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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
REGISTRATION NO. 333-67747
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VERITAS DGC INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1382 76-0343152
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098-3982
(713) 512-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ANTHONY TRIPODO
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098-3982
(713) 512-8300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of Communications to:
T. WILLIAM PORTER
PORTER & HEDGES, L.L.P.
700 LOUISIANA, 35TH FLOOR
HOUSTON, TEXAS 77002-2764
(713) 226-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PRELIMINARY PROSPECTUS
VERITAS LOGO
VERITAS DGC INC.
ISSUER
Exchange Offer of
9 3/4% Senior Notes Due 2003, Series C
For All Outstanding 9 3/4% Senior Notes Due 2003, Series B
THE SERIES C NOTES
- - The terms of the Series C notes to be issued are virtually identical to the
Series B notes, except for certain transfer restrictions, registration rights
and liquidated damages provisions relating to the Series B notes.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - Expires at 5:00 p.m., Boston, Massachusetts time, on March 11, 1999, unless
extended.
- - Not subject to any condition other than that the exchange offer not violate
applicable law or any applicable interpretation of the staff of the SEC.
- - All Series B notes that are validly tendered and not validly withdrawn will be
exchanged.
- - Tenders of Series B notes may be withdrawn any time prior to the expiration of
the exchange offer.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE SERIES C
NOTES TO BE ISSUED IN THE EXCHANGE OFFER NOR HAVE ANY OF THESE ORGANIZATIONS
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Subject to completion, dated January 28, 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but does not
contain all information that is important to you. This prospectus includes
specific terms of the exchange offer and a description of Veritas DGC's
business. This prospectus incorporates certain important business and financial
information that is not included in or delivered with the prospectus. We
encourage you to read both this prospectus and the materials referred to under
the caption "Incorporation of Certain Documents by Reference."
THE EXCHANGE OFFER
On October 28, 1998, we completed the private offering of $60.0 million
aggregate principal amount of Series B notes.
We entered into a registration rights agreement with the placement agent in
which we agreed to deliver to you this prospectus and to complete the exchange
offer on or prior to April 12, 1999. You are entitled to exchange your Series B
notes for Series C notes with substantially identical terms. You should read the
discussion under the headings "Summary of Terms of Series C Notes" and
"Description of Notes" for further information regarding the Series C notes.
We believe that the Series C notes may be resold by you without compliance
with the registration and prospectus delivery provisions of the Securities Act
of 1933, subject to certain conditions. You should read the discussion under the
headings "Summary of the Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and resale of Series C notes.
SUMMARY OF THE EXCHANGE OFFER
Registration Rights
Agreement.................... You are entitled to exchange your Series B notes
for Series C notes with substantially identical
terms. After the exchange offer is complete, you
will no longer be entitled to any exchange or
registration rights with respect to your Series
B notes.
The Exchange Offer........... We are offering to exchange $1,000 principal
amount of Series C notes which have been
registered under the Securities Act of 1933 for
each $1,000 principal amount of our outstanding
Series B notes. To be exchanged, a Series B note
must be properly tendered and accepted. All
Series B notes that are validly tendered and not
validly withdrawn will be exchanged.
As of this date there is $60.0 million principal
amount of Series B notes outstanding.
We will issue Series C notes promptly after the
expiration of the exchange offer.
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Expiration Date.............. The exchange offer will expire at 5:00 p.m.,
Boston, Massachusetts time, March 11, 1999,
unless we decide to extend the expiration date.
Conditions to the Exchange
Offer...................... The exchange offer is not subject to any
condition other than that it not violate
applicable law or any applicable interpretation
of the staff of the SEC.
Procedures for Tendering
Series B Notes held in the
Form of Book-Entry
Interests.................. The Series B notes were issued in global
certificate form to the Depositary Trust
Corporation. Interests in the Series B notes,
which are held by direct or indirect
participants in DTC through book-entry
interests, are shown on, and transfers of the
outstanding Series B notes can be made only
through, records maintained in book-entry form
by DTC.
If you are a participant in DTC and you wish to
tender your Series B notes pursuant to the
exchange offer, you must either:
- cause DTC to transfer ownership of the Series
B notes that you are tendering into the
exchange agent's account prior to the
expiration date of the exchange offer. You
must also cause DTC to notify the exchange
agent prior to the expiration date that DTC
has obtained from you an electronic
acknowledgement that you received and agreed
to be bound by the letter of transmittal which
accompanies this prospectus, and that Veritas
DGC can enforce the letter of transmittal
against you; or
- deliver to the exchange agent prior to the
expiration date of the exchange offer the
documents necessary for compliance with the
procedures referred to below under the caption
"Guaranteed Delivery Procedures."
If you are not a participant in DTC and you wish
to tender your Series B notes pursuant to the
exchange offer, you should promptly contact the
broker, dealer, commercial bank, trust company
or other nominee through whom you hold a
beneficial interest in the Series B notes and
instruct such person to tender on your behalf.
Guaranteed Delivery
Procedures................... If you wish to tender your Series B notes and
time will not otherwise permit a valid tender to
be made by the
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expiration date, you may nevertheless tender
your Series B notes pursuant to the procedures
described in this prospectus under the heading
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............ You may withdraw the tender of your Series B
notes at any time prior to 5:00 p.m., Boston,
Massachusetts time, on March 11, 1999.
Certain U.S. Federal Income
Tax Considerations......... The exchange of Series B notes for Series C
notes will not be a taxable event for United
States federal income tax purposes. You will not
recognize any taxable gain or loss or any
interest income as a result of the exchange.
Exchange Agent............... State Street Bank and Trust Company is serving
as exchange agent for the exchange offer.
Resales...................... We believe that the Series C notes issued in the
exchange offer may be offered for resale, resold
and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act of
1933 provided that:
- the Series C notes are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of Series C notes issued
to you; and
- you are not an affiliate of ours.
If our belief is inaccurate and you transfer any
Series C note without delivering a prospectus
meeting the requirements of the Securities Act
of 1933 or without an exemption from such
requirements, you may incur liability under the
Securities Act of 1933. We do not assume or
indemnify you against any such liability.
Each broker-dealer that is issued Series C notes
in the exchange offer for its own account in
exchange for Series B notes which were acquired
by that broker-dealer as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
of 1933 in connection with any resale of the
Series C notes issued in the exchange offer. A
broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of
the Series C notes so issued.
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SUMMARY OF TERMS OF SERIES C NOTES
The form and terms of the Series C notes to be issued in the exchange offer are
the same as the form and terms of Series B notes except that the Series C notes
will be registered under the Securities Act of 1933 and, therefore, will not
bear legends restricting their transfer and will not be entitled to the benefit
of the registration rights agreement. The Series C notes will evidence the same
debt as the Series B notes. The Series B notes are and the Series C notes will
be governed by the same indenture.
Aggregate Principal Amount... $60.0 million.
Maturity..................... October 15, 2003.
Yield and Interest........... Interest on the Series C notes will accrue from
October 28, 1998 or the latest date through
which interest has been paid. Interest will be
payable semi-annually in arrears at a rate of
9.75% per year, on each April 15 and October 15.
Optional Redemption.......... On or after October 15, 2000, the Series C notes
will be redeemable, at our option, in whole or
in part, at any time or from time to time, at
the redemption prices described in this
prospectus under the heading "Description of
Notes -- Redemption" plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, prior to October 15, 1999, Series C
notes having a principal amount of up to $15.0
million may be redeemed with the proceeds of
certain public offerings by Veritas DGC of our
common stock.
Ranking...................... The Series C notes:
- are unsecured indebtedness of Veritas DGC
Inc.;
- rank equal in right of payment with all of our
existing and future unsubordinated
indebtedness;
- are senior in right of payment to all of our
existing and future subordinated indebtedness;
- will be effectively subordinated to certain of
our secured indebtedness to the extent of such
security interests; and
- will be junior to all existing and future
liabilities, including trade payables, of our
subsidiaries.
Certain Covenants............ The indenture under which the Series B notes
have been and the Series C notes are being
issued contains certain
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<PAGE> 7
covenants for your benefit which, among other
things and subject to certain exceptions,
restrict our ability to:
- incur indebtedness;
- make certain payments;
- issue capital stock of certain of our
subsidiaries;
- issue guarantees;
- enter into transactions with stockholders and
affiliates;
- create liens;
- engage in sale-leaseback transactions;
- sell assets; and
- with respect to Veritas DGC Inc., consolidate,
merge or sell all or substantially all of its
assets.
Change of Control............ Upon a change of control of Veritas DGC Inc., we
are required to make an offer to purchase the
Series C notes from you at a purchase price
equal to 101% of their aggregate principal
amount on the date of purchase, plus accrued
interest.
Form of Series C Notes....... The Series C notes will be issued in global
certificate form to DTC. You will not receive
Series C notes in certificated form unless one
of the events set forth under the heading
"Description of Notes -- Book-Entry; Delivery
and Form" has occurred. Instead, beneficial
interests in the Series C notes will be shown
on, and transfers of these will be effected only
through, records maintained in book-entry form
by DTC.
PRINCIPAL EXECUTIVE OFFICE
Our principal offices are located at 3701 Kirby Drive, Suite 112, Houston, Texas
77098, and our telephone number is (713) 512-8300.
You should rely only on the information provided in this prospectus or
incorporated into it by reference. No person has been authorized to provide you
with different information.
We are not making the exchange offer in any jurisdiction where the offer is not
permitted.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 registering
the exchange of the Series C notes for Series B notes. This prospectus, which is
a part of the registration statement, omits certain information included in the
registration statement.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file at the
SEC's public reference room in Washington, D.C. You may also obtain information
about Veritas DGC from the following regional offices of the SEC: Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
7 World Trade Center, 13th Floor, New York, New York 10048.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Copies of such material can be obtained
by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. Our SEC filings are
also available to the public on the SEC's home page on the Internet at
http://www.sec.gov.
We file annual reports, quarterly reports, proxy statements, and other
information with the SEC. In the event that we are no longer required to do so,
we have agreed to file with the SEC, unless the SEC will not accept such a
filing, and provide to the trustee and the holders of notes annual reports and
the information, documents and other reports otherwise required pursuant to
Sections 13 and 15(d) of the Securities Exchange Act of 1934.
FORWARD-LOOKING STATEMENTS
The statements included in this prospectus, other than statements of
historical facts, are forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Those statements include, among other things, the discussions of our
business strategy and expectations concerning industry conditions, market
position, future operations, margins, profitability, liquidity and capital
resources. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate" or "believe" or the negative thereof or
variations thereon or similar terminology.
Although we believe that the expectations reflected in such statements are
reasonable, we can give no assurance that such expectations will be correct.
Generally, these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, or
projections involving anticipated revenues, expenses, earnings, levels of
capital expenditures or other aspects of operating results. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this prospectus. Our operations are subject to a number
of uncertainties, risks and other influences, many of which are outside our
control and any one of which, or a combination of which, could cause our actual
results of operations to differ materially from the forward looking statements.
Important factors that could cause actual results to differ materially from our
expectations are disclosed in "Risk Factors" and elsewhere in this prospectus.
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RISK FACTORS
An investment in Veritas DGC debt securities is subject to a number of
risks. You should carefully consider the following factors in evaluating that
investment and your decision whether to exchange Series B notes for Series C
notes.
HOLDING COMPANY STRUCTURE COULD RESTRICT ACCESS TO SUBSIDIARIES' CASH THAT MAY
BE NEEDED TO SERVICE INDEBTEDNESS.
We are a holding company, and most of our operations are conducted by
subsidiaries. Thus, our ability to service our debt obligations depends upon
relatively unfettered access to the cash resources of our subsidiaries. Under
certain circumstances, restrictions contained in our existing and future bank
credit arrangements may restrict access to our subsidiaries' cash and thus
adversely affect our ability to service outstanding parent company debt
obligations, including the notes.
STRUCTURAL SUBORDINATION OF NOTES TO SUBSIDIARIES' OBLIGATIONS COULD AFFECT
COLLECTIBILITY OF NOTES IN THE EVENT OF BANKRUPTCY.
Because we are a holding company and the notes are not guaranteed by any of
our subsidiaries, the notes are effectively subordinated to all existing and
future liabilities of our subsidiaries. This means that in bankruptcy, the
creditors of our subsidiaries would be entitled to payment in full of the
subsidiary's obligations before our direct creditors are entitled to payment of
any portion of our obligations.
RESTRICTIONS IMPOSED BY NOTES AND OTHER INDEBTEDNESS COULD ADVERSELY AFFECT OUR
OPERATING FLEXIBILITY AND CREDIT QUALITY.
Our principal bank credit agreement, and indentures relating to the notes
and other outstanding publicly-held indebtedness, impose operating and financial
restrictions on our business. In general, these provisions limit or prohibit
incurrence of additional debt and payments to stockholders. Such provisions also
limit or prohibit asset sales, the making of investments and possible mergers
and consolidations. While these provisions are designed to protect the holders
of notes and other indebtedness, they may also negatively affect our ability to
react to changes in market conditions or to take advantage of business
opportunities we believe to be desirable. Hence, there is no assurance that
these limitations will have the intended effect of preserving our credit
quality.
DECREASES IN ENERGY INDUSTRY SPENDING COULD ADVERSELY AFFECT OUR BUSINESS.
As a purveyor of seismic services, our business is substantially dependent
upon the level of capital expenditures by oil and gas companies. As a result of
the recent decline in hydrocarbon commodity prices, the level of overall oil and
gas industry activity has declined from levels experienced in recent years. If
our customers' capital spending decreases in line with overall recent industry
trends, it would likely have a significant adverse effect upon the demand for
our services and our results of operations and cash flow.
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OUR BUSINESS COULD BE ADVERSELY AFFECTED BY INTENSE PRICE COMPETITION IN A SLACK
MARKET.
