EBITDA and estimated 1999
Net Income, CFFO and EBITDA and book value of its assets and shareholders'
equity, CIBC Wood Gundy arrived at a range of estimated fully-diluted equity
values of C$3.95 to C$13.40 per share.
Pro Forma Combination Analysis. CIBC Wood Gundy performed an analysis of
the potential pro forma effect of the Transaction on Enertec's per share
earnings and CFFO for the years ending December 31, 1998 and December 31, 1999,
which assumed that the Transaction was consummated on December 31, 1997. In
performing this analysis, CIBC Wood Gundy assumed:
- the Transaction will provide 0.345 of a Series 1 Exchangeable Share in
exchange for each Enertec Common Share;
- the Transaction would be accounted for under the pooling-of-interests
method of accounting;
- Enertec shareholders resident in Canada would generally receive tax
deferred treatment on the receipt of Series 1 Exchangeable Shares; and
- annual operating cost savings of approximately $1.5 million, which were
estimated by Veritas DGC, could be achieved as a result of the
Transaction.
CIBC Wood Gundy combined the historical and projected operating results of
Enertec (provided by Enertec management) with the corresponding historical and
projected operating results of Veritas DGC (provided by Veritas DGC management)
to arrive at the combined company pro forma historical and projected operating
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<PAGE> 45
results. CIBC Wood Gundy divided these results by the pro forma fully diluted
shares outstanding to arrive at a combined company per share earnings and CFFO.
CIBC Wood Gundy then compared the combined company per share earnings and CFFO
to Enertec's historical and projected stand-alone per share earnings and CFFO
(provided by Enertec management) to determine the pro forma impact of the
Transaction. This analysis suggested that, on a pro forma basis assuming the
Transaction was consummated on December 31, 1997:
- the Transaction would have been accretive to Enertec's per share
earnings and CFFO in 1998; and
- assuming the accuracy of the projected results supplied by the
respective companies, the Transaction would be accretive to Enertec's
per share earnings and CFFO in 1999.
Merger Premium Analysis. CIBC Wood Gundy examined median percentage
premiums of the purchase price paid at announcement date for the following
comparative transactions:
- Baker Hughes Incorporated/Western Atlas Inc.
- Key Energy Services, Inc./Dawson Production Services, Inc.
- R&B Falcon Corp./Cliffs Drilling Co.
- Nabors Industries Inc./Bayard Drilling Technologies Inc.
- Nabors Industries Inc./Pool Energy Services Co.
CIBC Wood Gundy determined the median percentage premium paid in the above
comparative transactions, being the value of the consideration as of the date of
announcement of the comparative transaction, relative to the target's share
price for the period specified in the table below. These medians were compared
to the premium paid to Enertec shareholders in respect of the Veritas DGC Common
Stock price, as of the close of trading on February 22, 1999, relative to
Enertec's share price for the periods specified in the table below.
<TABLE>
<CAPTION>
DATE PRIOR TO ANNOUNCEMENT COMPARATIVE TRANSACTIONS ENERTEC
- -------------------------- ------------------------ -------
<S> <C> <C>
One day....................................... 28.6% 22.5%
One week...................................... 43.6% 30.1%
Four weeks.................................... 36.0% 30.1%
</TABLE>
CIBC Wood Gundy also determined the median percentage premium paid in the
above comparative transactions, being the value of the consideration as of the
date of the comparative transaction, or if not closed, as of March 30, 1999,
relative to the acquiror's share price for the periods specified in the table
below. These medians were compared to the premium paid to Enertec shareholders
in respect of the Veritas DGC Common Stock prices as of March 30, 1999, relative
to Enertec's share prices for the periods specified in the table below.
<TABLE>
<CAPTION>
DATE PRIOR TO ANNOUNCEMENT COMPARATIVE TRANSACTIONS ENERTEC
- -------------------------- ------------------------ -------
<S> <C> <C>
One day....................................... 30.4% 73.6%
One week...................................... 43.1% 84.4%
Four weeks.................................... 35.5% 84.4%
</TABLE>
Pursuant to an engagement agreement dated February 26, 1999, among Enertec,
CIBC Wood Gundy and CIBC Oppenheimer Corp., Enertec has agreed to pay CIBC Wood
Gundy: (1) a fee of C$100,000 in connection with CIBC Wood Gundy's delivery of
an opinion to the Enertec board regarding the fairness, from a financial point
of view, of the Transaction Consideration, and (2) a fee of C$65,000 for Dealer
Manager services, if these services are requested by Enertec's board. Enertec
has also agreed to reimburse CIBC Wood Gundy for its reasonable out-of-pocket
fees, expenses and costs, including reasonable fees and disbursements of its
legal counsel. In addition, Enertec has agreed to indemnify CIBC Wood Gundy,
CIBC Oppenheimer Corp., their affiliates and their respective directors,
officers, employees and advisors, against certain liabilities, including
liabilities under relevant securities laws.
CIBC Wood Gundy was selected by the Enertec board based on CIBC Wood
Gundy's substantial experience in transactions similar to the Transaction and
familiarity with Enertec and its operations and the oilfield services industry
generally. CIBC Wood Gundy regularly engages in the valuation of businesses and
their securities in
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<PAGE> 46
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
In the ordinary course of its business, CIBC Wood Gundy and its affiliates
may actively trade the securities of Enertec for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
TRANSACTION MECHANICS
The following is a summary description of the Arrangement and is qualified
in its entirety by the full text of the Arrangement attached as Annex D.
The following diagrams set forth the ownership structure of the parties to
the Arrangement before and after the Transaction.
[DIAGRAMS OF OWNERSHIP STRUCTURE]
The Arrangement provides that each Enertec Common Share will be transferred
by the Enertec shareholders to VESI and the sole consideration received therefor
will be for 0.345 (the "Exchange Ratio") of a VESI Series 1 Exchangeable Share.
Holders of Series 1 Exchangeable Shares will have the right to later exchange
those shares for the same number of shares of Veritas DGC Common Stock. After
all exchanges of Series 1 Exchangeable Shares for Veritas DGC Common Stock, the
former Enertec shareholders will own approximately 2,391,425 shares of Veritas
DGC Common Stock, being approximately 9.5% of the outstanding Veritas DGC Common
Stock. On the 10th anniversary of the Effective Date, unless such date shall be
extended to a specified later date
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<PAGE> 47
by the VESI board of directors, not to be later than the 15th anniversary of the
Effective Date, or such earlier date as specified by the VESI board of directors
if:
- there are fewer than 10,000 Series 1 Exchangeable Shares outstanding
(other than Series 1 Exchangeable Shares held by Veritas DGC and
entities controlled by Veritas DGC); or
- if at any time after the 5th anniversary there are fewer than 250,000
VESI Exchangeable Shares outstanding (other than VESI Exchangeable
Shares held by Veritas DGC and entities controlled by Veritas DGC) and
Veritas DGC exercises its option to redeem all of such outstanding VESI
Exchangeable Shares,
(the "Automatic Redemption Date"), VESI must redeem all but not less than all of
the then outstanding Series 1 Exchangeable Shares in exchange for an equal
number of shares of Veritas DGC Common Stock, plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on such
Series 1 Exchangeable Shares. However, Veritas DGC will have the overriding
right to purchase on the Automatic Redemption Date all but not less than all of
the outstanding Series 1 Exchangeable Shares in exchange for one share of
Veritas DGC Common Stock for each such Series 1 Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on such Series 1 Exchangeable Share. VESI shall, at least 120 days
before the Automatic Redemption Date, provide the registered holders of Series 1
Exchangeable Shares with written notice of the proposed redemption of the Series
1 Exchangeable Shares by VESI.
Veritas DGC and VESI will enter into agreements to ensure that holders of
the Series 1 Exchangeable Shares will have the same voting, dividend and
liquidation rights as holders of Veritas DGC Common Stock.
The Series 1 Exchangeable Shares are subject to adjustment or modification
in the event of a stock split or other changes to the capital structure of
Veritas DGC so as to maintain the initial one-to-one ratio between the Series 1
Exchangeable Shares and Veritas DGC Common Stock.
Enertec shareholders will be entitled to make an income tax election
pursuant to section 85 of the Income Tax Act (Canada) (the "Canadian Tax Act")
with respect to the transfer of their Enertec Common Shares to VESI by providing
two signed copies of the necessary election forms to VESI within 90 days
following the effective date of the Transaction (the "Effective Date"), duly
completed with the details of the number of shares transferred and the
applicable agreed amounts for the purposes of such elections. Thereafter,
subject to the election forms complying with the provisions of the Canadian Tax
Act, the forms will be signed by VESI and returned to such Enertec shareholders
for filing with Revenue Canada.
The sole consideration to be received by the holders of Enertec Common
Shares for the transfer of such shares to VESI shall be the Series 1
Exchangeable Shares issued in connection with such transfer. All other rights
and benefits received by the holders of Enertec Common Shares in connection with
the consummation of the Arrangement shall be in consideration of the grant by
such holders to Veritas DGC of Veritas DGC's rights in respect of the Series 1
Exchangeable Shares and the other consideration received by Veritas DGC from the
holders of Enertec Common Shares (excluding the Enertec Common Shares)
including, without limitation, the termination of the Rights (as defined in the
Shareholder Rights Plan Agreement between Enertec and Montreal Trust Company of
Canada) (the "Veritas DGC Consideration").
At the effective time of closing of the Transaction (the "Effective Time"),
each Enertec Option outstanding immediately prior to the Effective Time will be
exchanged for an option under the Veritas DGC Option Plan exercisable for a
number of whole shares of Veritas DGC Common Stock equal to the number of
Enertec Common Shares subject to the Enertec Option at the Effective Time
multiplied by the Exchange Ratio, at an exercise price per share of Veritas DGC
Common Stock equal to the exercise price per share of such Enertec Option
immediately prior to the Effective Time divided by the Exchange Ratio, such
exercise price to be converted into United States dollars. If this calculation
results in an exchanged Enertec Option being exercised for a fractional share of
Veritas DGC Common Stock, then the number of shares shall be rounded down to the
nearest whole number of shares and the total exercise price for the option will
be reduced by the exercise price of the fractional share. Each Veritas DGC
Option shall be fully vested immediately after the Effective Time.
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In order to facilitate the completion of the combination, the Arrangement
will also include the following:
- the elimination of the unissued Class 1 Preferred Shares of Enertec,
- the amendment of all share provisions and contractual terms in
connection with the VESI Exchangeable Shares which restrict the ability
of VESI to issue further exchangeable shares,
- the amendment of all share provisions and contractual terms necessary to
allow for all VESI exchangeable shares issued now and in the future to
rank equally so that no future exchangeable share issuances will
prejudice former groups of exchangeable shareholders,
- the creation of a new class of VESI exchangeable shares issuable in
series, the first such series being the Series 1 Exchangeable Shares
used to complete the Transaction, and
- the termination of the Shareholder Rights Plan Agreement between Enertec
and Montreal Trust Company of Canada and all outstanding rights under
the agreement.
In order to allow Veritas DGC to consolidate its Canadian operations, the
Transaction structure will result in Enertec becoming a wholly-owned subsidiary
of VESI. Under the ABCA, a wholly-owned subsidiary may be consolidated with its
parent by way of either amalgamation or wind-up through a procedure requiring
only directors' approval. Following the Effective Date, Veritas DGC will review
Enertec's operations in order to identify the benefits which may result from a
consolidation.
In order to complete any future desired business combinations involving the
issuance of additional exchangeable shares without the necessity of incurring
the time and expense of obtaining the consent of exchangeable shareholders from
prior transactions, the Arrangement will also permit VESI to issue further
series of the Class A Exchangeable Shares (of which the Series 1 Exchangeable
Shares are a series) by action of its board of directors. The articles of VESI
and related contractual agreements will provide that all VESI exchangeable
shares will rank equally so that future issuances will not prejudice former
groups of exchangeable shareholders.
Finally, the Arrangement includes two matters which are unrelated to the
Transaction or future combination transactions. The first would increase the
number of authorized shares of VESI from one to an unlimited number in order to
provide flexibility for intercorporate transactions between VESI and Veritas
DGC. Veritas DGC would still be required to own all issued VESI common shares.
The second matter would provide for meetings of VESI shareholders to be held in
Houston, Texas, as well as in Alberta.
Enclosed with copies of this Joint Proxy Statement delivered to the
registered holders of Enertec Common Shares is the Enertec letter of
transmittal, which when duly completed and returned together with a certificate
for Enertec Common Shares, will enable the holder to receive the number of
Series 1 Exchangeable Shares to which such holder is entitled. See "--
Procedures for Transfer of Share Certificates by Enertec Shareholders and
Enertec Optionholders."
On the Effective Date, Veritas DGC's Restated Certificate of Incorporation
will be amended to (1) create a new series of ordinary shares, designated ERS
Special Voting Stock, and (2) delete a restriction which prohibits the Veritas
DGC board of directors from designating a new series of ordinary shares, such as
the ERS Special Voting Stock, without the approval of all outstanding ordinary
shares. See, "Proposed Veritas DGC Charter Amendment."
THE COMBINATION AGREEMENT
Representations, Warranties and Covenants. The Combination Agreement among
Veritas DGC, VESI and Enertec dated as of March 30, 1999, attached as Annex B
(the "Combination Agreement"), contains certain customary representations and
warranties of each of Enertec and Veritas DGC relating to, among other things,
their respective organization, capital structures, qualification, operations,
financial condition, intellectual property rights, year 2000 compliance,
compliance with necessary regulatory or governmental authorities and other
matters, including their authority to enter into the Combination Agreement and
to consummate the Transaction. The Combination Agreement also contains
representations of VESI relating to, among other things, its capital
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structure, tax status, compliance with necessary regulatory or governmental
authorities and other matters, including its authority to enter into the
Combination Agreement and to consummate the Transaction. Pursuant to the
Combination Agreement, the parties have agreed to advise each other of material
changes and to provide the others with interim financial information. Further,
the parties have agreed to apply for and use their commercially reasonable
efforts to obtain all court, regulatory and other consents and approvals
required for the consummation of the Combination Agreement, to use their
commercially reasonable efforts to effect the transactions contemplated by the
Combination Agreement, including the preparation and mailing of this Joint Proxy
Statement, and to provide the other parties and their respective counsel with
such information as they may reasonably request. Also pursuant to the
Combination Agreement, Veritas DGC and Enertec have covenanted that, among other
things, until the earlier of the termination of the Combination Agreement or the
Effective Time, each will maintain its business, not take certain actions
outside the ordinary course, and use its commercially reasonable efforts to
consummate the Transaction. Veritas DGC also agreed to use its commercially
reasonable efforts, with the cooperation and assistance of Enertec, to list the
Series 1 Exchangeable Shares on the TSE as of the Effective Date.
The Combination Agreement also provides that until the earlier of the
Effective Time or the termination of the Combination Agreement, Enertec and its
subsidiaries will not (and it will use its best efforts to ensure that none of
its officers, directors, employees, agents, representatives or affiliates)
directly or indirectly:
- solicit, encourage, initiate or participate in any negotiations,
inquiries or discussions with respect to any offer or proposal (an
"Acquisition Proposal") to acquire all or any significant part of its
business, assets or capital shares whether by arrangement, amalgamation,
merger, consolidation, other business combination, purchase of assets,
tender or exchange offer or otherwise (each of the foregoing, an
"Acquisition Transaction");
- disclose any information not customarily disclosed to any person
concerning its business or properties or afford to any person or entity
access to its properties, books or records, except in the ordinary
course of business and as required by law or pursuant to a governmental
request for information;
- enter into or execute any agreement relating to an Acquisition
Transaction, plan of reorganization, or other agreement calling for the
sale of all or any significant part of its business and properties; or
- except as required by law, make or authorize any public statement,
recommendation or solicitation with respect to any Acquisition
Transaction or any offer or proposal relating to an Acquisition
Transaction other than with respect to the Arrangement,
provided that the Combination Agreement does not prevent the Enertec board from
considering, negotiating, approving and recommending to the Enertec shareholders
an unsolicited bona fide written Acquisition Proposal, for which adequate
financial arrangements have been made, which the Enertec board determines in
good faith (after consultation with its financial advisors, and after receiving
a written opinion of outside legal counsel to the effect that the Enertec board
is required to do so in order to discharge properly its fiduciary duties) would,
if consummated in accordance with its terms, result in a transaction financially
superior to the shareholders of Enertec than the transaction contemplated by the
Combination Agreement (a "Superior Proposal").
Conditions to Closing. The Combination Agreement provides that the
respective obligations of each party to complete the Transaction are subject to
a number of conditions, including the following material conditions:
- the Arrangement shall have been approved and adopted by the required
votes of the Enertec shareholders and optionholders and VESI
exchangeable shareholders;
- the Charter Amendment shall have been approved by the required vote of
Veritas DGC stockholders and VESI exchangeable shareholders;
- all consents, including the Final Order (the "Final Order") of the Court
of Queen's Bench of Alberta (the "Court") and any other regulatory
approvals that are legally required for the consummation of the
Transaction and the transactions contemplated by the Combination
Agreement shall have occurred, been filed or been obtained;
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- no order, decree or ruling or statute, rule, regulation or order shall
be threatened, enacted, entered or enforced by any governmental agency
that prohibits or renders illegal the consummation of the Transaction;
- there shall be no temporary restraining order, preliminary injunction,
permanent injunction or other order preventing the consummation of the
Transaction issued by any Canadian or U.S. federal, provincial or state
court remaining in effect, nor shall any proceeding seeking any of the
foregoing be pending;
- the representations and warranties of the parties shall be true and
correct in all material respects as of the Effective Time as though made
at and as of the Effective Time;
- the parties shall have performed in all material respects all agreements
and covenants to be performed by them under the Combination Agreement;
- the parties shall have received legal opinions dated as of the closing
date as to matters customary to transactions of the type contemplated by
the Combination Agreement;
- the parties shall have received opinions from independent accountants to
the effect that the Transaction will qualify for pooling of interests
accounting treatment;
- the Series 1 Exchangeable Shares shall have been approved for listing on
the TSE (a condition precedent to Enertec's obligation only);
- holders of no more than 5% of the Enertec Common Shares shall have
notified Enertec of their intention to dissent from the Arrangement and
the transactions contemplated thereby (a condition precedent to Veritas
DGC's obligations only); and
- Enertec shall have received favorable tax opinions dated as of the
closing date as to certain Canadian tax consequences of the Transaction
(a condition precedent to Enertec's obligations only).
Termination. The Combination Agreement may be terminated by mutual
agreement of Enertec and Veritas DGC at any time prior to the Effective Time. In
addition, either Enertec or Veritas DGC may terminate the Combination Agreement
prior to the Effective Time if:
- there has been a breach of any representation, warranty, covenant or
agreement contained in the Combination Agreement on the part of the
other party, and such breach has not been cured within 15 business days
after notice thereof;
- all conditions for closing the Transaction have not been satisfied or
waived by August 15, 1999 (other than as a result of a breach by the
terminating party);
- any required approval of the shareholders of Enertec or VESI or the
stockholders of Veritas DGC shall not have been obtained; or
- any suit, action or other proceeding shall be pending or threatened by
any governmental entity in which it is sought to restrain, prohibit or
otherwise affect the consummation of the transactions contemplated by
the Combination Agreement.
Enertec may also terminate the Combination Agreement prior to the Effective
Time if the Enertec board determines in good faith that it is required by its
fiduciary duties to recommend to the Enertec shareholders that they vote against
the Arrangement and approve a Superior Proposal and either:
- Veritas DGC has not within five business days of receiving notice of
Enertec's receipt of the Superior Proposal, revised its take-over
proposal; or
- if Veritas DGC has revised its take-over proposal, the Enertec board
determines in good faith that the Superior Proposal is more favorable to
the Enertec shareholders than Veritas DGC's revised take-over proposal.
Upon termination of the Combination Agreement in accordance with the terms
thereof, none of the parties or their respective officers or directors shall
have any further liability under the agreement, but no party shall be
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released from any liability arising from the wilful breach by such party of any
of its representations, warranties or agreements contained in the agreement.
OTHER AGREEMENTS
Enertec and Veritas DGC have entered into agreements with each of the
affiliates (as defined in Rule 145 under the United States Securities Act of
1933 (the "Securities Act")) of Enertec, pursuant to which such persons have
agreed that they will not sell, transfer, encumber or otherwise dispose of any
Enertec Common Shares prior to the Effective Time and that they will not sell,
transfer or encumber or otherwise dispose of any Series 1 Exchangeable Shares
and after the Effective Time until Veritas DGC shall have publicly released
financial statements that include at least thirty days of combined operating
results of Veritas DGC and Enertec.
Enertec and Veritas DGC have also entered into agreements with each of the
Veritas DGC affiliates, pursuant to which such persons have agreed that they
will not sell, transfer, encumber or otherwise dispose of any shares of Veritas
DGC Common Stock or VESI Exchangeable Shares prior to the Effective Time and
after the Effective Time until Veritas DGC shall have publicly released
financial statements that include at least thirty days of combined operating
results of Veritas DGC and Enertec.
In addition, the Enertec affiliates have agreed that they will not sell,
pledge or otherwise dispose of any Series 1 Exchangeable Shares unless: (1) such
transaction is permitted pursuant to the provisions of Rule 145 under the
Securities Act; (2) a registration statement covering the transaction shall have
been filed with the SEC and made effective under the act, or (3) such
transaction is permitted under an exemption from registration under the act.
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE TRANSACTION
An arrangement of a corporation under the ABCA requires approval by both
the Court and the shareholders, and, if applicable, optionholders of the subject
corporation. Prior to the mailing of this Joint Proxy Statement, Enertec and
VESI obtained the Interim Order of the Court, which is attached as Annex C (the
"Interim Order"), providing for the calling and holding of the Enertec meeting,
the VESI meeting and other procedural matters. The Notice of Petition for the
Final Order appears at the front of this Joint Proxy Statement.
Subject to the approval of the Arrangement by the Enertec shareholders and
Enertec optionholders at the Enertec meeting and by the VESI exchangeable
shareholders at the VESI meeting, the hearing in respect of the Final Order is
scheduled to take place on , 1999 at a.m. (Calgary time) in the
Court at the Court House, 611 4th Street S.W., Calgary, Alberta, Canada. All
Enertec shareholders, Enertec optionholders and VESI exchangeable shareholders
who wish to participate or be represented or to present evidence or arguments at
that hearing must serve and file a notice of appearance as set out in the Notice
of Petition for the Final Order and satisfy any other requirements. At the
hearing of the application in respect of the Final Order, the Court will
consider, among other things, the fairness and reasonableness of the
Arrangement. The Court may approve the Arrangement as proposed or as amended in
any manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
Assuming the Final Order is granted and the other conditions to the
Combination Agreement are satisfied or waived, it is anticipated that the
following will occur substantially simultaneously: Articles of Arrangement will
be filed with the Registrar under the ABCA to give effect to the Arrangement,
the Support Agreement between VESI and Veritas DGC substantially in the form of
Annex E (the "Support Agreement") and the Voting and Exchange Trust Agreement
between VESI, Veritas DGC and CIBC Mellon Trust Company (the "Trustee")
substantially in the form of Annex F (the "Voting and Exchange Trust Agreement")
will be executed and delivered, and the various other documents necessary to
close the Combination Agreement will be executed and delivered.
Subject to the foregoing, it is presently anticipated that the Transaction
will be completed, and the Effective Time will occur, on or about June 30, 1999.
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ANTICIPATED ACCOUNTING TREATMENT
The Arrangement is anticipated to be accounted for using the pooling of
interests method of accounting under U.S. GAAP. Under the pooling of interests
method of accounting, the assets, liabilities and shareholders' equity and the
operating results of Veritas DGC and Enertec will be carried forward by Veritas
DGC at their recorded amounts and, therefore, there is no recognition of
additional goodwill relating to either Veritas DGC or Enertec required in
connection with the Transaction.
Veritas DGC and Enertec have entered into affiliates agreements with each
Veritas DGC affiliate and Enertec affiliate. See "-- Other Agreements." Such
agreements relate to the ability of Veritas DGC to account for the Transaction
as a pooling of interests under U.S. GAAP.
PROCEDURES FOR TRANSFER BY ENERTEC SHAREHOLDERS AND ENERTEC OPTIONHOLDERS
Enertec Shareholders. Enclosed with copies of this Joint Proxy Statement
delivered to the registered holders of Enertec Common Shares is an Enertec
letter of transmittal which, when duly completed and returned together with a
certificate for Enertec Common Shares, shall enable each Enertec shareholder to
receive Series 1 Exchangeable Shares equal to the number of Enertec Common
Shares held by such shareholder multiplied by the Exchange Ratio. See "--
Transaction Mechanics."
No certificates representing fractional Series 1 Exchangeable Shares will
be issued. In lieu of fractional Series 1 Exchangeable Shares, each Enertec
shareholder who would otherwise be entitled to receive a fraction of a Series 1
Exchangeable Share shall be paid by VESI an amount of cash (rounded to the
nearest whole cent) equal to the Canadian dollar equivalent product of (1) such
fraction, multiplied by (2) the average closing price of the Veritas DGC Common
Stock on the NYSE for the ten trading days ended on the last trading date prior
to the Effective Date.
Any use of the mails to transmit a certificate for Enertec Common Shares
and a related Enertec letter of transmittal is at the risk of the Enertec
shareholder. If these documents are mailed, it is recommended that registered
mail, with return receipt requested, properly insured, be used.
If the Transaction is completed, certificates representing the appropriate
number of Series 1 Exchangeable Shares issuable to a former Enertec shareholder
who has complied with the procedures set out above, together with a cheque in
the amount, if any, payable in lieu of fractional Series 1 Exchangeable Shares
will, as soon as practicable after the later of the Effective Date and the date
of receipt of a certificate for Enertec Common Shares and a related Enertec
letter of transmittal, be (1) forwarded to the holder at the address specified
in the Enertec letter of transmittal by first class mail or (2) made available
at the offices of CIBC Mellon Trust Company for pickup by the holder, if
requested by the holder in the Enertec letter of transmittal.
Enertec shareholders will be entitled to make an income tax election
pursuant to subsection 85(1) of the Canadian Tax Act with respect to the
transfer of their Enertec Common Shares to VESI by providing two signed copies
of the necessary election forms to VESI within 90 days following the Effective
Date, duly completed with the details of the number of shares transferred and
the applicable agreed amounts for the purposes of such elections. Thereafter,
subject to the election forms complying with the provisions of the Canadian Tax
Act, the forms will be signed by VESI and returned to such Enertec shareholders
for filing with Revenue Canada.
If the Transaction does not close, all certificates representing Enertec
Common Shares transmitted with a related Enertec letter of transmittal will be
returned to Enertec shareholders.
Where a certificate for Enertec Common Shares has been destroyed, lost or
mislaid, the registered holder of that certificate should immediately contact
Montreal Trust Company of Canada regarding the issuance of a replacement
certificate upon the holder satisfying such requirements as may be imposed by
Enertec in connection with issuance of the replacement certificate.
Enertec Optionholders. Each outstanding Enertec Option will be
automatically exchanged for a Veritas DGC Option at the Effective Date in
accordance with the terms of the Combination Agreement and the Arrangement,
without any action on the part of the Enertec optionholders. Promptly after the
Effective Time,
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Veritas DGC will notify each Enertec optionholder of such exchange, with any
relevant information, and the United States dollar exercise price of such
exchanged option.
STOCK EXCHANGE LISTINGS
The Veritas DGC Common Stock currently trades on the NYSE and the TSE. The
NYSE has approved the listing on the Effective Date, subject to notice of
issuance, of the Veritas DGC Common Stock issuable upon the exchange of Series 1
Exchangeable Shares, and on the exercise of Veritas DGC Options. The TSE has
accepted notice of the proposed Arrangement and has conditionally approved the
listing and posting for trading on the Effective Date of the Series 1
Exchangeable Shares, and the Veritas DGC Common Stock issuable upon the exchange
of Series 1 Exchangeable Shares and upon the exercise of Veritas DGC Options.
ELIGIBILITY FOR INVESTMENT IN CANADA
Series 1 Exchangeable Shares. The Series 1 Exchangeable Shares, provided
they are listed on a prescribed stock exchange in Canada (which currently
includes the TSE) and provided that VESI maintains a substantial presence in
Canada, will not be foreign property under the Canadian Tax Act for trusts
governed by registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans, for registered pension plans or for
certain other persons to whom Part XI of the Canadian Tax Act apply.
The Series 1 Exchangeable Shares will be qualified investments under the
Canadian Tax Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans.
Veritas DGC has indicated that it intends to use its best efforts to cause
VESI to maintain the listing of the Series 1 Exchangeable Shares on the TSE.
Voting Rights and Exchange Rights. The rights of the holders of Series 1
Exchangeable Shares to direct the voting of the one share of ERS Special Voting
Stock (the "Voting Share") by the Trustee (the "Voting Rights") and the rights
granted to the Trustee to exchange Series 1 Exchangeable Shares for Veritas DGC
Common Stock in certain circumstances (the "Exchange Rights") will not be
qualified investments and will be foreign property under the Canadian Tax Act.
However, as indicated under "Canadian Federal Income Tax Considerations to
Enertec Shareholders -- Shareholders Resident in Canada," each of Veritas DGC
and VESI is of the view that the fair market value of these rights is nominal.
Veritas DGC Common Stock. The Veritas DGC Common Stock will be a qualified
investment under the Canadian Tax Act for trusts governed by registered
retirement savings plans, registered retirement income funds and deferred profit
sharing plans provided such shares remain listed on the NYSE or another
prescribed stock exchange. The Veritas DGC Common Stock will be foreign property
under the Canadian Tax Act.
REGULATORY MATTERS
The Transaction is subject to the premerger filing requirements of the
United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and, on April
12, 1999, Veritas DGC and Enertec made premerger filings under the act with the
Federal Trade Commission and the Antitrust Division of the Department of
Justice. The Transaction is subject to termination of the waiting period under
the act.
RESALE OF SERIES 1 EXCHANGEABLE SHARES AND VERITAS DGC COMMON STOCK RECEIVED IN
THE TRANSACTION
United States. The issuance of Series 1 Exchangeable Shares to holders of
Enertec Common Shares will not be registered under the Securities Act. Such
shares will be issued in reliance upon the exemption available pursuant to
Section 3(a)(10) of the Securities Act. Section 3(a)(10) exempts securities
issued in exchange for one or more outstanding securities from the general
requirement of registration where the terms and conditions of the issuance and
exchange of such securities have been approved by any court of competent
jurisdiction, after a hearing upon the fairness of the terms and conditions of
the issuance and exchange at which all persons to whom such securities will be
issued have the right to appear. The Court is authorized to conduct a hearing to
determine the fairness of the terms and conditions of the Arrangement, including
the proposed issuance of securities in
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exchange for other outstanding securities. The Court entered the Interim Order
on , 1999 and subject to the approval of the Arrangement by the
Enertec shareholders and the VESI exchangeable shareholders, a hearing on the
fairness of the Arrangement will be held on , 1999 by the Court. See
"-- Court Approval of the Arrangement and Completion of the Transaction."
Veritas DGC, VESI and Enertec believe that the issuance by VESI of the Series 1
Exchangeable Shares in exchange for the Enertec Common Shares is exempt under
Section 3(a)(10) of the Securities Act and that they will receive a letter from
the SEC confirming that the staff of the SEC will not recommend any enforcement
action with respect to such issuance.
The Series 1 Exchangeable Shares will be freely transferable under U.S.
federal securities laws, except by persons who are affiliates of Enertec prior
to the Transaction. Shares held by such affiliates may be resold by them only in
transactions permitted by the resale provisions of Rule 145(d)(1), (2), or (3)
promulgated under the Securities Act or as otherwise permitted under the
Securities Act. Rule 145(d)(1) generally provides that affiliates of Enertec may
not sell securities of Veritas DGC received in the Arrangement unless pursuant
to an effective registration statement or unless pursuant to the volume, current
public information, manner of sale and timing limitations of Rule 144. These
limitations generally require that any sales made by an affiliate in any
three-month period not exceed the greater of 1% of the outstanding shares of
Veritas DGC or the average weekly trading volume over the four calendar weeks
preceding the placement of the sell order and that such sales be made in
unsolicited, open market "brokers transactions." Rules 145(d)(2) and (3)
generally provide that the foregoing limitations lapse for non-affiliates of
Veritas DGC after a period of one or two years, respectively, depending upon
whether certain currently available information continues to be available with
respect to Veritas DGC.
Veritas DGC has agreed that it will file and maintain effective a Form S-3
registration statement covering the issuance of the Veritas DGC Common Stock
from time to time in exchange for the Series 1 Exchangeable Shares. The shares
of Veritas DGC Common Stock issued from time to time in exchange for the Series
1 Exchangeable Shares therefore will be freely transferable under U.S. federal
securities laws, subject to restrictions on persons who are affiliates of
Veritas DGC.
Canada. Veritas DGC, VESI and Enertec have applied for and expect to
receive rulings or orders of certain provincial securities regulatory
authorities in Canada to permit the issuance to Enertec shareholders of the
Series 1 Exchangeable Shares and to permit resale of such shares in such
provinces without restriction by a shareholder other than a "control person,"
provided that no unusual effort is made to prepare the market for any such
resale or to create a demand for the securities which are the subject of any
such resale and no extraordinary commission or consideration is paid in respect
thereof. Applicable Canadian securities legislation provides a rebuttable
presumption that a person or company is a control person in relation to an
issuer where the person or company alone or in combination with others holds
more than 20% of the outstanding voting securities of the issuer.
Veritas DGC, VESI and Enertec have also applied for rulings or orders of
certain provincial securities regulatory authorities in Canada to permit the
issuance of Veritas DGC Common Stock to holders of Series 1 Exchangeable Shares,
and to permit the resale of Veritas DGC Common Stock by such holders without the
requirement of filing a prospectus.
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THE COMPANIES AFTER THE TRANSACTION
THE COMBINATION -- GENERAL
Upon completion of the Transaction, the parent company of the combined
entity will be Veritas DGC, which will continue to be a corporation governed by
the DGCL. Its principal executive office will continue to be located at 3701
Kirby Drive, Houston, Texas 77098 (telephone number (713) 512-8300). Veritas DGC
owns all of the voting securities of VESI, a corporation governed by the ABCA.
VESI will own all of the voting securities of Enertec. After the Effective Time,
Enertec will continue to be a corporation governed by the ABCA.
VERITAS DGC CAPITAL STOCK
In the event of the consummation of the Transaction, which requires the
adoption by the Veritas DGC stockholders of the Charter Amendment, the capital
stock of Veritas DGC will be as summarized below.
The Veritas DGC Restated Certificate of Incorporation authorizes 40,000,000
ordinary shares, consisting of a series of one share of VESI Special Voting
Stock and all other shares being designated as common stock, and 1,000,000
shares of Veritas DGC Preferred Stock. If the Charter Amendment is approved, the
Veritas DGC Restated Certificate of Incorporation will authorize an additional
series of ordinary shares, consisting of one share designated as ERS Special
Voting Stock.
Veritas DGC Common Stock. Shares of Veritas DGC Common Stock have a par
value of U.S. $0.01 per share. The holders of Veritas DGC Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Cumulative voting for the election of directors is not
authorized by the Veritas DGC Restated Certificate of Incorporation. The holders
of Veritas DGC Common Stock are entitled to receive such dividends as may be
declared by the Veritas DGC board of directors out of funds legally available
therefor and are entitled upon any liquidation, dissolution or winding-up of
Veritas DGC to receive rateably the net assets of Veritas DGC available for
distribution. No pre-emptive rights, conversion rights, redemption rights or
sinking fund provisions are applicable to the Veritas DGC Common Stock.
As of March 31, 1999, 21,204,380 shares of Veritas DGC Common Stock were
issued and outstanding.
VESI Special Voting Stock. A single share of VESI Special Voting Stock is
authorized as a series of ordinary shares for issuance and a single share is
outstanding having a par value of U.S. $.01 per share. Except as otherwise
required by law or the Veritas DGC Restated Certificate of Incorporation, the
voting share possesses a number of votes equal to the number of outstanding VESI
Exchangeable Shares from time to time not owned by Veritas DGC or any entity
controlled by Veritas DGC for the election of directors and on all other matters
submitted to a vote of stockholders of Veritas DGC. The holders of Veritas DGC
Common Stock, the holder of the ERS Special Voting Stock and the holder of the
voting share vote together as a single class on all matters. In the event of any
liquidation, dissolution or winding up of Veritas DGC, the holder of the voting
share is not entitled to receive any assets of Veritas DGC available for
distribution to its stockholders. The holder of the voting share is not entitled
to receive dividends. At such time as the voting share has no votes attached to
it because there are no VESI Exchangeable Shares outstanding not owned by
Veritas DGC or an entity controlled by Veritas DGC, and there are no shares of
stock, debt, options or other agreements of Veritas DGC that could give rise to
the issuance of any VESI Exchangeable Shares to any person (other than Veritas
DGC or an entity controlled by Veritas DGC), the voting share will be canceled.
ERS Special Voting Stock. A single share of ERS Special Voting Stock will
be authorized as a series of ordinary shares for issuance and a single share
will be outstanding having a par value of U.S. $.01 per share. Except as
otherwise required by law or the Veritas DGC Restated Certificate of
Incorporation, the Voting Share will possess a number of votes equal to the
number of outstanding Series 1 Exchangeable Shares from time to time not owned
by Veritas DGC or any entity controlled by Veritas DGC for the election of
directors and on all other matters submitted to a vote of stockholders of
Veritas DGC. The holders of Veritas DGC Common Stock, the holder of the VESI
Special Voting Stock and the holder of the voting share will vote together as a
single class on all matters. In the event of any liquidation, dissolution or
winding-up of Veritas DGC, the holder of the voting share will not be entitled
to receive any assets of Veritas DGC available for distribution to its
stockholders. The holder of the voting share will not be entitled to receive
dividends. Pursuant to the Combination Agreement, the
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voting share will be issued to CIBC Mellon Trust Company (the "Trustee") as
trustee under the Voting and Exchange Trust Agreement. See "-- Voting and
Exchange Trust Agreement." At such time as the voting share has no votes
attached to it because there are no Series 1 Exchangeable Shares outstanding not
owned by Veritas DGC or an entity controlled by Veritas DGC, and there are no
shares of stock, debt, options or other agreements of VESI that could give rise
to the issuance of any Series 1 Exchangeable Shares to any person (other than
Veritas DGC or an entity controlled by Veritas DGC), the voting share will be
canceled.
Veritas DGC Preferred Stock. Shares of Veritas DGC Preferred Stock have a
par value of U.S. $0.01 per share. One million shares of preferred stock are
presently authorized. The Veritas DGC board of directors will continue to be
authorized to provide for the issuance of shares of preferred stock in one or
more series, and to establish from time to time the number of shares to be
included in each such series, to fix the designation, powers, preferences and
rights of the shares of each such series and any qualifications, limitations or
restrictions thereof. No series of such stock has been designated.
Although the Veritas DGC board of directors has no present intention of
doing so, it could issue a series of Veritas DGC Preferred Stock that could,
depending on the terms of such series, provide for a liquidation preference over
the Veritas DGC Common Stock or impede the completion of a merger, tender offer
or other takeover attempt. The Veritas DGC board of directors, in so acting,
could issue Veritas DGC Preferred Stock having terms that could discourage an
acquisition attempt through which an acquiror may be otherwise able to change
the composition of the board of directors, including a tender or exchange offer
or other transaction that some, or a majority, of Veritas DGC's stockholders
might otherwise believe to be in their best interests.
VESI SHARE CAPITAL
The following is a summary description of the share capital of VESI and is
qualified in its entirety by reference to the Plan of Arrangement, Class A
Exchangeable Share provisions and Series 1 Exchangeable Share provisions
attached as Annex D hereto. In the event of the consummation of the Transaction,
the share capital of VESI after the Effective Time will have the rights and
preferences summarized below.
COMMON SHARES OF VESI
The holders of VESI Common Shares will be entitled to receive notice of and
to attend all meetings of the shareholders of VESI and will be entitled to one
vote for each share held of record on all matters submitted to a vote of holders
of VESI Common Shares. The holders of VESI Common Shares will be entitled to
receive such dividends as may be declared by the VESI board of directors out of
funds legally available therefor. Holders of VESI Common Shares will be entitled
upon any liquidation, dissolution or winding-up of VESI, subject to the prior
rights of the holders of the VESI Exchangeable Shares and the Class A
Exchangeable Shares (including the Series 1 Exchangeable Shares) and to any
other shares ranking senior to the VESI Common Shares, to receive the remaining
property and assets of VESI rateably with the holders of the VESI Common Shares.
As of March 31, 1999, one VESI Common Share was issued and outstanding.
EXCHANGEABLE SHARES OF VESI
The VESI Exchangeable Shares rank prior to the VESI Common Shares and any
other shares ranking junior to the VESI Exchangeable Shares, and will rank on a
parity with the Class A Exchangeable Shares (including the Series 1 Exchangeable
Shares), with respect to the payment of dividends and the distribution of assets
in the event of the liquidation, dissolution or winding-up of VESI. The VESI
Exchangeable Share provisions are, otherwise, substantially similar to the
Series 1 Exchangeable Share provisions described below, except that the
automatic redemption date for the VESI Exchangeable Shares is initially set at
August 30, 2014 (and not later than August 30, 2021).
As of March 31, 1999, 1,506,663 VESI Exchangeable Shares were issued and
outstanding (excluding VESI Exchangeable Shares held by Veritas DGC).
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CLASS A EXCHANGEABLE SHARES OF VESI
The Class A Exchangeable Shares are issuable in series, each series to
consist of such number of shares, and to have such designation, rights,
privileges, restrictions and conditions attaching thereto, as determined by the
VESI board. The Class A Exchangeable Shares of each series shall rank on a
parity with the VESI Exchangeable Shares and the Class A Exchangeable Shares of
every other series, and shall be entitled to a preference over the VESI Common
Shares and any other shares ranking junior to the Class A Exchangeable Shares,
with respect to the payment of dividends and the distribution of the assets of
VESI in the event of the liquidation, dissolution or winding-up of VESI. Except
as required by applicable law and the provisions of any series of Class A
Exchangeable Shares, the holders of the Class A Exchangeable Shares shall not be
entitled to receive notice of or to attend any meeting of the shareholders of
VESI or to vote at any such meeting.
SERIES 1 EXCHANGEABLE SHARES OF VESI
Ranking. The Series 1 Exchangeable Shares will rank on a parity with the
VESI Exchangeable Shares and the Class A Exchangeable Shares of every other
series and will rank prior to the VESI Common Shares and any other shares
ranking junior to the Series 1 Exchangeable Shares with respect to the payment
of dividends and the distribution of assets in the event of the liquidation,
dissolution or winding-up of VESI.
Dividends. Holders of Series 1 Exchangeable Shares will be entitled to
receive dividends equivalent to dividends paid from time to time by Veritas DGC
on shares of Veritas DGC Common Stock. The declaration date, record date and
payment date for dividends on the Series 1 Exchangeable Shares will be the same
as that for the corresponding dividends on the Veritas DGC Common Stock.
Certain Restrictions. Without the approval of the holders of the Series 1
Exchangeable Shares, VESI will not:
- pay any dividend on the VESI Common Shares, or any other shares ranking
junior to the Series 1 Exchangeable Shares, other than stock dividends
payable in such other shares ranking junior to the Series 1 Exchangeable
Shares;
- redeem, purchase or make any capital distribution in respect of VESI
Common Shares or any other shares ranking junior to the Series 1
Exchangeable Shares;
- except as provided for in the rights, privileges, restrictions and
conditions attaching to the VESI Exchangeable Shares or Class A
Exchangeable Shares, or any series thereof, redeem or purchase any other
shares of VESI ranking equally with the Series 1 Exchangeable Shares
with respect to the payment of dividends or on any liquidation
distribution;
- issue any Series 1 Exchangeable Shares other than by stock dividends to
the holders of the Series 1 Exchangeable Shares or as contemplated in
the Support Agreement; or
- except for the designation of one or more further series of the Class A
Exchangeable Shares, amend the articles or bylaws of VESI.
The restrictions in the first three points above will not apply at any time
when the dividends on the outstanding Series 1 Exchangeable Shares corresponding
to dividends declared on the Veritas DGC Common Stock have been declared and
paid in full.
Liquidation. In the event of the liquidation, dissolution or winding-up of
VESI, a holder of Series 1 Exchangeable Shares will be entitled to receive for
each Series 1 Exchangeable Share one share of Veritas DGC Common Stock, together
with a cash amount equivalent to the full amount of all unpaid dividends on the
Series 1 Exchangeable Shares. See "-- Voting and Exchange Trust Agreement."
Retraction of Series 1 Exchangeable Shares by Holders. A holder of Series
1 Exchangeable Shares will be entitled at any time to require VESI to redeem any
or all of the Series 1 Exchangeable Shares held by such holder for one share of
Veritas DGC Common Stock for each Series 1 Exchangeable Share plus an additional
amount equivalent to the full amount of all unpaid dividends thereon, which
shall be delivered to the retracting holder on
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the retraction date specified by the holder (which shall not be less than five
nor more than ten business days after the date on which VESI receives the
retraction request from the holder).
If, as a result of liquidity or solvency provisions of applicable law, VESI
is not permitted to redeem all Series 1 Exchangeable Shares tendered by a
retracting holder, VESI will redeem only those Series 1 Exchangeable Shares
tendered by the holder (rounded to the next lower multiple of 100 shares) as
would not be contrary to such provisions of applicable law. The holder of any
Series 1 Exchangeable Shares not redeemed by VESI will be deemed to have
required Veritas DGC to purchase such unretracted shares in exchange for Veritas
DGC Common Stock, plus an additional amount equivalent to the full amount of all
unpaid dividends thereon, on the retraction date pursuant to the optional
Exchange Rights. See "-- Voting and Exchange Trust Agreement."
Redemption of Series 1 Exchangeable Shares. On the 10th anniversary of the
Effective Date, unless such date shall be extended to a specified later date by
the VESI board of directors, not to be later than the 15th anniversary of the
Effective Date, or such earlier date as specified by the VESI board of directors
if:
- there are fewer than 10,000 Series 1 Exchangeable Shares outstanding
(other than Series 1 Exchangeable Shares held by Veritas DGC and
entities controlled by Veritas DGC); or
- if at any time after the 5th anniversary there are fewer than 250,000
VESI Exchangeable Shares outstanding (other than VESI Exchangeable
Shares held by Veritas DGC and entities controlled by Veritas DGC) and
Veritas DGC exercises its option to redeem all of such outstanding VESI
Exchangeable Shares,
VESI must redeem all but not less than all of the then outstanding Series 1
Exchangeable Shares in exchange for an equal number of shares of Veritas DGC
Common Stock, plus an additional amount equivalent to the full amount of all
declared and unpaid dividends on such Series 1 Exchangeable Shares. However,
Veritas DGC will have the overriding right to purchase on the Automatic
Redemption Date all but not less than all of the outstanding Series 1
Exchangeable Shares in exchange for one share of Veritas DGC Common Stock for
each such Series 1 Exchangeable Share, plus an additional amount equivalent to
the full amount of all declared and unpaid dividends on such Series 1
Exchangeable Share. VESI shall, at least 120 days before the Automatic
Redemption Date, provide the registered holders of Series 1 Exchangeable Shares
with written notice of the proposed redemption of the Series 1 Exchangeable
Shares by VESI.
Voting Rights. Except as required by applicable law, the holders of the
Series 1 Exchangeable Shares shall not be entitled as such to receive notice of
or attend any meeting of the shareholders of VESI or to vote at any such
meeting.
Amendment and Approval. The rights, privileges, restrictions and
conditions attaching to the Series 1 Exchangeable Shares may be changed only
with the approval of the holders thereof. Any such approval or any other
approval or consent to be given by the holders of the Series 1 Exchangeable
Shares will be sufficiently given if given in accordance with applicable law and
subject to a minimum requirement that such approval or consent be evidenced by a
resolution passed by not less than two-thirds of the votes cast thereon (other
than shares beneficially owned by Veritas DGC or entities controlled by Veritas
DGC) at a meeting of the holders of Series 1 Exchangeable Shares duly called and
held at which holders of at least 50% of the then outstanding Series 1
Exchangeable Shares are present or represented by proxy. In the event that no
such quorum is present at such meeting within one-half hour after the time
appointed therefor, then the meeting will be adjourned to such place and time
not less than 10 days later as may be determined at the original meeting, and
the holders of Series 1 Exchangeable Shares present or represented by proxy at
the adjourned meeting may transact the business for which the meeting was
originally called. At the adjourned meeting, a resolution passed by the
affirmative vote of not less than two-thirds of the votes cast thereon will
constitute the approval or consent of the holders of the Series 1 Exchangeable
Shares.
Actions of VESI under Support Agreement. Under the Series 1 Exchangeable
Share provisions, VESI will agree to take all such actions and do all such
things as are necessary or advisable to perform and comply with its obligations
under, and to ensure the performance and compliance by Veritas DGC with its
obligations under, the Support Agreement.
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SUPPORT AGREEMENT
The following is a summary description of the material provisions of the
Support Agreement and is qualified in its entirety by reference to the full text
of the Support Agreement, which is attached as Annex E.
Under the Support Agreement, Veritas DGC will agree that:
- it will not declare or pay dividends on the Veritas DGC Common Stock
unless VESI is able to and simultaneously pays an equivalent dividend on
the Series 1 Exchangeable Shares;
- it will cause VESI to declare and pay an equivalent dividend on the
Series 1 Exchangeable Shares simultaneously with Veritas DGC's
declaration and payment of dividends on the Veritas DGC Common Stock;
- it will advise VESI in advance of the declaration of any dividend on the
Veritas DGC Common Stock and ensure that the declaration date, record
date and payment date for dividends on the Series 1 Exchangeable Shares
are the same as that for the Veritas DGC Common Stock;
- it will take all actions and do all things necessary to ensure that VESI
is able to provide to the holders of the Series 1 Exchangeable Shares
the equivalent number of shares of Veritas DGC Common Stock in the event
of a liquidation, dissolution, or winding-up of VESI, a retraction
request by a holder of Series 1 Exchangeable Shares, or a redemption of
Series 1 Exchangeable Shares of VESI; and
- it will not vote or otherwise take any action or omit to take any action
causing the liquidation, dissolution or winding-up of VESI.
The Support Agreement will also provide that, without the prior approval of
VESI and the holders of the Series 1 Exchangeable Shares, Veritas DGC will not
distribute additional shares of Veritas DGC Common Stock or rights to subscribe
therefor or other property or assets to all or substantially all holders of
shares of Veritas DGC Common Stock, nor change the Veritas DGC Common Stock nor
effect any tender offer, share exchange offer, issuer bid, take-over bid or
similar transaction affecting the Veritas DGC Common Stock, unless the same or
an equivalent distribution on or change to the Series 1 Exchangeable Shares (or
in the rights of the holders thereof) is made simultaneously.
Veritas DGC has agreed that so long as there remain outstanding any Series
1 Exchangeable Shares not owned by Veritas DGC or any entity controlled by
Veritas DGC, Veritas DGC will remain the beneficial owner, directly or
indirectly, of all outstanding shares of VESI other than the VESI Exchangeable
Shares and the Class A Exchangeable Shares (including the Series 1 Exchangeable
Shares).
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the Series 1 Exchangeable Shares,
making certain necessary amendments or curing ambiguities or clerical errors (in
each case provided that the board of directors of each of Veritas DGC and VESI
is of the opinion that such amendments are not prejudicial to the interests of
the holders of the Series 1 Exchangeable Shares), the Support Agreement may not
be amended without the approval of the holders of the Series 1 Exchangeable
Shares.
Under the Support Agreement, Veritas DGC has agreed not to exercise any
voting rights attached to the Series 1 Exchangeable Shares owned by it or any
entity controlled by it on any matter considered at meetings of holders of
Series 1 Exchangeable Shares (including any approval sought from such holders in
respect of matters arising under the Support Agreement).
In order for Veritas DGC to perform in accordance with the Support
Agreement, VESI must notify Veritas DGC of the occurrence of certain events,
such as the liquidation, dissolution or winding-up of VESI, and VESI's receipt
of a retraction request from a holder of Series 1 Exchangeable Shares.
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VOTING AND EXCHANGE TRUST AGREEMENT
The following is a summary description of the material provisions of the
Voting and Exchange Trust Agreement and is qualified in its entirety by
reference to the full text of the Voting and Exchange Trust Agreement which is
attached as Annex F.
Under the terms of the Voting and Exchange Trust Agreement, Veritas DGC
will issue and grant to the Trustee the Voting Rights and the Exchange Rights.
The Voting Rights, the Exchange Rights and all other rights and benefits
received by the Enertec shareholders (excluding Series 1 Exchangeable Shares)
(the "Ancillary Rights") in connection with the consummation of the Arrangement
shall be solely in consideration of the provision by such holders of the Veritas
DGC Consideration to Veritas DGC.
Voting Rights. Under the Voting and Exchange Trust Agreement, Veritas DGC
will issue the Voting Share to the Trustee for the benefit of the holders (other
than Veritas DGC and its subsidiaries) of the Series 1 Exchangeable Shares. The
Voting Share will carry a number of votes, exercisable at any meeting at which
Veritas DGC stockholders are entitled to vote, equal to the number of
outstanding Series 1 Exchangeable Shares (other than shares held by Veritas DGC
and its subsidiaries). With respect to any written consent sought from the
Veritas DGC stockholders, each vote attached to the Voting Share will be
exercisable in the same manner as set forth above.
Each holder of a Series 1 Exchangeable Share on the record date for any
meeting at which Veritas DGC stockholders are entitled to vote will be entitled
to instruct the Trustee to exercise one of the votes attached to the Voting
Share for such Series 1 Exchangeable Share. The Trustee will exercise each vote
attached to the Voting Share only as directed by the relevant holder and, in the
absence of instructions from a holder as to voting, will not exercise such
votes. A holder may, upon instructing the Trustee, obtain a proxy from the
Trustee entitling the holder to vote directly at the relevant meeting the votes
attached to the Voting Share to which the holder is entitled.
The Trustee will send to the holders of the Series 1 Exchangeable Shares
the notice of each meeting at which the Veritas DGC stockholders are entitled to
vote, together with the related meeting materials and a statement as to the
manner in which the holder may instruct the Trustee to exercise the votes
attaching to the Voting Share, at the same time as Veritas DGC sends such notice
and materials to the Veritas DGC stockholders. The Trustee will also send to the
holders copies of all information statements, interim and annual financial
statements, reports and other materials sent by Veritas DGC to the Veritas DGC
stockholders at the same time as such materials are sent to the Veritas DGC
stockholders. To the extent such materials are provided to the Trustee by
Veritas DGC, the Trustee will also send to the holders all materials sent by
third parties to Veritas DGC stockholders, including dissident proxy circulars
and tender and exchange offer circulars, as soon as possible after such
materials are first sent to Veritas DGC stockholders.
All rights of a holder of Series 1 Exchangeable Shares to exercise votes
attached to the Voting Share will cease upon the exchange of all such holder's
Series 1 Exchangeable Shares for shares of Veritas DGC Common Stock.
Exchange Rights. Under the Voting and Exchange Trust Agreement, Veritas
DGC will grant the Exchange Rights to the Trustee for the benefit of the holders
of the Series 1 Exchangeable Shares.
Optional Exchange Right. Upon the occurrence and during the continuance of
an VESI Insolvency Event (as defined below), a holder of Series 1 Exchangeable
Shares will be entitled to instruct the Trustee to exercise the optional
Exchange Right with respect to any or all of the Series 1 Exchangeable Shares
held by such holder, thereby requiring Veritas DGC to purchase such Series 1
Exchangeable Shares from the holder. Immediately upon the occurrence of a VESI
Insolvency Event or any event which may with the passage of time or the giving
of notice, become a VESI Insolvency Event, VESI and Veritas DGC will give
written notice thereof to the Trustee. As soon as practicable thereafter, the
Trustee will notify each holder of Series 1 Exchangeable Shares of such event or
potential event and will advise the holder of its rights with respect to the
optional Exchange Right. In this Joint Proxy Statement, "VESI Insolvency Event"
means any insolvency or bankruptcy proceeding instituted by or against VESI,
including any such proceeding under the Companies' Creditors Arrangement Act
(Canada) and the Bankruptcy and Insolvency Act (Canada), the admission in
writing by VESI of its inability to
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pay its debts generally as they become due and the inability of VESI, as a
result of solvency requirements of applicable law, to redeem any Series 1
Exchangeable Shares, other Class A Exchangeable Shares or VESI Exchangeable
Shares tendered for retraction.
The consideration for each Series 1 Exchangeable Share to be acquired under
the optional Exchange Right will be one share of Veritas DGC Common Stock plus
an additional amount equivalent to the full amount of all dividends declared and
unpaid on the Series 1 Exchangeable Share. Veritas DGC shall be entitled to
liquidate some of the Veritas DGC Common Stock that would otherwise be
deliverable to the particular holder in order to fund any statutory withholding
tax obligation.
If, as a result of liquidity or solvency provisions of applicable law, VESI
is unable to redeem all of the Series 1 Exchangeable Shares tendered for
retraction by a holder in accordance with the Series 1 Exchangeable Share
provisions, the holder will be deemed to have exercised the optional Exchange
Right with respect to the unredeemed Series 1 Exchangeable Shares, and Veritas
DGC will be required to purchase such shares from the holder in the manner set
forth above.
Automatic Exchange Right. In the event of a Veritas DGC Liquidation Event
(as defined below), in order for the holders of the Series 1 Exchangeable Shares
to participate on a pro rata basis with the holders of a Veritas DGC Common
Stock, Veritas DGC will be required to acquire each outstanding Series 1
Exchangeable Share by exchanging one share of Veritas DGC Common Stock for each
such Series 1 Exchangeable Share, plus an additional amount equivalent to the
full amount of all declared and unpaid dividends on the Series 1 Exchangeable
Shares. Veritas DGC shall be entitled to liquidate some of the Veritas DGC
Common Stock that would otherwise be delivered to the particular holder in order
to fund any statutory withholding tax obligation. In this Joint Proxy Statement,
"Veritas DGC Liquidation Event" means (1) any determination by the Veritas DGC
board to institute voluntary liquidation, dissolution, or winding-up proceedings
with respect to Veritas DGC or to effect any other distribution of assets of
Veritas DGC among its stockholders for the purpose of winding up its affairs; or
(2) immediately upon the earlier of (A) receipt by Veritas DGC of notice of, and
(B) Veritas DGC becoming aware of any threatened or instituted claim, suit or
proceedings with respect to the involuntary liquidation, dissolution or
winding-up of Veritas DGC or to effect any other distribution of assets of
Veritas DGC among its stockholders for the purpose of winding-up its affairs.
DELIVERY OF VERITAS DGC COMMON STOCK
Veritas DGC will ensure that all shares of Veritas DGC Common Stock to be
delivered by it under the Support Agreement or on the exercise of the Exchange
Rights under the Voting and Exchange Trust Agreement are duly registered,
qualified or approved under applicable Canadian and United States securities
laws, if required so that such shares may be freely traded by the holder thereof
(other than any restriction on transfer by reason of a holder being a "control
person" of Veritas DGC for purposes of Canadian law or an affiliate of Veritas
DGC for purposes of United States law). In addition, Veritas DGC will take all
actions necessary to cause all such shares of Veritas DGC Common Stock to be
listed or quoted for trading on all stock exchanges or quotation systems on
which outstanding shares of Veritas DGC Common Stock are then listed or quoted
for trading.
CALL RIGHTS
The following description of the Retraction Call Right, Liquidation Call
Right and Redemption Call Right (all as defined below ) (collectively, the "Call
Rights") is qualified in its entirety by reference to the full text of the Plan
of Arrangement and the Series 1 Exchangeable Share provisions, which are
attached as Annex D. The Call Rights received by Veritas DGC in connection with
the consummation of the Combination Agreement shall be consideration for the
provision of the Ancillary Rights by Veritas DGC to the holders of the Enertec
Common Shares.
In the circumstances described below, Veritas DGC will have certain
overriding rights to acquire Series 1 Exchangeable Shares from holders thereof
for one share of Veritas DGC Common Stock for each Series 1 Exchangeable Share
acquired, plus an amount equivalent to the full amount of all declared and
unpaid dividends on the Series 1 Exchangeable Shares. Different Canadian federal
income tax consequences to a holder of Series 1 Exchangeable Shares may arise
depending upon whether the Call Rights are exercised by Veritas DGC or
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whether the relevant Series 1 Exchangeable Shares are redeemed by VESI pursuant
to the Series 1 Exchangeable Share provisions in the absence of the exercise of
Veritas DGC of the Call Rights. See "Canadian Federal Income Tax Considerations
to Enertec Shareholders."
Retraction Call Right. Pursuant to the Series 1 Exchangeable Share
provisions, a holder requesting VESI to redeem the Series 1 Exchangeable Shares
will be deemed to offer such shares to Veritas DGC, and Veritas DGC will have an
overriding right to acquire all but not less than all of the Series 1
Exchangeable Shares that the holder has requested VESI to redeem in exchange for
one share of Veritas DGC Common Stock for each Series 1 Exchangeable Share, plus
an additional amount equivalent to the full amount of all declared and unpaid
dividends thereon (the "Retraction Call Right").
At the time of a retraction request by a holder of Series 1 Exchangeable
Shares, VESI will immediately notify Veritas DGC. Veritas DGC must then advise
VESI within two business days as to whether Veritas DGC will exercise the
Retraction Call Right. If Veritas DGC does not advise VESI within such two
business day period, VESI will notify the holder as soon as possible thereafter
that Veritas DGC will not exercise the Retraction Call Right. A holder may
revoke his or her retraction request, at any time prior to the close of business
on the business day preceding the retraction date, in which case the holder's
Series 1 Exchangeable Shares will neither be purchased by Veritas DGC nor
redeemed by VESI. If the holder does not revoke his or her retraction request,
on the retraction date the Series 1 Exchangeable Shares that the holder has
requested VESI to redeem will be acquired by Veritas DGC (assuming Veritas DGC
exercises its Retraction Call Right) or redeemed by VESI, as the case may be, in
each case for one share of Veritas DGC Common Stock for each Series 1
Exchangeable Share plus an additional amount equivalent to the full amount of
all declared and unpaid dividends on the Series 1 Exchangeable Shares. Veritas
DGC or VESI, as the case may be, shall be entitled to liquidate some of the
Veritas DGC Common Stock otherwise deliverable to the particular holder to fund
any statutory withholding tax obligation.
Liquidation Call Right. Pursuant to the Arrangement, Veritas DGC will be
granted an overriding right, in the event of and notwithstanding a proposed VESI
Insolvency Event, to acquire all but not less than all of the Series 1
Exchangeable Shares then outstanding in exchange for Veritas DGC Common Stock
and, upon the exercise by Veritas DGC of the Liquidation Call Right, the holders
thereof will be obligated to transfer such shares to Veritas DGC (the
"Liquidation Call Right"). The acquisition by Veritas DGC of all of the
outstanding Series 1 Exchangeable Shares upon the exercise of the Liquidation
Call Right will occur on the effective date of the voluntary or involuntary
liquidation, dissolution or winding-up of VESI. Veritas DGC shall be entitled to
liquidate some of the Veritas DGC Common Stock that would otherwise be
deliverable to the particular holder in order to fund any statutory withholding
tax obligation.
Redemption Call Right. Pursuant to the Arrangement, Veritas DGC will be
granted an overriding right, notwithstanding the proposed automatic redemption
of the Series 1 Exchangeable Shares by VESI pursuant to the Series 1
Exchangeable Share provisions, to acquire on an Automatic Redemption Date all
but not less than all of the Series 1 Exchangeable Shares then outstanding in
exchange for Veritas DGC Common Stock plus an additional amount equivalent to
the full amount of all declared and unpaid dividends on the Series 1
Exchangeable Shares and, upon the exercise by Veritas DGC of the Redemption Call
Right, the holders thereof will be obligated to transfer such shares to Veritas
DGC (the "Redemption Call Right"). Veritas DGC shall be entitled to liquidate
some of the Veritas DGC Common Stock that would otherwise be deliverable to the
particular holder in order to fund any statutory withholding tax obligation.
Effect of Call Right Exercise. If Veritas DGC exercises one or more of its
Call Rights, it will directly issue Veritas DGC Common Stock to holders of
Series 1 Exchangeable Shares and will become the holder of such Series 1
Exchangeable Shares. Veritas DGC will not be entitled to exercise any voting
rights attached to the Series 1 Exchangeable Shares it so acquires. If Veritas
DGC declines to exercise its Call Rights when applicable, it will be required,
pursuant to the Support Agreement, to issue Veritas DGC Common Stock to VESI
which will, in turn, transfer such stock to the holders of Series 1 Exchangeable
Shares in consideration for the return and cancellation of such Series 1
Exchangeable Shares. In the event Veritas DGC does not exercise its Call Rights
when applicable and instead delivers shares of Veritas DGC Common Stock to VESI
in accordance with the Support Agreement, there will be no differing financial,
tax (other than those tax consequences that are discussed
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in "Canadian Federal Income Tax Considerations to Enertec Shareholders," which
includes a discussion on deemed dividends and Part VI.1 Tax) or legal impact to
Veritas DGC or VESI; however, Veritas DGC anticipates that it will exercise its
Call Rights, when available, and currently foresees no circumstances under which
it would not exercise such Call Rights. In addition, Veritas DGC does not
anticipate any restriction or limitation on the number of Series 1 Exchangeable
Shares it would acquire upon exercise of Call Rights.
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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO ENERTEC SHAREHOLDERS
INTRODUCTION
Subject to the qualifications and assumptions contained herein, in the
opinion of Fraser Milner, Canadian counsel to Enertec, the following is a fair
and adequate summary of the principal Canadian federal income tax
considerations, as of the date of this Joint Proxy Statement generally
applicable to Enertec shareholders who at all relevant times, for purposes of
the Canadian Tax Act, hold their Enertec Common Shares and will hold their
Series 1 Exchangeable Shares and shares of Veritas DGC Common Stock as capital
property and deal at arm's length with, and are not affiliated with, Enertec or
Veritas DGC. This discussion does not apply to a holder with respect to whom
Veritas DGC is a foreign affiliate within the meaning of the Canadian Tax Act.
It is assumed that an Enertec shareholder who exchanges Enertec Common Shares
for Series 1 Exchangeable Shares receives no other consideration therefor
(except for cash in lieu of a fraction of a Series 1 Exchangeable Share).
All Enertec shareholders should consult their own tax advisors as to
whether, as a matter of fact, they hold their Enertec Common Shares and will
hold their Series 1 Exchangeable Shares and shares of Veritas DGC Common Stock
as capital property for the purposes of the Canadian Tax Act. Certain provisions
of the Canadian Tax Act (the "mark-to-market rules") relating to financial
institutions (including certain financial institutions, registered securities
dealers and certain corporations controlled by one or more of the foregoing)
will preclude such financial institutions from treating their Enertec Common
Shares, Series 1 Exchangeable Shares and shares of Veritas DGC Common Stock as
capital property for purposes of the Canadian Tax Act. (The "Proposed
Amendments," as defined below, will expand the definition of financial
institution.) This discussion does not take into account the mark-to-market
rules, and Enertec shareholders that are financial institutions for the purposes
of these rules should consult their own tax advisors to determine the tax
consequences to them of the Arrangement.
This discussion is based on the current provisions of the Canadian Tax Act
and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention (the "Tax Treaty"), and counsel's understanding of
the current published administrative practices of Revenue Canada. This
discussion takes into account all specific proposals to amend the Canadian Tax
Act and the regulations thereunder that have been publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date hereof (the
"Proposed Amendments") and assumes that all such Proposed Amendments will be
enacted in their present form. No assurances can be given that the Proposed
Amendments will be enacted in the form proposed, if at all; however, the
Canadian federal income tax considerations generally applicable to a Enertec
shareholder with respect to the Arrangement will not be different in a material
adverse way if the Proposed Amendments are not enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations which may differ
from the Canadian federal income tax considerations described herein.
THIS DISCUSSION IS OF A GENERAL NATURE ONLY. THEREFORE, ENERTEC
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX RULING HAS BEEN OBTAINED FROM
REVENUE CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE TRANSACTIONS
DESCRIBED HEREIN.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Veritas DGC Common Stock,
including dividends, adjusted cost base and proceeds of disposition, must be
converted into Canadian dollars based on the prevailing United States dollar
exchange rate at the time such amounts arise. In computing a shareholder's
liability for tax under the Canadian Tax Act, any cash amounts received by a
shareholder in U.S. dollars must be converted into the Canadian dollar
equivalent, and the amount of any non-share consideration received by a
shareholder must be expressed in Canadian dollars at the time such consideration
is received.
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SHAREHOLDERS RESIDENT IN CANADA
The following portion of this discussion is generally applicable to Enertec
shareholders who, for the purposes of the Canadian Tax Act and any applicable
income tax treaty or convention, are resident or deemed to be resident in Canada
at all relevant times. Certain of such persons to whom the Enertec Common Shares
might not constitute capital property may elect, in certain circumstances, to
have such property treated as capital property by making the irrevocable
election permitted by subsection 39(4) of the Canadian Tax Act.
Disposition of Veritas DGC Consideration and Acquisition of Ancillary Rights
Each of Veritas DGC and VESI is of the view, and has advised counsel, that
the Ancillary Rights have nominal value. On this basis, an Enertec shareholder
who receives Ancillary Rights in exchange for the Veritas DGC Consideration
should realize only a nominal gain at the time that any such consideration is
received from Veritas DGC. Similarly, the cost of the Ancillary Rights received
in connection with the disposition of the Veritas DGC Consideration will be
equal to their fair market value at the time of the exchange. Such
determinations of value are not binding on Revenue Canada and counsel can
express no opinion on matters of factual determination such as this.
For these purposes, an Enertec shareholder will be required to determine
the fair market value of the Ancillary Rights on a reasonable basis.
Exchange of Enertec Common Shares for Series 1 Exchangeable Shares Where No
Election is Made under Section 85 of the Canadian Tax Act
Based on the assumption that an Enertec shareholder who exchanges Enertec
Common Shares for Series 1 Exchangeable Shares receives no other consideration
therefor, in the opinion of counsel, the exchange of Enertec Common Shares for
Series 1 Exchangeable Shares will qualify as a tax-deferred share-for-share
exchange pursuant to section 85.1 of the Canadian Tax Act, as described below.
However, there is no direct authority addressing the proper treatment of the
Arrangement under the Canadian Tax Act. While counsel is of the view that it is
appropriate to make such assumption, if Revenue Canada were to successfully
challenge such assumption, Enertec shareholders would not be entitled to a
tax-deferred share-for-share exchange pursuant to section 85.1 of the Canadian
Tax Act. However, if an Enertec shareholder makes an election under section 85
of the Canadian Tax Act, section 85.1 will not be applicable and the Enertec
shareholder will be entitled to the tax deferral provided by section 85. Enertec
shareholders are urged to consult their own tax advisors to determine whether
they should make an election under section 85 of the Canadian Tax Act, as
described below, in order to provide greater certainty as to a tax-deferred
exchange.
Pursuant to section 85.1 of the Canadian Tax Act, an Enertec shareholder
will not realize any immediate tax consequences as a result of exchanging
Enertec Common Shares for Series 1 Exchangeable Shares provided that such
Enertec shareholder does not make a joint election under section 85 of the
Canadian Tax Act in respect of such exchange as discussed below and does not, in
the Enertec shareholder's return of income for the taxation year in which such
exchange occurs, include in computing the Enertec shareholder's income, any
portion of the capital gain or capital loss, otherwise determined from such
exchange. Instead, the Enertec shareholder will be deemed (1) to have disposed
of that holder's Enertec Common Shares for proceeds of disposition equal to the
adjusted cost base to the holder immediately before such exchange, and (2) to
have acquired the Series 1 Exchangeable Shares at a cost equal to the deemed
proceeds of disposition of the holder's Enertec Common Shares. Such cost will
generally be averaged with the cost of other Series 1 Exchangeable Shares held
by such holder. Pursuant to Revenue Canada's current administrative practices,
an Enertec shareholder who receives cash not exceeding C$200 in lieu of a
fraction of a Series 1 Exchangeable Share, will have the option of recognizing
the capital gain or capital loss arising on the disposition of the fractional
share or alternatively of reducing the adjusted cost base of the Series 1
Exchangeable Shares acquired by the amount of cash so received.
Where an Enertec shareholder exchanges Enertec Common Shares for Series 1
Exchangeable Shares and, in the Enertec shareholder's return of income for the
taxation year in which such exchange occurs, includes in computing income for
that year any portion of the capital gain or capital loss from such exchange,
section 85.1 the Canadian Tax Act will not apply. In such circumstances, the
Enertec shareholder will be considered to have
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disposed of all of the holder's Enertec Common Shares so exchanged for proceeds
of disposition equal to the fair market value of the Series 1 Exchangeable
Shares received on such exchange and to have acquired the Series 1 Exchangeable
Shares at a cost equal to the fair market value, unless the Enertec shareholder
elects under section 85 of the Canadian Tax Act, as further described below.
Such cost will generally be averaged with the cost of other Series 1
Exchangeable Shares previously held by the Enertec shareholder. An Enertec
shareholder who so chooses to realize a capital gain or capital loss on the
exchange of the holder's Enertec Common Shares will realize a capital gain (or a
capital loss) on such exchange to the extent that the holder's proceeds of
disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base of that holder's Enertec Common Shares immediately
before such exchange.
The consequences to an Enertec shareholder of realizing a capital gain or
capital loss are as described below under "Taxation of Capital Gains and Capital
Losses."
Exchange of Enertec Common Shares for Series 1 Exchangeable Shares Where
Election is Made under Section 85 of the Canadian Tax Act
An Enertec shareholder who disposes of Enertec Common Shares to VESI and
who receives Series 1 Exchangeable Shares may obtain a full or partial tax
deferral by entering into a joint tax election with VESI and filing with Revenue
Canada (and where applicable a provincial tax authority) a joint tax election
under subsection 85(1) of the Canadian Tax Act or, in the case of an Enertec
shareholder that is a partnership, under subsection 85(2) of the Canadian Tax
Act, (and the corresponding provisions of any applicable provincial tax
legislation) in respect of such Enertec Common Shares and specifying therein a
transfer price (the "Elected Transfer Price") within the limits described below.
The joint tax election must specify the Elected Transfer Price in respect
of the Enertec Common Shares transferred to VESI. The Elected Transfer Price may
not:
- be less than any cash received by the Enertec shareholder;
- be less than the lesser of the Enertec shareholder's adjusted cost base
of those Enertec Common Shares at the time of disposition and the fair
market value of those Enertec Common Shares at that time; and
- exceed the fair market value of those Enertec Common Shares at the time
of disposition.
Elected Transfer Prices, which do not otherwise comply with the foregoing
limitations, will be automatically adjusted under the Canadian Tax Act so that
they are in compliance.
Where an Enertec shareholder makes a joint tax election in respect of the
disposition of such holder's Enertec Common Shares to VESI in the form
prescribed under the Canadian Tax Act and specifies therein an Elected Transfer
Price within the limits set out in the Canadian Tax Act, and the joint tax
election is filed with Revenue Canada within the time prescribed in the Canadian
Tax Act, the Canadian federal income tax consequences are as follows:
- Such Enertec Common Shares will be deemed to have been disposed of for
proceeds of disposition equal to the Elected Transfer Price. If the
proceeds of disposition in respect of such Enertec Common Shares are
equal to the aggregate of the Enertec shareholder's adjusted cost base
of those Enertec Common Shares (determined immediately before the
disposition) and any reasonable costs of disposition, no capital gain or
capital loss will be realized by the Enertec shareholder. Subject to the
limitations set out in subsections 85(1) and (2) of the Canadian Tax
Act, to the extent that the proceeds of disposition in respect of the
Enertec Common Shares exceed (or are less than) the aggregate of the
adjusted cost base thereof and any reasonable costs of disposition, the
Enertec shareholder will realize a capital gain (or a capital loss). The
taxation of capital gains and capital losses is described below.
- The cost to a shareholder of the Series 1 Exchangeable Shares received
upon the disposition of the Enertec Common Shares to VESI will be equal
to the Elected Transfer Price in respect of those Enertec Common Shares,
less any cash consideration received.
