-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R91NmK9Jw1RQC4tpj04zK4TVoob355a5vgRwjhcAd8h2RbEIP6xF8770pJ+1OamK dNMvbxaXtKEhkKQuZChDrw== 0000950129-96-002227.txt : 19960924 0000950129-96-002227.hdr.sgml : 19960924 ACCESSION NUMBER: 0000950129-96-002227 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960920 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERITAS DGC INC CENTRAL INDEX KEY: 0000028866 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760343152 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-12481 FILM NUMBER: 96633091 BUSINESS ADDRESS: STREET 1: 3701 KIRBY DR STREET 2: STE 112 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7135265611 MAIL ADDRESS: STREET 1: 3701 KIRBY DRIVE SUITE 112 CITY: HOUSTON STATE: TX ZIP: 77098 FORMER COMPANY: FORMER CONFORMED NAME: DIGICON INC DATE OF NAME CHANGE: 19920703 S-3 1 VERITAS, DGC INC. - FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 VERITAS DGC INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0343152 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
3701 KIRBY DRIVE, SUITE 112 HOUSTON, TEXAS 77098 (713) 526-5611 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) RICHARD W. MCNAIRY 3701 KIRBY DRIVE, SUITE 112 HOUSTON, TEXAS 77098 (713) 526-5611 (Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: T. WILLIAM PORTER J. MARK METTS PORTER & HEDGES, L.L.P. VINSON & ELKINS L.L.P. 700 LOUISIANA, 35TH FLOOR 1001 FANNIN HOUSTON, TEXAS 77002 2300 FIRST CITY TOWER (713) 226-0600 HOUSTON, TEXAS 77002 (713) 758-2222
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. / / __________________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. / / __________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
============================================================================================== PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------- % Senior Notes due 2003................................. $75,000,000 $25,863 ==============================================================================================
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 *************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * * NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH * * SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO * * REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH * * STATE. * * * *************************************************************************** SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996 $75,000,000 [VERITAS LOGO] VERITAS DGC INC. % SENIOR NOTES DUE 2003 --------------------- The % Senior Notes due 2003 (the "Senior Notes") are being offered (the "Offering") by Veritas DGC Inc. (the "Company"). Interest on the Senior Notes is payable on and of each year, commencing , 1997. The Company will not be required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes prior to maturity. The Senior Notes are redeemable on or after , 2000 at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to , 1999, the Company may redeem up to $20.0 million in aggregate principal amount of the Senior Notes with the net proceeds of one or more public offerings of common stock of the Company, at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date; provided that at least $55.0 million principal amount of the Senior Notes remain outstanding after such redemption. In the event of a Change of Control (as defined in "Description of Senior Notes"), holders of the Senior Notes will have the right to require the Company to purchase their Senior Notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. There can be no assurance that the Company will have sufficient funds available or will be permitted by its other debt agreements to repurchase the Senior Notes upon the occurrence of a Change of Control. The Senior Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all senior Indebtedness (as defined) of the Company and senior to all Subordinated Indebtedness (as defined) of the Company. The Senior Notes will be effectively subordinated to secured Indebtedness of the Company with respect to the assets securing such Indebtedness and to all Indebtedness of its subsidiaries, whether secured or unsecured. At July 31, 1996, the Company and its subsidiaries had $41.1 million of Indebtedness outstanding, all of which will be repaid with the proceeds of the Offering. The Indenture pursuant to which the Senior Notes will be issued will limit the ability of the Company and its subsidiaries to incur additional indebtedness. The Senior Notes will be represented by a Global Note registered in the name of the nominee of The Depository Trust Company, which will act as the Depository (the "Depository"). Beneficial interests in the Global Note will be shown on, and transfers thereof will be effected only through, records maintained by the Depository and its participants. Except as described herein, Senior Notes in definitive form will not be issued. See "Description of Senior Notes -- Book-Entry; Delivery and Form." The Company does not intend to apply for listing of the Senior Notes on any securities exchange or for inclusion of the Senior Notes in any automated quotation system. SEE "RISK FACTORS" BEGINNING AT PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR NOTES. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------
UNDERWRITING DISCOUNTS PRICE TO AND PROCEEDS TO PUBLIC* COMMISSIONS+ COMPANY++ Per Senior Note........................................... % % % Total..................................................... $ $ $
- --------------- * Plus accrued interest, if any, from the date of issuance. + The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." ++ Before deducting expenses payable by the Company, estimated to be $500,000. The Senior Notes are being offered by the Underwriters as set forth under "Underwriting" herein. It is expected that the delivery of the Global Note will be made on or about , 1996 in book-entry form through the facilities of the Depository against payment therefor in same day funds. The Underwriters are: DILLON, READ & CO. INC. SALOMON BROTHERS INC RAUSCHER PIERCE REFSNES, INC. RAYMOND JAMES & ASSOCIATES, INC. THE DATE OF THIS PROSPECTUS IS , 1996. 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C., a Registration Statement on Form S-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Senior Notes offered by this Prospectus. Certain portions of the Registration Statement have not been included in this Prospectus. For further information, reference is made to the Registration Statement. Statements made in this Prospectus regarding the contents of any contract or document filed as an exhibit to the Registration Statement are not necessarily complete and, in each instance, reference is hereby made to the copy of such contract or document so filed. Each such statement is qualified in its entirety by such reference. The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. The Registration Statement, as well as such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 13, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials also can be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which the common stock of the Company (the "Common Stock") is listed. The Commission maintains a site on the World Wide Web that contains certain documents filed with the Commission electronically. The address of such site is http://www.sec.gov, and the Registration Statement may be inspected at such site. 2 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act (File No. 1-7427), are incorporated in this Prospectus by reference and shall be deemed to be a part hereof: (a) the Company's Annual Report on Form 10-K for the year ended July 31, 1995, as amended by Form 10-K/A dated June 17, 1996, Form 10-K/A-2 dated July 19, 1996 and Form 10-K/A-3 dated August 20, 1996; (b) the Company's Quarterly Reports on Form 10-Q for the quarters ended October 31, 1995, January 31, 1996 and April 30, 1996; (c) the Company's Current Reports on Form 8-K dated March 19, 1996, May 17, 1996 and September 16, 1996; and (d) Definitive Joint Management Information Circular and Proxy Statement of the Company and Veritas Energy Services Inc. filed with the Commission on July 22, 1996. Any statement contained herein or in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Written or telephone requests for such copies should be directed to the Company at its principal executive offices located at 3701 Kirby Drive, Suite 112, Houston, Texas 77098, Attention: Corporate Secretary (telephone number: (713) 526-5611). 3 5 PROSPECTUS SUMMARY The Company was formerly named Digicon Inc. ("Digicon"). On August 30, 1996, Digicon and Veritas Energy Services Inc. ("VES") consummated a business combination (the "Combination") pursuant to which, among other things, (i) VES became a wholly-owned subsidiary of Digicon and (ii) Digicon's corporate name was changed to "Veritas DGC Inc." Unless the context otherwise requires, all references to the "Company" are to Veritas DGC Inc. and its subsidiaries and give effect to the consummation of the Combination. Unless the context otherwise requires, all references to activities of, and financial information with respect to, the Company are presented on a combined basis, even with respect to periods prior to the consummation of the Combination. The following summary should be read in conjunction with and is qualified in its entirety by the information and supplemental consolidated financial statements (including the notes thereto) appearing elsewhere in this Prospectus and the documents incorporated by reference herein. Unless the context otherwise requires, the number of shares, per share prices, weighted average number of shares outstanding and per share amounts in this Prospectus have been adjusted to reflect (i) a one-for-three reverse stock split effected in January 1995 and (ii) the Combination. All capitalized terms used in this Summary without a definition are defined as set forth elsewhere in this Prospectus, including under the caption "Description of Senior Notes." THE COMPANY GENERAL The Company is a leading provider of seismic data acquisition, data processing, multi-client data surveys, and information services to the oil and gas industry in selected markets worldwide. Oil and gas companies utilize seismic data for the determination of suitable locations for drilling exploratory wells and, increasingly, in reservoir management for the development and production of oil and gas reserves. The Company acquires seismic data on land and in marine, and in marsh, swamp and tidal ("transition zone") environments, processes data acquired by its own crews and crews of other operators and provides comprehensive data management, mapping services and products. The Company acquires seismic data both on an exclusive contractual basis for its customers and on its own behalf for licensing to multiple customers on a non-exclusive basis. To increase its presence in the rapidly expanding market for onshore geophysical services, the Company recently effected the Combination with VES, a leading seismic contractor with ten land seismic crews, nine workstation-based land seismic data processing centers and 800 operating personnel. Pursuant to the Combination, the Company acquired all of the voting securities of VES in exchange for the issuance to VES' shareholders of the economic equivalent of approximately 7.0 million shares of the Company's Common Stock. Prior to the Combination, the Company initiated a comprehensive program designed to refocus each of the Company's geographic and operational lines of business. The Company's actions included: (i) selling its marine and land seismic equipment manufacturing operations; (ii) selling its joint venture interest in the former Soviet Union ("FSU"); (iii) deploying its land and transition zone crews and its marine crews into markets where the Company's presence would be significant; (iv) expanding its accumulation and licensing of multi-client data surveys to exploit the historically higher margins associated with non-exclusive data sales; (v) emphasizing research and development on its proprietary software in order to capitalize on its reputation for seismic data processing innovation; and (vi) streamlining its cost structure through personnel reductions, office consolidations, vessel deactivations and the outsourcing of certain development and manufacturing functions. In the current fiscal year, the Company has embarked upon a $67.4 million capital expenditure program designed to increase its efficiency and improve the competitive position of its principal products and services and to enable the Company to capitalize on high growth/high margin opportunities in selected markets. 4 6 In its land and transition zone activities, the Company expects to spend approximately $14.3 million to upgrade and standardize the equipment utilized by its crews to improve operating efficiency and to provide the capability to expand its activities in transition zone environments in the United States and abroad. In its marine activities, the Company expects to spend approximately $40.0 million to upgrade and add to its multi-streamer vessel capability. This increased capability is expected to improve operations and to provide increased multi-client survey opportunities, particularly in the deeper water sectors of the Gulf of Mexico and the North Sea where demand is expected to grow significantly. The Company also expects to spend approximately $11.0 million to upgrade its data processing equipment and to expand overall data processing capacity to further enhance its capabilities for sophisticated processing of acquired seismic data. INDUSTRY OVERVIEW Geophysical services enable oil and gas companies to determine whether subsurface conditions are likely to be favorable for finding new oil and gas accumulations and assist oil and gas companies in determining the size and structure of previously identified oil and gas fields. These services consist of the acquisition and processing of three-dimensional ("3D") and two-dimensional ("2D") seismic and other geophysical data, which is used to produce computer-generated graphic cross-sections and maps of the subsurface strata. The resulting cross-sections and maps are then analyzed and interpreted by geophysicists and are used by oil and gas companies in the acquisition of new leases, the selection of drilling locations on exploratory prospects and in reservoir development and management. Geophysical data is acquired by land, transition zone and marine crews. In data acquisition, a source of acoustical energy is employed at or below the earth's surface and an acoustical wave is produced through the discharge of compressed air, the detonation of small explosive charges, or other energy generating techniques. As the acoustical wave travels through the earth, portions are reflected by variations in the underlying rock layers, and the reflected energy is captured by geophones situated at intervals along specified paths from the point of acoustical impulse. The resulting signals are then transmitted to a recording unit which amplifies the reflected energy wave and converts it into digital data. This data is then input into a specialized data processing system that enhances the recorded signal by reducing noise and distortion and improving resolution and arranges the input data to produce, with the aid of plotting devices, an image of the subsurface strata. By interpreting seismic data, oil and gas companies create detailed maps of prospective areas and producing oil and gas reservoirs. Three-dimensional surveys involve the acquisition of a very dense grid of seismic data over a precisely defined area. This heavy concentration of data requires extensive computer processing, involving the use of sophisticated proprietary techniques, to produce an accurate image of the subsurface. Computer analysis of the 3D survey data allows geophysicists to better examine and interpret important subsurface features. Over the last several years, worldwide demand for 3D surveys by major oil and gas companies and independent producers has increased. The greater precision and improved subsurface resolution obtainable from 3D seismic data have assisted oil and gas companies in finding new fields and more accurately delineating existing fields, as well as enhancing existing reservoir management and production monitoring techniques. Enhanced subsurface resolution obtainable from 3D studies has been a key factor in improving drilling success ratios and lowering finding and field extension costs in land, transition zone and marine environments. This improved technology, coupled with advances in drilling and completion techniques, are enhancing the industry's ability to develop oil and gas reserves, particularly in transition zone and deep water environments. 5 7 COMPANY OVERVIEW The Company provides land and transition zone data acquisition, marine data acquisition, and data processing services to the oil and gas industry on an exclusive contractual basis and acquires and processes seismic data for its own account for licensing to multiple customers on a non-exclusive basis. It also develops and markets exploration and development information services. Land and transition zone data acquisition. The Company's land and transition zone data acquisition crews consist of (i) a surveying unit that lays out the lines to be recorded, (ii) an explosives or mechanical vibrating unit and (iii) a recording unit that lays out the geophones and recording instruments. The Company also utilizes helicopters to aid its crews in seismic data acquisition in situations where such use will reduce overall costs and/or improve productivity. The Company's land and transition zone data acquisition services are currently conducted by 16 seismic crews, seven of which are operating in the continental United States, five of which are operating in Canada, and the remaining four of which are operating in South America, currently in Argentina, Ecuador and Peru. In fiscal 1996, land and transition zone data acquisition accounted for approximately 47% of the Company's revenues. The successful utilization of 3D seismic survey data in offshore exploration efforts has led to a significant increase in demand for 3D seismic surveys in onshore and transition zone environments. In recent years, exploration activity in land and transition zone areas by the major oil and gas companies and independents has increased. In fiscal 1996, as compared to fiscal 1993, the Company's land and transition zone data acquisition revenues have increased 159%. The Company plans to spend approximately $14.3 million during fiscal 1997 which it believes will provide efficiencies and additional capacity in its land and transition zone data acquisition operations. Of this amount, approximately $3.4 million will be used to acquire geophones and cables which will result in standardization of this equipment so that such equipment will be interchangeable among the Company's seismic crews. In addition, three of the transition zone crews have been recently upgraded to Input/Output System Two Remote Seismic Recorder ("I/O System Two-RSR") equipment at a cost of approximately $6.0 million. Marine data acquisition. The Company's marine data acquisition crews operate on chartered vessels equipped with a full complement of seismic, navigational and communications equipment. All of the vessels operated by the Company are equipped to perform both 3D and 2D seismic surveys. As of September 1, 1996, the Company had seven vessels in operation, with three located in the Gulf of Mexico, two located in the North Sea, and one located in each of Australia and Indonesia. Except for the two vessels in the Far East, the Company's chartered vessels are predominantly engaged in acquiring 3D surveys. In fiscal 1996, marine data acquisition accounted for approximately 22% of the Company's revenues. Vessels with multiple streamers and multiple energy sources acquire more lines of data with each pass, reducing time to completion and the effective acquisition cost. At present, only one of the Company's vessels is equipped for multi-streamer operation. Accordingly, the Company is reviewing options with respect to its expiring charters and upgrading vessels or adding a new vessel at an aggregate cost of approximately $34.8 million. The Company presently expects to operate a total of three multi-streamer vessels in the Gulf of Mexico and the North Sea. These expansions and upgrades represent the primary portion of the Company's $40.0 million capital expenditure budget for marine operations in fiscal 1997. Data processing. The Company currently operates 16 geophysical data processing centers, including two under contract to major oil and gas companies. These centers process data acquired by the Company's own crews and crews of other operators. Seven of these centers are configured primarily for processing large-scale offshore surveys and operate high capacity, advanced technology NEC and Hewlett Packard mainframe computer systems with high speed networks. The other nine centers are utilized primarily for smaller scale land seismic surveys and operate data processing systems with 6 8 47 Sun workstations. In fiscal 1996, data processing accounted for approximately 20% of the Company's revenues. The Company has dedicated approximately $11.0 million of its fiscal 1997 capital budget to data processing activities. Because of the increased complexity of processing 3D surveys, the Company plans to retire certain of its older mainframe equipment and upgrade to more powerful and flexible workstation-based systems at five of its data processing centers which are dedicated primarily to processing marine data. In its land processing operations, the Company is acquiring additional Sun workstations to add capacity at existing processing centers and to equip two new processing centers. These expansions and upgrades are expected to increase capacity and lower operating costs. Licensing of multi-client data surveys. The Company also acquires and processes seismic data for its own account through surveys either partially or wholly funded by multiple customers. In this mode of operation, the Company retains ownership of the data and may later license such data on a non-exclusive basis. During the two year period ended July 31, 1996, 188,642 line miles of new seismic data were added to the Company's data library, and the Company expects to continue its recent emphasis on the licensing of its own library of seismic data to multiple customers. In fiscal 1996, the licensing of such multi-client data surveys accounted for 9% of the Company's revenues. The industry has experienced a proliferation of both offshore and onshore multi-client data surveys as a result of modifications in oil and gas company spending strategies. In response to this increased demand, the Company is adding data to its library, primarily in the Gulf of Mexico and the North Sea. Recent surveys have received significant initial funding from customers, which has reduced the related risk for the Company. Generally, the Company obtains pre-funding commitments for a majority of the cost of such surveys. Historically, the licensing of multi-client data has produced higher returns than the Company's other classes of services. Exploration and Development Information Services. The Company also provides various exploration and development information services to the oil and gas industry. These services include data verification through geophysical survey audit, seismic database management, service bureau mapping of surface and subsurface oil and gas information, data supply for grid, culture, wells, pipelines, land and related data sets and mapping systems, as well as geographical information systems software development. In fiscal 1996, information services accounted for approximately 2% of the Company's revenues. 7 9 THE OFFERING Securities Offered......... $75 million principal amount of % Senior Notes due 2003. Maturity Date.............. , 2003. Interest Rate and Payment Dates.................... The Senior Notes will bear interest at a rate of % per annum. Interest on the Senior Notes will accrue from the date of issuance thereof and will be payable semi-annually in cash in arrears on and of each year, commencing , 1997. Optional Redemption........ The Senior Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2000, at the redemption prices set forth herein, together with accrued and unpaid interest to the date of redemption. In the event the Company consummates a Public Equity Offering on or prior to , 1999, the Company may at its option use all or a portion of the proceeds from such offering to redeem up to $20.0 million principal amount of the Senior Notes at a redemption price equal to % of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption, provided that at least $55.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after such redemption. See "Description of Senior Notes -- Redemption." Change of Control.......... Upon the occurrence of a Change of Control, each holder of Senior Notes will have the right to require the Company to purchase all or a portion of such holder's Senior Notes at a price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of purchase. See "Description of Senior Notes -- Certain Covenants -- Change of Control." Certain Covenants.......... The Indenture relating to the Senior Notes will contain certain covenants, including covenants which limit: (i) indebtedness; (ii) restricted payments; (iii) issuances and sales of capital stock of restricted subsidiaries; (iv) sale/leaseback transactions; (v) transactions with affiliates; (vi) liens; (vii) asset sales; (viii) dividends and other payment restrictions affecting restricted subsidiaries; (ix) conduct of business; and (x) mergers, consolidations and sales of assets. See "Description of Senior Notes -- Certain Covenants" and "-- Merger, Consolidation and Sale of Assets." Ranking.................... The Senior Notes will be senior unsecured obligations of the Company, ranking pari passu in right of payment with all senior Indebtedness of the Company and senior to all Subordinated Indebtedness of the Company. The Senior Notes, however, will be effectively subordinated to secured Indebtedness of the Company with respect to the assets securing such Indebtedness and to all Indebtedness of its subsidiaries, whether secured or unsecured. The Indenture will restrict the incurrence of both secured Indebtedness and subsidiary borrowings. At July 31, 1996, the Company and its subsidiaries had $41.1 million of outstanding Indebtedness, all of which will be repaid with the proceeds of the Offering. See "Management's Discussion 8 10 and Analysis of Financial Condition and Results of Operations" and "Description of Senior Notes -- Ranking." Use of Proceeds............ The net proceeds to the Company from the sale of the Senior Notes are estimated to be approximately $72.2 million. Of this amount, approximately $41.1 million will be used to retire outstanding Indebtedness and the remaining $31.1 million will be utilized to fund a portion of the Company's $67.4 million capital expenditure budget for fiscal 1997. See "Use of Proceeds" and "Business -- Technology and Capital Expenditures." 9 11 VERITAS DGC INC. SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION The following table sets forth summary supplemental consolidated financial information ("Selected Information") for each of the five years in the period ended July 31, 1996. Such Selected Information for the three years ended July 31, 1995 has been derived from the audited Supplemental Consolidated Financial Statements of the Company and the related notes thereto included elsewhere herein, which statements have been audited by Deloitte & Touche LLP, independent auditors ("Deloitte & Touche"), whose report is included elsewhere herein. The Selected Information for the year ended July 31, 1992 and 1996 has been derived from the unaudited supplemental consolidated financial statements of the Company and related notes thereto. In the opinion of management, the Selected Information for the years ended July 31, 1992 and 1996 include all adjustments necessary to present fairly the results of such periods. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. As a result of the differing year ends of Digicon and VES, results of operations for dissimilar year ends have been combined. Digicon's results of operations for fiscal years ended July 31, 1992, 1993, 1994 and 1995 have been combined with VES' results of operations for fiscal years ended October 31, 1992, 1993, 1994 and 1995, respectively. Digicon's results of operations for the year ended July 31, 1996 have been combined with VES' results of operations for the twelve months ended July 31, 1996. Accordingly, VES' operating results for the period August 1, 1995 through October 31, 1995 are included in the years ended July 31, 1995 and 1996. An adjustment in an amount equal to the results of operations for the three-month period is included in the unaudited supplemental consolidated statements of changes in stockholders' equity. Revenues, net income and net income per share were $22,150,000, $936,000 and $.05, respectively, for the period August 1, 1995 through October 31, 1995.