Competition among seismic contractors historically is and will continue to
be intense. Competitive factors have in recent years included price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability. Certain of our competitors operate more data
acquisition crews than we do and have substantially greater financial and other
resources. These larger and better financed operators could enjoy an advantage
over Veritas DGC 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.
We have invested significant amounts in acquiring and processing
multi-client data, and expect to continue doing so for the foreseeable future.
Although we have typically recovered all the costs of such surveys, there is no
assurance that we 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 our library of multi-client data obsolete or
otherwise impair its value.
HIGH LEVELS OF FIXED COSTS COULD RESULT IN OPERATING LOSSES.
Our business has high fixed costs, and downtime or low productivity due to
reduced demand, weather interruptions, equipment failures or other causes can
result in significant operating losses.
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 we expect
this trend to continue. Manufacturers of seismic equipment may develop new
systems that have competitive advantages over systems now in use that could
render our current equipment obsolete or require us to make significant
unplanned capital expenditures to maintain our competitive position. Under such
circumstances, there can be no assurance that we would be able to obtain
necessary financing on favorable terms.
WE COULD POSSIBLY BE UNABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to offer to repurchase the
outstanding notes at 101% of the principal amount, plus accrued and unpaid
interest to the date of repurchase. There can be no assurance that we will have
sufficient funds available or will be permitted by our other debt agreements to
repurchase the notes upon the occurrence of a change of control.
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MARKET FOR SERIES B NOTES LIMITED AND NO ASSURANCE A PUBLIC MARKET FOR SERIES C
NOTES WILL DEVELOP.
The Series B notes are eligible for trading in the PORTAL market of the
NASD. This market is open only to institutional investors eligible to purchase
securities in offerings made under the exemption from registration provided by
Rule 144A under the Securities Act of 1933. To the extent that Series B notes
are exchanged in the exchange offer, the existing limited market for Series B
notes will become further constricted, with a probable decrease in the liquidity
of the Series B notes.
The Series C notes constitute a new issue of securities with no established
public trading market. We do not intend to list the Series C notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market System. The placement agent advised us that it intends to
make a public market in the Series C notes. However, the placement agent is not
obligated to do so and any market-making activities with respect to the Series C
notes can be discontinued at any time without notice. Accordingly, no assurance
can be given that an active public market will develop for the Series C notes or
as to the liquidity of, or the trading market for, the Series C notes.
UNEXCHANGED SERIES B NOTES TO REMAIN RESTRICTED
Series B notes that are not tendered in the exchange offer will continue to
be subject to the existing restrictions upon their transfer. We will have no
obligation to provide for the registration of unexchanged Series B notes under
the Securities Act of 1933.
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USE OF PROCEEDS
Veritas DGC will not receive any cash proceeds from the issuance of Series
C notes offered hereby. In consideration for issuing the Series C notes, Veritas
DGC will receive in exchange a like principal amount of Series B notes, the
terms of which are virtually identical to the Series C notes. The Series B notes
surrendered in exchange for the Series C notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the Series C notes will not result
in any change in the capitalization of Veritas DGC.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of Veritas
DGC as of July 31, 1998, as adjusted to reflect the sale of the Series B notes
and the completion of the exchange offer, assuming that all Series B notes are
exchanged for Series C notes.
<TABLE>
<CAPTION>
JULY 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 98,239
========
Long-term debt including current maturities:
Equipment purchase obligations............................ $ 561
Bank credit agreement.....................................
Series A notes............................................ 75,000
Series C notes............................................ 60,000
--------
Total long-term debt including current
maturities........................................ 135,561
Stockholders' equity........................................ 291,696
--------
Total capitalization........................................ $427,257
========
</TABLE>
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BUSINESS
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. Veritas DGC's land and
transition zone data acquisition crews consist of a surveying unit that lays out
the lines to be recorded, an explosives or mechanical vibrating unit and a
recording unit that lays out the geophones and recording instruments. 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 15 seismic crews operating in four 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 nine vessels, with five located in the Gulf of Mexico and the remainder
in international markets. All of Veritas DGC's nine seismic vessels are capable
of performing two-dimensional seismic surveys. Three vessels working in a
multi-boat configuration are equipped to perform three-dimensional surveys and
three are equipped to independently perform three-dimensional 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. An additional $76.3 million of
capital expenditures is budgeted for fiscal 1999.
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. Veritas DGC has budgeted for fiscal 1999
approximately $15.7 million for further system upgrades and additions.
Marine data acquisition. Eight of Veritas DGC's nine 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 late in fiscal 1999. Each is capable of deploying more than 12
seismic streamer cables. Veritas DGC has budgeted $28.1 million for
seismic, navigation and communication equipment installation on these
and other vessels during fiscal 1999. Veritas DGC is considering
acquiring an ownership interest in these two Viking class vessels.
Data processing. Veritas DGC's 20 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. Additional equipment purchases
aggregating approximately $25.0 million are budgeted for fiscal 1999.
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 $100.0 million by the end of fiscal 1999.
The relatively expensive cost of acquiring and processing seismic
14
<PAGE> 16
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. Of the 15 land and
transition zone crews presently operated by Veritas DGC, ten are operating
in North America, where Veritas DGC maintains a significant market share.
Currently, a majority of Veritas DGC's vessels are operating in the Gulf of
Mexico.
MAINTAIN FLEXIBLE MARINE OPERATIONS. In its marine seismic data
acquisition activities, Veritas DGC presently operates eight chartered
vessels, seven 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 has options to acquire an interest in the
two Viking class vessels referred to above. Veritas DGC seeks to maintain a
balance between chartered and owned vessels, with a view to reducing vessel
costs in times of low demand, while retaining the flexibility to relocate
its marine seismic equipment onto vessels that may better meet customers'
evolving requirements. In general, 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
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES BY GEOGRAPHICAL AREA
United States(2)..................................... $ 98,875 $184,013 $281,223
Canada............................................... 47,423 52,141 47,059
Latin America........................................ 36,346 51,157 93,494
Europe............................................... 37,394 42,798 51,089
Middle East.......................................... 2,403 13,632
Asia Pacific......................................... 30,558 30,203 42,462
-------- -------- --------
Total...................................... $250,596 $362,715 $528,959
======== ======== ========
</TABLE>
- ---------------
(1) Revenues from data acquisition and data processing services are recognized
based on contractual rates set forth in the related contract if the contract
provides a separate rate for each service provided. If the contract only
provides a rate for the overall service, revenues are recognized based on
the percentage of each service group's cost to total cost.
(2) Includes export sales of $4,774, $4,115 and $458 in fiscal 1996, 1997 and
1998, respectively.
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<PAGE> 17
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-dimension and three-dimensional data, has a combined
recording capacity of approximately 31,000 channels and can be configured to
operate up to 22 crews. A majority of Veritas DGC's land and transition zone
acquisition services involve three-dimensional surveys. Veritas DGC is currently
operating a total of 15 crews located in four 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>
Offshore
Acadian Searcher...................... 1983 Australia 217 feet 44 feet
Ross Seal............................. 1987 Southeast Asia 176 feet 38 feet
Polar Search.......................... 1992 Gulf of Mexico 300 feet 51 feet
Pearl Chouest......................... 1995 Gulf of Mexico 210 feet 40 feet
Cape Romano........................... 1996 Gulf of Mexico 155 feet 36 feet
Polar Princess........................ 1996 Gulf of Mexico 250 feet 46 feet
Professor Kurentsov................... 1997 Offshore Nigeria 225 feet 41 feet
Seabulk Veritas....................... 1997 Gulf of Mexico 194 feet 40 feet
Veritas Viking........................ 1998 Gulf of Mexico 305 feet 72 feet
</TABLE>
16
<PAGE> 18
The Polar Search, Polar Princess and Professor Kurentsov are chartered from
a ship operator for initial terms which expire in January 2000, February 2000
and August 2001, respectively. The Veritas Viking is chartered from a ship owner
on an initial term which expires in June 2006. Veritas DGC's other chartered
vessels are operated under short-term charter arrangements expiring at various
times through 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.
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. A three
vessel, multi-boat crew obtains similar benefits by recording the signals
generated from two source arrays on the master vessel with cables towed by each
of the master and two slave vessels. The Veritas Viking, 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 June 1999.
Each marine seismic crew consists of approximately 20 persons, excluding
the ship's captain and ship personnel. Seismic personnel live aboard the ship
during their tours of duty, which are staggered to permit continuous operations.
During seismic operations, 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.
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<PAGE> 19
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:
- Texas
-- Houston (two locations)
-- Irving
-- Austin
-- Midland
- Colorado
-- Denver
- Oklahoma
-- Oklahoma City
- Bolivia
-- Santa Cruz
- Singapore
- United Kingdom
-- Crawley
-- Aberdeen
- Canada
-- Calgary
- Australia
-- Brisbane
-- Perth
- Indonesia
-- Jakarta
- Malaysia
-- Kuala Lumpur
- Argentina
-- Buenos Aires
-- Neuquen
- Venezuela
-- Caracas
- Ecuador
-- Quito
- U.A.E.
-- Abu Dhabi
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.
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
18
<PAGE> 20
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, and its budgeted capital
expenditures for the year ending July 31, 1999.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------------------------
1996 1997 1998 1999
------- ------- ------- --------
BUDGETED
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land and transition zone acquisition........... $15,020 $38,024 $29,207 $15,682
Marine acquisition............................. 7,757 34,482 43,599 28,078
Data processing................................ 8,394 19,743 24,701 24,946
Other.......................................... 1,689 3,801 2,042 7,552
------- ------- ------- -------
Total................................ $32,860 $96,050 $99,549 $76,258(1)
======= ======= ======= =======
</TABLE>
- ---------------
(1) Of this amount, approximately $30.0 million represents capital spending
necessary to maintain Veritas DGC's operating equipment, and the remainder
is allocated for discretionary capital spending.
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<PAGE> 21
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 fourth largest provider of geophysical services based on associated
revenues. Competition for available seismic surveys is based on several
competitive factors, including price, crew experience, equipment availability,
technological expertise and reputation for quality and dependability.
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 July 31, 1998, Veritas DGC's backlog of commitments for services was
$299.8 million, compared with $257.3 million at July 31, 1997. It is anticipated
that a majority of the July 31, 1998 backlog will be completed in the next 12
months. This backlog consists of written orders or commitments believed to be
firm. Contracts for services are occasionally varied or modified by mutual
consent and in certain instances are cancelable by the customer on short notice
without penalty. As a result of these factors, 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 July 31, 1998, Veritas DGC had approximately 4,000 full-time employees.
With the exception of 350 unionized employees working at the Singapore data
processing center or on Argentina land crews, none of its employees are subject
to collective bargaining agreements. Veritas DGC considers the relations with
its employees to be good.
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<PAGE> 22
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series B notes were sold by Veritas DGC on October 28, 1998, to the
placement agent and were subsequently resold to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933. Veritas DGC is offering
to exchange the Series C notes for the Series B notes to satisfy its contractual
obligations under the registration rights agreement.
After consummation of the exchange offer, holders of the Series B notes who
do not tender will not have any further registration rights under the
registration rights agreement. Any unexchanged Series B notes will continue to
be subject to certain restrictions on transfer. The Series B notes are currently
eligible for sale pursuant to Rule 144A through the PORTAL System of the NASD.
Veritas DGC anticipates that most holders of Series B notes will elect to
exchange them for Series C notes since resales of Series C notes will not be
restricted under the Securities Act of 1933. Veritas DGC anticipates that the
liquidity of the market for any Series B notes remaining after the consummation
of the exchange offer will be substantially reduced.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, Veritas DGC will accept any and all Series B
notes validly tendered and not withdrawn prior to the expiration date. Veritas
DGC will issue $1,000 principal amount of Series C notes in exchange for each
$1,000 principal amount of outstanding Series B notes accepted in the exchange
offer. Holders may tender some or all of their Series B notes pursuant to the
exchange offer. However, Series B notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Series C notes are the same as the form and terms
of the Series B notes except that:
- the Series C notes have been registered under the Securities Act of 1933
and hence will not bear legends restricting their transfer; and
- the holders of the Series C notes will not be entitled to certain rights
under the registration rights agreement, and the rights presently
applicable to Series B notes will terminate upon consummation of the
exchange offer.
The Series C notes will evidence the same debt as the Series B notes and
will be entitled to the benefits of the indenture.
Holders of Series B notes do not have any appraisal or dissenter's rights
in connection with the exchange offer. Veritas DGC intends to conduct the
exchange offer in accordance with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations of the SEC thereunder,
including Rule 14e-1.
Veritas DGC will be deemed to have accepted validly tendered Series B notes
when, as and if Veritas DGC gives oral or written notice thereof to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the Series C notes from Veritas DGC.
Holders who tender Series B notes in the exchange offer will not be
required to pay brokerage commissions or fees, or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Series B notes. Veritas DGC will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., Boston, Massachusetts time, on March 11,
1999, unless Veritas DGC, in its sole discretion, extends the exchange offer, in
which case the expiration date will be the latest date and time to which the
exchange offer is extended.
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<PAGE> 23
Veritas DGC will notify the exchange agent of any extension of the exchange
offer by oral or written notice, followed by a public announcement no later than
9:00 a.m., Boston, Massachusetts time, on the next business day after the
previously scheduled expiration date.
Veritas DGC reserves the right, in its reasonable judgment, to:
- delay accepting any Series B notes;
- extend the exchange offer;
- terminate the exchange offer if any of the conditions set forth under
"-- Conditions" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the exchange agent; or
- amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement thereof. If the
exchange offer is amended in a manner determined by Veritas DGC to constitute a
material change, Veritas DGC will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, Veritas DGC will extend the exchange offer for a period
of five to ten business days if the exchange offer would otherwise expire during
such period.