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Consequently, notwithstanding any election, if the cash consideration
received by an Enertec shareholder exceeds the adjusted cost base of his Enertec
Common Shares and any reasonable costs of disposition, the holder will realize a
capital gain at least equal to such excess. The taxation of capital gains and
capital losses is described below.
The election forms may be obtained from Revenue Canada and (if applicable)
the appropriate provincial election forms may be obtained from the relevant
provincial income tax authorities.
In order to make a joint tax election, two copies of a duly completed joint
election form (Revenue Canada form T2057) together with any required supporting
schedules must be signed and forwarded (together with any corresponding
provincial election forms) by the Enertec shareholder to VESI within 90 days
following the Effective Date. Thereafter subject to the election forms complying
with the provisions of the Canadian Tax Act, the forms will be signed by VESI
and returned to the Enertec shareholder for filing with Revenue Canada. VESI
will not execute any tax election received by VESI after 90 days following the
Effective Date.
Where Enertec Common Shares are held in joint ownership and two or more of
the co-owners wish to make an election, then one of the co-owners designated for
such purpose should file (in duplicate) the designation and the Revenue Canada
form T2057 (and, where applicable, the corresponding provincial election forms)
for each co-owner along with a list of all co-owners electing, which list should
contain the address and social insurance number or tax account number of each
co-owner. Where the Enertec Common Shares are held as partnership property, a
partner designated by the partnership must file one Revenue Canada form T2058
(in duplicate) on behalf of all members of the partnership (and, where
applicable, the corresponding provincial election form, in duplicate, with the
provincial taxation authorities). Such Revenue Canada form T2058 (and provincial
form, if applicable) must be accompanied by a list containing the name and
social insurance number or account number of each partner and must be signed by
each partner or be accompanied by a copy of the document authorizing the
designated partner to complete, execute and file the form on behalf of the other
partners.
VESI will make a joint tax election under subsection 85(1) or (2) of the
Canadian Tax Act and the corresponding provisions of any applicable provincial
tax legislation only with an Enertec shareholder, and at the amount(s)
determined by the Enertec shareholder subject to the limitations set out in
subsections 85(1) and (2) of the Canadian Tax Act and any applicable provincial
tax statute. VESI agrees only to execute any joint tax election and to forward
such tax election by mail (within 180 days following the Effective Date) to the
Enertec shareholder for filing with Revenue Canada and any applicable provincial
tax authorities. With the exception of execution of the election by VESI,
compliance with the requirements to ensure the validity of a joint tax election
will be the sole responsibility of the Enertec shareholder making the election.
VESI has advised counsel that it will not be responsible for the payment of any
late filing penalty that does not result from a failure on the part of VESI and
will not be responsible or liable for taxes, interest, penalties, damages or
expenses resulting from the failure by anyone to properly complete any joint tax
election form or to properly file such form within the time prescribed and in
the form prescribed under the Canadian Tax Act or the corresponding provisions
of any applicable provincial legislation.
In order for Revenue Canada to accept the joint tax election without a late
filing penalty being paid by an Enertec shareholder, the joint tax election,
duly completed and executed by both the Enertec shareholder and VESI, must be
received by Revenue Canada on or before the day that is the earlier of the days
on or before which either VESI or the Enertec shareholder is required to file an
income tax return for the taxation year in which the disposition occurs. VESI
has advised counsel that its current taxation year is scheduled to end on July
31, 1999. VESI will be required to file an income tax return for the current
taxation year on or before January 31, 2000. In general, the joint tax elections
of Enertec shareholders who are individuals (other than trusts) must be filed by
April 30, 2000. HOWEVER, REGARDLESS OF SUCH DEADLINES, THE COMPLETED JOINT
ELECTION FORMS OF ENERTEC SHAREHOLDERS MUST BE RECEIVED BY VESI NO LATER THAN 90
DAYS FOLLOWING THE EFFECTIVE DATE. CERTAIN ENERTEC SHAREHOLDERS MAY BE REQUIRED
TO FORWARD THEIR COMPLETED JOINT ELECTION FORMS TO VESI BEFORE THAT DATE TO
AVOID LATE FILING PENALTIES. IF, FOR WHATEVER REASON, THE CURRENT TAXATION YEAR
OF VESI WERE TO TERMINATE BEFORE JULY 31, 1999, THE JOINT TAX ELECTIONS MIGHT
HAVE TO BE FILED EARLIER TO AVOID LATE FILING PENALTIES. IN SUCH EVENT, VESI HAS
AGREED TO NOTIFY FORTHWITH, THROUGH THE TRUSTEE, EVERY ENERTEC SHAREHOLDER WHO
RECEIVED SERIES 1 EXCHANGEABLE SHARES ON THE ARRANGEMENT OF SUCH CHANGE. ENERTEC
SHAREHOLDERS ARE
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URGED TO CONSULT THEIR OWN ADVISORS AS SOON AS POSSIBLE REGARDING THE DEADLINES
APPROPRIATE TO THEIR CIRCUMSTANCES. ANY ENERTEC SHAREHOLDER WHO DOES NOT ENSURE
THAT VESI HAS RECEIVED A DULY COMPLETED JOINT ELECTION FORM WITHIN 90 DAYS FROM
THE EFFECTIVE DATE, WILL NOT BE ABLE TO BENEFIT FROM THE PROVISION OF SECTION 85
OF THE CANADIAN TAX ACT. ACCORDINGLY, ALL ENERTEC SHAREHOLDERS WHO WISH TO ENTER
INTO A JOINT ELECTION WITH VESI SHOULD GIVE THEIR IMMEDIATE ATTENTION TO THIS
MATTER.
Enertec shareholders who wish to make a joint tax election are referred for
further information to Information Circular 76-19R3 and Interpretation Bulletin
IT-291R2 issued by Revenue Canada.
ENERTEC SHAREHOLDERS WISHING TO COMPLETE A FEDERAL OR, IF APPLICABLE, A
PROVINCIAL TAX ELECTION SHOULD CONSULT THEIR OWN TAX ADVISORS. THE COMMENTS
HEREIN WITH RESPECT TO SUCH JOINT TAX ELECTIONS ARE PROVIDED FOR GENERAL
ASSISTANCE ONLY. THE LAW IN THIS AREA IS COMPLEX AND CONTAINS NUMEROUS TECHNICAL
REQUIREMENTS. COMPLIANCE WITH SUCH REQUIREMENTS TO ENSURE THE VALIDITY OF THE
JOINT TAX ELECTION WILL BE THE SOLE RESPONSIBILITY OF THE ENERTEC SHAREHOLDER.
Taxation of Capital Gains and Capital Losses
Three-quarters of any capital gain ("taxable capital gain") must be
included in a shareholder's income for the year of disposition. Three-quarters
of any capital loss ("allowable capital loss") generally must be deducted by the
holder from taxable capital gains for the year of disposition. Any allowable
capital losses in excess of taxable capital gains for the year of disposition
generally may be carried back up to three taxation years or carried forward
indefinitely and deducted against net taxable capital gains (taxable capital
gains less allowable capital losses) in such other years to the extent and under
the circumstances described in the Canadian Tax Act.
Capital gains realized by an individual or trust, other than other certain
specified trusts, may give rise to alternative minimum tax under the Canadian
Tax Act.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include an amount in respect of
taxable capital gains.
If the holder of an Enertec Common Share or a Series 1 Exchangeable Share
is a corporation, the amount of any capital loss arising from a disposition or
deemed disposition of such share may be reduced by the amount of dividends
received or deemed to have been received by it on such share to the extent and
under circumstances prescribed by the Canadian Tax Act. Similar rules may apply
where a corporation is a member of a partnership or a beneficiary of a trust
that owns Enertec Common Shares or Series 1 Exchangeable Shares or where a trust
or partnership of which a corporation is a beneficiary or a member is a member
of a partnership or a beneficiary of a trust that owns Enertec Common Shares or
Series 1 Exchangeable Shares. Shareholders to whom these rules may be relevant
should consult their own tax advisors.
Dividends on Series 1 Exchangeable Shares
In the case of a shareholder who is an individual, dividends received or
deemed to be received on the Series 1 Exchangeable Shares will be included in
computing the shareholder's income, and will be subject to the gross-up and
dividend tax credit rules normally applicable to taxable dividends received from
taxable Canadian corporations.
In the case of a shareholder that is a corporation other than a "specified
financial institution" (as defined in the Canadian Tax Act), dividends received
or deemed to be received on the Series 1 Exchangeable Shares normally will be
included in the corporation's income and deductible in computing its taxable
income.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% of dividends received or deemed to be received on the
Series 1 Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
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The Series 1 Exchangeable Shares will be "term preferred shares" as defined
in the Canadian Tax Act. Consequently, in the case of a shareholder that is a
specified financial institution, such a dividend will be deductible in computing
its taxable income only if:
(i) the specified financial institution did not acquire the Series 1
Exchangeable Shares in the ordinary course of the business carried
on by such institution; or
(ii) in any case, at the time the dividend is received by the specified
financial institution, the Series 1 Exchangeable Shares are listed
on a prescribed stock exchange in Canada (which currently includes
the TSE) and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length,
does not receive (or is not deemed to receive) dividends in respect
of more than 10% of the issued and outstanding Series 1 Exchangeable
Shares.
In addition, to the extent that a deemed dividend arises on the redemption
of the Series 1 Exchangeable Shares by VESI, a portion of the dividend may not
be subject to the denial of dividend deduction applicable in respect of term
preferred shares in accordance with the exceptions outlined above. Specified
financial institutions should consult their own tax advisors.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include dividends or deemed dividends
that are not deductible in computing taxable income.
The Series 1 Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" for purpose of the Canadian Tax Act. Accordingly,
VESI will be subject to a 66 2/3% tax under Part VI.I of the Canadian Tax Act on
dividends (other than "excluded dividends" as defined in the Canadian Tax Act)
paid or deemed to be paid on the Series 1 Exchangeable Shares and will be
entitled to deduct an amount equal to 9/4 of the tax so payable in computing its
taxable income for purposes of the Canadian Tax Act. Dividends received or
deemed to be received on the Series 1 Exchangeable Shares will not be subject to
the 10% tax under Part IV.1 of the Canadian Tax Act applicable to certain
corporations.
Redemption of Series 1 Exchangeable Shares
On the redemption (including a retraction) of a Series 1 Exchangeable Share
by VESI, the holder of a Series 1 Exchangeable Share will be deemed to have
received a dividend equal to the amount, if any, by which the redemption
proceeds exceed the paid-up capital at the time of the Series 1 Exchangeable
Share so redeemed. For these purposes, the redemption proceeds will be the fair
market value at the time of the redemption, of the shares of Veritas DGC Common
Stock received from VESI plus the amount, if any, of all accrued but unpaid
dividends on the Series 1 Exchangeable Shares paid on the redemption. The amount
of such deemed dividend generally will be subject to the same tax treatment
accorded to dividends on the Series 1 Exchangeable Shares as described above. On
the redemption, the holder of a Series 1 Exchangeable Share will also be
considered to have disposed of the Series 1 Exchangeable Share, but the amount
of such deemed dividend will be excluded in computing the shareholder's proceeds
of disposition for purposes of computing any capital gain or capital loss
arising on the disposition. In the case of a shareholder that is a corporation,
in some circumstances, the amount of any such deemed dividend may be treated as
proceeds of disposition and not as a dividend. The taxation of capital gains and
capital losses is described above.
Exchange of Series 1 Exchangeable Shares with Veritas DGC
On the exchange of a Series 1 Exchangeable Shares with Veritas DGC for
shares of Veritas DGC Common Stock, the holder will generally realize a capital
gain (or a capital loss) equal to the amount by which the proceeds of
disposition of the Series 1 Exchangeable Shares, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
the Series 1 Exchangeable Shares immediately before the exchange. For these
purposes, the proceeds of disposition will be the fair market value at the time
of exchange of the shares of Veritas DGC Common Stock plus any other amount
received by the holder from Veritas DGC as part of the exchange consideration.
The taxation of capital gains and capital losses is described above.
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BECAUSE OF THE EXISTENCE OF THE RETRACTION CALL RIGHT, A HOLDER EXERCISING
THE RIGHT OF RETRACTION IN RESPECT OF SERIES 1 EXCHANGEABLE SHARES CANNOT
CONTROL WHETHER SUCH HOLDER WILL RECEIVE SHARES OF VERITAS DGC COMMON STOCK BY
WAY OF REDEMPTION OF THE SERIES 1 EXCHANGEABLE SHARES BY VESI OR BY WAY OF
PURCHASE OF THE SERIES 1 EXCHANGEABLE SHARES BY VERITAS DGC. AS DESCRIBED ABOVE,
THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF A REDEMPTION DIFFER FROM THOSE
OF A PURCHASE.
Dividends on Veritas DGC Common Stock
Dividends on shares of Veritas DGC Common Stock will be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by an individual shareholder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A shareholder that is a
corporation will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include such dividends. United States
non-resident withholding tax on such dividends will be eligible for foreign tax
credit or deduction treatment, where applicable, under the Canadian Tax Act. See
"United States Federal Income Tax Considerations to Enertec Shareholders --
Shareholders Not Resident in or Citizens of the United States."
Disposition of Shares of Veritas DGC Common Stock
The cost of a share of Veritas DGC Common Stock received on a retraction,
redemption or exchange of a Series 1 Exchangeable Share will be equal to the
fair market value of such share at the time of such event. The adjusted cost
base to a holder of shares of Veritas DGC Common Stock acquired on a retraction,
redemption or exchange of a Series 1 Exchangeable Share will be determined by
averaging the cost of such share with the adjusted cost base of all other shares
of Veritas DGC Common Stock held by such holder as capital property immediately
before the retraction, redemption or exchange, as the case may be. A disposition
or deemed disposition of a share of Veritas DGC Common Stock by a holder will
generally result in a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to the holder of such share
immediately before the disposition. The taxation of capital gains and capital
losses is described above.
Foreign Property Information Reporting
A holder of shares of Veritas DGC Common Stock, who is a "specified
Canadian entity" for a taxation year or fiscal period and whose total cost
amount of "specified foreign property", including such shares, at any time in
the year or fiscal period exceeds C$100,000 will be required to file an
information return for the year or period disclosing prescribed information,
including the shareholder's cost amount, any dividends received in the year, and
any gains or losses realized in the year, in respect of such property. With some
exceptions, a taxpayer resident in Canada in the year will be a specified
Canadian entity. A holder of Veritas DGC Common Stock should consult its own
advisors about whether it must comply with these rules.
Dissenting Shareholders
Enertec shareholders are permitted to dissent from the Arrangement in the
manner set out in section 184 of the ABCA. A dissenting Enertec shareholder will
be entitled, in the event the Arrangement becomes effective, to be paid by
Enertec the fair value of the Enertec Common Shares held by such holder
determined as of the appropriate date. See "Dissenting Shareholders' and
Optionholders' Rights." Such shareholder will be considered to have realized a
deemed dividend to the extent that the proceeds of disposition exceed the
paid-up capital and a capital gain (or a capital loss) to the extent that the
proceeds of disposition less the deemed dividend exceed (or are less than) the
adjusted cost base to the holder immediately before payment of the fair value of
the Enertec Common Shares. Additional income tax considerations may be relevant
to dissenting Enertec shareholders who fail to perfect or withdraw their claims
pursuant to the right of dissent. Dissenting Enertec shareholders should consult
their own tax advisors.
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SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the discussion is applicable to Enertec
shareholders who, for purposes of the Canadian Tax Act and any applicable tax
treaty or convention, have not been and will not be resident or deemed to be
resident in Canada at any time while they have held Enertec Common Shares or
will hold Series 1 Exchangeable Shares or shares of Veritas DGC Common Stock
and, except as specifically discussed below, to whom such shares are not
"taxable Canadian property" (as defined in the Canadian Tax Act and the Proposed
Amendments) and, in the case of a non-resident of Canada who carries on an
insurance business in Canada and elsewhere, such shares are not "designated
insurance property" as defined in the Canadian Tax Act.
Generally, Enertec Common Shares and Series 1 Exchangeable Shares will not
be taxable Canadian property at a particular time provided that such shares are
listed on a prescribed stock exchange (which exchanges currently include the
TSE), the holder does not use or hold, and is not deemed to use or hold, the
Enertec Common Shares or the Series 1 Exchangeable Shares in connection with
carrying on a business in Canada and the holder, persons with whom such holder
does not deal at arm's length, or the holder and such persons, has not owned (or
had under option) 25% or more of the issued shares of any class or series of the
capital stock of Enertec or VESI at any time within five years preceding the
particular time. The shares of Veritas DGC will not be taxable Canadian property
at a particular time provided that the holder does not use or hold, and is not
deemed to use or hold, the shares of Veritas DGC Common Stock in connection with
carrying on a business in Canada. In the case of VESI, even if the holder
exceeds the 25% threshold referred to above with respect to the Series 1
Exchangeable Shares, such shares may not be taxable Canadian property. At the
time of disposition such holder should consult its own tax advisors to determine
whether the Series 1 Exchangeable Shares constitute taxable Canadian property at
that time. The TSE has conditionally approved the listing of the Series 1
Exchangeable Shares. See "The Transaction -- Stock Exchange Listing."
A holder of Enertec Common Shares that are not taxable Canadian property
will not be subject to tax under the Canadian Tax Act on the exchange of Enertec
Common Shares for Series 1 Exchangeable Shares. Similarly, provided the Series 1
Exchangeable Shares or shares of Veritas DGC Common Stock are not taxable
Canadian property to the holder, the holder will not be subject to tax under the
Canadian Tax Act on the exchange of a Series 1 Exchangeable Share for shares of
Veritas DGC Common Stock (except to the extent the exchange gives rise to a
deemed dividend discussed below), or on the sale or other disposition of a
Series 1 Exchangeable Share or share of Veritas DGC Common Stock.
In the event that the Enertec Common Shares constitute taxable Canadian
property to a particular non-resident holder thereof, the exchange of Enertec
Common Shares for Series 1 Exchangeable Shares should qualify as a tax-deferred
share-for-share exchange as described above under "-- Shareholders Resident in
Canada -- Exchange of Enertec Common Shares for Series 1 Exchangeable Shares
Where No Election is Made under Section 85 of the Canadian Tax Act." However,
Enertec shareholders are urged to consult their own tax advisors to determine
whether they should make an election under section 85 of the Canadian Tax Act in
order to provide greater certainty in this regard. Even though the exchange of
Enertec Common Shares for Series 1 Exchangeable Shares may be subject to tax
under the Canadian Tax Act, this exchange may be exempt from Canadian tax by
virtue of an applicable tax treaty or convention. Where a capital gain arising
from the disposition of the Enertec Common Shares is not exempt from Canadian
tax by virtue of an applicable income tax treaty or convention, the non-resident
shareholder may choose to make an election pursuant to subsection 85(1) or (2)
of the Canadian Tax Act (or the corresponding provisions of any applicable
provincial tax legislation) in order to defer the recognition of the capital
gain as described above under "-- Shareholders Resident in Canada -- Exchange of
Enertec Common Shares for Series 1 Exchangeable Shares or Cash and Series 1
Exchangeable Shares Where an Election Is Made under Section 85 of the Canadian
Tax Act." REGARDLESS OF WHETHER AN ELECTION IS MADE, THE SERIES 1 EXCHANGEABLE
SHARES RECEIVED IN EXCHANGE FOR ENERTEC COMMON SHARES WILL BE DEEMED TO BE
TAXABLE CANADIAN PROPERTY TO SUCH HOLDER.
Dividends paid or deemed to be paid on the Series 1 Exchangeable Shares are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25%, although such rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Tax Treaty, the rate is
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generally reduced to 15% in respect of dividends paid to a person who is the
beneficial owner thereof and who is resident in the United States for purposes
of the Tax Treaty.
A HOLDER WHOSE SERIES 1 EXCHANGEABLE SHARES ARE REDEEMED BY VESI (EITHER
UNDER VESI'S REDEMPTION RIGHT OR PURSUANT TO THE HOLDER'S RETRACTION RIGHTS)
WILL BE DEEMED TO RECEIVE A DIVIDEND AS DESCRIBED ABOVE UNDER "-- SHAREHOLDERS
RESIDENT IN CANADA -- REDEMPTION OF SERIES 1 EXCHANGEABLE SHARES." ANY SUCH
DEEMED DIVIDEND WILL BE SUBJECT TO WITHHOLDING TAX AS DESCRIBED IN THE PRECEDING
PARAGRAPHS. HOLDERS OF SERIES 1 EXCHANGEABLE SHARES CANNOT CONTROL WHETHER THEY
WILL REALIZE A DEEMED DIVIDEND OR PROCEEDS OF DISPOSITION ON AN EXCHANGE OF THE
SERIES 1 EXCHANGEABLE SHARES FOR SHARES OF VERITAS DGC COMMON STOCK.
Enertec shareholders are permitted to dissent from the Arrangement in the
manner set out in section 184 of the ABCA. A dissenting Enertec shareholder will
be entitled, in the event the Arrangement becomes effective, to be paid by
Enertec the fair value of the Enertec Common Shares held by such holder
determined as of the appropriate date. See "Dissenting Shareholders' and
Optionholders' Rights". Such shareholder will be considered to have realized a
deemed dividend and capital gain (or a capital loss) based on redemption
proceeds equal to such fair value, computed generally as described above in the
case of a redemption (including a retraction) of a Series 1 Exchangeable Share
by VESI for a share of Veritas DGC Common Stock under "-- Shareholders Resident
in Canada -- Redemption of Series 1 Exchangeable Shares." Deemed dividends will
be subject to withholding tax as described above. Any capital gain realized by a
dissenting Enertec shareholder would not be taxed under the Canadian Tax Act if
the Enertec Common Shares in respect of which the right of dissent is exercised
were not taxable Canadian property, as described above. Additional income tax
considerations may be relevant to dissenting Enertec shareholders who fail to
perfect or withdraw their claims pursuant to the right of dissent. Dissenting
Enertec shareholders should consult their own tax advisors.
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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO ENERTEC OPTIONHOLDERS
Subject to the qualifications and assumptions contained herein, in the
opinion of Fraser Milner, Canadian counsel to Enertec, the following is a fair
and adequate summary of the principal Canadian federal income tax
considerations, as of the date of this Joint Proxy Statement generally
applicable to the holders of Enertec Options who at all relevant times, for
purposes of the Canadian Tax Act and any applicable income tax treaty or
convention, are resident or deemed to be resident in Canada, who are current or
former employees, officers and directors of Enertec and who received the Enertec
options in respect of, in the course of, or by virtue of their positions as
employees, officers or directors of Enertec.
This discussion is based on the current provisions of the Canadian Tax Act
and the regulations thereunder and counsel's understanding of the current
published administrative practices of Revenue Canada.
This discussion does not take into account or anticipate any changes in
law, whether by legislative, administrative or judicial decision or action, nor
does it take into account provincial, territorial or foreign income tax
legislation or considerations which may differ from the Canadian federal income
tax considerations described herein.
THIS DISCUSSION IS OF A GENERAL NATURE ONLY. THEREFORE, ENERTEC
OPTIONHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX RULING HAS BEEN OBTAINED FROM
REVENUE CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE TRANSACTIONS
DESCRIBED HEREIN.
EXCHANGE OF ENERTEC OPTIONS FOR OPTIONS TO PURCHASE SHARES OF VERITAS DGC COMMON
STOCK
The holders of the Enertec Options will not realize any immediate tax
consequences as a result of exchanging the Enertec Options for options to
purchase shares of Veritas DGC Common Stock. Instead, for the purposes of the
Canadian Tax Act, (a) the Enertec optionholder will be deemed not to have
disposed of his Enertec Options and not to have acquired the Veritas DGC
Options, (b) the Veritas DGC Options will be deemed to be the same as, and a
continuation of, the Enertec Options, and (c) Veritas DGC will be deemed to be
the same corporation as Enertec for the purposes hereof.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO ENERTEC SHAREHOLDERS
In the opinion of Mayor, Day, Caldwell & Keeton LLP, United States counsel
to Enertec, the following is a summary of the material United States federal
income tax considerations generally applicable to Enertec shareholders that are
"United States holders" as defined below and that hold Enertec Common Shares as
capital assets, arising from and relating to the Arrangement, including the
receipt and ownership of Series 1 Exchangeable Shares and Veritas DGC Common
Stock. For purposes of this summary, "United States holders" are United States
citizens or residents (including certain former citizens and residents),
corporations or partnerships organized under the laws of the United States or
any state thereof, any estate subject to United States federal income tax on its
income regardless of source, and any trust if a United States court is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have authority to control all substantial decisions
of the trust.
This summary is based on United States federal income tax law in effect as
of the date hereof. No statutory, judicial, or administrative authority exists
which directly addresses certain of the United States federal income tax
consequences of the issuance and ownership of instruments and rights comparable
to the Series 1 Exchangeable Shares and the related rights. Consequently, some
aspects of the United States federal income tax treatment of the Arrangement,
including the receipt and ownership of Series 1 Exchangeable Shares and the
exchange of Series 1 Exchangeable Shares for shares of Veritas DGC Common Stock,
are not certain. No advance income tax ruling has been sought or obtained from
the United States Internal Revenue Service regarding the tax consequences of any
of the transactions described herein.
This summary does not address aspects of United States taxation other than
United States federal income taxation, nor does it address all aspects of United
States federal income taxation that may be applicable to particular United
States holders, including, without limitation, holders of Enertec Common Shares
acquired as a result of the exercise of employee stock options. In addition,
this summary does not address (1) the United States state or local tax
consequences or (2) the foreign tax consequences of the Arrangement.
UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE ARRANGEMENT, INCLUDING THE RECEIPT AND OWNERSHIP OF
SERIES 1 EXCHANGEABLE SHARES AND THE RELATED RIGHTS.
Tax Treatment of the Arrangement. It is anticipated that a United States
holder that receives Series 1 Exchangeable Shares and the related rights in
exchange for Enertec Common Shares in the Arrangement generally will recognize
gain or loss on the receipt of the Series 1 Exchangeable Shares and the related
rights. Such gain or loss will be equal to the difference between the fair
market value of the shares of Series 1 Exchangeable Shares and the related
rights at the time of the exchange and the United States holder's tax basis in
the Enertec Common Shares exchanged therefor. The gain or loss will be capital
gain or loss. Capital gain or loss will be long-term capital gain or loss if the
Enertec Common Shares have been held for more than one year at the time of the
exchange. The United States holder will take as such holder's tax basis in the
Series 1 Exchangeable Shares and the related rights the fair market value of the
shares of Series 1 Exchangeable Shares and the related rights received by the
United States holder in the Arrangement, and such holder's holding period will
begin on the day after the United States holder received the Series 1
Exchangeable Shares and the related rights.
For United States federal income tax purposes, gain realized on the
exchange of Enertec Common Shares for Series 1 Exchangeable Shares generally
will be treated as United States source gain, except that, under the terms of
the Tax Treaty, such gain may be treated as sourced in Canada. Any Canadian tax
imposed on the exchange generally will be available as a credit against United
States federal income taxes, subject to applicable limitations. A United States
holder that is ineligible for a foreign tax credit with respect to any Canadian
tax paid may be entitled to a deduction therefor in computing United States
taxable income.
Exchange of Series 1 Exchangeable Shares. It is anticipated that a United
States holder that exercises such holder's rights to exchange the Series 1
Exchangeable Shares and the related rights for shares of Veritas DGC Common
Stock generally will recognize gain or loss on the receipt of the shares of
Veritas DGC Common Stock in exchange for such Series 1 Exchangeable Shares and
the related rights. Such gain or loss will be equal to the
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difference between the fair market value of the shares of Veritas DGC Common
Stock at the time of the exchange and the United States holder's tax bases in
the Series 1 Exchangeable Shares and the related rights exchanged therefor. The
gain or loss will be capital gain or loss, except that, with respect to any
declared but unpaid dividends on the Series 1 Exchangeable Shares, ordinary
income may be recognized by the holder thereof. Capital gain or loss will be
long-term capital gain or loss if the Series 1 Exchangeable Shares have been
held as capital assets for more than one year at the time of the exchange. The
United States holder will take as such holder's tax basis in the shares of
Veritas DGC Common Stock the fair market value of the shares of Veritas DGC
Common Stock received by the United States holder in the exchange, and such
holder's holding period will begin on the day after the United States holder
received the shares of Veritas DGC Common Stock.
For United States federal income tax purposes, gain realized on the
exchange of Series 1 Exchangeable Shares for shares of Veritas DGC Common Stock
generally will be treated as United States source gain, except that, under the
terms of the Tax Treaty, such gain may be treated as sourced in Canada. Any
Canadian tax imposed on the exchange generally will be available as a credit
against United States federal income taxes, subject to applicable limitations. A
United States holder that is ineligible for a foreign tax credit with respect to
any Canadian tax paid may be entitled to a deduction therefor in computing
United States taxable income.
Distributions on the Series 1 Exchangeable Shares. A United States holder
of Series 1 Exchangeable Shares generally will be required to include in gross
income as ordinary income dividends paid on the Series 1 Exchangeable Shares to
the extent paid out of the current or accumulated earnings and profits of VESI,
as determined under United States federal income tax principles. Such dividends
generally will be treated as foreign source passive income for foreign income
tax credit limitation purposes. Under the Tax Treaty, such distributions will be
subject to Canadian withholding tax at a maximum rate of 15 percent. Subject to
certain limitations of United States federal income tax law, a United States
holder generally should be entitled to credit such withholding tax against such
holder's United States federal income tax liability or to deduct such tax in
computing United States taxable income.
Dissenters. A United States holder who exercises such holder's right to
dissent from the Arrangement will recognize gain or loss on the exchange of such
holder's Enertec Common Shares for cash in an amount equal to the difference
between the amount of cash received and such holder's basis in the Enertec
Common Shares exchanged. Such gain or loss will be capital gain or loss if the
Enertec Common Shares were held as capital assets at the time of the Effective
Time of the Arrangement, and will be long-term capital gain or loss if the
Enertec Common Shares have been held for more than one year at the time of the
Arrangement.
Passive Foreign Investment Company Considerations. For United States
federal income tax purposes, a foreign corporation (hereinafter, the "tested
corporation") generally will be classified as a passive foreign investment
company, known as a "PFIC," for any taxable year during which either (i) 75
percent or more of its gross income is passive income (as defined for United
States federal income tax purposes) or (ii) on average for such taxable year, 50
percent or more of its assets produce or are held for the production of passive
income. For purposes of applying the foregoing tests, the assets and gross
income of corporations with respect to which the tested corporation owns at
least 25 percent of the value of the stock will be attributed to the tested
corporation.
While there can be no assurance with respect to the classification of
either Enertec or VESI as a PFIC, each of Enertec and VESI believes that it did
not constitute a PFIC during its taxable years ending prior to consummation of
the Arrangement. At the present time, Enertec and Veritas DGC intend to endeavor
to cause Enertec and VESI to avoid PFIC status in the future, although there can
be no assurance that they will be able to do so or that their intent will not
change. Moreover, because a determination of the tested corporation's status as
a PFIC cannot be made until the close of the taxable year, United States counsel
will not be rendering an opinion with regard to the status of VESI or Enertec as
a PFIC.
After the Arrangement, VESI intends to monitor its status regularly, and
promptly following the end of each taxable year VESI will notify United States
holders of Series 1 Exchangeable Shares if it believes that VESI was a PFIC for
that taxable year.
Although the matter is not free from doubt, if Enertec were a PFIC at any
time during a particular United States holder's holding period for its Enertec
Common Shares, and the United States holder had not made an
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election to treat Enertec as a qualified electing fund (a "QEF") under Section
1295 of the United States Internal Revenue Code (a "QEF Election"), then any
gain recognized by a United States holder upon the exchange of Enertec Common
Shares for Series 1 Exchangeable Shares or cash, may be recharacterized as
ordinary income and be subject to the payment of an interest charge under the
same rules described below with respect to VESI.
If VESI is a PFIC following the Arrangement during a United States holder's
holding period for such holder's Series 1 Exchangeable Shares, and the United
States holder does not make a QEF Election, then (1) the United States holder
would be required to allocate income recognized upon receiving certain excess
dividends with respect to, and gain recognized upon the disposition of, such
United States holder's Series 1 Exchangeable Shares (including upon the exchange
of Series 1 Exchangeable Shares for shares of Veritas DGC Common Stock) ratably
over the United States holder's holding period for such Series 1 Exchangeable
Shares, (2) the amount allocated to each year other than (x) the year of the
excess dividend payment or disposition of the Series 1 Exchangeable Shares or
(y) any year prior to the beginning of the first taxable year of VESI for which
it was a PFIC, would be subject to tax at the highest rate applicable to
individuals or corporations, as the case may be, for the taxable year to which
such income is allocated, and an interest charge would be imposed upon the
resulting tax attributable to each such year (which charge would accrue from the
due date of the return for the taxable year to which such tax was allocated),
and (3) amounts allocated to periods described in (x) and (y) will be taxable to
the United States holder as ordinary income.
If the United States holder of Series 1 Exchangeable Shares makes a QEF
Election, then the United States holder generally will be currently taxable on
such holder's pro rata share of VESI's ordinary earnings and net capital gains
(at ordinary income and capital gains rates, respectively) for each taxable year
of VESI in which VESI is classified as a PFIC, even if no dividend distributions
are received by such United States holder, unless such United States holder
makes an election to defer such taxes. If VESI believes that it was a PFIC for a
taxable year, it will provide United States holders of Series 1 Exchangeable
Shares with information sufficient to allow eligible holders to make a QEF
Election and report and pay any current or deferred taxes due with respect to
their pro rata shares of VESI's ordinary earnings and profits and net capital
gains for such taxable year. United States holders should consult their tax
advisors concerning the merits and mechanics of making a QEF Election and other
relevant tax considerations if either Enertec or VESI is a PFIC for any
applicable taxable year.
The foregoing summary of the possible application of the PFIC rules to
Enertec and VESI and the United States holders of Enertec Common Shares is only
a summary of certain material aspects of those rules. Because the United States
federal income tax consequences to a United States holder of Enertec Common
Shares under the PFIC provisions are significant, United States holders of
Enertec Common Shares are urged to discuss those consequences with their tax
advisors.
SHAREHOLDERS NOT RESIDENT IN OR CITIZENS OF THE UNITED STATES
The following summary is applicable to holders of Enertec Common Shares
that are not United States holders.
A non-United States holder generally will not be subject to United States
federal income tax on gain (if any) recognized on the receipt of the Series 1
Exchangeable Shares, on the sale or exchange of the Series 1 Exchangeable
Shares, or on the receipt of or sale of shares of Veritas DGC Common Stock
unless such gain is effectively connected with a United States trade or business
or, in the case of gains recognized by an individual, such individual is present
in the United States for 183 days or more and has a "tax home," as defined in
the United States Internal Revenue Code, during the taxable year.
Dividends received by a non-United States holder with respect to the Series
1 Exchangeable Shares should not be subject to United States withholding tax,
and Veritas DGC and Enertec do not intend that Veritas DGC, VESI or Enertec will
withhold any amounts in respect of such tax from such dividends. There is some
possibility, however, that the Internal Revenue Service may assert that United
States withholding tax is payable with respect to dividends paid on the Series 1
Exchangeable Shares to non-United States holders. In such case, holders of
Series 1 Exchangeable Shares could be subject to United States withholding tax
at a rate of 30 percent, which rate may be reduced by an income tax treaty in
effect between the United States and the non-United States holder's
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country of residence. This reduction would result in a withholding tax of 15
percent on dividends paid to residents of Canada under the Tax Treaty.
Dividends received by non-United States holders with respect to the Veritas
DGC Common Stock generally will be subject to United States withholding tax at a
rate of 30 percent, which rate may be subject to reduction by an applicable
income tax treaty. This reduction would result in a withholding tax of 15
percent on dividends paid to residents of Canada under the Tax Treaty.
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VERITAS DGC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Veritas DGC
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Six months ended January 31, 1999 compared with six months ended January
31, 1998
Revenues. Revenues decreased 7% from $265.8 million to $248.5 million
during the current six months. The decrease was attributable to fewer data
library sales. Revenues increased for all other service groups compared to the
prior period.
Land and transition zone acquisition revenues increased 10% from $110.7
million to $121.3 million as a result of increased utilization of an expanded
base of crews and channels during the first quarter of the current year.
Operations also improved in the Middle East market during the second quarter;
however, revenues decreased in other areas as a result of decreased demand and
prices.
Marine acquisition revenues increased 4% from $43.5 million to $45.4
million despite disruptions caused by weather and the mobilization of vessels.
The increase was primarily due to capacity added by the Veritas Viking, Veritas
DGC's new 3-D vessel that commenced operations in July 1998.
Data processing revenues were consistent, $45.1 million in the prior year
compared to $45.4 million in the current year. Veritas DGC substantially
upgraded its processing centers, including the addition of a third NEC
supercomputer in Singapore in July 1998, to meet the demand for complex and
computer intensive processing products such as pre-stack time and depth
migration.
Multi-client data library sales decreased 45%, from $66.5 million to $36.4
million, primarily due to the higher level of data sales in the first quarter of
fiscal year 1998 related to a new data sales program in the Gulf of Mexico and
decreased demand in the second quarter of the current year.
Cost of Services. Cost of services were consistent, $174.1 million in the
prior year compared to $173.5 million in the current year, but increased as a
percent of revenues from 65% to 70%. The reduction in operating margins is
mainly attributable to a more competitive environment in the onshore markets, as
a result of lower commodity prices. Marine acquisition, data processing, and
data library sales operating margins increased due to improvements in
productivity and efficiency and the mix of multi-client surveys sold.
Depreciation and Amortization. Depreciation and amortization expense
increased 36% from $25.5 million to $34.6 million due to the large increase in
capital expenditures over the past two years.
Selling, General and Administrative. Selling, general, and administrative
costs increased slightly from $8.8 million in 1998 to $9.1 million in 1999.
Interest Expense. Interest expense increased from $4.1 million to $5.6
million due to the addition of the $60.0 million senior notes discussed below at
the end of the first quarter in the current year.
Other Income. The increase in other income from $1.0 to $2.4 million
primarily relates to net foreign currency exchange gains resulting from the
Canadian dollar strengthening against the U.S. dollar. In the prior year,
Veritas DGC recognized losses as the U.S. dollar strengthened against the
Australian dollar. The increase is partially offset by a reduction in interest
income earned as a result of lower average cash balances in the first quarter of
fiscal 1999.
Income Taxes. Provision for income taxes decreased from $16.2 million to
$8.9 million as a result of Veritas DGC's lower taxable income for the current
year. The increase in the effective tax rate from 30% to 32% is primarily
attributable to a benefit recorded to recognize the expected future utilization
of net operating loss carryforwards during the prior year's second quarter.
Equity in (earnings) loss. Equity in (earnings) loss is related to the
Indonesian joint venture. A decrease in marine acquisition surveys accounts for
the decreased profitability in the current year.
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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.
Over the past two years, as oil and gas companies have moved toward multi-client
surveys to reduce finding costs, Veritas DGC has significantly increased its
data library. Sales from the data library primarily involved marine surveys in
the deepwater Gulf of Mexico and 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,
resulting from the purchase in late fiscal 1997 of equipment to configure up to
two crews in Oman, the addition of one crew in Latin America, and operating
efficiencies from upgraded and standardized equipment. 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 dry dock approximately one month each
for regularly schedule maintenance at various times during the year. The
increase 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 in June 1998, Veritas DGC chartered the Veritas
Viking, a new vessel, which set Veritas DGC 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. Veritas DGC has substantially upgraded its processing centers,
including the addition of NEC supercomputers in Crawley, England and Singapore
and several multi-noded workstations, to meet this increased demand.
Cost of Services. Cost of services increased 28% from $271.7 million to
$346.9 million; but, as a percent 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 acquisition and land and transition zone margins remained
relatively consistent.
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 prior 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 Veritas DGC's expanded operations and
costs incurred in implementing new administrative and accounting systems and a
more aggressive marketing strategy.
Interest Expense. 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. Provisions for income taxes increased from $6.1 million to
$34.2 million as a result of Veritas DGC'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 Veritas DGC'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 from
upgraded and standardized
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equipment. Demand improved significantly in Canada and remained high during the
spring break-up period. Contracts in Veritas DGC'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 Veritas DGC'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. Veritas DGC substantially upgraded its processing centers,
installed a NEC supercomputer in Houston and opened new centers in Abu Dhabi,
Australia, Ecuador and Oklahoma.
Multi-client data sales increased 110% from $23.0 million to $48.4 million
due to expanding customer interest in the Gulf of Mexico, especially deepwater
and sub-salt areas, and North Sea multi-client data surveys.
Cost of Services. Cost of services increased 37% from $198.7 million to
$271.7 million; but, as a percent of revenues decreased from 79% to 75%. The
improvement in operating margins is attributable to higher prices 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.
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 Veritas DGC's improved performance.
Interest Expense. Interest expense increased 37% from $5.5 million to $7.5
million due to increased debt levels required to finance the 1997 capital
expenditure program. Veritas DGC issued $75 million of senior 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 with VESI.
Income Taxes. Provision for income taxes increased from $2.0 million to
$6.1 million as a result of increased profitability. However, the effective tax
rate was reduced in the current year by the write-off of certain 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
Veritas DGC's internal sources of liquidity are cash, cash equivalents and
cash flow from operations. External sources include public and private
financing, the unutilized portion of a revolving credit facility, equipment
financing and trade credit.
In October 1996, Veritas DGC completed a $75.0 million public offering of
senior notes ("Series A Notes"), and in October 1998, Veritas DGC completed a
$60.0 million private placement of senior notes ("Series B Notes"), both due in
October 2003. The Series B Notes were exchanged for notes with terms identical
in all material respects to those of the Series A Notes in March 1999 ("Series C
Notes"). This exchange was registered under the Securities Act. The net proceeds
from the Series B Notes will be used for general corporate purposes, including
capital expenditures and additions to Veritas DGC's data library as discussed
below. The indentures relating to the senior notes contain certain covenants,
including covenants that limit Veritas DGC's
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ability to, among other things, incur additional debt, pay dividends, and
complete certain mergers, acquisitions and sales of assets. Veritas DGC is in
compliance with all covenants of the indentures as of January 31, 1999. Upon a
change in control of Veritas DGC, as defined in the indentures, holders of the
senior notes have the right to require Veritas DGC to purchase all or a portion
of such holder's senior note at a price equal to 101% of the aggregate principal
amount. Interest is payable semi-annually.
In July 1998, Veritas DGC obtained a new revolving credit facility due July
2001 from commercial lenders that provides advances up to $50.0 million.
Advances are limited by a borrowing base and bear interest, at Veritas DGC's
election, at LIBOR or prime rate plus a margin based on certain ratios
maintained by Veritas DGC. Advances are secured by certain accounts receivable
for a limited amount. The borrowing base is currently in excess of the maximum
commitment as of January 31, 1999. Covenants in the agreement limit, among other
things, Veritas DGC's right to take certain actions, including creating
indebtedness. In addition, the agreement requires Veritas DGC to maintain
certain financial ratios. Veritas DGC is in compliance with all covenants of the
agreement. There were no outstanding advances as of January 31, 1999.
Veritas DGC requires significant amounts of working capital to support its
operations and to fund capital spending and research and development programs.
Veritas DGC'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 and payables denominated in foreign currencies are subject
to fluctuations in foreign money markets. Approximately 47% of revenues for the
six months ended January 31, 1999 were attributable to Veritas DGC's foreign
operations. Veritas DGC 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. Depending on the timing of future sales of the data and the
collection of the proceeds from such sales, Veritas DGC's liquidity will be
affected; however, Veritas DGC believes that these non-exclusive surveys have
good long-term sales, earnings and cash flow potential.
Veritas DGC's revised capital budget for fiscal 1999 is $76.3 million,
which includes expenditures of $30.0 million to maintain or replace Veritas
DGC's current operating equipment and $48.8 million to expand capacity. Research
and development costs are estimated at $8.2 million in fiscal 1999.
Veritas DGC 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. However, Veritas DGC'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 Veritas DGC's
control. Many oil and gas companies have recently announced annual budgets that
are substantially lower than previously anticipated. Key factors affecting
future results will include utilization levels for both land and marine crews
and the level of data library sales. The ability to forecast future earnings is
more difficult as a result of a substantial reduction in backlog ($149.0 million
at January 31, 1999 compared to $227.0 million at January 31, 1998). The
continued deterioration in activity levels and current industry outlook will
result in a very difficult environment for the balance of fiscal 1999.
Management has undertaken certain initiatives in response to the current
industry downturn to preserve the financial strength and flexibility of Veritas
DGC. Since September 1998, headcount has been decreased from approximately 4,500
to 2,500 employees. Veritas DGC has decommissioned the multi-boat operation in
the Gulf of Mexico. All three vessels, which were on short-term charters, have
been returned to the vessel owners. In order to reduce capital expenditures, the
seismic equipment outfitting these vessels will be installed on the second
Viking class 3D vessel, which is scheduled for delivery in May 1999. Management
continues to monitor discretionary capital expenditures.
Veritas DGC anticipates that cash and cash equivalents, cash flow from
operations, the unutilized portion of the revolving credit facility and
borrowings permitted under the indentures and revolving credit facility will
provide sufficient liquidity to fund these requirements through fiscal 1999. If
Veritas DGC is unable to generate sufficient cash flow from operations or
otherwise to comply with the terms of the revolving credit facility or the
indentures, it may be required to refinance all or a portion of its existing
debt or obtain additional financing.
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Veritas DGC cannot assure that it 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
Veritas DGC has prepared a formal plan to address Year 2000 issues as they
relate to Veritas DGC's business and its operations. In accordance with that
plan, Veritas DGC has evaluated all internal hardware and software used in its
operations, including those used to support Veritas DGC's activities, such as
seismic data acquisition and processing equipment and accounting and payroll
systems. In the ordinary course of business, Veritas DGC 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. Veritas DGC has also identified all external relationships, mainly
suppliers and customers, and mailed each entity an internally prepared
questionnaire regarding Year 2000 issues. Responses returned indicate a state of
readiness and non-responses do not pertain to critical systems. As of January
31, 1999, Veritas DGC estimates that it will complete its plan, including
remedial actions, by June 30, 1999. Approximately $100,000 of costs have been
incurred. Veritas DGC is not aware of any additional material contingencies or
costs that will be incurred.
Since Veritas DGC's quasi-reorganization with respect to Digicon Inc. on
July 31, 1991, the tax benefits of net operating loss carryforwards existing at
the date of the quasi-reorganization have been recognized through a direct
addition to paid-in capital, when realization is more likely than not.
Additionally, the utilization of the net operating loss carryforwards existing
at the date of the quasi-reorganization is subject to certain limitations.
During the six months ended January 31, 1999, Veritas DGC recognized $2.9
million related to these benefits, due to increased profitability of Veritas
DGC's U.K. operations.
Veritas DGC maintains operations in Europe, which are predominately
conducted from its U.K. offices. Although the U.K. has not currently elected to
convert to the new "euro" currency, Veritas DGC does have transactions with
companies in countries that have adopted the new currency. Veritas DGC has made
a preliminary assessment and does not anticipate any material effect to the
consolidated financial statements as a result of the new currency.
See Note 1 of Notes to Veritas DGC Consolidated Financial Statements
regarding new accounting pronouncements not yet adopted.
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BUSINESS OF VERITAS DGC
GENERAL
Veritas DGC 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. Veritas DGC 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. Veritas DGC acquires seismic data
both on an exclusive contractual basis for its customers and on its own behalf
for licensing to multiple customers on a non-exclusive basis.
INDUSTRY CONDITIONS
In recent years, worldwide demand for three-dimensional surveys by major
oil and gas companies and independent producers has increased. The greater
precision and improved subsurface resolution obtainable from three-dimensional
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 three-dimensional 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 are expected for the near term and could have an adverse
effect on the demand for Veritas DGC'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 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. Each of Veritas DGC's land and
transition zone data acquisition crews consists 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. Veritas
DGC utilizes helicopters to aid its crews in seismic data acquisition in
situations where such use will reduce overall costs and improve productivity.
Veritas DGC's land and transition zone data acquisition services are currently
conducted by six seismic crews operating in three countries. In fiscal 1998,
land and transition zone data acquisition accounted for approximately 43% of
Veritas DGC's revenues.
Marine data acquisition. Veritas DGC's marine data acquisition crews
operate primarily on chartered vessels equipped with a full complement of
seismic, navigational and communications equipment. Veritas DGC currently
operates six vessels, with three located in the Gulf of Mexico and the remainder
in international markets. All of Veritas DGC's six seismic vessels are capable
of performing two-dimensional seismic surveys and three are equipped to perform
three-dimensional seismic surveys. During the last several years, a majority of
Veritas DGC's marine seismic acquisition services involved three-dimensional
surveys. In fiscal 1998, marine data acquisition accounted for approximately 16%
of Veritas DGC's revenues.
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Data processing. Veritas DGC currently operates 21 data processing
centers. These centers process data acquired by Veritas DGC'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 18 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 Veritas DGC's revenues.
Licensing of multi-client data surveys. Veritas DGC 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,
Veritas DGC 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 Veritas DGC's revenues. However, this percentage does not
include the portion of Veritas DGC's data acquisition and processing revenues
that is recognized prior to completion of a multi-client data survey.
BUSINESS STRATEGY
Veritas DGC'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, Veritas DGC employs the following business strategy:
Invest in leading technology. Veritas DGC 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, Veritas DGC invested approximately $292 million to replace or
substantially upgrade its principal geophysical operating assets. This
investment in the latest available seismic technology has resulted in
increased operating efficiency and capacity.
Land and transition zone data acquisition. Veritas DGC's
transition zone crews are equipped with Input/Output System Two Remote
Seismic Recorder systems, and land crews employ either Input/ Output
System Two or Sercel 388 equipment.
Marine data acquisition. Five of Veritas DGC's six seismic data
acquisition vessels have been upgraded to Syntron recording systems. The
Veritas Viking, a new chartered flagship vessel constructed to Veritas
DGC's specifications, entered service during fiscal 1998. A second
Viking class vessel is under construction and is expected to enter
service in May 1999. Each is capable of deploying more than 12 seismic
streamer cables.
Data processing. Veritas DGC's 21 seismic data processing centers
employ the latest available technology. To improve its speed and
capacity in processing large three-dimensional marine surveys, Veritas
DGC has recently installed NEC supercomputers in its Singapore; Crawley,
England; and Houston processing centers.
Invest in multi-client data library. At July 31, 1998, Veritas DGC's
multi-client data library 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 $121.3 million, a 151% increase over such
sales in fiscal 1997. Veritas DGC 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 $115 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. Veritas DGC deploys its land and
transition zone crews and seismic vessels in geographic areas where it can
establish and maintain a strong competitive presence.
Maintain flexible marine operations. In its marine seismic data
acquisition activities, Veritas DGC presently operates five chartered
vessels, four of which have unexpired charter terms ranging from one to
three years, subject to renewal at Veritas DGC's option in most instances.
It currently owns one vessel and
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has options to acquire an interest in the two Viking class vessels referred
to above. Veritas DGC's current strategy is to charter 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, Veritas DGC 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
Veritas DGC 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 following tables set forth Veritas
DGC'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
======== ======== ========
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.
Geophysical services are marketed from Veritas DGC'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 Veritas DGC of surveys for its data library.
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 Veritas DGC 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. Certain risks of business interruption are shared
in agreed percentages by Veritas DGC 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
Veritas DGC's land and transition zone acquisition services are performed
with seismic equipment using the latest technology. The equipment is capable of
collecting both two-dimensional and three-dimensional data, has a combined
recording capacity of approximately 31,000 channels and can be configured to
operate up to 21 crews.
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A majority of Veritas DGC's land and transition zone acquisition services
involve three-dimensional surveys. Veritas DGC is currently operating a total of
six crews located in three countries.
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
population density, technical requirements or ecological factors, a mechanical
vibrating unit or compressed air is substituted for explosives as the acoustical
source.
Veritas DGC 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, narrower seismic lines are cut than when
trucks are used for transportation. The use of helicopters is often required in
rugged terrain and environmentally sensitive areas and results in better access
and reduced surface damage.
Marine Acquisition
Marine acquisition services are carried out by Veritas DGC's crews
operating primarily from chartered vessels which have been modified or equipped
to Veritas DGC's specifications. The following table sets forth certain
information concerning Veritas DGC's geophysical vessels:
<TABLE>
<CAPTION>
YEAR
ENTERED CURRENT
VESSEL SERVICE LOCATION LENGTH BEAM
- ------ ------- -------------------- -------- -------
<S> <C> <C> <C> <C>
Acadian Searcher.................. 1983 Offshore Australia 217 feet 44 feet
Ross Seal......................... 1987 Southeast Asia 176 feet 38 feet
Polar Search...................... 1992 Gulf of Mexico 300 feet 51 feet
Polar Princess.................... 1996 Gulf of Mexico 250 feet 46 feet
Professor Kurentsov............... 1997 Offshore West Africa 225 feet 41 feet
Veritas Viking.................... 1998 Gulf of Mexico 305 feet 72 feet
</TABLE>
The Polar Search, Polar Princess and Professor Kurentsov are chartered from
ship operators 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 Ross Seal is operated under a
short-term charter arrangement which expires December 31, 1999. These charters
contain certain options for Veritas DGC 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. Veritas DGC owns the Acadian
Searcher.
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 Veritas DGC'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. The
Veritas Viking, Veritas DGC's largest vessel, entered service in fiscal 1998 and
is capable of deploying more than 12 seismic streamer cables. Veritas DGC 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 May 1999.
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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, Veritas DGC'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. Veritas DGC'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
A majority of Veritas DGC's data processing services are performed on
three-dimensional seismic data. At each of its centers, data received from the
field, both from Veritas DGC and other geophysical contractors, is processed to
produce an image of the earth's subsurface using proprietary computer software
and techniques developed by Veritas DGC. Veritas DGC also reprocesses older
seismic data using new techniques designed to enhance the quality of the data.
Veritas DGC's data processing centers have opened at various times from
1996 through 1998 and are located in:
<TABLE>
<S> <C>
- - Texas - Australia
-- Houston (two locations) -- Brisbane
-- Irving -- Perth
-- Austin
-- Midland - Indonesia
-- Jakarta
- - Colorado
-- Denver - Malaysia
- - Oklahoma -- Kuala Lumpur
-- Oklahoma City - Argentina
- - Bolivia -- Buenos Aires
-- Santa Cruz -- Neuquen
- - Singapore - Venezuela
-- Caracas
- - United Kingdom
-- Crawley - Ecuador
-- Aberdeen -- Quito
- - Canada - U.A.E.
-- Calgary -- Abu Dhabi
</TABLE>
Veritas DGC'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 Veritas DGC'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. Veritas
DGC 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 three-dimensional
surveys, Veritas DGC installed a NEC supercomputer in its Houston processing
center in July 1996. The success of this first system led to the installation of
additional systems in the Crawley center in August 1997 and in the Singapore
center in July 1998. These supercomputer installations act as global resources
for all of Veritas DGC's data processing operations. In 1998 Veritas DGC
completed the installation of a state-of-the-art visualization center in its
Houston processing center. The center allows customers to display and manipulate
large amounts of three-dimensional seismic data on a 18 by 7 foot screen.
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Data Library Sales
Veritas DGC often acquires and processes data for its own account for
licensing to customers on a non-exclusive basis. Veritas DGC seeks pre-funding
commitments from multiple customers for a large portion of the cost of these
surveys to reduce investment risk. In recent years, Veritas DGC 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
concessions 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, Veritas
DGC 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.
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 Veritas DGC 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. Veritas DGC has introduced several technological innovations in its
geophysical service business that have become industry standard practice in both
acquisition and processing.
Currently, Veritas DGC 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.
Veritas DGC 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 Veritas DGC are
subject to the patent rights of others, and Veritas DGC holds non-exclusive
licenses with respect to a number of such patents. While Veritas DGC regards as
beneficial its access to others' technology through licensing, Veritas DGC
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 $76.3 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 Veritas DGC's capital
expenditures for the three years ended July 31, 1998.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and transition zone acquisition................... $15,020 $38,024 $29,207
Marine acquisition..................................... 7,757 34,482 43,599
Data processing........................................ 8,394 19,743 24,701
Other.................................................. 1,689 3,801 2,042
------- ------- -------
Total................................................ $32,860 $96,050 $99,549
======= ======= =======
</TABLE>
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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 Veritas DGC is
the fifth 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.
Veritas DGC's data acquisition activities often are conducted under extreme
weather and other hazardous conditions. Accordingly, these operations are
subject to risks of injury to personnel and loss of equipment. Veritas DGC
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. Veritas DGC may not be able to obtain insurance against certain risks
or for equipment located from time to time in certain areas of the world.
Veritas DGC 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. Veritas DGC 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 Veritas DGC'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 January 31, 1999, Veritas DGC's backlog of commitments for services was
$149.0 million, compared with $227.0 million at January 31, 1998. It is
anticipated that a majority of the January 31, 1999 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, Veritas DGC's
backlog as of any particular date may not be indicative of Veritas DGC's actual
operating results for any succeeding fiscal period.
SIGNIFICANT CUSTOMERS
Historically, Veritas DGC'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 last three fiscal years.
EMPLOYEES
At January 31, 1999, Veritas DGC had approximately 2,500 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. Veritas DGC considers
the relations with its employees to be good.
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<PAGE> 90
EXECUTIVE OFFICERS AND DIRECTORS OF VERITAS DGC
The table below sets forth certain information regarding Veritas DGC'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 Vice-Chairman of the Board, Director
Timothy L. Wells..................... 45 President and Chief Operating Officer
Anthony Tripodo...................... 46 Executive Vice President, Chief Financial Officer and
Treasurer
Rene M.J. VandenBrand................ 41 Vice President -- Business Development
Larry L. Worden...................... 46 Vice President, General Counsel and Secretary
Clayton P. Cormier................... 66 Director
Ralph M. Eeson....................... 50 Director
Lawrence C. Fichtner................. 53 Director
James R. Gibbs....................... 54 Director
Steven J. Gilbert.................... 51 Director
Brian F. MacNeill.................... 59 Director
Jan Rask............................. 43 Director
Jack C. Threet....................... 70 Director
</TABLE>
David B. Robson. Mr. Robson has been chairman of the board and chief
executive officer of Veritas DGC since consummation of the combination with VESI
in August 1996. Prior thereto, he held similar positions with VESI or its
predecessors since 1974.
Stephen J. Ludlow. Mr. Ludlow is currently vice-chairman of Veritas DGC.
Previously he served as president and chief operating officer of Veritas DGC
assuming that position in August 1996, upon consummation of the combination with
VESI. He has been employed by Veritas DGC for 25 years and served as president
and chief executive officer of Veritas DGC from 1994 to 1996. Prior to 1994, he
served as executive vice president of Veritas DGC 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.
Timothy L. Wells. Mr. Wells was appointed president and chief operating
officer of Veritas DGC in January 1999. He has been employed by Veritas DGC for
17 years, having served as president of the Veritas DGC's Asia Pacific division,
regional manager of North and South American processing, manager of research and
programming and in various other capacities in North and South America.
Anthony Tripodo. Mr. Tripodo was appointed executive vice president, chief
financial officer, and treasurer of Veritas DGC in April 1997. Prior to joining
Veritas DGC he was employed by Baker Hughes Incorporated 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 Veritas DGC in August 1996. Prior thereto, he had been vice
president -- finance and secretary of VESI 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.
Larry L. Worden. Mr. Worden was appointed vice president, general counsel
and secretary of Veritas DGC in December 1998. Prior to joining Veritas DGC, he
was employed by King Ranch, Inc. as vice president, general counsel and
secretary for ten years. During the ten years prior to joining King Ranch, Inc.,
he held positions as an attorney with National Gypsum Company and two private
law firms.
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<PAGE> 91
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.
Lawrence C. Fichtner. Until December 1998, Mr. Fichtner served as
executive vice president -- corporate communications of Veritas DGC. Prior
thereto, he had been executive vice president of VESI or its predecessors since
1978. During the ten years prior to joining VESI, he held various positions as a
geophysicist with Geophysical Services Inc., Texaco Exploration Ltd. and Bow
Valley Exploration Ltd.
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 a 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.
Jan Rask. Jan Rask has been president, chief executive officer and
director of Marine Drilling Companies, Inc. since July 1996. Mr. Rask served as
president and chief executive officer of Arethusa (Off-Shore) Limited
("Arethusa") from May 1993 until the acquisition of Arethusa by Diamond Offshore
Drilling, Inc. in April 1996. Mr. Rask joined Arethusa's principal operating
subsidiary in 1990 as its president and chief executive officer.
Jack C. Threet. Mr. Threet is founder and chief executive officer of
Threet Energy Incorporated, a privately held oil and gas concern. Prior to this
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.
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<PAGE> 92
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
Veritas DGC for the years ended July 31, 1996, 1997 and 1998 of those
individuals who served as (i) the chief executive officer of Veritas DGC, or
(ii) an executive officer of Veritas DGC at an annual rate exceeding $100,000
(collectively, the "Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------------
AWARDS
----------------------
ANNUAL COMPENSATION RESTRICTED STOCK ALL OTHER
FISCAL ------------------------------- STOCK OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS (SHARES) SATION(1)
- --------------------------- ------ -------- -------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Robson....................... 1998 $297,916 $243,133(3) -- -- -- --
Chief executive officer(2) 1997 239,583 188,982(4) -- -- 25,806 --
Stephen J. Ludlow..................... 1998 $241,667 $175,038(3) -- -- -- $4,000
President and chief operating 1997 208,312 148,828 -- -- 40,273 4,000
officer(5) 1996 190,142 139,500 -- -- 16,000 4,000
Lawrence C. Fichtner.................. 1998 $128,302 $ 94,791(3) -- -- -- --
Executive vice-president -- corporate 1997 109,520 114,730(4) -- -- 17,032 --
communications(2)(6)
Anthony Tripodo....................... 1998 $184,167 $132,171 -- $202,500(8) -- $ 792
Executive vice-president, chief 1997 60,000 99,687 -- 17,778 --
financial officer and treasurer(7)
Rene M.J. VandenBrand................. 1998 $152,500 $109,309(4) $31,250(9) -- -- $3,732
Vice-president -- business 1997 117,500 102,945 -- 12,387 3,463
development(2)
</TABLE>
- ---------------
(1) Represents contributions by Veritas DGC to the Executive Officer's account
pursuant to Veritas DGC's 401(k) Plan.
(2) Commenced employment with Veritas DGC on August 30, 1996.
(3) Includes value of Veritas DGC Common Stock received in lieu of cash bonuses
at a fair market value of $16 11/16 per share, the closing price on date of
payment, as follows: Mr. Robson -- 6,654 shares; Mr. Ludlow -- 3,387
shares; and Mr. Fichtner -- 2,322 shares.
(4) Includes a bonus awarded during fiscal 1996 and paid during fiscal 1997 in
the following amounts: Mr. Robson -- $7,081; Mr. Fichtner -- $5,590; and
Mr. VandenBrand -- $3,727.
(5) In January, 1999 Timothy L. Wells was elected president and chief operating
officer, and Mr. Ludlow assumed the office of vice-chairman.
(6) Mr. Fichtner's employment with Veritas DGC terminated in December, 1998.
(7) Commenced employment with Veritas DGC on April 1, 1997.
(8) Represents market value of 10,000 shares of restricted stock on the date of
grant. In general, 1/3 of these shares vests on April 1st of each of 1998,
1999 and 2000, if Mr. Tripodo is continuously employed by Veritas DGC
through such dates. Dividends, if any, declared by Veritas DGC are payable
to Mr. Tripodo on these 10,000 shares. As of July 31, 1998, there were
6,667 unvested shares remaining that had an aggregate value of $221,678.
(9) Includes a $10,000 relocation bonus and a domestic allowance for temporary
living expenses of $21,250 incurred during Mr. VandenBrand's relocation
from Calgary to Houston.
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<PAGE> 93
The following table sets forth information with respect to each Executive
Officer's options to purchase shares of Veritas DGC Common Stock, granted under
the 1992 Amended and Restated Employee Nonqualified Stock Option Plan, that were
exercised during fiscal 1998 or unexercised at fiscal year end. No options were
granted during fiscal 1998 to the Executive Officers.
<TABLE>
<CAPTION>
OPTIONS EXERCISED
DURING FISCAL YEAR NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
---------------------- OPTIONS HELD AT FISCAL UNEXERCISED OPTIONS HELD
SHARES YEAR END AT FISCAL YEAR END(1)
ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David B. Robson..................... -- -- 72,989 19,354 $1,857,597 $268,537
Stephen J. Ludlow................... 19,000 $707,388 34,473 32,419 617,194 449,327
Lawrence C. Fichtner(2)............. -- -- 57,161 12,774 1,467,433 177,239
Anthony Tripodo..................... -- -- 4,445 13,333 57,785 173,329
Rene M.J. VandenBrand............... -- -- 21,097 9,290 536,707 128,902
</TABLE>
- ---------------
(1) Value of in-the-money unexercised options are calculated based on the July
31, 1998 closing price of the Veritas DGC Common Stock of $33 1/4 per share
on the NYSE.
(2) Mr. Fichtner's employment with Veritas DGC terminated in December, 1998.
EMPLOYMENT AGREEMENTS
Veritas DGC has entered into employment agreements with Messrs. Robson,
VandenBrand, Ludlow and Tripodo. All of these employment agreements
automatically renew for successive one-year periods unless terminated by prior
written notice of either party. None of these employment agreements have been
terminated. As of July 31, 1998, the Executive Officers are entitled to annual
salaries under their employment agreements as follows: Mr. Robson -- $330,000;
Mr. VandenBrand -- $156,000; Mr. Ludlow -- $265,000; and Mr. Tripodo --
$190,000. Within 30 days of termination without cause, each Executive Officer is
entitled to a one-time payment under his employment agreement equal to several
months of his salary as follows: Messrs. Robson and Ludlow -- 24 months; Mr.
Tripodo -- 18 months; and Mr. VandenBrand -- 12 months. With the exception of
Mr. Tripodo, the Executive Officers are subject to non-compete agreements.
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<PAGE> 94
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Veritas DGC Common Stock at January 31, 1999 by (1) each person
who is known by Veritas DGC to own beneficially more than 5% of the outstanding
Veritas DGC Common Stock, (2) all directors of Veritas DGC, (3) the chief
executive officer and each of the other executive officers and (4) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES(2)
-------------------------------------------------------------------
CURRENTLY
EXERCISEABLE
OPTIONS TO PERCENT PERCENT OF
NAME OF PERSON OR PURCHASE OF CLASS AFTER
IDENTITY OF GROUP(1) SHARES SHARES TOTAL CLASS TRANSACTION(5)
-------------------- --------- ------------ --------- ------- --------------
<S> <C> <C> <C> <C> <C>
David B. Robson................... 1,312,580(3) 87,143 1,399,723(3) 6.1% 5.5%
Clayton P. Cormier................ 10,004 6,250 16,254 * *
Ralph M. Eeson.................... 3,100 3,750 6,850 * *
Lawrence C. Fichtner.............. 3,003 62,669 65,672 * *
James R. Gibbs.................... 1,000 2,812 3,812 * *
Steven J. Gilbert................. 64,185(4) 6,250 70,435(4) * *
Stephen J. Ludlow................. 4,140 51,464 55,604 * *
Brian F. MacNeill................. 4,000 14,917 18,917 * *
Jan Rask.......................... -- 1,250 1,250 -- --
Jack C. Threet.................... 5,333 6,250 11,583 * *
Anthony Tripodo................... 7,445 16,658 24,103 * *
Rene M.J. VandenBrand............. 4,391(6) 27,834 32,225(6) * *
Timothy L. Wells.................. -- 10,155 10,155 -- --
Larry L. Worden................... -- 4,917 4,917 * *
All directors, director nominees
and executive officers as a
group (14 persons named
above).......................... 1,419,181 302,319 1,721,500 7.4% 6.7%
</TABLE>
- ---------------
* Does not exceed one percent.
(1) The address of all persons listed is 3701 Kirby Drive, Houston, Texas,
77098, c/o Veritas DGC.
(2) Each person has sole voting and investment power with respect to the shares
listed except as otherwise specified.
(3) Includes 1,200 shares held by spouse.
(4) Includes 62,748 shares held by Quantum Partners LDC ("Quantum") which may
be deemed beneficially owned by Mr. Gilbert by virtue of an investment
advisory contract between Mr. Gilbert and Quantum. Mr. Gilbert disclaims
beneficial ownership as to these shares.
(5) Assumes all Series 1 Exchangeable Shares have been exchanged for Veritas
DGC Common Stock.
(6) Includes 1,300 shares of Veritas DGC Common Stock held by a spouse and
1,700 shares of Veritas DGC Common Stock held by minor children.
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<PAGE> 95
DESCRIPTION OF VERITAS DGC CAPITAL STOCK
The Veritas DGC Restated Certificate of Incorporation authorizes 40,000,000
ordinary shares, consisting of a series of one share of VESI Special Voting
Stock and all other shares being designated as common stock, and 1,000,000
shares of Veritas DGC Preferred Stock. If the Charter Amendment is approved, the
Veritas DGC Restated Certificate of Incorporation will authorize a series of
ordinary shares, consisting of one share designated as ERS Special Voting Stock.
For a detailed description of the capital stock of Veritas DGC, see "The
Companies After the Transaction -- Veritas DGC Capital Stock."
Rights Plan
Pursuant to a Rights Agreement between Veritas DGC and ChaseMellon
Shareholder Services, L.L.C., Dallas, Texas (the "Rights Plan"), each share of
Veritas DGC Common Stock has attached to it one right (the "Right"), represented
by the certificate which is also the certificate representing the Veritas DGC
Common Stock. Each Right entitles the registered holder to purchase from Veritas
DGC one one-thousandth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), of Veritas DGC
at a purchase price of $100, subject to adjustment (the "Purchase Price").
The Rights will separate from the Veritas DGC Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Veritas DGC Common Stock (the "Stock Acquisition Date"), or (ii) 10 business
days (or such later date as the Veritas DGC board may determine with the
concurrence of a majority of Continuing Directors (defined below) then in office
and subject to five Continuing Directors then being in office) following the
commencement of a tender or exchange offer which would result in a person or
group beneficially owning 15% or more of such outstanding shares of Veritas DGC
Common Stock (the "Tender Offer Date"). Until the Distribution Date, the Rights
will be transferred with and only with the Veritas DGC Common Stock
certificates. The Rights are not exercisable until after the Distribution Date,
subject to termination of any extended redemption periods described below.
Unless earlier redeemed by Veritas DGC as described below, the Rights will
expire at the close of business on May 15, 2007.
In the event that, among other things, (i) Veritas DGC is the surviving
corporation in a merger or other business combination with an Acquiring Person
or (ii) any person shall become the beneficial owner of more than 15% of the
outstanding shares of the Veritas DGC Common Stock (except (A) pursuant to
certain consolidations or mergers involving Veritas DGC or sales or transfers of
the combined assets or earning power of Veritas DGC and its subsidiaries, or (B)
pursuant to an offer for all outstanding shares of the Veritas DGC Common Stock
at a price and upon terms and conditions which a majority of the Continuing
Directors determines to be in the best interests of Veritas DGC and its
stockholders) each holder of a Right (other than the Acquiring Person, certain
related parties and transferees) will thereafter have the right to purchase,
upon exercise, a one-thousandth fractional share interest in Series A Preferred
Stock each of which is for all purposes essentially equivalent to a share of
Veritas DGC Common Stock (or, in certain circumstances, cash, property or other
securities of Veritas DGC) having a value equal to two times the exercise price
of the Right. For example, at the exercise price of $100 per Right, each Right
not owned by an Acquiring Person (or by certain related parties and transferees)
following an event set forth above would entitle its holder to purchase $200
worth of Series A Preferred Stock (or other consideration, as noted above) for
$100. Assuming that the Series A Preferred Stock had a per one-thousandth share
market price of $40 at such time (with each one-thousandth share of Series A
Preferred Stock valued at one share of Veritas DGC Common Stock), the holder of
each valid Right would be entitled to purchase five one-thousandth shares of the
Series A Preferred Stock for $100. Rights are not exercisable following the
occurrence of any of the events described above until the Rights are no longer
redeemable by Veritas DGC as described below. Notwithstanding any of the
foregoing, following the occurrence of any of the events described in this
paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Plan) were, beneficially owned by any Acquiring Person will be null and
void.
In the event that, at any time following the Stock Acquisition Date, (1)
Veritas DGC is acquired in a merger or other business combination transaction in
which Veritas DGC is not the surviving corporation, (2) Veritas DGC
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<PAGE> 96
is the surviving corporation in a consolidation or merger pursuant to which all
or part of the outstanding shares of Veritas DGC Common Stock are changed into
or exchanged for stock or other securities of any other person or cash or any
other property or (3) more than 50% of the combined assets or earning power of
Veritas DGC and its subsidiaries is sold or transferred (in each case other than
certain consolidations with, mergers with and into, or sales of assets or
earning power by or to subsidiaries of Veritas DGC as specified in the Rights
Agreement), each holder of a Right (except Rights that previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, Veritas DGC Common Stock of the acquiring company having a value equal
to two times the exercise price of the Right. The events described in this
paragraph and in the immediately preceding paragraph are referred to as the
"Triggering Events."
At any time until 10 business days following the Stock Acquisition Date (or
such later date as the Veritas DGC board may determine with the concurrence of a
majority of the Continuing Directors then in office), Veritas DGC may redeem the
Rights in whole, but not in part, at a price of $.001 per Right (payable in
cash, shares of Veritas DGC Common Stock or other consideration deemed
appropriate by the board of directors). Rights may not be redeemed during the
180 day period after any person becomes an Acquiring Person unless the
redemption is approved by a majority of Continuing Directors. The term
"Continuing Director" means any member of the Veritas DGC board who was a member
of the board prior to the date of the Rights Agreement, and any person who is
subsequently elected to the board if such person is recommended or approved by a
majority of at least five Continuing Directors, but shall not include an
Acquiring Person, or an affiliate or associate of an Acquiring Person, or any
representative of the foregoing persons.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Veritas DGC, including, without limitation, the right
to vote or to receive dividends.
The Rights have certain anti-takeover effects. They may reduce or eliminate
(1) "two-tiered" or other partial offers that do not offer fair value for all
Veritas DGC Common Stock; (2) the accumulation by a third party of 15% or more
of the Veritas DGC Common Stock in open-market or private purchases in order to
influence or control the business and affairs of Veritas DGC without paying an
appropriate premium for a controlling position in Veritas DGC; and (3) the
accumulation of shares of Veritas DGC Common Stock by third parties in market
transactions for the primary purpose of attempting to cause Veritas DGC to be
sold. In addition, the Rights will cause substantial dilution to a person or
group that attempts to acquire Veritas DGC in a manner defined as a Triggering
Event unless the offer is conditioned on a substantial number of Rights being
acquired. The Rights, however, should not affect any prospective offeror willing
to make an offer for all outstanding shares of Veritas DGC Common Stock and
other voting securities at a price and on other terms that are in the best
interests of Veritas DGC and its stockholders as determined by the Veritas DGC
board or affect any prospective offeror willing to negotiate with the board of
directors because as part of any negotiated transaction the Rights would either
be redeemed or otherwise made inapplicable to the transaction. The Rights should
not interfere with any merger or other business combination approved by the
board of directors since the Veritas DGC board may, at its option, at any time
until ten business days following the Stock Acquisition Date, redeem all, but
not less than all, of the then outstanding Rights at the $.001 redemption price.
LEGAL PROCEEDINGS
Various claims have been filed against Veritas DGC in the ordinary course
of business, particularly claims alleging personal injuries. Management believes
that Veritas DGC has established adequate reserves on its books for any
liabilities that may reasonably be expected to result from these claims. In the
opinion of management, no pending or threatened claims, actions or proceedings
against Veritas DGC are expected to have a material adverse effect on Veritas
DGC's financial position or results of operations.