FOR THE YEARS ENDED JULY 31, ----------------------------------------------------------------------- 1992 1996 (UNAUDITED) 1993 1994 1995 (UNAUDITED) ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues............................................... $ 116,826 $ 146,090 $ 178,392 $ 215,630 $ 250,596 Costs and expenses: Operating expenses: Cost of services..................................... 95,022 121,873 144,984 170,424 198,711 Restructuring........................................ 838 Write-off/write-down for impairment of assets.......... 5,235 3,628 Depreciation and amortization.......................... 7,836 11,741 19,119 23,732 26,921 Selling, general and administrative.................... 4,183 4,797 6,296 5,855 7,255 Interest............................................... 2,579 1,928 3,213 5,170 5,466 Merger related costs................................... 3,666 Gain on sale of investment in FSU joint ventures....... (4,370) Other.................................................. 181 (210) (1,833) 232 546 -------- -------- -------- -------- -------- Total............................................ 109,801 140,129 177,852 201,043 246,193 -------- -------- -------- -------- -------- Income loss before provision for income taxes and equity in loss (earnings) of 50% or less-owned companies and joint ventures......................... 7,025 5,961 540 14,587 4,403 Provision for income taxes............................. 1,229 3,183 5,929 3,807 2,009 Equity in (earnings) loss of 50% or less-owned companies and joint ventures......................... 1,521 2,204 4,965 5,186 1,113 -------- -------- -------- -------- -------- Net income............................................. $ 4,275 $ 574 $ (10,354) $ 5,594 $ 1,281 ======== ======== ======== ======== ======== OTHER DATA: EBITDA(1).............................................. $ 17,440 $ 19,630 $ 28,945 $ 39,119 $ 44,084 Pro forma interest expense(2).......................... -- -- -- -- $ 8,081 Capital expenditures................................... $ 18,157 $ 42,148 $ 29,773 $ 33,633 $ 32,860 Investments in multi-client surveys.................... $ 6,578 $ 9,203 $ 18,500 $ 27,976 $ 25,628 EBITDA/Pro forma interest expense...................... -- -- -- -- 5.46x Consolidated Fixed Charge Coverage Ratio(3)............ -- -- -- -- 3.95x Pro forma debt/EBITDA(2)............................... -- -- -- -- 1.70x Ratio of earnings to fixed charges(4)(5)............... 1.58x 1.44x 0.59x 1.65x 1.22x
AS OF JULY 31, ----------------------------------------------------------------------- 1992 1993 1994 1995 1996 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash................................................... $ 8,567 $ 5,321 $ 15,545 $ 10,082 $ 10,072 Working capital........................................ 16,362 9,704 16,794 14,830 22,479 Property and equipment -- net.......................... 30,509 60,889 68,423 75,379 79,010 Total assets........................................... 93,378 141,464 171,814 184,340 198,592 Long-term debt (including current maturities).......... 17,933 30,890 31,104 36,788 41,090 Stockholders' equity................................... 46,748 69,380 94,517 98,000 105,923 OPERATING DATA: Land crews in operation................................ 8 12 16 15 14 Land crews system channels............................. 6,248 12,740 14,526 17,200 18,308 Marine vessels in operation............................ 9 7 5 6 7 Marine vessels system channels......................... 2,400 2,160 1,680 1,920 3,840 Data processing centers in operation................... 13 15 17 17 16
- --------------- (1) EBITDA represents income before provision for income taxes and equity in (earnings) loss of 50% or less-owned companies and joint ventures plus restructuring costs plus write-down/write-off for impairment of assets plus depreciation and amortization plus interest expense plus merger related costs less gain on sale of investment in FSU joint ventures. EBITDA is presented not as an alternative measure of operating results or cash flow for operations (as determined in accordance with generally accepted accounting principles), but rather to provide additional information related to the debt servicing ability of the Company. (2) After giving effect to the issuance of the Senior Notes and the application of proceeds therefrom. (3) As defined in "Description of Senior Notes -- Certain Definitions -- Consolidated Fixed Charge Coverage Ratio." (4) For the year ended July 31, 1994, earnings were insufficient to cover fixed charges by $4.4 million. (5) The effect of the refinancing impacts the ratio of earnings to fixed charges by less than 10%. Therefore the pro forma ratio is not presented. 10 12 RISK FACTORS Prospective investors should carefully consider the following factors, as well as the other information contained in this Prospectus. RANKING OF THE SENIOR NOTES; SECURITY Although the Senior Notes will be senior unsecured obligations of the Company ranking pari passu with all other existing and future senior debt of the Company, the indebtedness of the Company under the Credit Agreement dated as of July 18, 1996 among the Company and Digicon Geophysical Corp., Veritas DGC Land Inc. (formerly Digicon/GFS Inc.), Digicon Geophysical Limited, and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association (the "Credit Facility"), is secured by certain assets of the Company. Accordingly, the Senior Notes will be effectively subordinated to the extent of such security interests. After the application of the proceeds from this Offering, all indebtedness outstanding under the Credit Facility will be repaid, but future borrowings under the Credit Facility (or under other secured lending arrangements) will be permitted, subject to the applicable terms, conditions and limitations thereof and to the Indenture. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Senior Notes." DEPENDENCE ON SUBSIDIARIES; HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION The Company is principally a holding company whose assets consist primarily of stock in its subsidiaries. Consequently, the Company's ability to repay its indebtedness, including the Senior Notes, depends on the earnings of its subsidiaries and on its ability to receive funds from such subsidiaries through dividends, repayment of intercompany notes or other payments. In addition, the ability of the Company's subsidiaries to pay dividends, repay intercompany notes or make other advances to the Company is subject to restrictions imposed by corporate law and certain United States, state and foreign tax considerations. Several of the Company's subsidiaries are incorporated outside the United States. Because the Company is a holding company and the Senior Notes are not guaranteed by any of its subsidiaries, the Senior Notes are effectively subordinated to all existing and future liabilities of the Company's subsidiaries, including both senior and subordinated Indebtedness of these subsidiaries, and regardless of whether such liabilities are secured or unsecured. Without limiting the generality of the foregoing, the Senior Notes will be effectively subordinated to the trade creditors of the Company's subsidiaries. Immediately after the Offering, the subsidiaries will have no material Indebtedness. Certain of the subsidiaries are co-borrowers under the Credit Facility. The Indenture will not restrict the incurrence of Indebtedness by any Unrestricted Subsidiary. The Indenture will prohibit the Restricted Subsidiaries from incurring Indebtedness except for (i) one or more working capital credit facilities in an aggregate principal amount at any time outstanding up to the Maximum Bank Credit Amount (initially $20 million), (ii) Indebtedness to the Company; or (iii) Indebtedness in an aggregate principal amount at any time outstanding up to the excess, if any, of (A) 10% of the Company's Consolidated Net Tangible Assets over (B) $20 million; provided, however, that the Indebtedness described in clause (iii) may be incurred only if, on a pro forma basis after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio for the four full quarters immediately preceding such event, taken as one period, would have been equal to or greater than 2.5 to 1.0. See "Description of Senior Notes -- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital Stock." LEVERAGE AND LIQUIDITY At July 31, 1996, after giving effect to the issuance of the Senior Notes offered hereby and the application of the net proceeds therefrom, the Company would have had total consolidated debt of approximately $75 million and a ratio of total consolidated debt to total capitalization of approximately 11 13 41.4%. The degree to which the Company will be leveraged could have important consequences to holders of the Senior Notes, including the following: (i) the Company's ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness; and (iii) a high degree of leverage may make the Company more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. Based on current operations, the Company expects that it will be able to service the interest and principal obligations on its indebtedness as well as its working capital needs and to fund its capital expenditures and other operating expenses out of cash flow from operations and available borrowings under the Credit Facility. However, there can be no assurance that the Company's business will continue to generate cash flows at levels sufficient to meet these requirements. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and capital expenditures, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt (including the Senior Notes) or obtain additional financing. There can be no assurance that any such asset sales or refinancing would be possible or that any additional financing could be obtainable. The Company's ability to meet its debt service obligations will be dependent upon its future performance which, in turn, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. ENERGY INDUSTRY SPENDING Demand for the Company's seismic services depends upon the level of capital expenditures by oil and gas companies for exploration, production, development and field management activities. These activities depend in part on oil and gas prices, expectations about future prices, the cost of exploring for, producing and delivering oil and gas, the sale and expiration dates of leases in the United States, Canada and abroad, local and international political, regulatory and economic conditions and the ability of oil and gas companies to obtain capital. In addition, a decrease in oil and gas expenditures could result from such factors as unfavorable tax and other legislation or uncertainty concerning national energy policies. No assurance can be given that current levels of oil and gas activities will be maintained or that demand for the Company's services will reflect the level of such activities. Decreases in oil and gas activity could have a significant adverse effect upon the demand for the Company's services and the Company's results of operations. COMPETITION FOR SEISMIC BUSINESS Competition among seismic contractors historically has been intense. Competitive factors include price, crew experience, equipment availability, technological expertise and reputation for quality and dependability. Certain of the Company's major competitors operate more data acquisition crews than the Company, have substantially greater revenues than the Company and are subsidiaries or divisions of major industrial enterprises having far greater financial and other resources than the Company. There can be no assurance that the Company will be able to compete successfully against its competitors for contracts to conduct seismic surveys and process data. See "Business -- Competition and Other Business Conditions." HAZARDOUS OPERATING CONDITIONS The Company's data acquisition activities involve operating under extreme weather and other hazardous conditions. Accordingly, these operations are subject to risks of loss to property and injury to personnel from such causes as fires, adverse weather and accidental explosions. The Company carries insurance against the destruction of, damage to or loss of its geophysical equipment in amounts that it considers adequate. The Company may not, however, be able to obtain insurance against certain risks or for certain equipment located from time to time in certain areas of the world. 12 14 INVESTMENT IN MULTI-CLIENT DATA SURVEYS The Company has invested significant amounts in acquiring and processing multi-client data that is owned by the Company (book carrying value of $25.6 million at July 31, 1996), and it expects to continue doing so for the foreseeable future. Though the Company normally obtains prefunding commitments for a majority of the cost of such surveys, future data licensing to multiple customers may not fully recoup the associated costs of acquisition and processing and will be affected by a variety of factors. These include possible technological, regulatory or other industry or general economic developments, any of which could render all or portions of the Company's library of multi-client data obsolete or otherwise impair its value. In addition, the timing of multi-client data licensing is typically less dependable from period to period than are revenues from surveys performed on an exclusive contract basis for single customers. HIGH FIXED COSTS; CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE Because of the high fixed costs involved in the major components of the Company's business, downtime or low productivity due to reduced demand, weather interruptions, equipment failures or other causes can result in significant operating losses. In recent years, the Company's contracts for data acquisition have been predominately on a turnkey or on a combination of turnkey/time basis. Under the turnkey method, payments for data acquisition services are based upon the amount of data collected, and the Company bears substantially all of the risk of business interruption caused by inclement weather and other hazards. When a combination of both turnkey and time methods is used, the risk of business interruptions is shared in an agreed percentage by the Company and the customer. Seismic data acquisition and processing is a capital intensive business. The development of seismic data acquisition and processing equipment has been characterized by rapid technological advancements in recent years and the Company expects this trend to continue. There can be no assurance that manufacturers of seismic equipment will not develop new systems that have competitive advantages over systems now in use that either render the Company's current equipment obsolete or require the Company to make significant capital expenditures to maintain its competitive position. The Company intends to upgrade its data acquisition and processing equipment as often as necessary to maintain its competitive position. However, to do so may require large expenditures of capital in addition to the Company's planned capital expenditures. There can be no assurance that the Company will have the necessary capital or that financing will be available on favorable terms. If the Company is unable to raise the capital necessary for its capital expenditure program and to upgrade its data acquisition and processing equipment to the extent necessary, it may be materially and adversely affected. RISKS INHERENT IN INTERNATIONAL OPERATIONS In fiscal 1995 and 1996, 61% and 62%, respectively, of the Company's revenues were derived from international operations and export sales, which are subject in varying degrees to risks inherent in doing business abroad. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations. For example, the Company has approximately 6,500 line miles of offshore Peru seismic data (book value of approximately $1.4 million at July 31, 1996) which will become saleable only upon receipt of previously expected governmental licenses which have been delayed for more than a year and has a $2.6 million claim for income taxes withheld by its client, a foreign national oil company (no book carrying value), which will become collectible only upon approval by the host country's taxation authorities. In addition, foreign operations include risks of partial or total expropriation; currency exchange rate fluctuations and restrictions on currency repatriation; the disruption of operations from labor and political disturbances, insurrection or war; and the requirements of partial local ownership of operations in certain countries. To minimize such risks, the Company generally denominates its contracts in U.S. dollars and other currencies it believes to be stable. The Company also obtains insurance against war, expropriation, confiscation and nationalization when such insurance is available and when management considers it advisable to do so. Such coverage is not always 13 15 available, and when available, is subject to unilateral cancellation by the insuring companies on short notice. ENVIRONMENTAL AND OTHER REGULATIONS The Company's operations are subject to a variety of foreign, federal, state and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with such laws and related permit requirements in its operations and anticipates that it will continue to do so in the future. In recent years, an increased number of the Company's data acquisition contracts have required customers to obtain all necessary permits. Customers' failure to timely obtain the required permits may result in crew downtime and operating losses. To date, the Company's cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are changed frequently makes it impossible for the Company to predict the cost or impact of such laws and regulations on its future operations. The modification of existing laws or regulations or the adoption of new laws or regulations curtailing offshore drilling for oil and gas or imposing more stringent restrictions on seismic operations could adversely affect the Company. CHANGE OF CONTROL Upon a Change of Control (as defined herein), the Company will be required to offer to repurchase all of the outstanding Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. There can be no assurance that the Company will have sufficient funds available or will be permitted by its other debt agreements to repurchase the Senior Notes upon the occurrence of a Change of Control. In addition, a Change of Control may require the Company to offer to repurchase other outstanding indebtedness and may cause a default under the Credit Facility. The inability to repurchase all of the tendered Senior Notes would constitute an Event of Default (as defined herein) under the Indenture. See "Description of the Senior Notes -- Certain Covenants -- Change of Control." LACK OF PUBLIC MARKET FOR THE SENIOR NOTES The Senior Notes will constitute a new issue of securities with no established trading market. The Company does not intend to list the Senior Notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market System. The Company has been advised by the Underwriters that the Underwriters presently intend to make a market in the Senior Notes following completion of the Offering. However, the Underwriters are not obligated to do so and any market-making activities with respect to the Senior Notes may be discontinued at any time without notice. Accordingly, no assurance can be given that an active market will develop for the Senior Notes or as to the liquidity of or the trading market for the Senior Notes. If a trading market does not develop or is not maintained, holders of the Senior Notes may experience difficulty in reselling the Senior Notes or may be unable to sell them at all. If a market for the Senior Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Senior Notes, future trading prices of the Senior Notes (which could be at a discount to the principal amount thereof) will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and financial condition and the market for similar securities. 14 16 THE COMPANY The Company is a leading provider of seismic data acquisition, data processing, multi-client data surveys, and exploration and development information services to the oil and gas industry in selected markets worldwide. The Company was incorporated in Texas in 1965 and was reincorporated in Delaware in 1969. The Company's principal offices are located at 3701 Kirby Drive, Houston, Texas 77098, and its telephone number is (713) 526-5611. USE OF PROCEEDS The net proceeds from the sale of the Senior Notes offered hereby are estimated to be $72.2 million. Of this amount, approximately $41.1 million will be used to retire outstanding indebtedness having a weighted average interest cost of 9.42% (including borrowings under the Credit Facility). A description of the interest rates, maturities and other material terms of such indebtedness is incorporated by reference to Note 9 of Notes to the Supplemental Consolidated Financial Statements appearing elsewhere in this Prospectus. The remaining $31.1 million will be used to fund a portion of the Company's $67.4 million capital expenditure budget for fiscal 1997. It is anticipated that the balance of the fiscal 1997 capital expenditure budget will be financed from internally generated funds, and, if necessary, from the Credit Facility or other borrowings permitted by the Indenture. See "Prospectus Summary -- Company Overview," "Business -- Technology and Capital Expenditures" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Of the $41.1 million of indebtedness to be retired with a portion of the proceeds of the Offering, $14.1 million was incurred during the past 12 months to finance capital expenditures. Subject to the terms of the Credit Facility and the borrowing limits imposed by the Indenture, the Company may make new borrowings under the Credit Facility from time to time, including capital expenditure projects and acquisition opportunities in areas related to the Company's existing lines of business. The Company currently has no plans, agreements or commitments with respect to any acquisition project. 15 17 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of July 31, 1996, and as adjusted to reflect the sale of the Senior Notes offered by the Company hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds."
(UNAUDITED) AS OF JULY 31, 1996 ------------------------ AS ACTUAL ADJUSTED --------- --------- (DOLLARS IN THOUSANDS) Long-term debt including current maturities(1): Revolving credit agreement due July 1998 at prime plus 1/4% (8.50% at July 31, 1996)....................................... $ 11,458 Secured term loans due July 1999 at interest rates ranging from prime plus 1/2% to prime plus 3/4% (weighted average rate 8.59% at July 31, 1996)........................................ 10,072 Equipment purchase obligations maturing through July 1999 at an average rate of 10.28% at July 31, 1996)....................... 19,319 Mortgage note payable due October 2005 at 10.00%.................. 241 Senior Notes...................................................... $ 75,000 -------- -------- Total long-term debt including current maturities......... 41,090 75,000 Stockholders' equity................................................ 105,923 105,923 -------- -------- Total capitalization................................................ $ 147,013 $ 180,923 ======== ========
- --------------- (1) For a further description of the terms of the Company's long-term debt, see Note 9 of Notes to the Supplemental Consolidated Financial Statements. 16 18 VERITAS DGC INC. SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA The following table sets forth selected supplemental consolidated financial data ("Selected Information") for each of the five years in the period ended July 31, 1996. Such Selected Information for the three years ended July 31, 1995 has been derived from the audited Supplemental Consolidated Financial Statements of the Company and the related notes thereto included elsewhere herein, which statements have been audited by Deloitte & Touche LLP, independent auditors ("Deloitte & Touche"), whose report is included elsewhere herein. The Selected Information for the year ended July 31, 1992 and 1996 has been derived from the unaudited supplemental consolidated financial statements of the Company and related notes thereto. In the opinion of management, the Selected Information for the years ended July 31, 1992 and 1996 include all adjustments necessary to present fairly the results of such periods. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. As a result of the differing year ends of Digicon and VES, results of operations for dissimilar year ends have been combined. Digicon's results of operations for fiscal years ended July 31, 1992, 1993, 1994 and 1995 have been combined with VES' results of operations for fiscal years ended October 31, 1992, 1993, 1994 and 1995, respectively. Digicon's results of operations for the year ended July 31, 1996 have been combined with VES' results of operations for the twelve months ended July 31, 1996. Accordingly, VES' operating results for the period August 1, 1995 through October 31, 1995 are included in the years ended July 31, 1995 and 1996. An adjustment in an amount equal to the results of operations for the three-month period is included in the unaudited supplemental consolidated statements of changes in stockholders' equity. Revenues, net income and net income per share were $22,150,000, $936,000 and $.05, respectively, for the period August 1, 1995 through October 31, 1995.