If Veritas DGC does not consummate the exchange offer, or in lieu thereof,
does not file a shelf registration statement or fails to cause it to become
effective within prescribed time periods, liquidated damages will accrue and be
payable on the Series B notes.
Without limiting the manner in which Veritas DGC may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, Veritas DGC shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING SERIES B NOTES
The tender to Veritas DGC of Series B notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and Veritas DGC in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.
All presently outstanding Series B notes are held of record by DTC, as
depository, and all beneficial owners hold their interests through DTC or its
participants. Any participant in DTC's book-entry transfer facility system may
tender its ownership of Series B notes by causing DTC to transfer such Series B
notes into the exchange agent's account in accordance with DTC's automated
tender offer program. Although delivery of Series B notes may be made through
book-entry transfer into the exchange agent's account at DTC, an agent's message
must, in any case, be transmitted to and received by the exchange agent at its
address set forth herein under "-- Exchange Agent" prior to the expiration date.
An agent's message is a message transmitted by DTC and received by the exchange
agent stating that DTC has received an express acknowledgment from a participant
tendering Series B notes that the participant has received and agrees to be
bound by the terms of the letter of transmittal and that Veritas DGC may enforce
such agreement against the participant.
THE METHOD OF DELIVERY OF COMMUNICATIONS AND ANY REQUIRED DOCUMENTS IS AT
THE ELECTION AND RISK OF THE TENDERING HOLDER, AND WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. IT IS SUGGESTED THAT COMMUNICATIONS AND ANY REQUIRED DOCUMENTS
BE DELIVERED SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT RECEIPT BY
THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. PERSONS WHO HOLD SERIES B NOTES
THROUGH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE AND WHO
WISH TO TENDER THEIR SERIES B NOTES SHOULD INSTRUCT THAT INSTITUTION TO TENDER.
22
<PAGE> 24
A tender will be deemed to have been received as of the date the exchange
agent either receives a book-entry confirmation from DTC and any other documents
required by the letter of transmittal from the holder or receives a notice of
guaranteed delivery or letter, telegram, or facsimile transmission from an
eligible institution. A book-entry confirmation is a notice sent by DTC to the
exchange agent transferring the Series B notes tendered into the exchange
agent's account accompanied by an agent's message. An eligible institution is a
member of or a participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934.
All questions as to the validity, form, eligibility, acceptance, and
withdrawal of tendered Series B notes will be determined by Veritas DGC, in its
sole discretion, which determination will be final and binding. Veritas DGC
reserves the absolute right to reject any or all tenders not in proper form or
the acceptance for exchange of which may, in the opinion of counsel for Veritas
DGC, be unlawful. Veritas DGC also reserves the absolute right to waive any of
the conditions of the exchange offer or any defect or irregularity in the tender
of any Series B notes. Veritas DGC's interpretation of the terms and conditions
of the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities must be cured within such time as Veritas DGC shall determine.
Although Veritas DGC intends to notify holders of defects or irregularities,
neither Veritas DGC, the exchange agent, nor any other person shall be under any
duty to give notification of any defects or irregularities or incur any
liability for failure to give notification. Tenders will be deemed not to have
been made until any defects or irregularities have been cured or waived.
In all cases, issuance of Series C notes for Series B notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of book-entry confirmation and all other
required documents. If any tendered Series B notes are not accepted for any
reason set forth in the terms and conditions of the exchange offer, such
non-exchanged Series B notes will be credited to an account maintained with DTC
as promptly as practicable after the expiration or termination of the exchange
offer.
Each broker-dealer that receives Series C notes for its own account in
exchange for Series B notes, if the Series B notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series C notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series B notes and who cannot complete the
procedures for book-entry transfer prior to the expiration date, may effect a
tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery setting forth the name and address of the holder,
stating that the tender is being made thereby and guaranteeing that,
within five business days after the expiration date, a book-entry
confirmation and any other documents required by the letter of
transmittal, will be received by the exchange agent; and
- the book-entry confirmation and all other documents required by the
letter of transmittal are received by the exchange agent within five
business days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their Series B notes according to the above
guaranteed delivery procedures.
WITHDRAWAL RIGHTS
Tenders of Series B notes may be withdrawn at any time before 5:00 p.m.,
Boston, Massachusetts time, on the expiration date. To withdraw a tender of
Series B notes, a written notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., Boston, Massachusetts
time, on the
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expiration date. Any such notice of withdrawal must specify the name of the
person having tendered the Series B notes to be withdrawn, identify the
principal amount of Series B notes to be withdrawn and the name and number of
the account at DTC to be credited. All questions as to the validity, form and
eligibility of such notices will be determined by Veritas DGC, whose
determination shall be final and binding on all parties. Any Series B notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no Series C notes will be issued with respect thereto. Any
Series B notes which have been tendered but which are not accepted for exchange
will be credited to the holder's account at DTC through which such Series B
notes were tendered without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Veritas DGC is not required to accept for exchange or to exchange Series C
notes for any Series B notes, and may terminate or amend the exchange offer as
provided herein before the acceptance of Series B notes, if:
- any law, statute, rule, regulation or interpretation by the staff of the
SEC is proposed, adopted or enacted, which, in the reasonable judgment of
Veritas DGC, might materially impair the ability of Veritas DGC to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to Veritas DGC; or
- any governmental approval has not been obtained, which approval Veritas
DGC shall, in its reasonable judgment, deem necessary for the
consummation of the exchange offer.
If Veritas DGC determines in its reasonable judgment that either of the
conditions is not satisfied, Veritas DGC may:
- refuse to accept any Series B notes and credit all tendered Series B
notes to the tendering holders;
- extend the exchange offer and retain all Series B notes tendered prior to
the expiration date, subject to the continuing rights of holders to
withdraw; or
- waive either unsatisfied condition and accept all properly tendered
Series B notes which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, Veritas
DGC will promptly distribute a prospectus supplement to all holders, and,
depending upon the significance of the waiver, Veritas DGC will extend the
exchange offer for a period of five to ten business days if it would otherwise
expire during that period.
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EXCHANGE AGENT
State Street Bank and Trust Company will act as exchange agent for the
exchange offer.
Questions and requests for assistance and requests for additional copies of
this prospectus, the letter of transmittal or a notice of guaranteed delivery
should be directed to the exchange agent, as follows:
<TABLE>
<S> <C>
By registered or certified mail: By overnight or hand delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attn: Kellie Mullen Attn: Kellie Mullen
By facsimile (eligible institutions only): For telephone inquiries:
State Street Bank and Trust Company (617) 664-5587
Corporate Trust Department
Attn: Kellie Mullen
(617) 664-5290
</TABLE>
FEES AND EXPENSES
The expenses of the exchange offer will be borne by Veritas DGC. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of Veritas DGC.
Veritas DGC has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers or other persons for
soliciting acceptances of the exchange offer. Veritas DGC, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses and pay other expenses of the
exchange offer.
Veritas DGC will pay all transfer taxes, if any, applicable to the exchange
of the Series B notes pursuant to the exchange offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Series B notes,
then the amount of any such transfer taxes will be payable by the tendering
holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized in connection
with the exchange offer. The expenses of the exchange offer will be amortized
over the term of the Series C notes.
RESALE OF SERIES C NOTES
Based on an interpretation by the staff of the SEC set forth in the
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), the Morgan,
Stanley & Co. Incorporated, SEC No-Action Letter (available June 5, 1991), the
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989) and similar letters, Veritas DGC believes that the Series C notes, may be
offered for resale, resold and otherwise transferred by any person other than a
restricted holder, without compliance with the registration and prospectus
delivery requirements of the Securities Act of 1933 if:
- the Series C notes are acquired by the holder in the ordinary course
of business;
- the holder is not engaged in and does not intend to engage in a
distribution of the Series C notes; and
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<PAGE> 27
- the holder does not have any arrangement or understanding with any
other person to participate in a distribution of Series C notes.
A restricted holder is a broker-dealer that receives Series C notes for its
own account in the exchange offer, where the Series B notes tendered were not
acquired as a result of market-making or other trading activities, or an
affiliate of Veritas DGC. Any person who is either a restricted holder or who
acquires Series C notes in the exchange offer to participate in a distribution
not permitted by the SEC's staff interpretation;
- cannot rely upon any of the above No-Action Letters; and
- absent an exemption from registration, must comply with the
registration requirements of the Securities Act of 1933 in
connection with any secondary resale transaction.
Failure to comply with any of the above conditions may result in a holder
incurring liabilities under the Securities Act of 1933 for which such holder is
not indemnified by Veritas DGC. Each broker or dealer that receives Series C
notes for its own account in exchange for Series B notes, where such Series B
notes were acquired by such broker-dealer as a result of market-making or other
activities, must acknowledge that it will deliver a prospectus in connection
with any sale of such Series C notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Series C notes received in exchange for Series B notes if
acquired as a result of market-making activities or other trading activities.
Veritas DGC will make this prospectus available to any broker-dealer for use in
connection with any such resale. The exchange offer is not being made to, nor
will Veritas DGC accept surrenders for exchange from, holders of Series B notes
in any jurisdiction in which this exchange offer would not be in compliance with
the securities or blue sky laws of such jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this exchange offer, Veritas DGC will have
fulfilled one of its obligations under the registration rights agreement, and
holders of Series B notes who do not tender them will not have any further
registration rights under the registration rights agreement or otherwise. The
Series B notes that are not exchanged in the exchange offer will remain
restricted securities. Therefore, Series B notes may be resold only:
- to Veritas DGC;
- to a qualified institutional buyer as defined by Rule 144A of the
Securities Act of 1933 in a transaction meeting the requirements of Rule
144A, if the notes are eligible for resale under Rule 144A;
- to a foreign person outside the United States pursuant to the exemption
from the registration requirements of the Securities Act of 1933 provided
by Regulation S;
- to an institutional accredited investor in a transaction exempt from the
registration requirements of the Securities Act of 1933;
- pursuant to an effective registration statement under the Securities Act
of 1933; or
- if available, pursuant to an exemption from registration under the
Securities Act of 1933 provided by Rule 144.
OTHER
Participation in the exchange offer is voluntary and holders should
carefully consider whether to accept. Holders of the Series B notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
In the future Veritas DGC may seek to acquire untendered Series B notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. Veritas DGC has no present plans
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to acquire any Series B notes that are not tendered in the exchange offer or to
file a registration statement to permit resales of any untendered Series B
notes.
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<PAGE> 29
DESCRIPTION OF NOTES
The Series B notes were issued under the indenture and the Series C notes
also will be issued under the same indenture. The Series B notes and the Series
C notes have virtually identical terms and will constitute a single series of
debt securities under the indenture. If the exchange offer is consummated,
holders of any remaining Series B notes will vote together with holders of
Series C notes for all relevant purposes under the indenture. The following
discussion of certain provisions of the indenture and the terms of the notes is
a summary only and does not purport to be a complete discussion of the terms of
the notes. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939. Accordingly, the following discussion is qualified in its entirety by
reference to the provisions of the indenture and the notes including the
definition therein of certain terms used below with their initial letters
capitalized.
GENERAL
The notes are senior unsecured obligations of Veritas DGC issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of, premium, if any, and interest on the notes will
be payable, and the notes will be transferable at State Street Bank and Trust
Company, N.A., the trustee, at, 61 Broadway, 15th Floor, New York, New York
10006. No service charge will be made for any transfer, exchange or redemption
of the notes, but Veritas DGC or the trustee may require payment of a sum
sufficient to cover any tax or other governmental charge that may be payable in
connection therewith.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The notes will mature on October 15, 2003. Interest on the notes will
accrue from October 28, 1998, or the latest date to which interest has been
paid. Interest will be payable at the rate of 9 3/4% per annum in arrears on
April 15 and October 15 of each year, to the persons in whose name the notes are
registered at the close of business on the April 1 or October 1 next preceding
such interest payment date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The notes will be redeemable at the option of Veritas
DGC, in whole or in part, at any time on or after October 15, 2000, upon not
less than 30 nor more than 60 days notice, at the redemption prices set forth
below, plus accrued and unpaid interest to the date of redemption if redeemed
during the 12-month period beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENT OF
YEAR PRINCIPAL AMOUNT
---- ----------------
<S> <C>
2000........................................................ 104.875%
2001........................................................ 102.438%
2002 and thereafter......................................... 100.000%
</TABLE>
At any time on or before October 15, 1999, Veritas DGC may redeem up to 25%
of the aggregate principal amount of the notes from the Net Cash Proceeds of a
Public Equity Offering, at a redemption price equal to 109.75% of the principal
amount thereof, together with accrued and unpaid interest to the date of
redemption, provided that at least $45.0 million of the principal amount of the
notes remains outstanding immediately after such redemption and that such
redemption occurs within 60 days following the closing of such Public Equity
Offering.
If less than all of the notes are to be redeemed, the particular notes will
be selected on a pro rata basis or by lot or any other method the trustee deems
fair and appropriate.
Mandatory Redemption. Veritas DGC will not be required to make mandatory
redemption or sinking fund payments with respect to the notes.
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<PAGE> 30
Offers to Purchase. As described below, if a Change of Control occurs,
Veritas DGC will be obligated to make an offer to purchase all outstanding notes
at a purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase. The specific procedures to
be used in such an event are described below under the caption "-- Certain
Covenants -- Change of Control." If Veritas DGC sells or disposes of certain
assets, it may be obligated to offer to purchase notes with a portion of the Net
Available Proceeds at a purchase price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the date of purchase.
Details of such offers are described below under "-- Certain
Covenants -- Limitation on Asset Sales."
RANKING
The notes are senior unsecured obligations of Veritas DGC and rank equally
in right of payment with Veritas DGC's existing $75.0 million of Series A notes
and with all indebtedness and other liabilities of Veritas DGC that are not by
their terms subordinated to other Indebtedness. The notes, however, will be
effectively subordinated to secured Indebtedness of Veritas DGC. Because Veritas
DGC is a holding company and the notes are not guaranteed by any of its
Subsidiaries, the notes are effectively subordinated to all existing and future
liabilities of Veritas DGC's Subsidiaries.