AUDITORS, REGISTRAR AND TRANSFER AGENT
The auditors of Veritas DGC are PricewaterhouseCoopers LLP, 1201 Louisiana
Street, Suite 2900, Houston, Texas 77002-5678. The registrar and transfer agent
for the Veritas DGC Common Stock in the United States is ChaseMellon Shareholder
Services LLC, 2323 Bryan Street, Suite 2300, Dallas, Texas 75201-2656 and in
Canada is CIBC Mellon Trust Company, Suite 600, 333 - 7th Avenue S.W., Calgary,
Alberta, T2P 2Z1.
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BUSINESS OF VESI
GENERAL
VESI was founded in 1974 and is governed by the ABCA. VESI, a subsidiary of
Veritas DGC, provides land-based seismic data acquisition services, seismic data
processing services and exploration and development information services in
Canada.
VESI was acquired by Veritas DGC in August, 1996. At that time, VESI was
granted orders by Canadian securities regulators exempting VESI from certain
continuous disclosure requirements. Those exemptions were granted on the basis
that the VESI Exchangeable Shares are the economic equivalent of Veritas DGC
Common Stock, such that the holders of such exchangeable shares essentially have
a participatory interest in Veritas DGC, and that Veritas DGC is subject to the
continuous disclosure requirements of the SEC and the applicable U.S. and
Canadian regulatory authorities. Accordingly, all financial information
concerning VESI is included in the consolidated financial statements of Veritas
DGC. Also, the description of the business of Veritas DGC included in this Joint
Proxy Statement encompasses the businesses of the subsidiaries of Veritas DGC,
including VESI.
AUDITORS, REGISTRAR AND TRANSFER AGENT
The auditors of VESI are PricewaterhouseCoopers LLP, 1201 Louisiana Street,
Suite 2900, Houston, Texas 77002-5678. The registrar and transfer agent for the
VESI Exchangeable Shares is CIBC Mellon Trust Company, Suite 600, 333 - 7th
Avenue S.W., Calgary, Alberta, T2P 2Z1.
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ENERTEC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Enertec
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Four months ended January 31, 1999 compared with four months ended January
31, 1998
Revenues. Consolidated net revenues declined 36% to C$16.7 million from
C$26.2 million during the current four months. This decrease was the result of
curtailed demand for seismic services resulting from the weakness in world oil
prices.
Data acquisition net revenues decreased by 51% to C$9.1 million from C$18.5
million due to both declining demand and lower prices, the latter a result of
excess geophysical acquisition capacity in the North American market.
Marine services net revenues increased by 6% to C$4.8 million from C$4.5
million as a result of marginally better weather and sustained demand for
Enertec's services in the Gulf of Mexico, despite a general slow-down for marine
services in this geographic region.
Data processing net revenues declined by 4% to C$3.0 million from C$3.2
million. This decline was the result of a marked decrease in demand in the
Canadian market, partially mitigated by an increase in demand for Enertec's
services in the U.S. market.
Inter-segment sales of C$0.2 million have been eliminated in reporting
Enertec's consolidated net revenue.
Operating Margin. The operating margin declined to C$2.5 million from
C$7.4 million; as a percentage of net revenue the margin declined to 15% from
28%. The majority of these declines were attributable to the data acquisition
operation which experienced a negative operating margin for the current four
months due to difficulties on a contract in the U.S. The marine operation's
margin declined slightly as a result of lower prices caused by a weakening in
demand for marine services in the Gulf of Mexico.
Research and Development. Research and development expenses increased by
25% to C$0.5 million from C$0.4 million, as a result of Enertec's continued
focus on technology.
General and Administrative. General and administrative expenses increased
by 13% to C$1.35 million from C$1.2 million. The increase is primarily
attributable to engaging the services of financial advisors and legal counsel to
assist with acquisition opportunities.
Depreciation and Amortization. Depreciation and amortization increased by
11% to C$3.1 million from C$2.8 million. This increase results from capital
asset additions subsequent to January 31, 1998 and the amortization of goodwill
arising from the acquisition of the assets and business of Extend Seismic
Processing LLC in June 1998.
Income Taxes. Income taxes declined to a recovery of C$1.7 million from a
provision of C$1.2 million as a result of losses incurred in the current period
compared to a profitable comparative period.
Fiscal 1998 compared with fiscal 1997
Revenues. Consolidated net revenues declined 4% to C$68.1 million from
C$70.7 million during the 1998 fiscal year. Despite a record second quarter in
1998, customer concerns relating to the Asian economic malaise and its potential
to keep oil prices low for a protracted period negatively impacted the remainder
of the year.
Data acquisition net revenues decreased 16% to C$39.0 million from C$46.3
million. The majority of this decline occurred in Canada, with the remainder
occurring in the U.S. Despite relatively strong natural gas prices in Canada,
the weakness in oil prices was a primary factor in the reduction in Canadian
customer demand. In the U.S. the erosion in demand for proprietary data
acquisition services was partially as a result of competitors offering customers
cost reductions by providing them with data on a non-exclusive and
non-transferable basis. In
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the latter part of the fiscal year, Enertec undertook the acquisition of data on
this basis in the U.S., recording revenue of C$2.1 million in respect of such
sales.
Marine services net revenues rose 18% to C$20.2 million from C$17.0 million
through the continuation of the steady growth trend of this business since its
acquisition in 1995. This growth occurred as a result of increased customer
acceptance in this market and the development of additional strategic alliances
with existing and new customers.
Data processing net revenues increased 20% to C$8.9 million from C$7.4
million. While Canadian operations revenue declined slightly, U.S. revenues more
than offset this decline with strong growth in the Houston-based operation and
the new business generated from the acquisition in June 1998 of the New Orleans-
based marine data processing operation of Extend Seismic Processing.
Operating Margin. Operating margin declined by 8% to C$22.3 million from
C$24.1 million; as a percentage of net revenue the operating margin fell to 33%
in 1998 from 34% in 1997. The decline in the operating margin was a result of
decreases in the margin contributions of both the Canadian and U.S. data
acquisition operations, partially mitigated by increases in margin from both the
data processing and marine services businesses.
Research and Development. Research and development expense increased by
40% to C$1.4 million from C$1.0 million, as a result of Enertec's continuing
focus on technology.
General and Administrative. General and administrative expense declined
25% to C$4.0 million from C$5.3 million. The decline was primarily due to the
expiration in 1998 of the three year performance bonus paid to certain employees
in the marine services operation under their employment contracts. Another
contribution to the decline was the discontinuation of the operations of a new
oil field service venture.
Depreciation and Amortization. Depreciation and amortization increased 9%
to C$9.2 million from C$8.4 million. This increase resulted from the capital
expenditures undertaken to update Enertec's vibrator fleet, capital expenditures
in the marine services operation and the goodwill arising on the purchase of the
assets and business of Extend Seismic Processing.
Income Taxes. Income taxes remained at a consistent 30% of earnings before
income taxes in both 1998 and 1997, with only a change in the deferred/current
composition within each year.
Fiscal 1997 compared with fiscal 1996
Net Revenues. Consolidated net revenues grew by C$23.8 million, or 51%, to
C$70.7 million from C$46.9 million in the 1996 fiscal year. The demand for
geophysical services reached a peak during 1997 as oil and gas companies strove
to generate increased production in a market characterized by strong oil prices
and increasing natural gas prices.
Slightly more than C$16.0 million of Enertec's net revenue increase was
from the data acquisition business, with both the Canadian and U.S. operations
making a strong contribution. The Canadian contribution resulted from both an
increase in demand for Enertec's services and improved prices. In the U.S.
prices changed little between the two years, but Enertec increased its market
share.
The marine services operation made a C$4.4 million contribution to
Enertec's net revenue increase. This was achieved through increased market share
and the strong growth in activity in the Gulf of Mexico. This increased demand
was met by the addition of a fourth geophysical vessel in the summer of 1997.
The data processing operation made a C$3.2 million contribution to
Enertec's net revenue increase. While this was the smallest contribution to
Enertec's overall revenue increase, this operation grew by 78% during the year
through the addition of new customers in Canada and through expansion in the
U.S.
Operating Margin. The operating margin increased by C$11.2 million, or
87%, to C$24.1 million from C$12.9 million; as a percentage of net revenue the
operating margin increased to 34% in 1997 from 28% in 1996.
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The data acquisition operation contributed C$7.2 million of Enertec's
overall margin increase, with 56% of this being contributed by the United States
operation and 44% by the Canadian operation.
Marine services provided C$1.6 million of the overall margin increase
mainly through expansion of its survey capability to include deep water
conditions, where most of the Gulf of Mexico activity was occurring.
The data processing business contributed C$2.4 million of Enertec's C$11.2
million margin increase. The majority of this contribution was provided by
Canadian operations which increased revenue while maintaining a relatively low
cost structure.
Research and Development. Expenditures increased to C$1.0 million from
C$0.8 million, or 25%, as a result of both the data acquisition and data
processing operations efforts to develop products to meet the unique needs of
clients or improve technology generally.
General and Administrative. The C$1.9 million, or 56%, increase in general
and administrative expense to C$5.3 million from C$3.4 million is primarily the
result of three factors. The performance bonus paid to certain employees in the
marine services operation under their employment contracts increased by C$1.1
million. In addition, the commencement of a new oil field service venture
incurred expenses of C$0.4 million, and Enertec's employee incentive bonus rose
by C$0.3 million due to the improved performance of Enertec in 1997.
Depreciation and amortization. Depreciation and amortization increased 13%
to C$8.4 million from C$7.4 million as a result of incurring C$11.3 million of
capital expenditures, mostly in the first half of the 1997 fiscal year and also
from the write-down of a data acquisition recording system which had suffered
technological obsolescence.
Interest Expense. Interest expense declined by 50% to C$0.4 million from
C$0.8 million because of the repayment of all Enertec's bank debt from the
issuance of common stock during the third fiscal quarter.
Other Income. Other income increased to C$0.6 million from a small expense
amount in 1996. This income is primarily comprised of discounts received by
paying suppliers earlier than Enertec's standard credit terms and gains on the
disposition of capital assets.
Income Taxes. Income tax expense increased to C$2.9 million from a
recovery of C$0.5 million, as a result earnings before taxes of C$9.5 million in
1997 compared to C$0.5 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, Enertec's indebtedness under its bank lines of credit
was C$8.2 million, net of cash balances. At January 31, 1999, Enertec's Canadian
and U.S. bank borrowing facility limits were C$15 million and $1.1 million,
respectively.
In the four months ended January 31, 1999, Enertec repurchased and
cancelled 179,600 of its common shares at a cost of C$972,000, an average cost
of C$5.41 per share.
In light of the curtailment in demand for Enertec's services resulting from
the protracted low oil price environment, staff reductions and other cost
reduction initiatives were instituted. In addition, the capital budget for
fiscal 1999 was reduced to C$4.2 million from C$6.1 million. Of this reduced
budget, C$1.5 million is designated for the purchase of a vessel in the marine
services operation, and the balance of C$2.7 million is to maintain or replace
Enertec's current operating equipment. Enertec anticipates that cash flow from
operations and the unutilized portion of its bank credit facilities will provide
sufficient liquidity to maintain its operations through fiscal 1999. In the
event that cash flow from operations is less than anticipated, Enertec will
invoke additional cost reduction measures.
BUSINESS RISKS
The main risks faced by Enertec are low activity levels in the oil and gas
industry, the weather adversely affecting operations and the loss of market
share to competitors. Currently it is Enertec management's belief that activity
levels in the oil and gas industry are the preeminent risk, followed by
competition from others.
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At this time Enertec is acutely aware of the risk posed by declines in the
levels of capital expenditures by its customers. While Enertec cannot insulate
itself from a chronic downturn in oil and gas prices, it has deployed strategies
to attempt to minimize the negative influences from such an event.
In its largest product line, the data acquisition operation, Enertec has
avoided acquiring the capacity to enable it to meet the full extent of the
demand for its services in the Canadian winter months. Demand in excess of
Enertec's capacity is dealt with by the rental of equipment, if available at
economically viable rates. If such rental equipment is not available, demand for
services is declined.
Enertec has sought to expand its data processing product line recently.
This business is not capital intensive, lends itself well to the securing of
proprietary positions in the marketplace through the offering of particular
technologies and services, and has a good profit margin on revenues. During the
1998 fiscal year Enertec was successful in acquiring the previously mentioned
marine data processing business in New Orleans and was also involved in the
detailed review of two other data processing businesses the acquisitions of
which were not consummated.
Through the marine services product line, Enertec has diversified its
business into an area that is not as susceptible to oil and gas price weakness
as are data processing and, particularly, land data acquisition. This product
line services the exploration, development and production engineering facets of
the Gulf of Mexico oil and gas infrastructure. The Gulf is an area of activity
for multinational entities whose plans for development are expected to be halted
only by a downturn of significant severity and duration. The marine services
product line has fostered and succeeded in expanding the number of its strategic
alliances with customers who are active in this area.
Enertec is reducing costs in the areas of its business where activity
declines are occurring, most notably at this time in the land data acquisition
business.
The perceived second most prevalent risk at this time is, as stated,
competition from others. The product line that management believes is the most
vulnerable to competition is the data acquisition operation. The service offered
by this operation is the one most likely to be subject to price undercutting or
risk assumption by Enertec's competitors. Risk assumption through the
multi-client data library acquisition format is a currently prevalent practice
in this business. As mentioned previously, Enertec has, to date, undertaken two
such acquisition surveys and will be considering undertaking further surveys for
its library.
The risk of inclement weather affects both the data acquisition and marine
services product lines. This risk is mitigated, where possible, by having the
client assume or at least share the risk.
YEAR 2000 SYSTEMS PREPARATIONS
Enertec develops and purchases its computer application software and
primarily purchases its systems operating software. Enertec has contacted the
suppliers of its purchased hardware and software to establish whether their
products that it is using are Year 2000 compliant. Most of this hardware and
software is of relatively recent vintage and is represented to be already
compliant. In addition, Enertec is frequently in contact with these suppliers
regarding updates relative to this issue.
During the review of the state of readiness of Enertec's systems, an
assessment has been made of the areas where risk of non-compliance is perceived.
Remedial work and testing of the computer systems has been underway for some
time and will continue through the first nine calendar months of 1999. Enertec
expects to have completed the work necessary in order to be year 2000 compliant
by the end of September 1999. Enertec believes that the cost of rendering the
company year 2000 compliant is unlikely to exceed $100,000.
Enertec has assessed which suppliers of day to day goods and services it is
most dependent on and has identified these as the suppliers of electricity,
telecommunications services, satellite positioning signals, motor fuel and
equipment parts. With respect to the entities supplying these categories of
goods and services, Enertec believes it is not in a position to influence the
progress of these parties on their Year 2000 preparations. In addition, it is
felt that these entities are acutely aware of the need to be compliant in a
timely manner and that fuel and telecommunication services are available from
more than one supplier. Equipment supplies are either
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available from more than one supplier or will be inventoried if Enertec has
supply concerns. Enertec will use its best efforts to ensure that its operations
are not disrupted by this issue, however it cannot be certain that it will not
suffer a disruption to its business activities.
OUTLOOK
The protracted weakness in the oil market has abated to a certain extent
with the recent production cut announcements by certain OPEC and other oil
producing countries. However, the recent upward momentum in the price of crude
oil may reverse if compliance with the production cuts is weak. At this time
some of Enertec's customers are planning certain geophysical expenditures in
light of the price improvement. Others however, are being cautious and not
considering additional expenditures until they feel that current price levels or
better are sustainable.
The data acquisition product line is expected to be the one most affected
by the weak oil market. It is in this operation that the most stringent cost
reduction measures are being undertaken.
While the data processing product line will be affected by the weak market,
management of Enertec believes that the impact will not be as strong as in the
data acquisition operation. This belief is based on the fact that those
customers of Enertec which have a relatively high proportion of natural gas to
oil will remain quite active. These customers are expected to have the cash flow
required to undertake the capital expenditures they need to increase gas
production to meet their new transportation pipeline commitments and reap the
anticipated higher price of natural gas in the U.S. market. In addition, a
number of customers are expected to be prepared to undertake the expenditures
necessary to have old data reprocessed, seeking improved information on their
properties. This is a far less costly option than having new data acquired and
processed.
The marine services product line management believes that certain of
Enertec's customers operating in the Gulf of Mexico are likely to continue
working, albeit at a restrained pace. Through the quality of the services it
offers, this product line has established strategic alliances with companies
active in the Gulf. Management of Enertec believes that the relationships it has
with its customers will help to mitigate the impact of the price competition
that may arise if competitors choose this strategy.
Enertec's prospects and the future results of its operations are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize or should the assumptions prove incorrect, actual
results may vary in material respect from those currently anticipated.
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BUSINESS OF ENERTEC
ORGANIZATIONAL INFORMATION
Enertec operates through its wholly-owned subsidiaries, Enertec Geophysical
Services Limited ("EGSL"), Enertec Geophysical Services L.L.C., KC Offshore,
L.L.C. and Kinco Operating, Inc. ("Kinco"), (together, "KC Offshore").
EGSL was incorporated by articles of incorporation under the ABCA on
December 15, 1982 and in that month acquired substantially all of the assets of
Kenting Exploration Services Limited. Enertec was incorporated by articles of
incorporation under the ABCA on March 19, 1984 under the name Enertec Resource
Services Ltd. and changed its name to 309103 Alberta Ltd. on February 25, 1988;
to Enertec Geophysical Services (1989) Limited on January 30, 1989; and to its
present form on March 30, 1994. Enertec did not undertake active business
operations until 1989 when the then shareholders of EGSL exchanged all of the
then issued and outstanding common and preferred shares of EGSL for common
shares and preferred shares of Enertec, all of which were subsequently converted
into Enertec Common Shares. EGSL thereupon became a wholly-owned subsidiary of
Enertec.
Enertec has the following operating subsidiaries, all of which are
wholly-owned, directly or indirectly, by Enertec:
- EGSL, a corporation incorporated under the laws of the Province of
Alberta
- Enertec Geophysical Services L.L.C., a limited liability corporation
incorporated under the laws of the State of Delaware
- KC Offshore, L.L.C., a limited liability corporation incorporated under
the laws of the State of Delaware
- Kinco, a corporation incorporated under the laws of the State of
Louisiana
COMPANY OVERVIEW
Enertec is a Calgary, Alberta based company which is actively engaged in
the business of land-based and shallow marine seismic data acquisition, seismic
data processing and marine geophysical surveying and positioning services in
North America and, occasionally, in certain international markets. Enertec is a
full service provider of state-of-the-art geophysical technology to the oil and
natural gas industry.
Enertec acquires and processes two-dimensional, three-dimensional and
four-dimensional seismic data. Enertec provides both seismic data acquisition
and processing services thereby offering its customers savings in time and cost,
as well as higher quality control for their overall needs. Enertec also provides
a professional seismic data acquisition design service to its customers from its
Calgary seismic data acquisition office and believes it is one of only a few
such contractors offering these design services. This service entails working
with customers to determine the optimal configuration for the recording of
seismic data over their area of interest. This service is provided as a value
added, no cost benefit for Enertec's customers, provided the customer utilizes
Enertec's seismic data acquisition services. Enertec views this service as an
integral component of its marketing program.
Enertec has developed proprietary software to analyze seismic data and to
produce various displays and presentations. On-going development of Enertec's
proprietary software is a high priority research project that is conducted by
its employees.
In March of 1994, Enertec acquired all of the outstanding shares of Seismic
Data Processors Ltd. ("SDP"), a seismic data processing company. This
acquisition allowed Enertec to provide seismic data processing services to its
customers. SDP had operated for 15 years before it was acquired by Enertec.
Effective June 14, 1995, Enertec acquired, through its wholly-owned
subsidiary KC Offshore, L.L.C., the principal operating assets, and retained the
key personnel, of Kinsella Cook & Associates Inc. ("Kinsella Cook"), and
directly acquired all of the outstanding shares of Kinco, operating in the
offshore geophysical, positioning and construction surveying industry in the
United States. Both of these companies were based in
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Baton Rouge, Louisiana. These acquisitions permitted Enertec to expand its range
of services to include marine geophysical and positioning services.
Effective April 1, 1996, Enertec acquired all of the outstanding shares in
PowerProbe Geophysics Inc. ("PowerProbe"), a company offering an electrical
methods exploration and development service. PowerProbe has the exclusive rights
in Canada and the United States to utilize and market an electrical methods
technique which has the potential to enhance the assessment of the presence of
hydrocarbons beneath the surface of the earth. This technology requires further
development before it may have commercial application. Effective April 1, 1996,
PowerProbe amalgamated with EGSL.
In the 1997 fiscal year, Enertec established a new product line
("Enprotec") specializing in reservoir and production engineering applications
designed to enhance hydrocarbon production. This operation offered services to
oil and natural gas companies to optimize production from existing petroleum
reservoirs. In fiscal 1998, the venture was discontinued due to a lack of
interest on the part of oil and gas companies to enter into agreements whereby
Enprotec would receive a portion of any enhanced production in exchange for
financing and undertaking production enhancement work on their property.
Effective June 2, 1998, Enertec acquired, through its wholly-owned
subsidiary, Enertec Geophysical Services L.L.C., the principal operating assets,
and retained the personnel, of Extend Seismic Processing L.L.C. ("Extend").
Extend was based in New Orleans, Louisiana and primarily involved in marine
seismic data processing. This acquisition added deep-water two-dimensional and
three-dimensional seismic processing capabilities to Enertec and expanded
Enertec's presence in the United States.
SEISMIC DATA ACQUISITION
Acquisition Technology
Enertec uses digital distributed systems for seismic data acquisition.
Currently, Enertec uses a sigma delta 24 bit system. This system has a low
weight per channel which is important for helicopter applications.
Helicopter-Supported Operations
Environmental concerns have made the cutting of traditional seismic lines
undesirable in many areas. The relatively light weight of distributed systems,
coupled with the speed of deployment of equipment, has made helicopter assisted
operations more desirable than land-based techniques in certain sensitive areas.
It also allows Enertec to work during all seasons in areas that would
traditionally be restricted to winter frozen ground conditions. In rugged or
difficult terrain, the speed of recording is considerably faster utilizing
helicopter transportation rather than wheeled or tracked vehicles. Currently,
Enertec charters fully-crewed helicopters from third party operators for about
50% of its land-based seismic data acquisition work.
Vibroseis
Enertec presently owns and operates 28 servo-hydraulic vibrators. Twelve of
these vibrators are mounted on six wheel drive trucks that are suitable for
general farmland type operations or frozen ground operations in the winter.
Another 12 vibrators are mounted on buggies for areas with softer ground
conditions and four are mounted on tracks. The tracked units are specifically
designed for operation in the Arctic. Enertec's crews have the technical
expertise to use either vibroseis or dynamite as the energy source.
United States Operations
Enertec commenced providing seismic data acquisition services in the United
States in 1995. Since that time, Enertec has developed considerable experience
gathering seismic data in the transition zone along the Gulf of Mexico. This
transition zone includes tidally influenced and swamp land and also shallow
marine areas offshore. Enertec has also expanded its land-based seismic
acquisition operations, primarily in the State of Texas. Enertec operates
offices in Houston, Texas and Baton Rouge, Louisiana, and has successfully
completed projects in Texas, Louisiana, Oklahoma and Wyoming. In late fiscal
1998 and early fiscal 1999, Enertec undertook the
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acquisition of seismic data for its own multi-client data library. These data
are sold to customers on a non-exclusive and non-transferable basis.
Arctic Operations
Arctic operations require specialized equipment designed to withstand the
harsh conditions encountered in the northern region. Enertec believes that it is
the only Canadian owned geophysical services seismic contractor which has the
equipment and experience to operate in the Arctic. Enertec has undertaken
numerous projects in Alaska and the Canadian Arctic and many of Enertec's
personnel have experience working in Arctic conditions.
SEISMIC DATA PROCESSING
Enertec currently markets its seismic data processing services to its
existing seismic data acquisition customers and to current and new customers
requiring only seismic data processing services. A customer may achieve cost
savings by using both seismic data acquisition and data processing services
through price reductions and time saved in producing final products for
interpretation, as well as a higher degree of quality control. Enertec's seismic
data processing business helps to reduce the seasonality of Enertec's
operations.
Enertec operates seismic data processing centres based in Calgary, Alberta,
Houston, Texas and New Orleans, Louisiana and processes seismic data acquired by
Enertec and other contractors, utilizing advanced proprietary software developed
by its own research and development team. In addition to new seismic data,
Enertec's customers often review and require reprocessing of existing seismic
data from their own data base or data that may be purchased from other
companies.
Enertec's software operates on a variety of processing platforms, allowing
Enertec to process data at customized low capital cost centres for customers in
various Canadian, United States or other international locations.
MARINE SERVICES
Enertec acquired the principal operating assets, and retained the key
personnel, of Kinsella Cook in June, 1995 through KC Offshore, L.L.C., a
wholly-owned subsidiary of Enertec. This acquisition permitted Enertec to expand
its services to include marine geophysical and positioning services. KC Offshore
is based in Baton Rouge, Louisiana and is a full-service provider of offshore
surveying in the Gulf of Mexico. KC Offshore currently operates three specially
equipped vessels, two of which are owned and one of which is leased by Enertec.
Through KC Offshore, Enertec provides marine geophysical surveys and positioning
services to, and prepares related technical reports for, the oil and natural gas
industry.
Geophysical Surveying Services
Enertec provides high-resolution geophysical surveys which map the hazards
existing on the sea floor. Governmental regulations in the United States require
these surveys to be conducted prior to the issuance of a permit to operators
planning to conduct exploration or construction in a particular area. To conduct
these surveys, Enertec employs its own high technology vessel (the "R/V
Albuquerque") and a suite of remote sensing devices which identify natural and
man-made features that can have an impact on, or endanger, an oil and natural
gas project. KC Offshore, and its predecessor in interest, Kinsella Cook, has
extensive experience in geophysical hazard surveying and, to date, has
successfully completed over 600 such surveys in the northern Gulf of Mexico. In
response to the increasing interest in deeper water exploration and development
in the Gulf, KC Offshore has advanced its capabilities and is able to conduct
seafloor surveys at greater depths than previously. Enertec also often conducts
intermediate depth seismic exploration for customers concurrently with the
provision of high-resolution geophysical surveys.
Positioning Services
KC Offshore's positioning service involves finding the coordinates of a
particular location offshore and guiding the customer to that location. This
task is quite complicated in the open sea; however, using its
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differential global positioning system reference station network and internally
developed software and expertise, KC Offshore is able to guide a customer to
within three metres of a particular offshore location.
Enertec also uses its positioning service to provide underwater site
abandonment clearance as required by the Minerals Management Service NTL 92-02
Regulation (United States). Pursuant to this regulation, once a platform or well
has been removed by an operator, the operator must verify that the seafloor is
clear of debris and that no trawling obstructions exist. Enertec conducts site
reconnaissance to locate debris and trawling operations to clear the sea bed of
site debris. The rate of well and platform abandonments in the Gulf of Mexico
has increased in the last several years. Enertec uses leased vessels to meet the
demand for these services.
Technical Reports and Computations
Enertec's ability to plan survey operations, perform geophysical data
interpretation and prepare professional report presentations adds to Enertec's
full-service marine geophysical capabilities. Enertec believes it is the only
marine surveying company operating in the Gulf of Mexico with a staff marine
archaeologist to undertake technical reporting.
SAFETY
Management of Enertec considers providing a safe work environment to be one
of Enertec's prime responsibilities. Enertec has developed comprehensive safety
policies and operating procedures to which all of Enertec's personnel are
expected to strictly adhere. The board of directors of Enertec has established
the Safety and Environment Committee in order to monitor Enertec's safety
procedures. Enertec manages safety responsibilities as a prime contractor on
behalf of its customers. Enertec's safety program is constantly being reviewed
and improved by its management, often based upon feedback from employees.
Enertec remains a safety leader and participates in industry association
initiatives to continually improve its safety practices.
PREMISES
Enertec owns its Canadian seismic data acquisition base offices and
facilities, which are located at 3024 - 49th Avenue S.E., Calgary, Alberta, T2B
2X4. These offices and facilities are located on a site approximately 2.2 acres
in size, with a building consisting of approximately 6,200 square feet of office
space and approximately 6,500 square feet of shop area. Enertec leases its head
office space and its Canadian seismic data processing facility, which are
located on the 8th and 9th floors of Rocky Mountain Plaza, 615 Macleod Trail
S.E., Calgary, Alberta, T2G 4T8. The head office and seismic data processing
facility together consist of approximately 20,900 square feet of office space.
Enertec also leases an office and warehouse in Houston, Texas. The office at
3300 S. Gessner, Houston, Texas, 77063, houses the United States seismic data
acquisition operation, a marketing arm of Enertec's marine services operation
and one of the seismic data processing operations. The other operation is
located at an office leased at 3330 W. Esplanade, Suite 601, Metairie,
Louisiana, 70002. The marine services operation is located at an office leased
at 36499 Perkins Road, Prairieville, Louisiana, 70769. The real property owned
by Enertec is subject to fixed and floating charges under Enertec's banking
facilities.
CUSTOMERS
Management of Enertec is of the view that several factors are considered by
Enertec's customers in selecting a geophysical services contractor, including
price, availability of required technology, experience (both personnel and
corporate), financial stability of the contractor, safety and environmental
policy and record of the contractor, and reputation of the contractor for
quality and productivity. Enertec believes that it is able to successfully
compete in all these areas.
There are approximately 500 Canadian and several hundred United States oil
and natural gas companies. Enertec focuses its marketing efforts on
approximately 75 of these companies. One major Canadian customer accounted for
an average of approximately 31% of Enertec's revenue during the last three
fiscal years. Another repeat customer group of approximately seven companies
traditionally generates approximately another 20% of Enertec's annual revenue.
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Enertec has cultivated a long term position with regard to the pricing of
its services and has formed strategic alliances with customers of similar
philosophy pursuant to which there is an understanding as to the provision and
price of such services. Enertec has access to customer information which
provides sufficient time to organize its services to provide maximum benefits to
its customers in the areas of expertise and reliability in the provision of
seismic data acquisition services, reduced costs, good public relations on
behalf of the customer, timely service, technical advice and reduced liability
potential.
Enertec's seismic data acquisition agreements with its customers are for
varying terms. These agreements may generally be terminated on 30 days notice.
The continuing low oil price environment and global oversupply of oil have
caused a significant contraction in demand for seismic data acquisition services
and a somewhat less severe reduction in demand for seismic data processing and
marine services.
COMPETITION
Enertec operates in a cyclical industry, dependent principally upon the
level of exploration and development activities of oil and natural gas
companies. Since 1986, significant rationalization has occurred in the Canadian
geophysical services industry reducing the number of competitors in Canada from
approximately 40 in 1986 to approximately 20 at present.
Technological change, in the form of computer applications which produce
the enhanced imaging characteristics of three-dimensional seismic and
four-dimensional seismic, has created certain barriers to competition through
the increased capital cost and operating skills required by the new equipment.
At the same time, the improved results obtained by oil and natural gas users of
three-dimensional seismic and four-dimensional seismic establishes the basis for
solid growth in the future.
RESEARCH AND DEVELOPMENT
The primary focus for Enertec's research and development program is on
seismic data processing software and applications, with a secondary focus on
seismic data acquisition techniques. This focus on research and development is
intended to produce proprietary software, increase productivity, and provide a
long term marketing advantage for Enertec. Each member of Enertec's 14 person
research and development team is a professional engineer or geophysicist with an
aggregate of over 100 years of experience.
During the 1998 fiscal year, a joint venture between Enertec and Mobil Oil
Corporation implemented a new technology which Enertec has termed as Sei-Fi.
This technology can be used to significantly improve the resolution of
two-dimensional and three-dimensional seismic data or alternatively to reduce
the cost of the acquisition of the data through productivity efficiencies in the
field. Sei-Fi has been in demand from certain customers but has not yet
generated the full potential of the demand anticipated by management of Enertec
due to the current malaise in the oil and gas industry.
For the year ended September 30, 1998, Enertec incurred expenses of
approximately C$1.4 million in connection with its research and development
activities.
EMPLOYEES
Enertec currently employs approximately 263 people, with 150 in its seismic
data acquisition business (of which approximately 90 are seasonal employees), 49
in its seismic data processing business, 60 in marine services, and three in
corporate administration. Enertec's personnel includes approximately 36
engineers, computer scientists and geophysicists.
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<PAGE> 108
DIRECTORS AND OFFICERS
The name, municipality of residence and principal occupation of each of the
directors and senior officers of Enertec and the number of Enertec Common Shares
beneficially owned or over which control or direction is exercised by each of
them as of April 9, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
ENERTEC
NAME AND MUNICIPALITY OF COMMON SHARES
RESIDENCE POSITION PRINCIPAL OCCUPATION HELD(1)
- ------------------------ -------- -------------------- -------------
<S> <C> <C> <C>
Murray B. Todd(2)(4)(5)........ Director President, Canada Hibernia 7,000
Calgary, Alberta Holding Corporation, an oil
and gas exploration company
Murray A. Olson(2)(4).......... Director, President President and Chief Executive 394,230
Calgary, Alberta and Chief Executive Officer of Enertec
Officer
Michael J. Kinsella............ Director, Vice President, K.C. Offshore 167,627
Prairieville, Louisiana President Marine L.L.C., a wholly-owned
Services subsidiary of Enertec
Richard R. Habiak.............. Vice President, Data Vice President, Data 81,680
Calgary, Alberta Acquisitions Acquisitions of Enertec
Darren E. Olson................ Vice President, Vice President, Data 16,832
Calgary, Alberta Data Processing Processing of Enertec
Peter H. Ryder................. Vice President, Vice President, Finance and 14,700
Calgary, Alberta Finance and Chief Chief Financial Officer of
Financial Officer Enertec
Norman Fraser(2)............... Director Financial Consultant 15,000
Toronto, Ontario
C. Victor Kloepfer(3).......... Director President, Permez Petroleums, Nil
West Vancouver, Ltd., an oil and gas
British Columbia corporation
James F. Perry(3)(4)........... Director President, Global 9,000
Calgary, Alberta Thermoelectric Inc., a
manufacturing company
</TABLE>
- ---------------
Notes:
(1) This information, not being within the knowledge of Enertec, has been
furnished by the respective individuals.
(2) Member of the Human Resource and Corporate Governance Committee.
(3) Member of the Audit Committee.
(4) Member of the Safety and Environment Committee.
(5) Chairman of the Enertec board.
MANAGEMENT
Murray B. Todd. Mr. Todd is a resident of Calgary, Alberta and has served
as chairman of the Enertec board for two years and as a director of Enertec for
five years. He is president and chief executive officer of Canada Hibernia
Holding Corporation, an oil and gas production and consulting company working
off the east coast of Canada. Mr. Todd has over 40 years of experience in the
oil and gas industry and from 1992 to 1993 he was president and chief executive
officer of Crestar Energy Inc. Prior to that he was senior vice president of
AMOCO Canada Petroleum Ltd.
95
<PAGE> 109
Murray A. Olson. Mr. Olson has been president and chief executive officer
and a director of Enertec since its incorporation in 1984 and of EGSL since its
founding in 1982. Prior to joining Enertec, he held various senior management
positions responsible for land and marine data acquisition services world wide
for Sefel Geophysical Ltd. ("Sefel"), a large Calgary-based geophysical services
company, which operated until July, 1985. At the time Mr. Olson left Sefel to
establish Enertec, he was responsible for an operation comprised of over 800
personnel and oversaw Sefel's entry into new markets, including Guyana,
Australia, the United States and the United Kingdom (North Sea). Mr. Olson has a
BSc. in engineering geophysics, 26 years of experience in the geophysical
services industry and is a professional geophysicist.
Peter H. Ryder. Mr. Ryder was appointed vice president finance and chief
financial officer of Enertec in January, 1995. For the six years prior thereto,
Mr. Ryder held the same position with Ranchmen's Resources Ltd. ("Ranchmen's"),
a Calgary-based oil and gas company. While at Ranchmen's he worked on several
projects involving acquisitions, takeovers and mergers. Mr. Ryder has a Bachelor
of Commerce degree from the University of Cape Town, South Africa and is a
chartered accountant.
Michael J. Kinsella. Mr. Kinsella has been a vice president, marine
services and a director of Enertec since June 1995, when K.C. Offshore, L.L.C.
was purchased by Enertec. As a co-founder of K.C. Offshore, L.L.C., he managed
the growth of that company and was responsible for the establishment of its
differential global positioning systems. Mr. Kinsella was the president of K.C.
Offshore, L.L.C. from 1987 to 1995. Mr. Kinsella has over 20 years experience in
the fields of offshore surveys and hydrographic surveys as well as engineering
management and administration. Prior work experience was with Shell Oil
(Exploration and Production) and Gulf Ocean Services Ltd. where he was executive
vice-president.
Darren E. Olson. Mr. Olson is the vice president, data processing of
Enertec. Mr. Olson was processing manager of SDP from 1991 until March, 1994.
Mr. Olson has a BSc. in engineering geophysics and 15 years of experience in the
geophysical services industry.
Richard R. Habiak. Mr. Habiak is the vice president, data acquisition of
Enertec. Mr. Habiak has been an officer of Enertec since 1985. He was chief
geophysicist for Sefel from 1984 to 1985 and was responsible for coordinating
research and development for its worldwide land and marine seismic data
acquisition and processing operations. Mr. Habiak has a BSc. in mathematics and
physics and over 20 years of experience in the geophysical services industry and
is a professional geophysicist.
Norman Fraser. Mr. Fraser has been a director of Enertec for two years.
Prior to his retirement in 1994, Mr. Fraser was a vice president and director of
RBC Dominion Securities Inc. where he was extensively involved in the capital
markets and numerous corporate reorganizations.
C. Victor Kloepfer. Mr. Kloepfer is president of Permez Petroleums Ltd.,
an oil and gas exploration company, where he has been employed in various
capacities for more than five years. Mr. Kloepfer has been a director of Enertec
since 1989.
James F. Perry. Mr. Perry as appointed president of Global Thermoelectric
Inc. in 1997. Global Thermoelectric Inc. is the world's largest supplier of
thermoelectric generators to the international oil and gas industry. From 1993
to 1997, he was executive director, International Development, Petro-Trade, a
Canadian petroleum industry association. For the past 25 years Mr. Perry has
held senior positions within the oil and gas service industry. Mr. Perry has
been a director of Enertec since 1993.
96
<PAGE> 110
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Enertec Common Shares as of April 9, 1999 by (a) each person who is
known by Enertec to own beneficially more than 10% of the outstanding Enertec
Common Shares, (b) each director of Enertec, (c) each executive officer of
Enertec and (d) the Enertec directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER
OF ENERTEC
NAME OF PERSON OR IDENTIFY OF GROUP COMMON SHARES(1) PERCENT OF CLASS(2)
- ----------------------------------- ---------------- -------------------
<S> <C> <C>
Centennial Energy Partners, L.P.;.......................... 1,337,910 19.3%
Quadrennial Partners, L.P.;
Tercentenial Energy Partners, L.P. &
Joseph H. Reich & Co.
900 Third Avenue, Suite 1801
New York, New York
U.S.A. 77401
Murray A. Olson............................................ 394,230 5.7%
Suite 800 615 Macleod Trail S.E.
Calgary, Alberta
T2G 4T8
Murray B. Todd............................................. 7,000 0.1%
Peter H. Ryder............................................. 14,700 0.2%
Michael J. Kinsella........................................ 167,627 2.4%
Darren E. Olson............................................ 16,832 0.2%
Richard Habiak............................................. 81,680 1.2%
Norman Fraser.............................................. 15,000 0.2%
C. Victor Kloepfer......................................... Nil Nil
James F. Perry............................................. 9,000 0.1%
--------- -----
Directors and Executive Officers (Total)................... 706,069 10.1%
</TABLE>
- ---------------
Notes:
(1) The information with respect to the shareholdings of the directors and
officers of Enertec, not being within the knowledge of Enertec, has been
furnished by the respective individuals.
(2) Based on 6,939,202 Enertec Common Shares outstanding as at April 9, 1999.
97
<PAGE> 111
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth the compensation for the chief executive
officer ("CEO") and each of the four other most highly compensated officers of
Enertec (measured by base salary and bonuses) (collectively, the "Named
Executive Officers") for the financial years ended September 30, 1998, 1997 and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------- ----------------------
AWARDS
----------------------
OTHER ANNUAL SECURITIES UNDER ALL OTHER
NAME AND PRINCIPAL SALARY BONUS(1) COMPENSATION(2) OPTIONS/SARS COMPENSATION
OCCUPATION YEAR (C$) (C$) (C$) GRANTED (#) (C$)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Murray A. Olson 1998 172,270 110,000 -- -- --
President & CEO 1997 156,250 -- -- 44,355 --
1996 150,000 151,300 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Richard R. Habiak 1998 137,812 37,500 -- -- --
Vice-President Data 1997 131,250 -- -- 19,030 --
Acquisition 1996 125,000 60,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Kinsella 1998 176,140 8,321 -- -- 580,371(3)
Vice-President 1997 150,000 27,596 -- 40,007 509,571(3)
Marine Services 1996 147,000 -- -- -- 239,624(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Darren E. Olson 1998 118,820 42,500 -- 680 --
Vice-President Data 1997 102,435 19,998 -- 33,097 --
Processing 1996 91,875 15,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Peter H. Ryder(4) 1998 131,250 -- -- -- --
Vice-President, 1997 125,000 -- -- 30,454 --
Finance and Chief 1996 80,000 -- -- 75,000 --
Financial Officer
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) The bonus is the cash paid in the year indicated and is in respect of the
prior fiscal year's performance.
(2) The aggregate amount of other annual compensation paid to any named
executive officer did not exceed 10% of the aggregate of his salary and
bonus for each of the 1996, 1997 and 1998 fiscal years.
(3) Payment of a performance bonus pursuant to the terms of an employment
agreement, see "-- Executive Compensation -- Employment Contracts."
(4) Mr. Peter Ryder commenced employment with Enertec on January 29, 1996.
98
<PAGE> 112
Option/SAR Grants During Most Recently Completed Financial Year
During the 1998 financial year, 680 stock options were granted under the
Enertec Option Plan to Named Executive Officers, as set forth in the following
table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
MARKET VALUE
% OF TOTAL OF SECURITIES
OPTIONS/SARS UNDERLYING
SECURITIES UNDER GRANTED TO EXERCISE OR OPTIONS/SARS
OPTIONS/SARS EMPLOYEES BASE PRICE ON THE DATE OF
NAME GRANTED(1)(#) IN 1998 (C$/SECURITY) GRANT (C$/SECURITY)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D.E. Olson 680 3 14.73 14.73
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ----------------------------
- --------------------- ----------------------------
NAME EXPIRATION DATE
<S> <C> <C>
D.E. Olson December 11, 2003
- --------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
Note:
(1) All securities under option are Enertec Common Shares.
Aggregated Option/SAR Exercises During the Most Recently Completed
Financial Year and Financial Year End Options/SAR Values
The following table provides details of stock options exercised by Named
Executive Officers during the 1998 fiscal year and the net value realized. The
table also details, at September 30, 1998, the number of exercisable and
unexerciseable options that were unexercised and also the value of such options
where they were in-the-money.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
UNEXERCISED OPTIONS/SARS AT
SECURITIES SEPTEMBER 30, 1998 (#)
ACQUIRED ON AGGREGATE VALUE --------------------------------------
NAME EXERCISE (#) REALIZED (C$) EXERCISEABLE UNEXERCISEABLE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
M.A. Olson -- -- 86,178 22,178
- ----------------------------------------------------------------------------------------------------
R.R. Habiak -- -- 29,515 9,515
- ----------------------------------------------------------------------------------------------------
M.J. Kinsella -- -- 20,004 20,004
- ----------------------------------------------------------------------------------------------------
D.E. Olson 8,000 88,000 22,719 17,059
- ----------------------------------------------------------------------------------------------------
P.H. Ryder -- -- 71,477 33,977
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- -------------------------------------------
- --------------------- -------------------------------------------
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/SARS AT
SEPTEMBER 30, 1998(1) (C$)
--------------------------------------
NAME EXERCISEABLE UNEXERCISEABLE
- --------------------------------------------------------------------
<S> <C> <C> <C>
M.A. Olson 48,000 --
- --------------------------------------------------------------------------
R.R. Habiak 15,000 --
- ------------------------------------------------------------------------------------
M.J. Kinsella -- --
- ----------------------------------------------------------------------------------------------
D.E. Olson 4,500 --
- ----------------------------------------------------------------------------------------------------
P.H. Ryder 110,250 36,750
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Note:
(1) Based on the C$5.50 closing price of the Enertec Common Shares on the TSE
on September 30, 1998.
Employment Contracts
On June 14, 1995, Enertec entered into an employment agreement with Mr.
M.J. Kinsella, Vice-President, Marine Services and a director. The agreement was
for a term of three years at a compensation of US$108,000 per annum plus the
standard employee benefits provided by Enertec to employees of its Marine
Services operation. In addition, Mr. Kinsella is entitled to participate in
Enertec's annual incentive bonus.
Mr. Kinsella was a significant shareholder and senior officer of Kinsella
Cook & Associates, Inc., the assets of which were purchased by Enertec on June
14, 1995. Mr. Kinsella's employment agreement specified that he was entitled, in
addition to his remuneration specified above, to a performance bonus for each of
the three years of the term of the employment agreement. The performance bonus
was a percentage of the after tax cash flow of Enertec's Marine Services
operation in excess of specific thresholds. For the employment agreement year
ended June 14, 1998, Mr. Kinsella received a performance bonus of C$580,371
(June 14, 1997: C$509,571).
Enertec has executive termination agreements with Murray A. Olson, Richard
R. Habiak, Michael J. Kinsella, Darren E. Olson and Peter H. Ryder. These
agreements provide for certain payments and an
99
<PAGE> 113
acceleration in the vesting of unvested stock options in the event a Named
Executive Officer's employment with Enertec is terminated pursuant to a change
in control of Enertec. On such an occurrence, a Named Executive Officer will be
entitled to a lump sum payment equal to a specified number of months of
remuneration and to the continuation of medical, dental and insurance coverage
for the same specified number of months. In respect of Murray A. Olson, the
specified number of months is 30, in respect of the other Named Executive
Officers, the specified number of months is 24.
Directors' Compensation
Each director of Enertec, other than any directors who are also employees
of Enertec, is entitled to receive an annual fee of C$10,000. Effective December
10, 1998 and each December thereafter, directors may elect to receive this
annual fee either in cash or as a number of stock options issued on the terms of
the Enertec Option Plan. Each director is also entitled to receive a fee of
C$1,000 for each board meeting attended, C$500 for each committee meeting
attended and C$500 for each board or committee meeting attended by telephone and
is reimbursed for expenses incurred for such meetings. Directors who are
employees of Enertec are not entitled to receive any fees for services rendered
to Enertec as a director.
As a component of their compensation, directors are granted 2000 stock
options per annum in order to align an element of their remuneration with
shareholder rewards. Newly nominated directors of Enertec receive 10,000 stock
options upon their appointment as a director. These options are granted in terms
of the Enertec Option Plan.
The Chairman of Enertec, in addition to his duties as Chairman, actively
assists management of Enertec with issues such as the formulation and execution
of strategic plans, business acquisition assessment, marketing philosophy,
compensation and corporate governance. For the performance of these additional
duties, he is paid C$2,000 per month. In the event the Chairman devotes time in
excess of one and a half to two days per month to assisting management, he will
charge Enertec at the rate of C$1,500 per day. During 1998, no charge for excess
time was made.
No director, executive officer or senior officer of Enertec was indebted to
Enertec since the commencement of the last completed fiscal year.
DESCRIPTION OF ENERTEC SHARE CAPITAL
The authorized share capital of Enertec consists of an unlimited number of
class 1 preferred shares (the "Preferred Shares"), issuable in series, and an
unlimited number of Enertec Common Shares. As at March 22, 1999 there were no
Preferred Shares and 6,931,668 Enertec Common Shares issued and outstanding.
Preferred Shares
The Preferred Shares are issuable in series, have a preference with respect
to the payment of dividends and the distribution of assets in the event of
liquidation, dissolution or winding-up over the Enertec Common Shares and any
shares ranking junior to the Preferred Shares and are non-voting unless
otherwise provided with respect to any series of such class. Subject to the
provisions of the ABCA, the provisions applicable to the class of Preferred
Shares generally and to the provisions of any outstanding series, the Enertec
board is authorized to fix, from time to time, before issue thereof, the
designation, rights, privileges, restrictions and conditions attaching to each
series of such class of shares.
Under the Arrangement, the articles of Enertec will be amended so as to
delete the Preferred Shares from Enertec's authorized share capital.
Enertec Common Shares
The Enertec Common Shares are entitled to one vote per share at all
meetings of shareholders of Enertec except meetings at which only holders of a
specified class or series of shares are entitled to vote. Subject to the prior
rights and privileges attaching to any other class of shares of the Enertec, the
Enertec Common Shares have the right to receive any dividend as and when
declared by the Enertec board and the right to receive the remaining assets of
the Enertec upon liquidation, dissolution or winding-up.
100
<PAGE> 114
LEGAL PROCEEDINGS
There are no material legal proceedings to which Enertec, or any of its
subsidiaries is a party nor to which any of their property is subject, nor to
the best of the knowledge of the board of directors and senior officers of
Enertec or any of its subsidiaries, are any such proceedings threatened or
contemplated by any person.
AUDITORS, REGISTRAR AND TRANSFER AGENT
The auditors of Enertec are KPMG LLP Chartered Accountants 1200, 205 - 5th
Avenue S.W., Calgary, Alberta, T2P 4B9. The registrar and transfer agent for the
Enertec Common Shares is Montreal Trust Company of Canada, through its offices
in Calgary and Toronto.
101
<PAGE> 115
COMPARISON OF STOCKHOLDER RIGHTS
In the event that the Transaction is consummated, holders of Enertec Common
Shares will, at the Effective Time, transfer their Enertec Common Shares to VESI
and the sole consideration received therefor will be Series 1 Exchangeable
Shares. Such holders will have the right to retract Series 1 Exchangeable Shares
for an equivalent number of shares of Veritas DGC Common Stock. Enertec is a
corporation governed by the ABCA. Veritas DGC is a corporation organized under
the DGCL. While the rights and privileges of shareholders of an Alberta
corporation are, in many instances, comparable to those of stockholders of a
Delaware corporation, there are certain differences. These differences arise
from differences between Alberta and Delaware law, between the ABCA and DGCL and
between the Enertec articles of incorporation and bylaws and the Veritas DGC
Restated Certificate of Incorporation and Veritas DGC bylaws. For a description
of the respective rights of the holders of Enertec Common Shares and Veritas DGC
Common Stock, see, respectively, "Business of Enertec -- Description of Enertec
Share Capital" and "The Companies After the Transaction -- Veritas DGC Capital
Stock."
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the ABCA, certain extraordinary corporate actions, such as certain
amalgamations, continuances, and sales, leases or exchanges of all or
substantially all the property of a corporation other than in the ordinary
course of business, and other extraordinary corporate actions such as
liquidations, dissolutions and (if ordered by a court) arrangements, are
required to be approved by special resolution. A special resolution is a
resolution passed at a meeting by not less than two-thirds of the votes cast by
the shareholders, present in person or by proxy, at the meeting. In certain
cases, a special resolution to approve an extraordinary corporate action is also
required to be approved separately by the holders of a class or series of
shares.
The DGCL requires the affirmative vote of a majority of the outstanding
stock entitled to vote to authorize any merger, consolidation, dissolution or
sale of substantially all of the assets of a corporation, except that, unless
required by its certificate of incorporation:
- no authorizing stockholder vote is required of a corporation surviving a
merger if (1) such corporation's certificate of incorporation is not
amended by the merger, (2) each share of stock of such corporation will
be an identical share of the surviving corporation after the merger, and
(3) the number of shares to be issued in the merger does not exceed 20%
of such corporation's outstanding common stock immediately prior to the
effective date of the merger; and
- no authorizing stockholder vote is required of a corporation to
authorize a merger with or into a single direct or indirect wholly-owned
subsidiary of such corporation (provided certain other limited
circumstances apply).
The Veritas DGC Restated Certificate of Incorporation does not require a greater
percentage vote for such actions. Stockholder approval is also not required
under the DGCL for mergers or consolidations in which a parent corporation
merges or consolidates with a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock.
AMENDMENT TO GOVERNING DOCUMENTS
Under the ABCA, any amendment to the articles generally requires approval
by special resolution, which is a resolution passed by a majority of not less
than two-thirds of the votes cast by shareholders entitled to vote on the
resolution. The ABCA provides that unless the articles or by-laws otherwise
provide, the directors may, by resolution, make, amend or repeal any by-laws
that regulate the business or affairs of a corporation. Where the directors
make, amend or repeal a by-law, they are required under the ABCA to submit the
by-law, amendment or repeal to the shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the by-law,
amendment or repeal by an ordinary resolution, which is a resolution passed by a
majority of the votes cast by shareholders entitled to vote on the resolution.
The DGCL requires a vote of the corporation's board of directors followed
by the affirmative vote of a majority of the outstanding stock entitled to vote
for any amendment to the certificate of incorporation, unless a
102
<PAGE> 116
greater level of approval is required by the certificate of incorporation. The
Veritas DGC Restated Certificate of Incorporation does not require a greater
level of approval for an amendment. If an amendment would have the effect of
altering the powers, preferences or special rights of a particular class or
series of stock, the class or series has the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the by-laws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the corporation's board of directors.
DISSENTERS' RIGHTS
The ABCA provides that shareholders of an Alberta corporation entitled to
vote on certain matters are entitled to exercise dissent rights and to be paid
the fair value of their shares in connection therewith. The ABCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include:
- any amalgamation with another corporation (other than with certain
affiliated corporations);
- an amendment to the corporation's articles to add, change or remove any
provisions restricting or constraining the issue or transfer of shares;
- an amendment to the corporation's articles to add, change or remove any
restriction upon the business or businesses that the corporation may
carry on;
- a continuance under the laws of another jurisdiction;
- a sale, lease or exchange of all or substantially all the property of
the corporation other than in the ordinary course of business;
- a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed
by the corporation; or
- certain amendments to the articles of a corporation which require a
separate class or series vote, provided that a shareholder is not
entitled to dissent if an amendment to the articles is effected by a
court order approving a reorganization or by a court order made in
connection with an action for an oppression remedy.
Under the ABCA, a shareholder may, in addition to exercising dissent rights,
seek an oppression remedy for any act or omission of a corporation or any of its
affiliates which is oppressive, unfairly prejudicial to or that unfairly
disregards a shareholder's interest.
Under the DGCL, holders of shares of any class or series have the right, in
certain circumstances, to dissent from a merger or consolidation by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal rights
only in the case of mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock regardless of the number of
shares being issued. Further, no appraisal rights are available for shares of
any class or series listed on a national securities exchange or designated as a
national market system security on the Nasdaq Stock Market or held of record by
more than 2,000 stockholders, unless the agreement of merger or consolidation
converts such shares into anything other than:
- stock of the surviving corporation,
- stock of another corporation which is either listed on a national
securities exchange or designated as a national market system security
on the Nasdaq Stock Market or held of record by more than 2,000
stockholders,
- cash in lieu of fractional shares, or
- some combination of the above.
103
<PAGE> 117
OPPRESSION REMEDY
The ABCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of, if the
court is satisfied upon application by a complainant (as defined below) that:
(1) any act or omission of the corporation or an affiliate effects a result; (2)
the business or affairs of the corporation or an affiliate are or have been
carried on or conducted in a manner; or (3) the powers of the directors of the
corporation or of an affiliate are or have been exercised in a manner, that is
oppressive or unfairly prejudicial to or that unfairly disregards the interests
of any security holder, creditor, director or officer. A complainant includes:
- a present or former registered holder or beneficial owner of securities
of a corporation or any of its affiliates;
- a present or former director or officer of the corporation or any of its
affiliates; and
- any other person who in the discretion of the court is a proper person
to make such application.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is very flexible and
is sometimes relied upon to safeguard the interests of shareholders and other
complainants with a substantial interest in the corporation. Under the ABCA, it
is not necessary to prove that the directors of a corporation acted in bad faith
in order to seek an oppression remedy. Furthermore, the court may order the
corporation to pay the interim expenses of a complainant seeking an oppression
remedy, but the complainant may be held accountable for such interim costs on
final disposition of the complaint.
The DGCL does not provide for a similar remedy.
DERIVATIVE ACTION
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
Under the ABCA, a complainant may apply to the court for leave to bring an
action in the name of and on behalf of a corporation or any subsidiary, or to
intervene in an existing action to which any such body corporate is a party, for
the purpose of prosecuting, defending or discontinuing the action on behalf of
the body corporate or subsidiary. Under the ABCA, no action may be brought and
no intervention in an action may be made unless the complainant has given
reasonable notice to the directors of the corporation or its subsidiary of the
complainant's intention to apply to the court and the court is satisfied that
(1) the directors of the corporation or its subsidiary will not bring,
diligently prosecute or defend or discontinue the action; (2) the complainant is
acting in good faith; and (3) it appears to be in the interests of the
corporation or its subsidiary that the action be brought, prosecuted, defended
or discontinued.
Under the ABCA, the court in a derivative action may make any order it
thinks fit. Additionally, under the ABCA, a court may order a corporation or its
subsidiary to pay the complainant's reasonable legal fees.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required to be taken or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting if a
consent in writing is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize such
action at a meeting at which all shares entitled to vote were present and voted.
The Veritas DGC Restated Certificate of Incorporation does not contain any
provision restricting action by written consent.
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Under the ABCA, shareholder action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting.
DIRECTOR QUALIFICATIONS
At least half of the directors of an ABCA corporation generally must be
resident Canadians. The ABCA also requires that a corporation whose securities
are publicly traded must have not fewer than three directors, at least two of
whom are not officers or employees of the corporation or any of its affiliates.
The DGCL does not have comparable requirements.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations governed by the ABCA have fiduciary obligations
to the corporation. Directors of corporations incorporated or organized under
the DGCL have fiduciary obligations to the corporation and its shareholders.
Pursuant to these fiduciary obligations, the directors must act in accordance
with the so-called duties of "due care" and "loyalty". Under the DGCL, the duty
of care requires that the directors act in an informed and deliberative manner
and to inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty is the duty to act
in good faith in a manner which the directors reasonably believe to be in the
best interests of the stockholders.
Under the ABCA, the duty of loyalty requires directors of an Alberta
corporation to act honestly and in good faith with a view to the best interests
of the corporation, and the duty of care requires that the directors exercise
the care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the ABCA, except in respect of an action by or on behalf of a
corporation or a body corporate to procure a judgment in its favor, a
corporation may indemnify a director or officer, a former director or officer or
a person who acts or acted at the corporation's request as a director or officer
of a body corporate of which the corporation is or was a shareholder or
creditor, and his or her heirs and legal representatives (an "Indemnifiable
Person"), against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to which
he or she is made a party by reason of being or having been a director or
officer of such corporation or such body corporate, if: (1) he or she acted
honestly and in good faith with a view to the best interests of such
corporation; and (2) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful. An Indemnifiable
Person is entitled to such indemnity from the corporation if he or she was
substantially successful on the merits in his or her defense of the action or
proceeding, fulfilled the conditions set out in (1) and (2), above and is fairly
and reasonably entitled to indemnity. A corporation may, with the approval of a
court, also indemnify an Indemnifiable Person in respect of an action by or on
behalf of the corporation or body corporate to procure a judgment in its favor,
to which such person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, if he or she
fulfills the conditions set out in (1) and (2), above. The Enertec Bylaws
provide for indemnification of directors and officers to the fullest extent
authorized by the ABCA.
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each, an "indemnitee") against all
reasonable expenses (including attorneys' fees) and, except in actions initiated
by or in the right of the corporation, against all judgments, fines and amounts
paid in settlement in actions brought against them, if such individual acted in
good faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The corporation shall indemnify an indemnitee to the extent that he or she is
successful on the merits or otherwise in the defense of any claim, issue or
matter associated with an action. The Veritas DGC Restated Certificate of
Incorporation provides for indemnification of directors and officers to the
fullest extent authorized by the DGCL.
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The DGCL allows for the advance payment of an indemnitee's expenses prior
to the final disposition of an action, provided that the indemnitee undertakes
to repay any such amount advanced if it is later determined that the indemnitee
is not entitled to indemnification with regard to the action for which the
expenses were advanced. Neither the ABCA nor the Enertec bylaws expressly
provide for such advance payment.
Veritas DGC and Enertec have entered into indemnity agreements with each of
its directors and certain executive officers.
DIRECTOR LIABILITY
The DGCL provides that the charter of a corporation may include a provision
which limits or eliminates the liability of directors to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided such liability does not arise from certain proscribed conduct,
including acts or omissions not in good faith or which involve intentional
misconduct or breach of the duty of loyalty. The Veritas DGC Restated
Certificate of Incorporation contains a provision limiting the liability of its
directors to the fullest extent permitted by the DGCL. The ABCA does not permit
any such limitation of a director's liability.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior three-year period. A "business combination" includes a merger,
consolidation, sale or other disposition of assets having an aggregate value in
excess of 10% of the consolidated assets of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where:
- the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the time the interested
stockholder acquired such 15% interest;
- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation excluding, for the purpose of determining the number of
shares outstanding, shares held by persons who are directors and also
officers and by employee stock plans in which participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered;
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding
votes entitled to be cast by disinterested stockholders at an annual or
special meeting;
- the corporation does not have a class of voting stock that is listed on
a national securities exchange, authorized for quotation on an
inter-dealer quotation system of the Nasdaq Stock Market, or held of
record by more than 2,000 stockholders unless any of the foregoing
results from action taken, directly or indirectly, by an interested
stockholder or from a transaction in which a person becomes an
interested stockholder;
- the corporation has opted out of this provision; or
- in certain other limited circumstances.
Veritas DGC has not opted out of this provision.
The ABCA does not contain a comparable provision with respect to business
combinations. However, policies of certain Canadian securities regulatory
authorities, including Policy 9.1 of the Ontario Securities Commission ("Policy
9.1"), contain requirements in connection with related party transactions. A
related party transaction means, generally, any transaction by which an issuer,
directly or indirectly, acquires or transfers an
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asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one or any combination of transactions. "Related party" is defined in Policy 9.1
and includes directors, senior officers and holders of at least 10% of the
voting securities of the issuer.
Policy 9.1 requires more detailed disclosure in the proxy material sent to
security holders in connection with a related party transaction, and, subject to
certain exceptions, the preparation of a formal valuation of the subject matter
of the related party transaction and any non-cash consideration offered therefor
and the inclusion of a summary of the valuation in the proxy material. Policy
9.1 also requires, subject to certain exceptions, that the minority shareholders
of the issuer separately approve the transaction, by either a simple majority or
two-thirds of the votes cast, depending on the circumstances.
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DISSENTING SHAREHOLDERS' AND OPTIONHOLDERS' RIGHTS
Under the DGCL, holders of Veritas DGC Common Stock will not have appraisal
or dissenters' rights relating to the Transaction.
THE FOLLOWING DESCRIPTION OF THE RIGHTS OF DISSENTING HOLDERS OF ENERTEC
COMMON SHARES, ENERTEC OPTIONS AND VESI EXCHANGEABLE SHARES IS NOT A
COMPREHENSIVE STATEMENT OF PROCEDURES TO BE FOLLOWED BY A DISSENTING SHAREHOLDER
OR OPTIONHOLDER WHO SEEKS PAYMENT OF THE FAIR VALUE OF HIS ENERTEC COMMON
SHARES, ENERTEC OPTIONS OR VESI EXCHANGEABLE SHARES AND IS QUALIFIED IN ITS
ENTIRETY BY THE REFERENCE TO THE FULL TEXT OF THE INTERIM ORDER AND SECTION 184
OF THE ABCA WHICH ARE ATTACHED TO THIS JOINT PROXY STATEMENT AS ANNEXES C AND I,
RESPECTIVELY. A SHAREHOLDER OR OPTIONHOLDER WHO INTENDS TO EXERCISE HIS RIGHT OF
DISSENT AND APPRAISAL SHOULD CAREFULLY CONSIDER AND COMPLY WITH THE PROVISIONS
OF SECTION 184 OF THE ABCA, AS MODIFIED BY THE INTERIM ORDER AND SHOULD SEEK HIS
OWN LEGAL ADVICE. FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 184 OF THE
ABCA, AS MODIFIED BY THE INTERIM ORDER AND TO ADHERE TO THE PROCEDURES
ESTABLISHED THEREIN MAY RESULT IN THE LOSS OF ALL RIGHTS THEREUNDER.
The Court hearing the application for the Final Order has the discretion to
alter the rights of dissent described herein based on the evidence presented at
such hearing.
Under the Interim Order, a holder of Enertec Common Shares or Enertec
Options is entitled, in addition to any other right he may have, to dissent and
to be paid by Enertec the fair value of the Enertec Common Shares or Enertec
Options held by him in respect of which he dissents, determined as of the close
of business on the last business day before the day on which the resolution from
which he dissents was adopted and a holder of VESI Exchangeable Shares is
entitled, in addition to any other right he may have, to dissent and to be paid
by VESI the fair value of the VESI Exchangeable Shares held by him in respect of
which he dissents, determined as of the close of business on the last business
day before the day on which the resolution from which he dissents was adopted. A
shareholder or optionholder may dissent only with respect to all of the shares
or options held by him or on behalf of any one beneficial owner and registered
in the dissenting shareholder's or optionholder's name. The demand for appraisal
must be executed by or for the holder of record, fully and correctly, as such
holder's name appears on the holder's share certificates or options. If the
shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand should be made in that capacity, and if the
shares are owned of record by more than one person, as in a joint tenancy or a
tenancy in common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand for
appraisal for a holder of record; however, such agent must identify the record
owner or owners and expressly identify the record owner or owners, and expressly
disclose in such demand that the agent is acting as agent for the record owner
or owners.
PERSONS WHO ARE BENEFICIAL OWNERS OF ENERTEC COMMON SHARES OR VESI
EXCHANGEABLE SHARES REGISTERED IN THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR
OTHER INTERMEDIARY WHO WISH TO DISSENT, SHOULD BE AWARE THAT ONLY THE REGISTERED
OWNER OF SUCH SHARES IS ENTITLED TO DISSENT. A REGISTERED HOLDER SUCH AS A
BROKER WHO HOLDS ENERTEC COMMON SHARES OR VESI EXCHANGEABLE SHARES AS NOMINEE
FOR BENEFICIAL OWNERS, SOME OF WHOM MAY DESIRE TO DEMAND APPRAISAL, MUST
EXERCISE DISSENT RIGHTS ON BEHALF OF SUCH BENEFICIAL OWNERS WITH RESPECT TO THE
SHARES HELD FOR SUCH BENEFICIAL OWNERS. IN SUCH CASE, THE DEMAND FOR APPRAISAL
SHOULD SET FORTH THE NUMBER OF ENERTEC COMMON SHARES OR VESI EXCHANGEABLE SHARES
COVERED BY IT.
A dissenting holder of Enertec Common Shares or Enertec Options must send
to Enertec a written objection to the Arrangement resolution, which written
objection must be received by the Secretary of Enertec in care of Fraser Milner,
30th Floor 237 - 4 Avenue S.W. Calgary, Alberta, T2P 4X7, Attention: David R.J.
Lefebvre, or the chairman of the Enertec meeting at or before the Enertec
meeting. An application may be made to the Court to fix the fair value of the
dissenting shareholder's Enertec Common Shares or optionholder's Enertec Options
after the Effective Date. If an application to the Court is made by either
Enertec or a dissenting shareholder or optionholder, Enertec must, unless the
Court otherwise orders, send to each dissenting shareholder or optionholder a
written offer to pay him an amount considered by the Enertec board to be the
fair value of the Enertec Common Shares or Enertec Options. The offer, unless
the Court otherwise orders, will be sent to each dissenting shareholder or
optionholder at least 10 days before the date on which the application is
returnable; if
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Enertec is the applicant, or within 10 days after Enertec is served with notice
of the application, if a shareholder or optionholder is the applicant. The offer
will be made on the same terms to each dissenting holder of Enertec Common
Shares or Enertec Options and will be accompanied by a statement showing how the
fair value was determined.
A dissenting holder of VESI Exchangeable Shares must send to VESI a written
objection to the Arrangement resolution, which written objection must be
received by the Secretary of VESI in care of Bennett Jones, 4500 Bankers Hall
East, 855 - 2nd Street S.W., Calgary, Alberta, T2P 4K7, Attention: Neil H.
Stevenson, or the chairman of the VESI meeting at or before the VESI meeting. An
application may be made to the Court to fix the fair value of the dissenting
shareholder's VESI Exchangeable Shares after the Effective Date. If an
application to the Court is made by either VESI or a dissenting shareholder,
VESI must, unless the Court otherwise orders, send to each dissenting
shareholder a written offer to pay him an amount considered by the VESI board to
be the fair value of the VESI Exchangeable Shares. The offer, unless the Court
otherwise orders, will be sent to each dissenting shareholder at least 10 days
before the date on which the application is returnable; if VESI is the
applicant, or within 10 days after VESI is served with notice of the
application, if a shareholder is the applicant. The offer will be made on the
same terms to each dissenting holder of VESI Exchangeable Shares and will be
accompanied by a statement showing how the fair value was determined.
A dissenting holder of Enertec Common Shares or Enertec Options may make an
agreement with Enertec for the purchase of his Enertec Common Shares or Enertec
Options in the amount of Enertec's offer (or otherwise) at any time before the
Court pronounces an order fixing the fair value of the Enertec Common Shares or
Enertec Options. A dissenting shareholder or optionholder is not required to
give security for costs in respect of an application and, except in special
circumstances, will not be required to pay the costs of the application or
appraisal. On the application, the Court will make an order fixing the fair
value of the Enertec Common Shares of all dissenting shareholders or
optionholders who are parties to the application, giving judgment in that amount
against Enertec and in favor of each of those dissenting shareholders or
optionholders and fixing the time within which Enertec must pay that amount
payable to the dissenting shareholders or optionholders. The Court may in its
discretion allow a reasonable rate of interest on the amount payable to each
dissenting shareholder or optionholder calculated from the date on which the
shareholder or optionholder ceases to have any rights as a shareholder or
optionholder until the date of payment.
A dissenting holder of VESI Exchangeable Shares may make an agreement with
VESI for the purchase of his VESI Exchangeable Shares in the amount of VESI's
offer (or otherwise) at any time before the Court pronounces an order fixing the
fair value of the VESI Exchangeable Shares. A dissenting holder of VESI
Exchangeable Shares is not required to give security for costs in respect of an
application and, except in special circumstances, will not be required to pay
the costs of the application or appraisal. On the application, the Court will
make an order fixing the fair value of the VESI Exchangeable Shares of all
dissenting holders thereof who are parties to the application, giving judgment
in that amount against VESI and in favor of each of those dissenting
shareholders and fixing the time within which VESI must pay that amount payable
to the dissenting shareholders. The Court may in its discretion allow a
reasonable rate of interest on the amount payable to each dissenting shareholder
calculated from the date on which the shareholder ceases to have any rights as a
shareholder until the date of payment.
On the Arrangement becoming effective, or upon the making of an agreement
between Enertec and the dissenting holder of Enertec Common Shares or Enertec
Options as to the payment to be made by Enertec to the dissenting shareholder or
optionholder, or upon the pronouncement of a Court order, whichever first
occurs, the dissenting shareholder or optionholder will cease to have any rights
as a shareholder or optionholder other than the right to be paid the fair value
of the Enertec Common Shares or Enertec Options in the amount agreed to between
Enertec and the dissenting shareholder or optionholder or in the amount of the
judgment, as the case may be. Until one of these events occurs, the shareholder
or optionholder may withdraw his dissent, or Enertec may rescind the Arrangement
resolution and in either event, the dissent and appraisal proceedings in respect
of that shareholder or optionholder will be discontinued.
On the Arrangement becoming effective, or upon the making of an agreement
between VESI and the dissenting holder of VESI Exchangeable Shares as to the
payment to be made by VESI to the dissenting
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shareholder, or upon the pronouncement of a Court order, whichever first occurs,
the dissenting shareholder will cease to have any rights as a shareholder other
than the right to be paid the fair value of the VESI Exchangeable Shares in the
amount agreed to between VESI and the dissenting shareholder or in the amount of
the judgment, as the case may be. Until one of these events occurs, the
shareholder may withdraw his dissent, or VESI may rescind the Arrangement
resolution and in either event, the dissent and appraisal proceedings in respect
of that shareholder will be discontinued.
THE COMBINATION AGREEMENT PROVIDES THAT IT IS A CONDITION TO THE
OBLIGATIONS OF VERITAS DGC TO COMPLETE THE ARRANGEMENT THAT HOLDERS OF NOT MORE
THAN 5% OF THE ISSUED AND OUTSTANDING ENERTEC COMMON SHARES EXERCISE THEIR RIGHT
OF DISSENT AS DESCRIBED ABOVE.
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PROPOSED VERITAS DGC CHARTER AMENDMENT
BACKGROUND AND REASONS
In August 1996, Digicon Inc. (now known as Veritas DGC) completed a
combination with VESI. As part of that combination, Veritas DGC completed a
recapitalization plan which resulted in the adoption of a Restated Certificate
of Incorporation. Among other things, the Restated Certificate of Incorporation
authorized 40,000,000 ordinary shares, consisting of one share of special voting
stock (the "VESI Special Voting Stock"), with all other ordinary shares being
designated as common stock, and 1,000,000 shares of preferred stock. The VESI
Special Voting Stock was issued in connection with the combination to provide a
mechanism for the holders of VESI Exchangeable Shares to vote as if the shares
had been exchanged for Veritas DGC Common Stock.
As a condition to the closing of the Combination Agreement, the Veritas DGC
Restated Certificate of Incorporation must be amended to (a) designate a new
series of special voting stock ("ERS Special Voting Stock") which will provide
the mechanism for the holders of VESI Series 1 Exchangeable Shares to vote as if
the shares had been exchanged for Veritas DGC Common Stock and (b) delete a
restriction which prohibits the Veritas DGC board from designating a new series
of ordinary shares, such as the ERS Special Voting Stock, without the unanimous
approval of all outstanding ordinary shares.
AMENDMENTS
Designation of ERS Special Voting Stock. The Charter Amendment provides
for a new series of Veritas DGC ordinary shares designated "ERS Special Voting
Stock." The designation of the series is set forth as follows:
Section 4.B. ERS Special Voting Stock Designated. A series of
ordinary shares, consisting of one such share, is hereby
designated as "ERS Special Voting Stock" (hereinafter referred
to as "ERS Special Voting Stock"). Each outstanding share of
ERS Special Voting Stock shall be entitled at any relevant date
to the number of votes determined in accordance with the "Plan
of Arrangement" (as that term is defined in that certain
"Combination Agreement" dated as of March 30, 1999 (hereinafter
referred to as the "ERS Combination Agreement") by and between
Veritas DGC, Veritas Energy Services Inc. and Enertec Resource
Services Inc. ("ERS")) on all matters presented to the
stockholders. No dividend or distribution of assets shall be
paid to the holders of ERS Special Voting Stock. The ERS
Special Voting Stock is not convertible into any other class or
series of the capital stock of the Corporation or into cash,
property or other rights, and may not be redeemed. Any shares
of ERS Special Voting Stock purchased or otherwise acquired by
the Corporation shall be deemed retired and shall be canceled
and may not thereafter be reissued or otherwise disposed of by
the Corporation. So long as any "ERS Exchangeable Shares"
(i.e., "Series 1 Exchangeable Shares," as that term is defined
in the ERS Combination Agreement) shall be outstanding, the
number of shares comprising the ERS Special Voting Stock shall
not be increased or decreased and no other term of the ERS
Special Voting Stock shall be amended, except upon the
unanimous approval of all outstanding ordinary shares.
The one share of ERS Special Voting Stock will be deposited with the
Trustee pursuant to the Voting and Exchange Trust Agreement. The Trustee will
have the right to vote the Series 1 Exchangeable Shares pursuant to that
agreement. See, "The Companies After the Transaction -- Voting and Exchange
Trust Agreement."