FOR THE YEARS ENDED JULY 31, ----------------------------------------------------------------------- 1992 1996 (UNAUDITED) 1993 1994 1995 (UNAUDITED) ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues............................................... $ 116,826 $ 146,090 $ 178,392 $ 215,630 $ 250,596 Costs and expenses: Operating expenses: Cost of services..................................... 95,022 121,873 144,984 170,424 198,711 Restructuring........................................ 838 Write-off/write-down for impairment of assets.......... 5,235 3,628 Depreciation and amortization.......................... 7,836 11,741 19,119 23,732 26,921 Selling, general and administrative.................... 4,183 4,797 6,296 5,855 7,255 Interest............................................... 2,579 1,928 3,213 5,170 5,466 Merger related costs................................... 3,666 Gain on sale of investment in FSU joint ventures....... (4,370) Other.................................................. 181 (210) (1,833) 232 546 -------- -------- -------- -------- -------- Total............................................ 109,801 140,129 177,852 201,043 246,193 -------- -------- -------- -------- -------- Income loss before provision for income taxes and equity in loss (earnings) of 50% or less-owned companies and joint ventures......................... 7,025 5,961 540 14,587 4,403 Provision for income taxes............................. 1,229 3,183 5,929 3,807 2,009 Equity in (earnings) loss of 50% or less-owned companies and joint ventures......................... 1,521 2,204 4,965 5,186 1,113 -------- -------- -------- -------- -------- Net income............................................. $ 4,275 $ 574 $ (10,354) $ 5,594 $ 1,281 ======== ======== ======== ======== ======== Net income (loss) per share............................ .46 .05 (.66) .31 .07 Weighted average shares................................ 11,874 15,633 17,771 17,882 OTHER DATA: EBITDA(1).............................................. $ 17,440 $ 19,630 $ 28,945 $ 39,119 $ 44,084 Pro forma interest expense(2).......................... -- -- -- -- $ 8,081 Capital expenditures................................... $ 18,157 $ 42,148 $ 29,773 $ 33,633 $ 32,860 Investments in multi-client surveys.................... $ 6,578 $ 9,203 $ 18,500 $ 27,976 $ 25,628 EBITDA/Pro forma interest expense...................... -- -- -- -- 5.46x Consolidated Fixed Charge Coverage Ratio(3)............ -- -- -- -- 3.95x Pro forma debt/EBITDA(3)............................... 1.70x Ratio of earnings to fixed charges(4)(5)............... 1.58x 1.44x 0.59x 1.65x 1.22x
AS OF JULY 31, ----------------------------------------------------------------------- 1992 1993 1994 1995 1996 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash................................................... $ 8,567 $ 5,321 $ 15,545 $ 10,082 $ 10,072 Working capital........................................ 16,362 9,704 16,794 14,830 22,479 Property and equipment -- net.......................... 30,509 60,889 68,423 75,379 79,010 Total assets........................................... 93,378 141,464 171,814 184,340 198,592 Long-term debt (including current maturities).......... 17,933 30,890 31,104 36,788 41,090 Stockholders' equity................................... 46,748 69,380 94,517 98,000 105,923 OPERATING DATA: Land crews in operation................................ 8 12 16 15 14 Land crews system channels............................. 6,248 12,740 14,526 17,200 18,308 Marine vessels in operation............................ 9 7 5 6 7 Marine vessels system channels......................... 2,400 2,160 1,680 1,920 3,840 Data processing centers in operation................... 13 15 17 17 16
- --------------- (1) EBITDA represents income before provision for income taxes and equity in (earnings) loss of 50% or less-owned companies and joint ventures plus restructuring costs plus write-down/write-off for impairment of assets plus depreciation and amortization plus interest expense plus merger related costs less gain on sale of investment in FSU joint ventures. EBITDA is presented not as an alternative measure of operating results or cash flow for operations (as determined in accordance with generally accepted accounting principles), but rather to provide additional information related to the debt servicing ability of the Company. (2) After giving effect to the issuance of the Senior Notes and the application of proceeds therefrom. (3) As defined in "Description of Senior Notes -- Certain Definitions -- Consolidated Fixed Charge Coverage Ratio." (4) For the year ended July 31, 1994, earnings were insufficient to cover fixed charges by $4.4 million. (5) The effect of the refinancing impacts the ratio of earnings to fixed charges by less than 10%. Therefore the pro forma ratio is not presented. 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Supplemental Consolidated Financial Statements and Notes thereto and Selected Consolidated Financial Data included elsewhere herein. RESULTS OF OPERATIONS Fiscal 1996 Compared with Fiscal 1995 Revenues. For the year ended July 31, 1996, total revenues increased 16% from $215.6 million to $250.6 million. Land revenues increased 9% from $108.1 million to $117.7 million primarily from increased capacity in Canada and expansion in the United States and Argentina. Marine revenues increased 66% from $32.8 million to $54.4 million, primarily resulting from the reassignment of two vessels to contract work and higher funding levels on multi-client data surveys. This increase was partially offset by lower prices in the Far East. Data processing revenue increased 1% from $50.3 million to $50.9 million. Improved results at the Holland, Singapore and Australia centers were offset by the closing of the Company's Oklahoma City and Colombia centers and its dedicated center in Malaysia, and by reduced European data processing prices. Multi-client data survey revenues increased 16% from $19.8 million to $23.0 million, resulting from an expansion of the Company's data library in response to an increase in demand by oil and gas companies for multi-client data surveys. Information services revenues increased 5% from $4.4 million to $4.6 million. Operating Expenses. Cost of services for the period increased 17% from $170.4 million to $198.7 million, and, as a percentage of total revenues, costs of services remained constant at approximately 79%. Write-off/Write-down for Impairment of Assets. Write-off/write-down for impairment of assets of $3.6 million relates to mainframe data processing equipment used in the Company's seismic data processing operations that will be replaced by more powerful and flexible workstation-based systems by the first quarter of fiscal 1997. Depreciation and Amortization. Depreciation and amortization expense increased 14% from $23.7 million to $26.9 million, due to equipment purchases to upgrade and expand the Company's operations. Selling, General and Administrative. Selling, general and administrative expenses increased 24% from $5.9 million to $7.3 million, resulting primarily from additional costs incurred in implementing a new administrative data processing system and from the addition of staff to support the Company's increasing operations. Interest. Interest expense increased 6% from $5.2 million to $5.5 million, resulting primarily from prepayment penalties incurred to pay off a $17.0 million revolving credit agreement. Merger Related Costs. Merger related costs of $3.7 million consist primarily of investment banking and professional fees and expenses incurred in connection with the Combination. Income Taxes. Provision for income taxes decreased from $3.8 million to $2.0 million. An $876,000 tax benefit was recognized as a result of taxable losses in Argentina generated by deductions allowed for social security taxes and employee compensation. Equity in Loss. Current year equity in loss is attributable to the Indonesian joint venture. In addition, fiscal 1996 includes a recovery of bad debt of approximately $120,000. The prior year included loss on abandonment of seismic data processing operations of $1.0 million. Furthermore, the Company recorded $1.5 million in equity losses related to the 1995 sale of joint ventures in the FSU. 18 20 Fiscal 1995 Compared with Fiscal 1994 Revenues. For the fiscal year ended July 31, 1995, total revenues increased 21% from $178.4 million to $215.6 million. Land revenues increased 30% from $83.2 million to $108.1 million, resulting from increased capacity to satisfy customer demand in Canada and Argentina. This increase was partially offset by reduced United States and Far East revenues. Land acquisition revenues in the Far East declined as a result of the decommissioning of an Australian crew. Marine revenues decreased 10% from $36.5 million to $32.8 million, resulting from the derigging of two seismic vessels, lower production from three vessels due to offshore obstructions and bad weather, and the redeployment of one vessel from contract work to multi-client data surveys. However, improved market conditions for 2D surveys continued in the Far East where marine revenues increased $6.6 million during the current year. Data processing revenues increased 21% from $41.6 million to $50.3 million resulting from increased capacity and increased demand at existing centers and the successful opening of two additional remote site processing centers in Texas and Venezuela during the year. Multi-client data survey revenues increased 71% from $11.6 million to $19.8 million, resulting from an expansion of the Company's data library in response to increased demand by oil and gas companies for multi-client data surveys. Operating Expenses. Cost of services increased 18% from $145.0 million to $170.4 million, primarily resulting from increased operating levels. Cost of services as a percentage of sales declined from 81% to 79% due to savings from the restructuring program implemented during fiscal 1994 and the higher profitability associated with multi-client data surveys. These improvements in margins were partially offset by decreases in Canadian margins caused by a very weak market in the summer months, and by inclement weather and operational challenges experienced in the United States market by the land seismic acquisition division. Furthermore, gross margin in the information services division was reduced due to substantial software development costs which are expensed as incurred. In fiscal 1994, restructuring charges of $838,000 were recognized, primarily relating to severance costs associated with a reduction in the Company's work force. Depreciation and Amortization. Depreciation and amortization expense increased 24% from $19.1 million to $23.7 million due to substantial asset purchases during the current year. Fiscal 1995 also includes decreases in charges resulting from the prior year's restructuring program of $2.2 million. Selling, General and Administrative. Selling, general and administrative expenses decreased 6% from $6.3 million to $5.9 million, primarily resulting from the accrual in the prior year for benefits payable over five years under an employment contract with a former executive. Interest. Interest expense increased 63% from $3.2 million to $5.2 million as a result of increased borrowings on working capital facilities and equipment financing, as well as higher borrowing costs. FSU Joint Ventures. In April 1994, the Company acquired interests in joint ventures that operate in the FSU. In acquiring these interests, the Company exchanged common stock and cash commitments valued in excess of the fair market value of the net assets received. The excess value was to be amortized over a 20 year period, and the Company recorded $392,000 of amortization expense during fiscal 1995. The joint ventures were in the start-up phase and the Company recorded $1.5 million of equity losses during fiscal 1995. In June 1995, the Company disposed of its FSU interests and recorded a $4.4 million gain on sale. See Note 4 of Notes to the Supplemental Consolidated Financial Statements. Other. Other (income) expenses decreased from income of $1.8 million to an expense of $232,000. In fiscal 1995, net losses were recorded on the disposition of property and equipment, partially offset by a gain on the sale of a vessel. Income recorded in the prior year resulted primarily from a gain on the sale of a vessel. Income Taxes. Provision for income taxes decreased from $5.9 million to $3.8 million in 1995 due to the decrease in taxable income in Canada and the United States. 19 21 Equity in Loss. Equity in loss increased 4% from $5.0 million to $5.2 million primarily due to losses from the FSU joint ventures as discussed previously. Losses in the Indonesian joint venture remained constant as a result of restructuring charges of $1.4 million recognized in 1994 compared to losses on abandonment of $1.0 million recognized in 1995. Fiscal 1994 Compared with Fiscal 1993 Revenues. During the year ended July 31, 1994, total revenue increased 22% from $146.1 million to $178.4 million. Land revenue increased 83% from $45.5 million to $83.2 million resulting from the addition of three land crews and other seismic acquisition equipment during 1994. Marine revenue decreased 27% from $49.9 million to $36.5 million, primarily resulting from the Company derigging four of its vessels during fiscal 1993 and 1994. Higher land activity levels in Canada and the opening of three additional remote site processing centers in Texas, Argentina, and Venezuela were offset by lower prices for data processing caused by excess capacity in the industry. Multi-client data survey revenues increased 231% from $3.5 million to $11.6 million in response to increased demand by oil and gas companies for such surveys. Information services revenue increased 25% from $3.6 million to $4.5 million. Operating Expenses. Cost of services increased 19% from $121.9 million to $145.0 million, primarily resulting from increased operating levels. Cost of services as a percentage of sales decreased from 83% to 81% primarily due to operating efficiencies. In fiscal 1994, the Company incurred restructuring charges of $838,000 as previously discussed. Write-off/Write-down for Impairment of Assets. In fiscal 1994, the Company recorded $5.2 million in expenses associated with the write-off/write-down of certain assets including $2.4 million of marine and $552,000 of land acquisition assets related to decommissioned marine vessels and stacked land crews. The write-off/write-down also included the write-down of other marine and land acquisition assets of $1.0 million. In addition, due to decreased activity in the Far East, the Company wrote down data processing equipment by $1.2 million. Depreciation and Amortization. Depreciation and amortization expense increased 63% from $11.7 million to $19.1 million. During fiscal 1993 and 1994, the Company spent approximately $72.0 million for upgrades to marine vessels, equipment for new land crews and new processing equipment to enhance its market position. As a result, depreciation expense for fiscal 1994 increased $7.4 million, net of approximately $500,000 in depreciation savings recognized as a result of the write-off/write-down for impairment of assets. Selling, General and Administrative. Selling, general and administrative expenses increased 31% from $4.8 million to $6.3 million, as a result of increased activity, expanded international operations, enhancements to communication and management information systems infrastructures, and the expensing of severance benefits. Interest. Interest expense increased 68% from $1.9 million to $3.2 million. To provide additional working capital during fiscal 1994, the Company obtained a new revolving credit facility providing advances up to $15.0 million, borrowed $6.1 million in short-term related party debt (of which $3.4 million was outstanding for a majority of fiscal 1994) and financed approximately $4.2 million of equipment purchases. Other. Other income increased from $210,000 to $1.8 million, resulting from improved United States to foreign currency exchange rates and gain on the sale of a vessel. Income Taxes. Provision for income taxes increased from $3.2 million to $5.9 million. Of the total provision of $5.9 million in 1994, $3.2 million was classified as deferred tax relating primarily to the corporate structure of the Canadian operations which were conducted through a partnership. Income generated from the partnership was deferred for tax purposes by approximately 11 months. 20 22 Equity in Loss. Equity in loss increased $2.8 million primarily due to expenses incurred by the Indonesian joint venture relating to a restructuring program initiated in April 1994 in response to continuing operating losses and poor liquidity to the joint venture. In connection with the restructuring, the Company incurred $1.3 million in total expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's internal sources of liquidity are cash balances ($10.1 million at July 31, 1996) and cash flow from operations ($20.8 million for the year ended July 31, 1996). External sources include the unutilized portion of the revolving credit facility described below, equipment financing and trade credit. The Company maintains a $15.0 million revolving credit facility (the "Credit Facility") with a commercial bank (the "Bank") which, as of the date of this Prospectus, provides for borrowings of up to 80% of the majority of the Company's domestic and foreign receivables (excluding the receivables of VES) at an interest rate of 1/4% over the prime rate, secured by most of the Company's worldwide assets excluding the assets of VES. In connection with the Credit Facility, the Company is limited, without the consent of the lender, in taking certain actions, including creating indebtedness, declaring and paying dividends and is required, among other provisions, to maintain certain financial ratios. The facility matures on July 11, 1998. The Company intends to amend the Credit Facility so that it will be secured only by a majority of the Company's domestic and foreign receivables (including VES receivables). The Bank has informally agreed to such amendment, the terms of which have not yet been finalized. For information with respect to certain limitations of the Company's and its subsidiaries' ability to incur indebtedness, see "Description of Senior Notes -- Certain Covenants -- Limitation of Indebtedness and Disqualified Capital Stock." The Company expects that approximately $41.1 million of the net proceeds from the Offering will be used to retire outstanding indebtedness (including borrowings under the Credit Facility). The remaining net proceeds will be used to fund a portion of the Company's $67.4 million capital expenditure budget for fiscal 1997. It is anticipated that the balance of the 1997 capital expenditure budget will be financed from internally generated funds, and, if necessary, from the Credit Facility or other borrowings permitted by the Indenture. See "Business -- Technology and Capital Expenditures." The Company requires significant amounts of working capital to support its operations and to fund its capital spending and research and development programs. The Company's foreign operations which accounted for 61% of fiscal 1995 revenues and 62% of revenues for the year ended July 31, 1996, require greater amounts of working capital than similar domestic activities, as the average collection period of foreign receivables is generally longer than for comparable domestic accounts. In addition, the Company has increased its participation in multi-client data surveys and has significantly expanded its library of multi-client data. Because of the lead time between survey execution and sale, non-exclusive surveys generally require greater amounts of working capital than contract work. During the first half of the past two fiscal years, this circumstance was exacerbated as, for budgeting purposes, several clients deferred payments on data library purchases until January 1995 and 1996, respectively, at which time substantially all of such receivables were collected. Depending on the timing of future sales of the data and the collection of the proceeds from such sales, the Company's liquidity will continue to be affected; however, management believes that these multi-client surveys have long-term sales, earnings and cash flow potential. The utilization of net operating loss carryforwards ("NOLs") with respect to the Company is subject to certain limitations. Additionally, when such NOLs are utilized, the benefit will be recognized as an addition to paid-in capital and will not be reflected in the consolidated statements of operations. The Company will require substantial cash flow to continue operations on a satisfactory basis, complete its capital expenditure program, and meet its principal and interest obligations with respect to the Senior Notes. The Company anticipates that the net proceeds from the Offering, cash flow 21 23 generated from operations and borrowings under the Credit Facility, will provide sufficient liquidity to fund its cash operating expenses, capital expenditures and general and administrative expenses and meet its debt service obligations until the Senior Notes become due. However, the Company's ability to meet its debt service and other obligations depends on its future performance, which, in turn, is subject to general economic conditions and to financial performance, business and other factors, including factors beyond the Company's control. If the Company is unable to generate sufficient cash flow from operations or otherwise to comply with the terms of the Credit Facility or the Indenture, it may be required to refinance all or a portion of its existing debt or obtain additional financing, although there can be no assurance that the Company will be able to obtain such refinancing or additional financing. 22 24 BUSINESS GENERAL The Company is a leading provider of seismic data acquisition, data processing, multi-client data surveys, and information services to the oil and gas industry in selected markets worldwide. Oil and gas companies utilize seismic data for the determination of suitable locations for drilling exploratory wells and, increasingly, in reservoir management for the development and production of oil and gas reserves. The Company acquires seismic data on land and in transition zone and marine environments, processes data acquired by its own crews and crews of other operators and provides comprehensive data management, mapping services and products. The Company acquires seismic data both on an exclusive contractual basis for its customers and on its own behalf for licensing to multiple customers on a non-exclusive basis. To increase its presence in the rapidly expanding market for onshore geophysical services, the Company recently effected the Combination with VES, a leading seismic contractor with ten land seismic crews, nine workstation-based land seismic data processing centers and 800 operating personnel. Pursuant to the Combination, the Company acquired all of the voting securities of VES in exchange for the issuance to VES' shareholders of the economic equivalent of approximately 7.0 million shares of the Company's Common Stock. Prior to the Combination, the Company initiated a comprehensive program designed to refocus each of the Company's geographic and operational lines of business. The Company's actions included: (i) selling its marine and land seismic equipment manufacturing operations; (ii) selling its joint venture interest in the FSU; (iii) deploying its land and transition zone crews and its marine crews into markets where the Company's presence would be significant; (iv) expanding its accumulation and licensing of multi-client data surveys to exploit the historically higher margins associated with non-exclusive data sales; (v) emphasizing research and development on its proprietary software in order to capitalize on its reputation for seismic data processing innovation; and (vi) streamlining its cost structure through personnel reductions, office consolidations, vessel deactivations and the outsourcing of certain development and manufacturing functions. In the current fiscal year, the Company has embarked upon a $67.4 million capital expenditure program designed to increase its efficiency and improve the competitive position of its principal products and services and to enable the Company to capitalize on high growth/high margin opportunities in selected markets. In its land and transition zone activities, the Company expects to spend approximately $14.3 million to upgrade and standardize the equipment utilized by its crews to improve operating efficiency and to provide the capability to expand its activities in transition zone environments in the United States and abroad. In its marine activities, the Company expects to spend approximately $40.0 million to upgrade and add to its multi-streamer vessel capability. This increased capability is expected to improve operations and to provide increased multi-client survey opportunities, particularly in the deeper water sectors of the Gulf of Mexico and the North Sea where demand is expected to grow significantly. The Company also expects to spend approximately $11.0 million to upgrade its data processing equipment and to expand overall data processing capacity to further enhance its capabilities for sophisticated processing of acquired seismic data. INDUSTRY OVERVIEW Geophysical services enable oil and gas companies to determine whether subsurface conditions are likely to be favorable for finding new oil and gas accumulations and assist oil and gas companies in determining the size and structure of previously identified oil and gas fields. These services consist of the acquisition and processing of 3D and 2D seismic and other geophysical data, which is used to produce computer-generated graphic cross-sections and maps of the subsurface strata. The resulting 23 25 cross-sections and maps are then analyzed and interpreted by geophysicists and are used by oil and gas companies in the acquisition of new leases, the selection of drilling locations on exploratory prospects and in reservoir development and management. Geophysical data is acquired by land, transition zone and marine crews. In data acquisition, a source of acoustical energy is employed at or below the earth's surface and an acoustical wave is produced through the discharge of compressed air, the detonation of small explosive charges, or other energy generating techniques. As the acoustical wave travels through the earth, portions are reflected by variations in the underlying rock layers, and the reflected energy is captured by geophones situated at intervals along specified paths from the point of acoustical impulse. The resulting signals are then transmitted to a recording unit which amplifies the reflected energy wave and converts it into digital data. This data is then input into a specialized data processing system that enhances the recorded signal by reducing noise and distortion and improving resolution and arranges the input data to produce, with the aid of plotting devices, an image of the subsurface strata. By interpreting seismic data, oil and gas companies create detailed maps of prospective areas and producing oil and gas reservoirs. Three-dimensional surveys involve the acquisition of a very dense grid of seismic data over a precisely defined area. This heavy concentration of data requires extensive computer processing, involving the use of sophisticated proprietary techniques, to produce an accurate image of the subsurface. Computer analysis of the 3D survey data allows geophysicists to better examine and interpret important subsurface features. Over the last several years, worldwide demand for 3D surveys by major oil and gas companies and independent producers has increased. The greater precision and improved subsurface resolution obtainable from 3D seismic data have assisted oil and gas companies in finding new fields and more accurately delineating existing fields, as well as enhancing existing reservoir management and production monitoring techniques. Enhanced subsurface resolution obtainable from 3D studies has been a key factor in improving drilling success ratios and lowering finding and field extension costs in land, transition zone and marine environments. This improved technology, coupled with advances in drilling and completion techniques, are enhancing the industry's ability to develop oil and gas reserves, particularly in transition zone and deep water environments. SERVICES AND MARKETS The Company acquires seismic data in land, transition zone and marine environments and processes data acquired from its own crews as well as data acquired by other geophysical crews. The Company currently operates seven land and transition zone crews in the continental United States, five land crews in Canada and four land crews in South America, currently in Argentina, Ecuador and Peru. The Company's seven marine crews operate in selected markets worldwide. The Company also operates 16 seismic data processing facilities, most of which are located in major petroleum centers around the world. In fiscal 1995 and 1996, 61% and 62%, respectively, of the Company's revenues were attributable to international operations and export sales. When performing geophysical services under contract for oil and gas producers, the Company may be employed to acquire and/or process geophysical data. Under these arrangements, the Company's entire work-product belongs to the contracting party. The Company also acquires and processes geophysical data for its own account, preserving its work-product in a data library for later licensing on a non-exclusive basis. When acquiring data for its library, the Company generally obtains pre-funding commitments for a majority of the cost of such surveys from multiple clients. 24 26 The following tables set forth the Company's revenues by service group and geographical area: REVENUES BY SERVICE GROUP(1)