CERTAIN COVENANTS
The indenture contains, among others, the covenants described below.
Limitation on Indebtedness and Disqualified Capital Stock. (a) Veritas DGC
will not, and will not permit any of its Restricted Subsidiaries to incur or
otherwise become liable for the payment of any Indebtedness other than Permitted
Indebtedness or any Disqualified Capital Stock, after giving effect to such
incurrence, the Consolidated Fixed Charge Coverage Ratio for the four full
quarters immediately preceding such event would have been equal to or greater
than 2.5 to 1.0.
(b) Veritas DGC will not incur any Indebtedness that is expressly
subordinated to any other Indebtedness of Veritas DGC unless such Indebtedness
is also expressly subordinated to the notes at least to the extent it is
subordinated to such other Indebtedness.
(c) Veritas DGC will not permit any of its Restricted Subsidiaries to incur
any Indebtedness, other than certain Permitted Indebtedness, or to issue any
Preferred Stock.
Limitation on Restricted Payments. (a) Veritas DGC will not, and will not
permit any Restricted Subsidiary to, directly or indirectly make any Restricted
Payment, unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, shall be the amount determined by the Board of Directors of Veritas DGC,
whose determination shall be conclusive and evidenced by a Board Resolution):
(1) no default or event of default shall have occurred and be
continuing;
(2) Veritas DGC could incur $1.00 of additional Indebtedness, other
than Permitted Indebtedness, in accordance with paragraph (a) of the
"-- Limitation on Indebtedness and Disqualified Capital Stock" covenant;
and
(3) the aggregate amount of all Restricted Payments declared or made
after the Series A Issue Date shall not exceed the sum of the following:
(A) 50% of the Consolidated Net Income of Veritas DGC accrued on a
cumulative basis during the period beginning on August 1, 1996 and
ending on the last day of Veritas DGC's last fiscal quarter ending prior
to the date of such proposed Restricted Payment, or, if such
Consolidated Net Income is a loss, minus 100% of such loss;
(B) the aggregate Net Cash Proceeds received after the Series A
Issue Date by Veritas DGC from the issuance or sale, other than to any
of its Restricted Subsidiaries, of shares of Qualified
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<PAGE> 31
Capital Stock of Veritas DGC or any options, warrants or rights to
purchase such shares of Qualified Capital Stock of Veritas DGC;
(C) the aggregate Net Cash Proceeds received after the Series A
Issue Date by Veritas DGC, other than from any of its Restricted
Subsidiaries, upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of Veritas DGC;
(D) the aggregate Net Cash Proceeds received after the Series A
Issue Date by Veritas DGC from the issuance or sale, other than to any
of its Restricted Subsidiaries, of Indebtedness or shares of
Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock of Veritas DGC, together with the aggregate
cash received by Veritas DGC at the time of such conversion or exchange;
(E) to the extent not otherwise included in Consolidated Net
Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or advances, or other
transfers of assets, in each case to Veritas DGC or a Restricted
Subsidiary after the Series A Issue Date from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, not to exceed in the case of any Unrestricted
Subsidiary the total amount of Investments, other than Permitted
Investments, in such Unrestricted Subsidiary made by Veritas DGC and its
Restricted Subsidiaries in such Unrestricted Subsidiary that which was
previously treated as a Restricted Payment; and
(F) $2.5 million.
The payments or other actions described in clauses (1) through (4) below
are restricted payments:
(1) declaration or payment of any dividend on, or any other
distribution to holders of, any shares of Capital Stock of Veritas DGC,
other than dividends or distributions payable solely in shares of Qualified
Capital Stock of Veritas DGC or in options, warrants or other rights to
purchase Qualified Capital Stock of Veritas DGC;
(2) purchase, redemption or other acquisition or retirement for value
any Capital Stock of Veritas DGC or any Affiliate thereof, other than any
Restricted Subsidiary or except pursuant to a Permitted Investment, or any
options, warrants or other rights to acquire such Capital Stock;
(3) any principal payment on or repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness, except in any case out of the Net Cash Proceeds of any
Permitted Indebtedness referred to in clause (i) of the definition thereof;
or
(4) the making of any Restricted Investment.
(b) Notwithstanding paragraph (a) above, Veritas DGC and its Restricted
Subsidiaries may take the following actions so long as, in the case of clauses
(2) and (3) below, no default or event of default shall have occurred and be
continuing:
(1) the payment of any dividend on any Capital Stock of Veritas DGC or
any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above;
(2) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of Veritas DGC or any Restricted
Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds
from, a substantially concurrent issuance and sale, other than to a
Restricted Subsidiary, of shares of Qualified Capital Stock of Veritas DGC;
and
(3) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Cash Proceeds from, a
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<PAGE> 32
substantially concurrent issuance and sale, other than to a Restricted
Subsidiary, of shares of Qualified Capital Stock of Veritas DGC.
The actions described in clauses (1), (2) and (3) of this paragraph (b)
shall be restricted payments that shall be permitted to be made in accordance
with this paragraph (b), but shall reduce the amount that would otherwise be
available for restricted payments under clause (3) of paragraph (a), provided
that any dividend paid pursuant to clause (1) of this paragraph (b) shall reduce
the amount that would otherwise be available under clause (3) of paragraph (a)
when declared, but not also when subsequently paid pursuant to such clause (1).
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. Veritas DGC will not:
- permit any Restricted Subsidiary to issue or sell any Capital Stock to
any Person other than Veritas DGC or a Wholly Owned Restricted
Subsidiary; or
- permit any person other than Veritas DGC or a Wholly Owned Restricted
Subsidiary to own any Capital Stock of any Restricted Subsidiary.
The sale of all of the Capital Stock of any Restricted Subsidiary is
permitted by this covenant but is subject to the limitations described under
"-- Limitations on Asset Sales."
Limitation on Sale/Leaseback Transactions. Veritas DGC will not, and will
not permit any Restricted Subsidiary to enter into or otherwise become liable
with respect to any Sale/Leaseback Transaction unless Veritas DGC or such
Restricted Subsidiary would be able to incur Indebtedness, other than Permitted
Indebtedness, pursuant to and in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the
covenants described in paragraphs (a) and (c) under "-- Limitation on
Indebtedness and Disqualified Capital Stock," Veritas DGC or such Restricted
Subsidiary receives proceeds from such Sale/Leaseback Transaction at least equal
to the fair market value of the property or assets subject thereto, as
determined in good faith by Veritas DGC's Board of Directors, whose
determination in good faith and evidenced by a board resolution will be
conclusive, and Veritas DGC applies an amount in cash equal to the Net Available
Proceeds of the Sale/Leaseback Transaction in accordance with the provisions of
the "-- Limitation on Asset Sales" covenant as if such Sale/Leaseback
Transaction were an Asset Sale.
Limitation on Transactions with Affiliates. Veritas DGC will not, and will
not permit any Restricted Subsidiary to enter into any transaction or series of
related transactions with, or for the benefit of, any of its Affiliates, other
than Veritas DGC or a Restricted Subsidiary, unless:
(1) such transaction or series of transactions is on terms that are no
less favorable to Veritas DGC or such Restricted Subsidiary, as the case
may be, than those that would be available in a comparable arm's-length
transaction with unrelated third parties;
(2) if the transaction(s) involve aggregate payments in excess of $1.0
million, Veritas DGC delivers an officers' certificate to the trustee
certifying that:
(a) such transaction or series of related transactions is on terms
that are no less favorable to Veritas DGC or such Restricted Subsidiary
than those that would be available in a comparable arm's-length
transaction with unrelated third parties; and
(b) such transaction or series of related transactions has been
approved by the Board of Directors of Veritas DGC; and
(3) if the transaction(s) involve aggregate payments in excess of $5.0
million, Veritas DGC delivers an officers' certificate to the trustee
certifying (a) and (b) of paragraph (2) above and that the Company has
obtained a written opinion from an independent nationally recognized
investment banking firm as to the fairness of the transaction(s).
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<PAGE> 33
Limitation on Liens. Veritas DGC will not, and will not permit any
Restricted Subsidiary to create or suffer to exist any Lien of any kind, except
for Permitted Liens, upon any of their respective property or assets, whether
owned on the Series A Issue Date or acquired thereafter, or any income, profits
or proceeds therefrom, to secure any Indebtedness of Veritas DGC or such
Restricted Subsidiary, unless prior to, or contemporaneously therewith, the
notes are equally and ratably secured. However, if such Indebtedness is
expressly subordinated to the notes, the Lien securing such Indebtedness will be
subordinated and junior to the Lien securing the notes, with the same relative
priority as such Indebtedness has with respect to the notes. The foregoing
covenant will not apply to any Lien securing Acquired Indebtedness, provided
that any such Lien extends only to the property or assets that were subject to
such Lien prior to the related acquisition by Veritas DGC or such Restricted
Subsidiary and was not created, incurred or assumed in contemplation of such
transaction.
Change of Control. If a Change of Control occurs, Veritas DGC will be
obligated to make an offer to purchase all of the then outstanding notes, a
change of control offer. Not more than 60 nor less than 30 days later, Veritas
DGC will purchase all of the then outstanding notes validly tendered pursuant to
such change of control offer and not withdrawn, at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest to the
date of purchase. The change of control offer is required to remain open for at
least 20 business days and until the close of business on the fifth business day
prior to the change of control purchase date.
In order to effect such change of control offer, Veritas DGC will, not
later than the 30th day after the change of control, mail to the trustee and
each holder a notice of the change of control offer, which notice shall govern
the terms of the change of control offer and shall state, among other things,
the procedures that holders must follow to accept the change of control offer.
Limitation on Asset Sales. (a) Veritas DGC will not, and will not permit
any Restricted Subsidiary to engage in any Asset Sale unless:
(1) Veritas DGC or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair market value of
the assets sold, as determined by the Board of Directors of Veritas DGC;
(2) at least 80% of the consideration received by Veritas DGC or the
Restricted Subsidiary consists of cash or cash equivalents; and
(3) Veritas DGC delivers to the trustee an officer's certificate
certifying that such Asset Sale complies with clauses (1) and (2).
(b) If Veritas DGC or any Restricted Subsidiary engages in an Asset Sale,
then Veritas DGC is required within 210 days thereafter to:
(1) apply all or any of the Net Available Proceeds from such Asset Sale
to repay Indebtedness, other than subordinated Indebtedness, of Veritas
DGC or any Restricted Subsidiary; provided that the related loan
commitment, if any, is permanently reduced by the amount of such
Indebtedness repaid; or
(2) invest all or any part of the Net Available Proceeds in properties
and assets that replace the properties and assets that were sold in the
Asset Sale or in other properties or assets that will be used in the
business of Veritas DGC and its Restricted Subsidiaries. The amount of
such Net Available Proceeds not applied or invested as provided in this
paragraph will constitute excess proceeds.
(c) When the aggregate amount of excess proceeds equals or exceeds $5.0
million, Veritas DGC will make an offer to purchase, a net proceeds offer, from
all holders of the notes the maximum principal amount of notes that may be
purchased out of the amount of such excess proceeds. The offer price for the
notes will be 100% of the principal amount of the notes tendered, plus accrued
and unpaid interest to the date such net proceeds offer is consummated. To the
extent that the aggregate offer price for the notes tendered is less than the
excess proceeds, Veritas DGC may use that amount for general corporate purposes,
subject to the
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limitations of the "Limitation on Restricted Payments" covenant. If the
aggregate offer price for the notes validly tendered exceeds the excess
proceeds, notes to be purchased will be selected on a pro rata basis. Upon
completion of a net proceeds offer, the amount of excess proceeds will be reset
to zero.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. Veritas DGC will not, and will not permit any Restricted
Subsidiary to create or suffer to exist or allow to become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
- pay dividends or make any other distributions on its Capital Stock, or
make payments on any Indebtedness owed to Veritas DGC or any other
Restricted Subsidiary;
- make loans or advances to Veritas DGC or any other Restricted Subsidiary;
- transfer any of its property or assets to Veritas DGC or any other
Restricted Subsidiary; or
- guarantee the notes.
These restrictions are referred to as a payment restriction. This term does
not include any encumbrances or restrictions existing under or because of:
(1) the indentures governing the notes or the Series A notes, the Credit
Facility or any other agreement in effect or entered into on the Series A
Issue Date;
(2) any agreement, instrument or charter of or in respect of a Restricted
Subsidiary entered into before the date on which such entity became a
Restricted Subsidiary and outstanding on such date and not entered into in
connection with or in contemplation of becoming a Restricted Subsidiary,
provided such consensual encumbrance or restriction is not applicable to
any properties or assets other than those owned or held by such entity at
the time it became a Restricted Subsidiary or subsequently acquired by such
Restricted Subsidiary other than from Veritas DGC or any other Restricted
Subsidiary;
(3) an agreement effecting a modification, renewal, refinancing,
replacement or extension of any agreement, instrument or charter, other
than the indentures governing the notes or the Series A notes, referred to
in clause (1) or (2) above; provided however, that the provisions relating
to such encumbrance or restriction are not materially less favorable to the
holders of the notes than those under or pursuant to the agreement,
instrument or charter so modified, renewed, refinanced, replaced or
extended;
(4) customary provisions restricting the subletting or assignment of any
lease or the transfer of copyrighted or patented materials;
(5) provisions in agreements that restrict the assignment of such
agreements or rights thereunder; or
(6) the sale or other disposition of any properties or assets subject to a
Lien securing Indebtedness.
Limitation on Conduct of Business. Veritas DGC will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the business being conducted on the Series A Issue Date and
such other businesses as are reasonably necessary or desirable to facilitate the
conduct and operation of such businesses.