Deletion of Restriction on Designation of Additional Series of Ordinary
Shares. The Charter Amendment also provides for the deletion of Section 3(c) of
the Veritas DGC Restated Certificate of Incorporation, which is set forth below:
no series of ordinary shares (except for such series as are
herein designated and except for any increase in the number of
shares constituting such a series) shall be designated by
resolution of the Board of Directors except upon the unanimous
approval of all outstanding ordinary shares.
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This provision effectively restricts the Veritas DGC board from completing
a transaction such as contemplated by the Combination Agreement without seeking
approval of the holders of Veritas DGC Common Stock, even in the absence of any
requirement to do so by the DGCL, the SEC or any stock exchange. By eliminating
this restriction, Veritas DGC will be able to complete transactions, similar to
that proposed by the Combination Agreement, without seeking approval of the
holders of Veritas DGC Common Stock. This will result in additional flexibility
for Veritas DGC to complete similar "exchangeable share" transactions, in the
absence of legal or regulatory requirements, on an expeditious basis and to
benefit from significant cost savings by eliminating the need to seek
stockholder approval. Except for the Arrangement, Veritas DGC does not have any
pending or proposed transactions of the type which would require stockholder
approval under the restriction which is proposed to be deleted.
The Charter Amendment also contains amendments to provisions to reflect
definitional changes required by the other amendments.
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LEGAL MATTERS
Certain legal matters in connection with the Transaction will be passed
upon by Bennett Jones, Calgary, Alberta and Porter & Hedges, L.L.P., Houston,
Texas, on behalf of Veritas DGC and VESI, and by Fraser Milner, Calgary, Alberta
and Mayor, Day, Caldwell & Keeton LLP, Houston, Texas on behalf of Enertec.
WHERE YOU CAN FIND MORE INFORMATION
Veritas DGC files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that Veritas DGC files at the SEC's public
reference rooms in Washington, D.C., New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Veritas DGC public filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the SEC at "http://www.sec.gov." Reports, proxy statements and other
information concerning Veritas DGC also may be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
You should rely only on the information contained in this Joint Proxy
Statement to vote your shares at the meetings. The companies have not authorized
anyone to provide you with information that is different from what is contained
in this Joint Proxy Statement. This Joint Proxy Statement is dated ,
1999. You should not assume that the information contained in the Joint Proxy
Statement is accurate as of any date other than that date.
By Order of the Board of Directors
LARRY L. WORDEN
Secretary
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APPROVAL OF PROXY STATEMENT BY
VERITAS ENERGY SERVICES INC.
BOARD OF DIRECTORS
AND CERTIFICATE
The contents of this joint information circular and proxy statement and the
sending thereof to the Exchangeable Shareholders of Veritas Energy Services Inc.
has been approved by the board of directors of Veritas Energy Services Inc.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made.
<TABLE>
<S> <C>
DAVID B. ROBSON RENE M.J. VANDENBRAND
President and Chief Executive Officer Chief Financial Officer
</TABLE>
, 1999
Calgary, Alberta
APPROVAL OF PROXY STATEMENT BY
ENERTEC RESOURCE SERVICES INC.
BOARD OF DIRECTORS
AND CERTIFICATE
The contents of this joint information circular and proxy statement and the
sending thereof to the shareholders and optionholders of Enertec have been
approved by the board of directors of Enertec Resource Services Inc.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made.
<TABLE>
<S> <C>
MURRAY A. OLSON PETER H. RYDER
President and Vice-President, Finance
Chief Executive Officer and Chief Financial Officer
</TABLE>
, 1999
Calgary, Alberta
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VERITAS DGC INC. AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Independent Auditors' Report (October 10, 1996)............. F-3
Independent Auditors' Report (September 20, 1996)........... F-4
Consolidated Statements of Income for the years ended July
31, 1996, 1997, 1998 and (unaudited) for the six months
ended January 31, 1998 and 1999........................... F-5
Consolidated Balance Sheets as of July 31, 1997 and 1998 and
(unaudited) January 31, 1999.............................. F-6
Consolidated Statements of Cash Flows for the years ended
July 31, 1996, 1997 and 1998 and (unaudited) for the six
months ended January 31, 1998 and 1999.................... F-7
Supplementary Schedules to Consolidated Statements of Cash
Flows for the years ended July 31, 1996, 1997 and 1998 and
(unaudited) for the six months ended January 31, 1998 and
1999...................................................... F-8
Consolidated Statements of Changes in Stockholders' Equity
for the years ended July 31, 1996, 1997 and 1998 and
(unaudited) for the six months ended January 31, 1999..... F-9
Notes to Consolidated Financial Statements.................. F-11
ENERTEC RESOURCE SERVICES INC.
Auditors' Report (November 25, 1998)........................ F-35
Consolidated Balance Sheets as of September 30, 1997 and
1998 and (unaudited) January 31, 1999..................... F-36
Consolidated Statements of Operations and Retained Earnings
for the years ended September 30, 1996, 1997 and 1998 and
(unaudited) for the four months ended January 31, 1998 and
1999...................................................... F-37
Consolidated Statements of Changes in Financial Position for
the years ended September 30, 1996, 1997 and 1998 and for
the four months ended January 31, 1998 and 1999........... F-38
Notes to Consolidated Financial Statements.................. F-39
</TABLE>
F-1
<PAGE> 129
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, 1998 and 1997 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> 130
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> 131
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> 132
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX MONTHS
FOR THE YEARS ENDED JULY 31, ENDED JANUARY 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES.................................................... $250,596 $362,715 $528,959 $265,755 $248,451
COSTS AND EXPENSES:
Cost of services............................................ 198,711 271,656 346,896 174,057 173,526
Write-off/write-down for impairment of assets............... 3,628
Depreciation and amortization............................... 26,921 40,631 56,121 25,464 34,584
Selling, general and administrative......................... 7,255 11,408 18,758 8,793 9,057
Other (income) expense:
Interest.................................................. 5,466 7,484 7,318 4,052 5,603
Merger related costs...................................... 3,666 597
Other..................................................... 546 630 (338) (1,038) (2,403)
-------- -------- -------- -------- --------
Total costs and expenses................................ 246,193 332,406 428,755 211,328 220,367
-------- -------- -------- -------- --------
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 54,427 28,084
Provision for income taxes.................................. 2,009 6,062 34,218 16,154 8,939
Equity in (earnings) loss of 50% or less-owned companies and
joint ventures............................................ 1,113 (878) (972) (723) 87
-------- -------- -------- -------- --------
NET INCOME.................................................. $ 1,281 $ 25,125 $ 66,958 $ 38,996 $ 19,058
======== ======== ======== ======== ========
PER SHARE:
Earnings per common share................................... $ 0.07 $ 1.33 $ 2.96 $ 1.74 $ 0.84
======== ======== ======== ======== ========
Weighted average common shares.............................. 17,882 18,898 22,594 22,473 22,704
======== ======== ======== ======== ========
Earnings per common share -- assuming dilution.............. $ 0.07 $ 1.30 $ 2.87 $ 1.68 $ 0.83
======== ======== ======== ======== ========
Weighted average common shares -- assuming dilution......... 18,095 19,364 23,315 23,203 22,852
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 133
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except par value)
<TABLE>
<CAPTION>
JULY 31, (UNAUDITED)
------------------- JANUARY 31,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 71,177 $ 40,089 $ 75,056
Restricted cash investments............................... 550 186 280
Accounts and notes receivable (net of allowance for
doubtful accounts:
1997, $646; 1998, $1,248; January 1999, $3,412)......... 120,946 151,820 165,448
Materials and supplies inventory.......................... 2,333 4,106 3,967
Prepayments and other..................................... 10,429 16,290 8,711
-------- -------- --------
Total current assets.................................. 205,435 212,491 253,462
Property and equipment:
Seismic equipment......................................... 156,264 206,449 212,389
Data processing equipment................................. 54,516 72,925 83,089
Seismic ship.............................................. 7,534 7,534
Land...................................................... 6,637
Leasehold improvements and other.......................... 29,978 39,116 45,007
-------- -------- --------
Total................................................. 240,758 326,024 354,656
Less accumulated depreciation........................... 108,004 151,104 183,271
-------- -------- --------
Property and equipment -- net......................... 132,754 174,920 171,385
Multi-client data library................................... 20,904 51,143 94,812
Investment in and advances to joint ventures................ 2,908 2,943 1,673
Goodwill (net of accumulated amortization: 1997, $2,725;
1998, $3,233; January 31, 1999, $3,485)................... 3,163 2,655 2,403
Deferred tax asset.......................................... 10,213 19,157 19,687
Other assets................................................ 9,712 15,181 16,459
-------- -------- --------
Total................................................. $385,089 $478,490 $559,881
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 383 $ 289 $ 280
Accounts payable -- trade................................. 39,007 42,493 30,086
Accrued interest.......................................... 2,188 2,234 3,780
Other accrued liabilities................................. 38,669 50,753 75,768
Income taxes payable...................................... 3,486 10,682 131
-------- -------- --------
Total current liabilities............................. 83,733 106,451 110,045
Non-current liabilities:
Long-term debt -- less current maturities................. 75,588 75,272 135,135
Other non-current liabilities............................. 4,467 5,071 5,020
-------- -------- --------
Total non-current liabilities......................... 80,055 80,343 140,155
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 and 21,380,069
(excluding exchangeable shares of 2,367,071 and
1,505,915 and 1,505,595) at July 31, 1997 and 1998 and
January 31, 1999, respectively.......................... 200 213 214
Additional paid-in capital................................ 194,764 203,258 206,460
Accumulated earnings (from August 1, 1991 with respect to
Digicon Inc.)........................................... 27,400 94,358 113,416
Cumulative foreign currency translation adjustment........ (1,063) (3,660) (6,913)
Less: Unearned compensation............................... (746) (620)
Less: Treasury stock, at cost; 50,000 shares at July 31,
1998 and 121,143 shares at January 31, 1999............. (1,727) (2,876)
-------- -------- --------
Total stockholders' equity.............................. 221,301 291,696 309,681
-------- -------- --------
Total................................................. $385,089 $478,490 $559,881
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 134
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, JANUARY 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $ 1,281 $ 25,125 $ 66,958 $ 38,996 $ 19,058
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 25,464 34,584
Amortization of deferred gain on sale/leaseback........... (103)
Loss on disposition of property and equipment............. 875 1,151 1,549 433 319
Equity in (earnings) loss of 50% or less-owned companies
and joint ventures...................................... 1,113 (878) (972) (723) 87
Write-down of multi-client data library to market......... 1,774 2,604 689 254 670
Deferred taxes............................................ (924) (7,314) 2,664 2,357
Other..................................................... 61 62 168
Change in operating assets/liabilities:
Accounts and notes receivable............................. (9,466) (55,499) (30,874) (43,378) (12,010)
Materials and supplies inventory.......................... (241) (674) (1,773) (682) 139
Prepayments and other..................................... (1,807) (2,230) (5,861) (1,764) 7,929
Multi-client data library................................. 574 2,120 (30,928) (4,581) (42,469)
Other..................................................... 851 (4,282) (5,598) (884) 112
Accounts payable -- trade................................. 952 11,003 1,043 (2,937) (13,440)
Accrued interest.......................................... (96) 1,875 46 2 1,546
Other accrued liabilities................................. 796 18,764 12,084 18,699 23,931
Income taxes payable...................................... (227) 1,672 7,196 8,046 (10,551)
Other non-current liabilities............................. (1,541) 2,952 604 (975) (51)
Adjustment to conform fiscal year of Veritas Energy
Services Inc............................................ (5,268)
-------- -------- -------- -------- --------
Total cash provided by operating activities............. 20,077 43,410 62,970 38,696 12,379
FINANCING ACTIVITIES:
Payments of secured term loans.............................. (10,854)
Payments of long-term debt.................................. (11,437) (24,976) (410) (220) (146)
Borrowings from long-term debt.............................. 1,500 781 60,000
Net payments under credit agreements........................ (2,665) (11,458)
Borrowings from senior notes................................ 75,000
Debt issue costs............................................ (2,765) (1,737)
Net proceeds from sale of common stock...................... 4,470 80,515 6,131 1,050 947
(Purchase) sale of treasury stock........................... 3,972 (1,727) (2,869)
-------- -------- -------- -------- --------
Total cash provided (used) by financing activities...... (4,160) 106,243 3,994 830 56,195
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments.......... 343 (223) 364 (13) (94)
(Increase) decrease in investment in and advances to joint
ventures.................................................. (2,372) (567) 937 521 1,183
Purchase of Time Seismic Exchange Ltd., net of cash
received.................................................. (704)
Purchase of property and equipment.......................... (14,459) (89,112) (97,106) (38,494) (30,870)
Sale of property and equipment.............................. 668 1,037 221 53 131
-------- -------- -------- -------- --------
Total cash (used) by investing activities................. (15,820) (88,865) (95,584) (37,933) (30,354)
Currency (gain) loss on foreign cash........................ (107) 317 (2,468) (1,560) (3,253)
-------- -------- -------- -------- --------
Change in cash and cash equivalents......................... (10) 61,105 (31,088) 33 34,967
Beginning cash and cash equivalents balance................. 10,082 10,072 71,177 71,177 40,089
-------- -------- -------- -------- --------
Ending cash and cash equivalents balance.................... $ 10,072 $ 71,177 $ 40,089 $ 71,210 $ 75,056
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 135
VERITAS DGC INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX MONTHS
FOR THE YEARS ENDED JULY 31, ENDED JANUARY 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <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 2,443 373
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) (4,762) (2,887)
Additional paid-in capital.................. 9,867 1,630 4,762 2,887
Treasury stock issued for purchase of Time
Seismic Exchange Ltd........................ 664
Treasury stock issued in lieu of cash for
bonuses payable............................. 383
Restricted stock issued for future services
resulting in an increase additional paid in
capital..................................... 594 42
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest --
Senior notes............................. 3,496 6,513 3,656 3,656
Equipment purchase obligations........... 1,878 673 113 37 22
Secured term loans....................... 506 274
Credit agreements........................ 1,843 403 53
Other.................................... 1,286 656 603 277 325
Income taxes................................ 5,086 1,891 33,369 6,200 16,501
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 136
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1999
(In thousands of dollars, except number of shares)
<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS
COMMON STOCK TREASURY STOCK, (FROM CUMULATIVE
ISSUED AT COST AUGUST 1, FOREIGN
------------------- ------------------ ADDITIONAL 1991 WITH CURRENCY
PAR PAID-IN RESPECT TO UNEARNED TRANSLATION
SHARES VALUE SHARES AMOUNT CAPITAL DIGICON INC.) COMPENSATION ADJUSTMENT
----------- ----- -------- ------- ---------- ------------- ------------ -----------
<S> <C> <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)
</TABLE>
F-9
<PAGE> 137
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1999
(In thousands of dollars, except number of shares)
<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS
COMMON STOCK TREASURY STOCK, (FROM CUMULATIVE
ISSUED AT COST AUGUST 1, FOREIGN
------------------- ------------------ ADDITIONAL 1991 WITH CURRENCY
PAR PAID-IN RESPECT TO UNEARNED TRANSLATION
SHARES VALUE SHARES AMOUNT CAPITAL DIGICON INC.) COMPENSATION ADJUSTMENT
----------- ----- -------- ------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.......... 3,333 915 (915)
Amortization of unearned
compensation.............. 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
transaction adjustment.... (2,597)
Net income.................. 66,958
----------- ---- -------- ------- -------- -------- ------ -------
BALANCE, JULY 31, 1998...... 21,278,653 213 (50,000) (1,727) 203,258 94,358 (746) (3,660)
Common stock issued for cash
under employee stock
option plan............... 75,624 1 950
Common stock issued for
services under restricted
stock agreements/ plan.... 25,592 42 (42)
Amortization of unearned
compensation.............. 168
Common stock reacquired for
cash, including fees...... (139,000) (2,869)
Treasury stock issued under
employee bonus plan....... 22,959 654 (271)
Treasury stock issued in
connection with Time
Seismic Exchange Ltd.
Acquisition............... 44,898 1,066 (402)
Common stock issued for
exchangeable stock........ 200
Registration and filing
costs..................... (4)
Utilization of net operating
loss carryforwards
existing prior to quasi-
reorganization............ 2,887
Cumulative foreign currency
transaction adjustment.... (3,253)
Net Income.................. 19,058
----------- ---- -------- ------- -------- -------- ------ -------
BALANCE JANUARY 31, 1999.... 21,380,069 $214 (121,143) $(2,876) $206,460 $113,416 $ (620) $(6,913)
=========== ==== ======== ======= ======== ======== ====== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE> 138
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
INTERIM FINANCIAL INFORMATION
The interim financial information for the six month periods ended January
31, 1998 and 1999 are unaudited, but reflect all adjustments that, in the
opinion of management, are necessary to provide a fair presentation of the
financial position, results of operations and cash flows for the dates and
periods covered. All such adjustments are of a normal recurring nature. Interim
period results are not necessarily indicative of results of operations or cash
flows for a full year period.
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
F-11
<PAGE> 139
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
separate component in the stockholders' equity section of the consolidated
balance sheet. Classifications included in the accumulated balance are disclosed
on the face of the consolidated balance sheet or statement of changes in
stockholders' equity or in notes to the consolidated financial statements. The
Company's sources of comprehensive income include net income and cumulative
foreign currency translation adjustments. The Company will be required to
implement this statement in fiscal year 1999. Management has not completed its
assessment of how it will present the required information.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which will supersede SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." It will require the
Company to disclose certain financial information in both annual and interim
reporting about "operating segments" which are components of a company that are
evaluated regularly by management in deciding how to allocate its resources and
in assessing its performance. It also requires disclosure about the countries
from which the Company derives its revenues and in which it employs its
long-lived assets. Major customers will continue to be disclosed. The Company
will be required to implement this statement in fiscal year 1999. Management has
not completed its assessment of how the adoption of this statement will affect
its existing segment disclosures.
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 during the fourth
quarter of fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
as appropriate, at fair value. Gains or losses resulting from changes in the
fair values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company will be
required to implement this statement in fiscal year 2000. The Company believes
that the implementation of this standard will not have a material adverse effect
on the Company's consolidated financial position, results of operations or
liquidity.
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.)
F-12
<PAGE> 140
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
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 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
F-13
<PAGE> 141
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
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
F-14
<PAGE> 142
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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
On August 30, 1996, Digicon and VES consummated a business combination (the
"Combination"). VES became a wholly owned subsidiary of Digicon and Digicon
changed its name to Veritas DGC Inc. 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.
F-15
<PAGE> 143
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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>
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.
F-16
<PAGE> 144
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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,
------------------- JANUARY 31,
1997 1998 1999
-------- -------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current assets.............................................. $ 3,697 $ 2,740 $ 1,491
Property and equipment, net................................. 60 613 460
Multi-client data library................................... 228
-------- -------- --------
Total assets........................................... $ 3,985 $ 3,353 $ 1,951
======== ======== ========
Current liabilities......................................... $ 1,077 $ 410 $ 278
Advances from affiliates.................................... 14,784 13,847 12,664
Stockholders' deficit:
Common stock.............................................. 2,576 2,576 2576
Accumulated deficit....................................... (14,452) (13,480) (13,567)
-------- -------- --------
Total stockholders' deficit............................ (11,876) (10,904) (10,991)
-------- -------- --------
Total liabilities and stockholders' deficit............ $ 3,985 $ 3,353 $ 1,951
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED JULY 31, MONTHS ENDED
------------------------------ JANUARY 31,
1996 1997 1998 1998 1999
-------- -------- -------- ------ ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues................................................ $2,927 $7,240 $3,346 $1,804 $784
Cost and expenses:
Cost of services...................................... 3,429 6,424 2,378 1,243 614
Depreciation and amortization......................... 396 357 316 158 170
Other (income) expense................................ (15) (62) (320) (320) 87
------ ------ ------ ------ ----
Total.............................................. 3,414 6,362 2,374 1,081 871
------ ------ ------ ------ ----
Income (loss) before provision for income taxes......... (487) 878 972 723 (87)
Provision for income taxes.............................. 166
------ ------ ------ ------ ----
Net income (loss)....................................... $ (653) $ 878 $ 972 $ 723 $(87)
====== ====== ====== ====== ====
</TABLE>
F-17
<PAGE> 145
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
4. LONG-TERM DEBT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------- JANUARY 31,
1997 1998 1999
------- ------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Senior notes due October 2003, at 9 3/4%.................... $75,000 $75,000 $135,000
Equipment purchase obligations maturing through September
2000, at a weighted average rate of 9.29% at July 31, 1998
and January 31, 1999...................................... 971 561 415
------- ------- --------
Total.................................................. 75,971 75,561 135,415
Less current maturities..................................... 383 289 280
------- ------- --------
Due after one year $75,588 $75,272 $135,135
======= ======= ========
</TABLE>
The senior notes are due in October 2003 with interest payable
semi-annually at 9 3/4%. The senior notes are unsecured and are effectively
subordinated to secured debt of the Company with respect to the assets securing
such debt and to all debt of its subsidiaries whether secured or unsecured. The
indenture relating to the senior notes contains certain covenants which limit
the Company's ability to, among other things, incur additional debt, pay
dividends and complete mergers, acquisitions and sales of assets. Upon a change
in control of the Company, as defined in the indenture, the holders of the
senior notes have the right to require the Company to purchase all or a portion
of such holder's senior note at a price equal to 101% of the aggregate principal
amount. The Company has the right to redeem the senior notes, in whole or part,
on or after October 15, 2000. Under certain conditions, the Company may redeem
up to $20.0 million in aggregate principal amount of the senior notes prior to
October 15, 1999.
In October 1998, the Company issued an additional $60.0 million of senior
notes at 9 3/4% due in October 2003. In connection with the issuance of the
senior notes, the amount the Company may redeem in aggregate principal amount
prior to October 15, 1999 increased to $35.0 million.
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 and 7 3/4% at January 31, 1999) 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 and January 31, 1999 under the credit agreements.
The Company's equipment purchase obligations represent installment loans
and capitalized lease obligations primarily related to computer and seismic
equipment.
F-18
<PAGE> 146
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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>
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 include:
<TABLE>
<CAPTION>
JULY 31,
----------------- JANUARY 31,
1997 1998 1999
------- ------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Accrued payroll and benefits................................ $ 8,313 $12,216 $13,323
Deferred revenues........................................... $14,263 $19,196 $32,608
</TABLE>
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-19
<PAGE> 147
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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
F-20
<PAGE> 148
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
existing at the date of the quasi-reorganization have been recognized through a
direct addition to paid-in capital, when realization is more likely than not.
The 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>
U.S. NET INVESTMENT
FISCAL YEAR OPERATING LOSS TAX 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
F-21
<PAGE> 149
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
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).
F-22
<PAGE> 150
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 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.
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. At July 31, 1998 the Company had authorized 1,158,333 shares of
common stock to be issued under the plan. In March 1999, the Company amended and
restated its employee non-qualified stock option plan to increase the number of
authorized common shares that may be issued under the plan to 3,954,550 shares.
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 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.
In December 1998, the Company amended and restated its non-employee
director stock option plan. Options to purchase 5,000 shares will be granted
every year and will vest 25% on the grant date and 25% on each anniversary over
the following three years. All other major provisions remain the same.
F-23
<PAGE> 151
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
<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>
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>
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>
<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
--------- -------------- ------------- -----------
<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
---------
133,426
=========
</TABLE>
F-24
<PAGE> 152
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
<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
--------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
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 10.0years
</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.
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.
F-25
<PAGE> 153
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
Compensation expense relating to the stock-based compensation plans
described above was $23,000 and $506,000 for the years ended July 31, 1997 and
1998, respectively. No compensation expense was recognized for the year ended
July 31, 1996. 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.......................... $ 0.07 $ 1.33 $ 2.96
====== ======= =======
Pro forma earnings per common share......................... $ 0.04 $ 1.28 $ 2.85
====== ======= =======
Earnings per common share -- assuming dilution reported..... $ 0.07 $ 1.30 $ 2.87
====== ======= =======
Proforma earnings per common share -- assuming dilution..... $ 0.04 $ 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 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>
F-26
<PAGE> 154
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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 of the Company, 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 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.
F-27
<PAGE> 155
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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 SIX MONTHS
FOR THE YEARS ENDED JULY 31, ENDED JANUARY 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Net foreign currency exchange (gains) losses..... $(156) $ 46 $2,333 $ 854 $(1,129)
Net loss on disposition of property and
equipment...................................... 875 1,151 1,549 433 319
Interest income.................................. (547) (552) (4,220) (2,140) (1,454)
Other............................................ 374 (15) (185) (139)
----- ------ ------ ------- -------
Total.......................................... $ 546 $ 630 $ (338) $(1,038) $(2,403)
===== ====== ====== ======= =======
</TABLE>
F-28
<PAGE> 156
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
14. EARNINGS PER COMMON SHARE
Earnings per common share and earnings per common share - assuming dilution
are computed as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED JULY 31, ENDED JANUARY 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income............................. $ 1,281 $25,125 $66,958 $38,996 $19,058
======= ======= ======= ======= =======
Weighted average common shares......... 17,882 18,898 22,594 22,473 22,704
======= ======= ======= ======= =======
Earnings per common share.............. $ 0.07 $ 1.33 $ 2.96 $ 1.74 $ 0.84
======= ======= ======= ======= =======
Weighted average common shares -
assuming dilution:
Weighted average common shares....... 17,882 18,898 22,594 22,473 22,704
Shares issuable from assumed
conversion of:
Options........................... 86 432 721 711 148
Warrants.......................... 127 34 19
------- ------- ------- ------- -------
Total........................... 18,095 19,364 23,315 23,203 22,852
======= ======= ======= ======= =======
Earnings per common share - assuming
dilution............................. $ 0.07 $ 1.30 $ 2.87 $ 1.68 $ 0.83
======= ======= ======= ======= =======
</TABLE>
Exchangeable Stock issued in the business combination between Digicon, and
VES is included in both computations. (See Note 2.) There were no anti-dilutive
options for the year ended July 31, 1997. Options to purchase 241,489 common
shares at exercise prices ranging from 12 7/8 to 13 1/2 expiring through
November 2002 and options to purchase 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.
The following options to purchase common shares have been excluded from
earnings per share assuming dilution for the six months ended January 31, 1998
and 1999, because the options' exercise prices exceeded the average market price
of the underlying common shares.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 31,
-------------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Number of options........................................... 49,461 801,635
$38 1/8 - $15 5/8 -
Exercise price range........................................ $45 5/16 $56 1/2
Expiring through............................................ March 2007 November 2008
</TABLE>
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,
F-29
<PAGE> 157
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
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.
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-30
<PAGE> 158
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
<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-31
<PAGE> 159
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
<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.
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*.................... 0.28 0.35 0.32 0.37
Earnings per common share -- assuming
dilution*................................... 0.27 0.34 0.32 0.37
</TABLE>
F-32
<PAGE> 160
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
<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.
18. COMPREHENSIVE INCOME
Effective August 1, 1998, the Company implemented SFAS No. 130, "Reporting
Comprehensive Income." This statement requires disclosure of comprehensive
income (changes in equity from non-owner sources), net of the related tax
effect. The Company will report comprehensive income and classifications
included in the accumulated balance on the consolidated statement of changes in
stockholders' equity. The Company's sources of comprehensive income include net
income and foreign currency translation adjustments.
The following sets forth the Company's comprehensive income for the periods
presented:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED JULY 31, ENDED JANUARY 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Net income................................ $1,281 $25,125 $66,958 $38,996 $19,058
Foreign currency translation
adjustments............................. (868) (129) (2,597) (1,689) (3,253)
------ ------- ------- ------- -------
Comprehensive income...................... $ 413 $24,996 $64,361 $37,307 $15,805
====== ======= ======= ======= =======
</TABLE>
19. SUBSEQUENT EVENT (UNAUDITED)
On March 30, 1999, the Company signed a definitive combination agreement
(the "Agreement") with Enertec Resource Services Inc. ("Enertec") and VES.
Consummation of the Agreement is subject to a number of conditions, including
regulatory clearances in Canada and the United States, judicial clearance in
Canada and formal approval by the shareholders of each company which is a party
to the Agreement. It is anticipated that the transaction will close during June
1999.
Enertec, an Alberta corporation, provides seismic data acquisition services
in land and shallow marine environments, seismic data processing and marine
geophysical surveying and positioning services primarily in North America.
Enertec's principal executive offices are located in Calgary, Alberta.
Under the terms of the Agreement, at the effective time, each Enertec
common share will be transferred to VES in exchange and as sole consideration
for 0.345 (the "Exchange Ratio") of a VES exchangeable share. At any time during
a period of ten years from the effective time, the holders of these VES
exchangeable shares will be able to exchange any or all such shares for an equal
number of shares of common stock of the Company. However, if during this ten
year period, certain minimum levels of exchangeable shares are reached within
VES, then VES is permitted to redeem any remaining VES exchangeable shares for
an equal number of shares of common stock of the Company.
F-33
<PAGE> 161
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JULY 31, 1996, 1997 AND 1998
AND UNAUDITED FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
At the effective time, pursuant to the Agreement, the Company will issue to
a trustee a share of ERS special voting stock for the benefit of the holders of
the VES exchangeable shares. The trustee will hold this voting stock pursuant to
the terms of a voting and exchange trust agreement. This agreement will entitle
the trustee, at any meeting at which stockholders of the Company are entitled to
vote, to exercise a number of votes equal to the number of VES exchangeable
shares outstanding at such time and not held by the Company or entities
controlled by the Company. These voting rights will be exercised by the trustee
only on instructions received, from time to time, from the holders of the VES
exchangeable shares not held by the Company or entities controlled by the
Company.
Also at the effective time, pursuant to the Agreement, each Enertec stock
option will be exchanged for an option under the Company's stock option plan.
The number of options on common stock of the Company received on such exchange
will be equal to the number of Enertec common shares subject to the Enertec
stock option at the effective time multiplied by the Exchange Ratio, rounded
down to the nearest whole number. The exercise price per share of common stock
of the Company will be equal to the exercise price per share of the option in
respect of such Enertec common shares, immediately prior to the effective time,
divided by the Exchange Ratio. The exercise price will be decreased by the
amount attributable to any rounding down of shares. This exercise price will be
converted into U.S. dollars.
The transaction is anticipated to be accounted for using the
pooling-of-interests method of accounting under United States generally accepted
accounting principles.
F-34
<PAGE> 162
AUDITORS' REPORT
To the Board of Directors of
Enertec Resource Services Inc.
We have audited the consolidated balance sheets of Enertec Resource
Services Inc. as at September 30, 1998 and 1997 and the consolidated statements
of operations and retained earnings and changes in financial position for each
of the years in the three year period ended September 30, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform and audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material aspects, the financial position of the company as at September 30,
1998 and 1997 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended September 30, 1998
in accordance with generally accepted accounting principles in Canada.
Chartered Accountants
Calgary, Alberta
November 25, 1998, except as to notes 11 and 12,
which are as of , 1999.
F-35
<PAGE> 163
ENERTEC RESOURCES SERVICES INC.
CONSOLIDATED BALANCE SHEET
(Tabular amounts in thousands)
(in Canadian dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JANUARY 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 4,768 $ 391 $ 1,349
Accounts receivable....................................... 18,833 19,653 19,363
Income taxes recoverable.................................. -- -- 2,210
Prepaid expenses and deposits............................. 580 777 517
------- ------- -------
24,181 20,821 23,439
Multi-client data library................................... -- 1,104 2,270
Capital assets (note 3)..................................... 25,761 31,065 29,928
Goodwill, less accumulated amortization of $1,392,000
(1998 -- $1,221,000 1997 -- $722,000)..................... 2,456 4,473 4,256
Deferred income taxes....................................... 153 56 204
------- ------- -------
$52,551 $57,519 $60,097
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 4)................................ $ -- $ 365 $ 9,513
Accounts payable and accrued liabilities.................. 13,676 12,897 9,678
Income taxes payable...................................... 1,380 1,253 --
Principal due within one year on long-term debt (note
4)..................................................... 156 268 175
------- ------- -------
15,212 14,783 19,366
Long-term debt (note 4)..................................... 63 266 218
Shareholders' equity:
Capital stock (note 5).................................... 22,951 22,317 21,780
Contributed surplus....................................... 110 110 110
Foreign currency translation account...................... 65 1,035 870
Retained earnings......................................... 14,150 19,008 17,753
------- ------- -------
37,276 42,470 40,513
------- ------- -------
Commitments (note 8)
$52,551 $57,519 $60,097
======= ======= =======
</TABLE>
On behalf of the Board:
<TABLE>
<S> <C>
Director Director
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 164
ENERTEC RESOURCE SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Tabular amounts in thousands)
(in Canadian dollars)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JANUARY 31,
---------------------------- -------------------------
1996 1997 1998 1998 1999
------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue, gross.......................... $76,160 $111,567 $95,832 $35,230 $24,548
Reimbursable costs...................... 29,230 40,825 27,787 9,038 7,810
------- -------- ------- ------- -------
Revenue, net............................ 46,930 70,742 68,045 26,192 16,738
Cost of sales........................... 34,019 46,617 45,730 18,779 14,221
------- -------- ------- ------- -------
Operating margin........................ 12,911 24,125 22,315 7,413 2,517
Research and development expenses....... 782 1,009 1,397 438 553
General and administrative expenses..... 3,361 5,334 4,067 1,199 1,355
Depreciation and amortization........... 7,450 8,448 9,162 2,833 3,105
------- -------- ------- ------- -------
Earnings (loss) before the following:... 1,318 9,334 7,689 2,943 (2,496)
Interest expense (note 4)............... 808 398 243 65 160
Other income (expense).................. (18) 597 875 330 105
------- -------- ------- ------- -------
Earnings (loss) before income taxes..... 492 9,533 8,321 3,208 (2,551)
Income taxes (note 6):
Current............................... 1,103 1,463 2,395 1,252 (1,544)
Deferred.............................. (1,574) 1,437 97 (19) (148)
------- -------- ------- ------- -------
(471) 2,900 2,492 1,233 (1,692)
------- -------- ------- ------- -------
Net earnings (loss)..................... 963 6,633 5,829 1,975 (859)
Retained earnings, beginning of
period................................ 6,554 7,517 14,150 14,150 19,008
Repurchase and cancellation of capital
stock in excess of stated capital..... -- -- (971) -- (396)
------- -------- ------- ------- -------
Retained earnings, end of period........ $ 7,517 $ 14,150 $19,008 $16,125 $17,753
======= ======== ======= ======= =======
Net earnings (loss) per common share:
Basic................................. $ 0.16 $ 0.99 $ 0.80 $ 0.27 $ (0.12)
Fully-diluted......................... $ 0.15 $ 0.91 $ 0.75 $ 0.25 $ (0.12)
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 165
ENERTEC RESOURCE SERVICES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Tabular amounts in thousands)
(in Canadian dollars)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JANUARY 31,
----------------------------- -------------------------
1996 1997 1998 1998 1999
------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss)........................ $ 963 $ 6,633 $ 5,829 $ 1,975 $ (859)
Items not involving cash:
Depreciation and amortization........... 7,450 8,448 9,162 2,833 3,105
Deferred income taxes................... (1,574) 1,437 97 (19) (148)
Other................................... 42 (219) (161) (14) (61)
------- -------- -------- ------- -------
Cash flow from operations.................. 6,881 16,299 14,927 4,775 2,037
Change in non-cash working capital......... (1,867) 1,186 (1,532) (3,105) (6,166)
------- -------- -------- ------- -------
5,014 17,485 13,395 1,670 (4,129)
Financing:
Issue of common shares..................... 409 7,960 168 83 39
Repurchase of common shares................ -- -- (1,773) -- (972)
Repayment of long-term debt................ (2,140) (7,330) (285) (77) (141)
Proceeds from long-term debt............... 454 -- -- -- --
------- -------- -------- ------- -------
(1,277) 630 (1,890) 6 (1,074)
Investing:
Purchase of capital assets................. (3,995) (11,289) (13,611) (9,059) (2,442)
Proceeds on disposition of capital
assets.................................. 155 445 253 49 197
Business acquisitions (note 2)............. (731) -- (2,387) -- --
Multi-client data library.................. -- -- (458) -- (701)
Other...................................... (13) 11 (44) (57) (41)
------- -------- -------- ------- -------
(4,584) (10,833) (16,247) (9,067) (2,987)
------- -------- -------- ------- -------
Increase (decrease) in cash position......... (847) 7,282 (4,742) (7,391) (8,190)
Cash position, beginning of period........... (1,667) (2,514) 4,768 4,768 26
------- -------- -------- ------- -------
Cash position, end of period................. $(2,514) $ 4,768 $ 26 $(2,623) $(8,164)
======= ======== ======== ======= =======
Cash flow from operations per common share:
Basic...................................... $ 1.11 $ 2.43 $ 2.06 $ 0.66 $ 0.29
Fully-diluted.............................. $ 1.03 $ 2.21 $ 1.90 $ 0.60 $ 0.27
</TABLE>
Cash position is defined as cash and equivalents less current bank indebtedness.
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 166
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(UNAUDITED JANUARY 31, 1998 AND 1999)
(Tabular amounts in thousands, except share and per share amounts)
(In Canadian dollars, unless otherwise indicated)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) PRINCIPLES OF CONSOLIDATION:
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary companies. All significant inter-company
accounts and transactions have been eliminated.
(b) FOREIGN CURRENCY TRANSLATION:
A subsidiary, KC Offshore, L.L.C., is classified as a self-sustaining
operation such that its accounts are translated into Canadian dollars on the
following basis:
(i) assets and liabilities at the rate of exchange at the balance sheet
date; and
(ii) revenue and expenses at the average rate of exchange for the period.
Gains and losses arising from the translation of the accounts of KC
Offshore, L.L.C. are reflected in the foreign currency translation account as a
separate component of shareholders' equity.
Foreign currency transactions are translated into Canadian dollars at
exchange rates prevailing at the transaction dates. The recorded amounts of
monetary assets and liabilities reflect exchange rates at the balance sheet
dates and the resultant translation gains or losses are included in operations.
(c) FOREIGN CURRENCY RATE RISK:
The Company is exposed to foreign currency fluctuations on its U.S. dollar
denominated cash flow. The Company considers the use of financial instruments,
including forward exchange contracts and currency options, to manage this
exposure. At January 31, 1999 there were no contracts or options outstanding.
(d) REVENUE RECOGNITION:
Contract revenue and related costs are recognized in the financial
statements on the basis of the extent of completion of projects as at the date
of the financial statements.
(e) RESEARCH AND DEVELOPMENT:
Research and development expenditures are charged to operations as
incurred.
(f) CAPITAL ASSETS:
Capital assets are recorded at cost. Depreciation is provided using the
straight-line method over the following periods:
<TABLE>
<S> <C>
Building................................................... 25 years
Seismic data acquisition equipment and motor vehicles...... 1 to 10 years
Seismic data processing equipment and software............. 3 years
Geophysical vessel......................................... 10 years
Marine survey equipment.................................... 3 to 5 years
Office equipment........................................... 5 years
Leasehold improvements..................................... 2 lease terms
</TABLE>
F-39
<PAGE> 167
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) MULTI-CLIENT DATA LIBRARY:
The Company acquires and processes certain seismic data in respect of which
it retains ownership. This data is sold on a non-transferable and non-exclusive
basis. In most instances the Company secures purchase commitments for a portion
of the data prior to commencing the acquisition thereof. To the extent that the
costs of each project exceed the purchase commitment revenues, such costs are
capitalized. These capitalized costs are treated as follows:
(i) The total amount thereof is amortized to operations on a
straight-line basis over a period of 36 months.
(ii) At least annually, the Company reviews the carrying value of this
data library to assess whether there has been any permanent
impairment of value. To the extent that the total carrying value of
the data exceeds its estimated net realizable value, such excess is
charged to operations.
The revenue from subsequent data sales is credited to operations.
(h) GOODWILL:
Goodwill is being amortized on a straight-line basis over ten years. The
value of the residual unamortized balance is assessed at least annually with
reference to various factors, principally the projected future cash flows,
undiscounted, of the business to which the goodwill relates.
2. BUSINESS ACQUISITIONS:
Effective April 1, 1996 the Company acquired all of the shares of
PowerProbe Geophysics Inc. ("PowerProbe"), a company operating in the seismic
data acquisition business. The acquisition was accounted for as a purchase with
results of operations being consolidated from April 1, 1996.
Effective June 1, 1998 the Company acquired the principal operating assets
of Extend Seismic Processing, L.L.C. ("Extend"), operating in the data
processing industry in the United States. The acquisition was accounted for as a
purchase with the results of operations being consolidated from June 1, 1998.
The total purchase prices have been allocated based on estimated fair
values, as follows:
<TABLE>
<CAPTION>
POWERPROBE EXTEND
---------- ------
<S> <C> <C>
Working capital............................................. $(250) $ 6
Capital assets.............................................. 981 793
Goodwill.................................................... -- 2,178
Long-term debt.............................................. -- (590)
----- ------
Total purchase price........................................ $ 731 $2,387
===== ======
Funded by:
Cash...................................................... $ 366 $2,387
Common shares............................................. 365 --
----- ------
Total consideration......................................... $ 731 $2,387
===== ======
</TABLE>
F-40
<PAGE> 168
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
1997 COST DEPRECIATION VALUE
- ---- ------- ------------ --------
<S> <C> <C> <C>
Land........................................................ $ 258 $ -- $ 258
Building.................................................... 778 193 585
Seismic data acquisition equipment.......................... 40,546 23,571 16,975
Motor vehicles.............................................. 4,686 2,933 1,753
Seismic data processing equipment and software.............. 2,835 1,826 1,009
Geophysical vessel.......................................... 1,668 473 1,195
Marine survey equipment..................................... 3,465 1,021 2,444
Office equipment............................................ 1,747 770 977
Leasehold improvements...................................... 639 74 565
------- ------- -------
$56,622 $30,861 $25,761
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
1998 COST DEPRECIATION VALUE
- ---- ------- ------------ --------
<S> <C> <C> <C>
Land........................................................ $ 258 $ -- $ 258
Building.................................................... 828 226 602
Seismic data acquisition equipment.......................... 49,104 29,281 19,823
Motor vehicles.............................................. 6,449 3,463 2,986
Seismic data processing equipment and software.............. 4,431 2,769 1,662
Geophysical vessel.......................................... 2,189 778 1,411
Marine survey equipment..................................... 4,870 2,080 2,790
Office equipment............................................ 2,120 1,150 970
Leasehold improvements...................................... 691 128 563
------- ------- -------
$70,940 $39,875 $31,065
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
1999 (UNAUDITED) COST DEPRECIATION VALUE
- ---------------- ------- ------------ --------
<S> <C> <C> <C>
Land........................................................ $ 258 $ -- $ 258
Building.................................................... 828 238 590
Seismic data acquisition equipment.......................... 49,672 30,729 18,943
Motor vehicles.............................................. 6,669 3,593 3,076
Seismic data processing equipment and software.............. 4,628 3,209 1,419
Geophysical vessel.......................................... 2,168 858 1,310
Marine survey equipment..................................... 5,279 2,403 2,876
Office equipment............................................ 2,205 1,294 911
Leasehold improvements...................................... 691 146 545
------- ------- -------
$72,398 $42,470 $29,928
======= ======= =======
</TABLE>
F-41
<PAGE> 169
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BANK INDEBTEDNESS AND LONG-TERM DEBT:
Current bank indebtedness consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------ JANUARY 31,
1997 1998 1999
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Canadian bank revolving demand credit facility.............. $ -- $365 $9,513
---- ---- ------
</TABLE>
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------ JANUARY 31,
1997 1998 1999
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Obligations under capital leases............................ $219 $534 $ 393
Less principal due within one year included in current
liabilities............................................... 156 268 175
---- ---- ------
$ 63 $266 $ 218
==== ==== ======
</TABLE>
The obligations under capital leases are repayable in monthly installments
to July 2001 and bear interest at a weighted average rate of 8.84%. Title to the
assets will pass to the Company at the completion of the lease payments.
At January 31, 1999 the Company had borrowing capacity with a Canadian bank
comprising a revolving demand facility limited to $15 million and bearing
interest at bank prime rate. This facility is secured by a general assignment of
accounts receivable, a general security agreement and fixed and floating charge
debentures totaling $8,546,000 and is subject to certain covenants.
At January 31, 1999 the Company had borrowing capacity with a U.S. bank
comprising:
(a) A bank line of credit which is limited to the lesser of (U.S.)
$750,000 and 75% of a U.S. subsidiary's accounts receivable.
(b) A demand equipment purchase loan which is limited to the lesser of
(U.S.) $350,000 or 80% of the value of equipment purchased by a U.S.
subsidiary.
Both of these U.S. facilities which bear interest at U.S. bank prime rate
are secured by a U.S. subsidiary's equipment and accounts receivable and
are subject to certain covenants and an unconditional guarantee by the
Company.
Total interest expense includes interest on long-term debt as follows:
<TABLE>
<S> <C>
1996........................................................ $627
1997........................................................ 233
1998........................................................ 26
1998 (Four months ended January 31 -- Unaudited)............ 3
1999 (Four months ended January 31 -- Unaudited)............ 14
</TABLE>
F-42
<PAGE> 170
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CAPITAL STOCK:
(a) Authorized:
Unlimited common shares at no par value
Unlimited Class 1 preferred shares, issuable in series
(b) Issued and outstanding:
<TABLE>
<CAPTION>
COMMON SHARES AMOUNT
------------- -------
<S> <C> <C>
Balance, September 30, 1995................................. 6,137,616 $14,318
Issued on acquisition of PowerProbe....................... 107,116 365
Issued on exercise of stock options....................... 13,200 44
--------- -------
Balance, September 30, 1996................................. 6,257,932 $14,727
Issued for cash........................................... 900,000 7,771
Issued on exercise of stock options....................... 113,650 453
--------- -------
Balance, September 30, 1997................................. 7,271,582 $22,951
Issued on exercise of stock options....................... 40,300 168
Repurchased and cancelled................................. (254,000) (802)
--------- -------
Balance, September 30, 1998................................. 7,057,882 $22,317
Issued on exercise of stock options....................... 10,000 39
Repurchased and cancelled................................. (179,600) (576)
--------- -------
Balance, January 31, 1999 (unaudited)....................... 6,888,282 $21,780
========= =======
</TABLE>
Common shares issued during the year ended September 30, 1997 are recorded
net of offering costs of $593,000, reduced by related income taxes of $264,000.
For purposes of calculating net earnings (loss) and cash flow from
operations per common share, the weighted average number of shares outstanding
were as follows:
<TABLE>
<CAPTION>
BASIC FULLY DILUTED
--------- -------------
<S> <C> <C>
1996........................................................ 6,196,007 6,760,107
1997........................................................ 6,706,115 7,399,692
1998........................................................ 7,245,566 7,914,006
1998 (Four months ended January 31, 1998 -- unaudited)...... 7,279,339 7,968,479
1999 (Four months ended January 31, 1999 -- unaudited)...... 6,949,506 7,834,905
</TABLE>
The fully-diluted calculations employed an imputed after-tax interest rate
of 2.2%.
F-43
<PAGE> 171
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Stock option agreements:
The following reflects transactions under the employee stock option plan
and the options outstanding as at January 31, 1999 on common shares:
<TABLE>
<S> <C>
Outstanding, September 30, 1996........................... 564,100
Granted................................................. 249,727
Exercised............................................... (113,650)
Cancelled and expired................................... (6,600)
--------
Outstanding, September 30, 1997........................... 693,577
Granted................................................. 26,063
Exercised............................................... (40,300)
Cancelled and expired................................... (10,900)
--------
Outstanding, September 30, 1998........................... 668,440
Granted................................................. 236,965
Exercised............................................... (10,000)
Cancelled and expired................................... (10,000)
--------
Outstanding, January 31, 1999 (unaudited)................. 885,405
========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
EXERCISE PRICE OPTIONS
EXPIRY DATE PER SHARE OUTSTANDING
----------- -------------- -----------
<S> <C> <C>
March 27, 2000.............................. $3.32 85,950
March 27, 2000.............................. 4.75 150,000
June 14, 2001............................... 3.67 42,200
December 11, 2001........................... 2.98 14,500
February 28, 2002........................... 3.54 100,000
December 11, 2002........................... 5.88 121,922
June 3, 2003................................ 11.67 10,000
September 2, 2003........................... 13.57 97,805
December 11, 2003........................... 14.73 20,563
June 4, 2004................................ 10.53 5,500
December 10, 2004........................... 5.46 236,965
-------
885,405
=======
</TABLE>
All stock options were granted at a price equal to the weighted average
price of the common shares on the Toronto Stock Exchange for the twenty
trading days prior to the day on which the options were granted. On the
date of grant and each anniversary thereafter, 25% of the options are
exercisable.
F-44
<PAGE> 172
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
Income taxes vary from the amount that would be computed by applying the
basic combined Canadian federal and Alberta provincial income tax rate of 44.6%
to earnings (loss) before income taxes, as follows:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JANUARY 31,
-------------------------- -------------------------
1996 1997 1998 1998 1999
------ ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic rate of 44.6% applied to earnings (loss)
before income taxes............................. $ 219 $4,252 $3,711 $ 1,431 $(1,138)
Increase (decrease) resulting from:
Utilization of previously unrecognized income
tax benefits................................. (753) (1,125) (698) (113) (680)
Lower rate in other jurisdictions............... (219) (298) (508) (39) 63
Non-deductible (non-taxable) foreign exchange
loss (gain).................................. -- -- (125) (90) 21
Non-deductible depreciation and other
expenses..................................... 156 79 119 42 36
Other........................................... 126 (8) (7) 2 6
----- ------ ------ ----------- -------
Income taxes...................................... $(471) $2,900 $2,492 $ 1,233 $(1,692)
===== ====== ====== =========== =======
</TABLE>
7. SEGMENTED INFORMATION:
The Company has three product lines: Data Acquisition, Marine Services and
Data Processing. The Data Acquisition product line provides seismic data
acquisition services to oil and gas companies and mineral exploration companies
in Canada and the United States. The Marine Services product line provides
geophysical and positioning services, primarily in the Gulf of Mexico. The Data
Processing product line provides seismic data conversion services to oil and gas
companies, primarily in Canada and the United States. In 1997 the Company
started a new product line which offered services to oil and gas companies with
the objective of enhancing production and reducing operating costs. Insufficient
demand for these services resulted in cessation of the business in 1998.
The Company's product lines are strategic business units that each offer
different services. They are managed separately because each business applies
different technology and marketing strategies.
INDUSTRY SEGMENTS:
<TABLE>
<CAPTION>
DATA MARINE DATA PRODUCTION INTER-SEGMENT
1996 ACQUISITION SERVICES PROCESSING ENHANCEMENT SALES TOTAL
---- ----------- -------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $30,143 $12,766 $4,174 $ -- $(153) $46,930
Interest expense................. 583 189 36 -- -- 808
Depreciation and amortization.... 5,977 932 541 -- -- 7,450
Earnings (loss) before income
taxes.......................... (2,462) 2,181 773 -- -- 492
Total assets..................... 27,875 11,397 1,081 -- -- 40,353
Capital expenditures............. 2,656 686 653 -- -- 3,995
</TABLE>
F-45
<PAGE> 173
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DATA MARINE DATA PRODUCTION INTER-SEGMENT
1997 ACQUISITION SERVICES PROCESSING ENHANCEMENT SALES TOTAL
- ---- ----------- -------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $46,303 $17,018 $ 7,421 $ -- $ -- $70,742
Interest expense................. 253 120 25 -- -- 398
Depreciation and amortization.... 6,236 1,339 873 -- -- 8,448
Earnings (loss) before income
taxes.......................... 4,962 2,532 2,484 (445) -- 9,533
Total assets..................... 35,077 12,149 5,325 -- -- 52,551
Capital expenditures............. 8,114 1,623 1,552 -- -- 11,289
</TABLE>
<TABLE>
<CAPTION>
DATA MARINE DATA PRODUCTION INTER-SEGMENT
1998 ACQUISITION SERVICES PROCESSING ENHANCEMENT SALES TOTAL
- ---- ----------- -------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $39,007 $20,163 $ 8,875 $ -- $ -- $68,045
Interest expense................. 135 70 38 -- -- 243
Depreciation and amortization.... 6,502 1,593 1,067 -- -- 9,162
Earnings before income taxes..... 2,627 3,504 2,190 -- -- 8,321
Total assets..................... 32,094 14,652 10,773 -- -- 57,519
Capital expenditures............. 11,146 1,618 847 -- -- 13,611
</TABLE>
<TABLE>
<CAPTION>
FOUR MONTHS ENDED JANUARY 31, 1998 DATA MARINE DATA PRODUCTION INTER-SEGMENT
(UNAUDITED) ACQUISITION SERVICES PROCESSING ENHANCEMENT SALES TOTAL
- ---------------------------------- ----------- -------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $18,552 $ 4,513 $ 3,127 $ -- $ -- $26,192
Interest expense................. 34 24 7 -- -- 65
Depreciation and amortization.... 2,078 488 267 -- -- 2,833
Earnings before income taxes..... 1,930 74 1,204 -- -- 3,208
Total assets..................... 48,623 10,929 4,477 -- -- 64,029
Capital expenditures............. 7,687 642 665 65 -- 9,059
</TABLE>
<TABLE>
<CAPTION>
FOUR MONTHS ENDED JANUARY 31, 1999 DATA MARINE DATA PRODUCTION INTER-SEGMENT
(UNAUDITED) ACQUISITION SERVICES PROCESSING ENHANCEMENT SALES TOTAL
- ---------------------------------- ----------- -------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $9,112 $ 4,789 $ 2,993 $-- $(156) $16,738
Interest expense................. 79 49 32 -- -- 160
Depreciation and amortization.... 1,939 634 532 -- -- 3,105
Earnings (loss) before income
taxes.......................... (2,185) (403) 123 -- (86) (2,551)
Total assets..................... 41,600 12,592 5,905 -- -- 60,097
Capital expenditures............. 1,671 565 206 -- -- 2,442
</TABLE>
GEOGRAPHIC SEGMENTS:
<TABLE>
<CAPTION>
NET CAPITAL ASSETS
1996 REVENUE AND GOODWILL
- ---- ------- --------------
<S> <C> <C>
Canada...................................................... $29,952 $19,042
United States............................................... 16,978 6,478
------- -------
Total....................................................... $46,930 $25,520
======= =======
</TABLE>
<TABLE>
<CAPTION>
NET CAPITAL ASSETS
1997 REVENUE AND GOODWILL
- ---- ------- --------------
<S> <C> <C>
Canada...................................................... $41,276 $19,042
United States............................................... 29,466 9,175
------- -------
Total....................................................... $70,742 $28,217
======= =======
</TABLE>
F-46
<PAGE> 174
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NET CAPITAL ASSETS
1998 REVENUE AND GOODWILL
- ---- ------- --------------
<S> <C> <C>
Canada...................................................... $36,725 $22,377
United States............................................... 31,320 13,161
------- -------
Total....................................................... $68,045 $35,538
======= =======
</TABLE>
<TABLE>
<CAPTION>
NET CAPITAL ASSETS
FOUR MONTHS ENDED JANUARY 31, 1998 (UNAUDITED) REVENUE AND GOODWILL
- ---------------------------------------------- ------- --------------
<S> <C> <C>
Canada...................................................... $18,117 $24,221
United States............................................... 8,075 10,520
------- -------
Total....................................................... $26,192 $34,741
======= =======
</TABLE>
<TABLE>
<CAPTION>
NET CAPITAL ASSETS
FOUR MONTHS ENDED JANUARY 31, 1999 (UNAUDITED) REVENUE AND GOODWILL
- ---------------------------------------------- ------- --------------
<S> <C> <C>
Canada...................................................... $ 7,223 $20,929
United States............................................... 9,515 13,255
------- -------
Total....................................................... $16,738 $34,184
======= =======
</TABLE>
Of the Company's gross revenue in each year, the following percentages were
related to one customer:
<TABLE>
<S> <C>
1996........................................................ 45%
1997........................................................ 23%
1998........................................................ 24%
1998 (Four months ended January 31, 1998 -- Unaudited)...... 29%
1999 (Four months ended January 31, 1999 -- Unaudited)...... 15%
</TABLE>
Accounts receivable at January 31, 1999 included $3,451,310 from this
customer, all of which has subsequently been received.
8. COMMITMENTS:
Future minimum lease payments for the next five years are as follows:
<TABLE>
<S> <C>
1999 (8 months to September 30, 1999)....................... $555
2000........................................................ 559
2001........................................................ 468
2002........................................................ 422
2003........................................................ 164
</TABLE>
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date.
The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain
F-47
<PAGE> 175
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that all aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers or other third parties, will be
fully resolved.
10. RELATED PARTY TRANSACTIONS:
Certain premises are leased by the Company from an officer and director of
the Company. The annual lease amount is (U.S.) $45,000.
At January 31, 1999, $314,413 was owed to the Company by an officer of a
wholly-owned subsidiary. This loan was advanced to the officer in connection
with his transfer to the Company's operations in Houston, Texas. The
indebtedness is due on demand, bears interest at bank prime rate minus 1.5% and
is secured by the pledging of 65,367 common shares of the Company owned by the
officer.
11. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (GAAP). In certain aspects GAAP as
applied in the United States differs from Canadian GAAP.
CONSOLIDATED BALANCE SHEET DISCLOSURES
Accounts payable and accrued liabilities
Included in accounts payable and accrued liabilities are the following
amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ JANUARY 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade payables............................................ $10,287 $ 8,661 $7,451
Accrued liabilities....................................... 3,389 4,236 2,227
------- ------- ------
$13,676 $12,897 $9,678
======= ======= ======
</TABLE>
Income Taxes
For U.S. GAAP purposes, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not more likely than not that such deferred tax assets will
be realized. Under SFAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
F-48
<PAGE> 176
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the tax effects of temporary differences that give
rise to significant portions of the deferred tax asset and deferred tax
liabilities as they would be calculated under SFAS 109:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------- JANUARY 31,
1997 1998 1999
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Loss carryforwards........................................ $ -- $ 5 $ 39
Intangible assets......................................... 101 138 181
Deferred costs............................................ 704 159 142
Valuation allowance....................................... (508) (170) (58)
----- ----- -----
Total gross deferred tax assets............................. 297 132 304
Deferred tax liabilities
Capital assets............................................ (516) (76) (417)
----- ----- -----
Net deferred tax asset (liability).......................... $(219) $ 56 $(113)
===== ===== =====
</TABLE>
Goodwill
There have not been any writedowns of goodwill.
Capital Stock
The following information would have been presented on the face of the
balance sheet:
The common shares had no par value at September 30, 1997, September 30,
1998 and January 31, 1999.
An unlimited number of common shares were authorized at September 30,
1997, September 30, 1998 and January 31, 1999.
Common shares issued were 7,271,582 at September 30, 1997, 7,057,882 at
September 30, 1998 and 6,888,282 at January 31, 1999.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For U.S. reporting the information contained in the consolidated statement
of retained earnings and Note 5, capital stock would be combined, with the
continuity of the foreign currency translation account stated below, to develop
a complete statement of changes in shareholders' equity.
The following reflects the continuity of the foreign currency translation
account:
<TABLE>
<S> <C>
Balance, September 30, 1996................................. $ (55)
Translation adjustment.................................... 120
------
Balance, September 30, 1997................................. 65
Translation adjustment.................................... 970
------
Balance, September 30, 1998................................. 1,035
Translation adjustment.................................... (165)
------
Balance, January 31, 1999 (unaudited)....................... $ 870
======
</TABLE>
F-49
<PAGE> 177
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS
For U.S. GAAP, in calculating diluted earnings per share, the diluted
weighted average number of shares outstanding is calculated using the treasury
method. Under this method, proceeds from the assumed exercise of stock options
which are in-the-money relative to the average market price for the period are
assumed to be used to purchase outstanding shares at the average market price
for the period, this purchase reduces the number of shares assumed to be issued
on the exercise of the options.
The following reflects the diluted weighted average number of shares
outstanding for the reported periods:
<TABLE>
<S> <C>
1996...................................................... 6,224,730
1997...................................................... 6,994,188
1998...................................................... 7,572,990
1998 (Four months ended January 31, 1998 -- unaudited).... 7,709,450
1999 (Four months ended January 31, 1999 -- unaudited).... 7,038,090
</TABLE>
The following is the reconciliation of net earnings (loss) between Canadian
and U.S. GAAP:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
SEPTEMBER 30, JANUARY 31,
------------------------- -----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) as reported................ $ 963 $ 6,633 $ 5,829 $ 1,975 $ (859)
Additional income (expense) relating to
deferred income taxes........................ -- (372) 372 (6) (317)
----- ------- ------- ------- -------
Net earnings (loss) in accordance with U.S.
GAAP......................................... $ 963 $ 6,261 $ 6,201 $ 1,969 $(1,176)
----- ------- ------- ------- -------
Net earnings (loss) per common share........... $0.16 $ 0.93 $ 0.86 $ 0.27 $ (0.17)
----- ------- ------- ------- -------
Net earnings (loss) per common share
-- assuming dilution......................... $0.15 $ 0.90 $ 0.82 $ 0.26 $ (0.17)
===== ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
The statement of changes in financial position is substantially the same as
the statement of cash flows prepared under U.S. GAAP, except for the following
differences:
For U.S. GAAP, additional disclosure for cash interest and cash taxes paid
would be made.
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
SEPTEMBER 30, JANUARY 31, 1998
------------------------ -----------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest paid.................................... $ 780 $ 426 $ 243 $ 48 $ 116
Taxes paid....................................... 1,788 53 2,522 1,228 1,919
</TABLE>
The line headings, Cash flow from operations and Cash flow from operations
per common share, could not be presented under U.S. GAAP.
F-50
<PAGE> 178
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP, bank indebtedness is considered a financing activity and
non-cash activities are excluded. In 1996, cash used in investing and cash
provided from issue of common shares would be decreased by $365,000 in respect
of the 107,116 common shares issued on the PowerProbe acquisition. The following
lines would be added or changed to reflect these differences:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
SEPTEMBER 30, JANUARY 31,
----------------------------- -----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Financing:
Issue of common shares.................... $ 44 $ 7,960 $ 168 $ 83 $ 39
Bank indebtedness......................... 772 (2,716) 365 3,825 9,148
Total financing activities.................. (870) (2,086) (1,525) 3,831 8,074
Total investing activities.................. (4,219) (10,833) (16,247) (9,067) (2,987)
Increase (decrease) in cash position........ (75) 4,566 (4,377) (3,566) 958
Cash position, beginning of period.......... 277 202 4,768 4,768 391
Cash position, end of period................ 202 4,768 391 1,202 1,349
</TABLE>
12. SUBSEQUENT EVENT:
On March 30, 1999, the Company signed a definitive combination agreement
(the "Agreement") with Veritas DGC Inc. ("Veritas DGC") and Veritas Energy
Services Inc. ("VESI"). Consummation of the Agreement is subject to a number of
conditions, including regulatory clearances in Canada and the United States,
judicial clearance in Canada and formal approval by the shareholders of each
company which is a party to the Agreement. It is anticipated that the
transaction will close during June 1999.
Veritas DGC, a Delaware corporation, provides seismic data acquisition
services, data processing services and multi-client data sales to the oil and
gas industry in selected markets worldwide. Veritas DGC acquires seismic data in
land, in marine and in marsh, swamp and tidal environments and processes data
acquired by its own crews and by other operators. Veritas DGC's principal
executive offices are located in Houston, Texas.
Under the terms of the Agreement, at the effective time, each Enertec
common share will be transferred to VESI in exchange and as sole consideration
for 0.345 (the "Exchange Ratio") of a VESI exchangeable share. At any time
during a period of ten years from the effective time, the holders of these VESI
exchangeable shares will be able to exchange any or all such shares for an equal
number of shares of Veritas DGC common stock. However, if during this ten year
period, certain minimum levels of exchangeable shares are reached within VESI,
then VESI is permitted to redeem any remaining VESI exchangeable shares for an
equal number of shares of Veritas DGC common stock.
At the effective time, pursuant to the Agreement, the articles of Enertec
will be amended to delete the Class 1 preferred shares from the authorized
capital. Veritas DGC will issue to a trustee a special voting share for the
benefit of the holders of the VESI exchangeable shares. The trustee will hold
this voting share pursuant to the terms of a voting and exchange trust
agreement. This agreement will entitle the trustee, at any meeting at which
Veritas DGC stockholders are entitled to vote, to exercise a number of votes
equal to the number of VESI exchangeable shares outstanding at such time and not
held by Veritas DGC or entities controlled by Veritas DGC. These voting rights
will be exercised by the trustee only on instructions received, from time to
time, from the holders of the VESI exchangeable shares not held by Veritas DGC
or entities controlled by Veritas DGC.
Also at the effective time, pursuant to the Agreement, each Enertec stock
option will be exchanged for an option under the Veritas DGC stock option plan.
The number of options on Veritas DGC common stock received on such exchange will
be equal to the number of Enertec common shares subject to the Enertec stock
option at the effective time multiplied by the Exchange Ratio, rounded down to
the nearest whole number. The exercise
F-51
<PAGE> 179
ENERTEC RESOURCE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price per share of Veritas DGC common stock will be equal to the exercise price
per share of the option in respect of such Enertec common shares, immediately
prior to the effective time, divided by the Exchange Ratio. The exercise price
will be decreased by the amount attributable to any rounding down of shares.
This exercise price will be converted into U.S. dollars.
The transaction is anticipated to be accounted for using the
pooling-of-interests method of accounting under United States generally accepted
accounting principles.
F-52
<PAGE> 180
ANNEX A
FORMS OF ARRANGEMENT RESOLUTIONS
<PAGE> 181
RESOLUTION FOR CONSIDERATION AT
THE SPECIAL MEETING OF THE SHAREHOLDERS AND OPTIONHOLDERS
OF
ENERTEC RESOURCE SERVICES INC.
(THE "CORPORATION")
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement involving the Corporation (the "Arrangement") under section
186 of the Business Corporations Act (Alberta) (the "ABCA"), as more
particularly described in the Joint Management Information Circular and
Proxy Statement of the Corporation, Veritas DGC Inc. and Veritas Energy
Services Inc. (the "Joint Proxy Statement") accompanying the notice of this
meeting is hereby authorized, approved and adopted;
2. the plan of arrangement involving the Corporation, the full text of which
is set out as Annex D to the Joint Proxy Statement is hereby approved and
adopted;
3. notwithstanding the passing of this resolution by shareholders and
optionholders or the approval of the Court of Queen's Bench of Alberta, the
Board of Directors of the Corporation, without further notice to or
approval of shareholders or optionholders, may decide not to proceed with
the Arrangement or may revoke the resolution at any time prior to the
Arrangement becoming effective pursuant to the ABCA; and
4. the proper officers of the Corporation are hereby authorized and directed
for and on behalf of the Corporation to execute or cause to be executed and
to deliver or cause to be delivered all such documents, agreements and
instruments and to do or cause to be done all such other acts and things as
such officers of the Corporation shall determine to be necessary or
desirable in order to carry out the intent of the foregoing paragraphs of
this resolution and the matters authorized thereby, such determination to
be conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing.
A-1
<PAGE> 182
RESOLUTION FOR CONSIDERATION AT
THE SPECIAL MEETING OF THE EXCHANGEABLE SHAREHOLDERS
OF
VERITAS ENERGY SERVICES INC.
(THE "CORPORATION")
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement involving the Corporation (the "Arrangement") under section
186 of the Business Corporations Act (Alberta) (the "ABCA"), as more
particularly described in the Joint Management Information Circular and
Proxy Statement of the Corporation, Veritas DGC Inc. and Enertec Resource
Services Inc. (the "Joint Proxy Statement") accompanying the notice of this
meeting is hereby authorized, approved and adopted;
2. the plan of arrangement involving the Corporation, the full text of which
is set out as Annex D to the Joint Proxy Statement is hereby approved and
adopted;
3. notwithstanding the passing of this resolution by exchangeable shareholders
or the approval of the Court of Queen's Bench of Alberta, the Board of
Directors of the Corporation, without further notice to or approval of
exchangeable shareholders, may decide not to proceed with the Arrangement
or may revoke the resolution at any time prior to the Arrangement becoming
effective pursuant to the ABCA; and
4. the proper officers of the Corporation are hereby authorized and directed
for and on behalf of the Corporation to execute or cause to be executed and
to deliver or cause to be delivered all such documents, agreements and
instruments and to do or cause to be done all such other acts and things as
such officers of the Corporation shall determine to be necessary or
desirable in order to carry out the intent of the foregoing paragraphs of
this resolution and the matters authorized thereby, such determination to
be conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing.
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ANNEX B
COMBINATION AGREEMENT
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COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (this "Agreement") is entered into as of March
30, 1999, by and among Veritas DGC Inc., a Delaware corporation ("Veritas"),
Veritas Energy Services Inc., an Alberta corporation ("VESI") and Enertec
Resource Services Inc., an Alberta corporation ("Enertec").
RECITALS
WHEREAS, the respective boards of directors of Veritas, VESI and Enertec
have approved the transactions contemplated by this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
GENERAL
1.1 PLAN OF ARRANGEMENT.
As promptly as practicable after the execution of this Agreement, Enertec,
on a joint basis with VESI, will apply to the Court of Queen's Bench of Alberta
(the "Court") pursuant to Part 15 of the Business Corporations Act (Alberta)
(the "ABCA") for an interim order in form and substance satisfactory to Veritas
(such approval not to be unreasonably withheld or delayed) (the "Interim Order")
providing for, among other things, the calling and holding of the Enertec
Meeting (as defined below) and the VESI Meeting (as defined below) for the
purposes of considering and, if deemed advisable, approving the arrangement (the
"Arrangement") under Part 15 of the ABCA and pursuant to this Agreement and the
Plan of Arrangement substantially in the form of Exhibit A hereto (the "Plan of
Arrangement"). If the Enertec shareholders and optionholders and the VESI
exchangeable shareholders approve the Arrangement, thereafter Enertec, on a
joint basis with VESI, will take the necessary steps to submit the Arrangement
to the Court and apply for a final order of the Court approving the Arrangement
in such fashion as the Court may direct (the "Final Order"). At 12:01 a.m. (the
"Effective Time") on the date (the "Effective Date") shown on the certificate of
arrangement issued by the Registrar under the ABCA giving effect to the
Arrangement the following steps shall occur and shall be deemed to occur in the
following order without any further act or formality:
(a) The articles of Enertec shall be amended to delete the Class 1
Preferred Shares from the authorized share capital;
(b) The articles of VESI shall be amended to:
(i) delete Section 4.1(c) of the provisions attaching to the existing
exchangeable shares of VESI (the "Exchangeable Shares") and to
substitute therefor the following:
"(c) except as provided for in the rights, privileges,
restrictions and conditions attaching to the Class A
Exchangeable Shares, or any series thereof, redeem or
purchase any other shares of the Corporation ranking equally
with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution;"
(ii) delete Section 4.1(d) of the provisions attaching to the
Exchangeable Shares and to substitute therefor the following:
"(d) issue any Exchangeable Shares other than by way of stock
dividends to the holders of such Exchangeable Shares or as
contemplated by the Support Agreement; or";
(iii) delete Section 4.1(e) of the provisions attaching to the
Exchangeable Shares and to substitute therefor the following:
"(e) except for the designation of one or more further series of
Class A Exchangeable Shares, amend the articles or by-laws of
the Corporation.";
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(iv) delete the third sentence of Section 6.6 of the provisions
attaching to the Exchangeable Shares and to substitute therefor
the following:
"In any case in which the redemption by the Corporation of
Retracted Shares, or the redemption by the Corporation of any
Class A Exchangeable Shares, would be contrary to liquidity or
solvency requirements or other provisions of applicable law, the
Corporation shall redeem Retracted Shares and Class A
Exchangeable Shares on a PRO RATA basis and shall issue to each
holder of Retracted Shares a new certificate, at the expense of
the Corporation, representing the Retracted Shares not redeemed
by the Corporation.";
(v) delete the restriction set out in Section 2.1(f) of that Plan of
Arrangement attached to that Certificate of Amendment of VESI
dated August 30, 1996;
(vi) increase the number of authorized common shares in the capital of
VESI to an unlimited number of common shares;
(vii) authorize a further class of exchangeable shares, ranking pari
passu with the Exchangeable Shares, unlimited in number, issuable
in series and having the terms and conditions set forth in the
Plan of Arrangement (the "Class A Exchangeable Shares");
(viii) designate the first series of Class A Exchangeable Shares as
"Class A Exchangeable Shares Series 1" limited in number to
25,000,000 shares and having the terms and conditions set forth
in the Plan of Arrangement (the "Series 1 Exchangeable Shares");
and
(ix) add the following provision to part 7 of such articles:
"Meetings of shareholders of the Corporation shall be held in the
location determined by the directors of the Corporation, and may be
held in Houston, Texas, or at any location within Alberta.";
(c) That Support Agreement dated August 30, 1996 between Veritas and VESI
shall be amended to delete Section 2(i) thereof and to substitute therefor the
following:
"(i) OWNERSHIP OF OUTSTANDING SHARES. Without the prior approval of
Veritas and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 of the Exchangeable
Share Provisions, Digicon covenants and agrees in favour of
Veritas that, as long as any outstanding Exchangeable Shares are
owned by any person or entity other than Digicon or any of its
Subsidiaries, Digicon will be and remain the direct or indirect
beneficial owner of all issued and outstanding shares in the
capital of Veritas and all outstanding securities of Veritas
carrying or otherwise entitled to voting rights in any
circumstances, in each case other than the Exchangeable Shares and
other than the Class A Exchangeable Shares of Veritas.";
(d) Subject to the approval of CIBC Mellon Trust Company (the
"Depositary"), that Voting and Exchange Trust Agreement dated August 30, 1996
between Veritas, VESI and the Depositary (as successor to The R-M Trust Company)
shall be amended to delete the definition of "Insolvency Event" and to
substitute the following:
"'Insolvency Event' means the institution by Veritas of any proceeding to
be adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or
the consent of Veritas to the institution of bankruptcy, insolvency,
dissolution or winding-up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding-up under any
bankruptcy, insolvency or analogous laws, including without limitation
the Companies' Creditors Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and the failure by Veritas to contest in good
faith any such proceedings commenced in respect of Veritas within 15 days
of becoming aware thereof, or the consent by Veritas to the filing of any
such petition or to the appointment of a receiver, or the making by
Veritas of a general assignment for the benefit of creditors, or the
admission in writing by Veritas of its inability to pay its debts
generally as they become due, or Veritas not being permitted, pursuant to
liquidity or solvency requirements of applicable law, to redeem any
Exchangeable Shares in accordance with the
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terms thereof or to redeem any shares of any series of Class A Exchangeable
Shares of the Corporation in accordance with the terms thereof.";
(e) Each of the common shares of Enertec (the "Enertec Common Shares")
(other than Enertec Common Shares held by holders who have exercised their
rights of dissent in accordance with the Plan of Arrangement and who are
ultimately entitled to be paid the fair value for such shares) will be
transferred to VESI in consideration for a number of Series 1 Exchangeable
Shares at an exchange ratio equal to 0.345 of a Series 1 Exchangeable Share for
each Enertec Common Share (the "Exchange Ratio"), and each such holder of
Enertec Common Shares will receive that whole number of Series 1 Exchangeable
Shares resulting from the transfer of such holder's Enertec Common Shares. In
lieu of fractional Series 1 Exchangeable Shares, each holder of an Enertec
Common Share who otherwise would be entitled to receive a fraction of a Series 1
Exchangeable Share shall be paid by VESI an amount determined in accordance with
the Plan of Arrangement;
(f) Upon the transfer of shares referred to in Section 1.1(e) above:
(i) each holder of an Enertec Common Share shall cease to be such a
holder, shall have his name removed from the register of holders
of Enertec Common Shares and shall become a holder of the number
of fully paid Series 1 Exchangeable Shares to which he is
entitled as a result of the transfer referred to in Section
1.1(e) above and such holder's name shall be added to the
register of holders of Series 1 Exchangeable Shares accordingly;
(ii) VESI shall become the legal and beneficial owner of all of the
Enertec Common Shares so transferred; and
(iii) the Shareholders Rights Plan Agreement between Enertec and
Montreal Trust Company of Canada made as of December 11, 1997, as
amended and restated as of March 6, 1998 (the "Enertec Rights
Agreement"), and all outstanding Rights (as defined in such
agreement) will be terminated, void and of no further force or
effect;
(g) Holders of Enertec Common Shares shall be entitled to make an income
tax election pursuant to section 85 of the Income Tax Act (Canada) (the "ITA")
with respect to the transfer of their Enertec Common Shares to VESI referred to
in Section 1.1(e) by providing two signed copies of the necessary election forms
to VESI within 90 days following the Effective Date, duly completed with the
details of the number of shares transferred and the applicable agreed amounts
for the purposes of such elections. Thereafter, subject to the election forms
complying with the provisions of the ITA, the forms will be signed by VESI and
returned to such holders of Enertec Common Shares within 180 days following the
Effective Date for filing with Revenue Canada;
(h) Veritas shall issue to and deposit with the Depositary the Voting
Share (as defined in the Voting and Exchange Trust Agreement (as defined
herein)), in consideration of the payment to Veritas of US $1, to be thereafter
held by the Depositary as trustee for and on behalf of, and for the use and
benefit of, the holders of the Series 1 Exchangeable Shares, in accordance with
the Voting and Exchange Trust Agreement; and
(i) Each of the then outstanding options to purchase Enertec Common
Shares (collectively, the "Enertec Options") (which includes all outstanding
options granted under Enertec's stock option plan (the "Enertec Option Plan")
will and without any further action on the part of any holder thereof (herein,
an "optionholder"), be exchanged for an option (collectively, the "Veritas
Options") under the Third Amended and Restated 1992 Employee Nonqualified Stock
Option Plan (the "Veritas Option Plan") to purchase that number of shares of the
common stock, $.01 par value per share, of Veritas (the "Veritas Common Stock")
determined by multiplying the number of Enertec Common Shares subject to such
Enertec Option at the Effective Time by the Exchange Ratio, at an exercise price
per share of Veritas Common Stock equal to the exercise price per share of such
Enertec Option immediately prior to the Effective Time, divided by the Exchange
Ratio. Such option price shall be converted into a United States dollar
equivalent based on the rate of exchange applicable at the Effective Time as
stated in that edition of The Wall Street Journal next published after the
Effective Time. If the foregoing calculation results in an exchanged Enertec
Option being exercisable for a fraction of a share of Veritas Common Stock, then
the number of shares of Veritas Common Stock subject to such option will be
rounded down to the nearest whole number of shares, and the total exercise price
for the Veritas Option will be reduced by the exercise price of the fractional
share. Each Veritas Option shall be:
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(i) fully vested immediately after the Effective Time; and
(ii) for a term commencing at the Effective Time and ending as
follows:
(A) for each optionholder who:
(1) is an Enertec director, officer or employee as at the
Effective Time (a "Current optionholder"); and
(2) after the Effective Time is employed or retained by
Veritas, Enertec or one of their Subsidiaries,
on the date as set forth in subsections 5(b) and (d) of the
Enertec Option Plan;
(B) for each Current optionholder who at the Effective Time is not
retained as a director, officer or employee of Veritas,
Enertec or one of their Subsidiaries, on the date that is the
first business day on or immediately after the date that is 90
days after the later of the Effective Date and the date such
director, officer or employee is terminated; or
(C) notwithstanding the provisions of (A) and (B) above, the
Enertec Option Plan or the Veritas Option Plan, for each
Current optionholder with an executive termination contract of
the type set out and disclosed in paragraph 5(e)(i) of the
Enertec Disclosure Letter (as defined below) (an "Executive
Termination Contract"), on the current expiry date of such
option (the sixth anniversary date).