YEARS ENDED JULY 31, -------------------------------------------------- 1993 1994 1995 1996 --------- --------- --------- ----------- (UNAUDITED) (DOLLARS IN THOUSANDS) Land and transition zone data acquisition...... $ 45,454 $ 83,229 $ 108,133 $ 117,667 Marine data acquisition........................ 49,935 36,509 32,781 54,360 Data processing................................ 42,053 41,591 50,309 50,945 Licensing of multi-client data surveys......... 3,522 11,604 19,804 23,003 Exploration and development information services..................................... 3,617 4,533 4,378 4,621 Other.......................................... 1,509 926 225 -------- -------- -------- -------- Total................................ $ 146,090 $ 178,392 $ 215,630 $ 250,596 ======== ======== ======== ========
- --------------- (1) Revenues from data acquisition and data processing services are recorded as revenues based on contractual rates set forth in the related contract if the contract provides a separate rate for each segment. If the contract only provides a rate for the overall service, revenue is recognized based on the percentage of the work effort completed compared with the total work effort involved in the contract. REVENUES BY GEOGRAPHICAL AREA
YEARS ENDED JULY 31, -------------------------------------------------- 1993 1994 1995 1996 --------- --------- --------- ----------- (UNAUDITED) (DOLLARS IN THOUSANDS) United States(1)............................... $ 43,773 $ 67,373 $ 87,318 $ 98,876 Canada......................................... 32,244 46,501 44,297 47,423 Europe and Middle East......................... 24,699 29,891 20,230 37,393 Africa......................................... 13,020 Far East....................................... 27,783 16,958 25,918 30,558 South America.................................. 4,571 17,669 37,867 36,346 -------- -------- -------- -------- Total................................ $ 146,090 $ 178,392 $ 215,630 $ 250,596 ======== ======== ======== ========
- --------------- (1) Includes export sales of $10,138; $1,501; $2,228 and $4,774 in fiscal 1993, 1994, 1995 and 1996, respectively. See Note 20 of Notes to the Supplemental Consolidated Financial Statements for additional geographical information. Geophysical services are marketed from the Company's Houston and Calgary offices and from its regional administrative centers by personnel whose duties also typically include technical, supervisory or executive responsibilities. Contracts are obtained either through competitive bidding in response to invitations for bids, by direct negotiation with the prospective customer or through the initiation by the Company of surveys for its data library, which surveys are then offered for license on a non-exclusive basis. Contracts for exclusive data acquisition involve payments on either a turnkey or a time basis or on a combination of both methods. Under the turnkey method, payments for data acquisition services are based upon the amount of data collected, and the Company bears substantially all of the risk of business interruption caused by inclement weather and other hazards. When operating on a time basis, payments are based on agreed rates per unit of time, which may be expressed in periods ranging from days to months, and most of the risk of business interruption (except for interruptions caused by 25 27 failure of the Company's equipment) is borne by the customer. When a combination of both turnkey and time methods is used, the risk of business interruptions is shared in an agreed percentage by the Company and the customer. In each case, progress payments are usually required unless it is expected that the job can be accomplished in a brief period. In recent years, the Company's contracts for data acquisition have been predominantly on a turnkey or on a combination of turnkey/time basis. Substantially all exclusive data processing work is done on a turnkey basis. LAND AND TRANSITION ZONE DATA ACQUISITION The Company's land and transition zone data acquisition services are conducted by 16 seismic crews, with a combined seismic recording capacity of approximately 18,000 channels. Seven of the crews are operating in the continental United States, five in Canada and four in South American markets. The Company's land and transition zone crews are equipped to perform both 3D and 2D surveys. Each of the Company's crews consists of a surveying unit which lays out the lines to be recorded and marks the site for shot-hole placement or equipment location; an explosives or mechanical vibrating unit (a vibroseis); and a recording unit that lays out the geophones and recording instruments, directs shooting operations and records the acoustical signal reflected from subsurface strata. On the typical land seismic survey, the seismic crew is supported by several drill crews, which are furnished by third parties under short-term contracts. Drill crews operate in advance of the seismic crew and bore shallow holes for explosive charges which, when detonated by the seismic crew, produce the necessary acoustical impulse. In locations where the use of explosives is precluded due to population density, technical requirements or ecological factors, a mechanical vibrating unit or compressed air is substituted for explosives as the acoustical source. The Company owns 49 vibroseis units which provide 44,000 to 51,000 pounds of energy force. The Company uses helicopters to aid its crews in seismic data acquisition in situations where such use will reduce overall costs and/or improve productivity. In a helicopter-supported project, seismic lines are cut approximately two meters wide compared to five meters wide when trucks are used to move cables, geophones and personnel. The use of helicopters, which is often required in areas with rugged terrain and in agricultural areas, results in better access and lessened surface damage. In such a project, each seismic crew is typically supported by one or two helicopters specifically suited to seismic acquisition requirements. The Company plans to spend approximately $14.3 million during fiscal 1997 which it believes will provide efficiencies and additional capacity in its land and transition zone data acquisition operations. Of this amount, approximately $3.4 million will be used to acquire geophones and cables which will result in standardization of this equipment so that such equipment will be interchangeable among the Company's seismic crews. In addition, three of the transition zone crews have been upgraded to I/O System Two-RSR equipment at a cost of approximately $6.0 million. MARINE DATA ACQUISITION Marine data acquisition services are carried out by the Company's crews operating from vessels which have been modified or equipped to the Company's specifications and outfitted with a full complement of seismic, navigational and communications equipment. 26 28 The following table sets forth certain information concerning the geophysical vessels operated by the Company as of September 1, 1996:
YEAR ENTERED SEISMIC RECORDING VESSEL SERVICE LOCATION LENGTH BEAM CAPACITY (CHANNELS) - ------------------------------- ------- --------------- ---------- -------- ------------------- Acadian Searcher............... 1983 Australia 217 feet 44 feet 480/3D Ross Seal...................... 1987 Indonesia 176 feet 38 feet 240/3D Seacor Surf(1)................. 1991 Gulf of Mexico 135 feet 35 feet 240/3D Polar Search................... 1992 North Sea 300 feet 51 feet 1,920/3D Pearl Chouest(1)............... 1995 Gulf of Mexico 210 feet 40 feet 240/3D Cape Romano(1)................. 1996 Gulf of Mexico 155 feet 36 feet 240/3D Polar Princess................. 1996 North Sea 250 feet 46 feet 480/3D
- --------------- (1) Current vessel charter to expire in fiscal 1997. The Polar Search is chartered from a ship operator for an initial term which expires on December 31, 1999. The vessel has recently been upgraded and equipped with advanced technology including the capability to simultaneously record up to eight seismic lines utilizing any combination of up to four Syntrak 480 streamers and two energy sources, as well as the most advanced navigation and positioning equipment obtainable. The Polar Princess has been chartered from a ship operator initially on a short-term charter and will acquire primarily multi-client data. A longer-term charter is currently being negotiated on the Polar Princess. The Polar Princess is equipped with a Syntron marine digital telemetry system and one Syntron streamer, and will be upgraded to the latest technology, a multi-streamer Syntron system, in fiscal 1997. The Company's vessels (other than the Polar Search) are operated under charter arrangements expiring at various times throughout fiscal 1997. Historically, the Company has been able to extend its vessel charters on terms and at rates closely approximating the expiring terms and rates. The Company is reviewing the charters on the Seacor Surf, the Pearl Chouest, and Cape Romano, which expire in fiscal 1997. Decisions on whether to extend or renew the expiring vessel charters or enter into charters with other vessel owners are pending and will be made prior to each charter expiration date. All of the vessels operated by the Company are equipped to perform both 3D and 2D seismic surveys. During the last several years, a majority of the marine seismic data acquisition services performed by the Company involved 3D surveys. The Company frequently upgrades seismic survey equipment on its vessels to enhance performance quality and incorporate new technology. Each vessel generally has an equipment complement consisting of seismic recording instrumentation, of 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. Vessels with multiple streamers and multiple energy sources acquire more lines of data with each pass, reducing time to completion and the effective acquisition cost. At present, only one of the Company's vessels is equipped for multi-streamer operation. Accordingly, the Company is reviewing options with respect to its expiring charters and upgrading vessels or adding a new vessel at an aggregate cost of approximately $34.8 million. The Company presently expects to operate a total of three multi-streamer vessels in the Gulf of Mexico and the North Sea. These expansions and upgrades represent the primary portion of the Company's $40.0 million capital expenditure budget for marine operations in fiscal 1997. Each marine seismic crew consists of approximately 20 persons, excluding the ship's captain and ship personnel. Seismic personnel live aboard ship during their tours of duty, which are staggered to 27 29 permit continuous operations. During seismic operations, the Company's personnel direct the positioning of the vessel using sophisticated navigational equipment, deploy and retrieve the seismic streamer cable and energy-source array, and operate all other systems relating to data collection activities. The Company's personnel do not, however, have ultimate responsibility for the vessel, which is operated by the captain and personnel who are employees of the vessel owner. DATA PROCESSING The Company currently operates 16 geophysical data processing centers, including two under contract to major oil companies. Seven of the data processing centers are fully portable, with short set-up times. These centers allow the Company to meet seismic processing demand in changing international locations. At each of the centers, data received from the field, both from the Company and other geophysical crews, is processed to produce an image of the earth's subsurface using proprietary computer software and techniques developed by the Company. The Company also reprocesses older seismic data using new techniques designed to enhance the quality of the data. A majority of the Company's data processing services are performed on 3D seismic data. The Company's data processing centers have opened at various times from 1966 through 1996 and are located in Houston, Texas (two locations); Hurst, Texas; Dallas, Texas; Midland, Texas; Denver, Colorado; Singapore; London, England; Calgary, Alberta; Brisbane, Australia; Assen, Holland; Jakarta, Indonesia; Kuala Lumpur, Malaysia; Buenos Aires, Argentina; Neuquen, Argentina; and Caracas, Venezuela. The Assen center is operated under a customer contract which expires in December 1996. The Company plans to close the Jakarta center in fiscal 1997. Seven of the Company's centers operate high capacity, advanced technology data processing systems based on NEC and Hewlett Packard ("HP") computer systems with high speed networks. These systems utilize the Company's proprietary software, seismicTANGO, originally developed by Digicon, which is installed on three marine vessels. The data acquisition crews run seismicTANGO software identical to that utilized in the NEC and HP systems, allowing for ease in the movement of data from the field to the data processing centers. The seismicTANGO software is being used and developed primarily for marine data processing which involves large projects in comparison with typically smaller scale land data processing projects. Nine of the Company's centers process seismic data on Sun workstations. These systems use SAGE, a proprietary processing system originally developed by VES. SAGE is being used and developed primarily for land data processing. The Company intends to continue development of both SAGE and seismicTANGO until such time as a single software system, utilizing the best features of SAGE and seismicTANGO, is developed for use in all Company data processing centers. The Company has dedicated approximately $11.0 million of its fiscal 1997 capital budget to data processing activities. Because of the increased complexity of processing 3D surveys, the Company plans to retire certain of its older mainframe equipment and upgrade to more powerful and flexible workstation-based systems at five of its data processing centers which are dedicated primarily to processing marine data. In its land processing operations, the Company is acquiring additional Sun workstations to add capacity at existing processing centers and to equip two new processing centers. These expansions and upgrades are expected to increase capacity and lower operating costs. LICENSING OF MULTI-CLIENT DATA SURVEYS In its data acquisition and processing efforts, the Company acquires and processes data for its own account through surveys partially or wholly funded by multiple customers. Once acquired and processed, such 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 majority of the costs, the location to be surveyed, the probability and timing of future lease, concession and development activity in the area, and the availability, quality and price of competing data. 28 30 During the past three years, the Company has increased its emphasis on its multi-client data surveys. During the two year period ended July 31, 1996, 188,642 line miles of new seismic data were added to the Company's library. The Company expects to continue its emphasis on the licensing of multi-client data surveys and in fiscal 1997 expects to selectively add additional Gulf of Mexico and North Sea data to its library. For additional information with respect to the multi-client data library, see "Risk Factors -- Investment in Multi-Client Data Surveys." EXPLORATION AND DEVELOPMENT INFORMATION SERVICES The Company also provides various exploration and development information services to the oil and gas industry. These services include data verification through geophysical survey audit, seismic database management, service bureau mapping of surface and subsurface oil and gas information, data supply for grid, culture, wells, pipelines, land and related data sets and mapping systems, as well as geographical information systems software development. TECHNOLOGY AND CAPITAL EXPENDITURES The geophysical industry is highly technical, and the requirements for the acquisition and processing of seismic data have evolved continuously over the past 50 years. Accordingly, it is of significance to the Company that its technological capabilities are comparable or superior to those of its competitors, whether through continuing research and development, strategic alliances with equipment manufacturers or by acquiring technology under license from others. The Company has introduced several technological innovations in its geophysical service business, which have become industry standard practice in both acquisition and processing. Currently, the Company employs approximately 44 persons in its research and development activities, substantially all of whom are scientists, engineers or programmers. During fiscal 1994, 1995 and 1996, research and development expenditures were $5.8 million, $3.6 million and $3.2 million, respectively. The reduced level of expenditures in fiscal 1995 and 1996 reflects the transfer of the Company's marine and land engineering department to Syntron in August 1994. The Company rarely applies for patents on internally developed technology. This policy is based upon the belief that most proprietary technology, even where regarded as patentable, can be more effectively protected by maintaining confidentiality than through disclosure and a patent enforcement program. Certain of the equipment, processes and techniques used by the Company are subject to the patent rights of others, and the Company holds non-exclusive licenses with respect to a number of such patents. While the Company regards as beneficial its access to others' technology through licensing, the Company believes that substantially all presently licensed technology could be replaced without significant disruption to the business should the need arise. The capital expenditure program for fiscal 1997 requires expenditures of approximately $67.4 million and $3.3 million for research and development activities. The amount of future capital expenditures will depend on the availability of funding and market requirements as dictated by oil and gas company activity levels. 29 31 The following table sets forth a summary of the Company's capital expenditures for the four years ended July 31, 1996, and its budgeted capital expenditures for the year ending July 31, 1997.
YEARS ENDED JULY 31, -------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- (BUDGETED) (DOLLARS IN THOUSANDS) Land and transition zone data acquisition... $ 15,992 $ 21,566 $ 18,004 $ 15,020 $ 14,321 Marine data acquisition..................... 19,021 3,370 8,296 7,757 39,979 Data processing centers..................... 6,252 3,789 6,064 8,215 11,004 Exploration and development information services.................................. 561 585 431 179 503 Other....................................... 322 463 838 1,689 1,622 -------- -------- -------- -------- -------- Total............................. $ 42,148 $ 29,773 $ 33,633 $ 32,860 $ 67,429(1) ======= ======= ======= ======= =======
- --------------- (1) Of this amount, approximately $7.7 million represents capital spending necessary to maintain the Company's operating equipment and the remainder is for discretionary capital spending, including approximately $26.2 million for the replacement of older operating equipment with a view to substantially enhancing operating efficiency and the remaining $33.5 million for expansion of its equipment complement to meet increased demand for seismic services. COMPETITION AND OTHER BUSINESS CONDITIONS Competition. The acquisition and processing of seismic data for the oil and gas exploration industry has historically been highly competitive worldwide. However, as a result of changing technology and increased capital requirements, the seismic industry has consolidated substantially since the late 1980s. The consolidation has reduced the number of competitors, and the largest competitors remaining in the market are Western Geophysical (a division of Western Atlas Inc.), Geco-Prakla (a division of Schlumberger), Compagnie Generale Geophysique and Petroleum Geo-Services A/S. Although reliable comparative figures are not available in all cases, the Company believes that its largest competitors have more extensive and diversified operations and have financial and operating resources in excess of those available to the Company. Competition for available seismic surveys is based on several competitive factors, including price, performance, dependability, crew experience and equipment availability. Operating Conditions/Seasonality. The Company's data acquisition activities often are conducted under extreme weather and other hazardous conditions. Accordingly, these operations are subject to risks of injury to personnel and loss of equipment. The Company carries insurance against the destruction of, or damage to, its chartered vessels and its geophysical equipment in amounts that it considers adequate. The Company may not, however, be able to obtain insurance against certain risks or for equipment located from time to time in certain areas of the world. The Company obtains insurance against war, expropriation, confiscation and nationalization when such insurance is available and when management considers it advisable to do so. Such coverage is not always available and, when available, is subject to unilateral cancellation by the insuring companies on short notice. The Company also carries insurance against pollution hazards and injury to persons and property that may result from its operations and considers the amounts of such insurance to be adequate. Fixed costs, including costs associated with vessel charters and operating leases, labor costs, depreciation and interest expense, account for a substantial percentage of the Company's costs and expenses. As a result, downtime or low productivity resulting from reduced demand, equipment failures, weather interruptions or otherwise, can result in significant operating losses. The Company's seismic operations and quarterly financial results historically have been subject to seasonal fluctuation, with the greatest volume of both data acquisition and data processing occurring during the summer and fall in the Northern Hemisphere. However, as a result of the expansion of the Company's foreign operations and the deployment of its seismic vessels and crews into regions having opposing seasons or less severe weather conditions, the Company believes that the impact of seasonal 30 32 fluctuations has been reduced. In addition to seasonality, the Company historically has experienced quarterly fluctuations in operating results. Operating results in any fiscal quarter may vary as a result of (i) the magnitude of certain contracts for the acquisition or sale of data, (ii) customers' budgetary cycles and (iii) seismic data sales occurring as a result of offshore lease sales. In light of customer budgetary considerations, the majority of the Company's sales of proprietary seismic data has historically tended to occur in the Company's first and second quarters. BACKLOG At July 31, 1996, the Company's backlog of commitments for services was $158.8 million, compared with $139.6 million at July 31, 1995, substantially all of which was attributable to large-scale, longer duration seismic acquisition and processing services. Such backlog consisted of written orders or commitments believed to be firm. Contracts for services are occasionally varied or modified by mutual consent and in certain instances are cancelable by the customer on short notice without penalty. In addition, because of the short contract lead times and the smaller scale and relatively short duration (typically less than one month) of land seismic surveys typical in the North American highlands markets served by VES prior to the Combination, backlog is insubstantial with respect to that portion of the Company's business. As a result of these factors, the Company's backlog as of any particular date may not be indicative of the Company's actual operating results for any succeeding fiscal period. It is anticipated that substantially all of the orders and commitments included in backlog at July 31, 1996, will be completed within the next twelve months. SIGNIFICANT CUSTOMERS Historically, the Company's principal customers have been international oil and gas companies, foreign national oil companies and independent oil and gas companies. In fiscal 1993, Mobil Oil Corporation and its subsidiaries accounted for 12% of the Company revenues. Due to the contractual nature of the Company's operations, it is anticipated that significant portions of future consolidated revenues may be attributable to a few customers, although it is likely that the identity of such customers may change from period to period. EMPLOYEES At July 31, 1996, the Company employed approximately 2,700 full-time personnel. With the exception of approximately 39 unionized employees in the Company's Singapore data processing center, none of its employees is subject to collective bargaining agreements. The Company considers the relations with its employees to be good. 31 33 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The table below sets forth certain information regarding the Company's executive officers and directors.