Reports. Veritas DGC will file on a timely basis with the SEC, to the
extent such filings are accepted by the SEC and whether or not Veritas DGC has a
class of securities registered under the Securities Exchange Act of 1934, the
annual reports, quarterly reports and other documents that Veritas DGC would be
required to file if it were subject to Section 13 or 15 of the Securities
Exchange Act of 1934. Veritas DGC will also be required (a) to file with the
trustee, and provide to each holder of notes, without cost to such holder,
copies of such reports and documents within 15 days after the date on which
Veritas DGC files such reports and documents with the SEC or the date on which
Veritas DGC would be required to file such reports and documents if Veritas DGC
were so required and (b) if filing such reports and documents with the SEC is
not accepted by the SEC or is prohibited under the Securities Exchange Act of
1934, to supply at its cost copies of
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such reports and documents, including any exhibits thereto, to any holder of
notes promptly upon written request.
Limitation on Redemption and Other Repayments of notes. Veritas DGC will
not optionally make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value other than through open market or
privately negotiated purchases, prior to any scheduled principal payment,
scheduled sinking fund payment or stated maturity, either notes or Series A
notes, unless substantially concurrently with such redemption, Veritas DGC
redeems the same percentage of the other issues.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Veritas DGC will not:
(1) merge or consolidate with or into any other Person;
(2) sell, assign, convey, transfer, lease or otherwise dispose of
substantially all of the properties and assets of Veritas DGC and
its Restricted Subsidiaries to any Person or group; and
(3) Veritas DGC will not permit any of its Restricted Subsidiaries to
enter into any transactions described in (1) and (2) above, if
such transactions, in the aggregate would result in the sale,
assignment, conveyance, transfer, lease or other disposition of
all or substantially all of the properties and assets of Veritas
DGC and its Restricted Subsidiaries to any other Person or group
unless at the time and after giving effect thereto:
(A) either
- if the transaction is a merger or consolidation, Veritas DGC is the
surviving Person; or
- the Person, if other than Veritas DGC, formed by such consolidation
or into which Veritas DGC is merged or to which the properties and
assets of Veritas DGC or its Restricted Subsidiaries are disposed of
shall be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture to
the indenture governing the notes all the obligations of Veritas DGC
under the notes and the indenture, and in each case, the indenture
shall remain in full force and effect;
(B) immediately before and immediately after giving effect to such
transactions on a pro forma basis, no default or event of default shall have
occurred and be continuing;
(C) except in the case of the consolidation or merger of any Restricted
Subsidiary with or into Veritas DGC, immediately after giving effect to such
transactions on a pro forma basis, the Consolidated Net Worth of the surviving
or resulting entity is at least equal to the Consolidated Net Worth of Veritas
DGC immediately before such transactions;
(D) except in the case of the consolidation or merger of Veritas DGC with
or into a Restricted Subsidiary or any Restricted Subsidiary with or into
Veritas DGC or another Restricted Subsidiary, immediately before and immediately
after giving effect to such transactions on a pro forma basis, the surviving or
resulting entity could incur $1.00 of additional Indebtedness, excluding
Permitted Indebtedness under the indenture covenant relating to limitations on
indebtedness; and
(E) if any of the properties or assets of Veritas DGC or any of its
Restricted Subsidiaries would upon such transactions become subject to any Lien
other than a Permitted Lien, the creation and imposition of such Lien shall have
been in compliance with the indenture covenant relating to limitations on liens.
Upon any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
properties and assets of Veritas DGC and its Restricted Subsidiaries in
accordance with the foregoing, in which Veritas DGC is not the continuing
corporation, the surviving or resulting entity shall succeed to, and be
substituted for, Veritas DGC under the indenture, and thereafter
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Veritas DGC, except in the case of a lease, will be discharged from all
obligations and covenants under the indenture and may be liquidated and
dissolved.
EVENTS OF DEFAULT
The following will be events of default under the indenture:
(a) default in the payment of the principal of or premium, if any, on
any of the notes, whether such payment is due at Stated Maturity, upon
redemption, upon repurchase pursuant to a change of control offer or a net
proceeds offer, upon acceleration or otherwise; or
(b) default in the payment of any installment of interest on any of
the notes, when due, and the continuance of such default for a period of
30 days; or
(c) default in the performance or breach of the merger, consolidation
and sale of assets provisions of the indenture, the failure to make or
consummate a change of control offer or a net proceeds offer in accordance
with the indenture; or
(d) Veritas DGC fails to perform or observe any other term, covenant
or agreement contained in the notes or the indenture for a period of
30 days after written notice of such failure shall have been given by
either the trustee or the holders of at least 25% in aggregate principal
amount of the notes then outstanding; or
(e) the occurrence and continuation beyond any applicable grace period
of any default on any other Indebtedness of Veritas DGC or any Restricted
Subsidiary for money borrowed, provided that the aggregate principal amount
of such Indebtedness shall exceed $5.0 million and provided, further, that
if any such default is cured or waived or any such acceleration rescinded,
or such Indebtedness is repaid, within a period of 10 days from the
continuation of such default beyond the applicable grace period or the
occurrence of such acceleration, such event of default under the indenture
and any consequential acceleration of the notes shall be automatically
rescinded, so long as such rescission does not conflict with any judgment
or decree; or
(f) final judgments or orders rendered against Veritas DGC or any
Restricted Subsidiary that are unsatisfied and that require the payment in
an aggregate amount of more than $5.0 million over the coverage under
applicable insurance policies and either (A) commencement by any creditor
of an enforcement proceeding upon such judgment (other than a judgment that
is stayed by reason of pending appeal or otherwise) or (B) the occurrence
of a 30-day period during which a stay of such judgment or order, by reason
of pending appeal or otherwise, was not in effect; or
(g) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of Veritas DGC or any Restricted
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) adjudging Veritas DGC or any Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of Veritas DGC or any Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of Veritas DGC or any Restricted Subsidiary or of a
substantial part of its consolidated assets, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(h) the commencement by Veritas DGC or any Restricted Subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated bankrupt or insolvent, or the consent
by Veritas DGC or any Restricted Subsidiary to the entry of a decree or
order for relief in respect thereof in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
Veritas DGC or any Restricted Subsidiary of a petition or consent seeking
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reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of Veritas DGC or any Restricted Subsidiary or of any substantial part of
its consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking of
corporate action by Veritas DGC or any Restricted Subsidiary in furtherance
of any such action.
If an event of default, other than as specified in clause (g) or (h) above,
shall occur and be continuing, the trustee may, and the trustee upon the request
of the holders of not less than 25% in aggregate principal amount of the notes
then outstanding shall, declare the principal of, premium, if any, accrued and
unpaid interest on all of the notes due and payable immediately, upon which
declaration all amounts payable in respect of the notes shall be immediately due
and payable. If an event of default specified in clause (g) or (h) above occurs
and is continuing, then the principal of, premium, if any, accrued and unpaid
interest on all of the notes shall become and be immediately due and payable
without any declaration, notice or other act on the part of the trustee or any
holder of notes.
After a declaration of acceleration under the indenture, but before a
judgment or decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount of the
outstanding notes, by written notice to Veritas DGC and the trustee, may rescind
and annul such declaration if:
(a) Veritas DGC has paid or deposited with the trustee a sum
sufficient to pay:
(1) all sums paid or advanced by the trustee under the indenture and
the reasonable compensation, expenses, disbursements and advances of
the trustee, its agents and counsel;
(2) all overdue interest on all notes;
(3) the principal of and premium on any notes which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the notes; and
(4) to the extent that payment of such interest is lawful, interest
upon overdue interest and principal at the rate borne by the notes;
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(c) all events of default, other than the non-payment of principal of,
premium, if any, or interest on the notes that has become due solely by
such declaration of acceleration, have been cured or waived.
No holder will have any right to institute any proceeding with respect to
the indenture or any remedy thereunder, unless such holder has notified the
trustee of a continuing event of default and the holders of at least 25% in
aggregate principal amount of the outstanding notes have made written request,
and offered reasonable indemnity, to the trustee to institute such proceeding as
trustee under the indenture, the trustee has failed to institute such proceeding
within 60 days after receipt of such notice and the trustee, within such 60-day
period, has not received directions inconsistent with such written request by
holders of a majority in aggregate principal amount of the outstanding notes.
Such limitations will not apply, however, to a suit instituted by the holder of
a note for the enforcement of the payment of the principal of, premium, if any,
or interest on such note on or after the respective due dates expressed in such
note.
During the existence of an event of default, the trustee will be required
to exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default shall occur and be continuing, the trustee
will not be under any obligation to exercise any of its rights or powers under
the indenture at the request or direction of any of the holders unless such
holders shall have offered to the trustee
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reasonable security or indemnity. Subject to certain provisions concerning the
rights of the trustee, the holders of a majority in aggregate principal amount
of the outstanding notes will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee under the indenture.
If a default or an event of default occurs and is continuing and is known
to the trustee, the trustee shall mail to each holder notice of the default or
event of default within 60 days after the occurrence thereof. Except in the case
of a default or an event of default in payment of principal of, premium, if any,
or interest on any notes, the trustee may withhold the notice to the holders of
the notes if the trustee determines in good faith that withholding the notice is
in the interest of the holders.
Veritas DGC is required to furnish to the trustee annual and quarterly
statements as to the performance by Veritas DGC of its obligations under the
indenture and as to any default in such performance. Veritas DGC will also be
required to notify the trustee within 10 days of any default or event of
default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
Veritas DGC may, at its option and at any time, terminate its obligations
with respect to the outstanding notes through either legal defeasance or
covenant defeasance.
To exercise either legal defeasance or covenant defeasance:
(a) Veritas DGC must irrevocably deposit with the trustee, in trust
for the benefit of the holders of the notes, cash, U.S. Government
Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding notes to redemption or maturity;
(b) in the case of legal defeasance, Veritas DGC shall have delivered
to the trustee an opinion of counsel based upon, and referring to, a
published ruling of the IRS or change in applicable federal income tax
laws, to the effect that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred;
(c) in the case of covenant defeasance, Veritas DGC shall have
delivered to the trustee an opinion of counsel to the effect that the
holders of the outstanding notes will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(d) no default or event of default shall have occurred and be
continuing either on the date of such deposit or insofar as events of
default from bankruptcy or insolvency events are concerned, at any time in
the period ending on the 91st day after the date of deposit;
(e) such legal or covenant defeasance will not cause the trustee to
have a conflict of interest under the indenture with respect to any
securities of Veritas DGC; and
(f) such legal or covenant defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument to which Veritas DGC is a party or by which it is bound.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
when
(1) either
(a) all the notes theretofore authenticated and delivered have been
delivered to the trustee for cancellation or
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(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable or will become due and payable
at their Stated Maturity within one year, or are to be called for
redemption within one year under arrangements satisfactory to the
trustee and Veritas DGC has irrevocably deposited or caused to be
deposited with the trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the notes not theretofore delivered
to the trustee for cancellation, together with instructions from Veritas
DGC irrevocably directing the trustee to apply such funds to the payment
thereof at such maturity or redemption;
(2) Veritas DGC has paid all other sums payable by it under the
indenture; and
(3) Veritas DGC has delivered to the trustee required documentation
stating that all conditions precedent to satisfaction and discharge of the
indenture have been complied with.
AMENDMENTS AND WAIVERS
Veritas DGC and the trustee may, without the consent of the holders of the
notes, amend or supplement the indenture or the notes for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, qualifying, or maintaining the qualification of, the indenture
under the Trust Indenture Act of 1939 or making any change that does not
materially adversely affect the rights of any holder of notes. Other amendments
and modifications of the indenture or the notes may be made by Veritas DGC and
the trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding notes; provided, however, without
the consent of each holder affected, an amendment or waiver may not, with
respect to any notes held by a non-consenting holder:
- change the Stated Maturity of the principal of, or any installment of
interest on, any note;
- reduce the principal amount of, premium, if any, or interest on any note;
- change the coin or currency of payment of principal of, premium, if any,
or interest, on any note;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
- reduce the above-stated percentage of aggregate principal amount of
outstanding notes necessary to modify or amend the indenture;
- reduce the percentage of aggregate principal amount of outstanding notes
necessary for waiver of compliance with certain provisions of the
indenture or for waiver of certain defaults;
- modify any provision of the indenture relating to the modification and
amendment of the indenture or the waiver of past defaults or covenants,
except as otherwise specified;
- change the ranking of the notes in a manner adverse to the holders or
expressly subordinate in right of payment the notes to any other
Indebtedness; or
- amend, change or modify the obligation of Veritas DGC to make and
consummate a change of control offer in the event of a change of control
or make and consummate a net proceeds offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto.
The holders of not less than a majority in aggregate principal amount of
the outstanding notes may waive any past default under the indenture, except a
default in the payment of principal of, premium, if any, or interest on the
notes, or in respect of a covenant or provision which under the indenture cannot
be modified or amended without the consent of the holder of each note
outstanding.
THE TRUSTEE
State Street Bank and Trust Company N.A. serves as trustee under the
indentures relating to the notes and the Series A notes.
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The indenture contains limitations on the rights of the trustee thereunder,
should it become a creditor of Veritas DGC, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The indenture permits the trustee to
engage in other transactions; provided, however if it acquires any conflicting
interest, as defined in the Trust Indenture Act of 1939, it must eliminate such
conflict or resign.
As mandated by the Trust Indenture Act of 1939, if a default occurs with
respect to either the Series A notes or the notes, State Street Bank and Trust
Company would be required to resign as trustee under one of them within 90 days
of such default unless the default cured, waived or otherwise eliminated.