The term, exerciseability, and all other terms and conditions of the Enertec
Options exchanged in accordance with this Section 1.1(i) will otherwise be
unchanged by the provisions of this Section 1.1(i) and shall operate in
accordance with their terms and the Veritas Option Plan shall be amended
accordingly as required.
1.2 ALLOCATION OF CONSIDERATION.
It is acknowledged and agreed that:
(a) the sole consideration to be received by the holders of Enertec
Common Shares for the transfer of such shares to VESI contemplated in Section
1.1(e) shall be the Series 1 Exchangeable Shares issued in connection with such
transfer as contemplated in Section 1.1(e); and
(b) all other rights and benefits received by the holders of Enertec
Common Shares in connection with the consummation of the Arrangement shall be in
consideration of the grant by such holders to Veritas of Veritas' rights in
respect of the Series 1 Exchangeable Shares and the other consideration received
by Veritas from the holders of Enertec Common Shares (excluding the Enertec
Common Shares) including, without limitation, the termination of the Rights (as
defined in the Enertec Rights Agreement).
1.3 ADJUSTMENTS FOR CAPITAL CHANGES.
If, prior to the Effective Time, Veritas or Enertec recapitalizes through a
subdivision of its outstanding shares into a greater number of shares, or a
combination of its outstanding shares into a lesser number of shares, or
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes, or declares a dividend on
its outstanding shares payable in shares of its capital stock or securities
convertible or exchangeable into shares of its capital stock, then the Exchange
Ratio will be adjusted appropriately so as to maintain the relative
proportionate interests of the holders of Enertec Common Shares and the holders
of the shares of Veritas Common Stock. No such changes shall be made by either
Veritas or Enertec other than those made in accordance with this Agreement.
1.4 DISSENTING SHARES.
Holders of Enertec Common Shares may exercise rights of dissent with
respect to such shares in connection with the Arrangement pursuant to and in the
manner set forth in Section 184 of the ABCA and Section 3.1 of the Plan of
Arrangement (such holders referred to as "Dissenters" or as "Dissenting
Shareholders"). Enertec shall
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give Veritas (i) prompt notice of any written demands of a right of dissent,
withdrawals of such demands, and any other instruments served pursuant to the
ABCA and received by Enertec and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such rights. Without the prior
written consent of Veritas, acting reasonably, except as required by applicable
law, Enertec shall not make any payment with respect to any such rights or offer
to settle or settle any such rights. All payments to Dissenters shall be the
sole responsibility of Enertec, and Veritas will not directly or indirectly
provide any funds for the purposes of making payments to Dissenters. In the
event that Enertec does not have sufficient funds to make payments to
Dissenters, Enertec will undertake to borrow the funds necessary to make such
payments from sources other than Veritas or any Veritas Subsidiary (as defined
below). Holders of Exchangeable Shares may exercise rights of dissent with
respect to such shares in connection with the Arrangement pursuant to and in the
manner set forth in Section 184 of the ABCA and Section 3.1 of the Plan of
Arrangement. All payments to dissenting shareholders of VESI shall be the sole
responsibility of Veritas, and Enertec will not directly or indirectly provide
any funds for the purposes of making payments to such dissenters. In the event
that Veritas does not have sufficient funds to make payments to such dissenters,
Veritas will undertake to borrow the funds necessary to make such payments from
sources other than Enertec or any Enertec Subsidiary (as defined below).
1.5 OTHER EFFECTS OF THE ARRANGEMENT.
At the Effective Time: (a) the bylaws of Enertec immediately prior to the
Effective Time will continue as the bylaws of Enertec, subject to later
amendment; (b) the directors of Enertec will be those appointed by VESI; (c) the
officers of Enertec will be as designated by the board of directors of Enertec
prior to the Effective Time, subject to later removal and appointment of other
officers; (d) each Enertec Common Share and each Enertec Option outstanding
immediately prior to the Effective Time will be transferred or exchanged, as
applicable, as provided in Section 1.1; and (e) the Arrangement will, from and
after the Effective Time, have all of the effects provided by applicable law,
including, without limitation, the ABCA.
1.6 AMENDED VERITAS CHARTER.
Prior to the Closing, Veritas shall have amended its certificate of
incorporation to read as set forth in Exhibit B hereto (the "Restated Veritas
Charter").
1.7 JOINT PROXY STATEMENT; S-3 REGISTRATION STATEMENT.
(a) As promptly as practicable after execution of this Agreement, Veritas
and Enertec, jointly with VESI, shall prepare and file with the Securities and
Exchange Commission (the "SEC") a preliminary joint management information
circular and proxy statement (the "Joint Proxy Statement"), together with any
other documents required by the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in connection with the Arrangement and the other transactions
contemplated hereby. The Joint Proxy Statement shall constitute (i) the
management information circular of Enertec with respect to the meeting of
shareholders and optionholders of Enertec with respect to the Arrangement and
the approval of certain matters in connection therewith (the "Enertec Meeting"),
(ii) the management information circular of VESI with respect to the meeting of
exchangeable shareholders of VESI with respect to the Arrangement and the
approval of certain matters in connection therewith (the "VESI Meeting"), and
(iii) the proxy statement of Veritas with respect to the meeting of stockholders
of Veritas with respect to the approval of the Restated Veritas Charter (the
"Veritas Stockholders Meeting"). As promptly as practicable after the
preliminary Joint Proxy Statement is cleared by the SEC, Veritas, VESI and
Enertec shall cause the Joint Proxy Statement to be mailed to the applicable
stockholders of Veritas, the shareholders and optionholders of Enertec and the
exchangeable shareholders of VESI. Veritas and Enertec, jointly with VESI, shall
prepare and file with the SEC a request for no action seeking to confirm the
availability of an exemption pursuant to Section 3(a)(10) of the Securities Act
with respect to the issuance of the Series 1 Exchangeable Shares pursuant to the
Arrangement, and if such exemption is not available, Veritas and VESI will file
a registration statement on Form F-4 or other applicable form (the "Form F-4")
with the SEC and use their best efforts to cause it to be declared effective. If
Veritas determines on the advice of its outside counsel (with the concurrence of
outside counsel for Enertec) that it is necessary to file a registration
statement on Form S-3 (the "Form S-3") in order to
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register the Veritas Common Stock to be issued from time to time after the
Effective Time upon exchange of the Series 1 Exchangeable Shares, then Veritas
shall file the Form S-3 with the SEC and use its best efforts to maintain the
effectiveness of such registration for the period that such Series 1
Exchangeable Shares remain outstanding, and Veritas shall use its best efforts
(with the reasonable cooperation of Enertec, if required) to cause the Form S-3
to become effective. Notwithstanding anything herein to the contrary, Veritas
shall be under no obligation to file the Form S-3 if it shall have determined on
the advice of its outside counsel (with the concurrence of outside counsel for
Enertec) that the issuance of shares of Veritas Common Stock upon exchange of
the Series 1 Exchangeable Shares after the Effective Time is exempt from the
registration requirements of Section 5 of the Securities Act by virtue of
Section 3(a)(9) and/or 3(a)(10) thereof. In connection with such determination,
Veritas, VESI and Enertec shall prepare and file with the SEC a request for no
action seeking to confirm the availability of such an exemption.
(b) Each party shall promptly furnish to the other parties all
information concerning such party and its stockholders as may be reasonably
required in connection with any action contemplated by this Section 1.7. The
Joint Proxy Statement and, if required, the Form S-3, shall comply in all
material respects with all applicable requirements of law. Each of Veritas, VESI
and Enertec will notify the others promptly of the receipt of any comments from
the SEC and of any request by the SEC for amendments or supplements to the Joint
Proxy Statement or the Form F-4 and Form S-3, if required, or for additional
information, and will supply the other with copies of all correspondence with
the SEC with respect to the Joint Proxy Statement or the Form F-4 and Form S-3,
if required. Whenever any event occurs which should be set forth in an amendment
or supplement to the Joint Proxy Statement or the Form S-3, if required,
Veritas, VESI or Enertec, as the case may be, shall promptly inform the others
of such occurrence and cooperate in filing with the SEC, and/or mailing to
stockholders of Veritas, Enertec and VESI as may be applicable, such amendment
or supplement.
(c) Veritas, VESI and Enertec shall take any action required to be taken
under any applicable provincial or state securities laws (including "blue sky"
laws) in connection with the issuance of the Veritas Common Stock and the
Arrangement; provided, however, that with respect to the blue sky and Canadian
provincial qualifications, neither Veritas, Enertec nor VESI shall be required
to register or qualify as a foreign corporation or reporting issuer (other than
Alberta and Ontario, Canada, in the case of Enertec and VESI, and Delaware in
the case of Veritas) where any such entity is not now so registered or qualified
except as to matters and transactions arising solely from the offer and sale of
the Veritas Common Stock or the issuance of the Series 1 Exchangeable Shares.
1.8 MATERIAL ADVERSE EFFECT.
In this Agreement, any reference to any event, change or effect being
"material" with respect to any entity or group of entities means any material
event, change or effect related to the condition (financial or otherwise),
properties or business of such entity or group of entities. In this Agreement,
the term "Material Adverse Effect" used with respect to any party means any
event, change or effect that is materially adverse to the condition (financial
or otherwise), properties or business of such party and its subsidiaries, taken
as a whole; provided that, a Material Adverse Effect shall not include any
adverse effect resulting from changes in general economic conditions or
conditions generally affecting the industries in which Veritas, VESI or Enertec
operate, including without limitation, fluctuations in the prices of petroleum,
natural gas and related hydrocarbons and fluctuations in the demand for the
parties' products and services that result from fluctuations in such prices.
1.9 CURRENCY.
Unless otherwise specified, all references in this Agreement to "dollars"
or "$" shall mean United States dollars.
1.10 REORGANIZATION.
The parties intend that the Arrangement will be treated as a "pooling of
interests" for accounting purposes.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ENERTEC
Except as set forth in a letter dated the date of this Agreement and
delivered by Enertec to Veritas concurrently herewith (the "Enertec Disclosure
Letter"), Enertec hereby represents and warrants to Veritas and VESI that:
2.1 ORGANIZATION AND STANDING.
Enertec and each partnership, joint venture, corporation, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership or beneficial interest entitled to vote in the
election of directors (or members of a comparable governing body) is owned or
controlled, directly or indirectly, by Enertec (the "Enertec Subsidiaries"), is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, has full requisite
power and authority to carry on its business as it is currently conducted, and
to own, lease and operate the properties currently owned, leased and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned or leased or the
nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on Enertec. The Enertec Disclosure
Letter sets forth a complete list of the Enertec Subsidiaries, the percentage of
each subsidiary's outstanding capital stock or other ownership interest owned by
Enertec or another Enertec Subsidiary (and a description of any lien, charge,
mortgage, security interest, option, preferential purchase right or other right
or interest of any other person (collectively, an "Encumbrance") on such stock
or other ownership interest) and a complete list of each jurisdiction in which
each of Enertec and each Enertec Subsidiary is duly qualified and in good
standing to do business. Enertec is a taxable Canadian corporation (within the
meaning of the ITA).
2.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS.
(a) Enertec has all requisite corporate power and authority to enter into
this Agreement and, subject to approval of this Agreement and the Arrangement by
the shareholders and optionholders of Enertec and approval by the Court, to
perform its obligations hereunder and to consummate the Arrangement and the
other transactions contemplated by this Agreement. The execution and delivery of
this Agreement by Enertec and, subject to approval of this Agreement and the
Arrangement by the shareholders and optionholders of Enertec and approval by the
Court, the consummation by Enertec of the Arrangement and the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Enertec. This Agreement has been duly executed and delivered by
Enertec and is the valid and binding obligation of Enertec, enforceable in
accordance with its terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) Neither the execution, delivery and performance of this Agreement or
the Arrangement by Enertec, nor the consummation of the transactions
contemplated hereby or thereby by Enertec nor compliance with the provisions
hereof or thereof by Enertec will: (i) conflict with, or result in any
violations of, the articles or bylaws of Enertec or any equivalent document of
any of the Enertec Subsidiaries, as amended, or (ii) result in any breach of or
cause a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, amendment, cancellation or acceleration of
any obligation contained in, or the loss of any material benefit under, or
result in the creation of any Encumbrance upon any of the material properties or
assets of Enertec or any of the Enertec Subsidiaries under any term, condition
or provision of any loan or credit agreement, note, bond, mortgage, indenture,
lease or other material agreement, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Enertec or any of the Enertec
Subsidiaries or their respective properties or assets, other than any such
breaches, defaults, losses, or encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect on Enertec.
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2.3 GOVERNMENTAL CONSENTS.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (each a
"Governmental Entity"), is required to be obtained by Enertec or any of the
Enertec Subsidiaries in connection with the execution and delivery of this
Agreement or the Plan of Arrangement or the consummation of the transactions
contemplated hereby or thereby, except for: (i) the filing with the applicable
Canadian provincial securities commissions or regulatory authorities (the
"Commissions") and the Court and the mailing to shareholders and optionholders
of Enertec of the Joint Proxy Statement relating to the Enertec Meeting to be
held with respect to the approval of this Agreement and the Arrangement, (ii)
the furnishing to the SEC of such reports and information under the Exchange Act
and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement and the transactions contemplated
hereby (the "SEC Filings"); (iii) approval by the Court of the Arrangement and
the filings of the articles of arrangement and other required arrangement or
other documents as required by the ABCA; (iv) such filings, authorizations,
orders and approvals as may be required under state "control share acquisition,"
"anti-takeover" or other similar statutes, any other applicable federal,
provincial or state securities laws and the rules of The New York Stock Exchange
("NYSE") or The Toronto Stock Exchange ("TSE"); (v) such filings and
notifications as may be necessary under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (vi) such notices and
filings as may be necessary under the Investment Canada Act and under the
Competition Act (Canada); and (vii) where the failure to obtain such consents,
approvals, etc., would not prevent or delay the consummation of the Arrangement
or otherwise prevent Enertec from performing its obligations under this
Agreement and would not reasonably be expected to have a Material Adverse Effect
on Enertec.
2.4 CAPITALIZATION.
The authorized capital stock of Enertec consists of an unlimited number of
Enertec Common Shares and an unlimited number of Class 1 Preferred Shares. At
the close of business on March 22, 1999, 6,931,668 Enertec Common Shares were
issued and outstanding, no Class 1 Preferred Shares were issued and outstanding
and no Enertec Common Shares were held by Enertec in its treasury. As of March
22, 1999, (i) an aggregate of 827,719 Enertec Common Shares were reserved for
issuance pursuant to outstanding Enertec Options granted under the Enertec
Option Plan and (ii) a number of Enertec Common Shares equal to the aggregate of
the number of issued and outstanding Enertec Common Shares and the number of
Enertec Common Shares reserved for issuance pursuant to the Enertec Options were
reserved for issuance pursuant to the Enertec Rights Agreement. All issued and
outstanding Enertec Common Shares have been duly authorized, validly issued and
are fully paid and non-assessable. The Enertec Common Shares are now (and will
immediately prior to the Effective Time be) listed and posted for trading on the
TSE.
2.5 SECURITIES REPORTS AND FINANCIAL STATEMENTS.
Enertec has filed all forms, reports and documents required to be filed by
it by the Commissions, the TSE, or pursuant to relevant Canadian securities
statutes, regulations, policies and rules (collectively, the "Enertec Securities
Reports"), all of which have complied at their respective dates of filing in all
material respects with all applicable requirements of such statutes,
regulations, policies and rules. None of the Enertec Securities Reports, at the
time filed or as subsequently amended, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Enertec contained in the Enertec Securities Reports complied in
all material respects with the then applicable accounting requirements and the
published rules and regulations of the relevant Canadian securities statutes
with respect thereto, were prepared in accordance with Canadian generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may have been indicated in the notes thereto or, in the case
of unaudited statements, as permitted by applicable laws, rules or regulations)
and fairly present (subject, in the case of the unaudited statements, to normal,
year-end audit adjustments) the consolidated financial position of Enertec and
its consolidated Enertec Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. There has been no change in Enertec's
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accounting policies or the methods of making accounting estimates or changes in
estimates that are material to such financial statements, except as described in
the notes thereto.
2.6 LIABILITIES.
Enertec and the Enertec Subsidiaries do not have any material liabilities
or obligations, either accrued, absolute, contingent, or otherwise, or have any
knowledge of any potential liabilities or obligations, other than those (i)
disclosed in the Enertec Securities Reports, (ii) set forth in the Enertec
Disclosure Letter or (iii) incurred in the ordinary course of business since
December 31, 1998.
2.7 INFORMATION SUPPLIED.
None of the information supplied or to be supplied by Enertec for inclusion
or incorporation by reference in the Joint Proxy Statement (and, if filed, the
Form S-3) will, at the time the Joint Proxy Statement is mailed to the
shareholders of Enertec and at the time of the Enertec Meeting (and, if filed,
at the time the Form S-3 is declared effective), contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Joint Proxy Statement will comply as to
form in all material respects with the provisions of the ABCA and applicable
Canadian securities laws and the rules and regulations of the Commissions and
the TSE.
2.8 NO DEFAULTS.
Neither Enertec nor any Enertec Subsidiary is, or has received notice that
it would be with the passage of time, in default or violation of any term,
condition or provision of (i) its charter documents or bylaws; (ii) any
judgment, decree or order applicable to it; or (iii) any loan or credit
agreement, note, bond, mortgage, indenture, material contract, agreement, lease,
license or other instrument to which Enertec or any Enertec Subsidiary is now a
party or by which it or any of its properties or assets may be bound, except in
the case of item (iii) for defaults and violations which, individually or in the
aggregate, would not have a Material Adverse Effect on Enertec.
2.9 LITIGATION; INVESTIGATIONS.
There is no claim, action, suit or proceeding pending or, to the knowledge
of Enertec, threatened, which would, if adversely determined, individually or in
the aggregate, have a Material Adverse Effect on Enertec, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Enertec or any of the Enertec Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future could
have, any such effect. There is no investigation pending or, to the knowledge of
Enertec, threatened, against Enertec or any of the Enertec Subsidiaries before
any Governmental Entity.
2.10 ABSENCE OF CERTAIN CHANGES AND EVENTS.
Other than as a result of the transactions contemplated by this Agreement,
since December 31, 1998, there has not been:
(a) Financial Change. Any material adverse change in the financial
condition, operations, assets, liabilities or business of Enertec or the Enertec
Subsidiaries;
(b) Property Damage. Any material damage, destruction, or loss to the
business or properties of Enertec or the Enertec Subsidiaries (whether or not
covered by insurance);
(c) Dividends or Redemptions. Any declaration, setting aside, or payment
of any dividend or other distribution in respect of the capital stock of
Enertec, or any direct or indirect redemption, purchase or any other acquisition
by Enertec of any such stock except for Enertec Common Shares repurchased prior
to the date hereof by Enertec for cancellation pursuant to Enertec's normal
course issuer bid;
(d) Capitalization Change. Any change in the capital stock or in the
number of shares or classes of Enertec's authorized or outstanding capital stock
as described in Section 2.4 (other than as a result of exercises of currently
outstanding Enertec Options);
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(e) Labor Matters. Any labor dispute or charge of unfair labor practice
(other than routine individual grievances), any activity or proceeding by a
labor union or representative thereof to organize any employees of Enertec or
any Enertec Subsidiary or, to the knowledge of Enertec, any campaign being
conducted to solicit authorization from employees to be represented by such
labor union; or
(f) Other Material Changes. Any other event or condition known to
Enertec particularly pertaining to and adversely affecting the operations,
assets or business of Enertec or the Enertec Subsidiaries (other than events or
conditions which are of a general or industry-wide nature and of general public
knowledge) which would constitute a Material Adverse Effect on Enertec.
2.11 ADDITIONAL ENERTEC INFORMATION.
The Enertec Disclosure Letter contains true, complete and correct lists of
the following items with respect to Enertec and the Enertec Subsidiaries, and
Enertec agrees that upon the request of Veritas, it will furnish to Veritas
true, complete and correct copies of any documents referred to in such lists:
(a) Real Estate. All real property and structures thereon owned, leased
or subject to a contract of purchase and sale, or lease commitment, with a
description of the nature and amount of any Encumbrance thereon;
(b) Insurance. All insurance policies or bonds currently maintained,
including title insurance policies, including those covering properties,
buildings, machinery, equipment, fixtures, employees and operations, as well as
a listing of any premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
(c) Material Contracts. All contracts which involve, or may involve,
aggregate payments by any party thereto of $500,000 or more, which are to be
performed in whole or in part after the Effective Time;
(d) Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other fringe benefit plans, arrangements or trust
agreements together with copies of the most recent reports with respect to such
plans, arrangements, or trust agreements filed with any Governmental Entity and
all tax determination letters that have been received with respect to such
plans;
(e) Employee Agreements. Any collective bargaining agreements with any
labor union or other representative of employees, including amendments,
supplements, and all employment and consulting agreements;
(f) Patents. All patents, trademarks, copyrights and other material
intellectual property rights owned, licensed or used;
(g) Trade Names. All trade names and fictitious names used or held,
whether and where such names are registered and where used;
(h) Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements relating thereto or with respect to collateral securing the same; and
(i) Guaranties. All indebtedness, liabilities and commitments of others
and as to which it is a guarantor, endorser, co-maker, surety, or accommodation
maker, or is contingently liable therefor (excluding liabilities as an endorser
of cheques and the like in the ordinary course of business) and all letters of
credit, whether stand-by or documentary, issued by any third party.
2.12 CERTAIN AGREEMENTS.
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any payment
(including without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee or
independent contractor of Enertec or the Enertec Subsidiaries under any Enertec
Plan (as hereinafter defined) or otherwise, (ii) materially
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increase any benefits otherwise payable under any Enertec Plan or otherwise or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits.
2.13 EMPLOYEE BENEFIT PLANS.
Except for health insurance, vacation, severance and similar plans which
are set forth in the Enertec Disclosure Letter ("Enertec Plans"), there are no
employee benefits plans covering active, former or retired employees of Enertec
and the Enertec Subsidiaries. Each Enertec Plan has been maintained and
administered in material compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations. No
Enertec Plan is subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and no Enertec Plan is intended to
be qualified under Section 401 (a) of the Internal Revenue Code of 1986, as
amended (the "Code").
2.14 INTELLECTUAL PROPERTY.
Each of Enertec or the Enertec Subsidiaries owns or possesses licenses to
use all patents, patent applications, trademarks and service marks (including
registrations and applications therefor), trade names, copyrights and written
know-how, trade secrets and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Enertec Intellectual Property") that
are either material to the business of Enertec or any Enertec Subsidiary or that
are necessary for the manufacture, use, license or sale of any services or
products manufactured, used, licensed or sold by Enertec or the Enertec
Subsidiaries, including all such intellectual property listed in the Enertec
Disclosure Letter. The Enertec Intellectual Property is owned or licensed by
Enertec or the Enertec Subsidiaries free and clear of any Encumbrance other than
such Encumbrances as are listed in the Enertec Disclosure Letter. Except as
otherwise indicated in such letter or in the ordinary course of business,
neither Enertec nor the Enertec Subsidiaries has granted to any other person any
license to use any Enertec Intellectual Property. Neither Enertec nor the
Enertec Subsidiaries has received any notice of infringement, misappropriation,
or conflict with, the intellectual property rights of others in connection with
the use by Enertec or the Enertec Subsidiaries of the Enertec Intellectual
Property.
2.15 TITLE TO PROPERTIES.
Except for goods and other property sold, used or otherwise disposed of in
the ordinary course of business for fair value, Enertec has good and
indefeasible title to all its properties, interests in properties and assets,
real and personal, reflected in its December 31, 1998 financial statements, free
and clear of any Encumbrance, except (i) Encumbrances reflected in the balance
sheet of Enertec dated December 31, 1998, (ii) liens for current taxes not yet
due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any, as are not substantial in character, amount, or extent and
do not and will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or otherwise
materially impair business operations. All leases pursuant to which Enertec or
any Enertec Subsidiary leases (whether as lessee or lessor) any substantial
amount of real or personal property are in good standing, valid, and effective;
and there is not, under any such leases, any existing or prospective default or
event of default or event which with notice or lapse of time, or both, would
constitute a default by Enertec or any Enertec Subsidiary and in respect to
which Enertec or a Enertec Subsidiary has not taken adequate steps to prevent a
default from occurring. The buildings and premises of Enertec and the Enertec
Subsidiaries that are necessary for the operation of its business are in good
operating condition and repair, subject only to ordinary wear and tear. All
major items of operating equipment of Enertec and the Enertec Subsidiaries
necessary for the operation of their businesses are in good operating condition
and in a state of reasonable maintenance and repair, ordinary wear and tear
excepted, and are free from any known defects except as may be repaired by
routine maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal operations.
2.16 ENVIRONMENTAL MATTERS.
(a) Environmental Conditions. There are no environmental conditions or
circumstances, such as the presence or release of any hazardous substance, on
any property presently or previously owned or leased by Enertec or the Enertec
Subsidiaries that could result in a Material Adverse Effect on Enertec;
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(b) Permits, etc. Enertec and the Enertec Subsidiaries have in full
force and effect all material environmental permits, licenses, approvals and
other authorizations required to conduct their operations and are operating in
material compliance thereunder;
(c) Compliance. Enertec's and the Enertec Subsidiaries' operations and
use of their assets do not violate any applicable United States or Canadian or
other federal, provincial, state or local law, statute, ordinance, rule,
regulation, order or notice requirement pertaining to (i) the condition or
protection of air, groundwater, surface water, soil, or other environmental
media, (ii) the environment, including natural resources or any activity which
affects the environment, or (iii) the regulation of any pollutants,
contaminants, waste, substances (whether or not hazardous or toxic), including,
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act (42 USC. sec. 9601 et seq.), the Hazardous Materials
Transportation Act (49 USC. sec. 1801 et seq.), the Resource Conservation and
Recovery Act (42 USC. sec. 1609 et seq.) the Clean Water Act (33 USC. 1251 et
seq.), the Clean Air Act (42 USC. sec. 7401 et seq.), the Toxic Substances
Control Act (17 USC. sec. 2601 et seq.), the Safe Drinking Water Act (42 USC.
sec. 201 and sec. 300f et seq.), the Rivers and Harbors Act (33 USC. sec. 401 et
seq.), the Oil Pollution Act (33 USC. sec. 2701 et seq.) and analogous,
Canadian, foreign, provincial, state and local provisions, as any of the
foregoing may have been amended or supplemented from time to time (collectively
the "Applicable Environmental Laws"), except for violations which, either singly
or in the aggregate, would not result in a Material Adverse Effect on Enertec;
(d) Past Compliance. None of the operations or assets of Enertec or the
Enertec Subsidiaries has ever been conducted or used by Enertec or the Enertec
Subsidiaries in such a manner as to constitute a violation of any of the
Applicable Environmental Laws, except for violations which, either singly or in
the aggregate, would not result in a Material Adverse Effect on Enertec;
(e) Environmental Claims. No notice has been served on Enertec or any
Enertec Subsidiaries from any entity, Governmental Entity or individual
regarding any existing, pending or threatened investigation or inquiry related
to alleged violations under any Applicable Environmental Laws, or regarding any
claims for remedial obligations or contribution under any Applicable
Environmental Laws, other than any of the foregoing which, either singly or in
the aggregate, would not result in a Material Adverse Effect on Enertec; and
(f) Renewals. Enertec does not know of any reason why it or Veritas
would not be able to renew any of the permits, licenses, or other authorizations
required pursuant to any Applicable Environmental Laws to operate and use any of
Enertec's or the Enertec Subsidiaries' assets for their current purposes and
uses.
2.17 COMPLIANCE WITH OTHER LAWS.
Neither Enertec nor any Enertec Subsidiary is in violation of or in default
with respect to, or in alleged violation of or alleged default with respect to
any other applicable law or any applicable rule, regulation, or any writ or
decree of any court or any Governmental Entity, or delinquent with respect to
any report required to be filed with any Governmental Entity, except for
violations which, either singly or in the aggregate, do not and are not expected
to result in a Material Adverse Effect on Enertec.
2.18 TAXES.
Except with respect to failures which, in the aggregate, would not result
in a Material Adverse Effect on Enertec: (a) proper, complete and accurate
federal, provincial, state, local and foreign returns of income (including net
income, gross income, income as specially defined, earnings, profits or selected
items of income, earnings or profits), capital, withholding, environmental,
commodity, ad valorem, value added, sales, use, license, goods and services,
franchise, gross revenue or gross receipt, gains, turnover, transfer, excise,
payroll, unemployment, disability, social security (or similar), property,
occupation, employment, stamp, customs duties, workers' compensation,
unemployment insurance or compensation, premium, windfall profits taxes,
alternative or add-on minimum taxes, fees, imposts, assessments or charges of
any kind whatsoever, together with any interest and any penalties or additional
amounts imposed by any taxing authority (collectively, the "Tax" or "Taxes"),
and any and all other tax returns, declarations, reports, information returns,
statements and estimates have been filed with appropriate Governmental Entities,
domestic and foreign, by Enertec and each of the Enertec Subsidiaries, as
applicable, for each period for which any returns, declarations, reports,
information returns,
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statements or estimates were due (taking into account any extensions of time to
file before the date hereof); (b) all Taxes shown by such returns, declarations,
reports, information returns, or statements to be payable and any other Taxes
due and payable have been paid other than those being contested in good faith by
Enertec or an Enertec Subsidiary and indicated in the Enertec Disclosure Letter;
and (c) the tax provision reflected in Enertec's financial statements is
adequate, in accordance with Canadian or United States (as the case may be)
generally accepted accounting principles, to cover liabilities of Enertec and
the Enertec Subsidiaries for all unpaid Taxes applicable to Enertec and the
Enertec Subsidiaries or their assets or businesses. Other than as reflected in
Enertec's financial statements, Enertec and the Enertec Subsidiaries have not
received any written notice of reassessment or any other notification of
imposition of Taxes from any Governmental Entity and no material Tax liability
has been assessed, proposed to be assessed, incurred or accrued, and no
deficiencies or adjustments in respect of Taxes payable by Enertec or the
Enertec Subsidiaries have been claimed, proposed, assessed, or, to the best of
Enertec's knowledge, threatened. There is no material difference between the
amounts of the book basis and the tax basis of any assets or liabilities of
Enertec and the Enertec Subsidiaries that is not reflected in an appropriate
accrual of deferred tax asset or liability on the books of Enertec and the
Enertec Subsidiaries. The Enertec Disclosure Letter accurately sets forth the
last year for which Enertec's and the Enertec Subsidiaries' federal, provincial,
state and foreign income tax returns, respectively, have been assessed,
reassessed or audited and any years which are the subject of a pending audit by
any Governmental Entity. No waiver of any statute of limitations executed by
Enertec or an Enertec Subsidiary with respect to any Tax is in effect for any
period. There are no Tax liens on any assets of Enertec or the Enertec
Subsidiaries except for Taxes not yet currently due and those which could not
reasonably be expected to result in a Material Adverse Effect on Enertec.
Enertec and the Enertec Subsidiaries withheld all Taxes required to be withheld
in the course of their businesses, in respect of wages, salaries and other
payments to all employees, officers and directors, and in respect of payments to
any person who is not a resident of the country of the payor and timely paid all
such amounts withheld to the proper taxing authority, except where the failure
to do so could not reasonably be expected to result in a Material Adverse Effect
on Enertec. Enertec is not a "specified financial institution" as defined in the
ITA.
2.19 VOTE REQUIRED.
Except as may be provided in the Interim Order, at the Enertec Meeting at
which a quorum is present, the affirmative vote of the holders of two-thirds of
the Enertec Common Shares present is required to approve this Agreement, the
Arrangement and the consummation of the transactions contemplated hereby.
2.20 YEAR 2000.
Enertec has initiated a review of the implications of the Year 2000 on its
business and processes, including an evaluation of key operating and information
systems, field operations and third parties and confirms the public disclosure
provided by it in respect thereof.
2.21 BROKERS AND FINDERS.
Other than CIBC Wood Gundy Securities Inc., in accordance with the terms of
its engagement letter in its final form, a copy of which has previously been
provided to Veritas, none of Enertec nor any of the Enertec Subsidiaries nor any
of their respective directors, officers or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or similar payments in connection with the transactions
contemplated by this Agreement.
2.22 DISCLOSURE.
No representation or warranty made by Enertec in this Agreement, nor any
document, written information, statement, financial statement, certificate or
Exhibit prepared and furnished or to be prepared and furnished by Enertec or its
representatives pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contained any untrue statement of a
material fact when made, or omitted to state a material fact necessary to make
the statements or facts contained herein or therein not misleading in light of
the circumstances under which they were furnished.
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2.23 FAIRNESS OPINION.
Enertec's board of directors has received a written opinion from CIBC Wood
Gundy Securities Inc., a copy of which has previously been provided to Veritas,
that the Exchange Ratio is fair to Enertec's shareholders from a financial point
of view.
2.24 RESTRICTIONS ON BUSINESS ACTIVITIES.
There is no material agreement, judgment, injunction, order or decree
binding upon Enertec or any Enertec Subsidiary that has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Enertec or any Enertec Subsidiary, any acquisition of property by
Enertec or any Enertec Subsidiary or the conduct of business by Enertec or any
Enertec Subsidiary as currently conducted.
2.25 BOOKS AND RECORDS.
The books, records and accounts of Enertec and the Enertec Subsidiaries (a)
have been maintained in accordance with good business practices on a basis
consistent with prior years, (b) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of Enertec
and the Enertec Subsidiaries and (c) accurately and fairly reflect the basis for
the Enertec financial statements. Enertec has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization; and (b) transactions are recorded as necessary (i) to
permit preparation of financial statements in conformity with Canadian generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
2.26 POOLING MATTERS.
To the knowledge of Enertec based on consultation with its independent
auditors, neither Enertec nor any of its Affiliates (as defined below) has taken
or agreed to take any action that, without giving effect to any action taken or
agreed to be taken by Veritas or any of its Affiliates (as defined below), would
prevent Veritas from accounting for the business combination to be effected by
the Arrangement as a pooling of interests under United States generally accepted
accounting principles.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VERITAS AND VESI
Except as set forth in a letter dated the date of this Agreement and
delivered by Veritas to Enertec concurrently herewith (the "Veritas Disclosure
Letter"), Veritas as to itself and the Veritas Subsidiaries, and VESI as to
itself, hereby represent and warrant to Enertec that:
3.1 ORGANIZATION AND STANDING.
Veritas and each partnership, joint venture, corporation, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership or beneficial interest entitled to vote in the
election of directors (or members of a comparable governing body) is owned or
controlled, directly or indirectly, by Veritas (the "Veritas Subsidiaries"), is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, has full requisite
power and authority to carry on its business as it is currently conducted, and
to own, lease and operate the properties currently owned, leased and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned or leased or the
nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on Veritas. The Veritas Disclosure
Letter sets forth a complete list of the Veritas Subsidiaries, the percentage of
each subsidiary's outstanding capital stock or other ownership interest owned by
Veritas or another Veritas Subsidiary (and a description of any Encumbrance on
such stock or other ownership
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interest) and a complete list of each jurisdiction in which each of Veritas and
each Veritas Subsidiary is duly qualified and in good standing to do business.
VESI is a taxable Canadian corporation (within the meaning of the ITA).
3.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS.
(a) Each of Veritas and VESI have all requisite corporate power and
authority to enter into this Agreement and, subject to approval of Veritas'
stockholders and VESI's stockholders as provided in this Agreement, to perform
their respective obligations hereunder and to consummate the Arrangement and the
other transactions contemplated by this Agreement. The execution and delivery of
this Agreement by each of Veritas and VESI and, subject to approval of Veritas'
and VESI's stockholders as provided in this Agreement, the consummation by
Veritas and VESI of the Arrangement and the other transactions contemplated
hereby have been duly authorized by all necessary corporate action on the parts
of Veritas and VESI. This Agreement has been duly executed and delivered by each
of Veritas and VESI and is the valid and binding obligation of each of Veritas
and VESI, enforceable in accordance with its terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) Neither the execution, delivery and performance of this Agreement or
the Arrangement by Veritas and VESI, nor the consummation of the transactions
contemplated hereby or thereby by Veritas and VESI nor compliance with the
provisions hereof or thereof by Veritas and VESI will: (i) conflict with, or
result in any violations of, the certificate of incorporation or bylaws of
Veritas or any equivalent document of any of the Veritas Subsidiaries, as
amended, or (ii) result in any breach of or cause a default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in, or the
loss of any material benefit under, or result in the creation of any Encumbrance
upon any of the material properties or assets of Veritas or any of the Veritas
Subsidiaries under any term, condition or provision of any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Veritas or any of the Veritas Subsidiaries or their respective properties or
assets, other than any such breaches, defaults, losses, or encumbrances which,
individually or in the aggregate, would not have a Material Adverse Effect on
Veritas.
3.3 GOVERNMENTAL CONSENTS.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required to be obtained
by Veritas or any of the Veritas Subsidiaries in connection with the execution
and delivery of this Agreement or the Plan of Arrangement or the consummation of
the transactions contemplated hereby or thereby, except for: (i) the filing with
the Commissions and the mailing to stockholders of Veritas and VESI of the Joint
Proxy Statement relating to the Veritas Stockholders Meeting and the VESI
Meeting, (ii) the furnishing to the SEC of SEC Filings; (iii) approval by the
Court of the Arrangement and the filings of the articles of arrangement and
other required arrangement or other documents as required by the ABCA; (iv) such
filings, authorizations, orders and approvals as may be required under state
"control share acquisition," "anti-takeover" or other similar statutes, any
other applicable federal, provincial or state securities laws and the rules of
the NYSE or the TSE; (v) such filings and notifications as may be necessary
under the HSR Act ; (vi) such notices and filings as may be necessary under the
Investment Canada Act and under the Competition Act (Canada); and (vii) where
the failure to obtain such consents, approvals, etc., would not prevent or delay
the consummation of the Arrangement or otherwise prevent Veritas or VESI from
performing its obligations under this Agreement and would not reasonably be
expected to have a Material Adverse Effect on Veritas.
3.4 CAPITALIZATION.
(a) The authorized capital stock of Veritas consists of 40,000,000 common
shares, $0.01 par value (which number of common shares includes all outstanding
Exchangeable Shares (1,506,663 at January 31, 1999) of VESI, each of which is
the substantial economic equivalent of a share of Veritas Common Stock and which
number of common shares includes the preferred share purchase rights under that
certain "Rights Agreement" dated as of May 15, 1997, between Veritas and
ChaseMellon Shareholder Services, as Rights Agent, associated
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with each outstanding share of Veritas Common Stock) and 1,000,000 shares of
preferred stock, par value $0.01 per share ("Veritas Preferred Stock"). As of
January 31, 1999, there were 21,338,577 shares of Veritas Common Stock
outstanding, 121,143 shares of Veritas Common Stock were held by Veritas in its
treasury; 1,009,085 options to purchase shares of Veritas Common Stock were
outstanding under the Veritas Option Plan and other stock option plans; and
414,111 shares of Veritas Common Stock were reserved for issuance under the
Veritas 1997 Employee Stock Purchase Plan; at the same date, no shares of
Veritas Preferred Stock were outstanding and 400,000 shares had been designated
as Class A Preferred Stock and reserved for issuance pursuant to the Rights
Agreement. Except in connection with the Exchangeable Shares, Veritas employee
benefit plans and the Rights Agreement, no person, firm or corporation has any
agreement or option or any right or privilege, whether by law, preemptive or
contractual, capable of becoming an agreement, including convertible securities,
warrants or convertible obligations of any nature, for the purchase,
subscription, allotment or issuance of any of the unissued shares in the capital
of Veritas or of any securities of Veritas.
(b) The authorized capital stock of VESI consists of one common share and
an unlimited number of Exchangeable Shares. The one VESI common share is held
(as registered and beneficial owner) by Veritas. As of January 31, 1999
7,024,769 Exchangeable Shares were issued and outstanding, 5,518,106 of which
are held by Veritas. Except in connection with the provisions attaching to the
Exchangeable Shares, no person, firm or corporation has any agreement or option
or any right or privilege, whether by law, preemptive or contractual, capable of
becoming an agreement, including convertible securities, warrants or convertible
obligations of any nature, for the purchase, subscription, allotment or issuance
of any of the unissued shares in the capital of VESI or of any securities of
VESI.
3.5 SECURITIES REPORTS AND FINANCIAL STATEMENTS.
Each of Veritas and VESI has filed all forms, reports and documents
required to be filed by it by the SEC, the Commissions, the TSE, the NYSE, or
pursuant to relevant United States and Canadian securities statutes,
regulations, policies and rules (collectively, the "Veritas Securities
Reports"), all of which have complied at their respective dates of filing in all
material respects with all applicable requirements of such statutes,
regulations, policies and rules. None of the Veritas Securities Reports, at the
time filed or as subsequently amended, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Veritas contained in the Veritas Securities Reports complied in
all material respects with the then applicable accounting requirements and the
published rules and regulations of the relevant United States and Canadian
securities statutes with respect thereto, were prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may have been indicated in the
notes thereto or, in the case of unaudited statements, as permitted by
applicable laws, rules or regulations) and fairly present (subject, in the case
of the unaudited statements, to normal year-end audit adjustments) the
consolidated financial position of Veritas and its consolidated Veritas
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended. There has
been no change in Veritas' accounting policies or the methods of making
accounting estimates or changes in estimates that are material to such financial
statements, except as described in the notes thereto.
3.6 LIABILITIES.
Veritas and the Veritas Subsidiaries do not have any material liabilities
or obligations, either accrued, absolute, contingent, or otherwise, or have any
knowledge of any potential liabilities or obligations, other than those (i)
disclosed in the Veritas Securities Reports, (ii) set forth in the Veritas
Disclosure Letter or (iii) incurred in the ordinary course of business since
January 31, 1999.
3.7 INFORMATION SUPPLIED.
None of the information supplied or to be supplied by Veritas or VESI for
inclusion or incorporation by reference in the Joint Proxy Statement (and, if
filed, the Form F-4 and Form S-3) will, at the time the Joint Proxy Statement is
mailed to the shareholders of Veritas and VESI and at the time of the Veritas
Stockholders Meeting
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and the VESI Meeting (and, if filed, at the time the Form S-4 and Form S-3 are
declared effective), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of applicable United States and Canadian securities
laws and the rules and regulations of the SEC, the Commissions, the TSE and the
NYSE.
3.8 NO DEFAULTS.
Neither Veritas nor any Veritas Subsidiary is, or has received notice that
it would be with the passage of time, in default or violation of any term,
condition or provision of (i) its charter documents or bylaws; (ii) any
judgment, decree or order applicable to it; or (iii) any loan or credit
agreement, note, bond, mortgage, indenture, material contract, agreement, lease,
license or other instrument to which Veritas or any Veritas Subsidiary is now a
party or by which it or any of its properties or assets may be bound, except in
the case of item (iii) for defaults and violations which, individually or in the
aggregate, would not have a Material Adverse Effect on Veritas.
3.9 LITIGATION; INVESTIGATIONS.
There is no claim, action, suit or proceeding pending or, to the knowledge
of Veritas, threatened, which would, if adversely determined, individually or in
the aggregate, have a Material Adverse Effect on Veritas, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Veritas or any of the Veritas Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future could
have, any such effect. To the knowledge of Veritas, there is no investigation
pending or threatened against Veritas or any of the Veritas Subsidiaries before
any Governmental Entity.
3.10 ABSENCE OF CERTAIN CHANGES AND EVENTS.
Other than as a result of the transactions contemplated by this Agreement,
since January 31, 1999, there has not been:
(a) Financial Change. Any material adverse change in the financial
condition, operations, assets, liabilities or business of Veritas or
the Veritas Subsidiaries;
(b) Property Damage. Any material damage, destruction, or loss to the
business or properties of Veritas or the Veritas Subsidiaries
(whether or not covered by insurance);
(c) Dividends or Redemptions. Except in connection with the Exchangeable
Shares, any declaration, setting aside, or payment of any dividend or
other distribution in respect of the capital stock of Veritas or
VESI, or any direct or indirect redemption, purchase or any other
acquisition by Veritas or VESI of any such stock;
(d) Capitalization Change. Except in connection with the Exchangeable
Shares, any change in the capital stock or in the number of shares or classes of
Veritas' or VESI's authorized or outstanding capital stock as described in
Section 3.4 (other than as a result of exercises of currently outstanding
options or warrants to purchase Veritas Common Stock);
(e) Labor Matters. Any labor dispute or charge of unfair labor practice
(other than routine individual grievances), any activity or proceeding by a
labor union or representative thereof to organize any employees of Veritas or
any Veritas Subsidiary or, to the knowledge of Veritas, any campaign being
conducted to solicit authorization from employees to be represented by such
labor union; or
(f) Other Material Changes. Any other event or condition known to
Veritas particularly pertaining to and adversely affecting the operations,
assets or business of Veritas or the Veritas Subsidiaries (other than events or
conditions which are of a general or industry-wide nature and of general public
knowledge) which would constitute a Material Adverse Effect on Veritas.
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3.11 ADDITIONAL VERITAS INFORMATION.
The Veritas Disclosure Letter contains true, complete and correct lists of
the following items with respect to Veritas and the Veritas Subsidiaries, and
Veritas agrees that upon the request of Enertec, it will furnish to Enertec
true, complete and correct copies of any documents referred to in such lists:
(a) Real Estate. All real property and structures thereon owned, leased
or subject to a contract of purchase and sale, or lease commitment, with a
description of the nature and amount of any Encumbrance thereon;
(b) Insurance. All insurance policies or bonds currently maintained,
including title insurance policies, including those covering properties,
buildings, machinery, equipment, fixtures, employees and operations, as well as
a listing of any premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
(c) Material Contracts. All contracts which involve, or may involve,
aggregate payments by any party thereto of $5,000,000 or more, which are to be
performed in whole or in part after the Effective Time;
(d) Employee Compensation Plans. All material bonus, incentive
compensation, deferred compensation, profit-sharing, retirement, pension,
welfare, group insurance, death benefit, or other fringe benefit plans,
arrangements or trust agreements, together with copies of the most recent
reports with respect to such plans, arrangements, or trust agreements filed with
any Governmental Entity and all tax determination letters that have been
received with respect to such plans;
(e) Employee Agreements. Any collective bargaining agreements with any
labor union or other representative of employees, including amendments and
supplements;
(f) Patents. All patents, trademarks, copyrights and other material
intellectual property rights owned, licensed or used;
(g) Trade Names. All trade names and fictitious names used or held,
whether and where such names are registered and where used;
(h) Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements relating thereto or with respect to collateral securing the same; and
(i) Guaranties. All indebtedness, liabilities and commitments of others
and as to which it is a guarantor, endorser, co-maker, surety, or accommodation
maker, or is contingently liable therefor (excluding liabilities as an endorser
of cheques and the like in the ordinary course of business) and all letters of
credit, whether stand-by or documentary, issued by any third party.
3.12 CERTAIN AGREEMENTS.
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any payment
(including without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee or
independent contractor of Veritas or the Veritas Subsidiaries under any Veritas
Plan (as hereinafter defined) or otherwise (ii) materially increase any benefits
otherwise payable under any Veritas Plan or otherwise or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
3.13 EMPLOYEE BENEFIT PLANS.
All material employee benefits plans covering active, former or retired
employees of Veritas and the Veritas Subsidiaries are listed in the Veritas
Disclosure Letter (the "Veritas Plans"). Veritas has made available to Enertec a
copy of each Veritas Plan, any related trust agreement and annuity or insurance
contract, if any, and each plan's most recent annual report filed with the
Internal Revenue Service, if any, and: (i) each Veritas Plan has been maintained
and administered in material compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
and is, to the extent required by applicable law or
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contract, fully funded without having any deficit or unfunded actuarial
liability; (ii) all required employer contributions under any such plans have
been made and the applicable funds have been funded in accordance with the terms
thereof and no past service funding liabilities exist thereunder; (iii) each
Veritas Plan that is required or intended to be qualified under applicable law
or registered or approved by a Governmental Entity has been so qualified,
registered or approved by the appropriate Governmental Entity, and nothing has
occurred since the date of the last qualification, registration or approval to
adversely affect, or cause, the appropriate Governmental Entity to revoke such
qualification, registration or approval; (iv) to the extent applicable, the
Veritas Plans comply, in all material respects, with the requirements of ERISA,
and the Code, and any Veritas Plan intended to be qualified under Section 401
(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and nothing has occurred to cause the loss of such qualified status;
(v) no Veritas Plan is covered by Title IV of ERISA or Section 412 of the Code;
(vi) there are no pending or anticipated material claims against or otherwise
involving any of the Veritas Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Veritas Plan
activities) has been brought against or with respect to any Veritas Plan; (vii)
all material contributions, reserves or premium payments, required to be made as
of the date hereof to the Veritas Plans have been made or provided for; (viii)
neither Veritas nor any Veritas Subsidiary has incurred any liability under
subtitle C or D of Title IV of ERISA with respect to any "single-employer plan"
within the meaning of Section 4001 (a)(5) of ERISA, currently or formerly
maintained by Veritas any Veritas Subsidiary or any entity which is considered
one employer with Veritas under Section 4001 of ERISA, (ix) neither Veritas nor
any Veritas Subsidiary has incurred any withdrawal liability under Subtitle E of
Title IV of ERISA with respect to any "multiemployer plan," within the meaning
of Section 4001 (a)(3) of ERISA; and (x) neither Veritas nor any Veritas
Subsidiary has any obligations for retiree health and life benefits under any
Veritas Plan, except as set forth on the Veritas Disclosure Letter and there are
no restrictions on the rights of Veritas or the Veritas Subsidiaries to amend or
terminate any such Veritas Plan without incurring any liability thereunder.
3.14 INTELLECTUAL PROPERTY.
Each of Veritas and the Veritas Subsidiaries owns or possesses licenses to
use all patents, patent applications, trademarks and service marks (including
registrations and applications therefor), trade names, copyrights and written
know-how, trade secrets and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Veritas Intellectual Property") that
are either material to the business of Veritas or any Veritas Subsidiary or that
are necessary for the manufacture, use, license or sale of any services or
products manufactured, used, licensed or sold by Veritas or the Veritas
Subsidiaries, including all such intellectual property listed in the Veritas
Disclosure Letter. The Veritas Intellectual Property is owned or licensed by
Veritas or the Veritas Subsidiaries free and clear of any Encumbrance other than
such Encumbrances as are listed in the Veritas Disclosure Letter. Except as
otherwise indicated in such letter or in the ordinary course of business,
neither Veritas nor the Veritas Subsidiaries has granted to any other person any
license to use any Veritas Intellectual Property. Neither Veritas nor the
Veritas Subsidiaries has received any notice of infringement, misappropriation,
or conflict with, the intellectual property rights of others in connection with
the use by Veritas or the Veritas Subsidiaries of the Veritas Intellectual
Property.
3.15 TITLE TO PROPERTIES.
Except for goods and other property sold, used or otherwise disposed of in
the ordinary course of business for fair value, Veritas has good and
indefeasible title to all its properties, interests in properties and assets,
real and personal, reflected in its January 31, 1999 financial statements, free
and clear of any Encumbrance, except (i) Encumbrances reflected in the balance
sheet of Veritas dated January 31, 1999, (ii) liens for current taxes not yet
due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any, as are not substantial in character, amount or extent and
do not and will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or otherwise
materially impair business operations. All leases pursuant to which Veritas or
any Veritas Subsidiary leases (whether as lessee or lessor) any substantial
amount of real or personal property are in good standing, valid, and effective;
and there is not, under any such leases, any existing or prospective default or
event of default or event which with notice or lapse of time, or both, would
constitute a default by Veritas or any Veritas Subsidiary and in respect to
which Veritas or a
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Veritas Subsidiary has not taken adequate steps to prevent a default from
occurring. The buildings and premises of Veritas and the Veritas Subsidiaries
that are necessary for the operation of their businesses are in good operating
condition and repair, subject only to ordinary wear and tear. All major items of
operating equipment of Veritas and the Veritas Subsidiaries necessary for the
operation of its business are in good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excepted, and are free
from any known defects except as may be repaired by routine maintenance and such
minor defects as to not substantially interfere with the continued use thereof
in the conduct of normal operations.
3.16 ENVIRONMENTAL MATTERS.
(a) Environmental Conditions. There are no environmental conditions or
circumstances, such as the presence or release of any hazardous substance, on
any property presently or previously owned or leased by Veritas or the Veritas
Subsidiaries that could result in a Material Adverse Effect on Veritas;
(b) Permits, etc. Veritas and the Veritas Subsidiaries have in full
force and effect all material environmental permits, licenses, approvals and
other authorizations required to conduct their operations and are operating in
material compliance thereunder;
(c) Compliance. Veritas' and the Veritas Subsidiaries' operations and
use of their assets do not violate any applicable United States or Canadian or
other federal, provincial, state or local law, statute, ordinance, rule,
regulation, order or notice requirement pertaining to (i) the condition or
protection of air, groundwater, surface water, soil, or other environmental
media, (ii) the environment, including natural resources or any activity which
affects the environment, or (iii) the regulation of any pollutants,
contaminants, waste, substances (whether or not hazardous or toxic), including,
without limitation, the Applicable Environmental Laws, except for violations
which, either singly or in the aggregate, would not result in a Material Adverse
Effect on Veritas;
(d) Past Compliance. None of the operations or assets of Veritas or the
Veritas Subsidiaries has ever been conducted or used by Veritas or the Veritas
Subsidiaries in such a manner as to constitute a violation of any of the
Applicable Environmental Laws, except for violations which, either singly or in
the aggregate, would not result in a Material Adverse Effect on Veritas;
(e) Environmental Claims. No notice has been served on Veritas or any
Veritas Subsidiaries from any entity, Governmental Entity or individual
regarding any existing, pending or threatened investigation or inquiry related
to alleged violations under any Applicable Environmental Laws, or regarding any
claims for remedial obligations or contribution under any Applicable
Environmental Laws, other than any of the foregoing which, either singly or in
the aggregate, would not result in a Material Adverse Effect on Veritas; and
(f) Renewals. Veritas does not know of any reason why it would not be
able to renew any of the permits, licenses, or other authorizations required
pursuant to any Applicable Environmental Laws to operate and use any of Veritas'
or the Veritas Subsidiaries' assets for their current purposes and uses.
3.17 COMPLIANCE WITH OTHER LAWS.
Neither Veritas nor any Veritas Subsidiary is in violation of or in default
with respect to, or in alleged violation of or alleged default with respect to
any other applicable law or any applicable rule, regulation, or any writ or
decree of any court or any Governmental Entity, or delinquent with respect to
any report required to be filed with any Governmental Entity, except for
violations which, either singly or in the aggregate, do not and are not expected
to result in a Material Adverse Effect on Veritas.
3.18 TAXES.
Taxes. Except with respect to failures which, in the aggregate, would not
result in a Material Adverse Effect on Veritas: (a) proper, complete and
accurate federal, provincial, state, local and foreign returns of all Taxes and
any and all other tax returns, declarations, reports, information returns,
statements and estimates have been filed with appropriate Governmental Entities,
domestic and foreign, by Veritas and each of the Veritas Subsidiaries, as
applicable, for each period for which any returns, declarations, reports,
information returns, statements or estimates were due (taking into account any
extensions of time to file before the date hereof); (b) all
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Taxes shown by such returns, declarations, reports, information returns, or
statements to be payable and any other Taxes due and payable have been paid
other than those being contested in good faith by Veritas or a Veritas
Subsidiary and indicated in the Veritas Disclosure Letter; and (c) the tax
provision reflected in Veritas' financial statements is adequate, in accordance
with Canadian or United States (as the case may be) generally accepted
accounting principles, to cover liabilities of Veritas and the Veritas
Subsidiaries for all unpaid Taxes applicable to Veritas and the Veritas
Subsidiaries or their assets or businesses. Other than as reflected in Veritas'
financial statements, Veritas and the Veritas Subsidiaries have not received any
written notice of reassessment or any other notification of imposition of Taxes
from any Governmental Entity and no material Tax liability has been assessed,
proposed to be assessed, incurred or accrued, and no deficiencies or adjustments
in respect of Taxes payable by Veritas or the Veritas Subsidiaries have been
claimed, proposed, assessed, or, to the best of Veritas' knowledge, threatened.
There is no material difference between the amounts of the book basis and the
tax basis of any assets or liabilities of Veritas and the Veritas Subsidiaries
that is not reflected in an appropriate accrual of deferred tax asset or
liability on the books of Veritas and the Veritas Subsidiaries. The Veritas
Disclosure Letter accurately sets forth the last year for which Veritas' and the
Veritas Subsidiaries' federal, provincial, state and foreign income tax returns,
respectively, have been assessed, reassessed or audited and any years which are
the subject of a pending audit by any Governmental Entity. No waiver of any
statute of limitations executed by Veritas or an Veritas Subsidiary with respect
to any Tax is in effect for any period. There are no Tax liens on any assets of
Veritas or the Veritas Subsidiaries except for Taxes not yet currently due and
those which could not reasonably be expected to result in a Material Adverse
Effect on Veritas. Veritas and the Veritas Subsidiaries withheld all Taxes
required to be withheld in the course of their businesses, in respect of wages,
salaries and other payments to all employees, officers and directors, and in
respect of payments to any person who is not a resident of the country of the
payor and timely paid all such amounts withheld to the proper taxing authority,
except where the failure to do so could not reasonably be expected to result in
a Material Adverse Effect on Veritas. Veritas is not a "specified financial
institution" as defined in the ITA.
3.19 VOTE REQUIRED.
At separate stockholders meetings at which the applicable quorums are
present, the affirmative vote of the holders of a majority of the issued and
outstanding shares of Veritas Common Stock and the affirmative vote of the
holders of two-thirds of the Exchangeable Shares present is necessary to approve
the Restated Veritas Charter in the case of Veritas and the Arrangement in the
case of VESI.
3.20 YEAR 2000.
Veritas has initiated a review of the implications of the Year 2000 on its
business and processes, including an evaluation of key operating and information
systems, field operations and third parties and confirms the public disclosure
provided by it in respect thereof.
3.21 BROKERS AND FINDERS.
None of Veritas or any of the Veritas Subsidiaries nor any of their
respective directors, officers or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or similar payments in connection with the transactions contemplated
by this Agreement.
3.22 DISCLOSURE.
No representation or warranty made by Veritas or VESI in this Agreement,
nor any document, written information, statement, financial statement,
certificate or Exhibit prepared and furnished or to be prepared and furnished by
Veritas or VESI or their representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contained any untrue
statement of a material fact when made, or omitted to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
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3.23 RESTRICTIONS ON BUSINESS ACTIVITIES.
There is no material agreement, judgment, injunction, order or decree
binding upon Veritas or any Veritas Subsidiary that has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Veritas or any Veritas Subsidiary, any acquisition of property by
Veritas or any Veritas Subsidiary or the conduct of business by Veritas or any
Veritas Subsidiary as currently conducted.
3.24 BOOKS AND RECORDS.
The books, records and accounts of Veritas and the Veritas Subsidiaries (a)
have been maintained in accordance with good business practices on a basis
consistent with prior years, (b) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of Veritas
and the Veritas Subsidiaries and (c) accurately and fairly reflect the basis for
the Veritas financial statements. Veritas has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization; and (b) transactions are recorded as necessary (i) to
permit preparation of financial statements in conformity with United States
generally accepted accounting principles or any other criteria applicable to
such statements and (ii) to maintain accountability for assets.
3.25 POOLING MATTERS.
To the knowledge of Veritas based on consultation with its independent
auditors, neither Veritas nor any of its Affiliates has taken or agreed to take
any action that, without giving effect to any action taken or agreed to be taken
by Enertec or any of its Affiliates, would prevent Enertec from accounting for
the business combination to be effected by the Arrangement as a pooling of
interests under United States generally accepted accounting principles.
ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE DATE
4.1 AGREEMENTS OF VERITAS, VESI AND ENERTEC.
Veritas, VESI and Enertec agree to take the following actions after the
date hereof:
(a) Regulatory Approvals. Each party will promptly execute and file or
join in the execution and filing of any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
Governmental Entity which may be reasonably required, or which the other party
may reasonably request, in connection with the consummation of the transactions
contemplated by this Agreement. Each party will use its commercially reasonable
efforts to promptly obtain such authorizations, approvals and consents. Without
limiting the generality of the foregoing, as promptly as practicable after the
execution of this Agreement, each party shall make all required filings with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "DOJ"), a pre-merger notification report under the
HSR Act and shall make such filings as are necessary under the Investment Canada
Act and the Competition Act (Canada);
(b) Access to Information. Each party will allow the other and its
agents reasonable access to the files, books, records and offices of the other
and the other's subsidiaries, including, without limitation, any and all
information relating to such party's tax matters, contracts, leases, licenses
and real, personal and intangible property and financial condition. Each party
will cause its accountants to cooperate with the other in making available to
the other party all financial information reasonably requested, including,
without limitation, the right to examine all working papers pertaining to tax
matters and financial statements prepared or audited by such accountants;
(c) Joint Proxy Statement. Veritas, VESI and Enertec shall cooperate in
the preparation and prompt filing of the Joint Proxy Statement (and, if
required, the Form F-4 and Form S-3) with the SEC, the Commissions, the TSE and
the NYSE;
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(d) Notice of Material Developments. Each of Veritas, VESI and Enertec
will promptly notify the other in writing (i) of any event occurring subsequent
to the date of this Agreement which would render any representation and warranty
of such party contained in this Agreement untrue or inaccurate in any material
respect, (ii) of any Material Adverse Effect on such party and (iii) of any
breach by such party of any covenant or agreement contained in this Agreement;
and
(e) Satisfaction of Conditions Precedent. During the term of this
Agreement, each of Veritas, VESI and Enertec will use its commercially
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Article V hereof, and each of Veritas, VESI and
Enertec will use its commercially reasonable efforts to cause the Arrangement
and the other transactions contemplated by this Agreement to be consummated.
4.2 ADDITIONAL AGREEMENTS OF ENERTEC.
Enertec agrees that from the date hereof to the Effective Date, it will,
and will cause each of the Enertec Subsidiaries to:
(a) Operate in Ordinary Course. Other than as contemplated by this
Agreement, operate its business only in the usual, regular, and ordinary manner
so as to maintain the goodwill it now enjoys and, to the extent consistent with
such operation, use all commercially reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it;
(b) Maintenance of Properties. Maintain all of its property and assets
in customary repair, order, and condition, reasonable wear and use and damage by
fire or unavoidable casualty excepted;
(c) Maintenance of Books and Records. Maintain its books of account and
records in the usual, regular, and ordinary manner, in accordance with Canadian
generally accepted accounting principles applied on a consistent basis;
(d) Compliance with Law. Duly comply in all material respects with all
laws applicable to it and to the conduct of its business;
(e) Employment Matters. Not (i) enter into any contracts of employment
which (1) cannot be terminated on notice of 14 days or less or (2) provide for
any severance payments or benefits covering a period beyond the termination date
of such employment contract, except as may be required by law or (ii) amend any
employee benefit plan or stock option plan, except as may be required for
compliance with applicable law or as contemplated by this Agreement;
(f) Prohibition of Certain Loans. Not incur any borrowings except (i)
the refinancing of indebtedness now outstanding or additional borrowings under
its existing revolving credit facilities, (ii) the prepayment by customers of
amounts due or to become due for goods sold or services rendered or to be
rendered in the future, (iii) trade payables incurred in the ordinary course of
business, (iv) other borrowings incurred in the ordinary course of business to
finance normal operations or (v) as is otherwise agreed to in writing by
Veritas;
(g) Prohibition of Certain Commitments. Not enter into commitments of a
capital expenditure nature or incur any contingent liability which would exceed
$500,000, in the aggregate, except (i) as may be necessary for the maintenance
of existing facilities, machinery and equipment in good operating condition and
repair in the ordinary course of business, (ii) as may be required by law or
(iii) as is otherwise agreed to in writing by Veritas which agreement will not
be unreasonably withheld;
(h) Disposal of Assets. Not sell, dispose of, or encumber, any property
or assets, except (i) in the ordinary course of business, (ii) as may be
reasonably required in connection with borrowings under Section 4.2(f), or (iii)
as is otherwise agreed to in writing by Veritas;
(i) Maintenance of Insurance. Maintain insurance upon all its properties
and with respect to the conduct of its business of such kinds and in such
amounts as is customary in the type of business in which it is engaged, but not
less than that presently carried by it;
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(j) No Amendment to Charter Documents, etc. Except as otherwise provided
in this Agreement, not amend its charter documents or bylaws or other
organizational documents or merge or consolidate with or into any other
corporation or change in any manner the rights of its capital stock or the
character of its business;
(k) No Issuance, Sale, or Purchase of Securities. Except as otherwise
provided in this Agreement, not issue or sell (except upon the exercise of
outstanding options), or issue options or rights to subscribe to, or enter into
any contract or commitment to issue or sell, any shares of its capital stock or
subdivide or in any way reclassify any shares of its capital stock, or acquire,
or agree to acquire, any shares of its capital stock;
(l) Prohibition on Dividends. Not declare or pay any dividend on shares
of its capital stock or make any other distribution of assets to the holders
thereof;
(m) Supplemental Financial Statements. Deliver to Veritas, within 45 days
after the end (1) of each fiscal quarter of Enertec beginning March 31, 1999,
and through the Effective Date, unaudited consolidated balance sheets and
related unaudited statements of income, retained earnings and cash flows as of
the end of each fiscal quarter of Enertec, and as of the corresponding fiscal
quarter of the previous fiscal year. Enertec hereby represents and warrants that
such unaudited consolidated financial statements shall (i) be complete in all
material respects except for the omission of notes and schedules contained in
audited financial statements, (ii) present fairly the financial condition of
Enertec as at the dates indicated and the results of operations for the
respective periods indicated, (iii) shall have been prepared in accordance with
Canadian generally accepted accounting principles applied on a consistent basis,
except as noted therein and (iv) shall contain all adjustments which Enertec
considers necessary for a fair presentation of its results for each respective
fiscal period;
(n) Exclusivity; Acquisition Proposals. Unless and until this Agreement
shall have been terminated by either party pursuant to Article VI hereof, it
shall not (and it shall use its best efforts to ensure that none of its
officers, directors, agents, representatives or affiliates) take or cause to
take (or cause any of the Enertec Subsidiaries to take), directly or indirectly,
any of the following actions with any party other than Veritas and its
designees: (i) solicit, encourage, initiate or participate in any negotiations,
inquiries or discussions with respect to any offer or proposal (an "Acquisition
Proposal") to acquire all or any significant part of its business, assets or
capital shares whether by arrangement, amalgamation, merger, consolidation,
other business combination, purchase of assets, tender or exchange offer or
otherwise (each of the foregoing, an "Acquisition Transaction"), (ii) disclose
any information not customarily disclosed to any person concerning its business
or properties or afford to any person or entity access to its properties, books
or records, except in the ordinary course of business and as required by law or
pursuant to a governmental request for information, (iii) enter into or execute
any agreement relating to an Acquisition Transaction, plan of reorganization, or
other agreement calling for the sale of all or any significant part of its
business and properties; or (iv), except as required by law, make or authorize
any public statement, recommendation or solicitation with respect to any
Acquisition Transaction or any offer or proposal relating to an Acquisition
Transaction other than with respect to the Arrangement, provided nothing
contained in this Section 4.2(n) or any other provision of this Agreement shall
prevent the board of directors of Enertec (the "Enertec Board") from
considering, negotiating, approving and recommending to the Enertec shareholders
an unsolicited bona fide written Acquisition Proposal, for which adequate
financial arrangements have been made, which the Enertec Board determines in
good faith (after consultation with its financial advisors, and after receiving
a written opinion of outside legal counsel to the effect that the Enertec Board
is required to do so in order to discharge properly its fiduciary duties) would,
if consummated in accordance with its terms, result in a transaction financially
superior to the shareholders of Enertec than the transaction contemplated by
this Agreement (a "Superior Proposal");
(o) U.S. Tax Elections. At the written request of Veritas, to be
delivered to Enertec at any time after the execution of this Agreement but not
later than 10 days preceding the Effective Date, Enertec shall, and shall cause
Enertec Geophysical Services Ltd. to, make and deliver to Veritas, on a date
before the Effective Date to be specified by Veritas in its written request,
which date shall not be earlier than 5 business days following Veritas' delivery
of the request therefor, one or more elections on United States Internal Revenue
Services Forms 8832 to cause either one or both of K.C. Offshore L.L.C., a
Delaware limited liability company, and Enertec Holdings L.L.C., a Delaware
limited liability company, to be treated as associations taxable as corporations
for United States federal income tax purposes, with such elections to be
effective on the date specified by Veritas in its
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written request therefor. If Veritas makes such written request, Enertec shall,
if requested by Veritas, assist Veritas in preparing the one or more Forms 8832
for the signature of the appropriate officer or officers of K.C. Offshore L.L.C.
and Enertec Holdings L.L.C. Enertec will cause the necessary officer signatures
to be affixed to the Forms 8832 and will deliver on the date specified by
Veritas, as above determined, the signed Forms 8832 to Veritas for filing with
the Internal Revenue Service; and
(p) Non-Compete Agreements. Enertec shall cause each Enertec director,
officer or employee who has an Executive Termination Contract to enter into a
non-compete agreement with Veritas for a term equal to the duration specified by
the respective Executive Termination Contract in determining the severance of
such director, officer or employee and on such other terms as are satisfactory
to Veritas, acting reasonably.
4.3 ADDITIONAL AGREEMENTS OF VERITAS.
Veritas agrees that from the date hereof to the Effective Date, it will,
and will cause each of the Veritas Subsidiaries to:
(a) Operate in Ordinary Course. Other than as contemplated by this
Agreement, operate its business only in the usual, regular, and ordinary manner
so as to maintain the goodwill it now enjoys and, to the extent consistent with
such operation, use all commercially reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it;
(b) Maintenance of Properties. Maintain all of its property and assets
in customary repair, order, and condition, reasonable wear and use and damage by
fire or unavoidable casualty excepted;
(c) Maintenance of Books and Records. Maintain its books of account and
records in the usual, regular, and ordinary manner, in accordance with United
States generally accepted accounting principles applied on a consistent basis;
(d) Compliance with Law. Duly comply in all material respects with all
laws applicable to it and to the conduct of its business;
(e) Supplemental Financial Statements. Deliver to Enertec, within 45
days after the end of each fiscal quarter of Veritas beginning April 30, 1999,
and through the Effective Date, unaudited consolidated balance sheets and
related unaudited statements of income, retained earnings and cash flows as of
the end of each fiscal quarter of Veritas, and as of the corresponding fiscal
quarter of the previous fiscal year. Veritas hereby represents and warrants that
such unaudited consolidated financial statements shall (i) be complete in all
material respects except for the omission of notes and schedules contained in
audited financial statements, (ii) present fairly the financial condition of
Veritas as at the dates indicated and the results of operations for the
respective periods indicated, (iii) shall have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis, except as noted therein and (iv) shall contain all adjustments which
Veritas considers necessary for a fair presentation of its results for each
respective fiscal period; and
(f) Listings. Use its commercially reasonable efforts to cause: the
Veritas Common Stock to remain listed on the NYSE and the TSE; with the
cooperation and assistance of Enertec, the Series 1 Exchangeable Shares to be
listed on the TSE, if possible, or, failing which, on a mutually acceptable
Canadian stock exchange; and the Veritas Common Stock to be issued pursuant to
the Series 1 Exchangeable Shares and the Veritas Options to be listed on the
NYSE and the TSE.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ENERTEC.
The obligations of Enertec to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by Enertec in the manner contemplated by
this Agreement before the Effective Date:
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(a) Representations and Warranties of Veritas and VESI True at Effective
Date. The representations and warranties of Veritas and VESI herein contained
to the extent qualified as to materiality shall be accurate in all respects, and
to the extent not so qualified shall be accurate in all material respects at the
Effective Date, with the same effect as though made at such date, except as
affected by transactions permitted or contemplated by this Agreement; Veritas
and VESI shall have performed and complied with all covenants required by this
Agreement to be performed or complied with, in all material respects, by Veritas
and VESI before the Effective Date; and each of Veritas and VESI shall have
delivered to Enertec a certificate, dated the Effective Date and signed by its
chairman of the board or its president, and by its chief financial or accounting
officer to both such effects;
(b) Opinion of Veritas Counsel. Enertec shall have received opinions,
dated as of the Effective Date, from Porter & Hedges, L.L.P., United States
counsel for Veritas, and from Bennett Jones, Canadian counsel for Veritas, in
form and substance reasonably satisfactory to Enertec;
(c) Shareholder Approval. This Agreement, the Arrangement and the other
transactions contemplated hereby shall have been approved and adopted by the
Enertec shareholders in accordance with applicable law and Enertec's articles
and bylaws and by the VESI shareholders in accordance with applicable law and
VESI's articles and by-laws.