NAME AGE POSITION(S) - ---------------------------------- --- ------------------------------------------------- David B. Robson................... 57 Chairman of the Board and Chief Executive Officer, Director Stephen J. Ludlow................. 46 President and Chief Operating Officer, Director Lawrence C. Fichtner.............. 51 Executive Vice President -- Corporate Communications, Director Richard W. McNairy................ 56 Executive Vice President, Treasurer and Chief Financial Officer Rene M.J. VandenBrand............. 38 Vice President -- Business Development and Corporate Secretary George F. Baker................... 57 Director Clayton P. Cormier................ 64 Director Ralph M. Eeson.................... 48 Director Steven J. Gilbert................. 49 Director Brian F. MacNeill................. 57 Director Douglas B. Thompson............... 47 Director Jack C. Threet.................... 68 Director
David B. Robson. Mr. Robson has been chairman of the board and chief executive officer of the Company since consummation of the Combination on August 30, 1996. Prior thereto, he had held similar positions with VES or its predecessors since 1974. Stephen J. Ludlow. Mr. Ludlow became president and chief operating officer of the Company in August 1996, upon consummation of the Combination. He was employed by Digicon for 24 years and served as president and chief executive officer of Digicon for the preceding two years. Prior to 1994, he served as executive vice president of Digicon for the preceding four years following eight years of service in a variety of progressively more responsible management positions, including several years of service as the executive responsible for operations in Europe, Africa and the Middle East. Lawrence C. Fichtner. Mr. Fichtner became executive vice president -- corporate communications of the Company in August 1996, upon consummation of the Combination. Prior thereto, he had been executive vice president of VES or its predecessors since 1978. During the ten years prior to joining VES, he held various positions as a geophysicist with Geophysical Services Inc., Texas Exploration Ltd. and Bow Valley Exploration Ltd. Richard W. McNairy. Mr. McNairy was appointed executive vice president, chief financial officer, and treasurer of the Company in August 1996, upon consummation of the Combination. He served as vice president and chief financial officer of Digicon from February 1994 until consummation of the Combination. Prior to joining Digicon, Mr. McNairy was corporate controller of Halliburton Energy Services Group for three years and vice president -- finance for its geophysical services subsidiary for the preceding two years. Prior to 1989 and since 1974 he was employed in various financial and operational management capacities with predecessor companies acquired by Halliburton. Rene M.J. VandenBrand. Mr. VandenBrand became vice president -- business development and corporate secretary of the Company in August 1996 upon consummation of the Combination. Prior thereto, he had been vice president finance and secretary of VES since November 1995, following two years of service in comparable positions with Taro Industries Limited. He was previously a partner of Coopers & Lybrand Chartered Accountants in Calgary. 32 34 George F. Baker. Mr. Baker has been president of Cambridge Capital Holdings, Inc., a private investment firm, for more than five years. He also serves as chairman of the board and president of Whitehall Corporation, a manufacturer of seismic towed arrays for offshore oil exploration, and through its Aerocorp subsidiary, is a provider of aircraft maintenance for the airline industry. Clayton P. Cormier. Mr. Cormier is currently a financial and insurance consultant. From 1986 to 1991, Mr. Cormier was a senior vice president in the oil and gas division of Johnson & Higgins, an insurance broker, and previously served as chairman of the board, president, and chief executive officer of Ancon Insurance Company, S.A. and as an assistant treasurer of Exxon Corporation. Ralph M. Eeson. Mr. Eeson has been co-owner and chairman of the board of Kids Only Clothing Club Inc., a manufacturer and direct seller of children's clothing, since 1991. From 1977 to 1991, he was a senior partner at Code Hunter, Barristers and Solicitors, Calgary. He remains counsel to Code Hunter. Steven J. Gilbert. Mr. Gilbert has been managing general partner of Soros Capital L.P. since 1992. Soros Capital L.P. is the principal venture capital and leveraged transaction entity of Quantum Group of Funds. He is also the managing director of Commonwealth Capital Partners, L.P., a private entity investment fund. Mr. Gilbert is a director of Katz Media Group, Inc., NFO Research, Inc., The Asian Infrastructure Fund, Peregrine Indonesia Fund, Inc., Terra Nova (Bermuda) Holdings, Ltd., GTS -- Duratek, Inc., Sydney Harbour Casino Holdings, Ltd., and UroMed, Inc., and is a member of the Advisory Committee of Donaldson, Lufkin & Jenrette Merchant Banking. Brian F. MacNeill. Mr. MacNeill has been president and chief executive officer of IPL Energy Inc., a crude oil and liquids transportation and natural gas distribution company, formerly Interprovincial Pipe Line, Inc. ("IPL"), since 1991. He was executive vice president and chief operating officer of IPL from 1990 to 1991 and previously served as chief financial officer of Interhome Energy, Inc. and Home Oil Company Limited and as vice president and treasurer of Hiram Walker Resources Ltd. Douglas B. Thompson. Mr. Thompson served as chairman of the board of the Company from May 1994 until consummation of the Combination in August 1996. He is a private investor and also served as chairman of the board of WellTech, Inc., a privately-held workover drilling company, until its sale in March 1996. Jack C. Threet. Mr. Threet was formerly vice president for exploration of Shell Oil Company. Prior to his retirement from Shell Oil Company in 1987, Mr. Threet was also a member of the boards of directors of several affiliates of Shell Oil Company. 33 35 DESCRIPTION OF SENIOR NOTES The Senior Notes will be issued under an indenture (the "Indenture") to be entered into between the Company, as issuer, and Fleet National Bank, as trustee (the "Trustee"). The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes are subject to all such terms, and Holders of Senior Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions of certain terms contained therein. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." GENERAL The Senior Notes will be senior unsecured obligations of the Company limited to $75 million aggregate principal amount. The Senior Notes will be issued only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, and interest on the Senior Notes will be payable, and the Senior Notes will be transferable, at the office or agency of the Company in the City of New York maintained for such purposes, which initially will be the corporate trust office or agency of the Trustee maintained at Shawmut Trust Company, c/o First Chicago Trust Company of New York, 14 Wall Street, 8th Floor, Window-2, New York, New York 10005. No service charge will be made for any transfer, exchange or redemption of the Senior Notes, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be payable in connection therewith. MATURITY, INTEREST AND PRINCIPAL PAYMENTS The Senior Notes will mature on , 2003. Interest on the Senior Notes will accrue from , 1996 at the rate of % per annum and will be payable semiannually in cash in arrears on and of each year, commencing , 1997, to the Persons in whose name the Senior Notes are registered in the Note Register at the close of business on the or 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 Senior Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2000, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on of the years indicated below:
REDEMPTION YEAR PRICE ------------------------------------------------------------------ ---------- 2000.............................................................. % 2001.............................................................. % 2002 and thereafter............................................... 100.00%
Notwithstanding the foregoing, at any time on or prior to , 1999, up to $20 million in aggregate principal amount of Senior Notes will be redeemable, at the option of the Company, from the Net Cash Proceeds of a Public Equity Offering, at a redemption price equal to % of the principal amount thereof, together with accrued and unpaid interest to the date of redemption, provided that at least $55 million in aggregate principal amount of Senior Notes remains outstanding immediately after 34 36 such redemption and that such redemption occurs within 60 days following the closing of such Public Equity Offering. In the event that less than all of the Senior Notes are to be redeemed, the particular Senior Notes (or any portion thereof that is an integral multiple of $1,000) to be redeemed shall be selected not less than 30 nor more than 60 days prior to the date of redemption by the Trustee, from the outstanding Senior Notes not previously called for redemption, pro rata, by lot or by any other method the Trustee shall deem fair and appropriate. Mandatory Redemption. The Company will not be required to make mandatory redemption or sinking fund payments with respect to the Senior Notes. Offers to Purchase. As described below, (a) upon the occurrence of a Change of Control, the Company will be obligated to make an offer to purchase all outstanding Senior Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase and (b) upon certain sales or other dispositions of assets, the Company may be obligated to make offers to purchase Senior Notes with a portion of the Net Available Proceeds of such sales or other dispositions at a purchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See "-- Certain Covenants -- Change of Control" and "-- Limitation on Asset Sales." RANKING The Senior Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all other senior Indebtedness of the Company. The Senior Notes, however, will be effectively subordinated to secured Indebtedness of the Company with respect to the assets securing such Indebtedness. At July 31, 1996, the Company had $41.1 million principal amount of Indebtedness outstanding, all of which will be repaid with the proceeds of the Offering. Because the Company is a holding company and the Senior Notes are not guaranteed by any of its Subsidiaries, the Senior Notes are effectively subordinated to all existing and future liabilities of the Company's Subsidiaries, including both senior and subordinated Indebtedness of these Subsidiaries, and regardless of whether such liabilities are secured or unsecured. Immediately after the Offering, the Subsidiaries will have no material Indebtedness. Certain of the subsidiaries are co-borrowers under the Credit Facility. See "Capitalization." Subject to certain limitations, the Company and its Subsidiaries may incur additional Indebtedness in the future. See "Risk Factors -- Dependence on Subsidiaries; Holding Company Structure; Effective Subordination" and "-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital Stock." CERTAIN COVENANTS The Indenture will contain, among others, the covenants described below. Limitation on Indebtedness and Disqualified Capital Stock. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable for the payment of (collectively, "incur") any Indebtedness (including any Acquired Indebtedness but excluding any Permitted Indebtedness) or any Disqualified Capital Stock, unless, on a pro forma basis after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio for the four full quarters immediately preceding such event, taken as one period, would have been equal to or greater than 2.5 to 1.0. (b) The Company will not incur any Indebtedness that is expressly subordinated to any other Indebtedness of the Company unless such Indebtedness, by its terms or the terms of any agreement or instrument pursuant to which such Indebtedness is issued or outstanding, is also expressly made subordinate to the Senior Notes at least to the extent it is subordinated to such other Indebtedness. (c) The Company will not permit any of its Restricted Subsidiaries to incur any Indebtedness (excluding Permitted Indebtedness referred to in clauses (i) and (vi) (to the extent consisting of 35 37 Indebtedness to the Company) of the definition thereof and Permitted Subsidiary Indebtedness) or to issue any Preferred Stock. Limitation on Restricted Payments. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (i) declare or pay any dividend on, or make any other distribution to holders of, any shares of Capital Stock of the Company (other than dividends or distributions payable solely in shares of Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Affiliate thereof (other than any Restricted Subsidiary or except pursuant to a Permitted Investment) or any options, warrants or other rights to acquire such Capital Stock; (iii) make any principal payment on or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, scheduled sinking fund payment or maturity, any Subordinated Indebtedness, except in any case out of the Net Cash Proceeds of any Permitted Indebtedness referred to in clause (ix) of the definition thereof; or (iv) make any Restricted Investment; (such payments or other actions described in clauses (i) through (iv) being collectively referred to as "Restricted Payments"), unless at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the amount determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution), (1) no Default or Event of Default shall have occurred and be continuing, (2) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in accordance with paragraph (a) of the "-- Limitation on Indebtedness and Disqualified Capital Stock" covenant, and (3) the aggregate amount of all Restricted Payments declared or made after the date of the Indenture shall not exceed the sum (without duplication) of the following: (A) 50% of the Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on August 1, 1996 and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment (or, if such Consolidated Net Income is a loss, minus 100% of such loss), (B) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such shares of Qualified Capital Stock of the Company, (C) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company (other than from any of its Restricted Subsidiaries) upon the exercise of any options, warrants or rights to purchase shares of Qualified Capital Stock of the Company, (D) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of Indebtedness or shares of Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate cash received by the Company at the time of such conversion or exchange, (E) to the extent not otherwise included in Consolidated Net Income, the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or ad- 36 38 vances, or other transfers of assets, in each case to the Company or a Restricted Subsidiary after the date of the Indenture from any Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of Investment), not to exceed in the case of any Unrestricted Subsidiary the total amount of Investments (other than Permitted Investments) in such Unrestricted Subsidiary made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary that which was previously treated as a Restricted Payment, and (F) $2.5 million. (b) Notwithstanding paragraph (a) above, the Company and its Restricted Subsidiaries may take the following actions so long as (in the case of clauses (ii) and (iii) below) no Default or Event of Default shall have occurred and be continuing: (i) the payment of any dividend on any Capital Stock of the Company or any Restricted Subsidiary within 60 days after the date of declaration thereof, if at such declaration date such declaration complied with the provisions of paragraph (a) above (and such payment shall be deemed to have been paid on such date of declaration for purposes of any calculation required by the provisions of paragraph (a) above); (ii) the repurchase, redemption or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds from, a substantially concurrent issuance and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; and (iii) the repurchase, redemption, repayment, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness in exchange for, or out of the aggregate Net Cash Proceeds from, a substantially concurrent issuance and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company. The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall be Restricted Payments that shall be permitted to be made in accordance with this paragraph (b) but shall reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a), provided that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce the amount that would otherwise be available under clause (3) of paragraph (a) when declared, but not also when subsequently paid pursuant to such clause (i). Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. The Company (i) will not permit any Restricted Subsidiary to issue or sell any Capital Stock to any Person other than the Company or a Wholly Owned Restricted Subsidiary and (ii) will not permit any Person other than the Company or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any Restricted Subsidiary, in each case except with respect to a Wholly Owned Restricted Subsidiary as described in clause (i) or (ii) of the definition of "Wholly Owned Restricted Subsidiary." The sale of all of the Capital Stock of any Restricted Subsidiary is permitted by this covenant but is subject to the limitations described under "-- Limitations on Asset Sales." Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, assume, guarantee or otherwise become liable with respect to any Sale/Leaseback Transaction unless the Company or such Restricted Subsidiary, as the case may be, would be able to incur Indebtedness (not including the incurrence of Permitted Indebtedness) pursuant to and in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the covenants described in paragraphs (a) and (c) under "-- Limitation on Indebtedness and Disqualified Capital Stock," the Company or such Restricted Subsidiary receives proceeds from such Sale/Leaseback Transaction at least equal to the fair market value of the property or assets subject thereto (as determined in good faith by the Company's Board of Directors, whose determination in good faith and evidenced by a Board Resolution will be 37 39 conclusive) and the Company applies an amount in cash equal to the Net Available Proceeds of the Sale/Leaseback Transaction in accordance with the provisions of the "Limitation on Asset Sales" covenant as if such Sale/Leaseback Transaction were an Asset Sale. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets or property or the rendering of any services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary), unless (i) such transaction or series of transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that would be available in a comparable arm's length transaction with unrelated third parties, (ii) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $1.0 million but less than $5.0 million in the aggregate, the Company delivers an Officers' Certificate to the Trustee certifying that (A) such transaction or series of related transactions complies with clause (i) above and (B) such transaction or series of related transactions has been approved by the Board of Directors (including a majority of the Disinterested Directors) of the Company, and (iii) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $5.0 million, the Company delivers an Officers' Certificate to the Trustee certifying to the two matters referred to in clause (ii) above and that the Company has obtained a written opinion from an independent nationally recognized investment banking firm or appraisal firm specializing or having a speciality in the type and subject matter of the transaction or series of related transactions at issue, which opinion shall be to the effect set forth in clause (i) above or shall state that such transaction or series of related transactions is fair from a financial point of view to the Company or such Restricted Subsidiary; provided, however, that the foregoing restriction shall not apply to (w) loans or advances to officers, directors and employees of the Company or any Restricted Subsidiary made in the ordinary course of business and consistent with past practices of the Company and its Restricted Subsidiaries in an aggregate amount not to exceed $1.0 million outstanding at any one time, (x) indemnities of officers, directors and employees of the Company or any Restricted Subsidiary permitted by bylaw or statutory provisions, (y) the payment of reasonable and customary regular fees to directors of the Company or any of its Restricted Subsidiaries who are not employees of the Company or any Affiliate and (z) the Company's employee compensation and other benefit arrangements. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm or suffer to exist or become effective any Lien of any kind, except for Permitted Liens, upon any of their respective property or assets, whether now owned or acquired after the date of the Indenture, or any income, profits or proceeds therefrom, to secure any Indebtedness of the Company or such Restricted Subsidiary, unless prior to, or contemporaneously therewith, the Senior Notes are equally and ratably secured; provided, however, that if such Indebtedness is expressly subordinated to the Senior Notes, the Lien securing such Indebtedness will be subordinated and junior to the Lien securing the Senior Notes, with the same relative priority as such Indebtedness has with respect to the Senior Notes. The foregoing covenant will not apply to any Lien securing Acquired Indebtedness, provided that any such Lien extends only to the property or assets that were subject to such Lien prior to the related acquisition by the Company or such Restricted Subsidiary and was not created, incurred or assumed in contemplation of such transaction. The incurrence of additional secured Indebtedness by the Company and its Restricted Subsidiaries is subject to further limitations on the incurrence of Indebtedness as described under "-- Limitation on Indebtedness and Disqualified Capital Stock." Change of Control. Upon the occurrence of a Change of Control, the Company will be obligated to make an offer to purchase all of the then outstanding Senior Notes (a "Change of Control Offer"), and will purchase, on a Business Day (the "Change of Control Purchase Date"), not more than 60 nor less than 30 days following such Change of Control, all of the then outstanding Senior Notes validly tendered pursuant to such Change of Control Offer and not withdrawn, at a purchase price (the 38 40 "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the fifth Business Day prior to the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company will, not later than the 30th day after the Change of Control, mail to the Trustee and each Holder a notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that Holders must follow to accept the Change of Control Offer. The occurrence of a Change of Control may result in lenders under the Credit Facility having the right to require the Company to repay all Indebtedness outstanding thereunder. There can be no assurance that the Company will have available funds sufficient to repay all Indebtedness owing under the Credit Facility or to fund the purchase of the Senior Notes upon a Change of Control. In the event a Change of Control occurs at a time when the Company does not have available funds sufficient to pay the Change of Control Purchase Price for all of the Senior Notes delivered by Holders seeking to accept the Change of Control Offer, an Event of Default would occur under the Indenture. The definition of Change of Control includes an event by which the Company sells, conveys, transfers, leases or otherwise disposes of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries, taken as a whole; the phrase "all or substantially all" is subject to applicable legal precedent and, as a result, in the future there may be uncertainty as to whether or not a Change of Control has occurred. The Company will not be required to make a Change of Control Offer upon a Change of Control if another Person makes the Change of Control Offer at the same purchase price, at the same time and otherwise in substantial compliance with the requirements applicable to a Change of Control Offer to be made by the Company and purchases all Senior Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, if applicable, in the event that a Change of Control occurs and the Company is required to purchase Senior Notes as described above. The existence of a Holder's right to require, subject to certain conditions, the Company to repurchase its Senior Notes upon a Change of Control may deter a third party from acquiring the Company in a transaction that constitutes, or results in, a Change of Control. Limitation on Asset Sales. (a) The Company will not, and will not permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets and properties sold or otherwise disposed of pursuant to the Asset Sale (as determined by the Board of Directors of the Company, whose determination in good faith shall be conclusive and evidenced by a Board Resolution), (ii) at least 80% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, in respect of such Asset Sale consists of cash or Cash Equivalents and (iii) the Company delivers to the Trustee an Officers' Certificate certifying that such Asset Sale complies with clauses (i) and (ii). The amount (without duplication) of any Indebtedness (other than Subordinated Indebtedness) of the Company or such Restricted Subsidiary that is expressly assumed by the transferee in such Asset Sale and with respect to which the Company or such Restricted Subsidiary, as the case may be, is unconditionally released by the holder of such Indebtedness, shall be deemed to be cash or Cash Equivalents for purposes of clause (ii) and shall also be deemed to constitute a repayment of, and a permanent reduction in, the amount of such Indebtedness for purposes of the following paragraph. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company or such Restricted Subsidiary may either, no later than 270 days after such Asset Sale, (i) apply all or any of the Net Available Proceeds therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the Company or any Restricted Subsidiary, provided, in each case, that the related loan commitment 39 41 (if any) is thereby permanently reduced by the amount of such Indebtedness so repaid, or (ii) invest all or any part of the Net Available Proceeds thereof in properties and assets that replace the properties or assets that were the subject of such Asset Sale or in other properties or assets that will be used in the business of the Company and its Restricted Subsidiaries. The amount of such Net Available Proceeds not applied or invested as provided in this paragraph will constitute "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds equals or exceeds $5.0 million, the Company will be required to make an offer to purchase, from all Holders of the Notes, an aggregate principal amount of Senior Notes equal to such Excess Proceeds as follows: (i) The Company will make an offer to purchase (a "Net Proceeds Offer") from all Holders of the Senior Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1,000) of Senior Notes that may be purchased out of the amount (the "Payment Amount") of such Excess Proceeds. (ii) The offer price for the Senior Notes will be payable in cash in an amount equal to 100% of the principal amount of the Senior Notes tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date such Net Proceeds Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offered Price of the Senior Notes tendered pursuant to a Net Proceeds Offer is less than the Payment Amount relating thereto (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or a portion thereof, for general corporate purposes, subject to the limitations of the "Limitation on Restricted Payments" covenant. (iii) If the aggregate Offered Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the Payment Amount, Notes to be purchased will be selected on a pro rata basis. (iv) Upon completion of such Net Proceeds Offer, the amount of Excess Proceeds shall be reset to zero. The Company will not permit any Restricted Subsidiary to enter into or suffer to exist any agreement that would place any restriction of any kind (other than pursuant to law or regulation) on the ability of the Company to make a Net Proceeds Offer following any Asset Sale. The Company will comply with Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder, if applicable, in the event that an Asset Sale occurs and the Company is required to purchase Senior Notes as described above. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or suffer to exist or allow to become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise, or make any other distributions on its Capital Stock, or make payments on any Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to make loans or advances to the Company or any other Restricted Subsidiary, (c) to transfer any of its property or assets to the Company or any other Restricted Subsidiary or (d) to guarantee the Senior Notes (any such restrictions being collectively referred to herein as a "Payment Restriction"), except in any such case for such encumbrances or restrictions existing under or by reason of (i) the Indenture, the Credit Facility or any other agreement in effect or entered into on the date of the Indenture, or (ii) any agreement, instrument or charter of or in respect of a Restricted Subsidiary entered into prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary and outstanding on such date and not entered into in connection with or in contemplation of becoming a Restricted Subsidiary, provided such consensual encumbrance or restriction is not applicable to any properties or assets other than those owned or held by the Restricted Subsidiary at the time it became a Restricted Subsidiary or subsequently acquired by such Restricted Subsidiary other than from the Company or any other Restricted Subsidiary, or (iii) pursuant to an agreement effecting a modification, renewal, refinancing, replacement or extension of any agreement, instrument or charter (other than the Indenture) referred to in clause (i) or (ii) above, provided, 40 42 however, that the provisions relating to such encumbrance or restriction are not materially less favorable to the Holders of the Senior Notes than those under or pursuant to the agreement, instrument or charter so modified, renewed, refinanced, replaced or extended, or (iv) customary provisions restricting the subletting or assignment of any lease or the transfer of copyrighted or patented materials, or (v) provisions in agreements that restrict the assignment of such agreements or rights thereunder, or (vi) the sale or other disposition of any properties or assets subject to a Lien securing Indebtedness. Limitation on Conduct of Business. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in the conduct of any business other than the business being conducted on the date of the Indenture (and described therein and herein) and such other businesses as are reasonably necessary or desirable to facilitate the conduct and operation of such businesses. Reports. The Company will file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. The Company will also be required (a) to file with the Trustee (with exhibits), and provide to each Holder of Senior Notes (without exhibits), without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at its cost copies of such reports and documents (including any exhibits thereto) to any Holder of Senior Notes promptly upon written request. Future Designation of Restricted and Unrestricted Subsidiaries. The foregoing covenants (including calculation of financial ratios and the determination of limitations on the incurrence of Indebtedness and Liens) may be affected by the designation by the Company of any existing or future Subsidiary of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions" describes the circumstances under which a Subsidiary of the Company may be designated as an Unrestricted Subsidiary by the Board of Directors of the Company. MERGER, CONSOLIDATION AND SALE OF ASSETS The Company will not, in any single transaction or series of related transactions, merge or consolidate with or into any other Person, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or group of Affiliated Persons, and the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any other Person or group of Affiliated Persons, unless at the time and after giving effect thereto (i) either (A) if the transaction is a merger or consolidation, the Company shall be the surviving Person of such merger or consolidation, or (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company or its Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume by a supplemental indenture to the Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Senior Notes and the Indenture, and, in each case, the Indenture shall remain in full force and effect; (ii) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of 41 43 Company or any of its Restricted Subsidiaries which becomes an obligation of the Company or any of its Restricted Subsidiaries in connection with or as a result of such transaction or transactions as having been incurred at the time of such transaction or transactions), no Default or Event of Default shall have occurred and be continuing; (iii) except in the case of the consolidation or merger of any Restricted Subsidiary with or into the Company, immediately after giving effect to such transaction or transactions on a pro forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or transactions; (iv) except in the case of the consolidation or merger of the Company with or into a Restricted Subsidiary or any Restricted Subsidiary with or into the Company or another Restricted Subsidiary, immediately before and immediately after giving effect to such transaction or transactions on a pro forma basis (assuming that the transaction or transactions occurred on the first day of the period of four fiscal quarters ending immediately prior to the consummation of such transaction or transactions, with the appropriate adjustments with respect to the transaction or transactions being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph of the "-- Limitation on Indebtedness and Disqualified Capital Stock" covenant; (v) if any of the properties or assets of the Company or any of its Restricted Subsidiaries would upon such transaction or series of related transactions become subject to any Lien (other than a Permitted Lien), the creation and imposition of such Lien shall have been in compliance with the "Limitation on Liens" covenant; and (vi) the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) shall have delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, (a) an Officers' Certificate stating that such consolidation, merger, transfer, lease or other disposition and any supplemental indenture in respect thereto comply with the requirements under the Indenture and (b) an Opinion of Counsel stating that the requirements of clause (i) of this paragraph have been satisfied. Upon any consolidation or merger or any sale, assignment, lease, conveyance, transfer or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis in accordance with the foregoing, in which the Company is not the continuing corporation, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if the Surviving Entity had been named as the Company therein, and thereafter the Company, except in the case of a lease, will be discharged from all obligations and covenants under the Indenture and the Senior Notes and may be liquidated and dissolved. EVENTS OF DEFAULT The following will be "Events of Default" under the Indenture: (i) default in the payment of the principal of or premium, if any, on any of the Senior Notes, whether such payment is due at Stated Maturity, upon redemption, upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer, upon acceleration or otherwise; or (ii) default in the payment of any installment of interest on any of the Senior Notes, when due, and the continuance of such default for a period of 30 days; or (iii) default in the performance or breach of the provisions of the "Merger, Consolidation and Sale of Assets" section of the Indenture, the failure to make or consummate a Change of Control Offer in accordance with the provisions of the "Change of Control" covenant or the failure to make or consummate a Net Proceeds Offer in accordance with the provisions of the "Limitation on Asset Sales" covenant; or (iv) the Company shall fail to perform or observe any other term, covenant or agreement contained in the Senior Notes or the Indenture (other than a default specified in (i), (ii) or (iii) above) for a period of 30 days after written notice of such failure stating that it is a "notice of 42 44 default" under the Indenture and requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Senior Notes then outstanding; or (v) the occurrence and continuation beyond any applicable grace period of any default in the payment of the principal of, premium, if any, or interest on any Indebtedness of the Company (other than the Senior Notes) or any Restricted Subsidiary for money borrowed when due, or any other default resulting in acceleration of any Indebtedness of the Company or any Restricted Subsidiary for money borrowed, provided that the aggregate principal amount of such Indebtedness shall exceed $5.0 million and provided, further, that if any such default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under the Indenture and any consequential acceleration of the Senior Notes shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree; or (vi) final judgments or orders rendered against the Company or any Restricted Subsidiary that are unsatisfied and that require the payment in money, either individually or in an aggregate amount, that is more than $5.0 million over the coverage under applicable insurance policies and either (A) commencement by any creditor of an enforcement proceeding upon such judgment (other than a judgment that is stayed by reason of pending appeal or otherwise) or (B) the occurrence of a 30-day period during which a stay of such judgment or order, by reason of pending appeal or otherwise, was not in effect; or (vii) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) adjudging the Company or any Restricted Subsidiary bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company or any Restricted Subsidiary under any applicable federal or state law, or appointing under any such law a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Restricted Subsidiary or of a substantial part of its consolidated assets, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (viii) the commencement by the Company or any Restricted Subsidiary of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or any other case or proceeding to be adjudicated bankrupt or insolvent, or the consent by the Company or any Restricted Subsidiary to the entry of a decree or order for relief in respect thereof in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by the Company or any Restricted Subsidiary of a petition or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it under any such law to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Restricted Subsidiary or of any substantial part of its consolidated assets, or the making by it of an assignment for the benefit of creditors under any such law, or the admission by it in writing of its inability to pay its debts generally as they become due or taking of corporate action by the Company or any Restricted Subsidiary in furtherance of any such action. If an Event of Default (other than as specified in clause (vii) or (viii) above) shall occur and be continuing, the Trustee, by written notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Senior Notes then outstanding, by written notice to the Trustee and the 43 45 Company, may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Senior Notes then outstanding shall, declare the principal of, premium, if any, and accrued and unpaid interest on all of the Senior Notes due and payable immediately, upon which declaration all amounts payable in respect of the Senior Notes shall be immediately due and payable. If an Event of Default specified in clause (vii) or (viii) above occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest on all of the Senior 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 Senior 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 Senior Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Senior Notes, (iii) the principal of and premium, if any, on any Senior Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Senior Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Senior Notes (without duplication of any amount paid or deposited pursuant to clause (ii, or (iii)); (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, or interest on the Senior 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 Senior Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Senior Notes and the Indenture, the Trustee has failed to institute such proceeding within 60 days after receipt of such notice and the Trustee, within such 60-day period, has not received directions inconsistent with such written request by Holders of a majority in aggregate principal amount of the outstanding Senior Notes. Such limitations will not apply, however, to a suit instituted by the Holder of a Senior Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Senior Note on or after the respective due dates expressed in such Senior 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 reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Senior Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each Holder notice of the Default or Event of Default within 60 days after the occurrence thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Senior Notes, the Trustee may withhold the notice to the Holders of the Senior Notes if the Trustee determines in good faith that withholding the notice is in the interest of the Holders of the Senior Notes. 44 46 The Company will be required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company will also be required to notify the Trustee within 10 days of any Default or Event of Default. LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company with respect to the outstanding Senior Notes (such action being a "legal defeasance"). Such legal defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Senior Notes and to have been discharged from all their other obligations with respect to the Senior Notes, except for (i) the rights of Holders of outstanding Senior Notes to receive payment in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due, (ii) the Company's obligations to replace any temporary Senior Notes, register the transfer or exchange of any Senior Notes, replace mutilated, destroyed, lost or stolen Senior Notes and maintain an office or agency for payments in respect of the Senior Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the legal defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company with respect to certain covenants that are set forth in the Indenture, some of which are described under " --Certain Covenants" above, and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Senior Notes (such action being a "covenant defeasance"). In the event covenant defeasance occurs, certain events (not including nonpayment, bankruptcy, insolvency and reorganization events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Notes. In order to exercise either legal defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Senior Notes to redemption or maturity; (ii) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance or covenant defeasance had not occurred (in the case of legal defeasance, such opinion must refer to and be based upon a published ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (vii) and (viii) under the first paragraph of "Events of Default" are concerned, at any time during the period ending on the 91st day after the date of deposit; (iv) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest under the Indenture or the Trust Indenture Act with respect to any securities of the Company; (v) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company is a party or by which it is bound; and (vi) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee, which, taken together, state that all conditions precedent under the Indenture to either legal defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Senior Notes, as expressly provided for in the Indenture) 45 47 as to all outstanding Senior Notes when (i) either (a) all the Senior Notes theretofore authenticated and delivered (except lost, stolen, mutilated or destroyed Senior Notes which have been replaced or paid and Senior Notes for whose payment money or certain United States government obligations have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Senior Notes not theretofore delivered to the Trustee for cancellation have become due and payable or will become due and payable at their Stated Maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the serving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Senior Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Senior Notes to the date of deposit (in the case of Senior Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with instructions from the Company irrevocably directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel which, taken together, state that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company and the Trustee may, without the consent of the Holders of the Senior Notes, amend or supplement the Indenture or the Senior Notes for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act or making any change that does not materially adversely affect the rights of any Holder of Senior Notes. Other amendments and modifications of the Indenture or the Senior Notes may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Senior Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each outstanding Senior Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Senior Note, (b) reduce the principal amount of, premium, if any, or interest on any Senior Note, (c) change the coin or currency of payment of principal of, premium, if any, or interest on, any Senior Note, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Senior Note, (e) reduce the above-stated percentage of aggregate principal amount of outstanding Senior Notes necessary to modify or amend the Indenture, (f) reduce the percentage of aggregate principal amount of outstanding Senior Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify any provisions of the Indenture relating to the modification and amendment of the Indenture or the waiver of past defaults or covenants, except as otherwise specified, (h) change the ranking of the Senior Notes in a manner adverse to the Holders or expressly subordinate in right of payment the Senior Notes to any other Indebtedness or (i) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto. The Holders of not less than a majority in aggregate principal amount of the outstanding Senior Notes may, on behalf of the Senior Holders of all Notes, waive any past default under the Indenture, except a default in the payment of principal of, premium, if any, or interest on the Senior 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 Senior Note outstanding. 46 48 THE TRUSTEE Fleet National Bank will serve as trustee under the Indenture. The Indenture (including provisions of the Trust Indenture Act incorporated by reference therein) will contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Indenture will permit the Trustee to engage in other transactions; provided, however, if it acquires any conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Senior Notes will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a Person (a) existing at the time such Person becomes a Restricted Subsidiary or (b) assumed in connection with acquisitions of properties or assets from such Person (other than any Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary or the date of the related acquisition of properties or assets from such Person. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this definition, beneficial ownership of 10% or more of the voting common equity (on a fully diluted basis) or options or warrants to purchase such equity (but only if exercisable at the date of determination or within 60 days thereof) of a Person shall be deemed to constitute control of such Person. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition to any Person other than the Company or any of its Restricted Subsidiaries (including, without limitation, by means of a Sale/Leaseback Transaction or a merger or consolidation) (collectively, for purposes of this definition, a "transfer"), directly or indirectly, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the Company or any other Restricted Subsidiary, (b) all or substantially all of the properties and assets of any division or line of business of the Company or any of its Restricted Subsidiaries or (c) any other properties or assets of the Company or any of its Restricted Subsidiaries other than transfers of cash, Cash Equivalents, accounts receivable or other properties or assets in the ordinary course of business or transfers in accordance with the proviso to clause (vi) of the definition of Permitted Investments. For the purposes of this definition, the term "Asset Sale" also shall not include any of the following: (i) any transfer of properties or assets (including Capital Stock) that is governed by, and made in accordance with, the provisions described under "-- Merger, Consolidation and Sale of Assets"; (ii) any transfer of properties or assets to an Unrestricted Subsidiary, if permitted under the "Limitation on Restricted Payments" covenant; (iii) sales of damaged, worn-out or obsolete equipment or assets that, in the Company's reasonable judgment, are either (x) no longer used or (y) no longer useful in the business of the Company or its Restricted Subsidiaries; (iv) any lease of any property entered into in the ordinary course of business and with respect to which the Company or any Restricted Subsidiary is the lessor, except any such lease that provides for the acquisition of such property by the lessee during or at the end of the term thereof for an amount that is less than the fair market value thereof at the time the right to acquire such property is granted; and (v) any transfers that, but for this clause (v), would be Asset Sales, if (A) the 47 49 Company elects to designate such transfers as not constituting Asset Sales and (B) after giving effect to such transfers, the aggregate fair market value of the properties or assets transferred in such transaction or any such series of related transactions so designated by the Company does not exceed $500,000. "Attributable Indebtedness" means, with respect to any particular lease under which any Person is at the time liable, whether or not accounted for as a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under the lease during the primary term thereof, without giving effect to any renewals at the option of the lessee, discounted from the respective due dates thereof to such date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term in accordance with GAAP. As used in the preceding sentence, the "net amount of rent" under any such lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (a) the sum of the products of (i) the number of years (and any portion thereof) from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights or other equivalents in the equity interests (however designated) in such Person, and any rights (other than debt securities convertible into an equity interest), warrants or options exercisable for, exchangeable for or convertible into such an equity interest in such Person (for purposes of the Indenture the Exchangeable Shares of VES shall be treated as Capital Stock of the Company, for which they are exchangeable, and shall not be treated as Capital Stock of VES). "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) demand and time deposits and certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million or any Commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development and has total assets in excess of $500 million; (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-l by Moody's; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any commercial bank meeting the specifications of clause (ii) above; (v) overnight bank deposits and bankers acceptances at any commercial bank meeting the qualifications specified in clause (ii) above; (vi) demand and time deposits and certificates of deposit with any commercial bank organized in the United States not meeting the qualifications specified in clause 48 50 (ii) above, provided that such deposits and certificates support bond, letter of credit and other similar types of obligations incurred in the ordinary course of business; and (vii) investments in money market or other mutual funds substantially all of whose assets comprise securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of any event or series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Stock of the Company, (b) the Company consolidates with or merges into another Person or any Person consolidates with, or merges into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving or resulting Person that is Qualified Capital Stock and (ii) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving or resulting Person immediately after such transaction; (c) the Company, either individually or in conjunction with one or more Restricted Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise disposes of, or the Restricted Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries, taken as a whole (either in one transaction or a series of related transactions), including Capital Stock of the Restricted Subsidiaries, to any Person (other than the Company or a Wholly Owned Restricted Subsidiary); (d) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of two-thirds of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (e) the liquidation or dissolution of the Company. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio on a pro forma basis of (a) the sum of Consolidated Net Income, Consolidated Fixed Charges, Consolidated Income Tax Expense, and Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in each case, for such period, of the Company and its Restricted Subsidiaries on a consolidated basis, all determined in accordance with GAAP, to (b) the sum of such Consolidated Fixed Charges for such period; provided, however, that (i) the Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma basis assuming that (A) the Indebtedness to be incurred (and all other Indebtedness incurred after the first day of such period of four full fiscal quarters referred to in the covenant described in paragraph (a) under "-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" through and including the date of determination), and (if applicable) the application of the net proceeds therefrom (and from any other such Indebtedness), including to refinance other Indebtedness, had been incurred on the first day of such four quarter period and, in the case of Acquired Indebtedness, on the assumption that the related transaction (whether by means of purchase, merger or otherwise) also had occurred on such date with the appropriate adjustments with respect to such acquisition being included in such pro forma calculation and (B) any acquisition or disposition by the Company or any Restricted Subsidiary of any properties or assets outside the ordinary course of business, or any repayment of any principal amount of any Indebtedness of the Company or any Restricted Subsidiary prior to the Stated Maturity thereof, in either case since the first day of such period of four full fiscal quarters through and including the date of determination, had been consummated on such first day of such four-quarter period, (ii) in making such computation, the Consolidated Fixed Charges attributa- 49 51 ble 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 shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or floating rate, (iii) in making such computation, the Consolidated Fixed Charges attributable to interest on any Indebtedness under a revolving credit facility required to be computed on a pro forma basis in accordance with the covenant described in paragraph (a) under "-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" shall be computed based upon the average daily balance of such Indebtedness during the applicable period, provided that such average daily balance shall be reduced by the amount of any repayment of Indebtedness under a revolving credit facility during the applicable period, which repayment permanently reduced the commitments or amounts available to be reborrowed under such facility, (iv) notwithstanding clauses (ii) and (iii) of this proviso, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, shall be deemed to have accrued at the rate per annum resulting after giving effect to the operation of such agreements, and (v) if after the first day of the period referred to in clause (a) of this definition the Company has permanently retired any Indebtedness out of the Net Cash Proceeds of the issuance and sale of shares of Qualified Capital Stock of the Company within 30 days of such issuance and sale, Consolidated Fixed Charges shall be calculated on a pro forma basis as if such Indebtedness had been retired on the first day of such period. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes (including state franchise taxes accounted for as income taxes in accordance with GAAP) of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Fixed Charges" means, for any period, without duplication, (i) the sum of (a) the interest expense of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (A) any amortization of debt discount, (B) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (C) the interest portion of any deferred payment obligation constituting Indebtedness, (D) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (E) all accrued interest, in each case to the extent attributable to such period, (b) to the extent any Indebtedness of any Person (other than the Company or a Restricted Subsidiary) is guaranteed by the Company or any Restricted Subsidiary, the aggregate amount of interest paid (to the extent not accrued in a prior period) or accrued by such other Person during such period attributable to any such Indebtedness, in each case to the extent attributable to that period, (c) the aggregate amount of the interest component of Capitalized Lease Obligations paid (to the extent not accrued in a prior period), accrued or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period, (d) the aggregate amount of dividends paid (to the extent not accrued in a prior period) or accrued on Preferred Stock or Disqualified Capital Stock of the Company and its Restricted Subsidiaries, to the extent such Preferred Stock or Disqualified Capital Stock is owned by Persons other than the Company or any Restricted Subsidiary and (e) one-third of the rental expense (including without limitation marine vessel charter payments) under operating leases with remaining noncancellable terms of at least one year (excluding leases in respect of office space) of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, less (ii), to the extent included in clause (i) above, amortization of capitalized debt issuance costs of the Company and its Restricted Subsidiaries during such period. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding (a) net after-tax extraordinary gains or losses (less all fees and expenses relating 50 52 thereto), (b) net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the net income (or net loss) of any Person (other than the Company or any of its Restricted Subsidiaries), in which the Company or any of its Restricted Subsidiaries has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries in cash by such other Person during such period (regardless of whether such cash dividends or distributions are attributable to net income (or net loss) of such Person during such period or during any prior period), (d) net income (or net loss) of any Person (other than VES) combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its net income is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (f) income resulting from transfers of assets received by the Company or any Restricted Subsidiary from an Unrestricted Subsidiary, and (g) for the fiscal year ended July 31, 1996, merger related costs reflected in the Company's consolidated financial statements. "Consolidated Net Tangible Assets" means, at any date, the aggregate amount of assets included on the most recent consolidated balance sheet of the Company and its Restricted Subsidiaries, less (i) without duplication, applicable reserves and other properly deductible items and after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (ii) current liabilities (other than current liabilities constituting Indebtedness for borrowed money), as determined in accordance with GAAP. "Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Company less (without duplication) the amount of such stockholders' equity attributable to Disqualified Capital Stock or treasury stock of the Company and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, depletion, amortization and other non-cash expenses (excluding non-cash expenses related to multi-client seismic data sales and write-offs and write-downs related to the Company's multi-client seismic data library) of the Company and its Restricted Subsidiaries reducing Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge for which an accrual of or reserve for cash charges for any future period is required). "Currency Hedge Obligations" means, at any time as to any Person, the obligations of such Person at such time which were incurred in the ordinary course of business pursuant to any foreign currency exchange agreement, option or futures contract or other similar agreement or arrangement designed to protect against or manage such Person's or any of its Subsidiaries' exposure to fluctuations in foreign currency exchange rates. "Default" means any event, act or condition that is, or after notice or passage of time or both would become, an Event of Default. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors of the Company is required to deliver a resolution of the Board of Directors under the Indenture, a member of the Board of Directors of the Company who does not have any material direct or indirect financial interest (other than an interest arising solely from the beneficial ownership of Capital Stock of the Company) in or with respect to such transaction or series of transactions. "Disqualified Capital Stock" means any Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed or repurchased, in whole or in part, prior to the final Stated Maturity of the Senior Notes or is redeemable at the option of the 51 53 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." "GAAP" means generally accepted accounting principles, consistently applied, that are set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable as of the date of the Indenture. The term "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down under letters of credit. When used as a verb, "guarantee" has a corresponding meaning. "Holder" means a Person in whose name a Senior Note is registered in the Note Register. "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person, contingent or otherwise, for borrowed money or for the deferred purchase price of property or services (excluding any trade accounts payable and other accrued current liabilities incurred in the ordinary course of business) and all liabilities of such Person incurred in connection with any letters of credit, bankers' acceptances or other similar credit transactions or any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, outstanding on the date of the Indenture or thereafter, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (c) all Indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) the Attributable Indebtedness respecting all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be 52 54 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 the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude (a) extensions of trade credit or other advances to customers on commercially reasonable terms in accordance with normal trade practices or otherwise in the ordinary course of business, (b) Interest Rate Protection Obligations and Currency Hedge Obligations, but only to the extent that the same constitute Permitted Indebtedness and (c) endorsements of negotiable instruments and documents in the ordinary course of business. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim or similar type of encumbrance (including, without limitation, any agreement to give or grant any lease, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing) upon or with respect to any property of any kind. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity" means, with respect to any Senior Note, the date on which any principal of such Senior Note becomes due and payable as therein or in the Indenture provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants and investment banks) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the properties or assets subject to the Asset Sale or having a Lien thereon and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other postemployment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnifica- 53 55 tion 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 the Company or any Restricted Subsidiary incurred in connection with the acquisition by the Company or such Restricted Subsidiary of any property or assets and as to which (a) the holders of such Indebtedness agree that they will look solely to the property or assets so acquired and securing such Indebtedness for payment on or in respect of such Indebtedness, and neither the Company nor any Subsidiary (other than an Unrestricted Subsidiary) (i) provides credit support, including any undertaking, agreement or instrument which would constitute Indebtedness or (ii) is directly or indirectly liable for such Indebtedness, and (b) no default with respect to such Indebtedness would permit (after notice or passage of time or both), according to the terms thereof, any holder of any Indebtedness of the Company or a Restricted Subsidiary to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "Note Register" means the register maintained by or for the Company in which the Company shall provide for the registration of the Senior Notes and the transfer of the Senior Notes. "Permitted Indebtedness" means any of the following: (i) Indebtedness (and any guarantee thereof) under one or more working capital credit facilities with banks and other financial institutions in an aggregate principal amount at any one time outstanding not to exceed $20 million, less any amounts derived from Asset Sales and applied to the permanent reduction of the Indebtedness under any such credit facilities as contemplated by the "Limitation on Asset Sales" covenant (the "Maximum Bank Credit Amount"), and any renewals, amendments, extensions, supplements, modifications, deferrals, refinancings or replacements (each, for purposes of this clause (i), a "refinancing") thereof, including any successive refinancing thereof, so long as the aggregate principal amount of any such new Indebtedness, together with the aggregate principal amount of all other Indebtedness outstanding pursuant to this clause (i), shall not at any one time exceed the Maximum Bank Credit Amount; (ii) Indebtedness under the Senior Notes; (iii) Indebtedness outstanding or in effect on the date of the Indenture (and not repaid or defeased with the proceeds of the offering of the Senior Notes); (iv) Indebtedness under Interest Rate Protection Obligations, provided that (1) such Interest Rate Protection Obligations are related to payment obligations on Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a) of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant, and (2) the notional principal amount of such Interest Rate Protection Obligations does not exceed the principal amount of such Indebtedness to which such Interest Rate Protection Obligations relate; (v) Indebtedness under Currency Hedge Obligations, provided that (1) such Currency Hedge Obligations are related to payment obligations on Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a) of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant or to the foreign currency cash flows reasonably expected to be generated by the Company and its Restricted Subsidiaries, and (2) the notional principal amount of such Currency Hedge Obligations does not exceed the principal amount of such Indebtedness and the amount of such foreign currency cash flows to which such Currency Hedge Obligations relate; 54 56 (vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary; provided, however, that upon any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Restricted Subsidiary), such Indebtedness shall be deemed, in each case, to be incurred and shall be treated as an incurrence for purposes of paragraph (a) of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant at the time the Wholly Owned Restricted Subsidiary in question ceased to be a Wholly Owned Restricted Subsidiary or the time such subsequent transfer occurred; (vii) Indebtedness in respect of bid, performance or surety bonds issued for the account of the Company in the ordinary course of business, including guaranties or obligations of the Company with respect to letters of credit supporting such bid, performance or surety obligations (in each case other than for an obligation for money borrowed); (viii) Non-Recourse Indebtedness; (ix) any renewals, substitutions, refinancing or replacements (each, for purposes of this clause (ix), a "refinancing") by the Company or a Restricted Subsidiary of any Indebtedness, including any successive refinances by the Company or such Restricted Subsidiary, so long as (A) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company or such Restricted Subsidiary as necessary to accomplish such refinancing, plus the amount of expenses of the Company or such Restricted Subsidiary incurred in connection with such refinancing, (B) in the case of any refinancing of Indebtedness (including the Senior Notes) that is pari passu with or subordinated in right of payment to the Senior Notes, then such new Indebtedness is pari passu with or subordinated in right of payment to the Senior Notes at least to the same extent as the Indebtedness being refinanced and (C) such new Indebtedness has an Average Life equal to or longer than the Average Life of the Indebtedness being refinanced and a final Stated Maturity that is at least 91 days later than the final Stated Maturity of the Indebtedness being refinanced; and (x) any additional Indebtedness in an aggregate principal amount not in excess of $5 million at any one time outstanding and any guarantee thereof. "Permitted Investments" means any of the following: (i) Investments in Cash Equivalents; (ii) Investments in the Company or any of its Wholly Owned Restricted Subsidiaries; (iii) Investments by the Company or any of its Restricted Subsidiaries in another Person, if as a result of such Investment (A) such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its properties and assets to, the Company or a Wholly Owned Restricted Subsidiary; (iv) Investments permitted under the "Limitation on Asset Sales" covenant or the "Limitation on Transactions with Affiliates" covenant; (v) Investments made in the ordinary course of business in prepaid expenses, lease, utility, workers' compensation, performance and other similar deposits; and (vi) Investments in stock, obligations or securities received in settlement of debts owing to the Company or any Restricted Subsidiary as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in each case as to debt owing to the Company or any Restricted Subsidiary that arose in the ordinary course of business of the Company or any such Restricted Subsidiary, provided that any stocks, obligations or securities received in settlement of debts that arose in the ordinary course of business (and received other than as a result of bankruptcy or insolvency proceedings or upon foreclosure, perfection or enforcement of any Lien) that are, within 55 57 30 days of receipt, converted into cash or Cash Equivalents shall be treated as having been cash or Cash Equivalents at the time received. "Permitted Liens" means the following types of Liens: (a) Liens existing as of the date of the Indenture; (b) Liens securing the Senior Notes; (c) Liens in favor of the Company; (d) Liens on accounts receivable or inventory securing Indebtedness that constitutes (A) Permitted Indebtedness pursuant to clause (i) of the definition of "Permitted Indebtedness" or (B) Permitted Subsidiary Indebtedness; (e) Liens securing Indebtedness that constitutes Permitted Indebtedness pursuant to clause (ix) of the definition of "Permitted Indebtedness" incurred as a refinancing of any Indebtedness secured by Liens described in clause (a) or (d) of this definition; (f) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (g) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety and appeal bonds, bids, government contracts and leases, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (h) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (i) any interest or title of a lessor under any Capitalized Lease Obligation (to the extent the Attributable Indebtedness related thereto constitutes Indebtedness permitted to be incurred under the terms of the Indenture) or operating lease; (j) purchase money Liens; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property or assets so acquired and any proceeds therefrom and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (k) Liens securing obligations under or in respect of either Currency Hedge Obligations or Interest Rate Protection Obligations; (l) Liens upon specific items of inventory or other goods of any Person securing such Person's obligations in respect of bankers acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property or assets relating to such letters of credit and products and proceeds thereof; (n) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and setoff; and 56 58 (o) Liens securing Non-Recourse Indebtedness; provided, however, that the related Non-Recourse Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets acquired by the Company or any Restricted Subsidiary with the proceeds of such Non-Recourse Indebtedness. "Permitted Subsidiary Indebtedness" means, with respect to and Restricted Subsidiaries, Indebtedness in an aggregate principal amount at any time outstanding up to the excess, if any, of (A) 10% of the Company's Consolidated Net Tangible Assets over (B) $20 million. "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 the Company pursuant to a registration statement that has been declared effective by the Commission pursuant to the Securities Act (other than a registration statement on Form S-8 or otherwise relating to equity securities issuable under any employee benefit plan of the Company). "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Disqualified Capital Stock. "Restricted Investment" means (without duplication) (i) the designation of a Subsidiary as an Unrestricted Subsidiary in the manner described in the definition of "Unrestricted Subsidiary" and (ii) any Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company, whether existing on or after the date of the Indenture, unless such Subsidiary of the Company is an Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms of the Indenture. "S&P" means Standard and Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "Sale/Leaseback Transaction" means any direct or indirect arrangement pursuant to which properties or assets are sold or transferred by the Company or a Restricted Subsidiary and are thereafter leased back from the purchaser or transferee thereof by the Company or one of its Restricted Subsidiaries. "Stated Maturity" means, when used with respect to any Indebtedness or any installment of interest thereon, the date specified in the instrument evidencing or governing such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means any Indebtedness of the Company which is expressly subordinated in right of payment to the Senior Notes. "Subsidiary" means, with respect to any Person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation), including, without limitation, a joint venture, in which such Person, one or more Subsidiaries thereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Person performing similar functions). 57 59 "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors of the Company as provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted Subsidiary is directly or indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; (c) such designation as an Unrestricted Subsidiary would be permitted under the "Limitation on Restricted Payments" covenant; and (d) such designation shall not result in the creation or imposition of any Lien on any of the properties or assets of the Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien the creation or imposition of which shall have been in compliance with the "Limitation on Liens" covenant); provided, however, that with respect to clause (a), the Company or a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a Permitted Investment or a Restricted Payment permitted by the "Limitation on Restricted Payments" covenant, in each case at the time of incurrence, or (y) the liability would be a Permitted Investment at the time of designation of such Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a Board Resolution with the Trustee giving effect to such designation. The Board of Directors of the Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving effect to such designation on a pro forma basis, (i) no Default or Event of Default shall have occurred and be continuing, (ii) the Company could incur $1.00 of additional Indebtedness (not including the incurrence of Permitted Indebtedness) under the first paragraph of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant and (iii) if any of the properties and assets of the Company or any of its Restricted Subsidiaries would upon such designation become subject to any Lien (other than a Permitted Lien), the creation or imposition of such Lien shall have been in compliance with the "Limitation on Liens" covenant. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the extent (i) all of the Capital Stock or other ownership interests in such Restricted Subsidiary, other than any directors' qualifying shares mandated by applicable law, is owned directly or indirectly by the Company or (ii) such Restricted Subsidiary is organized in a foreign jurisdiction and is required by the applicable laws and regulations of such foreign jurisdiction to be partially owned by the government of such foreign jurisdiction or individual or corporate citizens of such foreign jurisdiction in order for such Restricted Subsidiary to transact business in such foreign jurisdiction, provided that the Company, directly or indirectly, owns the remaining Capital Stock or ownership interest in such Restricted Subsidiary and, by contract or otherwise, controls the management and business of such Restricted Subsidiary and derives the economic benefits of ownership of such Restricted Subsidiary to substantially the same extent as if such Restricted Subsidiary were a wholly owned Subsidiary. BOOK ENTRY; DELIVERY AND FORM The Senior Notes will be issued in the form of a single, permanent global certificate in definitive, fully registered form (the "Global Note"). The Global Note will be deposited with, or on behalf of, DTC and registered in the name of the nominee of DTC. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. 58 60 DTC has advised the Company and the Underwriters as follows: It is a limited-purpose trust company which was created to hold securities for its participating organizations (the "Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. Participants include securities brokers and dealers (including the Underwriters), 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, either directly or indirectly ("indirect participants"). Persons who are not Participants may beneficially own securities held by DTC only through Participants or indirect participants. DTC has also advised that pursuant to procedures established by it (i) upon the issuance by the Company of the Senior Notes, DTC will credit the accounts of Participants designated by the Underwriters with the principal amount of the Senior Notes purchased by the Underwriters, and (ii) ownership of beneficial interests in the Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC (with respect to Participants' interests), the Participants and the indirect participants. The laws of some states require that certain persons take physical delivery in definitive form of securities which they own. Consequently, the ability to transfer beneficial interests in the Global Note is limited to such extent. So long as a nominee of DTC is the registered owner of the Global Note, such nominee will be considered the sole owner or holder of the Senior Notes for all purposes under the Indenture. Except as provided below, owners of beneficial interests in the Global Note will not be entitled to have Senior Notes registered in their names, will not receive or be entitled to receive physical delivery of Senior Notes in definitive form and will not be considered the owners or holders thereof under the Indenture. Neither the Company, the Trustee, the paying agent nor the Senior Notes registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Principal and interest payments on the Global Note registered in the name of DTC's nominee of DTC will be made by the Company, either directly or through a paying agent, to DTC's nominee as the registered owner of the Global Note. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Senior Notes are registered as the owners of such Senior Notes for the purpose of receiving payments of principal and interest on such Senior Notes and for all other purposes whatsoever. Therefore, neither the Company, the Trustee nor any paying agent has any direct responsibility or liability for the payment of principal or interest on the Senior Notes to owners of beneficial interests in the Global Note. DTC has advised the Company and the Trustee that its present practice is, upon receipt of any payment of principal or interest to credit immediately the accounts of the Participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interests in the Global Note as shown on the records of DTC. Payments by Participants and indirect participants to owners of beneficial interests in the Global Note will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name" and will be the responsibility of such Participants or indirect participants. As long as the Senior Notes are represented by a Global Note, DTC's nominee will be the holder of the Senior Notes and therefore will be the only entity that can exercise a right to repayment or repurchase of the Senior Notes. See "-- Certain Covenants -- Change of Control" and "-- Limitation on Asset Sales." Notice by Participants or indirect participants or by owners of beneficial interests in a Global Note held through such Participants or indirect participants of the exercise of the option to elect repayment of beneficial interests in Senior Notes represented by a Global Note must be transmitted to DTC in accordance with its procedures on a form required by DTC and provided to Participants. In order to ensure that DTC's nominee will timely exercise a right to repayment with respect to a particular Senior Note, the beneficial owner of such Senior Note must instruct the broker or other 59 61 Participant or exercise a right to repayment. Different firms have cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other Participant or indirect participant through which it holds an interest in a Senior Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to DTC. The Company will not be liable for any delay in delivery of notices of the exercise of the option to elect repayment. The Company will issue Senior Notes in definitive form in exchange for the Global Note if, and only if, DTC is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days. In such an instance, an owner of a beneficial interest in the Global Note will be entitled to have Senior Notes equal in principal amount to such beneficial interest registered in its name and will be entitled to physical delivery of such Senior Notes in definitive form. Senior 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. 60 62 UNDERWRITING Subject to terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), the Company has agreed to sell to Dillon, Read & Co. Inc. ("Dillon Read"), Salomon Brothers Inc, Rauscher Pierce Refsnes, Inc. and Raymond James & Associates, Inc. (together with Dillon Read, the "Underwriters") and the Underwriters have severally agreed to purchase the respective principal amounts of the Senior Notes set forth opposite their names below.