GOVERNING LAW
The indenture and the notes are governed by the laws of the State of New
York.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture
relating to the notes without charge by writing to Veritas DGC at 3701 Kirby
Drive, Suite 112, Houston, Texas 77098-3982, Attention: Anthony Tripodo.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of properties or assets from such Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than Veritas DGC or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of:
(a) any Capital Stock of any Restricted Subsidiary held by Veritas DGC
or any other Restricted Subsidiary;
(b) all or substantially all of the properties and assets of any
division or line of business of Veritas DGC or any of its Restricted
Subsidiaries; or
(c) any other properties or assets of Veritas DGC or any of its
Restricted Subsidiaries other than transfers of cash, Cash Equivalents,
accounts receivable or other properties or assets in the ordinary course of
business or transfers in accordance with the proviso to clause (6) of the
definition of Permitted Investments.
For the purposes of this definition, the term "Asset Sale" also shall not
include any of the following:
(1) any transfer of properties or assets (including Capital Stock)
that is governed by, and made in accordance with, the provisions described
under "-- Merger, Consolidation and Sale of Assets";
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(2) any transfer of properties or assets to an Unrestricted
Subsidiary, if permitted under the "Limitation on Restricted Payments"
covenant;
(3) sales of damaged, worn-out or obsolete equipment or assets that,
in Veritas DGC's reasonable judgment are either (x) no longer used or (y)
no longer useful in the business of Veritas DGC or its Restricted
Subsidiaries;
(4) any lease of any property entered into in the ordinary course of
business and with respect to which Veritas DGC or any Restricted Subsidiary
is the lessor, except any such lease that provides for the acquisition of
such property by the lessee during or at the end of the term thereof for an
amount that is less than the fair market value thereof at the time the
right to acquire such property is granted; and
(5) any transfers that, but for this clause (5), would be Asset Sales,
if (A) Veritas DGC elects to designate such transfers as not constituting
Asset Sales and (B) after giving effect to such transfers, the aggregate
fair market value of the properties or assets transferred in such
transaction or any such series of related transactions so designated by
Veritas DGC does not exceed $500,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of rent required to
be paid by such Person under the lease during the primary term thereof, without
giving effect to any renewals at the option of the lessee, discounted from the
respective due dates thereof to such date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. As used in the preceding
sentence, the "net amount of rent" under any such lease for any such period
shall mean the sum of rental and other payments required to be paid with respect
to such period by the lessee thereunder, excluding any amounts required to be
paid by such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(1) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (2) the amount of each such
principal payment by (b) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person (for
purposes of the indenture the Exchangeable Shares of VES shall be treated as
Capital Stock of Veritas DGC, for which they are exchangeable, and shall not be
treated as Capital Stock of VES).
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for the purpose of
the indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) any evidence of Indebtedness with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the Unites States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof);
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(2) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million or
any commercial bank organized under the laws of any other country that is a
member of the Organization for Economic Cooperation and Development and has
total assets in excess of $500 million;
(3) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of Veritas DGC and is organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or at least P-1 by Moody's;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any commercial bank meeting the specifications of clause (2)
above;
(5) overnight bank deposits and bankers acceptances at any commercial
bank meeting the qualifications specified in clause (2) above;
(6) demand and time deposits and certificates of deposit with any
commercial bank organized in the United States not meeting the
qualifications specified in clause (2) above, provided that such deposits
and certificates support bond, letter of credit and other similar types of
obligations incurred in the ordinary course of business; and
(7) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(1) through (5) above.
"Change of Control" means the occurrence of any event or series of events
by which:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of more than 50% of the total Voting
Stock of Veritas DGC;
(b) Veritas DGC consolidates with or merges into another Person or any
Person consolidates with, or merges into, Veritas DGC, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Veritas
DGC is changed or exchanged for cash, securities or other property, other
than any such transaction where:
(1) the outstanding Voting Stock of Veritas DGC is changed into or
exchanged for Voting Stock of the surviving or resulting Person that is
Qualified Capital Stock; and
(2) the holders of the Voting Stock of Veritas DGC immediately
prior to such transaction own, directly or indirectly, not less than a
majority of the Voting Stock of the surviving or resulting Person
immediately after such transaction;
(c) Veritas DGC, either individually or in conjunction with one or
more Restricted Subsidiaries, sells, assigns, conveys, transfers, leases or
otherwise disposes of, or the Restricted Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all of the properties and assets
of Veritas DGC and its Restricted Subsidiaries, taken as a whole (either in
one transaction or a series of related transactions), including Capital
Stock of the Restricted Subsidiaries, to any Person (other than Veritas DGC
or a Wholly Owned Restricted Subsidiary);
(d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Veritas DGC
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of Veritas DGC was
approved by a vote of two thirds of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Veritas DGC then in
office; or
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(e) the liquidation or dissolution Veritas DGC.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
on a pro forma basis of (a) the sum of Consolidated Net Income, Consolidated
Fixed Charges, Consolidated Income Tax Expense, and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income, in each case, for such
period, of Veritas DGC and its Restricted Subsidiaries on a consolidated basis,
all determined in accordance with GAAP, to (b) the sum of such Consolidated
Fixed Charges for such period;
provided, however that:
(1) the Consolidated Fixed Charge Coverage Ratio shall be calculated
on a pro forma basis assuming that:
(A) the Indebtedness to be incurred (and all other Indebtedness
incurred after the first day of such period of four full fiscal quarters
referred to in the covenant described in paragraph (a) under "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock"
through and including the date of determination), and (if applicable)
the application of the net proceeds therefrom (and from any other such
Indebtedness), including to refinance other Indebtedness, had been
incurred on the first day of such four quarter period and, in the case
of Acquired Indebtedness, on the assumption that the related transaction
(whether by means of purchase, merger or otherwise) also had occurred on
such date with the appropriate adjustments with respect to such
acquisition being included in such pro form calculation; and
(B) any acquisition or disposition by Veritas DGC or any Restricted
Subsidiary of any properties or assets outside the ordinary course of
business, or any repayment of any principal amount of any Indebtedness
of Veritas DGC or any Restricted Subsidiary prior to the State Maturity
thereof, in either case since the first day of such period of four full
fiscal quarters through and including the date of determination, had
been consummated on such first day of such four-quarter period;
(2) in making such computation, the Consolidated Fixed Charges
attributable to interest on any Indebtedness required to be computed on a
pro forma basis in accordance with the covenant described in paragraph (a)
under "-- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock" and (A) bearing a floating interest rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of Veritas DGC, a
fixed or floating rate of interest, shall be computed by applying, at the
option of Veritas DGC, either the fixed or floating rate;
(3) in making such computation, the Consolidated Fixed Charges
attributable to interest on any Indebtedness under a revolving credit
facility required to be computed on a pro forma basis in accordance with
the covenant described in paragraph (a) under "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock"
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period, provided that such average daily balance
shall be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed
under such facility;
(4) notwithstanding clauses (2) and (3) of this proviso, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Rate Protection Obligations,
shall be deemed to have accrued at the rate per annum resulting after
giving effect to the operation of such agreements, and
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(5) if after the first day of the period referred to in clause (a) of
this definition Veritas DGC has permanently retired any Indebtedness out of
the Net Cash Proceeds of the issuance and sale of shares of Qualified
Capital Stock of Veritas DGC within 30 days of such issuance and sale,
Consolidated Fixed Charges shall be calculated on a pro forma basis as if
such Indebtedness had been retired on the first day of such period.
"Consolidated Fixed Charges" means, for any period, without duplication:
(a) the sum of:
(1) the interest expense of Veritas DGC and is Restricted Subsidiaries
for such period as determined on a consolidated basis in accordance with
GAAP, including without limitation --
(A) any amortization of debt discount,
(B) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts),
(C) the interest portion of any deferred payment obligation
constituting Indebtedness,
(D) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, and
(E) all accrued interest, in each case to the extent attributable
to that period;
(2) to the extent any Indebtedness of any Person (other than Veritas
DGC or a Restricted Subsidiary) is guaranteed by Veritas DGC or any
Restricted Subsidiary, the aggregate amount of interest paid (to the extent
not accrued in a prior period) or accrued by such other Person during such
period attributable to any such Indebtedness, in each case to the extent
attributable to that period;
(3) the aggregate amount of interest component of Capitalized Lease
Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by Veritas DGC and its Restricted
Subsidiaries during such period;
(4) the aggregate amount of dividends paid (to the extent not accrued
in a prior period) or accrued on Preferred Stock or Disqualified Capital
Stock of Veritas DGC and its Restricted, to the extent such Preferred Stock
or Disqualified Capital Stock is owned by Person other than Veritas DGC or
any Restricted Subsidiary; and
(5) one third of the rental expense (including without limitation
marine vessel charter payment) under operating leases with remaining
noncancellable terms of at least one year (excluding leases in respect of
office space) of Veritas DGC and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP; less
(b) to the extent included in clause (a) above, amortization of capitalized
debt issuance costs of Veritas DGC and its Restricted Subsidiaries during such
period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of Veritas DGC and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of Veritas DGC and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding:
(a) net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto);
(b) net after-tax gains or losses (less all fees and expenses relating
thereto) attributable to Asset Sales;
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(c) the net income (or net loss) of any Person (other than Veritas DGC
or any of its Restricted Subsidiaries), in which Veritas DGC or any of its
Restricted Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to Veritas DGC
or any of its Restricted Subsidiaries in cash by such other Person during
such period (regardless of whether such cash dividends or distributions are
attributable to net income (or net loss) of such Person during such period
or during any prior period);
(d) net income (or net loss) of any Person (other than VES) combined
with Veritas DGC or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of
combination;
(e) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of its net income is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(f) income resulting from transfers of assets received by Veritas DGC
or any Restricted Subsidiary from an Unrestricted Subsidiary; and
(g) for the fiscal year ended July 31, 1996, merger related costs
reflected in Veritas DGC's consolidated financial statements.
"Consolidated Net Tangible Assets" means, at any date, the aggregate amount
of assets included on the most recent consolidated balance sheet of Veritas DGC
and its Restricted Subsidiaries, less (a) without duplication, applicable
reserves and other properly deductible items and after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, and (b) current liabilities (other than
current liabilities constituting Indebtedness for borrowed money), as determined
in accordance with GAAP.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of Veritas DGC less (without duplication) the amount of such
stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of Veritas DGC and its Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses (excluding
non-cash expenses related to multi-client seismic data sales and write-offs and
write-downs related to Veritas DGC's multi-client seismic data library) of
Veritas DGC and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge for which an accrual of or reserve for cash
charges for any future period is required).
"Credit Facility" means, for purposes of this "Description of Notes" only,
that certain Credit Agreement dated as of July 18, 1996 among Veritas DGC, the
Subsidiaries of Veritas DGC named therein, as Borrowers, each of the banks named
therein as Lenders, and Wells Fargo Bank (Texas) National Association, as Agent
for the Lenders, as such Credit Facility was in effect at the Series A Issue
Date.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of Veritas DGC is
required to deliver a resolution of the Board of Directors under the indenture,
a member of the Board of Directors of Veritas DGC who does not have any material
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direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of Veritas DGC) in or with
respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed or repurchased, in whole or in part,
prior to the final Stated Maturity of the Senior notes or is redeemable at the
option of the holder thereof at any time prior to such final Stated Maturity, or
is convertible into or exchangeable for debt securities at any time prior to
such final Stated Maturity. For purposes of the covenant described in paragraph
(a) under "-- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock," Disqualified Capital Stock shall be valued at the greater of its
voluntary or involuntary maximum fixed redemption or repurchase price plus
accrued and unpaid dividends. For such purposes, the "maximum fixed redemption
or repurchase price" of any Disqualified Capital Stock which does not have a
fixed redemption or repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were redeemed or repurchased on the date of determination, and if such price is
based upon, or measured by, the fair market value of such Disqualified Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Disqualified Capital Stock; provided, however,
that if such Disqualified Capital Stock is not at the date of determination
permitted or required to be redeemed or repurchased, the "maximum fixed
redemption or repurchase price" shall be the book value of such Disqualified
Capital Stock.
"event of default" has the meaning set forth above under the caption
"Events of Default."
"Foreign Restricted Subsidiaries" means Digicon (Nigeria) Limited, Digicon
(Malaysia) Sdn. Bhd., Digital Exploration (Nigeria) Limited and P. T. Digicon
Mega Pratama.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the indenture.
The term "guarantee" means, as applied to any obligation:
(a) a guarantee (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), direct or indirect, in
any manner, of any part or all of such obligation; and
(b) an agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or
performance (payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit.
When used a verb, "guarantee" has a corresponding meaning.