(d) Veritas Approvals. The Veritas stockholders shall have approved the
proposals described in Section 7.1 hereof;
(e) No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Canadian or United States federal,
provincial or state court and remain in effect, nor shall any proceeding seeking
any of the foregoing be pending. There shall be no order, decree or ruling by
any Governmental Entity or threat thereof, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Arrangement, which
would prohibit or render illegal the transactions contemplated by this
Agreement;
(f) Tax Opinion. Enertec shall have received an opinion, in form and
substance satisfactory to Enertec, of Fraser Milner, tax counsel for Enertec, to
the effect that the Arrangement will generally qualify as a tax deferred
exchange to an Enertec shareholder for Canadian federal income tax purposes,
provided that such shareholder (i) (A) holds his Enertec Common Shares as
capital property, (B) does not report a gain or loss in respect of the exchange
of Enertec Common Shares for Series 1 Exchangeable Shares, (C) deals at arm's
length with Veritas and (D) neither alone nor with persons with whom he does not
deal at arm's length (1) controls Veritas or (2) beneficially owns shares of
Veritas having a fair market value of more than 50% of the fair market value of
all issued shares in the capital stock of Veritas, or (ii) files an election to
achieve a tax deferred exchange under section 85 of the ITA.
(g) Court Approval. The Court shall have issued its final order
approving the Arrangement in form and substance satisfactory to Veritas and
Enertec (such approvals not to be unreasonably withheld or delayed by Veritas or
Enertec) and reflecting the terms hereof and the Registrar of Corporations under
the ABCA shall have accepted the Articles of Arrangement for filing;
(h) Commissions, etc. All necessary orders shall have been obtained from
the Commissions and other relevant United States and Canadian securities
regulatory authorities in connection with the Arrangement. All waiting periods
required by HSR shall have expired with respect to the transactions contemplated
by this Agreement, or early termination with respect thereto shall have been
obtained without the imposition of any governmental request or order requiring
the sale or disposition or holding separate (through a trust or otherwise) of
particular assets or businesses of Enertec, Veritas or VESI. Veritas, VESI and
Enertec shall each have filed all notices and information (if any) required
under Part IX of the Competition Act (Canada) and the applicable waiting periods
and any extensions thereof shall have expired or the parties shall have received
an Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied he would not
have sufficient grounds on which to apply for an order in respect of the
Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act in respect of the Arrangement, to the extent such allowance or
approval is required, on terms and conditions satisfactory to the parties,
acting reasonably;
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(i) SEC Filings. Each of the Form F-4 and Form S-3, if required to be
filed, shall have been declared effective under the Securities Act and shall not
be the subject of any stop-order or proceedings seeking a stop-order, and the
Joint Proxy Statement shall on the Closing Date not be subject to any similar
proceedings commenced or threatened by the SEC or the Commissions;
(j) Listings. The Series 1 Exchangeable Shares shall be listed on the
TSE, if possible or, failing which a reasonably acceptable Canadian stock
exchange, subject to notice of issuance and to the filing of required documents
which cannot be filed before the Effective Time;
(k) Certificates and Resolutions. Enertec shall have received such other
certificates and resolutions of Veritas and VESI as may be reasonably required
in connection with the consummation of this Agreement; and
(l) Pooling Matters. Enertec shall have received from KPMG, LLP and
Pricewaterhouse Coopers LLP an opinion, in form and substance satisfactory to
Enertec and Veritas, acting reasonably, that the Arrangement will be treated as
a "pooling of interests" for purposes of United States generally accepted
accounting principles. In addition, no event shall have occurred which would
establish with reasonable certainty that the Arrangement will not be treated as
a "pooling of interests" for United States generally accepted accounting
principles.
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS.
The obligations of Veritas to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by Veritas in the manner contemplated by
this Agreement before the Effective Date:
(a) Representations and Warranties of Enertec True at Effective
Date. The representations and warranties of Enertec herein contained to the
extent qualified as to materiality shall be accurate in all respects, and to the
extent not so qualified shall be accurate in all material respects at the
Effective Date, with the same effect as though made at such date, except as
affected by transactions permitted or contemplated by this Agreement; Enertec
shall have performed and complied with all covenants required by this Agreement
to be performed or complied with, including, without limitation, the covenant in
clause 4.2(p), in all material respects, by Enertec before the Effective Date;
and Enertec shall have delivered to Veritas a certificate, dated the Effective
Date and signed by its chairman of the board or its president, and by its chief
financial officer to both such effects;
(b) Opinion of Enertec Counsel. Veritas shall have received opinions,
dated as of the Effective Date, from Mayor, Day, Caldwell & Keeton L.L.P.,
United States counsel to Enertec, and Fraser Milner, Canadian counsel to
Enertec, in form and substance reasonably satisfactory to Veritas;
(c) Consents of Certain Parties in Privity with Enertec. Veritas shall
have received all written consents, assignments, waivers, authorizations or
other certificates necessary to provide for the continuation in full force and
effect of all material contracts and leases of Enertec and for Enertec to
consummate the transactions contemplated hereby, except when the failure to
receive such consents or other certificates would not have a Material Adverse
Effect on Enertec;
(d) Stockholder Approval. The proposals described in Section 7.1 shall
have been approved by the Veritas stockholders in accordance with the rules of
the NYSE, applicable law and Veritas' certificate of incorporation and bylaws;
(e) Enertec and VESI Approvals. This Agreement and the Arrangement and
the other transactions contemplated hereby shall have been approved and adopted
by the Enertec shareholders in accordance with applicable law and Enertec's
articles and bylaws, and Enertec shall not have received on or prior to the
Effective Time notice from the holders of more than 5% of the Enertec Common
Shares of their intention to exercise their rights of dissent under Section 184
of the ABCA and this Agreement and the Arrangement and the other transactions
contemplated hereby shall have been approved and adopted by the VESI
shareholders in accordance with applicable law and VESI's articles and by-laws;
(f) No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Canadian or U.S. federal,
provincial or state court and remain in effect, nor shall any proceeding seeking
any of the foregoing
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be pending. There shall be no order, decree or ruling by any Governmental Entity
or threat thereof, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Arrangement, which would prohibit or render
illegal the transactions contemplated by this Agreement;
(g) Court Approval. The Court shall have issued its final order
approving the Arrangement in form and substance satisfactory to Enertec and
Veritas (such approvals not to be unreasonably withheld or delayed by Enertec or
Veritas) and reflecting the terms hereof;
(h) Commissions, etc. All necessary orders shall have been obtained from
the Commissions and other relevant United States and Canadian securities
regulatory authorities in connection with the Arrangement. All waiting periods
required by HSR shall have expired with respect to the transactions contemplated
by this Agreement, or early termination with respect thereto shall have been
obtained without the imposition of any governmental request or order requiring
the sale or disposition or holding separate (through a trust or otherwise) of
particular assets or businesses of Veritas, VESI or Enertec. Enertec, Veritas
and VESI shall each have filed all notices and information (if any) required
under Part IX of the Competition Act (Canada) and the applicable waiting periods
and any extensions thereof shall have expired or the parties shall have received
an Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied he would not
have sufficient grounds on which to apply for an order in respect of the
Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act in respect of the Arrangement, to the extent such allowance or
approval is required, on terms and conditions satisfactory to the parties,
acting reasonably;
(i) SEC Filings. Each of the Form S-4 and Form S-3, if required to be
filed, shall have been declared effective under the Securities Act and shall not
be the subject of any stop-order or proceedings seeking a stop-order and the
Joint Proxy Statement shall on the Closing Date not be subject to any similar
proceedings commenced or threatened by the SEC or the Commissions;
(j) Certificates and Resolutions. Veritas shall have received such other
certificates and resolutions of Enertec as may be reasonably required in
connection with the consummation of this Agreement; and
(k) Pooling Matters. Veritas shall have received from KPMG, LLP and
Pricewaterhouse Coopers LLP an opinion, in form and substance satisfactory to
Veritas and Enertec, acting reasonably, that the Arrangement will be treated as
a "pooling of interests" for purposes of United States generally accepted
accounting principles. In addition, no event shall have occurred which would
establish with reasonable certainty that the Arrangement will not be treated as
a "pooling of interests" for purposes of United States generally accepted
accounting principles.
ARTICLE VI
TERMINATION
6.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the transactions contemplated hereby by the
stockholders of Veritas, VESI or Enertec, as follows:
(a) by mutual agreement of Enertec and Veritas;
(b) by Enertec, if there has been a breach by Veritas or VESI of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Veritas or VESI, or if any representation or warranty of Veritas or
VESI shall have become untrue, in either case which has or can reasonably be
expected to have a Material Adverse Effect on Veritas, and which Veritas or VESI
fails to cure within 15 business days after written notice thereof from Enertec
(except that no cure period shall be provided for a breach by Veritas or VESI
which by its nature cannot be cured);
(c) by Veritas, if there has been a breach by Enertec of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Enertec, or if any representation or warranty of Enertec shall have
become untrue, in either case which has or can reasonably be expected to have a
Material Adverse Effect on
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Enertec, and which Enertec fails to cure within 15 business days after written
notice thereof from Veritas (except that no cure period shall be provided for a
breach by Enertec which by its nature cannot be cured);
(d) by either Veritas or Enertec if the shareholders of Enertec and of
VESI do not approve the Arrangement (and the other matters to be approved at
such meetings as provided in Section 7.1 hereof) at the Enertec Meeting and the
VESI Meeting, as applicable, or the stockholders of Veritas do not approve at
the Veritas Stockholders Meeting the matters to be approved at such meeting as
provided in Section 7.1 hereof;
(e) by either Veritas or Enertec, if all the conditions for Closing the
Arrangement expressed to be in its favour shall not have been satisfied or
waived on or before 5:00 p.m., Houston, Texas time on August 15, 1999, other
than as a result of a breach of this Agreement by the terminating party;
(f) by either Veritas or Enertec if any suit, action, or other proceeding
shall be pending or threatened by any United States or Canadian federal,
provincial or state government before any Governmental Entity, in which it is
sought to restrain, prohibit, or otherwise affect the consummation of the
transactions contemplated hereby; or
(g) by Enertec, if (i) the Enertec Board determines in good faith (after
consultation with its financial advisors, and after receiving the written
opinion of its outside legal counsel), that it is required by its fiduciary
duties to recommend to the Enertec shareholders that they vote against the
Arrangement and approve instead a Superior Proposal, (ii) Enertec shall have
given notice to Veritas advising Veritas that Enertec has received a Superior
Proposal from a third party, specifying the terms and conditions of such
Superior Proposal and that Enertec intends to terminate this Agreement in
accordance with this Section 6.1(g) and (iii) either (A) Veritas shall not have
revised its takeover proposal within five business days after the date on which
such notice is deemed to have been given to Veritas, or (B) if Veritas within
such period shall have revised its takeover proposal, the Enertec Board, after
receiving advice from Enertec's financial advisors, shall have determined in its
good faith judgment that the third party's Acquisition Transaction is superior
to Veritas' revised takeover proposal.
6.2 NOTICE OF TERMINATION.
Any termination of this Agreement under Section 6.1 above will be effective
by the delivery of written notice by the terminating party to the other party
hereto.
6.3 EFFECT OF TERMINATION.
In the event of termination of this Agreement by either Enertec or Veritas
as provided in Section 6.1, this Agreement shall forthwith become void and have
no effect, and there shall be no liability or obligation on the part of Veritas
or Enertec or their respective officers or directors, except that (i) the
provisions of the Confidentiality Agreement dated January 25, 1999 shall survive
any such termination and abandonment, and (ii) no party shall be released or
relieved from any liability arising from the willful breach by such party of any
of its representations, warranties, covenants or agreements as set forth in this
Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Veritas, VESI and Enertec each agree to take the following actions after
the execution of this Agreement.
7.1 MEETINGS.
Subject to the Interim Order, Enertec, VESI and Veritas shall each duly
call a meeting of its stockholders to be held within 45 days after the SEC has
indicated that it has no further comments on the Joint Proxy Statement for the
purpose of (a) in the cases of Enertec and VESI, voting upon (i) the Plan of
Arrangement and the transactions contemplated hereby and thereby, and (b) in the
case of Veritas, voting upon (i) a proposal to adopt the Restated Veritas
Charter and effect the reclassification of the currently outstanding shares of
Veritas Common Stock and (ii) such other matters relating to the Arrangement, if
any, as shall be legally required in the reasonable opinion of Veritas; and each
shall, through its board of directors, recommend to their stockholders approval
of such matters and shall coordinate and cooperate with respect to the timing of
such meetings.
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7.2 THE CLOSING.
Subject to the termination of this Agreement as provided in Article VI, the
closing of the transactions contemplated by this Agreement (the "Closing") will
take place at the offices of Bennett Jones, Calgary, Alberta, Canada on a date
(the "Closing Date") and at a time to be mutually agreed upon by the parties,
which date shall be no later than the fifth business day after all conditions to
Closing set forth herein shall have been satisfied or waived, unless another
place, time and date is mutually selected by Enertec and Veritas. Concurrently
with the Closing, the Plan of Arrangement will be filed with the Registrar under
the ABCA.
7.3 ANCILLARY DOCUMENTS/RESERVATION OF SHARES.
(a) Provided all other conditions of this Agreement have been satisfied
or waived, Enertec and VESI shall, on the Closing Date, file Articles of
Arrangement pursuant to Part 15 of the ABCA to give effect to the Plan of
Arrangement, such Articles of Arrangement to contain share conditions for the
Series 1 Exchangeable Shares substantially in the form of those contained in
EXHIBIT A hereto.
(b) On the Effective Date:
(i) Veritas and VESI shall execute and deliver a Support Agreement
containing the terms and conditions set forth in EXHIBIT C
hereto, together with such other terms and conditions as may be
agreed to by the parties hereto acting reasonably;
(ii) Veritas, VESI and a Canadian trust company to be mutually
agreeable to Veritas and Enertec, acting reasonably, shall
execute and deliver a Voting and Exchange Trust Agreement
containing the terms and conditions set forth in EXHIBIT D
hereto, together with such other terms and conditions as may be
agreed to by the parties hereto acting reasonably; and
(iii) Veritas shall file with the Secretary of State of Delaware a
Restated Certificate of Incorporation which shall be in
substantially the form set forth in EXHIBIT B hereto.
(c) On or before the Effective Date, Veritas will reserve for issuance
such number of shares of Veritas Common Stock as shall be necessary to give
effect to the transactions contemplated hereby.
7.4 EXCHANGE OF OPTIONS.
Promptly after the Effective Time, Veritas will notify in writing each
holder of a Enertec Option of the exchange of such Enertec Option for a Veritas
Option in accordance with Section 1.1(i) hereof. As soon as reasonably
practicable after the Effective Date, Veritas shall file with the SEC a
registration statement on Form S-8 (or other appropriate form) with respect to
the shares of Veritas Common Stock subject to such Veritas Options and use its
commercially reasonable efforts to maintain the effectiveness of such
registration statement for so long as any of such options remain outstanding.
7.5 AFFILIATE AGREEMENTS.
(a) To ensure that the Arrangement will be accounted for as a "pooling of
interests" and to ensure compliance with Rule 145 of the rules and regulations
promulgated by the SEC and the Securities Act, Enertec's Affiliates have
concurrently signed and delivered to Veritas the Enertec affiliate agreements in
the form of EXHIBIT E. The identity of all such Enertec Affiliates is set forth
on such exhibit. For purposes of this Agreement, an "Affiliate" shall have the
meaning referred to in Rule 145 under the Securities Act; and
(b) To ensure that the Arrangement will be accounted for as a "pooling of
interests" Veritas' Affiliates have concurrently signed and delivered to Enertec
the Veritas affiliate agreements in the form of EXHIBIT F. The identity of all
such Veritas Affiliates is set forth on such exhibit.
7.6 EMPLOYEE MATTERS.
Veritas shall take all actions necessary or appropriate such that each
individual employed by Enertec or a Enertec Subsidiary immediately prior to the
Effective Date (an "Enertec Employee") shall have the benefit of all
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of such employee's accrued benefits under the Enertec Plans from and after the
Effective Date. Notwithstanding the foregoing, if any such Enertec Plan is
terminated or discontinued on or after the Effective Date, Veritas shall take
all actions necessary or appropriate to permit the Enertec Employees to
immediately thereafter participate in the comparable employee benefit plan or
program, if any, maintained by Veritas or any Veritas Subsidiary for its
employees generally.
7.7 INDEMNIFICATION.
Veritas agrees that all rights to indemnification or exculpation now
existing in favour of the directors or officers of Enertec or any Enertec
Subsidiary as provided in their respective articles or bylaws, or any agreement
with such directors or officers, in effect on the date hereof shall survive the
Arrangement and shall continue in full force and effect for a period of not less
than that provided by the applicable statute of limitations from the Effective
Time and Veritas hereby assumes, effective upon consummation of the Arrangement,
all such liability with respect to any matters arising prior to the Effective
Time.
ARTICLE VIII
MISCELLANEOUS
8.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of the parties contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until the
earlier of the termination of this Agreement or the Closing Date, whereupon such
representations and warranties will expire and be of no further force or effect.
All agreements and covenants of the parties shall survive the Closing Date,
except as otherwise set forth in this Agreement.
8.2 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, by facsimile (receipt confirmed)
or mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Veritas to:
Veritas DGC Inc.
3701 Kirby Drive, Suite 960
Houston, Texas 77098
Attention: Chairman
Facsimile No. 713/630-4464
with a copy to Porter & Hedges, L.L.P. 700
Louisiana Street 35th Floor
Houston, Texas 77002
Attention: T. William Porter Facsimile
No. 713/228-1331
and Bennett Jones
4500 Bankers Hall East
855 2nd Street S.W.
Calgary, Alberta
T2P 4K7
Attention: Neil Stevenson
Facsimile No. 403/265-7219
B-31
<PAGE> 215
(b) if to Enertec to:
Enertec Resource Services Inc.
800, 615 Macleod Trail S.E.
Calgary, Alberta
T2G 4T8
Attention: President
Facsimile No. 403/264-7106
with a copy to Fraser Milner
3000 Fifth Avenue Place
237 - 4th Avenue S.W.
Calgary, Alberta
T2P 4X7
Attention: David R.J. Lefebvre
Facsimile No.: 403/268-3100
and Mayor, Day, Caldwell & Keeton L.L.P.
700 Louisiana
Suite 1900
Houston, Texas 77002
Attention: John Clutterbuck
Facsimile No. 713/225-7047
8.3 INTERPRETATION.
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used therein
shall be deemed in each case to be followed by the words "without limitation."
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. Any
reference herein to "the knowledge" of any of the parties will be deemed to mean
the actual knowledge of the officers of such party and the knowledge that such
officers would have had if such officers had conducted a diligent inquiry into
the relevant subject matter.
8.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not sign
the same counterpart. A counterpart delivered by facsimile is hereby deemed to
be as effective as a counterpart delivered in original form.
8.5 MISCELLANEOUS.
This Agreement, each of the agreements attached as an exhibit hereto and
any other documents referred to herein or contemplated hereby (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, (b) is not intended to
confer upon any other person any rights or remedies hereunder (except as
otherwise expressly provided herein and except that Section 1.1(i) is for the
benefit of holders of Enertec Options and Section 7.6 is for the benefit of the
Enertec Employees and said sections are intended to confer rights on such
persons); and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided.
8.6 GOVERNING LAW.
This Agreement shall be governed in all respects, including validity,
interpretation and effect, by the laws of the Province of Alberta and the
federal laws of Canada applicable therein. Each of the parties agrees that any
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<PAGE> 216
action or proceeding arising out of or relating to this agreement may be
instituted in the courts of Alberta, waives any objection which it may have now
or hereafter to the venue of any such action or proceeding, irrevocably submits
to the jurisdiction of the said courts in any such action or proceeding, agrees
to be bound by any judgment of the said courts and agrees not to seek, and
hereby waives, any review of the merits of any such judgment by the courts of
any other jurisdiction and Veritas hereby appoints VESI at its registered office
in the Province of Alberta as Veritas' attorney for service of process.
8.7 AMENDMENT AND WAIVERS.
Any term or provision of this Agreement may be amended, and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
the party to be bound thereby. The waiver by a party of any breach hereof or
default in the performance hereof will not be deemed to constitute a waiver of
any other default or any succeeding breach or default. The Agreement may be
amended by the parties hereto at any time before or after approval of the
Enertec shareholders, the Veritas stockholders or the VESI shareholders, but,
after such approval, no amendment will be made which by applicable law requires
the further approval of the Enertec shareholders, the Veritas stockholders or
the VESI shareholders without obtaining such further approval.
8.8 EXPENSES.
Each party will bear its respective expenses and legal fees incurred with
respect to this Agreement, and the transactions contemplated hereby.
IN WITNESS WHEREOF, Veritas, VESI and Enertec have caused this Agreement to
be signed and delivered by their respective officers thereunder duly authorized,
all as of the date first written above.
VERITAS DGC INC.
Per: /s/ D.B. ROBSON
--------------------------------------
Per: /s/ LARRY WORDEN
--------------------------------------
VERITAS ENERGY SERVICES INC.
Per: /s/ D.B. ROBSON
--------------------------------------
Per: /s/ S. LUDLOW
--------------------------------------
ENERTEC RESOURCE SERVICES INC.
Per: /s/ MURRAY OLSON
--------------------------------------
Per: /s/ P.H. RYDER
--------------------------------------
B-33
<PAGE> 217
ANNEX C
INTERIM ORDER
<PAGE> 218
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta), being
Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Enertec Resources Services Inc.
and Veritas Energy Services Inc., involving Enertec Resource Services Inc., its
shareholders and optionholders, Veritas Energy Services Inc., its exchangeable
shareholders and Veritas DGC Inc.
<TABLE>
<S> <C> <C>
BEFORE THE HONOURABLE CHIEF JUSTICE ) AT THE COURT HOUSE, IN THE CITY OF
W.K. MOORE IN CHAMBERS ) CALGARY, IN THE PROVINCE OF ALBERTA ON
) ________________ , THE ________ DAY OF
) ________________ , 1999.
</TABLE>
INTERIM ORDER
UPON the application by joint Petition of Enertec Resource Services Inc.
("Enertec") and Veritas Energy Services Inc. ("VESI") pursuant to Section 186 of
the Business Corporations Act (Alberta);
AND UPON reading the said Petition, and the Affidavits of Peter H. Ryder,
Vice-President, Finance and Chief Financial Officer of Enertec, and Larry L.
Worden, Assistant Secretary of VESI, and the documents referred to therein,
filed;
AND UPON it appearing that notice of this application has been given to the
Executive Director of the Alberta Securities Commission;
AND UPON hearing counsel for Enertec and counsel for VESI;
IT IS HEREBY ORDERED THAT:
1. Enertec shall convene a special meeting (the "Enertec Meeting") of the
holders of its issued and outstanding common shares (the "Common Shares")
and options to purchase Common Shares (the "Options") to consider, and if
deemed advisable, to pass, with or without variation, a resolution (the
"Enertec Arrangement Resolution") to approve a proposed Plan of Arrangement
(the "Plan of Arrangement") involving Enertec, its said holders of Common
Shares (the "Shareholders") and Options (the "Optionholders"), VESI, its
said holders (the "Exchangeable Shareholders") of its issued and
outstanding exchangeable shares (the "Exchangeable Shares") and Veritas DGC
Inc. ("Veritas DGC"), a true copy of which Plan of Arrangement in its
substantially final form is included as Annex D to Exhibit "A" to each of
the Affidavits of Peter H. Ryder and Larry L. Worden sworn the ________ day
of ________________ 1999.
2. VESI shall convene a special meeting (the "VESI Meeting") of the
Exchangeable Shareholders to consider, and if deemed advisable, to pass,
with or without variation, a resolution (the "VESI Arrangement Resolution")
to approve the proposed Plan of Arrangement.
3. The Enertec Meeting shall be called, held and conducted in accordance with
the Business Corporations Act (Alberta) (the "ABCA") and the Articles and
the By-laws of Enertec subject to what may be provided hereafter.
C-1
<PAGE> 219
4. The VESI Meeting shall be called, held and conducted in accordance with the
ABCA and the Articles and the By-laws of VESI subject to what may be
provided hereafter.
5. The only persons entitled to notice of the Enertec Meeting shall be the
registered Shareholders and the Optionholders as they may appear on the
records of Enertec as at the close of business on the ________ day of
________________ , 1999, the directors and auditors of Enertec, the
Registrar of Corporations under the ABCA and the Alberta Securities
Commission, and the only persons entitled to be represented and to vote at
the Enertec Meeting, either in person or by proxy, shall be such
Shareholders and Optionholders, subject to the provisions of Section 132 of
the ABCA.
6. The only persons entitled to notice of the VESI Meeting shall be the
registered Exchangeable Shareholders as they may appear on the records of
VESI as at the close of business on the ________ day of ________________ ,
1999, the directors and auditors of VESI, the Registrar of Corporations
under the ABCA and the Alberta Securities Commission, and the only persons
entitled to be represented and to vote at the VESI Meeting, either in
person or by proxy, shall be such Exchangeable Shareholders, subject to the
provisions of Section 132 of the ABCA.
7. Enertec shall send the Notice of the Special Meeting of Shareholders and
Optionholders, Notice of Petition, and Joint Management Information
Circular and Proxy Statement (the "Proxy Circular") in substantially the
form contained in Exhibit "A" to the Affidavits of Peter H. Ryder and Larry
L. Worden, with such amendments thereto as counsel for Enertec may advise
are necessary or desirable, provided that such amendments are not
inconsistent with the terms of this Order, to the Shareholders, to the
Optionholders, to the directors and auditors of Enertec, the Registrar of
Corporations under the ABCA and to the Alberta Securities Commission by
mailing the same by prepaid ordinary mail, or by sending the same by direct
courier at the expense of Enertec, to such persons at least 21 days prior
to the date of the Enertec Meeting, excluding the date of mailing or
sending by courier and excluding the date of the Enertec Meeting. Such
mailing or sending by courier shall constitute good and sufficient service
of notice of the Petition, the Enertec Meeting and the hearing in respect
of the Petition.
8. VESI shall send the Notice of the Special Meeting of Exchangeable
Shareholders, Notice of Petition, and Proxy Circular in substantially the
form contained in Exhibit "A" to the Affidavits of Peter H. Ryder and Larry
L. Worden, with such amendments thereto as counsel for VESI may advise are
necessary or desirable, provided that such amendments are not inconsistent
with the terms of this Order, to the Exchangeable Shareholders, to the
directors and auditors of VESI, the Registrar of Corporations under the
ABCA and to the Alberta Securities Commission by mailing the same by
prepaid ordinary mail, or by sending the same by direct courier at the
expense of VESI, to such persons at least 21 days prior to the date of the
VESI Meeting, excluding the date of mailing or sending by courier and
excluding the date of the VESI Meeting. Such mailing or sending by courier
shall constitute good and sufficient service of notice of the Petition, the
VESI Meeting and the hearing in respect of the Petition.
9. The accidental omission to give notice of the Enertec Meeting, or the
non-receipt of such notice by one or more of the persons specified in
paragraph 7 hereof, shall not invalidate any resolution passed or
proceedings taken at the Enertec Meeting.
10. The accidental omission to give notice of the VESI Meeting, or the
non-receipt of such notice by one or more of the persons specified in
paragraph 8 hereof, shall not invalidate any resolution passed or
proceedings taken at the VESI Meeting.
11. Each Common Share and each Option shall be entitled to one vote on each
matter to be acted upon at the Enertec Meeting. The majority required to
pass the Enertec Arrangement Resolution shall be not less than two-thirds of
the aggregate votes cast by the Shareholders and the Optionholders (present
in person or by proxy), voting together as a single class, in respect of the
Enertec Arrangement Resolution at the Enertec Meeting.
C-2
<PAGE> 220
12. Each Exchangeable Share (except those held by Veritas DGC) shall be entitled
to one vote on each matter to be acted upon at the VESI Meeting. The
majority required to pass the VESI Arrangement Resolution shall be not less
than two-thirds of the aggregate votes cast by the Exchangeable Shareholders
(present in person or by proxy) in respect of the VESI Arrangement
Resolution at the VESI Meeting.
13. The Shareholders who are registered Shareholders, and the Optionholders,
shall have the right to dissent from the Enertec Arrangement Resolution in
accordance with the provisions of Section 184 of the ABCA, as modified
hereby, and to be paid the fair value of their Common Shares, or Options,
provided that:
(a) notwithstanding subsection 184(5) of the ABCA, the written objection
to the Enertec Arrangement Resolution referred to in subsection
184(5) of the ABCA which is required to be sent to Enertec must be
received by Enertec, c/o Fraser Milner Attention: David R.J. Lefebvre
at the address set out below, or the Chairman of the Enertec Meeting,
before commencement of the Enertec Meeting; and
(b) the holders exercising such right of dissent otherwise comply with
the requirements of Section 184 of the ABCA.
14. The Exchangeable Shareholders who are registered Exchangeable Shareholders
shall have the right to dissent from the VESI Arrangement Resolution in
accordance with the provisions of Section 184 of the ABCA, as modified
hereby, and to be paid the fair value of their Exchangeable Shares provided
that:
(a) notwithstanding subsection 184(5) of the ABCA, the written objection
to the VESI Arrangement Resolution referred to in subsection 184(5)
of the ABCA which is required to be sent to VESI must be received by
VESI, c/o Bennett Jones Attention: Neil H. Stevenson at the address
set out below, or the Chairman of the VESI Meeting, before
commencement of the VESI Meeting; and
(b) the holders exercising such right of dissent otherwise comply with
the requirements of Section 184 of the ABCA.
15. Upon approval of the Plan of Arrangement at the Enertec Meeting and the VESI
Meeting in the manner set forth in this Order, Enertec and VESI may jointly
apply before this Court for approval of the Plan of Arrangement, which
application (the "Final Application") shall be heard by this Honourable
Court at the Court House, 611 - 4th Street S.W., in the City of Calgary, on
the ________ day of ________________ , 1999 at ________________ or so soon
thereafter as counsel may be heard.
16. Any Shareholder, Optionholder, Exchangeable Shareholder and any other
interested person may appear on the application for the approval of the
Arrangement, provided that such holder or person shall file with this Court
and serve on the solicitors for Enertec and VESI on or before
________________ , 1999, a Notice of Intention to Appear setting out the
address for service in respect of such holder or person, and indicating
whether such holder or person intends to support or oppose the application
or make submissions thereat together with any evidence or materials which
are to be presented to this Court, such Notice of Appearance to be effected
by delivery, at the addresses set forth below:
<TABLE>
<S> <C>
Bennett Jones Fraser Milner
4500 Bankers Hall East 30th Floor
855 - 2nd Street S.W. 237 - 4th Avenue S.W.
Calgary, Alberta Calgary, Alberta
T2P 4K7 T2P 4X7
Attention: Neil H. Stevenson Attention: David R.J. Lefebvre
</TABLE>
C-3
<PAGE> 221
17. In the event the Final Application is adjourned, only those persons who have
filed and served a Notice of Appearance shall be served with notice of the
adjourned date.
18. Enertec and VESI shall be entitled at any time to seek leave to vary this
Order.
--------------------------------------
C.J.C.Q.B.A.
ENTERED this ________ day of ________________ , 1999.
- ---------------------------------------------------------
Clerk of the Court of Queen's Bench
of Alberta
C-4
<PAGE> 222
ACTION NO: , 1999
------------------------------------------------------------
IN THE COURT OF QUEEN'S BENCH
OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
------------------------------------------------------------
BETWEEN:
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta), being
Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Enertec Resource Services Inc.
and Veritas Energy Services Inc., involving Enertec Resource Services Inc., its
shareholders and optionholders, Veritas Energy Services Inc., its exchangeable
shareholders and Veritas DGC Inc.
------------------------------------------------------------
INTERIM ORDER
------------------------------------------------------------
BENNETT JONES
Barristers and Solicitors
4500 Bankers Hall East
855 - 2nd Street S.W.
CALGARY, Alberta
T2P 4K7
Neil H. Stevenson 298-3155
Our File No. 37864-10
C-5
<PAGE> 223
ANNEX D
PLAN OF ARRANGEMENT,
CLASS A EXCHANGEABLE SHARE PROVISIONS AND
SERIES 1 EXCHANGEABLE SHARE PROVISIONS
<PAGE> 224
PLAN OF ARRANGEMENT
UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. In this Plan of Arrangement unless there is something in the
subject matter or context inconsistent therewith, the following terms shall have
the respective meanings set out below and grammatical variations of such terms
shall have corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Arrangement" means the arrangement under section 186 of the ABCA on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made in accordance with Section 6.1 hereof or made at
the direction of the Court in the Final Order;
"Automatic Redemption Date" has the meaning set out in the Series 1
Exchangeable Share Provisions;
"Average Closing Price" means the average closing price (computed and
rounded to the third decimal point) of shares of Veritas Common Stock on the
NYSE during the 10 trading days ending on the last trading day prior to the
Effective Date;
"Business Day" has the meaning set out in the Series 1 Exchangeable Share
Provisions;
"Class A Exchangeable Shares" has the meaning set out in Section
2.1(b)(vii);
"Court" means the Court of Queen's Bench of Alberta;
"Current Option Holder" has the meaning set out in Section 2.1(i);
"Depositary" has the meaning set out in Section 2.1(d);
"Dissent Procedures" has the meaning set out in Section 3.1;
"Effective Date" means the date shown on the certificates of arrangement
issued by the Registrar under the ABCA giving effect to the Arrangement;
"Effective Time" means 12:01 a.m. on the Effective Date;
"Enertec" means Enertec Resource Services Inc., a corporation existing
under the ABCA;
"Enertec Common Shares" means the common shares in the capital of Enertec;
"Enertec Option Plan" means the stock option plan of Enertec;
"Exchange Ratio" has the meaning set out in Section 2.1(e);
"Exchangeable Shares" has the meaning set out in Section 2.1(b)(i);
"Final Order" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the Effective
Time;
"ITA" means the Income Tax Act (Canada);
"Liquidation Call Purchase Price" has the meaning set out in Section
5.1(a);
"Liquidation Call Right" has the meaning set out in Section 5.1(a);
"Liquidation Date" has the meaning set out in the Series 1 Exchangeable
Share Provisions;
"Meetings" means the special meetings of the holders of Enertec Common
Shares and Options and of the holders of Exchangeable Shares to be held to
consider the Arrangement;
"NYSE" means the New York Stock Exchange;
D-1
<PAGE> 225
"Options" means the various outstanding option agreements held by
directors, officers and employees of Enertec to purchase Enertec Common Shares
granted pursuant to the Enertec Option Plan;
"Optionholders" means holders of Options;
"Redemption Call Purchase Price" has the meaning set out in Section 5.2(a);
"Redemption Call Right" has the meaning set out in Section 5.2(a);
"Retracted Shares" has the meaning set out in the Series 1 Exchangeable
Share Provisions;
"Series 1 Exchangeable Shares" has the meaning set out in Section
2.1(b)(viii);
"Series 1 Exchangeable Share Consideration" has the meaning set out in the
Series 1 Exchangeable Share Provisions;
"Series 1 Exchangeable Share Price" has the meaning set out in the Series 1
Exchangeable Share Provisions;
"Series 1 Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Series 1 Exchangeable Shares, which
are set forth in Appendix A hereto;
"Subsidiary" has the meaning set out in the Series 1 Exchangeable Share
Provisions;
"Transfer Agent" has the meaning set out in Section 4.4;
"Veritas" means Veritas DGC Inc., a corporation existing under the laws of
the State of Delaware;
"Veritas Common Stock" has the meaning set out in the Series 1 Exchangeable
Share Provisions;
"Veritas Option Plan" has the meaning set out in Section 2.1(i);
"Veritas Options" has the meaning set out in Section 2.1(i);
"VESI" means Veritas Energy Services Inc., a corporation existing under the
ABCA; and
"Voting and Exchange Trust Agreement" has the meaning set out in the Series
1 Exchangeable Share Provisions.
1.2 SECTIONS AND HEADINGS. The division of this Plan of Arrangement into
sections and the insertion of headings are for reference purposes only and shall
not affect the interpretation of this Plan of Arrangement. Unless otherwise
indicated, any reference in this Plan of Arrangement to a section or an Appendix
refers to the specified section of or Appendix to this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS. In this Plan of Arrangement, unless the context
otherwise requires, words importing the singular number include the plural and
vice versa, words importing any gender include all genders and words importing
persons include individuals, corporations, partnerships, associations, trusts,
unincorporated organizations, governmental bodies and other legal or business
entities of any kind.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT. At the Effective Time on the Effective Date, the following
steps shall occur and shall be deemed to occur in the following order without
any further act or formality:
(a) The articles of Enertec shall be amended to delete the Class 1
Preferred Shares from the authorized share capital;
(b) The articles of VESI shall be amended to:
(i) delete Section 4.1(c) of the provisions attaching to the existing
exchangeable shares of VESI (the "Exchangeable Shares") and to
substitute therefor the following:
D-2
<PAGE> 226
"(c) except as provided for in the rights, privileges,
restrictions and conditions attaching to the Class A
Exchangeable Shares, or any series thereof, redeem or
purchase any other shares of the Corporation ranking equally
with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution;"
(ii) delete Section 4.1(d) of the provisions attaching to the
Exchangeable Shares and to substitute therefor the following:
"(d) issue any Exchangeable Shares other than by way of stock
dividends to the holders of such Exchangeable Shares or as
contemplated by the Support Agreement; or";
(iii) delete Section 4.1(e) of the provisions attaching to the
Exchangeable Shares and to substitute therefor the following:
"(e) except for the designation of one or more further series of
Class A Exchangeable Shares, amend the articles or by-laws of
the Corporation.";
(iv) delete the third sentence of Section 6.6 of the provisions
attaching to the Exchangeable Shares and to substitute therefor
the following:
"In any case in which the redemption by the Corporation of
Retracted Shares, or the redemption by the Corporation of any Class
A Exchangeable Shares, would be contrary to liquidity or solvency
requirements or other provisions of applicable law, the Corporation
shall redeem Retracted Shares and Class A Exchangeable Shares on a
PRO RATA basis and shall issue to each holder of Retracted Shares a
new certificate, at the expense of the Corporation, representing
the Retracted Shares not redeemed by the Corporation.";
(v) delete the restriction set out in Section 2.1(f) of that Plan of
Arrangement attached to that Certificate of Amendment of VESI
dated August 30, 1996;
(vi) increase the number of authorized common shares in the capital of
VESI to an unlimited number of common shares;
(vii) authorize a further class of exchangeable shares, ranking pari
passu with the Exchangeable Shares, unlimited in number, issuable
in series and having the terms and conditions set forth in
Appendix A hereto (the "Class A Exchangeable Shares");
(viii) designate the first series of Class A Exchangeable Shares as
"Class A Exchangeable Shares Series 1" limited in number to
25,000,000 shares and having the terms and conditions set forth
in the Series 1 Exchangeable Share Provisions (the "Series 1
Exchangeable Shares"); and
(ix) add the following provision to part 7 of such articles:
"Meetings of shareholders of the Corporation shall be held in the
location determined by the directors of the Corporation, and may be
held in Houston, Texas, or at any location within Alberta.";
(c) That Support Agreement dated August 30, 1996 between Veritas and VESI
shall be amended to delete Section 2(i) thereof and to substitute
therefor the following:
"(i) OWNERSHIP OF OUTSTANDING SHARES. Without the prior approval of
Veritas and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 of the Exchangeable
Share Provisions, Digicon covenants and agrees in favour of
Veritas that, as long as any outstanding Exchangeable Shares are
owned by any person or entity other than Digicon or any of its
Subsidiaries, Digicon will be and remain the direct or indirect
beneficial owner of all issued and outstanding shares in the
capital of Veritas and all outstanding securities of Veritas
carrying or otherwise entitled to voting rights in any
circumstances, in each case other than the Exchangeable Shares and
other than the Class A Exchangeable Shares of Veritas.";
D-3
<PAGE> 227
(d) Subject to the approval of CIBC Mellon Trust Company (the
"Depositary"), that Voting and Exchange Trust Agreement dated August
30, 1996 between Veritas, VESI and the Depositary (as successor to
The R-M Trust Company) shall be amended to delete the definition of
"Insolvency Event" and to substitute therefor the following:
"Insolvency Event" means the institution by Veritas of any proceeding to
be adjudicated a bankrupt or insolvent or to be dissolved or wound-up,
or the consent of Veritas to the institution of bankruptcy, insolvency,
dissolution or winding-up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding-up under any
bankruptcy, insolvency or analogous laws, including without limitation
the Companies' Creditors Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and the failure by Veritas to contest in good
faith any such proceedings commenced in respect of Veritas within 15
days of becoming aware thereof, or the consent by Veritas to the filing
of any such petition or to the appointment of a receiver, or the making
by Veritas of a general assignment for the benefit of creditors, or the
admission in writing by Veritas of its inability to pay its debts
generally as they become due, or Veritas not being permitted, pursuant
to liquidity or solvency requirements of applicable law, to redeem any
Exchangeable Shares in accordance with the terms thereof or to redeem
any shares of any series of Class A Exchangeable Shares of the
Corporation in accordance with the terms thereof.";
(e) Each of the Enertec Common Shares (other than Enertec Common Shares
held by holders who have exercised their rights of dissent in
accordance with Section 3.1 hereof and who are ultimately entitled to
be paid the fair value for such shares) will be transferred to VESI
in consideration for a number of Series 1 Exchangeable Shares at an
exchange ratio equal to 0.345 of a Series 1 Exchangeable Share for
each Enertec Common Share (the "Exchange Ratio"), and each such
holder of Enertec Common Shares will receive that whole number of
Series 1 Exchangeable Shares resulting from the transfer of such
holder's Enertec Common Shares. In lieu of fractional Series 1
Exchangeable Shares, each holder of an Enertec Common Share who
otherwise would be entitled to receive a fraction of a Series 1
Exchangeable Share shall be paid by VESI an amount determined in
accordance with Section 4.3 hereof;
(f) Upon the transfer of shares referred to in Section 2.1(e) above:
(i) each holder of an Enertec Common Share shall cease to be such a
holder, shall have his name removed from the register of holders
of Enertec Common Shares and shall become a holder of the number
of fully paid Series 1 Exchangeable Shares to which he is
entitled as a result of the transfer referred to in Section
2.1(e) above and such holder's name shall be added to the
register of holders of Series 1 Exchangeable Shares accordingly;
(ii) VESI shall become the legal and beneficial owner of all of the
Enertec Common Shares so transferred; and
(iii) the Shareholders Rights Plan Agreement between Enertec and
Montreal Trust Company of Canada made as of December 11, 1997, as
amended and restated as of March 6, 1998, and all outstanding
Rights (as defined in such agreement) will be terminated, void
and of no further force or effect;
(g) Holders of Enertec Common Shares shall be entitled to make an income
tax election pursuant to section 85 of the ITA with respect to the
transfer of their Enertec Common Shares to VESI referred to in
Section 2.1(e) by providing two signed copies of the necessary
election forms to VESI within 90 days following the Effective Date,
duly completed with the details of the number of shares transferred
and the applicable agreed amounts for the purposes of such elections.
Thereafter, subject to the election forms complying with the
provisions of the ITA, the forms will be signed by VESI and returned
to such holders of Enertec Common Shares for filing with Revenue
Canada, Taxation;
(h) Veritas shall issue to and deposit with the Depositary the Voting
Share (as defined in the Voting and Exchange Trust Agreement), in
consideration of the payment to Veritas of U.S. $1, to be thereafter
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held by the Depositary as trustee for and on behalf of, and for the use and
benefit of, the holders of the Series 1 Exchangeable Shares, in accordance with
the Voting and Exchange Trust Agreement; and
(i) Each of the then outstanding Options will and without any further
action on the part of any Optionholder, be exchanged for an option
(collectively, the "Veritas Options") under the Third Amended and
Restated 1992 Employee Non-qualified Stock Option Plan (the "Veritas
Option Plan") to purchase that number of shares of Veritas Common
Stock determined by multiplying the number of Enertec Common Shares
subject to such Option at the Effective Time by the Exchange Ratio,
at an exercise price per share of Veritas Common Stock equal to the
exercise price per share of such Option immediately prior to the
Effective Time, divided by the Exchange Ratio. Such option price
shall be converted into a United States dollar equivalent based on
the rate of exchange applicable at the Effective Time as stated in
that edition of The Wall Street Journal next published after the
Effective Time. If the foregoing calculation results in an exchanged
Option being exercisable for a fraction of a share of Veritas Common
Stock, then the number of shares of Veritas Common Stock subject to
such Option will be rounded down to the nearest whole number of
shares, and the total exercise price for the Veritas Option will be
reduced by the exercise price of the fractional share. Each Veritas
Option shall be:
(i) fully vested immediately after the Effective Time; and
(ii) for a term commencing at the Effective Time and ending as
follows:
(A) for each Optionholder who:
(1) is an Enertec director, officer or employee as at the
Effective Time (a "Current Optionholder"); and
(2) after the Effective Time is employed or retained by
Veritas, Enertec or one of their Subsidiaries,
on the date as set forth in subsections 5(b) and (d) of the
Enertec Option Plan;
(B) for each Current Optionholder who at the Effective Time is not
retained as a director, officer or employee of Veritas,
Enertec or one of their Subsidiaries, on the date that is the
first business day on or immediately after the date that is 90
days after the later of the Effective Date and the date such
director, officer or employee is terminated; or
(C) notwithstanding the provisions of (A) and (B) above, the
Enertec Option Plan or the Veritas Option Plan, for each
Current Optionholder with an executive termination contract,
on the current expiry date of such Option (the sixth
anniversary date).
The term, exerciseability, and all other terms and conditions of the
Enertec Options exchanged in accordance with this Section 2.1(i) will
otherwise be unchanged by the provisions of this Section 2.1(i) and shall
operate in accordance with their terms and the Veritas Option Plan shall be
amended accordingly as required.
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT. Holders of Enertec Common Shares or Options and holders
of Exchangeable Shares may exercise rights of dissent with respect to such
shares or options pursuant to and in the manner set forth in section 184 of the
ABCA and this Section 3.1 (the "Dissent Procedures") in connection with the
Arrangement and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid the fair value for their Enertec
Common Shares, Options or Exchangeable Shares, as the case may be,
shall be deemed to have transferred such Enertec Common Shares or
Options to Enertec or such Exchangeable Shares to VESI, as the case
may be, for cancellation on the Effective Date; or
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(b) are ultimately not entitled, for any reason, to be paid the fair
value for their Enertec Common Shares, Options or Exchangeable
Shares, as the case may be, shall be deemed to have participated in
the Arrangement on the same basis as any non-dissenting holder of
Enertec Common Shares, Options or Exchangeable Shares, as the case
may be,
but in no case shall Enertec be required to recognize such holders as holders of
Enertec Common Shares or Options or shall VESI be required to recognize such
holders as holders of Exchangeable Shares on and after the Effective Date, and
the names of such holders shall be deleted from the applicable register of
holders of Enertec or VESI securities on the Effective Date.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING SERIES 1 EXCHANGEABLE SHARES. At or
promptly after the Effective Time, VESI shall deposit with the Depositary, for
the benefit of the holders of Enertec Common Shares transferred pursuant to
Section 2.1(e), certificates representing the Series 1 Exchangeable Shares
issued pursuant to Section 2.1(e) upon the transfer of outstanding Enertec
Common Shares. Upon surrender to the Depositary for cancellation of a
certificate which immediately prior to the Effective Time represented
outstanding Enertec Common Shares that were transferred for Series 1
Exchangeable Shares, together with such other documents and instruments as would
have been required to effect the transfer of the shares formerly represented by
such certificate under the ABCA and the by-laws of Enertec and such additional
documents and instruments as the Depositary may reasonably require, the holder
of such surrendered certificate shall be entitled to receive in consideration
therefor, and the Depositary shall deliver to such holder, a certificate
representing that number (rounded down to the nearest whole number) of Series 1
Exchangeable Shares which such holder has the right to receive (together with
any dividends or distributions with respect thereto pursuant to Section 4.2 and
any cash in lieu of fractional Series 1 Exchangeable Shares pursuant to Section
4.3), and the certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of Enertec Common Shares which is not
registered in the transfer records of Enertec, a certificate representing the
proper number of Series 1 Exchangeable Shares may be issued to a transferee if
the certificate representing such Enertec Common Shares is presented to the
Depositary, accompanied by all documents required to evidence and effect such
transfer. Until surrendered as contemplated by this Section 4.1, each
certificate which immediately prior to the Effective Time represented
outstanding Enertec Common Shares that were transferred in consideration for
Series 1 Exchangeable Shares shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender (a) the
certificate representing Series 1 Exchangeable Shares as contemplated by this
Section 4.1, (b) a cash payment in lieu of any fractional Series 1 Exchangeable
Shares as contemplated by Section 4.3 and (c) any dividends or distributions
with a record date after the Effective Time theretofore paid or payable with
respect to Series 1 Exchangeable Shares as contemplated by Section 4.2.
4.2 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No dividends or
other distributions declared or made after the Effective Time with respect to
Series 1 Exchangeable Shares with a record date after the Effective Time shall
be paid to the holder of any unsurrendered certificate which, immediately prior
to the Effective Time, represented outstanding Enertec Common Shares that were
transferred pursuant to Section 2.1, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 4.3, (and no
interest will be earned or payable on these proceeds) unless and until such
certificate shall be surrendered in accordance with Section 4.1. Subject to
applicable law and to Section 4.5, at the time of such surrender of any such
certificate (or, in the case of clause (c) below, at the appropriate payment
date), there shall be paid to the record holder of the certificates representing
whole Series 1 Exchangeable Shares without interest, (a) the amount of any cash
payable in lieu of a fractional Series 1 Exchangeable Share to which such holder
is entitled pursuant to Section 4.3, (b) the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Series 1 Exchangeable Share, and (c) the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Series 1 Exchangeable Share.
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4.3 NO FRACTIONAL SHARES. No certificates or scrip representing fractional
Series 1 Exchangeable Shares shall be issued upon the surrender for transfer of
certificates pursuant to Section 4.1 and no dividend, stock split or other
change in the capital structure of VESI shall relate to any such fractional
security and such fractional interests shall not entitle the owner thereof to
vote or to exercise any rights as a security holder of VESI. In lieu of any such
fractional securities, each person entitled to a fractional interest in a Series
1 Exchangeable Share will receive an amount of cash (rounded to the nearest
whole cent), without interest, equal to the product of (a) such fraction,
multiplied by (b) the Average Closing Price of the Veritas Common Stock, such
amount to be provided to the Depositary by VESI upon request.
4.4 LOST CERTIFICATES. If any certificate which immediately prior to the
Effective Time represented outstanding Enertec Common Shares that were
transferred pursuant to Section 2.1 has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to
be lost, stolen or destroyed, the Depositary will issue in exchange for such
lost, stolen or destroyed certificate, certificates representing Series 1
Exchangeable Shares (and any dividends or distributions with respect thereto and
any cash pursuant to Section 4.3) deliverable in respect thereof as determined
in accordance with Section 2.1. When authorizing such payment in exchange for
any lost, stolen or destroyed certificate, the person to whom certificates
representing Series 1 Exchangeable Shares are to be issued shall, as a condition
precedent to the issuance thereof, give a bond satisfactory to VESI, Veritas and
VESI's transfer agent (the "Transfer Agent"), as the case may be, in such sum as
VESI may direct or otherwise indemnify VESI or Veritas in a manner satisfactory
to VESI and the Transfer Agent against any claim that may be made against VESI,
Veritas or the Transfer Agent with respect to the certificate alleged to have
been lost, stolen or destroyed.
4.5 EXTINGUISHMENT OF RIGHTS. Any certificate which immediately prior to the
Effective Time represented outstanding Enertec Common Shares that were
transferred pursuant to Section 2.1 and has not been deposited, with all other
instruments required by Section 4.1, on or prior to the tenth anniversary of the
Effective Date shall cease to represent a claim or interest of any kind or
nature as a shareholder of VESI. On such date, the Series 1 Exchangeable Shares
to which the former registered holder of the certificate referred to in the
preceding sentence was ultimately entitled shall be deemed to have been
surrendered to VESI together with all entitlements to dividends, distributions
and interests thereon held for such former registered holder for no
consideration.
ARTICLE 5
CERTAIN RIGHTS OF VERITAS TO ACQUIRE SERIES 1 EXCHANGEABLE SHARES
5.1 VERITAS LIQUIDATION CALL RIGHT.
(a) Veritas shall have the overriding right (the "Liquidation Call
Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of VESI pursuant to Article 5
of the Series 1 Exchangeable Share Provisions, to purchase from all
but not less than all of the holders (other than Veritas and any
Subsidiary thereof) of Series 1 Exchangeable Shares on the
Liquidation Date all but not less than all of the Series 1
Exchangeable Shares held by each such holder on payment by Veritas to
the holder of the Series 1 Exchangeable Share Price applicable on the
last Business Day prior to the Liquidation Date (the "Liquidation
Call Purchase Price"). In the event of the exercise of the
Liquidation Call Right by Veritas, each holder shall be obligated to
sell all the Series 1 Exchangeable Shares held by the holder to
Veritas on the Liquidation Date on payment by Veritas to the holder
of the Liquidation Call Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, Veritas must notify VESI's
Transfer Agent in writing, as agent for the holders of Series 1
Exchangeable Shares, and VESI of Veritas' intention to exercise such
right at least 55 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of VESI and at least
five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding-up of VESI. The
Transfer Agent will notify the holders of Series 1 Exchangeable
Shares as to whether or not Veritas has exercised the Liquidation
Call Right forthwith after the expiry of the date by which the same
may be exercised by Veritas. If Veritas exercises the Liquidation
Call Right, on the Liquidation Date Veritas will purchase and the
holders
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will sell all of the Series 1 Exchangeable Shares then outstanding for a price
per share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Series 1
Exchangeable Shares pursuant to the Liquidation Call Right, Veritas
shall deposit with the Transfer Agent, on or before the Liquidation
Date, the Series 1 Exchangeable Share Consideration representing the
total Liquidation Call Purchase Price. In connection with payment of
the Liquidation Call Purchase Price, Veritas shall be entitled to
liquidate some of the Veritas Common Stock that would otherwise be
deliverable to the particular holder of Series 1 Exchangeable Shares
in order to fund any statutory withholding tax obligation. Provided
that such Series 1 Exchangeable Share Consideration has been so
deposited with the Transfer Agent, on and after the Liquidation Date
the rights of each holder of Series 1 Exchangeable Shares will be
limited to receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable by Veritas without interest
upon presentation and surrender by the holder of certificates
representing the Series 1 Exchangeable Shares held by such holder and
the holder shall on and after the Liquidation Date be considered and
deemed for all purposes to be the holder of the Veritas Common Stock
delivered to it. Upon surrender to the Transfer Agent of a
certificate or certificates representing Series 1 Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Series 1 Exchangeable Shares under
the ABCA and the by-laws of VESI and such additional documents and
instruments as the Transfer Agent may reasonably require, the holder
of such surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf of
Veritas shall deliver to such holder, the Series 1 Exchangeable Share
Consideration to which the holder is entitled. If Veritas does not
exercise the Liquidation Call Right in the manner described above, on
the Liquidation Date the holders of the Series 1 Exchangeable Shares
will be entitled to receive in exchange therefor the liquidation
price otherwise payable by VESI in connection with the liquidation,
dissolution or winding-up of VESI pursuant to Article 5 of the Series
1 Exchangeable Share Provisions. Notwithstanding the foregoing, until
such Series 1 Exchangeable Share Consideration is delivered to the
holder, the holder shall be deemed to still be a holder of Series 1
Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
5.2 VERITAS REDEMPTION CALL RIGHT.
(a) Veritas shall have the overriding right (the "Redemption Call
Right"), notwithstanding the proposed redemption of the Series 1
Exchangeable Shares by VESI pursuant to Article 7 of the Series 1
Exchangeable Share Provisions, to purchase from all but not less than
all of the holders (other than Veritas or any Subsidiary thereof) of
Series 1 Exchangeable Shares on the Automatic Redemption Date all but
not less than all of the Series 1 Exchangeable Shares held by each
such holder on payment by Veritas to the holder of the Series 1
Exchangeable Share Price applicable on the last Business Day prior to
the Automatic Redemption Date (the "Redemption Call Purchase Price").
In the event of the exercise of the Redemption Call Right by Veritas,
each holder shall be obligated to sell all the Series 1 Exchangeable
Shares held by the holder to Veritas on the Automatic Redemption Date
on payment by Veritas to the holder of the Redemption Call Purchase
Price for each such share.
(b) To exercise the Redemption Call Right, Veritas must notify the
Transfer Agent in writing, as agent for the holders of Series 1
Exchangeable Shares, and VESI of Veritas's intention to exercise such
right at least 125 days before the Automatic Redemption Date. The
Transfer Agent will notify the holders of the Series 1 Exchangeable
Shares as to whether or not Veritas has exercised the Redemption Call
Right forthwith after the date by which the same may be exercised by
Veritas. If Veritas exercises the Redemption Call Right, on the
Automatic Redemption Date Veritas will purchase and the holders will
sell all of the Series 1 Exchangeable Shares then outstanding for a
price per share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Series 1
Exchangeable Shares pursuant to the Redemption Call Right, Veritas
shall deposit with the Transfer Agent, on or before the Automatic
Redemption Date, the Series 1 Exchangeable Share Consideration
representing the total Redemption
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Call Purchase Price. In connection with payment of the Redemption Call
Purchase Price, Veritas shall be entitled to liquidate some of the
Veritas Common Stock that would otherwise be deliverable to the
particular holder of Series 1 Exchangeable Shares in order to fund any
statutory withholding tax obligation. Provided that such Series 1
Exchangeable Share Consideration has been so deposited with the Transfer
Agent, on and after the Automatic Redemption Date the rights of each
holder of Series 1 Exchangeable Shares will be limited to receiving such
holder's proportionate part of the total Redemption Call Purchase Price
payable by Veritas upon presentation and surrender by the holder of
certificates representing the Series 1 Exchangeable Shares held by such
holder and the holder shall on and after the Automatic Redemption Date
be considered and deemed for all purposes to be the holder of the
Veritas Common Stock delivered to such holder. Upon surrender to the
Transfer Agent of a certificate or certificates representing Series 1
Exchangeable Shares, together with such other documents and instruments
as may be required to effect a transfer of Series 1 Exchangeable Shares
under the ABCA and the by-laws of VESI and such additional documents and
instruments as the Transfer Agent may reasonably require, the holder of
such surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf of
Veritas shall deliver to such holder, the Series 1 Exchangeable Share
Consideration to which the holder is entitled. If Veritas does not
exercise the Redemption Call Right in the manner described above, on the
Automatic Redemption Date the holders of the Series 1 Exchangeable
Shares will be entitled to receive in exchange therefor the redemption
price otherwise payable by VESI in connection with the redemption of the
Series 1 Exchangeable Shares pursuant to Article 7 of the Series 1
Exchangeable Share Provisions. Notwithstanding the foregoing, until such
Series 1 Exchangeable Share Consideration is delivered to the holder,
the holder shall be deemed to still be a holder of Series 1 Exchangeable
Shares for purposes of all voting rights with respect thereto under the
Voting and Exchange Trust Agreement.
5.3 VERITAS RETRACTION CALL RIGHT.
(a) Veritas shall have the overriding right, notwithstanding the proposed
redemption of Series 1 Exchangeable Shares by VESI pursuant to
Article 6 of the Series 1 Exchangeable Share Provisions, to purchase
directly from the holder (other than Veritas or any Subsidiary
thereof) of Series 1 Exchangeable Shares all but not less than all of
the Retracted Shares in accordance with Section 6.3 of the Series 1
Exchangeable Share Provisions.
ARTICLE 6
AMENDMENT
6.1 PLAN OF ARRANGEMENT AMENDMENT. VESI and Enertec shall have the right to
amend, modify and/or supplement this Plan of Arrangement at any time and from
time to time provided that any such amendment, modification, or supplement must
be contained in a written document that is (a) agreed to by Veritas, (b) filed
with the Court and, if made following the Meetings, approved by the Court and
(c) communicated to holders of Enertec Common Shares and Options and of
Exchangeable Shares in the manner required by the Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may
be proposed by Enertec at any time prior to or at the Meetings (provided that
Veritas shall have consented thereto) with or without any other prior notice or
communication, and if so proposed and accepted by the persons voting at the
Meetings (other than as may be required under the Court's interim order), shall
become part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement that
is approved by the Court following the Meetings shall be effective only (a) if
it is consented to by Enertec, (b) if it is consented to by Veritas and (c) if
required by the Court or applicable law, it is consented to by the holders of
the Enertec Common Shares and Options and of Exchangeable Shares.
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APPENDIX A
TO PLAN OF ARRANGEMENT
OF ENERTEC RESOURCE SERVICES INC. AND
VERITAS ENERGY SERVICES INC.
PROVISIONS ATTACHING TO THE CLASS A EXCHANGEABLE SHARES OF VESI
The Class A Exchangeable Shares in the capital of the Corporation shall
have attached thereto the following rights, privileges, restrictions and
conditions:
(a) The Class A Exchangeable Shares may at any time and from time to time
be issued in one or more series, each series to consist of such
number of shares as may, before the issue thereof, be determined by
resolution of the directors of the Corporation.
(b) Subject to the provisions of the Business Corporations Act (Alberta),
the directors of the Corporation may by resolution fix from time to
time, before the issue thereof, the designation, rights, privileges,
restrictions and conditions attaching to each series of Class A
Exchangeable Shares, provided that such designation, rights,
privileges, restrictions and conditions shall be consistent with the
provisions hereof.
(c) The Class A Exchangeable Shares of each series shall rank on a parity
with the Exchangeable Shares and the Class A Exchangeable Shares of
every other series with respect to: (i) the payment of dividends; and
(ii) the distribution of the assets of the Corporation in the event
of the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the purpose of
winding up its affairs.
(d) The Class A Exchangeable Shares of each series shall be entitled to a
preference over the Common Shares and any other shares ranking junior
to the Class A Exchangeable Shares with respect to: (i) the payment
of dividends; and (ii) the distribution of the assets of the
Corporation in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or
any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs.
(e) Except as required by applicable law and the provisions of any series
of Class A Exchangeable Shares, the holders of the Class A
Exchangeable Shares shall not be entitled as such to receive notice
of or to attend any meeting of the shareholders of the Corporation or
to vote at any such meeting.
(f) In any instance where the holders of Class A Exchangeable Shares are
entitled to vote, each such holder shall have one vote for each Class
A Exchangeable Share held by such holder.
(g) The rights, privileges, restrictions and conditions attaching to the
Class A Exchangeable Shares as a class may be added to, changed or
removed but, except as hereinafter provided, only with the approval
of the holders of the Class A Exchangeable Shares given as
hereinafter specified.
(h) Any approval given by the holders of the Class A Exchangeable Shares
to add to, change or remove any right, privilege, restriction or
condition attaching to the class provisions of the Class A
Exchangeable Shares or any other matter requiring the approval or
consent of the holders of the Class A Exchangeable Shares as a class
shall be deemed to have been sufficiently given if it shall have been
given in accordance with applicable law subject to a minimum
requirement that such approval be evidenced by resolution passed by
not less than two-thirds of the votes cast on such resolution by
persons represented in person or by proxy at a meeting of holders of
Class A Exchangeable Shares duly called and held at which the holders
of at least 50% of the outstanding Class A Exchangeable Shares at
that time are present or represented by proxy (excluding Class A
Exchangeable Shares beneficially owned by Veritas DGC Inc. or its
Subsidiaries). If at any such meeting the holders of at least 50% of
the outstanding Class A Exchangeable Shares at that time are not
present or represented
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by proxy within one-half hour after the time appointed for such meeting
then the meeting shall be adjourned to such date not less than 10 days
thereafter and to such time and place as may be designated by the
Chairman of such meeting. At such adjourned meeting the holders of Class
A Exchangeable Shares present or represented by proxy thereat may
transact the business for which the meeting was originally called and a
resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution by persons represented
in person or by proxy at such meeting shall constitute the approval or
consent of the holders of the Class A Exchangeable Shares.
PROVISIONS ATTACHING TO THE CLASS A EXCHANGEABLE SHARES
SERIES 1 OF VESI
The Series 1 Exchangeable Shares in the capital of the Corporation shall
have the following rights, privileges, restrictions and conditions.
ARTICLE 1
INTERPRETATION
For the purposes of these share provisions:
1.1 "Automatic Redemption Date" means the date for the automatic redemption by
the Corporation of Series 1 Exchangeable Shares pursuant to Article 7 of these
share provisions, which date shall be , 2009 unless (a) such date
shall be extended at any time or from time to time to a specified later date by
the Board of Directors but not later than , 2014 or (b) such date
shall be accelerated to a specified earlier date by the Board of Directors if
(x) at such time there are less than 10,000 Series 1 Exchangeable Shares
outstanding (other than Series 1 Exchangeable Shares held by Veritas and its
Subsidiaries) or (y) at any time after , 2004 there are less than
250,000 Exchangeable Shares outstanding (other than Exchangeable Shares held by
Veritas and its Subsidiaries) and Veritas exercises its option to redeem all of
such outstanding Exchangeable Shares (as such numbers of Series 1 Exchangeable
Shares or Exchangeable Shares, as applicable, may be adjusted as deemed
appropriate by the Board of Directors to give effect to any subdivision or
consolidation of or stock dividend on the Series 1 Exchangeable Shares or
Exchangeable Shares, any issuance or distribution of rights to acquire Series 1
Exchangeable Shares or Exchangeable Shares or securities exchangeable for or
convertible into Series 1 Exchangeable Shares or Exchangeable Shares, any issue
or distribution of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction affecting the
Series 1 Exchangeable Shares or Exchangeable Shares), in each case upon at least
60 days' prior written notice of any such extension or acceleration, as the case
may be, to the registered holders of the Series 1 Exchangeable Shares, in which
case the Automatic Redemption Date shall be such later or earlier date;
provided, however, that the accidental failure or omission to give any such
notice of extension or acceleration, as the case may be, to less than 10% of
such holders of Series 1 Exchangeable Shares shall not affect the validity of
such extension or acceleration.
"Board of Directors " means the Board of Directors of the Corporation.
"Business Day " means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Houston, Texas and Calgary,
Alberta.
"Class A Exchangeable Shares " means the Class A Exchangeable Shares in the
capital of the Corporation.
"Common Shares " means the common shares in the capital of the Corporation.
"Corporation " means Veritas Energy Services Inc., a corporation
incorporated under the laws of the Province of Alberta.
"Current Market Price " means, in respect of a share of Veritas Common
Stock on any date, the average of the closing bid and asked prices of Veritas
Common Stock during a period of 20 consecutive trading days ending not more than
five trading days before such date on The New York Stock Exchange, or, if the
Veritas Common Stock is not then traded on The New York Stock Exchange, on such
other principal U.S. stock exchange or
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automated quotation system on which the Veritas Common Stock is listed or
quoted, as the case may be, as may be selected by the Board of Directors for
such purpose; provided, however, that if in the opinion of the Board of
Directors the public distribution or trading activity of Veritas Common Stock
during such period does not create a market which reflects the fair market value
of a share of Veritas Common Stock, then the Current Market Price of a share of
Veritas Common Stock shall be determined by the Board of Directors based upon
the advice of such qualified independent financial advisors as the Board of
Directors may deem to be appropriate, and provided further that any such
selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"Exchangeable Shares " means the exchangeable shares in the capital of the
Corporation.
"Liquidation Amount " has the meaning set out in Section 5.1 of these share
provisions.
"Liquidation Call Right " has the meaning set out in the Plan of
Arrangement.
"Liquidation Date " has the meaning set out in Section 5.1 of these share
provisions.
"Plan of Arrangement " means the joint plan of arrangement relating to the
arrangement of the Corporation and Enertec Resource Services Inc. under section
186 of the Business Corporations Act (Alberta), to which plan these share
provisions are attached.
"Purchase Price " has the meaning set out in Section 6.3 of these share
provisions.
"Redemption Call Purchase Price " has the meaning set out in the Plan of
Arrangement.
"Redemption Call Right " has the meaning set out in the Plan of
Arrangement.
"Redemption Price " has the meaning set out in Section 7.1 of these share
provisions.
"Retracted Shares " has the meaning set out in Section 6.1(i) of these
share provisions.
"Retraction Call Right " has the meaning set out in Section 6.1(iii) of
these share provisions.
"Retraction Date " has the meaning set out in Section 6.1(ii) of these
share provisions.
"Retraction Price " has the meaning set out in Section 6.1 of these share
provisions.
"Retraction Request " has the meaning set out in Section 6.1 of these share
provisions.
"Series 1 Exchangeable Share Consideration " means, for any acquisition of
Series 1 Exchangeable Shares pursuant to these share provisions, the Plan of
Arrangement, the Support Agreement or the Voting and Exchange Trust Agreement:
(a) certificates representing the aggregate number of shares of Veritas
Common Stock deliverable in connection with such acquisition;
(b) a cheque or cheques payable at par at any branch of the bankers of
the payor in the amount of declared and unpaid cash dividends
deliverable in connection with such acquisition; and
(c) such stock or property constituting any declared and unpaid non-cash
dividends deliverable in connection with such acquisition.
provided that any such stock or property shall be duly issued as fully paid and
non-assessable, in the case of stock, and free and clear of any lien, claim and
encumbrance, security interest or adverse claim and provided further that such
consideration shall be paid less any tax required to be deducted and withheld
therefrom and without interest.
"Series 1 Exchangeable Share Price " means, for each Series 1 Exchangeable
Share:
(a) the Current Market Price of a share of Veritas Common Stock, which
shall be satisfied in full by causing to be delivered one share of
Veritas Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends
declared and unpaid on such Series 1 Exchangeable Share; plus
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(c) the stock or property, if any, representing non-cash dividends
declared and unpaid on such Series 1 Exchangeable Share.
"Series 1 Exchangeable Shares " mean the Class A Exchangeable Shares Series
1 of the Corporation having the rights, privileges, restrictions and conditions
set forth herein.
"Subsidiary " of any person means each partnership, joint venture,
corporation, association or other business entity of which more than 50% of the
total voting power of shares of stock or units of ownership or beneficial
interest entitled to vote in the election of directors (or members of a
comparable governing body) which is owned or controlled, directly or indirectly,
by such person.
"Support Agreement " means the Support Agreement between Veritas and the
Corporation, made as of , 1999.
"Transfer Agent " means CIBC Mellon Trust Company or such other person as
may from time to time be the registrar and transfer agent for the Series 1
Exchangeable Shares.
"Trustee " means CIBC Mellon Trust Company and any successor trustee
appointed under the Voting and Exchange Trust Agreement.
"Veritas " means Veritas DGC Inc., a corporation organized and existing
under the laws of the State of Delaware, and any successor corporation.
"Veritas Call Notice " has the meaning set out in Section 6.3 of these
share provisions.
"Veritas Common Stock " mean the shares of common stock of Veritas, with a
par value of U.S. $0.01 per share, having voting rights of one vote per share,
and any other securities into which such shares may be changed.
"Veritas Dividend Declaration Date " means the date on which the board of
directors of Veritas declares any dividend on the Veritas Common Stock.
"Voting and Exchange Trust Agreement " means the Voting and Exchange Trust
Agreement between the Corporation, Veritas and the Trustee, made as of
, 1999.
ARTICLE 2
RANKING OF SERIES 1 EXCHANGEABLE SHARES
2.1 The Series 1 Exchangeable Shares shall rank on a parity with the
Exchangeable Shares and the Class A Exchangeable Shares of every other series
with respect to: (i) the payment of dividends; and (ii) the distribution of the
assets of the Corporation in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs. The Series 1 Exchangeable Shares shall be
entitled to a preference over the Common Shares and any other shares ranking
junior to the Class A Exchangeable Shares with respect to: (i) the payment of
dividends; and (ii) the distribution of the assets of the Corporation in the
event of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of a Series 1 Exchangeable Share shall be entitled to receive and
the Board of Directors shall, subject to applicable law, on each Veritas
Dividend Declaration Date, declare a dividend on each Series 1 Exchangeable
Share (a) in the case of a cash dividend declared on the Veritas Common Stock,
in an amount in cash for each Series 1 Exchangeable Share equal to the cash
dividend declared on each share of Veritas Common Stock or (b) in the case of a
stock dividend declared on the Veritas Common Stock to be paid in Veritas Common
Stock, in such number of Series 1 Exchangeable Shares for each Series 1
Exchangeable Share as is equal to the number of shares of Veritas Common Stock
to be paid on each share of Veritas Common Stock or (c) in the case of a
dividend declared on the Veritas Common Stock in property other than cash or
Veritas Common Stock, in
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such type and amount of property for each Series 1 Exchangeable Share as is the
same as the type and amount of property declared as a dividend on each share of
Veritas Common Stock. Such dividends shall be paid out of money, assets or
property of the Corporation properly applicable to the payment of dividends, or
out of authorized but unissued shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Section 3.1(a) hereof and the sending of such a cheque to each holder of a
Series 1 Exchangeable Share (less any tax required to be deducted and withheld
from such dividends paid or credited by the Corporation) shall satisfy the cash
dividend represented thereby unless the cheque is not paid on presentation.
Certificates registered in the name of the registered holder of Series 1
Exchangeable Shares shall be issued or transferred in respect of any stock
dividends contemplated by Section 3.1(b) hereof and the sending of such a
certificate to each holder of a Series 1 Exchangeable Share shall satisfy the
stock dividend represented thereby (subject to any adjustment for the tax
required to be deducted and withheld from such dividends paid or credited by the
Corporation). Such other type and amount of property in respect of any dividends
contemplated by Section 3.1(c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
a Series 1 Exchangeable Share shall satisfy the dividend represented thereby
(subject to any adjustment for the tax required to be deducted and withheld from
such dividends paid or credited by the Corporation). No holder of a Series 1
Exchangeable Share shall be entitled to recover by action or other legal process
against the Corporation any dividend that is represented by a cheque that has
not been duly presented to the Corporation's bankers for payment or that
otherwise remains unclaimed for a period of six years from the date on which
such dividend was payable.
3.3 The record date for the determination of the holders of Series 1
Exchangeable Shares entitled to receive payment of, and the payment date for,
any dividend declared on the Series 1 Exchangeable Shares under Section 3.1
hereof shall be the same dates as the record date and payment date,
respectively, for the corresponding dividend declared on the Veritas Common
Stock.
3.4 If on any payment date for any dividends declared on the Series 1
Exchangeable Shares under Section 3.1 hereof the dividends are not paid in full
on all of the Series 1 Exchangeable Shares then outstanding, any such dividends
that remain unpaid shall be paid on a subsequent date or dates determined by the
Board of Directors on which the Corporation shall have sufficient moneys, assets
or property properly applicable to the payment of such dividends (subject to any
adjustment for the tax required to be deducted and withheld from such dividends
paid or credited by the Corporation).
3.5 Except as provided in this Article 3, the holders of Series 1 Exchangeable
Shares shall not be entitled to receive dividends in respect thereof.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Series 1 Exchangeable Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Series 1 Exchangeable Shares given as specified
in Section 9.2 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Series 1 Exchangeable Shares, other than stock
dividends payable in any such other shares ranking junior to the
Series 1 Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Series 1
Exchangeable Shares;
(c) except as provided for in the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares or Class A
Exchangeable Shares, or any series thereof, redeem or purchase any
other shares of the Corporation ranking equally with the Series 1
Exchangeable Shares with respect to the payment of dividends or on
any liquidation distribution;
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(d) issue any Series 1 Exchangeable Shares other than by way of stock
dividends to the holders of such Series 1 Exchangeable Shares or as
contemplated by the Support Agreement; or
(e) except for the designation of one or more further series of the Class
A Exchangeable Shares, amend the articles or by-laws of the
Corporation.