"Indebtedness" means with respect to any Person, without duplication:
(a) all liabilities of such Person, contingent or otherwise, for
borrowed money or for the deferred purchase price of property or services
(excluding any trade accounts payable and other accrued current liabilities
incurred in the ordinary course of business) and all liabilities of such
Person incurred in connection with any letters of credit, bankers'
acceptances or other similar credit transactions or any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any
Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, outstanding on the date of the indenture or thereafter,
if, and to the extent, any of the foregoing would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP;
(b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP;
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(c) all Indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such person (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade account
payable arising in the ordinary course of business;
(d) the Attributable Indebtedness respecting all Capitalized Lease
Obligations of such Person;
(e) all Indebtedness referred to in the preceding clauses of other
Persons and all dividends of other Person, the payment of which is secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to
be the lesser of the value of such property or the amount of the obligation
so secured);
(f) all guarantees by such Person of Indebtedness referred to in this
definition;
(g) all obligations of such Person under or in respect of Currency
Hedge Obligations and Interest Rate Protection Obligations; and
(h) deferred credits respecting discontinued services.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by Veritas DGC in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
Interest Rate Protection Obligations and Currency Hedge Obligations, but only to
the extent that the same constitute Permitted Indebtedness and (c) endorsements
of negotiable instruments and documents in the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any note, the date on which any principal
of such note becomes due and payable as therein or in the indenture provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Net Available Proceeds" means with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to Veritas DGC or any Restricted
Subsidiary), net of:
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel, accountants and investment banks) related to
such Asset Sale;
(2) provisions for all taxes payable as a result of such Asset Sale;
(3) amount required to be paid to any Person (other than Veritas DGC
or any Restricted Subsidiary) owning a beneficial interest in the
properties or assets subject to the Asset Sale or having a Lien thereon;
and
(4) appropriate amounts to be provided by Veritas DGC or any
Restricted Subsidiary, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such Asset
Sale and retained by Veritas DGC or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without, limitation pension and
other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the trustee; provided, however, that any amounts
remaining after adjustments, revaluations or liquidations of such reserves
shall constitute Net Available Proceeds.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of Veritas DGC or any Restricted Subsidiary incurred in connection
with the acquisition by Veritas DGC or such Restricted Subsidiary of any
property or assets and as to which (a) the holders of such Indebtedness agree
that they will look solely to the property or assets so acquired and securing
such Indebtedness for payment on or in respect of such Indebtedness, and neither
Veritas DGC nor any Subsidiary (other than an Unrestricted Subsidiary) (1)
provides credit support, including any undertaking, agreement or instrument
which would constitute Indebtedness or (2) is directly or indirectly liable for
such Indebtedness, and (b) no default with respect to such Indebtedness would
permit (after notice or passage of time or both), according to the terms
thereof, any holder of any Indebtedness of Veritas DGC or a Restricted
Subsidiary to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity.
"Note Register" means the register maintained by or for Veritas DGC in
which Veritas DGC shall provide for the registration of the notes and the
transfer of the notes.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness (and any guarantee thereof) under one or more working
capital credit facilities with banks and other financial institutions in an
aggregate principal amount at any one time outstanding not to exceed $20
million, less any amounts derived from Asset Sales and applied to the
permanent reduction of the Indebtedness under any such credit facilities as
contemplated by the "Limitation on Asset Sales" covenant (the "Maximum Bank
Credit Amount");
(b) Indebtedness under the notes and the Series A notes;
(c) Indebtedness outstanding or in effect on the Series A Issue Date
(and not repaid or defeased with the proceeds of the offering of the Series
A notes);
(d) Indebtedness under Interest Rate Protection Obligations, provided
that (1) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted
by paragraph (a) of the "Limitation on Indebtedness and Disqualified
Capital Stock" covenant, and (2) the notional principal amount of such
Interest Rate Protection Obligations
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does not exceed the principal amount of such Indebtedness to which such
Interest Rate Protection Obligations relate;
(e) Indebtedness under Currency Hedge Obligations, provided that (1)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a)
of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant
or to the foreign currency cash flows reasonably expected to be generated
by Veritas DGC and its Restricted Subsidiaries, and (2) the notional
principal amount of such Currency Hedge Obligations does not exceed the
principal amount of such Indebtedness and the amount of such foreign
currency cash flows to which such Currency Hedge Obligations relate;
(f) Indebtedness of Veritas DGC to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to Veritas DGC or
a Wholly Owned Restricted Subsidiary; provided, however, that upon any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly Owned Restricted Subsidiary ceasing to be
a Wholly Owned Restricted Subsidiary or any other subsequent transfer of
any such Indebtedness (except to Veritas DGC or a Wholly Owned Restricted
Subsidiary), such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of paragraph
(a) of the "Limitation on Indebtedness and Disqualified Capital Stock"
covenant at the time the Wholly Owned Restricted Subsidiary in question
ceased to be a Wholly Owned Restricted Subsidiary or the time such
subsequent transfer occurred;
(g) Indebtedness in respect of bid, performance or surety bonds issued
for the account of Veritas DGC in the ordinary course of business,
including guaranties or obligations of Veritas DGC with respect to letters
of credit supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed);
(h) Non-Recourse Indebtedness;
(i) any renewals, substitutions, refinancing or replacements (each,
for purposes of this clause (i), a "refinancing") by Veritas DGC or a
Restricted Subsidiary of any Indebtedness incurred pursuant to clause (b)
or (c), including any successive refinances by Veritas DGC or such
Restricted Subsidiary, so long as:
(A) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of determination) so refinanced plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or the
amount of any premium reasonably determined by Veritas DGC or such
Restricted Subsidiary as necessary to accomplish such refinancing, plus
the amount of expenses of Veritas DGC or such Restricted Subsidiary
incurred in connection with such refinancing;
(B) in the case of any refinancing of Indebtedness (including the
notes) that is pari passu with or subordinated in right of payment to
the notes, then such new Indebtedness is pari passu with or subordinated
in right of payment to the notes at least to the same extent as the
Indebtedness being refinanced; and
(C) such new Indebtedness has an Average Life equal to or longer
than the Average Life of the Indebtedness being refinanced and a final
Stated Maturity that is at least 91 days later than the final Stated
Maturity of the Indebtedness being refinanced; and
(j) any additional Indebtedness in an aggregate principal amount not
in excess of $5 million at any one time outstanding and any guarantee
thereof.
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"Permitted Investments" means any of the following:
(1) Investments in Cash Equivalents;
(2) Investments in Veritas DGC or any of its Wholly Owned Restricted
Subsidiaries;
(3) Investments by Veritas DGC or any of its Restricted Subsidiaries
in another Person, if as a result of such Investment:
(A) such other Person becomes a Wholly Owned Restricted Subsidiary;
or
(B) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its properties and
assets to, Veritas DGC or a Wholly Owned Restricted Subsidiary;
(4) Investments permitted under the "Limitation on Asset Sales"
covenant;
(5) Investments made in the ordinary course of business in prepaid
expenses, lease, utility, workers' compensation, performance and other
similar deposits;
(6) Investments in Stock, obligations or securities received in
settlement of debts owing to Veritas DGC or any Restricted Subsidiary as a
result of bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of Veritas DGC or any
Restricted Subsidiary, in each case as to debt owing to Veritas DGC or any
Restricted Subsidiary that arose in the ordinary course of business of
Veritas DGC or any such Restricted Subsidiary, provided than any stocks,
obligations or securities received in settlement of debts that arose in the
ordinary course of business (and received other than as a result of
bankruptcy or insolvency proceedings or upon foreclosure, perfection or
enforcement of any Lien) that are, within 30 days of receipt, converted
into cash or Cash Equivalents at the time received; and
(7) Investments in joint venture, partnerships of Affiliates in an
aggregate amount not to exceed at any one time $7.5 million.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Series A Issue Date;
(b) Liens securing the Series A notes and notes;
(c) Liens in favor of Veritas DGC;
(d) Liens on accounts receivable, notes receivable, chattel paper or
inventory securing Indebtedness under one or more working capital
facilities with banks or other financial institutions that does not, in the
aggregate, exceed the greater of (x) 10% of Veritas DGC's Consolidated Net
Tangible Assets or (y) the amounts permitted pursuant to clause (a) of the
definition of Permitted Indebtedness;
(e) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness" incurred as a refinancing of any Indebtedness secured by
Liens described in clause (a) or (d) of this definition;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
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(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) any interest or title of a lessor under any Capitalized Lease
Obligation (to the extent the Attributable Indebtedness related thereto
constitutes Indebtedness permitted to be incurred under the terms of the
indenture) or operating lease;
(j) purchase money Liens; provided, however, that (1) the related
purchase money Indebtedness shall not be secured by any property or assets
of Veritas DGC or any Restricted Subsidiary other than the property or
assets so acquired and any proceeds therefrom and (2) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition;
(k) Liens securing obligations under or in respect of either Currency
Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of Veritas DGC
or any of its Restricted Subsidiaries, including rights of offset and
setoff; and
(o) Liens securing Non-Recourse Indebtedness; provided, however, that
the related Non-Recourse Indebtedness shall not be secured by any property
or assets of Veritas DGC or any Restricted Subsidiary other than the
property and assets acquired by Veritas DGC or any Restricted Subsidiary
with the proceeds of such Non-Recourse Indebtedness.
"Permitted Subsidiary Indebtedness" means, with respect to Restricted
Subsidiaries, Indebtedness in an aggregate principal amount at any time
outstanding up to the excess, if any, of (A) 10% of Veritas DGC's Consolidated
Net Tangible Assets over (B) the greater of $20.0 million or the aggregate
principal amount of outstanding secured Indebtedness of Veritas DGC incurred in
compliance with clause (a) of the "-- Limitation on Indebtedness and
Disqualified Capital Stock" covenant.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of Common Stock of Veritas
DGC made after the Series A Issue Date pursuant to a registration statement that
has been declared effective by the SEC pursuant to the Securities Act of 1933
(other than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of Veritas DGC).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Restricted Investment" means (without duplication) (1) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary" and (2) any Investment other than a
Permitted Investment.
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<PAGE> 52
"Restricted Subsidiary" means any Subsidiary of Veritas DGC, whether
existing on or after the date of the indenture, unless such Subsidiary of
Veritas DGC is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the indenture.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by Veritas DGC or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by Veritas DGC or one of its Restricted Subsidiaries.
"Series A Indenture" means the indenture dated as of October 23, 1996
between Veritas DGC and State Street Bank and Trust Company (as successor to
Fleet National Bank), as trustee, providing for the issuance of the Series A
notes in the aggregate principal amount of $75,000,000, as such may be amended
and supplemented from time to time.
"Series A Issue Date" means the date on which the Series A notes were
originally issued under the Series A Indenture.
"Series A notes" means Veritas DGC's 9 3/4% Senior Notes due October 15,
2003 issued October 23, 1996, pursuant to the Series A Indenture, as such may be
amended or supplemented from time to time.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of Veritas DGC which is
expressly subordinated in right of payment to the notes.
"Subsidiary" means, with respect to any Person, (1) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (2) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Unrestricted Subsidiary" means (1) any Subsidiary of Veritas DGC that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of Veritas DGC as provided below and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of Veritas DGC may designate any
Subsidiary of Veritas DGC as an Unrestricted Subsidiary so long as:
(a) neither Veritas DGC nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such
Subsidiary;
(b) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise), any Holder of any
other Indebtedness of Veritas DGC or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity;
(c) such designation as an Unrestricted Subsidiary would be permitted
under the "Limitation on Restricted Payments" covenant; and
(d) such designation shall not result in the creation or imposition of
any Lien on any of the properties or assets of Veritas DGC or any
Restricted subsidiary (other than any Permitted Lien or any Lien the
creation or imposition of which shall have been in compliance with the
"Limitation on
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<PAGE> 53
Liens" covenant); provided, however, that with respect to clause (a),
Veritas DGC or a Restricted Subsidiary may be liable for Indebtedness of
any Unrestricted Subsidiary if:
(x) such liability constituted a Permitted Investment or a
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence; or
(y) the liability would be a Permitted Investment at the time of
designation of such Subsidiary as an Unrestricted Subsidiary.
Any such designation by the Board of Directors of Veritas DGC shall be evidence
to the trustee by filing a Board Resolution with the trustee giving effect to
such designation. The Board of Directors of Veritas DGC may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation on a pro forma basis:
(1) no Default or Event of Default shall have occurred and be
continuing;
(2) Veritas DGC could incur $1.00 of additional Indebtedness (not
including the incurrence of Permitted Indebtedness) under the first
paragraph of the "Limitation on Indebtedness and Disqualified Capital
Stock" covenant; and
(3) if any of the properties and assets of Veritas DGC or any of its
Restricted Subsidiaries would upon such designation become subject to any
Lien (other than a Permitted Lien), the creation or imposition of such Lien
shall have been in compliance with the "Limitation on Liens" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means (a) any Restricted Subsidiary to
the extent (1) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by Veritas DGC or (2) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that Veritas DGC,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary, and (b)
any Foreign Restricted Subsidiary so long as the direct or indirect ownership
interest of Veritas DGC therein is no less than at the Series A Issue Date.
BOOK ENTRY; DELIVERY AND FORM
The Series C note will be issued in the form of one permanent global
certificate in definitive, fully registered form. The global certificate will be
deposited with, or on behalf of, DTC and registered in the name of the nominee
of DTC.
Except as set forth below, the global certificate may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee.
DTC has advised Veritas DGC as follows: It is a limited-purpose trust
company which was created to hold securities for its participating organizations
and to facilitate the clearance and settlement of transactions in such
securities between participants through electronic book-entry changes in
accounts of its participants. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to the DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant. Persons may
beneficially own securities held by DTC only through participants.
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<PAGE> 54
DTC has also advised that pursuant to procedures established by it (i) upon
the issuance by Veritas DGC of the Series C notes, DTC will credit the accounts
of participants with the principal amount of the Series C notes equivalent to
their interest in the Series B notes tendered for exchange, and (ii) ownership
of beneficial interests in the global certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC, the participants and the indirect participants. The laws of some states
require that certain persons take physical delivery in definitive form of
securities which they own. Consequently, the ability to transfer beneficial
interests in the global certificate is limited to such extent.
So long as a nominee of DTC is the registered owner of the global
certificate, such nominee will be considered the sole owner or holder of the
Series C notes for all purposes under the indenture. Except as provided below,
owners of beneficial interests in the global certificate will not be entitled to
have Series C notes registered in their names, will not receive or be entitled
to receive physical delivery of Series C notes in definitive form and will not
be considered the owners or holders thereof under the indenture.
Neither Veritas DGC, the trustee, the paying agent nor the note registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
certificate, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Principal and interest payments on the global certificate will be made by
Veritas DGC, either directly or through a paying agent, to DTC's nominee as the
registered owner of the global certificate. Under the terms of the indenture,
Veritas DGC and the trustee will treat the persons in whose names the Series C
notes are registered as the owners of such notes for all purposes. Therefore,
neither Veritas DGC, the trustee nor any paying agent has any direct
responsibility or liability for the payment of principal or interest on the
Series C notes to beneficial owners. DTC has advised Veritas DGC and the trustee
that its present practice is, upon receipt of any payment of principal or
interest to credit immediately the accounts of the participants with payment in
amounts proportionate to their respective holdings in the global certificate as
shown on the records of DTC. Payments by participants and indirect participants
to beneficial owners will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name" and will be the responsibility of
such participants or indirect participants.