The restrictions in Sections 4.1(a), 4.1(b), and 4.1(c) above shall not
apply if all dividends on the outstanding Series 1 Exchangeable Shares
corresponding to dividends declared to date on the Veritas Common Stock shall
have been declared on the Series 1 Exchangeable Shares and paid in full.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, a holder of Series 1
Exchangeable Shares shall be entitled, subject to applicable law, to receive
from the assets of the Corporation in respect of each Series 1 Exchangeable
Share held by such holder on the effective date (the "Liquidation Date") of such
liquidation, dissolution or winding-up, before any distribution of any part of
the assets of the Corporation to the holders of the Common Shares or any other
shares ranking junior to the Series 1 Exchangeable Shares, an amount equal to
the Series 1 Exchangeable Share Price applicable on the last Business Day prior
to the Liquidation Date (the "Liquidation Amount"). In connection with payment
of the Liquidation Amount, the Corporation shall be entitled to liquidate some
of the Veritas Common Stock that would otherwise be deliverable to the
particular holder of Series 1 Exchangeable Shares in order to fund any statutory
withholding tax obligation.
5.2 On or promptly after the Liquidation Date, and subject to the exercise by
Veritas of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Series 1 Exchangeable Shares the Liquidation
Amount for each such Series 1 Exchangeable Share upon presentation and surrender
of the certificates representing such Series 1 Exchangeable Shares, together
with such other documents and instruments as may be required to effect a
transfer of Series 1 Exchangeable Shares under the Business Corporations Act
(Alberta) and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Series 1
Exchangeable Shares. Payment of the total Liquidation Amount for such Series 1
Exchangeable Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the Series
1 Exchangeable Shares or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of Series 1 Exchangeable
Shares, on behalf of the Corporation of the Series 1 Exchangeable Share
Consideration representing the total Liquidation Amount. On and after the
Liquidation Date, the holders of the Series 1 Exchangeable Shares shall cease to
be holders of such Series 1 Exchangeable Shares and shall not be entitled to
exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the total Liquidation Amount, unless
payment of the total Liquidation Amount for such Series 1 Exchangeable Shares
shall not be made upon presentation and surrender of share certificates in
accordance with the foregoing provisions, in which case the rights of the
holders shall remain unaffected until the total Liquidation Amount has been paid
in the manner hereinbefore provided. The Corporation shall have the right at any
time on or after the Liquidation Date to deposit or cause to be deposited the
Series 1 Exchangeable Share Consideration in respect of the Series 1
Exchangeable Shares represented by certificates that have not at the Liquidation
Date been surrendered by the holders thereof in a custodial account or for safe
keeping, in the case of non-cash items, with any chartered bank or trust company
in Canada. Upon such deposit being made, the rights of the holders of Series 1
Exchangeable Shares after such deposit shall be limited to receiving their
proportionate part of the total Liquidation Amount for such Series 1
Exchangeable Shares so deposited, against presentation and surrender of the said
certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of such Series 1 Exchangeable Share
Consideration, the holders of the Series 1 Exchangeable Shares shall thereafter
be considered and deemed for all purposes to be the holders of the Veritas
Common Stock delivered to them. Notwithstanding the foregoing, until such Series
1 Exchangeable Share Consideration is delivered to the holder,
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the holder shall be deemed to still be a holder of Series 1 Exchangeable Shares
for purposes of all voting rights with respect thereto under the Voting and
Exchange Trust Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Series 1 Exchangeable Shares the Liquidation Amount per Series 1
Exchangeable Share pursuant to Section 5.1 of these share provisions, such
holders shall not be entitled to share in any further distribution of the assets
of the Corporation.
ARTICLE 6
RETRACTION OF SERIES 1 EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Series 1 Exchangeable Shares shall be entitled at any time,
subject to the exercise by Veritas of the Retraction Call Right and otherwise
upon compliance with the provisions of this Article 6, to require the
Corporation to redeem any or all of the Series 1 Exchangeable Shares registered
in the name of such holder for an amount equal to the Series 1 Exchangeable
Share Price applicable on the last Business Day prior to the Retraction Date
(the "Retraction Price"). In connection with payment of the Retraction Price,
the Corporation shall be entitled to liquidate some of the Veritas Common Stock
that would otherwise be deliverable to the particular holder of Series 1
Exchangeable Shares in order to fund any statutory withholding tax obligation.
To effect such redemption, the holder shall present and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation by notice to the holders of Series 1
Exchangeable Shares the certificate or certificates representing the Series 1
Exchangeable Shares which the holder desires to have the Corporation redeem,
together with such other documents and instruments as may be required to effect
a transfer of Series 1 Exchangeable Shares under the Business Corporations Act
(Alberta) and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, and together with a
duly executed statement (the "Retraction Request") in the form of Schedule A
hereto or in such other form as may be acceptable to the Corporation:
(i) specifying that the holder desires to have all or any number
specified therein of the Series 1 Exchangeable Shares represented by
such certificate or certificates (the "Retracted Shares") redeemed
by the Corporation;
(ii) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"),
provided that the Retraction Date shall be not less than five
Business Days nor more than 10 Business Days after the date on which
the Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified
by the holder in the Retraction Request, the Retraction Date shall
be deemed to be the tenth Business Day after the date on which the
Retraction Request is received by the Corporation; and
(iii) acknowledging the overriding right (the "Retraction Call Right") of
Veritas to purchase all but not less than all the Retracted Shares
directly from the holder and that the Retraction Request shall be
deemed to be a revocable offer by the holder to sell the Retracted
Shares to Veritas in accordance with the Retraction Call Right on
the terms and conditions set out in Section 6.3 below.
6.2 Subject to the exercise by Veritas of the Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in
Section 6.1 hereof of a certificate or certificates representing the number of
Series 1 Exchangeable Shares which the holder desires to have the Corporation
redeem, together with a Retraction Request, and provided that the Retraction
Request is not revoked by the holder in the manner specified in Section 6.7, the
Corporation shall redeem the Retracted Shares effective at the close of business
on the Retraction Date and shall cause to be delivered to such holder the total
Retraction Price with respect to such shares. If only a part of the Series 1
Exchangeable Shares represented by any certificate are redeemed (or purchased by
Veritas pursuant to the Retraction Call Right), a new certificate for the
balance of such Series 1 Exchangeable Shares shall be issued to the holder at
the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify Veritas thereof. In order to exercise the Retraction
Call Right, Veritas must notify the Corporation in writing of its determination
to do so (the "Veritas Call Notice") within two Business Days of notification to
Veritas by the Corporation of the receipt by the Corporation of the Retraction
Request. If Veritas does not so notify the
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Corporation within such two Business Day period, the Corporation will notify the
holder as soon as possible thereafter that Veritas will not exercise the
Retraction Call Right. If Veritas delivers the Veritas Call Notice within such
two Business Day time period, and provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the Retraction
Request shall thereupon be considered only to be an offer by the holder to sell
the Retracted Shares to Veritas in accordance with the Retraction Call Right. In
such event, the Corporation shall not redeem the Retracted Shares and Veritas
shall purchase from such holder and such holder shall sell to Veritas on the
Retraction Date the Retracted Shares for a purchase price (the "Purchase
Price ") per share equal to the Retraction Price per share. For the purposes of
completing a purchase pursuant to the Retraction Call Right, Veritas shall
deposit with the Transfer Agent, on or before the Retraction Date the Series 1
Exchangeable Share Consideration representing the total Purchase Price. In
connection with payment of the Purchase Price, Veritas shall be entitled to
liquidate some of the Veritas Common Stock that would otherwise be deliverable
to the particular holder of Series 1 Exchangeable Shares in order to fund any
statutory withholding tax obligation. Provided that such Series 1 Exchangeable
Share Consideration has been so deposited with the Transfer Agent, the closing
of the purchase and sale of the Retracted Shares pursuant to the Retraction Call
Right shall be deemed to have occurred as at the close of business on the
Retraction Date and, for greater certainty, no redemption by the Corporation of
such Retracted Shares shall take place on the Retraction Date. In the event that
Veritas does not deliver a Veritas Call Notice within such two Business Day
period or otherwise comply with these Series 1 Exchangeable Share provisions in
respect thereto, and provided that Retraction Request is not revoked by the
holder in the manner specified in Section 6.7, the Corporation shall redeem the
Retracted Shares on the Retraction Date and in the manner otherwise contemplated
in this Article 6.
6.4 The Corporation or Veritas, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Series 1
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Series 1 Exchangeable Shares, the Series
1 Exchangeable Share Consideration representing the total Retraction Price or
the total Purchase Price, as the case may be, and such delivery of such Series 1
Exchangeable Share Consideration to the Transfer Agent shall be deemed to be
payment of and shall satisfy and discharge all liability for the total
Retraction Price or total Purchase Price, as the case may be, unless any cheque
included therein is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of the
Retracted Shares shall cease to be a holder of such Retracted Shares and shall
not be entitled to exercise any of the rights of a holder in respect thereof,
other than the right to receive his proportionate part of the total Retraction
Price or total Purchase Price, as the case may be, unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the total Retraction Price or the total Purchase Price, as the case may be,
shall not be made, in which case the rights of such holder shall remain
unaffected until the total Retraction Price or the total Purchase Price, as the
case may be, has been paid in the manner hereinbefore provided. On and after the
close of business on the Retraction Date, provided that presentation and
surrender of certificates and payment of the total Retraction Price or the total
Purchase Price, as the case may be, has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so redeemed by the
Corporation or purchased by Veritas shall thereafter be considered and deemed
for all purposes to be a holder of the Veritas Common Stock delivered to it.
Notwithstanding the foregoing, until such Series 1 Exchangeable Share
Consideration is delivered to the holder, the holder shall be deemed to still be
a holder of Series 1 Exchangeable Shares for purposes of all voting rights with
respect thereto under the Voting and Exchange Trust Agreement.
6.6 Notwithstanding any other provision of this Article 6, the Corporation shall
not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to liquidity or solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that Veritas shall not have
exercised the Retraction Call Right with respect to the Retracted Shares, the
Corporation shall only be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall
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notify the holder at least two Business Days prior to the Retraction Date as to
the number of Retracted Shares which will not be redeemed by the Corporation. In
any case in which the redemption by the Corporation of Retracted Shares or the
redemption by the Corporation of any other Class A Exchangeable Shares or
Exchangeable Shares would be contrary to liquidity or solvency requirements or
other provisions of applicable law, the Corporation shall redeem Retracted
Shares, the Exchangeable Shares and Class A Exchangeable Shares on a PRO RATA
basis and shall issue to each holder of Retracted Shares a new certificate, at
the expense of the Corporation, representing the Retracted Shares not redeemed
by the Corporation. Provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.7, the holder of any such Retracted
Shares not redeemed by the Corporation pursuant to Section 6.2 of these share
provisions as a result of liquidity or solvency requirements of applicable law
shall be deemed by giving the Retraction Request to require Veritas to purchase
such Retracted Shares from such holder on the Retraction Date or as soon as
practicable thereafter on payment by Veritas to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in the
Voting and Exchange Trust Agreement, and Veritas shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request in which event
such Retraction Request shall be null and void and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to Veritas shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF SERIES 1 EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if Veritas does not exercise the Redemption
Call Right, the Corporation shall on the Automatic Redemption Date redeem the
whole of the then outstanding Series 1 Exchangeable Shares for an amount equal
to the Series 1 Exchangeable Share Price applicable on the last Business Day
prior to the Automatic Redemption Date (the "Redemption Price "). In connection
with payment of the Redemption Price, the Corporation shall be entitled to
liquidate some of the Veritas Common Stock that would otherwise be deliverable
to the particular holder of Series 1 Exchangeable Shares in order to fund any
statutory withholding tax obligation.
7.2 In any case of a redemption of Series 1 Exchangeable Shares under this
Article 7, the Corporation shall, at least 120 days before the Automatic
Redemption Date, send or cause to be sent to each holder of Series 1
Exchangeable Shares a notice in writing of the redemption by the Corporation or
the purchase by Veritas under the Redemption Call Right, as the case may be, of
the Series 1 Exchangeable Shares held by such holder. Such notice shall set out
the formula for determining the Redemption Price or the Redemption Call Purchase
Price, as the case may be, the Automatic Redemption Date and, if applicable,
particulars of the Redemption Call Right.
7.3 On or after the Automatic Redemption Date and subject to the exercise by
Veritas of the Redemption Call Right, the Corporation shall cause to be
delivered to the holders of the Series 1 Exchangeable Shares to be redeemed the
Redemption Price for each such Series 1 Exchangeable Share upon presentation and
surrender at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation in such notice of the
certificates representing such Series 1 Exchangeable Shares, together with such
other documents and instruments as may be required to effect a transfer of
Series 1 Exchangeable Shares under the Business Corporations Act (Alberta) and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require. Payment of the total Redemption Price
for such Series 1 Exchangeable Shares shall be made by delivery to each holder,
at the address of the holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice, on behalf of the Corporation of the Series 1
Exchangeable Share Consideration representing the total Redemption Price. On and
after the Automatic Redemption Date, the holders of the Series 1 Exchangeable
Shares called for redemption shall cease to be holders of such Series 1
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Redemption Price, unless payment of the total Redemption Price
for such Series 1 Exchangeable Shares shall not
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be made upon presentation and surrender of certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Redemption Price has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time after
the sending of notice of its intention to redeem the Series 1 Exchangeable
Shares as aforesaid to deposit or cause to be deposited the Series 1
Exchangeable Share Consideration with respect to the Series 1 Exchangeable
Shares so called for redemption, or of such of the said Series 1 Exchangeable
Shares represented by certificates that have not at the date of such deposit
been surrendered by the holders thereof in connection with such redemption, in a
custodial account or for safe keeping, in the case of non-cash items, with any
chartered bank or trust company in Canada named in such notice. Upon the later
of such deposit being made and the Automatic Redemption Date, the Series 1
Exchangeable Shares in respect whereof such deposit shall have been made shall
be redeemed and the rights of the holders thereof after such deposit or
Automatic Redemption Date, as the case may be, shall be limited to receiving
their proportionate part of the total Redemption Price for such Series 1
Exchangeable Shares so deposited, against presentation and surrender of the said
certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of such Series 1 Exchangeable Share
Consideration, the holders of the Series 1 Exchangeable Shares shall thereafter
be considered and deemed for all purposes to be holders of the Veritas Common
Stock delivered to them. Notwithstanding the foregoing, until such Series 1
Exchangeable Share Consideration is delivered to the holder, the holder shall be
deemed to still be a holder of Series 1 Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions hereof, the holders
of the Series 1 Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the shareholders of the Corporation or to
vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the Series
1 Exchangeable Shares may be added to, changed or removed but, except as
hereinafter provided, only with the approval of the holders of the Series 1
Exchangeable Shares given as hereinafter specified.
9.2 Any approval given by the holders of the Series 1 Exchangeable Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Series 1 Exchangeable Shares or any other matter requiring the approval or
consent of the holders of the Series 1 Exchangeable Shares shall be deemed to
have been sufficiently given if it shall have been given in accordance with
applicable law subject to a minimum requirement that such approval be evidenced
by resolution passed by not less than two-thirds of the votes cast on such
resolution by persons represented in person or by proxy at a meeting of holders
of Series 1 Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Series 1 Exchangeable Shares at that time are
present or represented by proxy (excluding Series 1 Exchangeable Shares
beneficially owned by Veritas or its Subsidiaries). If at any such meeting the
holders of at least 50% of the outstanding Series 1 Exchangeable Shares at that
time are not present or represented by proxy within one-half hour after the time
appointed for such meeting then the meeting shall be adjourned to such date not
less than 10 days thereafter and to such time and place as may be designated by
the Chairman of such meeting. At such adjourned meeting the holders of Series 1
Exchangeable Shares present or represented by proxy thereat may transact the
business for which the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of the votes cast on
such resolution by persons represented in person or by proxy at such meeting
shall constitute the approval or consent of the holders of the Series 1
Exchangeable Shares.
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ARTICLE 10
RECIPROCAL CHANGES, ETC. IN RESPECT OF VERITAS COMMON STOCK
10.1 (a) Each holder of a Series 1 Exchangeable Share acknowledges that the
Support Agreement provides, in part, that Veritas will not without the prior
approval of the Corporation and the prior approval of the holders of the Series
1 Exchangeable Shares given in accordance with Section 9.2 of these share
provisions:
(i) issue or distribute Veritas Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire Veritas Common Stock) to the holders of all or
substantially all of the then outstanding Veritas Common Stock by
way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding Veritas Common
Stock entitling them to subscribe for or to purchase shares of
Veritas Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of Veritas
Common Stock); or
(iii) issue or distribute to the holders of all or substantially all of
the then outstanding shares of Veritas Common Stock (A) shares or
securities of Veritas of any class other than Veritas Common
Stock (other than shares convertible into or exchangeable for or
carrying rights to acquire Veritas Common Stock), (B) rights,
options or warrants other than those referred to in Section
10.1(a)(ii) above, (C) evidences of indebtedness of Veritas or
(D) assets of Veritas;
unless the Corporation is permitted under applicable law to issue or distribute
the equivalent on a per share basis of such rights, options, securities, shares,
evidences of indebtedness or other assets to holders of the Series 1
Exchangeable Shares and the Corporation shall issue or distribute such rights,
options, securities, shares, evidences of indebtedness or other assets
simultaneously to holders of the Series 1 Exchangeable Shares.
(b) Each holder of a Series 1 Exchangeable Share acknowledges that the
Support Agreement further provides, in part, that Veritas will not without the
prior approval of the Corporation and the prior approval of the holders of the
Series 1 Exchangeable Shares given in accordance with Section 9.2 of these share
provisions:
(i) subdivide, redivide or change the then outstanding shares of
Veritas Common Stock into a greater number of shares of Veritas
Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding
shares of Veritas Common Stock into a lesser number of shares of
Veritas Common Stock; or
(iii) reclassify or otherwise change the shares of Veritas Common Stock
or effect an amalgamation, merger, reorganization or other
transaction affecting the shares of Veritas Common Stock;
unless the Corporation is permitted under applicable law to simultaneously make
the same or an equivalent change to, or in the rights of holders of, the Series
1 Exchangeable Shares and the same or an equivalent change is made to, or in the
rights of the holders of, the Series 1 Exchangeable Shares.
The Support Agreement further provides, in part, that the aforesaid
provisions of the Support Agreement shall not be changed without the approval of
the holders of the Series 1 Exchangeable Shares given in accordance with Section
9.2 of these share provisions.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by Veritas with all provisions of the Support Agreement, the
Voting Trust and Exchange Agreement and with all provisions of Veritas' Restated
Certificate of Incorporation applicable to the Corporation and Veritas,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favour of the Corporation
under or pursuant thereto.
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11.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement, the Voting Trust and Exchange Agreement or Veritas' Restated
Certificate of Incorporation without the approval of the holders of the Series 1
Exchangeable Shares given in accordance with Section 9.2 of these share
provisions other than such amendments, waivers and/or forgiveness as may be
necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreements and certificate for the protection of the Corporation or
the holders of Series 1 Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with such
agreements and certificate as may be necessary or desirable with
respect to matters or questions arising thereunder which, in the
opinion of the Board of Directors, it may be expedient to make,
provided that the Board of Directors shall be of the opinion, after
consultation with independent counsel, that such provisions and
modifications will not be prejudicial to the interests of the holders
of the Series 1 Exchangeable Shares; or
(c) making such changes in or corrections to such agreements and
certificate which, on the advice of independent counsel to the
Corporation, are required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or clerical omission or
mistake or manifest error contained therein, provided that the Board
of Directors shall be of the opinion, after consultation with
independent counsel, that such changes or corrections will not be
prejudicial to the interests of the holders of the Series 1
Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Series 1 Exchangeable Shares shall contain
or have affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right and the Redemption Call
Right, and the Voting and Exchange Trust Agreement (including the provisions
with respect to the voting rights, exchange right and automatic exchange
thereunder).
ARTICLE 13
MISCELLANEOUS
13.1 Any notice, request or other communication to be given to the Corporation
by a holder of Series 1 Exchangeable Shares shall be in writing and shall be
valid and effective if given by mail (postage prepaid) or by telecopy or by
delivery to the registered office of the Corporation and addressed to the
attention of the President. Any such notice, request or other communication, if
given by mail, telecopy or delivery, shall only be deemed to have been given and
received upon actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Series 1 Exchangeable Shares
to the Corporation or the Transfer Agent of certificates representing Series 1
Exchangeable Shares in connection with the liquidation, dissolution or
winding-up of the Corporation or the retraction or redemption of Series 1
Exchangeable Shares shall be made by registered mail (postage prepaid) or by
delivery to the registered office of the Corporation or to such office of the
Transfer Agent as may be specified by the Corporation, in each case addressed to
the attention of the President of the Corporation. Any such presentation and
surrender of certificates shall only be deemed to have been made and to be
effective upon actual receipt thereof by the Corporation or the Transfer Agent,
as the case may be. Any such presentation and surrender of certificates made by
registered mail shall be at the sole risk of the holder mailing the same.
13.3 Any notice, request or other communication to be given to a holder of
Series 1 Exchangeable Shares by or on behalf of the Corporation shall be in
writing and shall be valid and effective if given by mail (postage prepaid) or
by delivery to the address of the holder recorded in the securities register of
the Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the
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fifth Business Day following the date of mailing and, if given by delivery,
shall be deemed to have been given and received on the date of delivery.
Accidental failure or omission to give any notice, request or other
communication to one or more holders of Series 1 Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
13.4 All Series 1 Exchangeable Shares acquired by the Corporation upon the
redemption or retraction thereof shall be cancelled.
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<PAGE> 246
SCHEDULE A
NOTICE OF RETRACTION
To the Corporation and Veritas DGC Inc.
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the share(s) represented by this certificate and all
capitalized words and expressions used in this notice which are defined in the
Share Provisions have the meanings attributed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by this certificate; or
[ ] share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be .
NOTE: The Retraction Date must be a Business Day and must not be less than five
Business Days nor more than 10 Business Days after the date upon which
this notice is received by the Corporation. In the event that no such
Business Day is specified above, the Retraction Date shall be deemed to be
the tenth Business Day after the date on which this notice is received by
the Corporation.
The undersigned acknowledges the Retraction Call Right of Veritas DGC Inc.
to purchase all but not less than all the Retracted Shares from the undersigned
and that this notice shall be deemed to be a revocable offer by the undersigned
to sell the Retracted Shares to Veritas DGC Inc. in accordance with the
Retraction Call Right on the Retraction Date for the Retraction Price and on the
other terms and conditions set out in Section 6.3 of the Share Provisions. If
Veritas DGC Inc. determines not to exercise the Retraction Call Right, the
Corporation will notify the undersigned of such fact as soon as possible. This
notice of retraction, and offer to sell the Retracted Shares to Veritas DGC
Inc., may be revoked and withdrawn by the undersigned by notice in writing given
to the Corporation at any time before the close of business on the Business Day
immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or solvency
provisions of applicable law, the Corporation is unable to redeem all Retracted
Shares, the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require Veritas DGC
Inc. to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and
Veritas DGC Inc. that the undersigned has good title to, and owns, the share(s)
represented by this certificate to be acquired by the Corporation or Veritas DGC
Inc., as the case may be, free and clear of all liens, claims and encumbrances.
<TABLE>
<S> <C> <C>
- ---------------------- -------------------------------------------- --------------------------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
[ ] Please check box if the legal or beneficial owner of the Retracted Shares
is a non-resident of Canada.
[ ] Please check box if the securities and any cheque(s) or other non-cash
assets resulting from the retraction or purchase of the Retracted Shares
are to be held for pick-up by the shareholder at the principal transfer
office of CIBC Mellon Trust Company (the "Transfer Agent") in Calgary,
Alberta or Toronto, Ontario failing which the securities and any cheque(s)
or other non-cash assets will be delivered to the last address of the
shareholder as it appears on the register by such means as the Corporation
deems appropriate.
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<PAGE> 247
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be deposited
with the Transfer Agent at its principal transfer office in Calgary,
Alberta or Toronto, Ontario. The securities and any cheque(s) or other
non-cash assets resulting from the retraction or purchase of the Retracted
Shares will be issued and registered in, and made payable to, or
transferred into, respectively, the name of the shareholder as it appears
on the register of the Corporation and the securities, cheque(s) and other
non-cash assets resulting from such retraction or purchase will be
delivered to such shareholder as indicated above, unless the form
appearing immediately below is duly completed.
<TABLE>
<S> <C>
- -------------------------------------------------------- --------------------------------------------------------
Name of Person in Whose Name Securities or Cheque(s) or Date
Other Non-cash Assets Are To Be Registered, Issued or
Delivered (please print)
- -------------------------------------------------------- --------------------------------------------------------
Street Address or P.O. Box Signature of Shareholder
- -------------------------------------------------------- --------------------------------------------------------
City -- Province Signature Guaranteed by
</TABLE>
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining
shares of the Corporation will be issued and registered in the name of the
shareholder as it appears on the register of the Corporation, unless the
Share Transfer Power on the share certificate is duly completed in respect
of such shares.
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<PAGE> 248
ANNEX E
FORM OF SUPPORT AGREEMENT
<PAGE> 249
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of , 1999.
B E T W E E N:
VERITAS DGC INC.,
a corporation existing under the laws of the State of Delaware,
(hereinafter referred to as "Veritas "),
OF THE FIRST PART,
-- and --
VERITAS ENERGY SERVICES INC.
a corporation existing under the laws of the Province of
Alberta,
(hereinafter referred to as "VESI "),
OF THE SECOND PART.
WHEREAS pursuant to a combination agreement dated as of March 30, 1999, by
and among Veritas, VESI and Enertec Resource Services Inc. ("Enertec") (such
agreement as it may be amended or restated is hereinafter referred to as the
"Combination Agreement ") the parties agreed that on the Effective Date (as
defined in the Combination Agreement), Veritas and VESI would execute and
deliver a Support Agreement containing the terms and conditions set forth in
Exhibit C to the Combination Agreement together with such other terms and
conditions as may be agreed to by the parties to the Combination Agreement
acting reasonably;
AND WHEREAS pursuant to an arrangement (the "Arrangement ") effected by
Articles of Arrangement dated , 1999 filed pursuant to the Business
Corporations Act (Alberta) each issued and outstanding common share of Enertec
(an "Enertec Common Share ") was transferred to VESI in consideration for 0.345
issued and outstanding Class A Exchangeable Shares Series 1 of VESI (the "Series
1 Exchangeable Shares ");
AND WHEREAS Appendix A of the above-mentioned Articles of Arrangement sets
forth the rights, privileges, restrictions and conditions attaching to the
Series 1 Exchangeable Shares (collectively the "Exchangeable Share
Provisions ");
AND WHEREAS the parties hereto desire to make appropriate provision and to
establish a procedure whereby Veritas will take certain actions and make certain
payments and deliveries necessary to ensure that VESI will be able to make
certain payments and to deliver or cause to be delivered shares of Veritas
Common Stock in satisfaction of the obligations of VESI under the Exchangeable
Share Provisions with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance
with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
1. DEFINITIONS AND INTERPRETATION
(a) DEFINED TERMS. Each term denoted herein by initial capital letters
and not otherwise defined herein shall have the meaning attributed
thereto in the Exchangeable Share Provisions, unless the context
requires otherwise.
(b) INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect
the construction or interpretation of this agreement.
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(c) NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any
gender shall include all genders.
(d) DATE FOR ANY ACTION. If any date on which any action is required to
be taken under this agreement is not a Business Day, such action
shall be required to be taken on the next succeeding Business Day.
2. COVENANTS OF VERITAS AND VESI
(a) COVENANTS OF VERITAS REGARDING SERIES 1 EXCHANGEABLE SHARES. So long
as any Series 1 Exchangeable Shares are outstanding, Veritas will:
(i) not declare or pay any dividend on Veritas Common Stock unless
(A) VESI will have sufficient assets, funds and other property
available to enable the due declaration and the due and
punctual payment in accordance with applicable law of an
equivalent dividend on the Series 1 Exchangeable Shares and
(B) Sections 2(a)(ii), (iii) and (iv) shall be complied with
in connection with such dividend;
(ii) cause VESI to declare simultaneously with the declaration of
any dividend on Veritas Common Stock an equivalent dividend on
the Series 1 Exchangeable Shares and, when such dividend is
paid on Veritas Common Stock, cause VESI to pay simultaneously
therewith such equivalent dividend on the Series 1
Exchangeable Shares, in each case in accordance with the
Exchangeable Share Provisions;
(iii) advise VESI sufficiently in advance of the declaration by
Veritas of any dividend on Veritas Common Stock and take all
such other actions as are necessary, in cooperation with VESI,
to ensure that the respective declaration date, record date
and payment date for a dividend on the Series 1 Exchangeable
Shares shall be the same as the record date, declaration date
and payment date for the corresponding dividend on Veritas
Common Stock and such dividend on the Series 1 Exchangeable
Shares shall correspond with any requirement of the principal
stock exchange on which the Series 1 Exchangeable Shares are
listed;
(iv) ensure that the record date for any dividend declared on
Veritas Common Stock is not less than 10 Business Days after
the declaration date for such dividend;
(v) take all such actions and do all such things as are necessary
or desirable to enable and permit VESI, in accordance with
applicable law, to pay and otherwise perform its obligations
with respect to the satisfaction of the Liquidation Amount in
respect of each issued and outstanding Series 1 Exchangeable
Share upon the liquidation, dissolution or winding-up of VESI,
including without limitation all such actions and all such
things as are necessary or desirable to enable and permit VESI
to cause to be delivered shares of Veritas Common Stock to the
holders of Series 1 Exchangeable Shares in accordance with the
provisions of Article 5 of the Exchangeable Share Provisions;
(vi) take all such actions and do all such things as are necessary
or desirable to enable and permit VESI, in accordance with
applicable law, to pay and otherwise perform its obligations
with respect to the satisfaction of the Retraction Price and
the Redemption Price, including without limitation all such
actions and all such things as are necessary or desirable to
enable and permit VESI to cause to be delivered shares of
Veritas Common Stock to the holders of Series 1 Exchangeable
Shares, upon the retraction or redemption of the Series 1
Exchangeable Shares in accordance with the provisions of
Article 6 or Article 7 of the Exchangeable Share Provisions,
as the case may be; and
(vii) not exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding-up of VESI, nor
take any action or omit to take any action that is designed to
result in, nor omit to take any action to prevent, the
liquidation, dissolution or winding-up of VESI.
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<PAGE> 251
(b) SEGREGATION OF FUNDS. Veritas will cause VESI to deposit a
sufficient amount of funds in a separate account and segregate a
sufficient amount of such assets and other property as is necessary
to enable VESI to pay or otherwise satisfy the applicable dividends,
Liquidation Amount, Retraction Price or Redemption Price, in each
case for the benefit of holders from time to time of the Series 1
Exchangeable Shares, and VESI will use such funds, assets and other
property so segregated exclusively for the payment of dividends and
the payment or other satisfaction of the Liquidation Amount, the
Retraction Price or the Redemption Price, as applicable, net of any
corresponding withholding tax obligations and for the remittance of
such withholding tax obligations.
(c) RESERVATION OF SHARES OF VERITAS COMMON STOCK. Veritas hereby
represents, warrants and covenants that it has irrevocably reserved
for issuance and will at all times keep available, free from
pre-emptive and other rights, out of its authorized and unissued
capital stock such number of shares of Veritas Common Stock (or other
shares or securities into which Veritas Common Stock may be
reclassified or changed as contemplated by Section 2(g) hereof) (i)
as is equal to the sum of (A) the number of Series 1 Exchangeable
Shares issued and outstanding from time to time and (B) the number of
Series 1 Exchangeable Shares issuable upon the exercise of all rights
to acquire Series 1 Exchangeable Shares outstanding from time to time
and (ii) as are now and may hereafter be required to enable and
permit Veritas and VESI to meet their respective obligations
hereunder, under the Voting and Exchange Trust Agreement, under the
Exchangeable Share Provisions and under any other security or
commitment pursuant to the Arrangement with respect to which Veritas
may now or hereafter be required to issue shares of Veritas Common
Stock.
(d) NOTIFICATION OF CERTAIN EVENTS. In order to assist Veritas to comply
with its obligations hereunder, VESI will give Veritas notice of each
of the following events at the time set forth below:
(i) in the event of any determination by the Board of Directors of
VESI to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to VESI or to effect any
other distribution of the assets of VESI among its
shareholders for the purpose of winding-up its affairs, at
least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution;
(ii) immediately, upon the earlier of (A) receipt by VESI of notice
of, and (B) VESI otherwise becoming aware of, any threatened
or instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or
winding-up of VESI or to effect any other distribution of the
assets of VESI among its shareholders for the purpose of
winding-up its affairs;
(iii) immediately, upon receipt by VESI of a Retraction Request (as
defined in the Exchangeable Share Provisions);
(iv) at least 130 days prior to any accelerated Automatic Redemption
Date determined by the Board of Directors of VESI in
accordance with the Exchangeable Share Provisions; and
(v) as soon as practicable upon the issuance by VESI of any Series
1 Exchangeable Shares or rights to acquire Series 1
Exchangeable Shares.
(e) DELIVERY OF SHARES OF VERITAS COMMON STOCK. In furtherance of its
obligations hereunder, upon notice of any event which requires VESI
to cause to be delivered shares of Veritas Common Stock to any holder
of Series 1 Exchangeable Shares, Veritas shall forthwith issue and
deliver the requisite shares of Veritas Common Stock to or to the
order of the former holder of the surrendered Series 1 Exchangeable
Shares, as VESI shall direct. All such shares of Veritas Common Stock
shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim, encumbrance, security interest or
adverse claim.
(f) QUALIFICATION OF SHARES OF VERITAS COMMON STOCK. Veritas covenants
that if any shares of Veritas Common Stock (or other shares or
securities into which Veritas Common Stock may be reclassified or
changed as contemplated by Section 2(g) hereof) to be issued and
delivered
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hereunder, including for greater certainty, pursuant to the
Exchangeable Share Provisions, or pursuant to the Exchange Right or
the Automatic Exchange Rights (both as defined in the Voting and
Exchange Trust Agreement) require registration or qualification with
or approval of or the filing of any document including any prospectus
or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or
regulatory authority under any Canadian or United States federal,
provincial or state law or regulation or pursuant to the rules and
regulations of any regulatory authority or the fulfillment of any
other legal requirement (collectively, the "Applicable Laws ") before
such shares (or other shares or securities into which Veritas Common
Stock may be reclassified or changed as contemplated by Section 2(g)
hereof) may be issued and delivered by Veritas to the initial holder
thereof (other than VESI) or in order that such shares may be freely
traded thereafter (other than any restrictions on transfer by reason
of a holder being a "control person " of Veritas for purposes of
Canadian federal or provincial securities law or an "affiliate " of
Veritas or, prior to the Effective Date, of Enertec for purposes of
United States federal or state securities law), Veritas will in good
faith expeditiously take all such actions and do all such things as
are necessary to cause such shares of Veritas Common Stock (or other
shares or securities into which Veritas Common Stock may be
reclassified or changed as contemplated by Section 2(g) hereof) to be
and remain duly registered, qualified or approved. Veritas represents
and warrants that it has in good faith taken all actions and done all
things as are necessary under Applicable Laws as they exist on the
date hereof to cause the shares of Veritas Common Stock (or other
shares or securities into which Veritas Common Stock may be
reclassified or changed as contemplated by Section 2(g) hereof) to be
issued and delivered hereunder, including for greater certainty,
pursuant to the Exchangeable Share Provisions, or pursuant to the
Exchange Right and the Automatic Exchange Rights to be freely
tradeable thereafter (other than restrictions on transfer by reason
of a holder being a "control person " of Veritas for the purposes of
Canadian federal and provincial securities law or an "affiliate " of
Veritas or, prior to the Effective Date, of Enertec for the purposes
of United States federal or state securities law). Veritas will in
good faith expeditiously take all such actions and do all such things
as are necessary to cause all shares of Veritas Common Stock (or
other shares or securities into which Veritas Common Stock may be
reclassified or changed as contemplated by Section 2(g) hereof) to be
delivered hereunder, including for greater certainty, pursuant to the
Exchangeable Share Provisions, or pursuant to the Exchange Right or
the Automatic Exchange Rights to be and to continue to be listed,
quoted or posted for trading on all stock exchanges and quotation
systems on which such shares are listed, quoted or posted for trading
at such time. Veritas will in good faith expeditiously take all such
action and do all such things as are necessary to cause all Series 1
Exchangeable Shares to be and to continue to be listed and posted for
trading on the TSE, if possible, or failing which, on another stock
exchange in Canada.
(g) EQUIVALENCE.
(i) Veritas will not without the prior approval of VESI and the
prior approval of the holders of the Series 1 Exchangeable
Shares given in accordance with Section 9.2 of the
Exchangeable Share Provisions:
(A) issue or distribute shares of Veritas Common Stock (or
securities exchangeable for or convertible into or
carrying rights to acquire shares of Veritas Common
Stock) to the holders of all or substantially all of the
then outstanding Veritas Common Stock by way of stock
dividend or other distribution; or
(B) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then
outstanding shares of Veritas Common Stock entitling them
to subscribe for or to purchase shares of Veritas Common
Stock (or securities exchangeable for or convertible into
or carrying rights to acquire shares of Veritas Common
Stock); or
(C) issue or distribute to the holders of all or
substantially all of the then outstanding shares of
Veritas Common Stock (I) shares or securities of Veritas
of any class other than Veritas Common Stock (other than
shares convertible into or exchangeable for or carrying
rights
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to acquire shares of Veritas Common Stock), (II) rights,
options or warrants other than those referred to in Section
2(g)(i)(B) above, (III) evidences of indebtedness of Veritas or
(IV) assets of Veritas;
unless (I) VESI is permitted under applicable law to issue or distribute
the equivalent on a per share basis of such rights, options, securities,
shares, evidences of indebtedness or other assets to holders of the
Series 1 Exchangeable Shares and (II) VESI shall issue or distribute
such rights, options, securities, shares, evidences of indebtedness or
other assets simultaneously to holders of the Series 1 Exchangeable
Shares.
(ii) Veritas will not without the prior approval of VESI and the prior
approval of the holders of the Series 1 Exchangeable Shares given
in accordance with Section 9.2 of the Exchangeable Share
Provisions:
(A) subdivide, redivide or change the then outstanding shares of
Veritas Common Stock into a greater number of shares of
Veritas Common Stock; or
(B) reduce, combine or consolidate or change the then outstanding
shares of Veritas Common Stock into a lesser number of shares
of Veritas Common Stock; or
(C) reclassify or otherwise change the shares of Veritas Common
Stock or effect an amalgamation, merger, reorganization or
other transaction affecting the shares of Veritas Common
Stock;
unless (I) VESI is permitted under applicable law to simultaneously make
the same or an equivalent change to, or in the rights of holders of, the
Series 1 Exchangeable Shares and (II) the same or an equivalent change
is made to, or in the rights of the holders of, the Series 1
Exchangeable Shares.
(iii) Veritas will ensure that the record date for any event referred
to in Section 2(g)(i) or 2(g)(ii) above, or (if no record date is
applicable for such event) the effective date for any such event,
is not less than 20 Business Days after the date on which such
event is declared or announced by Veritas (with simultaneous
notice thereof to be given by Veritas to VESI).
(h) TENDER OFFERS, ETC. In the event that a tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect
to Veritas Common Stock (an "Offer") is proposed by Veritas or is
proposed to Veritas or its shareholders and is recommended by the
Board of Directors of Veritas, or is otherwise effected or to be
effected with the consent or approval of the Board of Directors of
Veritas, Veritas shall take all such actions and do all such things
as are necessary or desirable to enable and permit holders of Series
1 Exchangeable Shares to participate in such Offer to the same extent
and on an equivalent basis as the holders of shares of Veritas Common
Stock, without discrimination, including, without limiting the
generality of the foregoing, Veritas will use its good faith efforts
expeditiously to (and shall, in the case of a transaction proposed by
Veritas or where Veritas is a participant in the negotiation thereof)
ensure that holders of Series 1 Exchangeable Shares may participate
in all such Offers without being required to retract Series 1
Exchangeable Shares as against VESI (or, if so required, to ensure
that any such retraction shall be effective only upon, and shall be
conditional upon, the closing of the Offer and only to the extent
necessary to tender or deposit to the Offer).
(i) OWNERSHIP OF OUTSTANDING SHARES. Without the prior approval of VESI
and the prior approval of the holders of the Series 1 Exchangeable
Shares given in accordance with Section 9.2 of the Exchangeable Share
Provisions, Veritas covenants and agrees in favour of VESI that, as
long as any outstanding Series 1 Exchangeable Shares are owned by any
person or entity other than Veritas or any of its Subsidiaries,
Veritas will be and remain the direct or indirect beneficial owner of
all issued and outstanding shares in the capital of VESI and all
outstanding securities of VESI carrying or otherwise entitled to
voting rights in any circumstances, in each case other than the
exchangeable shares of VESI and other than the Class A Exchangeable
Shares of VESI (including, without limitation, the Series 1
Exchangeable Shares).
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(j) VERITAS NOT TO VOTE SERIES 1 EXCHANGEABLE SHARES. Veritas covenants
and agrees that it will appoint and cause to be appointed
proxyholders with respect to all Series 1 Exchangeable Shares held by
Veritas and its Subsidiaries for the sole purpose of attending each
meeting of holders of Series 1 Exchangeable Shares in order to be
counted as part of the quorum for each such meeting. Veritas further
covenants and agrees that it will not, and will cause its
Subsidiaries not to, exercise any voting rights which may be
exercisable by holders of Series 1 Exchangeable Shares from time to
time pursuant to the Exchangeable Share Provisions or pursuant to the
provisions of the Business Corporations Act (Alberta) (or any
successor or other corporate statute by which VESI may in the future
be governed) with respect to any Series 1 Exchangeable Shares held by
it or by its Subsidiaries in respect of any matter considered at any
meeting of holders of Series 1 Exchangeable Shares.
(k) DUE PERFORMANCE. On and after the Effective Date, Veritas shall duly
and timely perform all of its obligations provided for in the Plan of
Arrangement, including any obligations that may arise upon the
exercise of Veritas' rights under the Exchangeable Share Provisions.
3. GENERAL
(a) TERM. This agreement shall come into force and be effective as of
the date hereof and shall terminate and be of no further force and
effect at such time as no Series 1 Exchangeable Shares (or securities
or rights convertible into or exchangeable for or carrying rights to
acquire Series 1 Exchangeable Shares) are held by any party other
than Veritas and any of its Subsidiaries.
(b) CHANGES IN CAPITAL OF VERITAS AND VESI. Notwithstanding the
provisions of Section 3(d) hereof, at all times after the occurrence
of any event effected pursuant to Section 2(g) or 2(h) hereof, as a
result of which either Veritas Common Stock or the Series 1
Exchangeable Shares or both are in any way changed, this agreement
shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new
securities into which Veritas Common Stock or the Series 1
Exchangeable Shares or both are so changed and the parties hereto
shall execute and deliver an agreement in writing giving effect to
and evidencing such necessary amendments and modifications.
(c) SEVERABILITY. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this agreement shall not in any
way be affected or impaired thereby and this agreement shall be
carried out as nearly as possible in accordance with its original
terms and conditions.
(d) AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended or
modified except by an agreement in writing executed by VESI and
Veritas and approved by the holders of the Series 1 Exchangeable
Shares in accordance with Section 9.2 of the Exchangeable Share
Provisions.
(e) MINISTERIAL AMENDMENTS. Notwithstanding the provisions of Section
3(d), the parties to this agreement may in writing, at any time and
from time to time, without the approval of the holders of the Series
1 Exchangeable Shares, amend or modify this agreement for the
purposes of:
(i) adding to the covenants of either or both parties for the
protection of the holders of the Series 1 Exchangeable Shares;
(ii) making such amendments or modifications not inconsistent with
this agreement as may be necessary or desirable with respect
to matters or questions which, in the opinion of the board of
directors of each of VESI and Veritas, it may be expedient to
make, provided that each such boards of directors shall be of
the opinion that such amendments or modifications will not be
prejudicial to the interests of the holders of the Series 1
Exchangeable Shares; or
(iii) making such changes or corrections which, on the advice of
counsel to VESI and Veritas, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error,
provided that the boards of directors
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of each of VESI and Veritas shall be of the opinion that such changes
or corrections will not be prejudicial to the interests of the
holders of the Series 1 Exchangeable Shares.
(f) MEETING TO CONSIDER AMENDMENTS. VESI, at the request of Veritas,
shall call a meeting or meetings of the holders of the Series 1
Exchangeable Shares for the purpose of considering any proposed
amendment or modification requiring approval of such shareholders.
Any such meeting or meetings shall be called and held in accordance
with the by-laws of VESI, the Exchangeable Share Provisions and all
applicable laws.
(g) AMENDMENTS ONLY IN WRITING. No amendment to or modification or
waiver of any of the provisions of this agreement otherwise permitted
hereunder shall be effective unless made in writing and signed by
both of the parties hereto.
(h) INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties hereto and the holders, from time to time, of
Series 1 Exchangeable Shares and each of their respective heirs,
successors and assigns.
(i) NOTICES TO PARTIES. All notices and other communications between the
parties shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the
following addresses (or at such other address for either such party
as shall be specified in like notice):
(i) if to Veritas at: Veritas DGC Inc.
3701 Kirby Drive, Suite 112
Houston, Texas 77098
Attention: Chairman
Telecopy: (713) 526-5611
(ii) if to VESI at: Veritas Energy Services Inc.
Suite 300, 615 - Third Avenue S.W.
Calgary, Alberta T2P 0G6
Attention: President
Telecopy: (403) 266-9359
Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof and if given by
telecopy shall be deemed to have been given and received on the date
of confirmed receipt thereof unless such day is not a Business Day in
which case it shall be deemed to have been given and received upon
the immediately following Business Day.
(j) COUNTERPARTS. This agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which taken together
shall constitute one and the same instrument. A counterpart delivered
by facsimile is hereby deemed to be as effective as a counterpart
delivered in original form.
(k) JURISDICTION. This agreement shall be construed and enforced in
accordance with the laws of the Province of Alberta and the laws of
Canada applicable therein.
(l) ATTORNMENT. Veritas agrees that any action or proceeding arising out
of or relating to this agreement may be instituted in the courts of
Alberta, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to
the jurisdiction of the said courts in any such action or proceeding,
agrees to be bound by any judgment of the said courts and not to
seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints
VESI at its registered office in the Province of Alberta as Veritas'
attorney for service of process.
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<PAGE> 256
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written.
<TABLE>
<S> <C>
VERITAS DGC INC. VERITAS ENERGY SERVICES INC.
Per: Per:
- -------------------------------------------- --------------------------------------------
Per: Per:
- -------------------------------------------- --------------------------------------------
</TABLE>
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ANNEX F
FORM OF VOTING AND EXCHANGE
TRUST AGREEMENT
<PAGE> 258
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , 1999.
B E T W E E N:
VERITAS DGC INC.,
a corporation existing under the laws of the State of
Delaware
(hereinafter referred to as "Veritas")
OF THE FIRST PART,
-- and --
VERITAS ENERGY SERVICES INC.
a corporation existing under the laws of the Province of
Alberta
(hereinafter referred to as "VESI")
OF THE SECOND PART,
-- and --
CIBC MELLON TRUST COMPANY,
a trust company existing under the laws of Canada
(hereinafter referred to as the "Trustee")
OF THE THIRD PART.
WHEREAS pursuant to a combination agreement dated as of March 30, 1999, by
and among Veritas, VESI and Enertec Resource Services Inc. ("Enertec") (such
agreement as it may be amended or restated is hereinafter referred to as the
"Combination Agreement") the parties agreed that on the Effective Date (as
defined in the Combination Agreement), Veritas and VESI would execute and
deliver a Voting and Exchange Trust Agreement containing the terms and
conditions set forth in Exhibit D to the Combination Agreement together with
such other terms and conditions as may be agreed to by the parties to the
Combination Agreement acting reasonably;
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
Articles of Arrangement dated , 1999 filed pursuant to the Business
Corporations Act (Alberta), each issued and outstanding common share of Enertec
(an "Enertec Common Share") was transferred to VESI in consideration for 0.345
issued and outstanding Class A Exchangeable Shares Series 1 of VESI (the "Series
1 Exchangeable Shares");
AND WHEREAS Appendix A of the above-mentioned Articles of Arrangement sets
forth the rights, privileges, restrictions and conditions attaching to the
Series 1 Exchangeable Shares (collectively, the "Exchangeable Share
Provisions");
AND WHEREAS Veritas is to provide voting rights in Veritas to each holder
(other than Veritas and its Subsidiaries) from time to time of Series 1
Exchangeable Shares, such voting rights per Series 1 Exchangeable Share to be
equivalent to the voting rights per share of Veritas Common Stock (the "Veritas
Common Stock");
AND WHEREAS Veritas is to grant to and in favour of the holders (other than
Veritas and its Subsidiaries) from time to time of Series 1 Exchangeable Shares
the right, in the circumstances set forth herein, to require Veritas to purchase
from each such holder all or any part of the Series 1 Exchangeable Shares held
by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in Veritas shall be exercisable by
holders (other than Veritas and its Subsidiaries) from time to time of Series 1
Exchangeable Shares by and through the Trustee, which will hold legal title to
one share of Veritas ERS Special Voting Stock (the "Veritas ERS Special Voting
Stock") to which voting rights attach for the benefit of such holders and
whereby the rights to require Veritas to purchase Series 1 Exchangeable Shares
from the
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holders thereof (other than Veritas and its Subsidiaries) shall be exercisable
by such holders from time to time of Series 1 Exchangeable Shares by and through
the Trustee, which will hold legal title to such rights for the benefit of such
holders;
AND WHEREAS these recitals and any statements of fact in this agreement are
made by Veritas and VESI and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
1. DEFINITIONS AND INTERPRETATION
(a) DEFINITIONS. In this agreement, the following terms shall have the
following meanings:
"Aggregate Equivalent Vote Amount " means, with respect to any matter,
proposition or question on which holders of Veritas Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Series 1 Exchangeable Shares issued and outstanding and held by Holders
multiplied by (ii) the Equivalent Vote Amount.
"Applicable Laws" has the meaning set out in Section 5(j).
"Arrangement " has the meaning set out in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of Veritas
to effect the automatic exchange of shares of Veritas Common Stock for Series 1
Exchangeable Shares pursuant to Section 5(l) hereof.
"Board of Directors" means the Board of Directors of VESI.
"Business Day" has the meaning set out in the Exchangeable Share
Provisions.
"Combination Agreement " has the meaning set out in the recitals hereto.
"Equivalent Vote Amount " means, with respect any matter, proposition or
question on which holders of Veritas Common Stock are entitled to vote, consent
or otherwise act, the number of votes to which a holder of one share of Veritas
Common Stock is entitled with respect to such matter, proposition or question.
"Exchange Right " has the meaning set out in Section 5(a)(i) hereof.
"Exchangeable Share Provisions" has the meaning set out in the recitals
hereto.
"Holder Votes" has the meaning set out in Section 4(b) hereof.
"Holders" means the registered holders from time to time of Series 1
Exchangeable Shares, other than Veritas and its Subsidiaries.
"Indemnified Parties" has the meaning set out in Section 9(a) hereof.
"Insolvency Event " means the institution by VESI of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the
consent of VESI to the institution of bankruptcy, insolvency, dissolution or
winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies' Creditors
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by VESI to contest in good faith any such proceedings commenced in
respect of VESI within 15 days of becoming aware thereof, or the consent by VESI
to the filing of any such petition or to the appointment of a receiver, or the
making by VESI of a general assignment for the benefit of creditors, or the
admission in writing by VESI of its inability to pay its debts generally as they
become due, or VESI not being permitted, pursuant to liquidity or solvency
requirements of applicable law, to redeem any Series 1 Exchangeable Shares in
accordance with the terms thereof, to redeem any shares of any other series of
Class A Exchangeable Shares of VESI in accordance with the terms thereof or to
redeem any Exchangeable Shares of VESI in accordance with the terms thereof.
"Liquidation Call Right " has the meaning set out in the Exchangeable Share
Provisions.
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"Liquidation Event " has the meaning set out in Section 5(l)(ii) hereof.
"Liquidation Event Effective Time" has the meaning set out in Section
5(l)(iii) hereof.
"List " has the meaning set out in Section 4(f) hereof.
"Officer's Certificate" means, with respect to Veritas or VESI, as the case
may be, a certificate signed by any one of the Chairman of the Board, the
Vice-Chairman of the Board, the President, any Vice-President or any other
senior officer of Veritas or VESI, as the case may be.
"Person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Redemption Call Right " has the meaning set out in the Exchangeable Share
Provisions.
"Retracted Shares" has the meaning set out in Section 5(g) hereof.
"Retraction Call Right " has the meaning set out in the Exchangeable Share
Provisions.
"Series 1 Exchangeable Share Consideration" has the meaning set out in the
Exchangeable Share Provisions.
"Series 1 Exchangeable Share Price" has the meaning set out in the
Exchangeable Share Provisions.
"Series 1 Exchangeable Shares" has the meaning set out in the recitals
hereto.
"Subsidiary" has the meaning set out in the Exchangeable Share Provisions.
"Support Agreement " means that certain support agreement made as of even
date hereof between VESI and Veritas.
"Trust " means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange
Right, the Automatic Exchange Rights and any money or other property which may
be held by the Trustee from time to time pursuant to this agreement.
"Trustee" means CIBC Mellon Trust Company and, subject to the provisions of
Article 10 hereof, includes any successor trustee or permitted assigns.
"VESI Common Shares" means common shares in the capital stock of VESI.
"Veritas Common Stock" has the meaning set out in the recitals hereto.
"Veritas Consent " has the meaning set out in Section 4(b) hereof.
"Veritas Meeting" has the meaning set out in Section 4(b) hereof.
"Veritas Special ERS Voting Stock" has the meaning set out in the recitals
hereto.
"Veritas Successor" has the meaning set out in Section 11(a)(i) hereof.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of Veritas ERS Special Voting Stock,
U.S. $0.01 par value, issued by Veritas to and deposited with the Trustee, which
entitles the holder of record to a number of votes at meetings of holders of
Veritas Common Stock equal to the Aggregate Equivalent Vote Amount.
(b) INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect
the construction or interpretation of this agreement.
(c) NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any
gender shall include all genders.
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(d) DATE FOR ANY ACTION. If any date on which any action is required to
be taken under this agreement is not a Business Day, such action
shall be required to be taken on the next succeeding Business Day.
2. PURPOSE OF AGREEMENT
The purpose of this agreement is to create the Trust for the benefit of the
Holders, as herein provided. The Trustee will hold the Voting Share in order to
enable the Trustee to exercise the Voting Rights and will hold the Exchange
Right and the Automatic Exchange Rights in order to enable the Trustee to
exercise such rights, in each case as trustee for and on behalf of the Holders
as provided in this agreement.
3. VOTING SHARE
(a) ISSUANCE AND OWNERSHIP OF THE VOTING SHARE. Veritas hereby issues to
and deposits with the Trustee the Voting Share to be hereafter held
of record by the Trustee as trustee for and on behalf of, and for the
use and benefit of, the Holders and in accordance with the provisions
of this agreement. Veritas hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Holders of good and
valuable consideration (and the adequacy thereof) for the issuance of
the Voting Share by Veritas to the Trustee. During the term of the
Trust and subject to the terms and conditions of this agreement, the
Trustee shall possess and be vested with full legal ownership of the
Voting Share and shall be entitled to exercise all of the rights and
powers of an owner with respect to the Voting Share, provided that
the Trustee shall:
(i) hold the Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Holders in accordance
with the provisions of this agreement; and
(ii) except as specifically authorized by this agreement, have no
power or authority to sell, transfer, vote or otherwise deal
in or with the Voting Share and the Voting Share shall not be
used or disposed of by the Trustee for any purpose other than
the purposes for which this Trust is created pursuant to this
agreement.
(b) LEGENDED SHARE CERTIFICATES. VESI will cause each certificate
representing Series 1 Exchangeable Shares to bear an appropriate
legend notifying the Holders of their right to instruct the Trustee
with respect to the exercise of the Voting Rights with respect to the
Series 1 Exchangeable Shares held by a Holder.
(c) SAFE KEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee or
its agent.
4. EXERCISE OF VOTING RIGHTS
(a) VOTING RIGHTS. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the
right to consent to or to vote in person or by proxy the Voting
Share, on any matter, question or proposition whatsoever that may
properly come before the stockholders of Veritas at a Veritas Meeting
or in connection with a Veritas Consent (in each case, as hereinafter
defined). The Voting Rights shall be and remain vested in and
exercised by the Trustee. Subject to Section 7(o) hereof, the Trustee
shall exercise the Voting Rights only on the basis of instructions
received pursuant to this Article 4 from Holders entitled to instruct
the Trustee as to the voting thereof at the time at which a Veritas
Consent is sought or a Veritas Meeting is held. To the extent that no
instructions are received from a Holder with respect to the Voting
Rights to which such Holder is entitled, the Trustee shall not
exercise or permit the exercise of such Holder's Voting Rights.
(b) NUMBER OF VOTES. With respect to all meetings of stockholders of
Veritas at which holders of shares of Veritas Common Stock are
entitled to vote (a "Veritas Meeting") and with respect to all
written consents sought by Veritas from its stockholders including
the holders of shares of Veritas Common Stock (a "Veritas Consent"),
each Holder shall be entitled to instruct the Trustee to cast and
exercise, in the manner instructed, a number of votes equal to the
Equivalent Vote Amount for each
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Series 1 Exchangeable Share owned of record by such Holder on the record
date established by Veritas or by applicable law for such Veritas
Meeting or Veritas Consent, as the case may be (the "Holder Votes") in
respect of each matter, question or proposition to be voted on at such
Veritas Meeting or to be consented to in connection with such Veritas
Consent.
(c) MAILINGS TO SHAREHOLDERS. With respect to each Veritas Meeting and
Veritas Consent, the Trustee will mail or cause to be mailed (or
otherwise communicate in the same manner as Veritas utilizes in
communications to holders of Veritas Common Stock, subject to the
Trustee's ability to provide this method of communication and upon being
advised in writing of such method) to each of the Holders named in the
List on the same day as the initial mailing or notice (or other
communication) with respect thereto is given by Veritas to its
stockholders:
(i) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders of
Veritas;
(ii) a statement that such Holder is entitled to instruct the Trustee
as to the exercise of the Holder Votes with respect to such
Veritas Meeting or Veritas Consent, as the case may be, or,
pursuant to Section 4(g) hereof, to attend such Veritas Meeting
and to exercise personally as the proxy of the Trustee, the
Holder Votes thereat;
(iii) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that
instructions may be given to the Trustee to give:
(A) a proxy to such Holder or his designee to exercise
personally the Holder Votes; or
(B) a proxy to a designated agent or other representative of the
management of Veritas to exercise such Holder Votes;
(iv) a statement that if no such instructions are received from the
Holder, the Holder Votes to which such Holder is entitled will
not be exercised;
(v) a form of direction whereby the Holder may so direct and instruct
the Trustee as contemplated herein; and
(vi) a statement of (A) the time and date by which such instructions
must be received by the Trustee in order to be binding upon it,
which in the case of a Veritas Meeting shall not be earlier than
the close of business on the Business Day prior to such meeting,
and (B) the method for revoking or amending such instructions.
The materials referred to above are to be provided by Veritas to the
Trustee, but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is
entitled in respect of any such Veritas Meeting or Veritas Consent, the
number of Series 1 Exchangeable Shares owned of record by the Holder
shall be determined at the close of business on the record date
established by Veritas or by applicable law for purposes of determining
stockholders entitled to vote at such Veritas Meeting or to give written
consent in connection with such Veritas Consent. Veritas will notify the
Trustee in writing of any decision of the board of directors of Veritas
with respect to the calling of any such Veritas Meeting or the seeking
of any such Veritas Consent and shall provide all necessary information
and materials to the Trustee in each case promptly and in any event in
sufficient time to enable the Trustee to perform its obligations
contemplated by this Section 4(c).
(d) COPIES OF STOCKHOLDER INFORMATION. Veritas will deliver to the Trustee
copies of all proxy materials, (including notices of Veritas Meetings
but excluding proxies to vote shares of Veritas Common Stock),
information statements, reports (including without limitation all
interim and annual financial statements) and other written
communications that are to be distributed from time to time to holders
of Veritas Common Stock in sufficient quantities and in sufficient time
so as to enable the Trustee to send those materials to each Holder at
the same time as such materials are first sent to holders of Veritas
Common Stock. The Trustee will mail or otherwise send to each Holder, at
the
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expense of Veritas, copies of all such materials (and all materials
specifically directed to the Holders or to the Trustee for the benefit
of the Holders by Veritas) received by the Trustee from Veritas at the
same time as such materials are first sent to holders of Veritas Common
Stock. The Trustee will make copies of all such materials available for
inspection by any Holder at the Trustee's principal office in the cities
of Calgary and Toronto.
(e) OTHER MATERIALS. Immediately after receipt by Veritas or any
stockholder of Veritas of any material sent or given generally to the
holders of Veritas Common Stock by or on behalf of a third party,
including without limitation dissident proxy and information circulars
(and related information and material) and tender and exchange offer
circulars (and related information and material), Veritas shall use its
best efforts to obtain and deliver to the Trustee copies thereof in
sufficient quantities so as to enable the Trustee to forward such
material (unless the same has been provided directly to Holders by such
third party) to each Holder as soon as possible thereafter. As soon as
practicable after receipt thereof, the Trustee will mail or otherwise
send to each Holder, at the expense of Veritas, copies of all such
materials received by the Trustee from Veritas. The Trustee will also
make copies of all such materials available for inspection by any Holder
at the Trustee's principal office in the cities of Toronto and Calgary.
(f) LIST OF PERSONS ENTITLED TO VOTE. VESI shall, (i) prior to each annual,
general and special Veritas Meeting or the seeking of any Veritas
Consent and (ii) forthwith upon each request made at any time by the
Trustee in writing, prepare or cause to be prepared a list (a "List") of
the names and addresses of the Holders arranged in alphabetical order
and showing the number of Series 1 Exchangeable Shares held of record by
each such Holder, in each case at the close of business on the date
specified by the Trustee in such request or, in the case of a List
prepared in connection with a Veritas Meeting or a Veritas Consent, at
the close of business on the record date established by Veritas or
pursuant to applicable law for determining the holders of Veritas Common
Stock entitled to receive notice of and/or to vote at such Veritas
Meeting or to give consent in connection with such Veritas Consent. Each
such List shall be delivered to the Trustee promptly after receipt by
VESI of such request or the record date for such meeting or seeking of
consent, as the case may be, and in any event within sufficient time as
to enable the Trustee to perform its obligations under this agreement.
Veritas agrees to give VESI written notice (with a copy to the Trustee)
of the calling of any Veritas Meeting or the seeking of any Veritas
Consent, together with the record dates therefor, sufficiently prior to
the date of the calling of such meeting or seeking of such consent so as
to enable VESI to perform its obligations under this Section 4(f).
(g) ENTITLEMENT TO DIRECT VOTES. Any Holder named in a List prepared in
connection with any Veritas Meeting or any Veritas Consent will be
entitled (i) to instruct the Trustee in the manner described in Section
4(c) hereof with respect to the exercise of the Holder Votes to which
such Holder is entitled or (ii) to attend such meeting and personally to
exercise thereat (or to exercise with respect to any written consent),
as the proxy of the Trustee, the Holder Votes to which such Holder is
entitled.
(h) VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING.
(i) In connection with each Veritas Meeting and Veritas Consent, the
Trustee shall exercise, either in person or by proxy, in
accordance with the instructions received from a Holder pursuant
to Section 4(c) hereof, the Holder Votes as to which such Holder
is entitled to direct the vote (or any lesser number thereof as
may be set forth in the instructions); provided, however, that
such written instructions are received by the Trustee from the
Holder prior to the time and date fixed by it for receipt of such
instructions in the notice given by the Trustee to the Holder
pursuant to Section 4(c) hereof.
(ii) The Trustee shall cause such representatives as are empowered by
it to sign and deliver, on behalf of the Trustee, proxies for
Voting Rights to attend each Veritas Meeting. Upon submission by
a Holder (or its designee) of identification satisfactory to the
Trustee's representatives, and at the Holder's request, such
representatives shall sign and deliver to such Holder (or its
designee) a proxy to exercise personally the Holder Votes as to
which such Holder
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is otherwise entitled hereunder to direct the vote, if such
Holder either (A) has not previously given the Trustee
instructions pursuant to Section 4(c) hereof in respect of such
meeting, or (B) submits to the Trustee's representatives written
revocation of any such previous instructions. At such meeting,
the Holder exercising such Holder Votes shall have the same
rights as the Trustee to speak at the meeting in respect of any
matter, question or proposition, to vote by way of ballot at the
meeting in respect of any matter, question or proposition and to
vote at such meeting by way of a show of hands in respect of any
matter, question or proposition.
(i) DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Trustee to the Holders pursuant to this agreement
shall be delivered or sent by mail (or otherwise communicated in the
same manner as Veritas utilizes in communications to holders of Veritas
Common Stock) to each Holder at its address as shown on the books of
VESI. VESI shall provide or cause to be provided to the Trustee for this
purpose, on a timely basis and without charge or other expense:
(A) a current List; and
(B) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this agreement.
The materials referred to above are to be provided by Veritas to the
Trustee, but shall be subject to review and comment by the Trustee.
(j) TERMINATION OF VOTING RIGHTS. Except as otherwise provided herein or in
the Exchangeable Share Provisions, all of the rights of a Holder with
respect to the Holder Votes exercisable in respect of the Series 1
Exchangeable Shares held by such Holder, including the right to instruct
the Trustee as to the voting of or to vote personally such Holder Votes,
shall be deemed to be surrendered by the Holder to Veritas and such
Holder Votes and the Voting Rights represented thereby shall cease
immediately upon the delivery by such Holder to the Trustee of the
certificates representing such Series 1 Exchangeable Shares in
connection with the exercise by the Holder of the Exchange Right or the
occurrence of the automatic exchange of Series 1 Exchangeable Shares for
shares of Veritas Common Stock, as specified in Article 5 hereof (unless
in either case Veritas shall not have delivered the Series 1
Exchangeable Share Consideration deliverable in exchange therefor to the
Trustee for delivery to the Holders), or upon the redemption of Series 1
Exchangeable Shares pursuant to Article 6 or Article 7 of the
Exchangeable Share Provisions, or upon the effective date of the
liquidation, dissolution or winding-up of VESI pursuant to Article 5 of
the Exchangeable Share Provisions, or upon the purchase of Series 1
Exchangeable Shares from the holder thereof by Veritas pursuant to the
exercise by Veritas of the Retraction Call Right, the Redemption Call
Right or the Liquidation Call Right.
5. EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
(a) GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. Veritas hereby grants to the
Trustee as trustee for and on behalf of, and for the use and benefit of,
the Holders (i) the right (the "Exchange Right"), upon the occurrence
and during the continuance of an Insolvency Event, to require Veritas to
purchase from each or any Holder all or any part of the Series 1
Exchangeable Shares held by the Holders, and (ii) the Automatic Exchange
Rights, all in accordance with the provisions of this agreement. Veritas
hereby acknowledges receipt from the Trustee as trustee for and on
behalf of the Holders of good and valuable consideration (and the
adequacy thereof) for the grant of the Exchange Right and the Automatic
Exchange Rights by Veritas to the Trustee. During the term of the Trust
and subject to the terms and conditions of this agreement, the Trustee
shall possess and be vested with full legal ownership of the Exchange
Right and the Automatic Exchange Rights and shall be entitled to
exercise all of the rights and powers of an owner with respect to the
Exchange Right and the Automatic Exchange Rights, provided that the
Trustee shall:
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(iii) hold the Exchange Right and the Automatic Exchange Rights and
the legal title thereto as trustee solely for the use and
benefit of the Holders in accordance with the provisions of
this agreement; and
(iv) except as specifically authorized by this agreement, have no
power or authority to exercise or otherwise deal in or with the
Exchange Right or the Automatic Exchange Rights, and the
Trustee shall not exercise any such rights for any purpose
other than the purposes for which this Trust is created
pursuant to this agreement.
(b) LEGENDED SHARE CERTIFICATES. VESI will cause each certificate
representing Series 1 Exchangeable Shares to bear an appropriate
legend notifying the Holders of:
(i) their right to instruct the Trustee with respect to the
exercise of the Exchange Right in respect of the Series 1
Exchangeable Shares held by a Holder; and
(ii) the Automatic Exchange Rights.
(c) GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercised by the Trustee. Subject to Section
7(o) hereof, the Trustee shall exercise the Exchange Right only on
the basis of instructions received pursuant to this Article 5 from
Holders entitled to instruct the Trustee as to the exercise thereof.
To the extent that no instructions are received from a Holder with
respect to the Exchange Right, the Trustee shall not exercise or
permit the exercise of the Exchange Right.
(d) PURCHASE PRICE. The purchase price payable by Veritas for each
Series 1 Exchangeable Share to be purchased by Veritas under the
Exchange Right shall be an amount equal to the Series 1 Exchangeable
Share Price on the last Business Day prior to the day of closing of
the purchase and sale of such Series 1 Exchangeable Share under the
Exchange Right. In connection with each exercise of the Exchange
Right, Veritas will provide to the Trustee an Officer's Certificate
setting forth the calculation of the Series 1 Exchangeable Share
Price for each Series 1 Exchangeable Share. The Series 1 Exchangeable
Share Price for each such Series 1 Exchangeable Share so purchased
may be satisfied only by Veritas issuing and delivering or causing to
be delivered to the Trustee, on behalf of the relevant Holder, the
Series 1 Exchangeable Share Consideration representing the total
Series 1 Exchangeable Share Price.
(e) EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein
set forth, a Holder shall be entitled, upon the occurrence and during
the continuance of an Insolvency Event, to instruct the Trustee to
exercise the Exchange Right with respect to all or any part of the
Series 1 Exchangeable Shares registered in the name of such Holder on
the books of VESI. To cause the exercise of the Exchange Right by the
Trustee, the Holder shall deliver to the Trustee, in person or by
certified or registered mail, at its principal office in Calgary,
Alberta, Toronto, Ontario or at such other places in Canada as the
Trustee may from time to time designate by written notice to the
Holders, the certificates representing the Series 1 Exchangeable
Shares which such Holder desires Veritas to purchase, duly endorsed
in blank, and accompanied by such other documents and instruments as
may be required to effect a transfer of Series 1 Exchangeable Shares
under the Business Corporations Act (Alberta), other applicable laws,
if any, and the by-laws of VESI and such additional documents and
instruments as the Trustee may reasonably require together with (i) a
duly completed form of notice of exercise of the Exchange Right,
contained on the reverse of or attached to the Series 1 Exchangeable
Share certificates, stating (A) that the Holder thereby instructs the
Trustee to exercise the Exchange Right so as to require Veritas to
purchase from the Holder the number of Series 1 Exchangeable Shares
specified therein, (B) that such Holder has good title to and owns
all such Series 1 Exchangeable Shares to be acquired by Veritas free
and clear of all liens, claims and encumbrances, (C) the names in
which the certificates representing Veritas Common Stock issuable in
connection with the exercise of the Exchange Right are to be issued
and (D) the names and addresses of the persons to whom the Series 1
Exchangeable Share Consideration should be delivered and (ii) payment
(or evidence satisfactory to the Trustee, VESI and Veritas of
payment) of the taxes (if any) payable as
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contemplated by Section 5(h) of this agreement. If only a part of the
Series 1 Exchangeable Shares represented by any certificate or
certificates delivered to the Trustee are to be purchased by Veritas
under the Exchange Right, a new certificate for the balance of such
Series 1 Exchangeable Shares shall be issued to the Holder at the
expense of VESI.
(f) DELIVERY OF SERIES 1 EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF
EXERCISE. Promptly after receipt of the certificates representing the
Series 1 Exchangeable Shares which the Holder desires Veritas to
purchase under the Exchange Right (together with such documents and
instruments of transfer and a duly completed form of notice of
exercise of the Exchange Right), duly endorsed for transfer to
Veritas, the Trustee shall notify Veritas and VESI of its receipt of
the same, which notice to Veritas and VESI shall constitute exercise
of the Exchange Right by the Trustee on behalf of the Holder of such
Series 1 Exchangeable Shares, and Veritas shall immediately
thereafter deliver or cause to be delivered to the Trustee, for
delivery to the Holder of such Series 1 Exchangeable Shares (or to
such other persons, if any, properly designated by such Holder), the
Series 1 Exchangeable Share Consideration deliverable in connection
with the exercise of the Exchange Right; provided, however, that no
such delivery shall be made unless and until the Holder requesting
the same shall have paid (or provided evidence satisfactory to the
Trustee, VESI and Veritas of the payment of) the taxes (if any)
payable as contemplated by Section 5(h) of this agreement. In
connection with payment of the Series 1 Exchangeable Share
Consideration, Veritas shall be entitled to liquidate some of the
Veritas Common Stock that would otherwise be deliverable to the
particular holder of Series 1 Exchangeable Shares in order to fund
any statutory withholding tax obligation. Immediately upon the giving
of notice by the Trustee to Veritas and VESI of the exercise of the
Exchange Right, as provided in this Section 5(f), the closing of the
transaction of purchase and sale contemplated by the Exchange Right
shall be deemed to have occurred, and the Holder of such Series 1
Exchangeable Shares shall be deemed to have transferred to Veritas
all of its right, title and interest in and to such Series 1
Exchangeable Shares and in the related interest in the Trust Estate
and shall cease to be a holder of such Series 1 Exchangeable Shares
and shall not be entitled to exercise any of the rights of a holder
in respect thereof, other than the right to receive his proportionate
part of the total purchase price therefor, unless such Series 1
Exchangeable Share Consideration is not delivered by Veritas to the
Trustee, for delivery to such Holder (or to such other persons, if
any, properly designated by such Holder), within five Business Days
of the date of the giving of such notice by the Trustee, in which
case the rights of the Holder shall remain unaffected until such
Series 1 Exchangeable Share Consideration is delivered by Veritas and
any cheque included therein is paid. Concurrently with such Holder
ceasing to be a holder of Series 1 Exchangeable Shares, the Holder
shall be considered and deemed for all purposes to be the holder of
the shares of Veritas Common Stock delivered to it pursuant to the
Exchange Right. Notwithstanding the foregoing until the Series 1
Exchangeable Share Consideration is delivered to the Holder, the
Holder shall be deemed to still be a holder of the sold Series 1
Exchangeable Shares for purposes of voting rights with respect
thereto under this agreement.
(g) EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event
that a Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require VESI to redeem any or all of
the Series 1 Exchangeable Shares held by the Holder (the "Retracted
Shares") and is notified by VESI pursuant to Section 6.6 of the
Exchangeable Share Provisions that VESI will not be permitted as a
result of liquidity or solvency requirements of applicable law to
redeem all such Retracted Shares, subject to receipt by the Trustee
of written notice to that effect from VESI and provided that Veritas
shall not have exercised the Retraction Call Right with respect to
the Retracted Shares and that the Holder has not revoked the
retraction request delivered by the Holder to VESI pursuant to
Section 6.1 of the Exchangeable Share Provisions, the retraction
request will constitute and will be deemed to constitute notice from
the Holder to the Trustee instructing the Trustee to exercise the
Exchange Right with respect to those Retracted Shares which VESI is
unable to redeem. In any such event, VESI hereby agrees with the
Trustee and in favour of the Holder immediately to notify the Trustee
of such prohibition against VESI redeeming all of the Retracted
Shares and immediately to forward or cause to be forwarded to the
Trustee all relevant materials delivered by the
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Holder to VESI or to the transfer agent of the Series 1 Exchangeable
Shares (including without limitation a copy of the retraction request
delivered pursuant to Section 6.1 of the Exchangeable Share
Provisions) in connection with such proposed redemption of the
Retracted Shares and the Trustee will thereupon exercise the Exchange
Right with respect to the Retracted Shares that VESI is not permitted
to redeem and will require Veritas to purchase such shares in
accordance with the provisions of this Article 5.
(h) STAMP OR OTHER TRANSFER TAXES. Upon any sale of Series 1
Exchangeable Shares to Veritas pursuant to the Exchange Right or the
Automatic Exchange Rights, the share certificate or certificates
representing Veritas Common Stock to be delivered in connection with
the payment of the total purchase price therefor shall be issued in
the name of the Holder of the Series 1 Exchangeable Shares so sold or
in such names as such Holder may otherwise direct in writing without
charge to the holder of the Series 1 Exchangeable Shares so sold,
provided, however, that such Holder (i) shall pay (and neither
Veritas, VESI nor the Trustee shall be required to pay) any
documentary, stamp, transfer or other similar taxes that may be
payable in respect of any transfer involved in the issuance or
delivery of such shares to a person other than such Holder or (ii)
shall have established to the satisfaction of the Trustee, Veritas
and VESI that such taxes, if any, have been paid.
(i) NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the
passage of time or both would be an Insolvency Event, VESI and
Veritas shall give written notice thereof to the Trustee. As soon as
practicable after receiving notice from VESI and Veritas or from any
other Person of the occurrence of an Insolvency Event, the Trustee
will mail to each Holder, at the expense of Veritas, a notice of such
Insolvency Event in the form provided by Veritas, which notice shall
contain a brief statement of the right of the Holders with respect to
the Exchange Right.
(j) QUALIFICATION OF VERITAS COMMON STOCK. Veritas covenants that if any
shares of Veritas Common Stock to be issued and delivered pursuant to
the Exchange Right or the Automatic Exchange Rights require
registration or qualification with or approval of or the filing of
any document including any prospectus or similar document or the
taking of any proceeding with or the obtaining of any order, ruling
or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or
regulation or pursuant to the rules and regulations of any regulatory
authority or the fulfillment of any other legal requirement
(collectively, the "Applicable Laws") before such shares may be
issued and delivered by Veritas to the initial holder thereof (other
than VESI) or in order that such shares may be freely traded
thereafter (other than any restrictions on transfer by reason of a
holder being a "control person" of Veritas for purposes of Canadian
federal or provincial securities law or an "affiliate" of Veritas or,
prior to the Effective Date, of Enertec for purposes of United States
federal or state securities law), Veritas will in good faith
expeditiously take all such actions and do all such things as are
necessary to cause such shares of Veritas Common Stock to be and
remain duly registered, qualified or approved. Veritas represents and
warrants that it has in good faith taken all actions and done all
things as are necessary under Applicable Laws as they exist on the
date hereof to cause the shares of Veritas Common Stock to be issued
and delivered pursuant to the Exchange Right and the Automatic
Exchange Rights and to be freely tradeable thereafter (other than
restrictions on transfer by reason of a holder being a "control
person" of Veritas for the purposes of Canadian federal and
provincial securities law or an "affiliate" of Veritas or, prior to
the Effective Date, of Enertec for the purposes of United States
federal or state securities law). Veritas will in good faith
expeditiously take all such actions and do all such things as are
necessary to cause all shares of Veritas Common Stock to be delivered
pursuant to the Exchange Right or the Automatic Exchange Rights to be
and to continue to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which such shares are
listed, quoted or posted for trading at such time.
(k) RESERVATION OF SHARES OF VERITAS COMMON STOCK.
Veritas hereby represents, warrants and covenants that it has
irrevocably reserved for issuance and will at all times keep
available, free from pre-emptive and other rights, out of its
authorized and unissued
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capital stock such number of shares of Veritas Common Stock (i) as is
equal to the sum of (A) the number of Series 1 Exchangeable Shares
issued and outstanding from time to time and (B) the number of Series
1 Exchangeable Shares issuable upon the exercise of all rights to
acquire Series 1 Exchangeable Shares outstanding from time to time
and (ii) as are now and may hereafter be required to enable and
permit Veritas and VESI to meet their respective obligations
hereunder, under the Restated Certificate of Incorporation of
Veritas, under the Support Agreement, under the Exchangeable Share
Provisions and under any other security or commitment pursuant to the
Arrangement with respect to which Veritas may now or hereafter be
required to issue shares of Veritas Common Stock.
(l) AUTOMATIC EXCHANGE ON LIQUIDATION OF VERITAS.
(i) Veritas will give the Trustee written notice of each of the
following events at the time set forth below:
(A) in the event of any determination by the board of
directors of the Veritas to institute voluntary
liquidation, dissolution or winding-up proceedings with
respect to Veritas or to effect any other distribution of
assets of Veritas among its stockholders for the purpose
of winding-up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution,
winding-up or other distribution; and
(B) immediately, upon the earlier of (I) receipt by Veritas of
notice of, and (II) Veritas otherwise becoming aware of,
any threatened or instituted claim, suit, petition or
other proceedings with respect to the involuntary
liquidation, dissolution or winding-up of Veritas or to
effect any other distribution of assets of Veritas among
its stockholders for the purpose of winding-up its
affairs.
(ii) Immediately following receipt by the Trustee from Veritas of
notice of any event (a "Liquidation Event ") contemplated by
Section 5(l)(i) above, the Trustee will give notice thereof to
the Holders. Such notice will be provided by Veritas to the
Trustee and shall include a brief description of the automatic
exchange of Series 1 Exchangeable Shares for shares of Veritas
Common Stock provided for in Section 5(l)(iii) below.
(iii) In order that the Holders will be able to participate on a PRO
RATA basis with the holders of Veritas Common Stock in the
distribution of assets of Veritas in connection with a
Liquidation Event, immediately prior to the effective time (the
"Liquidation Event Effective Time") of a Liquidation Event all
of the then outstanding Series 1 Exchangeable Shares shall be
automatically exchanged for shares of Veritas Common Stock. To
effect such automatic exchange, Veritas shall be deemed to have
purchased each Series 1 Exchangeable Share outstanding
immediately prior to the Liquidation Event Effective Time and
held by Holders, and each Holder shall be deemed to have sold
the Series 1 Exchangeable Shares held by it at such time, for a
purchase price per share equal to the Series 1 Exchangeable
Share Price applicable at such time. In connection with such
automatic exchange, Veritas will provide to the Trustee an
Officer's Certificate setting forth the calculation of the
purchase price for each Series 1 Exchangeable Share.
(iv) The closing of the transaction of purchase and sale
contemplated by Section 5(l)(iii) above shall be deemed to have
occurred immediately prior to the Liquidation Event Effective
Time, and each Holder of Series 1 Exchangeable Shares shall be
deemed to have transferred to Veritas all of the Holder's
right, title and interest in and to such Series 1 Exchangeable
Shares and the related interest in the Trust Estate and shall
cease to be a holder of such Series 1 Exchangeable Shares and
Veritas shall deliver to the Holder the Series 1 Exchangeable
Share Consideration deliverable upon the automatic exchange of
Series 1 Exchangeable Shares. In connection with payment of the
Series 1 Exchangeable Share Consideration, Veritas shall be
entitled to liquidate some of the Veritas Common Stock that
would otherwise be deliverable to the particular holder of
Series 1 Exchangeable Shares in order to fund any statutory
withholding tax obligation. Concurrently with such Holder
ceasing to be a holder of Series 1 Exchangeable Shares, the
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Holder shall be considered and deemed for all purposes to be the
holder of the shares of Veritas Common Stock issued to it pursuant
to the automatic exchange of Series 1 Exchangeable Shares for
Veritas Common Stock and the certificates held by the Holder
previously representing the Series 1 Exchangeable Shares exchanged
by the Holder with Veritas pursuant to such automatic exchange
shall thereafter be deemed to represent the shares of Veritas
Common Stock issued to the Holder by Veritas pursuant to such
automatic exchange. Upon the request of a Holder and the surrender
by the Holder of Series 1 Exchangeable Share certificates deemed
to represent shares of Veritas Common Stock, duly endorsed in
blank and accompanied by such instruments of transfer as Veritas
may reasonably require, Veritas shall deliver or cause to be
delivered to the Holder certificates representing the shares of
Veritas Common Stock of which the Holder is the holder.
Notwithstanding the foregoing until each Holder is actually
entered on the register of holders of Veritas Common Stock, such
Holder shall be deemed to still be a holder of the transferred
Series 1 Exchangeable Shares for purposes of all voting rights
with respect thereto under this agreement.
6. RESTRICTIONS ON ISSUANCE OF VERITAS ERS SPECIAL VOTING STOCK
During the term of this agreement, Veritas will not issue any shares of
Veritas ERS Special Voting Stock in addition to the Voting Share.
7. CONCERNING THE TRUSTEE
(a) POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities
of the Trustee under this agreement, in its capacity as trustee of
the Trust, shall include:
(i) receipt and deposit of the Voting Share from Veritas as trustee
for and on behalf of the Holders in accordance with the
provisions of this agreement;
(ii) granting proxies and distributing materials to Holders as
provided in this agreement;
(iii) voting the Holder Votes in accordance with the provisions of
this agreement;
(iv) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from Veritas as trustee for and on behalf of
the Holders in accordance with the provisions of this
agreement;
(v) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this agreement, and in connection therewith
receiving from Holders Series 1 Exchangeable Shares and other
requisite documents and distributing to such Holders the shares
of Veritas Common Stock and cheques and property, if any, to
which such Holders are entitled upon the exercise of the
Exchange Right or pursuant to the Automatic Exchange Rights, as
the case may be;
(vi) holding title to the Trust Estate;
(vii) investing any moneys forming, from time to time, a part of the
Trust Estate as provided in this agreement;
(viii) taking action at the direction of a Holder or Holders to
enforce the obligations of Veritas under this agreement; and
(ix) taking such other actions and doing such other things as are
specifically provided in this agreement.
In the exercise of such rights, powers and authorities the Trustee
shall have (and is granted) such incidental and additional rights,
powers and authority not in conflict with any of the provisions of
this agreement as the Trustee, acting in good faith and in the
reasonable exercise of its discretion, may deem necessary,
appropriate or desirable to effect the purpose of the Trust. Any
exercise of such discretionary rights, powers and authorities by the
Trustee shall be final, conclusive and binding upon
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all persons. For greater certainty, the Trustee shall have only those
duties as are set out specifically in this agreement.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best
interests of the Holders and shall exercise the care, diligence and
skill that a reasonably prudent trustee would exercise in comparable
circumstances.
The Trustee shall not be bound to give any notice or do or take any
act, action or proceeding by virtue of the powers conferred on it
hereby unless and until it shall be specifically required to do so
under the terms hereof; nor shall the Trustee be required to take any
notice of, or to do or to take any act, action or proceeding as a
result of any default or breach of any provision hereunder, unless and
until notified in writing of such default or breach, which notices
shall distinctly specify the default or breach desired to be brought to
the attention of the Trustee and in the absence of such notice the
Trustee may for all purposes of this agreement conclusively assume that
no default or breach has been made in the observance or performance of
any of the representations, warranties, covenants, agreements or
conditions contained herein.
(b) NO CONFLICT OF INTEREST. The Trustee represents to VESI and Veritas
that at the date of execution and delivery of this agreement there
exists no material conflict of interest in the role of the Trustee as a
fiduciary hereunder and the role of the Trustee in any other capacity.
The Trustee shall, within 90 days after it becomes aware that such a
material conflict of interest exists, either eliminate such material
conflict of interest or resign in the manner and with the effect
specified in Article 10 hereof. If, notwithstanding the foregoing
provisions of this Section 7(b), the Trustee has such a material
conflict of interest, the validity and enforceability of this agreement
shall not be affected in any manner whatsoever by reason only of the
existence of such material conflict of interest. If the Trustee
contravenes the foregoing provisions of this Section 7(b), any
interested party may apply to the Alberta Court of Queen's Bench an
order that the Trustee be replaced as trustee hereunder.
(c) DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. VESI and Veritas
irrevocably authorize the Trustee, from time to time, to:
(i) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the Series 1 Exchangeable Shares
and Veritas Common Stock; and
(ii) requisition, from time to time, (A) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this agreement
and (B) from the transfer agent of Veritas Common Stock, and any
subsequent transfer agent of such shares, the share certificates
issuable upon the exercise from time to time of the Exchange Right
and pursuant to the Automatic Exchange Rights in the manner
specified in Article 5 hereof.
VESI and Veritas irrevocably authorize their respective registrars and
transfer agents to comply with all such requests. Veritas covenants
that it will supply its transfer agent with duly executed share
certificates for the purpose of completing the exercise from time to
time of the Exchange Right and the Automatic Exchange Rights, in each
case pursuant to Article 5 hereof.
(d) BOOKS AND RECORDS. The Trustee shall keep available for inspection by
Veritas and VESI, at the Trustee's principal office in Calgary,
Alberta, correct and complete books and records of account relating to
the Trustee's actions under this agreement, including without
limitation all information relating to mailings and instructions to and
from Holders and all transactions pursuant to the Voting Rights, the
Exchange Right and the Automatic Exchange Rights for the term of this
agreement. On or before June 30, 2000, and on or before June 30 in
every year thereafter, so long as the Voting Share is on deposit with
the Trustee, the Trustee shall transmit to Veritas and VESI a brief
report, dated as of the preceding March 31, with respect to:
(i) the property and funds comprising the Trust Estate as of that
date;
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(ii) the number of exercises of the Exchange Right, if any, and the
aggregate number of Series 1 Exchangeable Shares received by the
Trustee on behalf of Holders in consideration of the issue and
delivery by Veritas of shares of Veritas Common Stock in
connection with the Exchange Right, during the calendar year
ended on such date; and
(iii) all other actions taken by the Trustee in the performance of its
duties under this agreement which it had not previously reported.
(e) INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate United
States and Canadian income tax returns and any other returns or reports
as may be required by applicable law or pursuant to the rules and
regulations of any securities exchange or other trading system through
which the Series 1 Exchangeable Shares are traded and, in connection
therewith, may obtain the advice and assistance of such experts as the
Trustee may consider necessary or advisable. If requested by the
Trustee, Veritas shall retain such experts for purposes of providing
such advice and assistance.
(f) INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee
shall exercise any or all of the rights, duties, powers or authorities
vested in it by this agreement at the request, order or direction of
any Holder upon such Holder furnishing to the Trustee reasonable
funding, security and indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee therein or thereby,
provided that no Holder shall be obligated to furnish to the Trustee
any such funding, security or indemnity in connection with the exercise
by the Trustee of any of its rights, duties, powers and authorities
with respect to the Voting Share pursuant to Article 4 hereof, subject
to Section 7(o) hereof, and with respect to the Exchange Right pursuant
to Article 5 hereof, subject to Section 7(o) hereof, and with respect
to the Automatic Exchange Rights pursuant to Article 5 hereof.
None of the provisions contained in this agreement shall require the
Trustee to expend or risk its own funds or otherwise incur financial
liability in the exercise of any of its rights, powers, duties or
authorities unless funded, given funds, security and indemnified as
aforesaid.
(g) ACTIONS BY HOLDERS. No Holder shall have the right to institute any
action, suit or proceeding or to exercise any other remedy authorized
by this agreement for the purpose of enforcing any of its rights or for
the execution of any trust or power hereunder unless the Holder has
requested the Trustee to take or institute such action, suit or
proceeding and furnished the Trustee with the funding, security and
indemnity referred to in Section 7(f) hereof and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but
not otherwise, the Holder shall be entitled to take proceedings in any
court of competent jurisdiction such as the Trustee might have taken;
it being understood and intended that no one or more Holders shall have
any right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any right
hereunder or under the Voting Rights, the Exchange Right or the
Automatic Exchange Rights, except subject to the conditions and in the
manner herein provided, and that all powers and trusts hereunder shall
be exercised and all proceedings at law shall be instituted, had and
maintained by the Trustee, except only as herein provided, and in any
event for the equal benefit of all Holders.
(h) RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities
hereunder if, when required, it acts and relies in good faith upon
lists, mailing labels, notices, statutory declarations, certificates,
opinions, reports or other papers or documents furnished pursuant to
the provisions hereof or required by the Trustee to be furnished to it
in the exercise of its rights, powers, duties and authorities hereunder
and such lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents comply
with the provisions of Section 7(i) hereof, if applicable, and with any
other applicable provisions of this agreement.
(i) EVIDENCE AND AUTHORITY TO TRUSTEE. VESI and/or Veritas shall furnish
to the Trustee evidence of compliance with the conditions provided for
in this agreement relating to any action or step required or permitted
to be taken by VESI and/or Veritas or the Trustee under this agreement
or
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as a result of any obligation imposed under this agreement, including,
without limitation, in respect of the Voting Rights or the Exchange
Right or the Automatic Exchange Rights and the taking of any other
action to be taken by the Trustee at the request of or on the
application of VESI and/or Veritas forthwith if and when:
(i) such evidence is required by any other section of this agreement
to be furnished to the Trustee in accordance with the terms of
this Section 7(i); or
(ii) the Trustee, in the exercise of its rights, powers, duties and
authorities under this agreement, gives VESI and/or Veritas
written notice requiring it to furnish such evidence in relation
to any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of VESI and/or
Veritas or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such
condition has been complied with in accordance with the terms of this
agreement.
Whenever such evidence relates to a matter other than the Voting Rights
or the Exchange Right or the Automatic Exchange Rights, and except as
otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser,
valuer, engineer or other expert or any other person whose
qualifications give authority to a statement made by him, provided that
if such report or opinion is furnished by a director, officer or
employee of VESI and/or Veritas it shall be in the form of an Officer's
Certificate or a statutory declaration.
Each statutory declaration, certificate, statement, opinion or report
furnished to the Trustee as evidence of compliance with a condition
provided for in this agreement shall include a statement by the person
giving the evidence:
(iii) declaring that he has read and understands the provisions of this
agreement relating to the condition in question:
(iv) describing the nature and scope of the examination or
investigation upon which he based the statutory declaration,
certificate, statement, opinion or report; and
(v) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give
the opinions contained or expressed therein.
(j) EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(i) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by VESI and/or
Veritas or otherwise, and may employ such assistants as may be
necessary to the proper determination and discharge of its powers
and duties and determination of its rights hereunder and may pay
proper and reasonable compensation for all such legal and other
advice or assistance as aforesaid; and
(ii) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its powers
and duties hereunder, and may pay reasonable remuneration for all
services performed for it (and shall be entitled to receive
reasonable remuneration for all services performed by it) in the
discharge of the trusts hereof and compensation for all
disbursements, costs and expenses made or incurred by it in the
determination and discharge of its duties hereunder and in the
management of the Trust.
(k) INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in
this agreement, any moneys held by or on behalf of the Trustee which
under the terms of this agreement may or ought to be invested or which
may be on deposit with the Trustee or which may be in the hands of the
Trustee may be invested and reinvested in the name or under the control
of the Trustee in securities in which, under the laws of the Province
of Alberta, trustees are authorized to invest trust moneys, provided
that such securities are stated to mature within two years after their
purchase by the Trustee, and the Trustee shall so invest such moneys on
the written direction of VESI. Pending the investment F-15
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of any moneys as hereinbefore provided, such moneys may be deposited
in the name of the Trustee in any chartered bank in Canada or, with
the consent of VESI, in the deposit department of the Trustee or any
other loan or trust company authorized to accept deposits under the
laws of Canada or any province thereof at the rate of interest then
current on similar deposits.
(l) TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of
the trusts, rights, duties, powers and authorities of this agreement
or otherwise in respect of the premises.
(m) TRUSTEE NOT BOUND TO ACT ON REQUEST. Except as in this agreement
otherwise specifically provided, the Trustee shall not be bound to act
in accordance with any direction or request of VESI and/or Veritas or
of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall
have been delivered to the Trustee, and the Trustee shall be empowered
to act and rely upon any such copy purporting to be authenticated and
believed by the Trustee to be genuine.
(n) AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to VESI and
Veritas that at the date of execution and delivery by it of this
agreement it is authorized to carry on the business of a trust company
in the Province of Alberta but if, notwithstanding the provisions of
this Section 7(n), it ceases to be so authorized to carry on business,
the validity and enforceability of this agreement and the Voting
Rights, the Exchange Right and the Automatic Exchange Rights shall not
be affected in any manner whatsoever by reason only of such event but
the Trustee shall, within 90 days after ceasing to be authorized to
carry on the business of a trust company in the Province of Alberta,
either become so authorized or resign in the manner and with the
effect specified in Article 10 hereof.
(o) CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Holder in any Series 1
Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part
of the interest of any Holder in any Series 1 Exchangeable Shares
resulting in conflicting claims or demands being made in connection
with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claim or
demand. In so refusing, the Trustee may elect not to exercise any
Voting Rights, Exchange Right or Automatic Exchange Rights subject to
such conflicting claims or demands and, in so doing, the Trustee shall
not be or become liable to any person on account of such election or
its failure or refusal to comply with any such conflicting claims or
demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(i) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or Automatic Exchange Rights subject to
such conflicting claims or demands have been adjudicated by a
final judgment of a court of competent jurisdiction; or
(ii) all differences with respect to the Voting Rights, Exchange
Right or Automatic Exchange Rights subject to such conflicting
claims or demands have been conclusively settled by a valid
written agreement binding on all such adverse claimants, and the
Trustee shall have been furnished with an executed copy of such
agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require
such claimant to furnish such surety bond or other security
satisfactory to the Trustee as it shall deem appropriate fully to
indemnify it as between all conflicting claims or demands.
(p) ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this agreement and agrees to perform the same
upon the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for the
various persons who shall from time to time be Holders, subject to all
the terms and conditions herein set forth.
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8. COMPENSATION
(a) Veritas and VESI jointly and severally agree to pay to the Trustee
reasonable compensation for all of the services rendered by it under
this agreement and will reimburse the Trustee for all reasonable
expenses (including but not limited to taxes, compensation paid to
experts, agents and advisors and travel expenses) and disbursements,
including the cost and expense of any suit or litigation of any
character and any proceedings before any governmental agency
reasonably incurred by the Trustee in connection with its rights and
duties under this agreement; provided that Veritas and VESI shall have
no obligation to reimburse the Trustee for any expenses or
disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad
faith or with negligence or willful misconduct.
9. INDEMNIFICATION AND LIMITATION OF LIABILITY
(a) INDEMNIFICATION OF THE TRUSTEE. Veritas and VESI jointly and
severally agree to indemnify and hold harmless the Trustee and each of
its directors, officers, employees and agents appointed and acting in
accordance with this agreement (collectively, the "Indemnified
Parties") against all claims, losses, damages, costs, penalties, fines
and reasonable expenses (including reasonable expenses of the
Trustee's legal counsel on a solicitor and his own client basis)
which, without fraud, negligence, willful misconduct or bad faith on
the part of such Indemnified Party, may be paid, incurred or suffered
by the Indemnified Party by reason of or as a result of the Trustee's
acceptance or administration of the Trust, its compliance with its
duties set forth in this agreement, or any written or oral
instructions delivered to the Trustee by Veritas or VESI pursuant
hereto. In no case shall Veritas or VESI be liable under this
indemnity for any claim against any of the Indemnified Parties unless
Veritas and VESI shall be notified by the Trustee of the written
assertion of a claim or of any action commenced against the
Indemnified Parties, promptly after any of the Indemnified Parties
shall have received any such written assertion of a claim or shall
have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii),
below, Veritas and VESI shall be entitled to participate at their own
expense in the defense and, if Veritas or VESI so elect at any time
after receipt of such notice, either of them may assume the defense of
any suit brought to enforce any such claim. The Trustee shall have the
right to employ separate counsel in any such suit and participate in
the defense thereof but the fees and expenses of such counsel shall be
at the expense of the Trustee unless: (i) the employment of such
counsel has been authorized by Veritas or VESI, such authorization not
to be unreasonably withheld; or (ii) the named parties to any such
suit include both the Trustee and Veritas or VESI and the Trustee
shall have been advised by counsel acceptable to Veritas or VESI that
there may be one or more legal defenses available to the Trustee that
are different from or in addition to those available to Veritas or
VESI and that an actual or potential conflict of interest exists (in
which case Veritas and VESI shall not have the right to assume the
defense of such suit on behalf of the Trustee but shall be liable to
pay the reasonable fees and expenses of counsel for the Trustee).
(b) LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any
part of the Trust Estate or any loss incurred on any investment of
funds pursuant to this agreement, except to the extent that such loss
is attributable to the fraud, negligence, willful misconduct or bad
faith on the part of the Trustee.
10. CHANGE OF TRUSTEE
(a) RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to
Veritas and VESI specifying the date on which it desires to resign,
provided that such notice shall never be given less than 60 days
before such desired resignation date unless Veritas and VESI otherwise
agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the
acceptance of such appointment by the successor trustee. Upon
receiving such notice of resignation, Veritas and VESI shall promptly
appoint a successor trustee by written instrument in duplicate, one
copy of which shall be delivered to
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the resigning trustee and one copy to the successor trustee. Failing
acceptance by a successor trustee, a successor trustee may be
appointed by an order of the Alberta Court of Queen's Bench upon
application of one or more of the parties hereto.
(b) REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by
written instrument executed by Veritas and VESI, in duplicate, one
copy of which shall be delivered to the trustee so removed and one
copy to the successor trustee, provided that, in connection with such
removal, provision is made for a replacement trustee similar to that
contemplated in Section 10(a).
(c) SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this agreement shall execute, acknowledge and deliver to Veritas and
VESI and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor
trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the
rights, powers, duties and obligations of its predecessor under this
agreement, with like effect as if originally named as trustee in this
agreement. However, on the written request of Veritas and VESI or of
the successor trustee, the trustee ceasing to act shall, upon payment
of any amounts then due it pursuant to the provisions of this
agreement, execute and deliver an instrument transferring to such
successor trustee all the rights and powers of the trustee so ceasing
to act. Upon the request of any such successor trustee, Veritas, VESI
and such predecessor trustee shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such
successor trustee all such rights and powers.
(d) NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, Veritas and VESI shall cause to
be mailed notice of the succession of such trustee hereunder to each
Holder specified in a List. If Veritas or VESI shall fail to cause
such notice to be mailed within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of Veritas and VESI.
11. VERITAS SUCCESSORS
(a) CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Veritas shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, amalgamation, transfer, sale,
lease or otherwise) whereby all or substantially all of its
undertaking, property and assets would become the property of any
other Person or, in the case of a merger or amalgamation, of the
continuing corporation resulting therefrom unless, but may do so if:
(i) such other Person or continuing corporation (the "Veritas
Successor"), by operation of law, becomes, without further
action, bound by the terms and provisions of this agreement or,
if not so bound, executes, prior to or contemporaneously with the
consummation of such transaction an agreement supplemental hereto
and such other instruments (if any) as are satisfactory to the
Trustee and in the opinion of legal counsel to the Trustee are
necessary or advisable to evidence the assumption by the Veritas
Successor of liability for all moneys payable and property
deliverable hereunder and the covenant of such Veritas Successor
to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and
obligations of Veritas under this agreement; and
(ii) such transaction shall, to the satisfaction of the Trustee and in
the opinion of legal counsel to the Trustee, be upon such terms
as substantially to preserve and not to impair in any material
respect any of the rights, duties, powers and authorities of the
Trustee or of the Holders hereunder.
(b) VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of Section
11(a) hereof have been duly observed and performed, the Trustee, if
required, by Section 11(a) hereof, the Veritas Successor and VESI
shall execute and deliver the supplemental agreement provided for in
Article 12 hereof and thereupon the Veritas Successor shall possess
and from time to time may exercise each and
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every right and power of Veritas under this agreement in the name of
Veritas or otherwise and any act or proceeding by any provision of
this agreement required to be done or performed by the board of
directors of Veritas or any officers of Veritas may be done and
performed with like force and effect by the directors or officers of
such Veritas Successor.
(c) WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary
of Veritas with or into Veritas or the winding-up, liquidation or
dissolution of any wholly-owned subsidiary of Veritas provided that
all of the assets of such subsidiary are transferred to Veritas or
another wholly-owned subsidiary of Veritas, and any such transactions
are expressly permitted by this Article 11.
12. AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
(a) AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended or
modified except by an agreement in writing executed by VESI, Veritas
and the Trustee and approved by the Holders in accordance with Section
9.2 of the Exchangeable Share Provisions.
(b) MINISTERIAL AMENDMENTS. Notwithstanding the provisions of Section
12(a) hereof, the parties to this agreement may in writing, at any
time and from time to time, without the approval of the Holders, amend
or modify this agreement for the purposes of:
(i) adding to the covenants of any or all of the parties hereto for
the protection of the Holders hereunder;
(ii) making such amendments or modifications not inconsistent with
this agreement as may be necessary or desirable with respect to
matters or questions which, in the opinion of the board of
directors of each of Veritas and VESI and in the opinion of the
Trustee and its counsel, having in mind the best interests of
the Holders as a whole, it may be expedient to make, provided
that such boards of directors and the Trustee and its counsel
shall be of the opinion that such amendments and modifications
will not be prejudicial to the interests of the Holders as a
whole; or
(iii) making such changes or corrections which, on the advice of
counsel to VESI, Veritas and the Trustee, are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that the Trustee and its counsel and
the board of directors of each of VESI and Veritas shall be of
the opinion that such changes or corrections will not be
prejudicial to the interests of the Holders as a whole.
(c) MEETING TO CONSIDER AMENDMENTS. VESI, at the request of Veritas,
shall call a meeting or meetings of the Holders for the purpose of
considering any proposed amendment or modification requiring approval
pursuant hereto. Any such meeting or meetings shall be called and held
in accordance with the by-laws of VESI, the Exchangeable Share
Provisions and all applicable laws.
(d) CHANGES IN CAPITAL OF VERITAS AND VESI. At all times after the
occurrence of any event effected pursuant to Section 2(g) or Section
2(h) of the Support Agreement, as a result of which either Veritas
Common Stock or the Series 1 Exchangeable Shares or both are in any
way changed, this agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which Veritas Common
Stock or the Series 1 Exchangeable Shares or both are so changed and
the parties hereto shall execute and deliver a supplemental agreement
giving effect to and evidencing such necessary amendments and
modifications.
(e) EXECUTION OF SUPPLEMENTAL AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this agreement
otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto. From time to time
VESI (when authorized by a resolution of its Board of Directors),
Veritas (when authorized by a resolution of its board of directors)
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and the Trustee may, subject to the provisions of these presents, and
they shall, when so directed by these presents, execute and deliver by
their proper officers, agreements or other instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more
of the following purposes:
(i) evidencing the succession of any Veritas Successors to Veritas
and the covenants of and obligations assumed by each such
Veritas Successors in accordance with the provisions of Article
11 and the successor of any successor trustee in accordance with
the provisions of Article 10;
(ii) making any additions to, deletions from or alterations of the
provisions of this agreement or the Voting Rights, the Exchange
Right or the Automatic Exchange Rights which, in the opinion of
the Trustee and its counsel, will not be prejudicial to the
interests of the Holders as a whole or are in the opinion of
counsel to the Trustee necessary or advisable in order to
incorporate, reflect or comply with any legislation the
provisions of which apply to Veritas, VESI, the Trustee or this
agreement; and
(iii) for any other purposes not inconsistent with the provisions of
this agreement, including without limitation to make or evidence
any amendment or modification to this agreement as contemplated
hereby, provided that, in the opinion of the Trustee and its
counsel, the rights of the Trustee and the Holders as a whole
will not be prejudiced thereby.
13. TERMINATION
(a) TERM. The Trust created by this agreement shall continue until the
earliest to occur of the following events:
(i) no outstanding Series 1 Exchangeable Shares are held by a
Holder;
(ii) each of VESI and Veritas elects in writing to terminate the
Trust and such termination is approved by the Holders of the
Series 1 Exchangeable Shares in accordance with Section 9.2 of
the Exchangeable Share Provisions; and
(iii) 21 years after the death of the last survivor of the
descendants of His Majesty King George VI of the United Kingdom
of Great Britain and Northern Ireland living on the date of the
creation of the Trust.
(b) SURVIVAL OF AGREEMENT. This agreement shall survive any termination
of the Trust and shall continue until there are no Series 1
Exchangeable Shares outstanding held by a Holder; provided, however,
that the provisions of Articles 8 and 9 hereof shall survive any such
termination of this agreement.
14. GENERAL
(a) SEVERABILITY. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this agreement shall not in any way
be affected or impaired thereby and the agreement shall be carried out
as nearly as possible in accordance with its original terms and
conditions.
(b) INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns and to the benefit of the Holders.
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(c) NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have
been given if delivered personally or by confirmed telecopy to the
parties at the following addresses (or at such other address for such
party as shall be specified in like notice):
(i) if to Veritas at:
Veritas DGC Inc.
3701 Kirby Drive, Suite 112
Houston, Texas 77098
Attention: Chairman
Telecopy: (713) 526-5611
(ii) if to VESI at:
Veritas Energy Services Inc.
Suite 300, 615 - Third Avenue S.W.
Calgary, Alberta T2P 0G9
Attention: President
Telecopy: (403) 266-9359
(iii) if to the Trustee at:
if by mail or delivery:
CIBC Mellon Trust Company
600 The Dome Tower
333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Z1
Attention:
Telecopy: (403) 232-2400
Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof and if given by
telecopy shall be deemed to have been given and received on the date
of receipt thereof unless such day is not a Business Day in which
case it shall be deemed to have been given and received upon the
immediately following Business Day.
(d) NOTICE OF HOLDERS. Any and all notices to be given and any documents
to be sent to any Holders may be given or sent to the address of such
Holder shown on the register of Holders of Series 1 Exchangeable
Shares in any manner permitted by the Exchangeable Share Provisions
and shall be deemed to be received (if given or sent in such manner)
at the time specified in such Exchangeable Share Provisions, the
provisions of which the Exchangeable Share Provisions shall apply
mutatis mutandis to notices or documents as aforesaid sent to such
Holders.
(e) RISK OF PAYMENTS BY POST. Whenever payments are to be made or
documents are to be sent to any Holder by the Trustee, by VESI or by
Veritas or by such Holder to the Trustee or to Veritas or VESI, the
making of such payment or sending of such document sent through the
post shall be at the risk of VESI or Veritas, in the case of payments
made or documents sent by the Trustee or VESI or Veritas, and the
Holder, in the case of payments made or documents sent by the Holder.
(f) COUNTERPARTS. This agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument. A counterpart delivered
by facsimile is hereby deemed to be as effective as a counterpart
delivered in original form.
(g) JURISDICTION. This agreement shall be construed and enforced in
accordance with the laws of the Province of Alberta and the laws of
Canada applicable therein.
(h) ATTORNMENT. Veritas agrees that any action or proceeding arising out
of or relating to this agreement may be instituted in the courts of
Alberta, waives any objection which it may have now or
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hereafter to the venue of any such action or proceeding, irrevocably
submits to the jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any judgment of the said courts and
agrees not to seek, and hereby waives, any review of the merits of any
such judgment by the courts of any other jurisdiction and hereby
appoints VESI at its registered office in the Province of Alberta as
Veritas' attorney for service of process.
IN WITNESS WHEREOF, the parties hereby have caused this agreement to be
duly executed as of the date first above written.
VERITAS DGC INC.
Per:
--------------------------------------
--------------------------------------
VERITAS ENERGY SERVICES INC.
Per:
--------------------------------------
--------------------------------------
CIBC MELLON TRUST COMPANY
Per:
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ANNEX G
RESTATED
CERTIFICATE OF INCORPORATION OF
VERITAS DGC
<PAGE> 281
RESTATED
CERTIFICATE OF INCORPORATION
(WITH AMENDMENTS)
OF
VERITAS DGC INC.
Veritas DGC Inc., a corporation organized and existing under the laws of
Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The present name of the Corporation is Veritas DGC Inc. The
original name of the Corporation was "New Digicon Inc.", and its original date
of incorporation was June 21, 1991.
SECOND: This Restated Certificate of Incorporation (with Amendments) was
duly adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
THIRD: Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation (with
Amendments) restates and integrates and further amends the provisions of the
Certificate of Incorporation of the Corporation.
FOURTH: The text of the Restated Certificate of Incorporation (with
Amendments) as heretofore amended and supplemented is hereby restated and
further amended to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Veritas DGC Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name and address of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business and the objects and purposes to be transacted,
promoted or carried on by the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
Section 1. The aggregate number of shares which the Corporation will have
authority to issue is 41,000,000, of which 40,000,000 will be common shares, par
value $.01 per share, ("Ordinary Shares") and 1,000,000 will be shares of
preferred stock, par value $.01 per share ("Preferred Stock").
Section 2. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series, each of which is to have a distinctive
designation specified in the resolution or resolutions of the Board of Directors
providing for the issuance of such Preferred Stock from time to time. Each
series of Preferred Stock:
(a) may have such number of shares;
(b) may have such voting powers, full or limited;
(c) may be subject to redemption upon such terms and conditions;
(d) may be entitled to receive dividends (which may be cumulative or
noncumulative) payable in cash, property, rights or securities at
such rate or rates, on such conditions, from such date or dates, and
at such times, and payable in preference to, or in such relation to,
the dividends payable on any other class or series of stock;
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(e) may have such rights and preferences upon the dissolution or
liquidation (whether voluntary or involuntary) of the Corporation;
(f) may be made convertible into or exchangeable for other securities, or
cash, or other property or rights at such price or prices or at such
rates of exchange, and with such adjustments;
(g) may be entitled to the benefit of a sinking fund to be applied to the
redemption of shares of such series upon such terms and in such
amount or amounts;
(h) may be subject to such restrictions as to issuance or as to the
powers, preferences or rights of any such other series; and
(i) may have such other preferences, privileges and relative rights;
as in such instance is stated in the resolution or resolutions of the Board
of Directors providing for the issuance of such Preferred Stock. Except
where otherwise set forth in such resolution or resolutions, the number of
shares comprising such series may be increased or decreased (but not below
the number of shares then outstanding from time to time) by like action of
the Board of Directors. Shares of any series of Preferred Stock, which have
been redeemed (whether through the operation of a sinking fund or
otherwise) by the Corporation, or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any other
class, will have the status of authorized but unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were
originally a part or may be reclassified and reissued as part of a new
series of Preferred Stock created by resolution or resolutions of the Board
of Directors or as part of any other series of Preferred Stock, all subject
to the conditions or restrictions on issuance set forth in the resolution
or resolutions adopted by the Board of Directors providing for the issuance
of any series of Preferred Stock and to any filing required by law.
Section 3. Ordinary Shares. Ordinary Shares may be issued from time to
time in one or more series. The designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereon, of the Ordinary Shares of each series
shall be such as are stated and expressed herein, and to the extent not stated
and expressed herein, shall be such as may be fixed by the Board of Directors
and stated and expressed in the resolution or resolutions providing for the
issuance of such Ordinary Shares from time to time; provided, however, that:
(a) except as otherwise provided by law or by the resolution or
resolutions of the Board of Directors providing for the issuance of
any series of Preferred Stock, Ordinary Shares will have the
exclusive right to vote for the election of directors and for all
other purposes; and
(b) all outstanding Ordinary Shares shall vote together as a single class
on all matters presented to stockholders, with each outstanding share
of each series of Ordinary Shares to have such number of votes as
specified herein or as set forth in the resolution or resolutions of
the Board of Directors authorizing such series.
Section 4.A. VESI Special Voting Stock Designated. A series of previously
outstanding Ordinary Shares, consisting of one such share, has been duly
designated as "Special Voting Stock" (hereinafter referred to as the "VESI
Special Voting Stock"). Each outstanding share of VESI Special Voting Stock
shall be entitled at any relevant date to the number of votes determined in
accordance with the "Plan of Arrangement" (as that term is defined in that
certain "Combination Agreement" dated as of May 10, 1996 (hereinafter referred
to as the "VESI Combination Agreement"), by and between Digicon Inc. and Veritas
Energy Services Inc. ("VESI")) on all matters presented to the stockholders. No
dividend or distribution of assets shall be paid to the holders of VESI Special
Voting Stock. The VESI Special Voting Stock is not convertible into any other
class or series of the capital stock of the Corporation or into cash, property
or other rights, and may not be redeemed. Any shares of VESI Special Voting
Stock purchased or otherwise acquired by the Corporation shall be deemed retired
and shall be canceled and may not thereafter be reissued or otherwise disposed
of by the Corporation. So long as any "VESI Exchangeable Shares" (i.e.,
"Exchangeable Shares," as that term is defined in the VESI Combination
Agreement) shall be outstanding, the number of shares comprising the VESI
Special Voting Stock shall not be
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increased or decreased and no other term of the VESI Special Voting Stock shall
be amended, except upon the unanimous approval of all outstanding Ordinary
Shares.
Section 4.B. ERS Special Voting Stock Designated. A series of Ordinary
Shares, consisting of one such share, is hereby designated as "ERS Special
Voting Stock" (hereinafter referred to as "ERS Special Voting Stock"). Each
outstanding share of ERS Special Voting Stock shall be entitled at any relevant
date to the number of votes determined in accordance with the "Plan of
Arrangement" (as that term is defined in that certain "Combination Agreement"
dated as of March 30, 1999 (hereinafter referred to as the "ERS Combination
Agreement") by and among Veritas DGC Inc., VESI and Enertec Resource Services
Inc. ("ERS")) on all matters presented to the stockholders. No dividend or
distribution of assets shall be paid to the holders of ERS Special Voting Stock.
The ERS Special Voting Stock is not convertible into any other class or series
of the capital stock of the Corporation or into cash, property or other rights,
and may not be redeemed. Any shares of ERS Special Voting Stock purchased or
otherwise acquired by the Corporation shall be deemed retired and shall be
canceled and may not thereafter be reissued or otherwise disposed of by the
Corporation. So long as any "ERS Exchangeable Shares" (i.e., "Series 1
Exchangeable Shares," as that term is defined in the ERS Combination Agreement)
shall be outstanding, the number of shares comprising the ERS Special Voting
Stock shall not be increased or decreased and no other term of the ERS Special
Voting Stock shall be amended, except upon the unanimous approval of all
outstanding Ordinary Shares.
Section 4.C. Miscellaneous. Any reference herein to "Exchangeable Shares"
encompasses both the VESI Exchangeable Shares and the ERS Exchangeable Shares.
Section 5. Common Stock Designated. All Ordinary Shares not otherwise
designated as to series herein or in a resolution of the Board of Directors
creating another series of Ordinary Shares, is designated as "Common Stock."
Such resulting number of shares may be decreased by resolution of the Board of
Directors and without stockholder action; provided, however, that no decrease
shall reduce the number of shares of Common Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights and/or warrants, the
conversion of any outstanding convertible securities and/or the exchange of any
outstanding exchangeable securities which are directly or indirectly exercisable
for, convertible into or exchangeable for Common Stock. Each outstanding share
of Common Stock shall be entitled to one vote on all matters presented to the
stockholders. Subject to the rights and preferences of any Preferred Stock which
may be designated and issued, the holders of Common Stock are entitled (i) to
receive such dividends as may be declared thereon from time to time by the Board
of Directors in its discretion, out of any assets of the Corporation at the time
legally available for the payment of dividends and (ii) in the event of
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, to receive
any net assets of the Corporation remaining after the holders of any other
classes or series of the Corporation's capital stock which by their respective
terms are senior to the Common Stock as to dividends and distributions of assets
have been paid in full the amounts to which they respectively are entitled or a
sum sufficient for such payment in full has been set aside.
Section 6. No holder of securities of the Corporation shall have any
preemptive right to acquire any shares or securities of any kind, whether now or
hereafter authorized, which may at any time be issued, sold or offered for sale
by the Corporation.
ARTICLE V
The existence of the Corporation is to be perpetual.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) to authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation;
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(b) to set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created; and
(c) when and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called upon such notice as is
required by statute to sell, lease or exchange all or substantially
all of the property and assets of the Corporation, including its
goodwill and its corporate franchises, upon such terms and conditions
and for such consideration, which may consist in whole or in part of
money or property including securities of any other corporation or
corporations, as the Board of Directors shall deem expedient and for
the best interests of the Corporation.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, at such date and time as is requested by the person or persons calling
the meeting, within the limits fixed by law. Special meetings of stockholders of
the Corporation for any purpose or purposes may only be called by a majority of
the entire Board of Directors, by the Chairman of the Board or the President of
the Corporation. Special meetings may not be called by any other person or
persons. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation (with
Amendments), in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE IX
The number of directors of the Corporation shall be not less than three nor
more than ten, the exact number to be fixed by the Board of Directors as
provided in the Bylaws. Any vacancy created by an increase in the number of
directors in accordance with the Bylaws may only be filled by the Board of
Directors. A director of the Corporation may only be removed by a majority vote
of the stockholders entitled to elect such director.
ARTICLE X
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing clause shall not apply
to any liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law hereafter is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
The Corporation shall indemnify its officers and directors to the fullest
extent permitted by the Delaware General Corporation Law as the same may be in
effect from time to time.
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ARTICLE XI
The Corporation expressly elects not to be governed by Section 203 of the
Delaware General Corporation Law.
ARTICLE XII
Notwithstanding any other provisions herein to the contrary, so long as any
Exchangeable Shares are outstanding, the Corporation shall (i) fully comply with
all terms of the Exchangeable Shares and with all contractual obligations of the
Corporation associated with such Exchangeable Shares and (ii) not amend, alter,
change or repeal this Article XII except upon the unanimous approval of all
outstanding Ordinary Shares.
IN WITNESS WHEREOF, the undersigned has executed this RESTATED CERTIFICATE
OF INCORPORATION (WITH AMENDMENTS) on , 1999, which shall become
effective at 4:00 p.m. eastern standard time on [ ] in accordance
with Section 103(d) of the Delaware General Corporation Law.
By:
--------------------------------------
Anthony Tripodo,
Vice President and
Chief Financial Officer
Attest:
- ---------------------------------------------------------
Larry L. Worden, Secretary
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ANNEX H
CIBC WOOD GUNDY FAIRNESS OPINION
<PAGE> 287
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[CIBC World Markets Logo] CIBC WOOD GUNDY
SECURITIES INC.
11th Floor Bankers
Hall
855 - 2nd Street
S.W.
Calgary, AB T2P 4J7
Tel: 403-260-0500
Fax: 403-260-0524
</TABLE>
March 30, 1999
The Board of Directors
ENERTEC Resource Services Inc.
800, 615 Macleod Trail S.E.
Calgary, Alberta T2G 4T8
To the Board of Directors:
We understand that ENERTEC Resource Services Inc. (the "Company" or "ENERTEC"),
Veritas DGC Inc. ("Veritas") and Veritas Energy Services Inc. propose to enter
into a Combination Agreement anticipated to be dated as of March 30, 1999 which
contemplates an arrangement (the "Arrangement") pursuant to which holders of
ENERTEC common shares ("ENERTEC Common Shares") will receive exchangeable shares
(the "Exchangeable Shares") of Veritas Energy Services Inc. (a subsidiary of
Veritas) in exchange for their ENERTEC Common Shares at a ratio of 0.345
Exchangeable Shares for each ENERTEC Common Share. Each Exchangeable Share will
be exchangeable, at the option of the holder, for one share of Veritas common
stock. The terms of the Arrangement will be more fully described in a joint
management information circular and proxy statement which we understand will be
mailed to shareholders of ENERTEC in connection with the Arrangement.
The board of directors of ENERTEC (the "Board") has retained CIBC Wood Gundy
Securities Inc. ("CIBC Wood Gundy") to provide an opinion (the "Opinion") as to
the fairness of the Arrangement, from a financial point of view, to the holders
of ENERTEC Common Shares. Our Opinion is not and should not be construed as a
valuation of ENERTEC or any of its assets.
CREDENTIALS OF CIBC WOOD GUNDY
CIBC Wood Gundy is one of Canada's largest investment banking firms, with
operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading, investment research and
investment management. The Opinion expressed herein is the opinion of CIBC Wood
Gundy and the form and content herein have been approved for release by a
committee of its managing directors, each of whom is experienced in merger,
acquisition, divestiture and valuation matters.
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SCOPE OF REVIEW
In connection with rendering our Opinion, we have reviewed and relied upon, or
carried out, among other things, the following:
i) a draft of the Combination Agreement dated March 29, 1999;
ii) public information including the Company's audited annual financial
statements, interim reports and Annual Reports for each of the last three
consecutive fiscal years ending September 30, 1998, Annual Information
Form for the year ended September 30, 1998, Proxy Information Circular
dated January 22, 1999 and the interim financial statement for the three
months ending December 31, 1998;
iii) public information including Veritas' or predecessor entities' Annual
Reports, Forms 10-K, Forms 10-Q, Proxy Information Circulars and related
financial information for the three fiscal years ended July 31, 1998 and
the interim unaudited financial statements for the six months ending
January 31, 1999;
iv) certain information including financial forecasts for the fiscal year
ended September 30, 1999 for the Company, and for the fiscal year ended
July 31, 1999 and the interim six month period ending January 31, 2000
for Veritas, relating to the respective business, earnings, cash flow,
assets and prospects of the Company and Veritas, furnished to us by the
Company and Veritas, respectively;
v) discussions with members of senior management of the Company and Veritas
concerning their respective businesses and prospects;
vi) historical market prices and trading activity for the ENERTEC Common
Shares and the Veritas shares, and comparative historical market prices
and trading activity of certain publicly traded companies which we deemed
to be relevant;
vii) the financial position and operating results of the Company and Veritas,
and those of certain publicly traded companies which we deemed to be
relevant;
viii) the financial terms of the Arrangement and the financial terms of certain
other business combinations which we deemed to be relevant;
ix) the merger premiums paid in recent mergers and acquisitions of public
companies deemed relevant;
x) potential pro forma financial effects of the Arrangement on ENERTEC and
Veritas;
xi) discussions with legal counsel to the Company with respect to various
matters;
xii) letters of representation as to certain factual matters provided by the
Company and Veritas and addressed to us, dated the date hereof in the
case of ENERTEC and dated March 22, 1999 in the case of Veritas; and
xiii) such other information, investigations and analyses as we considered
appropriate in the circumstances.
CIBC Wood Gundy has not been provided with any drafts of the joint management
information circular and proxy statement to be mailed to shareholders or any
information included therein, as of the date hereof.
ASSUMPTIONS AND LIMITATIONS
We have relied upon, and have assumed the completeness, accuracy and fair
representation of all financial and other information, data, advice, opinions
and representations obtained by us from public sources or provided to us
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by ENERTEC, Veritas and their affiliates or advisors or otherwise pursuant to
our engagement and the Opinion is conditional upon such completeness, accuracy
and fair representation. Subject to the exercise of professional judgement and
except as expressly described herein, we have not attempted to verify
independently the accuracy or completeness of any such information, data,
advice, opinions and representations. Senior management of the Company and
Veritas have represented to us, in letters delivered as at the date hereof in
the case of ENERTEC and as at March 22, 1999 in the case of Veritas, amongst
other things, that the information, data, opinions and other materials (the
"Information") provided to us by or on behalf of ENERTEC or Veritas are complete
and correct at the date the Information was provided to us and that since the
date of the Information, there has been no material change, financial or
otherwise, in the position of ENERTEC or Veritas, or in their assets,
liabilities (contingent or otherwise), businesses or operations and there has
been no changes of any material fact which is of a nature as to render the
Information untrue or misleading in any material respect. Without limiting the
foregoing, in the event that there is any material change in any fact or matter
affecting the Opinion after the date hereof, CIBC Wood Gundy reserves the right
to change, modify or withdraw the Opinion.
The Opinion is rendered on the basis of securities markets, economic and general
business and financial conditions prevailing as at the date hereof and the
condition and prospects, financial and otherwise, of the Company and Veritas as
they were reflected in the information and documents reviewed by us and as they
were represented to us in our discussions with the respective managements of the
Company and Veritas. In our analyses and in connection with the preparation of
the Opinion, we made numerous assumptions with respect to industry performance,
general business, market and economic conditions and other matters, many of
which are beyond the control of CIBC Wood Gundy or any party involved in the
Arrangement.
CONCLUSION
Based upon and subject to the foregoing, it is our opinion as of the date hereof
that the Arrangement is fair from a financial point of view to the holders of
ENERTEC Common Shares.
Yours truly,
CIBC WOOD GUNDY SECURITIES INC.
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ANNEX I
SECTION 184 OF THE ABCA
<PAGE> 291
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184(1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 and 168 to add, change or
remove any provisions restricting or constraining the issue or
transfer of shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange all or substantially all its property
under section 183.
(2) A holder of shares of any class of series of shares entitled to vote
under section 170, other than section 170 (1)(a), may dissent if the corporation
resolves to amend its articles in a manner described in that section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of the
shares held by him in respect of which he dissents, determined as of the close
of business on the last business day before the day on which the resolution from
which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with
respect to all the shares of a class held by him or on behalf of any one
beneficial owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution
is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted
and of his right to dissent.
(6) An application may be made to the Court by originating notice after
the adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5),
to fix the fair value in accordance with subsection (3) of the shares of a
shareholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation
shall, unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the fair
value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection
(7) shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
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(b) contain or be accompanied by a statement showing how the fair
value was determined,
(10) A dissenting shareholder may make an agreement with the corporation
for the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before the
Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have
not been purchased by the corporation and for the representation
of dissenting shareholders who, in the opinion of the Court, are
in need of representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examination for discovery,
(c) the payment to the shareholder of all or part of the sum offered
by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection
(3) of all dissenting shareholders who are parties to the
application,
(b) giving judgment in that amount against the corporation and in
favour of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that amount
to a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance
of the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be,
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be
discontinued.
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(17) The Court may in its discretion allow a reasonable rate of interest on the
amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay
dissenting shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favour of a dissenting
shareholder under subsection (13)(b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his full
rights as a shareholder, failing which he retains a status as a claimant
against the corporation, to be paid as soon as the corporation is lawfully
able to do so or, in a liquidation, to be ranked subordinate to the rights
of the creditors of the corporation but in priority to its shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
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INSTRUMENT OF PROXY
FOR THE SPECIAL MEETING OF SHAREHOLDERS AND OPTIONHOLDERS
TO BE HELD ON , 1999
THIS PROXY IS SOLICITED ON BEHALF OF
THE MANAGEMENT OF ENERTEC RESOURCE SERVICES INC.
The undersigned holder of common shares, or options to acquire common
shares, or both (the "Securityholder") of Enertec Resource Services Inc.
("Enertec") hereby appoints Murray A. Olson, President and Chief Executive
Officer and a Director, or failing him, Peter H. Ryder, Vice President, Finance
and Chief Financial Officer, both of the City of Calgary, in the Province of
Alberta, Canada or instead of either of them
- --------------------------------------------------------------- as proxyholder,
with full power of substitution, to attend, vote and act for or on behalf of the
Securityholder at the Special Meeting (the "Meeting") of the shareholders and
optionholders of Enertec to be held at (Calgary time) on
, 1999 at and at any adjournment thereof
with the same powers that the Securityholder would have if the Securityholder
were present at the Meeting, or any adjournment thereof, and, without limiting
the power granted hereby directs that the shares and options registered in the
name of the Securityholder be voted as follows:
1. FOR [ ] OR AGAINST [ ] the special resolution to approve an arrangement
under section 186 of the Business Corporations Act (Alberta), all as more
particularly described in the Joint Management Information Circular and
Proxy Statement of Veritas DGC Inc., Veritas Energy Services Inc. and
Enertec dated , 1999 (the "Arrangement").
2. At the discretion of the said proxyholder, to vote upon any amendment or
variation of the above matter or any other matter which may properly come
before the Meeting or any adjournment thereof.
I hereby remove any proxies previously given.
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Dated this day of , 1999. The shares, or options, or both represented by
----------------------------------------------- this Proxy will be voted as directed above. If no
(Signature of Securityholder) direction is given, this Proxy shall vote "FOR"
- ----------------------------------------------- the special resolution approving the Arrangement,
(Name of Securityholder -- Please Print) as more particularly described in the Joint
Management Information Circular and Proxy
Statement of Veritas DGC Inc., Veritas Energy
Services Inc. and Enertec dated
, 1999. If any other business
or amendments or variations to the matters
identified in the Notice of Meeting properly
comes before the Meeting and management of
Enertec is not aware of these amendments,
variations or other matters to be presented at
the Meeting prior to the date of the Joint
Management Information Circular and Proxy
Statement, then discretionary authority is
conferred upon the person appointed in the proxy
to vote in the manner that they see fit. The
undersigned hereby agrees to ratify and confirm
all that such proxy may do by virtue hereof.
Each Securityholder has the right to appoint a
person, who need not be a Securityholder of
Enertec, to attend and act for him and on his
behalf at the Meeting, other than the persons
designated above. To exercise such rights, the
names of the persons designated by the management
to act should be crossed out and the name of the
Securityholder's appointee should be legibly
printed in the blank space provided.
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Notes:
1. If the Securityholder is a corporation, its corporate seal must be affixed
and this proxy must be signed by an officer or attorney of the corporate
Securityholder duly authorized.
2. This Proxy must be dated and the signature of the Securityholder should be
exactly the same as the name to which the shares and options are duly
registered.
3. Persons signing as executors, administrators, trustees, etc., should so
indicate. Only holders of shares or options of record at the close of
business on , 1999 are entitled to vote at the Meeting.
4. This Proxy must be deposited at the office of Montreal Trust Company of
Canada at 600, 530 - 8th Avenue S.W., Calgary, Alberta T2P 3S8, by no later
than noon (Calgary time) on , 1999 or, if the Meeting is adjourned,
no later than 24 hours (excluding Saturdays, Sundays and holidays) before
the time of the Meeting, or any adjournment or postponement thereof.
<PAGE> 295
INSTRUMENT OF PROXY
FOR THE SPECIAL MEETING OF EXCHANGEABLE SHAREHOLDERS
TO BE HELD ON , 1999
THIS PROXY IS SOLICITED ON BEHALF OF
THE MANAGEMENT OF VERITAS ENERGY SERVICES INC.
The undersigned holder of exchangeable shares (the "Shareholder") of Veritas
Energy Services Inc. ("VESI") hereby appoints David B. Robson, President and
Chief Executive Officer and a Director, of the City of Calgary, in the Province
of Alberta, or failing him, Larry L. Worden, Assistant Secretary, of the City of
Houston, in the State of Texas, or instead of either of them
- --------------------------------------------------------------- as proxyholder,
with full power of substitution, to attend, vote and act for or on behalf of the
Shareholder at the Special Meeting (the "Meeting") of the exchangeable
shareholders of VESI to be held at (Calgary time) on
, 1999 at and at any adjournment thereof
with the same powers that the Shareholder would have if the Shareholder were
present at the Meeting, or any adjournment thereof, and, without limiting the
power granted hereby directs that the exchangeable shares registered in the name
of the Shareholder be voted as follows:
1. FOR [ ] OR AGAINST [ ] the special resolution to approve an arrangement
under section 186 of the Business Corporations Act (Alberta), all as more
particularly described in the Joint Management Information Circular and
Proxy Statement of Veritas DGC Inc., VESI and Enertec Resource Services Inc.
dated , 1999 (the "Arrangement").
2. At the discretion of the said proxyholder, to vote upon any amendment or
variation of the above matter or any other matter which may properly come
before the Meeting or any adjournment thereof.
I hereby remove any proxies previously given.
<TABLE>
<S> <C>
Dated this day of , 1999. The exchangeable shares represented by this Proxy
----------------------------------------------- will be voted as directed above. If no direction
(Signature of Shareholder) is given, this Proxy shall vote "FOR" the special
- ----------------------------------------------- resolution approving the Arrangement, as more
(Name of Shareholder -- Please Print) particularly described in the Joint Management
Information Circular and Proxy Statement of
Veritas DGC Inc., VESI and Enertec Resource
Services Inc. dated , 1999. If
any other business or amendments or variations to
the matters identified in the Notice of Meeting
properly comes before the Meeting and management
of VESI is not aware of these amendments,
variations or other matters to be presented at
the Meeting prior to the date of the Joint
Management Information Circular and Proxy
Statement, then discretionary authority is
conferred upon the person appointed in the proxy
to vote in the manner that they see fit. The
undersigned hereby agrees to ratify and confirm
all that such proxy may do by virtue hereof.
Each Shareholder has the right to appoint a
person, who need not be a Shareholder of VESI, to
attend and act for him and on his behalf at the
Meeting, other than the persons designated above.
To exercise such rights, the names of the persons
designated by the management to act should be
crossed out and the name of the Shareholder's
appointee should be legibly printed in the blank
space provided.
</TABLE>
Notes:
1. If the Shareholder is a corporation, its corporate seal must be affixed and
this proxy must be signed by an officer or attorney of the corporate
Securityholder duly authorized.
2. This Proxy must be dated and the signature of the Shareholder should be
exactly the same as the name to which the shares are duly registered.
3. Persons signing as executors, administrators, trustees, etc., should so
indicate. Only holders of exchangeable shares of record at the close of
business on , 1999 are entitled to vote at the Meeting.
4. This Proxy must be deposited at the office of CIBC Mellon Trust Company,
600, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1, by no later than noon
(Calgary time) on , 1999 or, if the Meeting is adjourned, no later
than 24 hours (excluding Saturdays, Sundays and holidays) before the time of
the Meeting, or any adjournment or postponement thereof.
<PAGE> 296
PROXY
FOR
SPECIAL
MEETING
OF
STOCKHOLDERS
JUNE ,
1999
VERITAS DGC INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS OF VERITAS DGC INC.
TO BE HELD ON JUNE , 1999
The undersigned hereby appoints David B. Robson, Stephen J.
Ludlow, Timothy L. Wells, Anthony Tripodo, Rene VandenBrand and
Larry L. Worden, or any of them, each with power of
substitution, attorneys and proxies of the undersigned to vote
all Exchangeable Shares of Veritas Energy Services Inc. which
the undersigned is entitled to vote at the special meeting of
stockholders of Veritas DGC Inc. ("Company") to be held on June
, 1999 at the offices of the Company, 3701 Kirby Drive,
Houston, Texas 77098 at 10:00 a.m., Houston time, and at any
adjournments (the "Special Meeting").
(PLEASE DATE AND SIGN ON REVERSE SIDE)
\
<PAGE> 297
1. Proposal FOR amendment of the Restated Certificate of Incorporation;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. [ ] In their discretion, upon such other matters (including procedural
and other matters relating to the conduct of the meeting) as properly
come before the Special Meeting;
as described in the Notice of Special Meeting of Stockholders and Proxy
Statement, receipt of which is hereby acknowledged.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREON
ONLY IF THIS PROXY IS COMPLETED, RETURNED TO AND RECEIVED BY CIBC MELLON TRUST
COMPANY ("CIBC"), VOTING TRUSTEE, NOT LATER THAN 10:00 A.M., CALGARY TIME, ON
, JUNE , 1999. IN ALL OTHER EVENTS, THE EXCHANGEABLE
SHARES REPRESENTED BY THIS PROXY WILL NOT BE VOTED AT THE SPECIAL MEETING. IN
THE EVENT YOU WISH TO ATTEND THE SPECIAL MEETING IN PERSON AND VOTE YOUR SHARES
DIRECTLY, PLEASE CHECK THE FOLLOWING BOX [ ] , IN WHICH CASE CIBC WILL ISSUE A
PROXY TO YOU FOR YOUR SHARES; HOWEVER, CIBC ACCEPTS NO RESPONSIBILITY FOR TIMELY
FORWARDING OF A PROXY AUTHORIZING YOU TO VOTE YOUR SHARES DIRECTLY IF SUCH
INSTRUCTION IS NOT RECEIVED BY IT PRIOR TO 5:00 P.M., CALGARY TIME, ON
, JUNE , 1999. IN ALL EVENTS, THE RISK OF DELIVERY OF
SUCH A PROXY REMAINS WITH THE STOCKHOLDER.
Dated this ______ day of
________________________ , 1999
_______________________________
_______________________________
Signature(s) of Stockholder
Please sign exactly as your
name appears on your stock
certificate. When signing as
executor, administrator,
trustee or other
representative, please give
your full title. All joint
owners should sign.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY. PLEASE DO NOT FOLD THIS PROXY.
<PAGE> 298
VERITAS DGC INC.
PROXY SOLICITATION BY THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE , 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints DAVID B. ROBSON, STEPHEN J. LUDLOW, TIMOTHY
L. WELLS, ANTHONY TRIPODO, RENE VANDENBRAND and LARRY L. WORDEN, or any of them,
attorneys and proxies, with power of substitution and revocation, to vote, as
designated on the reverse side, all shares of stock which the undersigned is
entitled to vote, with all powers which the undersigned would possess if
personally present, at the Special Meeting (including all adjournments thereof)
of Stockholders of Veritas DGC Inc. to be held on , June
, 1999 at 10:00 a.m. at the offices of the Company, 3701 Kirby Drive,
Houston, Texas 77098.
(THIS PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE)
[UP ARROW] FOLD AND DETACH HERE [UP ARROW]
<PAGE> 299
<TABLE>
<S> <C> <C>
Item 1 -- Proposal FOR amendment of the Item 2 -- As such proxies, may in their This proxy when properly executed will be
Restated Certificate of Incorporation. discretion determine, upon such other voted in the manner directed herein by the
business (including procedural and other undersigned. In the absence of such
FOR AGAINST ABSTAIN matters relating to the conduct of the instructions this proxy will be voted FOR
meeting) that may properly come before Item 1.
[ ] [ ] [ ] the meeting and any adjournment thereof. (Sign exactly as name(s) appears on your
stock certificate. If shares are held
jointly each holder should sign. If signing
for estate, trust or corporation, title or
capacity should be stated.
The undersigned hereby acknowledges receipt
of the Notice of Special Meeting of
Stockholders and the Proxy Statement
furnished therewith.
Please date, sign and return this Proxy in
the enclosed business envelope.
Dated: ------------------------- , 1999.
-------------------------------------------
-------------------------------------------
</TABLE>
<PAGE> 300
LETTER OF TRANSMITTAL
FOR HOLDERS OF COMMON SHARES
OF
ENERTEC RESOURCE SERVICES INC.
The Depositary is:
CIBC MELLON TRUST COMPANY
Toronto: Telephone: (416) 813-4600; (800) 387-0825
Facsimile: (416) 813-4646
Calgary: Telephone: (403) 232-2400
Facsimile: (403) 264-2100
<TABLE>
<S> <C> <C>
By Hand or By Courier: By Registered Mail: By Hand, By Courier or by
Registered Mail:
393 University Avenue P.O. Box 1036 600 The Dome Tower
Lower Level Adelaide Street Postal Station 333 - 7th Avenue S.W.
Toronto, Ontario Toronto, Ontario Calgary, Alberta
M5G 2M7 M5C 2K4 T2P 2Z1
</TABLE>
This Letter of Transmittal together with the certificate(s) for Enertec
Common Shares to be exchanged for Class A Exchangeable Shares Series 1 ("Series
1 Exchangeable Shares") should be delivered in person or sent by registered mail
(which is recommended) to CIBC Mellon Trust Company (the "Depositary") at the
addresses set forth above.
Capitalized terms used in this Letter of Transmittal, unless otherwise
defined, shall have the meaning ascribed to them in the Joint Management
Information Circular and Proxy Statement of Veritas DGC Inc., Veritas Energy
Services Inc. and Enertec Resource Services Inc. dated ,
1999, a copy of which is enclosed.
<TABLE>
<CAPTION>
<S> <C> <C>
DESCRIPTION OF ENERTEC COMMON SHARES TRANSMITTED
(IF SPACE IS INSUFFICIENT, PLEASE ATTACH A SIGNED LIST (SEE INSTRUCTION 3))
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S) CERTIFICATE NUMBER(S) NUMBER OF SHARES
</TABLE>
To: Enertec Resource Services Inc., c/o CIBC Mellon Trust Company
The undersigned hereby represents that the undersigned is the owner of the
Enertec Common Shares represented by the certificate(s) described above and has
good title to those shares free and clear of all liens, charges, encumbrances
and adverse interests. The certificate(s) described above are enclosed. The
undersigned transmits the certificate(s) described above representing Enertec
Common Shares to be dealt with in accordance with this Letter of Transmittal.
The undersigned acknowledges that each Enertec Common Share will, provided that
the Arrangement and the Transaction are completed, be exchanged for 0.345 of a
Series 1 Exchangeable Share, subject to cash payment in lieu of the issuance of
fractional Series 1 Exchangeable Shares. It is understood that upon (i) receipt
of this Letter of Transmittal and the certificate(s) described above, and (ii)
completion of the Arrangement and the Transaction, the Depositary will, as soon
as practicable, send to each registered holder
<PAGE> 301
certificates for the number of Series 1 Exchangeable Shares to which the
registered holder is entitled, together with a cheque in the amount, if any,
payable in lieu of fractional Series 1 Exchangeable Shares, all on the basis
described in the Joint Proxy Statement.
Unless otherwise indicated in this Letter of Transmittal under "Special
Registration Instructions", the undersigned requests that the Depositary issue
the certificates for Series 1 Exchangeable Shares (and cheque, if applicable) in
the name(s) of the registered holder(s) appearing above under "Description of
Enertec Common Shares Transmitted". Similarly, unless otherwise indicated under
"Special Delivery Instructions", the undersigned requests that the Depositary
mail the certificates for Series 1 Exchangeable Shares (and cheque, if
applicable) by first class mail to the undersigned at the address appearing
above under "Description of Enertec Common Shares Transmitted". If no address is
specified, the undersigned acknowledges that the Depositary will forward the
certificates (and cheque, if applicable) to the address of the holder as shown
on the share register maintained by Enertec.
Holders of Enertec Common Shares shall be entitled to make an income tax
election pursuant to section 85 of the Income Tax Act (Canada) with respect to
the transfer of their Enertec Common Shares to VESI by providing two signed
copies of the necessary election forms to VESI within 90 days following the
Effective Date, duly completed with the details of the number of shares
transferred and the applicable agreed amounts for the purposes of such
elections. Thereafter, subject to the election forms complying with the
provisions of the Income Tax Act (Canada), the forms will be signed by VESI and
returned to such holders of Enertec Common Shares within 180 days of the
Effective Date for filing with Revenue Canada. THE FORMS NECESSARY TO MAKE SUCH
AN ELECTION ARE AVAILABLE FROM REVENUE CANADA.
VESI WILL NOT BE RESPONSIBLE FOR THE PAYMENT OF ANY LATE FILING PENALTY
THAT DOES NOT RESULT FROM A FAILURE ON THE PART OF VESI. ACCORDINGLY, VESI WILL
NOT BE RESPONSIBLE OR LIABLE FOR TAXES, INTEREST, PENALTIES, DAMAGES OR EXPENSES
RESULTING FROM THE FAILURE BY ANYONE TO PROPERLY COMPLETE ANY JOINT TAX ELECTION
FORM OR TO PROPERLY FILE SUCH FORM WITHIN THE TIME PRESCRIBED AND IN THE FORM
PRESCRIBED UNDER THE INCOME TAX ACT (CANADA) OR THE CORRESPONDING PROVISIONS OF
ANY APPLICABLE PROVINCIAL LEGISLATION.
<PAGE> 302
INSTRUCTIONS
<TABLE>
<S> <C> <C>
SHAREHOLDER SIGNATURE(S)
(This box must be signed by registered holder(s) exactly as (Signature(s) of Owner(s))
name(s) appear(s) on the Enertec Common Share [ARROW] Name:________________________
certificate(s) or by transferee(s) of original registered (please print)
holder(s) authorized to become new registered holder(s) by Capacity (Title): ___________
certificates and documents transmitted with this Letter of Address: ____________________
Transmittal. See Instruction 4 below. If the signature is _____________________________
by a trustee, executor, administrator, guardian, Telephone: __________________
attorney-in-fact, agent, officer of a corporation or any
other person acting in a fiduciary or representative
capacity, please provide the following information. See
Instruction 4.
GUARANTEE OF SIGNATURE(S)
Authorized Signature on behalf of Eligible Institution. See [ARROW] Name: _______________________
Instructions 1 and 4. (please print)
Name of Firm: _______________
Address: ____________________
_____________________________
Telephone: __________________
Dated: ______________________
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the certificates for Series 1 [ARROW] [ ] Issue certificates (and
Exchangeable Shares (and cheque, if applicable) are to be cheque, if applicable) to:
issued in the name of someone other than the person(s) Name: _______________________
indicated above under "Shareholder Signature(s)". See (Please Print)
Instruction 5. Address: ____________________
SPECIAL DELIVERY INSTRUCTIONS _____________________________
To be completed ONLY if the certificates for Series 1 [ARROW] [ ] Mail certificates (and
Exchangeable Shares are to be sent to someone other than cheque, if applicable) to:
the undersigned or to the undersigned at an address other Name:________________________
than that appearing above under "Description of Enertec (Please Print)
Common Shares Transmitted" or are to be held by the Address: ____________________
Depositary for pick-up by the shareholder(s) or any person _____________________________
designated by the shareholder(s) in writing. See
Instruction 5. [ ] Hold certificates for
pick-up at offices of
Depositary.
</TABLE>
<PAGE> 303
1. GUARANTEE OF SIGNATURES
The signature guarantee on this Letter of Transmittal is not required if
(1) this Letter of Transmittal is signed by the registered holder of the Enertec
Common Shares transmitted by this Letter of Transmittal, unless the holder has
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Registration Instructions"; or (2) the Enertec Common Shares
are transmitted for the account of a Canadian chartered bank or trust company,
or by any another commercial bank or trust company having an office or
correspondent in Toronto or Calgary, or by a member of a recognized stock
exchange in Canada, or the Investment Dealers' Association of Canada
(collectively, the "Eligible Institutions"). In all other cases, all signatures
on this Letter of Transmittal must be guaranteed by an Eligible Institution. See
also Instruction 4.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES
This Letter of Transmittal is to be completed by holders of certificates
representing Enertec Common Shares to be submitted with this Letter of
Transmittal. Certificates of all physically delivered Enertec Common Shares, as
well as a properly completed and duly executed Letter of Transmittal in the
appropriate form, should be received by the Depositary at the addresses set
forth above. The method of delivery of certificates representing Enertec Common
Shares is at the option and risk of the person transmitting the certificates.
Enertec recommends that these documents be delivered by hand to the depositary
and a receipt be obtained for the documents or, if mailed, that registered mail,
properly insured, be insured with an acknowledgment of receipt requested.
3. INADEQUATE SPACE
If the space provided in this Letter of Transmittal is inadequate, the
certificate number(s) or the number of Enertec Common Shares should be listed on
a separate signed list attached to this Letter of Transmittal.
4. SIGNATURES ON LETTER OF TRANSMITTAL, POWERS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Enertec Common Shares transmitted by this Letter of Transmittal, the
signature(s) must correspond with the name(s) as written on the face of the
certificate(s) without alteration, enlargement or any change whatsoever. If any
of the Enertec Common Shares transmitted by this Letter of Transmittal are held
of record by two or more joint owners, all the owners must sign this Letter of
Transmittal. If any transmitted Enertec Common Shares are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are different
registrations or certificates. If this Letter of Transmittal or any certificates
or powers are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or any other person acting in
a fiduciary or representative capacity, those persons should so indicate when
signing, and proper evidence satisfactory to the Depositary of their authority
to act should be submitted. If this Letter of Transmittal is signed by the
registered holder(s) of the Enertec Common Shares evidenced by certificates
listed and submitted with this Letter of Transmittal, no endorsements of
certificates or separate powers are required unless certificates for Series 1
Exchangeable Shares are to be issued to a person other than the registered
holder(s). Signatures on those certificates or powers must be guaranteed by an
Eligible Institution. If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Enertec Common Shares evidenced by
certificates listed and submitted by this Letter of Transmittal, the
certificates must be endorsed or accompanied by appropriate share transfer or
stock transfer powers, in either case signed exactly as the name or names of the
registered holder or holders appear on the certificates. Signatures on the
certificates or powers must be guaranteed by an Eligible Institution.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS
If the certificates for Series 1 Exchangeable Shares are to be issued in
the name of a person other than the signer of this Letter of Transmittal or if
the certificates are to be sent to someone other than the person signing this
Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
<PAGE> 304
6. LOST CERTIFICATES
Shareholders who have lost the certificate(s) representing Enertec Common
Shares should immediately contact Montreal Trust Company of Canada at 600
Western Gas Tower, 530 - 8th Avenue S.W., Calgary, Alberta, T2P 3S8, telephone:
(403) 267-6555 or 151 Front Street West, 8th Floor, Toronto, Ontario, M5J 2N1,
telephone: (416) 981-9596.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Depositary and
additional copies of this Letter of Transmittal may be obtained without charge
on request from the Depositary at the telephone numbers and addresses set forth
in this Letter of Transmittal. Shareholders may also contact their local broker,
dealer, commercial bank, Canadian chartered bank, trust company or other nominee
for assistance.