As long as the Series C notes are represented by a global certificate,
DTC's nominee will be the holder of the Series C notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the notes.
Notice by participants or indirect participants or by beneficial owners held
through such participants or indirect participants of the exercise of the option
to elect repayment of beneficial interests in Series C notes must be transmitted
to DTC in accordance with its procedures on a form required by DTC and provided
to participants. In order to ensure that DTC's nominee will timely exercise a
right to repayment with respect to a particular beneficial interest, the
beneficial owner must instruct the broker or other participant or exercise a
right to repayment. Different firms have cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other participant or indirect participant through which it
holds its interest in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to DTC.
Veritas DGC will not be liable for any delay in delivery of notices of the
exercise of the option to elect repayment.
Veritas DGC will issue Series C notes in definitive form in exchange for
the global certificate if, and only if, DTC is at any time unwilling or unable
to continue as depository and a successor depository is not appointed by Veritas
DGC within 90 days. In such an instance, a beneficial owner will be entitled to
have Series C notes equal in principal amount to such beneficial interest issued
in fully registered certificated form. Series C notes so issued in definitive
form will be issued in denominations of $1,000 and integral multiples thereof
and will be issued in registered form only, without coupons.
REGISTRATION RIGHTS
Veritas DGC entered into a registration rights agreement pursuant to which
Veritas DGC agreed to file with the SEC a registration statement on the
appropriate form under the Securities Act of 1933 with respect
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<PAGE> 55
to an offer to exchange the Series B notes for the Series C notes. If the
exchange offer is consummated on or before April 12, 1999, the registration
statement of which this prospectus is a part will satisfy Veritas DGC's
obligations under the registration rights agreement with respect to the exchange
offer.
Under existing interpretations of the SEC, the Series C notes will be
freely transferable by holders without further registration under the Securities
Act of 1933 if the holder of the Series C notes represents that it:
(1) is acquiring the Series C notes in the ordinary course of its business;
(2) has no arrangement or understanding with any person to participate in
the distribution of the Series C notes; and
(3) is not an affiliate of Veritas DGC, as that term is interpreted by the
SEC;
provided, however, that broker-dealers receiving Series C notes in the exchange
offer will have a prospectus delivery requirement with respect to resales of
such Series C notes. The SEC has taken the position that broker-dealers may
fulfill their prospectus delivery requirements with respect to Series C
notes -- other than a resale of unsold allotment from the original sale of the
Series B notes -- with this prospectus. Under the registration rights agreement,
Veritas DGC is required to allow broker-dealers to use this prospectus in
connection with the resale of such Series C notes. Holders of interests in
Series B notes will be required to make certain representations to Veritas DGC,
as described in the letter of transmittal, in order to participate in the
exchange offer.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Veritas DGC's principal credit arrangements other than the notes consist of
a bank credit agreement and the Series A notes.
BANK CREDIT AGREEMENT
On July 27, 1998, Veritas DGC entered into a syndicated, senior credit
facility with Bank One, Texas, N.A., as agent. Certain of Veritas DGC's
subsidiaries have guaranteed the obligations of Veritas DGC under that
agreement. That agreement provides Veritas DGC with the ability to borrow up to
$50.0 million from time to time prior to July 27, 2001, subject to an accounts
receivable borrowing base. Interest under the bank credit agreement accrues at a
variable rate, using either the Wall Street Journal prime rate, or a rate based
on the interbank Eurodollar market ("LIBOR") plus a margin ranging from 0.625%
to 1.375%, depending upon Veritas DGC's trailing four-quarter debt to EBITDA
ratio.
The indebtedness under the bank credit agreement is unsecured but is
subject to a "springing lien" on accounts receivable which would arise upon the
occurrence of an event of default under the agreement.
The bank credit agreement contains certain financial covenants as well as
other provisions which restrict the ability of Veritas DGC and its subsidiaries
to:
- engage in new lines of business other than the business in which they are
currently engaged and other businesses reasonably related thereto; or
- enter into mergers or consolidations or asset sales or purchases; or
- incur liens or debts or make advances, investments or loans; or
- enter into transactions with affiliates other than at arm's-length basis
in the ordinary course of business; or
- modify any certificate of incorporation or by-laws in a manner adverse to
the lenders.
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<PAGE> 56
SERIES A NOTES
In October 1996, Veritas DGC consummated a public offering of $75.0 million
principal amount of the Series A notes. The Series A notes are general unsecured
senior obligations of Veritas DGC ranking on a parity in right of payment with
the notes and with all other indebtedness and liabilities of Veritas DGC that
are not subordinated by their terms to other indebtedness of Veritas DGC and
senior in right of payment to all indebtedness of Veritas DGC that by its terms
is so subordinated. The terms of the Series A notes are substantially identical
to the notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the IRS,
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the IRS will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders of the Series B notes (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who hold Series B notes in
connection with a hedging transaction, straddle, or conversion transaction) may
be subject to special rules not discussed below.
The issuance of the Series C notes to holders of the Series B notes
pursuant to the terms set forth in this prospectus will not constitute an
exchange for federal income tax purposes. Consequently, no gain or loss will be
recognized by holders of the Series B notes upon receipt of the Series C notes,
and ownership for the Series C notes will be considered a continuation of
ownership of the Series B notes. For purposes of determining gain or loss upon
the subsequent sale or exchange of the Series C notes, a holder's basis in the
Series C notes should be the same as such holder's basis in the Series B notes
exchanged therefor. A holder's holding period for the Series C notes should
include the holder's holding period for the Series B notes exchanged. Each
holder's taxation of a Series C note will be as for the Series B notes, and the
issue price, original issue discount, bond premium and market discount inclusion
and other tax characteristics of the Series C notes should be identical to the
issue price, original issue discount, bond premium and market discount inclusion
and other tax characteristics of the Series B notes exchanged therefor.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING SERIES B NOTES FOR SERIES C NOTES IN THE
EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
FOREIGN TAX LAWS AND RECENT AND OF POSSIBLE FUTURE CHANGES IN THE TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that acquires Series C notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series C notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series C note received in
exchange for Series B notes where such Series B notes were acquired as a result
of market-making activities or other trading activities. Veritas DGC has agreed
that it will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
Veritas DGC will not receive any proceeds from any sales of the Series C
notes by broker-dealers. Series C notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series C notes or a combination of such
methods or resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series C notes. Any
broker-dealer that resells the Series C notes that were received by it for its
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<PAGE> 57
own account pursuant to the exchange offer may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 and any profit on any such
resale of Series C notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act
of 1933. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act of
1933.
For the period of time as such broker-dealers must comply with prospectus
delivery requirements of the Exchange Act in order to resell the Series C notes,
Veritas DGC will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. Veritas DGC has agreed to pay
certain expenses incident to the exchange offer, other than commission or
concessions of any brokers or dealers, and will indemnify the holders of the
Series B notes against certain liabilities, including liabilities under the
Securities Act of 1933.
By acceptance of this exchange offer, each broker-dealer that receives
Series C notes for its own account pursuant to the exchange offer agrees that,
upon receipt of notice from Veritas DGC of the happening of any event which
makes any statement in the prospectus untrue in any material respect or which
requires the making of any changes in the prospectus in order to make the
statements therein not misleading (which notice Veritas DGC agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
prospectus until Veritas DGC has amended or supplemented the prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Exchange Notes
offered hereby will be passed on for Veritas DGC by Porter & Hedges, L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Veritas DGC Inc. for the two
years ended December 31, 1998, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Veritas DGC Inc. for the year
ended July 31, 1996 incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended July 31, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated by reference, and has been so incorporated in reliance upon the
report of such firm given their authority as experts in accounting and auditing.
The consolidated financial statements of Veritas Energy Services Inc., as
of and for the nine months ended July 31, 1996, not separately incorporated by
reference in this Prospectus, have been audited by Price Waterhouse, Chartered
Accountants, given on the authority of said firm as experts in auditing and
accounting.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus incorporates documents by reference which are not presented
in or delivered with it. This means that Veritas DGC can disclose certain
information by referring a reader to certain documents. These documents (other
than exhibits to such documents unless specifically incorporated by reference)
are available upon written or oral request directed to Anthony Tripodo, Veritas
DGC Inc., at Veritas DGC's principal executive offices located at 3701 Kirby
Drive, Suite 112, Houston, Texas 77098-3982; telephone (713) 512-8300. In order
to ensure timely delivery of the documents, any request should be made five days
before the Expiration Date.
The following documents, which have been filed by Veritas DGC with the SEC
pursuant to the Exchange Act (File No. 1-7427), are incorporated in this
prospectus by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the year ended July 31, 1998;
(b) Current Report on Form 8-K, dated November 12, 1998;
(c) Quarterly Report on Form 10-Q for the quarter ended October 31,
1998; and
(d) All documents filed by Veritas DGC with the Commission pursuant to
sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the
date of this prospectus and prior to the termination of the Offer to
Exchange.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
Veritas DGC will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents that have
been incorporated herein by reference (not including exhibits to the documents
that have been incorporated herein by reference unless such exhibits are
specifically incorporated by reference in the documents this prospectus
incorporates). Requests should be directed to Veritas DGC Inc., attention:
Corporate Secretary, 3701 Kirby Drive, Suite 112, Houston, TX 77098-3982
(telephone number: (713) 512-8300).
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You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information.
We are not offering the Series C notes in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus as of any
date other than the date stated on the cover.
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary...................... 2
Where You Can Find More Information..... 7
Forward-Looking Statements.............. 7
Risk Factors............................ 8
Use of Proceeds......................... 11
Capitalization.......................... 12
Business................................ 13
The Exchange Offer...................... 21
Description of Notes.................... 28
Description of Certain Indebtedness..... 54
Certain U.S. Federal Income Tax
Considerations........................ 55
Plan of Distribution.................... 55
Legal Matters........................... 56
Experts................................. 56
Incorporation of Certain Documents by
Reference............................. 57
</TABLE>
VERITAS DGC INC.
[VERITAS LOGO]
Exchange Offer
-------------------
Prospectus
-------------------
February 4, 1999
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS
The following is a list of all of the exhibits filed as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1* -- Purchase Agreement, dated October 23, 1998, between
Veritas DGC Inc. and Warburg Dillon Read LLC.
(Incorporated by reference to Exhibit 4.1 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.2* -- Registration Rights Agreement, dated as of October 28,
1998, between Veritas DGC, Inc. and Warburg Dillon Read
LLC. (Incorporated by reference to Exhibit 4.2 to Veritas
DGC, Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.3* -- Indenture, dated as of October 28, 1998, between Veritas
DGC, Inc. and State Street Bank and Trust Company.
(Incorporated by reference to Exhibit 4.3 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
5.1* -- Opinion of Porter & Hedges, L.L.P., with respect to the
legality of the securities filed herewith.
12.1* -- Statement recomputation of ratio of earnings to fixed
charges.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of PricewaterhouseCoopers, Chartered Accountants.
23.3* -- Consent of Deloitte & Touche LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5.1 Opinion).
24.1* -- Power of Attorney (included on signature page).
25.1* -- Statement of Eligibility of Trustee.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Previously filed
II-1
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas on January 28,
1999.
VERITAS DGC INC.
By: /s/ DAVID B. ROBSON
----------------------------------
David B. Robson
Chairman of the Board,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the 28th day of January, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DAVID B. ROBSON Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer and Director
David B. Robson
/s/ ANTHONY TRIPODO Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Treasurer (principal financial
Anthony Tripodo and accounting officer)
Director
- -----------------------------------------------------
Clayton P. Cormier
/s/ RALPH M. EESON Director
- -----------------------------------------------------
Ralph M. Eeson
/s/ LAWRENCE C. FICHTNER Director
- -----------------------------------------------------
Lawrence C. Fichtner
/s/ JAMES R. GIBBS Director
- -----------------------------------------------------
James R. Gibbs
Director
- -----------------------------------------------------
Steven J. Gilbert
/s/ STEPHEN J. LUDLOW Director
- -----------------------------------------------------
Stephen J. Ludlow
/s/ BRIAN F. MACNEILL Director
- -----------------------------------------------------
Brian F. MacNeill
Director
- -----------------------------------------------------
Jan Rask
/s/ JACK C. THREET Director
- -----------------------------------------------------
Jack C. Threet
</TABLE>
II-2
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1* -- Purchase Agreement, dated October 23, 1998, between
Veritas DGC Inc. and Warburg Dillon Read LLC.
(Incorporated by reference to Exhibit 4.1 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.2* -- registration rights agreement, dated as of October 28,
1998, between Veritas DGC, Inc. and Warburg Dillon Read
LLC. (Incorporated by reference to Exhibit 4.2 to Veritas
DGC, Inc.'s Current Report on Form 8-K dated November 12,
1998).
4.3* -- Indenture, dated as of October 28, 1998, between Veritas
DGC, Inc. and State Street Bank and Trust Company.
(Incorporated by reference to Exhibit 4.3 to Veritas DGC,
Inc.'s Current Report on Form 8-K dated November 12,
1998).
5.1* -- Opinion of Porter & Hedges, L.L.P., with respect to the
legality of the securities filed herewith.
12.1* -- Statement recomputation of ratio of earnings to fixed
charges.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of PricewaterhouseCoopers, Chartered Accountants.
23.3* -- Consent of Deloitte & Touche LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in Exhibit
5.1 Opinion).
24.1* -- Power of Attorney (included on signature page).
25.1* -- Statement of Eligibility of Trustee.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Previously filed