PRINCIPAL UNDERWRITER AMOUNT --------------------------------------------------------------- ----------- Dillon, Read & Co. Inc. ....................................... Salomon Brothers Inc........................................... Rauscher Pierce Refsnes, Inc. ................................. Raymond James & Associates, Inc. .............................. ----------- Total................................................ $75,000,000 ===========
The Underwriting Agreement provides that the Underwriters are obligated to purchase all of the Senior Notes if any are purchased. The Underwriters propose to offer the Senior Notes directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a commission not in excess of % of the principal amount. The Underwriters may allow, and such dealers may reallow, a commission not in excess of % of the principal amount on sales to certain other dealers. The offering of the Senior Notes is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The Underwriters reserve the right to reject any offer for the purchase of the Senior Notes. After the initial public offering, the public offering price and other selling terms may be changed by the Underwriters. The Company has agreed in the Underwriting Agreement to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act or to contribute to payments that the Underwriters may be required to make in respect thereof. The Senior Notes will constitute a new issue of securities with no established trading market. The Company does not intend to list the Senior Notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market System. The Company has been advised by the Underwriters that the Underwriters presently intend to make a market in the Senior Notes following completion of the Offering. However, the Underwriters are not obligated to do so and any market-making activities with respect to the Senior Notes may be discontinued at any time without notice. Accordingly, no assurance can be given that an active market will develop for the Senior Notes or as to the liquidity of or the trading market for the Senior Notes. If a trading market does not develop or is not maintained, holders of the Senior Notes may experience difficulty in reselling the Senior Notes or may be unable to sell them at all. If a market for the Senior Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Senior Notes, future trading prices of the Senior Notes (which could be at a discount to the principal amount thereof) will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and financial condition and the market for similar securities. The Underwriters and their respective affiliates may engage in transactions with and perform services for the Company or one or more of its affiliates in the ordinary course of business. Rauscher Pierce Refsnes, Inc. ("Rauscher Pierce") provided services to VES in connection with the Combination and received $350,000 for such services. These services were in the ordinary course of Rauscher Pierce's business. 61 63 LEGAL MATTERS Certain legal matters in connection with the validity of the Senior Notes offered hereby will be passed on for the Company by Porter & Hedges, L.L.P., Houston, Texas. Certain legal matters in connection with such securities are being passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. EXPERTS The supplemental consolidated financial statements of Veritas DGC Inc. as of July 31, 1994 and 1995 and for each of the three years in the period ended July 31, 1995 included in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which has been included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Digicon Inc. incorporated in this Prospectus by reference from Digicon Inc.'s Annual Report on Form 10-K, for the year ended July 31, 1995 as amended by Form 10-K/A, Form 10-K/A-2 and 10-K/A-3 dated June 17, 1996, July 19, 1996 and August 20, 1996, respectively, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Veritas Energy Services Inc., incorporated by reference herein as of October 31, 1994 and 1995, and for each of the three years ended October 31, 1993, 1994 and 1995, have been audited by Price Waterhouse, Chartered Accountants, as set forth in their report thereon incorporated by reference herein, and are incorporated by reference herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 62 64 INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Supplemental Consolidated Statements of Operations for the years ended July 31, 1993, 1994, 1995 and (unaudited) for the year ended July 31, 1996......................... F-3 Supplemental Consolidated Balance Sheets as of July 31, 1994, 1995 and (unaudited) July 31, 1996....................................................................... F-4 Supplemental Consolidated Statements of Cash Flows for the years ended July 31, 1993, 1994, 1995 and (unaudited) for the year ended July 31, 1996......................... F-5 Supplemental Consolidated Statements of Changes in Stockholders' Equity for the years ended July 31, 1993, 1994, 1995 and (unaudited) for the year ended July 31, 1996.... F-7 Notes to Supplemental Consolidated Financial Statements............................... F-9
F-1 65 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Veritas DGC Inc. Houston, Texas We have audited the supplemental consolidated balance sheets of Veritas DGC Inc. and subsidiaries as of July 31, 1994 and 1995, and the related supplemental consolidated statements of operations, cash flows and changes in stockholders' equity for each of the three years in the period ended July 31, 1995. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the supplemental consolidated financial statements based on our audits. The supplemental consolidated financial statements give retroactive effect to the merger of Digicon Inc. and Veritas Energy Services, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the supplemental consolidated financial statements. We did not audit the balance sheets of Veritas Energy Services Inc. as of October 31, 1994 or 1995, or the related statements of operations, cash flows and changes in stockholders' equity of Veritas Energy Services Inc. for each of the three years in the period ended October 31, 1995, which statements reflect total assets of $47,186,000 and $53,910,000 as of October 31, 1994 and 1995, respectively, and total revenues of $53,161,000, $90,070,000 and $109,996,000 for the years ended October 31, 1993, 1994 and 1995, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Veritas Energy Services Inc. for 1993, 1994 and 1995, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the supplemental consolidated financial statement referred to above present fairly, in all material respects, the financial position of Veritas DGC Inc. and subsidiaries as of July 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston Texas July 15, 1996 (September 20, 1996 as to Note 2) F-2 66 VERITAS DGC INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) FOR THE YEARS ENDED FOR THE JULY 31, YEAR ENDED ----------------------------------- JULY 31, 1993 1994 1995 1996 --------- --------- --------- ----------- (AS COMBINED -- SEE NOTE 2) REVENUES....................................... $ 146,090 $ 178,392 $ 215,630 $ 250,596 COSTS AND EXPENSES: Operating expenses: Cost of services.......................... 121,873 144,984 170,424 198,711 Restructuring............................. 838 Write-off/write-down for impairment of assets.................................... 5,235 3,628 Depreciation and amortization................ 11,741 19,119 23,732 26,921 Selling, general and administrative.......... 4,797 6,296 5,855 7,255 Interest..................................... 1,928 3,213 5,170 5,466 Merger related costs......................... 3,666 Gain on sale of investment in FSU joint ventures.................................. (4,370) Other........................................ (210) (1,833) 232 546 -------- -------- -------- -------- Total................................ 140,129 177,852 201,043 246,193 -------- -------- -------- -------- Income before provision for income taxes and equity in loss of 50% or less-owned companies and joint ventures........................... 5,961 540 14,587 4,403 Provision for income taxes..................... 3,183 5,929 3,807 2,009 Equity in loss of 50% or less-owned companies and joint ventures........................... 2,204 4,965 5,186 1,113 -------- -------- -------- -------- NET INCOME (LOSS).............................. $ 574 $ (10,354) $ 5,594 $ 1,281 ======== ======== ======== ======== PER SHARE OF COMMON STOCK: Earnings (loss) per share.................... $ .05 $ (.66) $ .31 $ .07 ======== ======== ======== ======== Weighted average shares...................... 11,874 15,633 17,771 17,882 ======== ======== ======== ======== Cash dividends -- common stock............... None None None None ======== ======== ======== ========
See Notes to Supplemental Consolidated Financial Statements F-3 67 VERITAS DGC INC. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)
JULY 31, (UNAUDITED) ------------------------ JULY 31, 1994 1995 1996 --------- --------- --------- (AS COMBINED -- SEE NOTE 2) ASSETS Current assets: Cash............................................................ $ 15,545 $ 10,082 $ 10,072 Restricted cash investments..................................... 320 670 327 Accounts and notes receivable (net of allowance for doubtful accounts: 1994, $659; 1995, $607; 1996, $740)................. 43,080 54,587 65,447 Note receivable from FSU joint venture, current portion......... 443 Materials and supplies inventory (net of reserves: 1994, $68; 1995, $66; 1996, $0).......................................... 5,437 1,418 1,659 Prepayments and other........................................... 2,468 5,805 8,199 -------- -------- -------- Total current assets..................................... 67,293 72,562 85,704 Property and equipment: Seismic equipment............................................... 79,358 92,538 103,899 Data processing equipment....................................... 31,372 32,506 34,403 Seismic ships................................................... 8,291 Leasehold improvements and other................................ 28,640 32,085 26,802 -------- -------- -------- Total.................................................... 147,661 157,129 165,104 Less accumulated depreciation................................. 79,238 81,750 86,094 -------- -------- -------- Property and equipment -- net............................ 68,423 75,379 79,010 Multi-client survey data.......................................... 18,500 27,976 25,628 Investment in and advances to joint ventures...................... 9,639 187 1,463 Goodwill (net of accumulated amortization: 1994, $1,145; 1995, $1,701; 1996, 2,214)............................................ 3,594 4,223 3,674 Other assets...................................................... 3,478 4,013 3,113 Note receivable from FSU joint venture, non-current portion....... 887 -------- -------- -------- Total.................................................... $ 171,814 $ 184,340 $ 198,592 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term related party loans.................................. $ 2,695 Current maturities of long-term debt............................ 7,650 $ 10,895 $ 13,739 Accounts payable -- trade....................................... 26,573 23,526 27,454 Accrued interest................................................ 291 408 313 Other accrued liabilities....................................... 11,368 19,213 19,905 Income taxes payable............................................ 1,922 3,690 1,814 -------- -------- -------- Total current liabilities................................ 50,499 57,732 63,225 Non-current liabilities: Long-term debt--less current maturities......................... 23,454 25,893 27,351 Deferred credits................................................ 1,323 1,084 364 Other non-current liabilities................................... 2,021 1,631 1,729 -------- -------- -------- Total non-current liabilities............................ 26,798 28,608 29,444 Commitments and contingent liabilities (Note 12) Stockholders' equity: Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 10,450,758 shares, 11,134,939 shares and 11,334,352 shares at July 31, 1994, 1995 and 1996, respectively (See Note 14)........................................................... 314 111 113 Additional paid-in capital...................................... 98,240 100,797 104,469 Accumulated earnings (deficit) (from August 1, 1991 with respect to Digicon Inc.).............................................. (3,664) 1,930 2,275 Less: Treasury stock, at cost; 858,497 shares................... (4,772) Cumulative foreign currency translation adjustment.............. (373) (66) (934) -------- -------- -------- Stockholders' equity..................................... 94,517 98,000 105,923 -------- -------- -------- Total.................................................... $ 171,814 $ 184,340 $ 198,592 ======== ======== ========
See Notes to Supplemental Consolidated Financial Statements F-4 68 VERITAS DGC INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
(UNAUDITED) FOR THE YEARS ENDED FOR THE JULY 31, YEAR ENDED --------------------------------- JULY 31, 1993 1994 1995 1996 --------- --------- --------- ----------- (AS COMBINED -- SEE NOTE 2) OPERATING ACTIVITIES: Net income (loss).................................................... $ 574 $ (10,354) $ 5,594 $ 1,281 Non-cash items included in income (loss): Restructuring accrual.............................................. 252 14 Write-off/write-down for impairment of assets...................... 5,235 3,628 Depreciation and amortization...................................... 11,741 19,119 23,732 26,921 Amortization of warrants issued with short-term related party loans............................................................ 89 Amortization of deferred gain on sale/leaseback.................... (898) (103) (Gain) loss on disposition of property and equipment............... (488) (1,592) 919 875 Equity in (earnings) loss of 50% or less-owned companies and joint ventures......................................................... 2,204 4,965 5,186 1,113 Gain on sale of investment in FSU joint ventures................... (4,370) Write-down of proprietary seismic data to market................... 589 778 1,786 1,774 Other.............................................................. (713) (842) (339) (278) Change in operating assets/liabilities (exclusive of the effects of the purchase of GFS in 1993 and Data Graphics Ltd. in 1994): Accounts and notes receivable...................................... (3,632) (1,626) (8,230) (11,003) Accounts and note receivable from FSU joint venture................ Materials and supplies inventory................................... (2,520) 910 235 (241) Prepayments and other.............................................. 574 4 (2,702) 2,074 Multi-client data.................................................. (3,214) (10,075) (11,262) 574 Other.............................................................. (2,326) (596) 389 886 Accounts payable -- trade.......................................... 1,882 (6,103) (4,888) 1,770 Accrued interest................................................... (54) 131 117 (96) Other accrued liabilities.......................................... 617 4,584 7,737 796 Income taxes payable............................................... (2,119) 1,116 1,721 2,229 Deferred credits................................................... (14) (455) (239) (720) Other non-current liabilities...................................... 551 1,679 (376) (6,135) Adjustment to conform fiscal year of Veritas Energy Services Inc..... (5,268) Total cash provided (used) by operating activities............ 3,652 7,130 14,215 20,077 FINANCING ACTIVITIES: Payment of long-term debt............................................ (11,790) (9,777) (9,634) 11,437 Proceeds from long-term debt......................................... 3,036 531 Net borrowings (payments) under credit agreements.................... 6,282 7,446 1,676 2,665 Net proceeds from sale of common stock............................... 21,083 28,219 (44) 4,470 Net proceeds from sale of treasury stock............................. 3,984 3,972 Borrowings of short-term related party loans......................... 6,081 30 1,500 Payments of short-term related party loans........................... (41) (4,801) (2,725) Total cash provided (used) by financing activities............ 18,570 27,168 (6,182) (4,160) INVESTING ACTIVITIES: (Increase) decrease in restricted cash investments................... 79 304 (350) 343 Increase in investment in and advances to joint ventures............. (2,847) (1,185) (4,231) 2,372 Sale to Syntron, Inc.: Inventories and technologies....................................... 1,630 Property and equipment............................................. 1,370 Sale of investment in FSU joint ventures............................. 6,000 Purchase of property and equipment................................... (25,442) (24,487) (19,231) (14,459) Sale of property and equipment....................................... 2,995 1,402 1,651 668 Purchase of subsidiary............................................... (407) Total cash provided (used) by investing activities............ (25,215) (23,966) (13,568) (15,820) Currency (gain) loss on foreign cash................................. (253) (108) 72 (107) Change in cash and cash equivalents.................................. (3,246) 10,224 (5,463) (10) Beginning cash and cash equivalents balance.......................... 8,567 5,321 15,545 10,082 Ending cash and cash equivalents balance............................. $ 5,321 $ 15,545 $ 10,082 $10,072
See Notes to Supplemental Consolidated Financial Statements F-5 69 VERITAS DGC INC. SUPPLEMENTARY SCHEDULES TO SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
(UNAUDITED) FOR THE YEARS ENDED FOR THE JULY 31, YEAR ENDED ----------------------------- JULY 31, 1993 1994 1995 1996 ------- ------- ------- ----------- (AS COMBINED -- SEE NOTE 2) SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase in assets/liabilities due to purchase of GFS Company: Cash..................................................................... $ 65 Restricted cash investments.............................................. 75 Accounts and notes receivable............................................ 3,025 Materials and supplies inventory......................................... 183 Prepayments and other.................................................... 363 Property and equipment -- net............................................ 3,168 Goodwill................................................................. 4,245 Long-term debt........................................................... 2,431 Accounts payable -- trade................................................ 6,558 Accrued interest......................................................... 13 Other accrued liabilities................................................ 969 Common stock............................................................. 1,153 Increase in assets/liabilities due to purchase of Data Graphic Ltd.: Accounts receivable...................................................... $ 354 Property and equipment-net............................................... 213 Goodwill................................................................. 748 Accounts payable-trade................................................... 637 Long-term debt........................................................... 678 Increase (decrease) in investment in FSU joint ventures for: Common stock............................................................. $ 7,299 Accounts and note receivable from FSU joint ventures..................... 135 Other assets............................................................. Long-term debt........................................................... Increase (decrease) in property and equipment for: Accounts and notes receivable............................................ $ 2,045 $ 866 Execution of capital leases and notes.................................... 13,612 4,227 12,024 16,963 Accounts payable -- trade................................................ 2,289 1,058 334 572 Deferred credits payable................................................. 805 Prepayments and other.................................................... (1,104) Increase in materials and supplies inventory for deferred credits.......... 987 Increase in prepayments on property and equipment for notes payable........ 601 Increase in notes receivable for: Sale of property and equipment........................................... 250 Sale of other assets..................................................... 1,330 Sale of investment in FSU joint ventures resulting in an increase (decrease) in: Accounts and notes receivable from purchaser............................. 1,790 Accounts and note receivable from FSU joint ventures..................... (1,740) Accounts payable -- trade................................................ 78 Treasury stock........................................................... 8,756 Sale of inventories, property and equipment and technologies to Syntron, Inc. resulting in an increase (decrease) in: Accounts and notes receivable -- deferred credits........................ 3,255 Materials and supplies inventory......................................... (2,154) Other assets -- deferred credits receivable.............................. 857 Accounts payable -- trade................................................ 957 Other accrued liabilities -- deferred gain............................... 891 Other non-current liabilities -- deferred gain........................... 110 Sale of accounts receivable and property and equipment resulting in a decrease in: Accounts and notes receivable............................................ (78) Property and equipment -- net............................................ (247) Long-term debt........................................................... (199) Accounts payable -- trade................................................ (18) Other non-current liabilities............................................ (108) Increase in additional paid-in capital as a result of warrants issued with short-term related party loans........................................... 89 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (AS RESTATED -- SEE NOTE 21): Cash paid for: Interest -- Equipment purchase obligations and unsecured notes payable............. 1,262 1,538 1,280 1,878 Secured term loan...................................................... 584 585 635 506 Credit agreements...................................................... 46 461 1,723 1,843 Short-term related party loans......................................... 206 199 Other.................................................................. 239 339 1,388 1,286 Income taxes............................................................. 436 1,272 2,276 5,086
See Notes to Supplemental Consolidated Financial Statements F-6 70 VERITAS DGC INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 31, 1993, 1994, 1995 AND 1996 (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
ACCUMULATED EARNINGS CUMULATIVE COMMON STOCK ISSUED TREASURY STOCK, (DEFICIT) (FROM FOREIGN ------------------- AT COST ADDITIONAL EMPLOYEE AUGUST 1, 1991 CURRENCY PAR -------------------- PAID-IN NOTES WITH RESPECT TO TRANSLATION SHARES VALUE SHARES AMOUNT CAPITAL RECEIVABLE DIGICON INC.) ADJUSTMENT ----------- ----- ---------- ------- -------- -------- ---------------- ---------- (AS COMBINED -- SEE NOTE 2) BALANCE, AUGUST 1, 1992 -- (AS PREVIOUSLY REPORTED BY DIGICON INC.) ............. 22,597,423 $ 226 $ 40,007 $ (48) $ 4,554 Pooling of interest with Veritas Energy Services Inc. ...................... 483 1,562 $ (66) Common stock issued in acquisition of GFS, net of issue costs................ 225,000 2 1,137 Common stock issued for cash, net of issue costs......... 5,456,900 55 20,994 Collections of employee notes receivable................. 48 Cumulative foreign currency translation adjustment................. (149) Net income................... 574 ---------- ---- -------- ------ ------- -------- -------- ------ BALANCE, JULY 31, 1993....... 28,279,323 283 62,621 6,690 (215) Common stock issued for investment in FSU joint ventures, net of issue costs...................... 3,072,950 31 7,228 Common stock issued for cash, net of issue costs -- Veritas Energy Services, Inc. ............ 28,255 Common stock issued for cash under employee purchase plan -- Veritas Energy Services, Inc. ............ 9 Common stock issued for cash under employee stock option plan -- Veritas Energy Services, Inc. ............ 127 Cumulative foreign currency translation adjustment..... (158) Net loss..................... (10,354) ---------- ---- -------- ------ ------- -------- -------- ------ BALANCE, JULY 31, 1994....... 31,352,273 314 -- -- 98,240 -- (3,664) (373)
(Continued) F-7 71 VERITAS DGC INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED) FOR THE YEARS ENDED JULY 31, 1993, 1994, 1995 AND 1996 (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
ACCUMULATED EARNINGS CUMULATIVE COMMON STOCK ISSUED TREASURY STOCK, (DEFICIT) (FROM FOREIGN ------------------- AT COST ADDITIONAL EMPLOYEE AUGUST 1, 1991 CURRENCY PAR -------------------- PAID-IN NOTES WITH RESPECT TO TRANSLATION SHARES VALUE SHARES AMOUNT CAPITAL RECEIVABLE DIGICON INC.) ADJUSTMENT ----------- ----- ---------- ------- -------- -------- --------------- ---------- (AS COMBINED -- SEE NOTE 2) Common stock issued for investment in FSU joint ventures, net of issue costs...................... 2,052,543 20 2,265 One for three reverse stock split, net of issue costs...................... (22,269,877) (223) 175 Warrants issued in conjunction with short-term related party loans........ 89 Common stock issued for cash under employee purchase plan -- Veritas Energy Services, Inc. ............ 28 Common stock reacquired in sale of investment in FSU joint ventures............. (1,708,497) $(8,756) Treasury stock issued for cash....................... 850,000 3,984 Cumulative foreign currency translation adjustment..... 307 Net income................... 5,594 ---------- ---- -------- ------ ------- -------- -------- ------ BALANCE, JULY 31, 1995....... 11,134,939 111 (858,497) (4,772) 100,797 1,930 (66) Treasury stock issued for cash, net of issue costs (unaudited)................ 858,497 4,772 (800) Common stock issued upon exercise of warrants (unaudited)................ 29,433 530 Common stock issued for cash under employee stock option plan (unaudited)........... 181,497 2 2,448 Common stock certificates cancelled (unaudited)...... (11,517) Registration and filing costs (unaudited)................ (30) Common stock issued for cash under employee stock purchase plan -- Veritas Energy Services, Inc. (unaudited)................ 12 Common stock issued for cash under employee stock option plan -- Veritas Energy Services, Inc. (unaudited)................ 1,512 Cumulative foreign currency translation adjustment (unaudited)................ (868) Net income (unaudited)....... 1,281 Adjustment to conform fiscal year of Veritas Energy Services Inc............... (936) ---------- ---- -------- ------ ------- -------- -------- ------ BALANCE, JULY 31, 1996 (UNAUDITED)................ 11,334,352 $ 113 $104,469 $ 2,275 $ (934) ========== ==== ======== ====== ======= ======== ======== ======
See Notes to Supplemental Consolidated Financial Statements F-8 72 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1993, 1994, 1995 AND UNAUDITED AS TO THE YEAR ENDED JULY 31, 1996 AS COMBINED -- SEE NOTE 2 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The accompanying supplemental consolidated financial statements include the accounts of Veritas DGC Inc., formerly Digicon Inc., ("the Company") and all majority-owned domestic and foreign subsidiaries. Investments in 50% or less-owned companies and joint ventures are accounted for on the equity method. All material intercompany balances and transactions have been eliminated. All financial information for all periods presented prior to the merger on August 30, 1996 between Digicon Inc. ("Digicon") and Veritas Energy Services Inc. ("VES") includes the results of VES. (See Note 2). The merger has been accounted for as a pooling of interests. These supplemental consolidated financial statements, subject to audit adjustments, if any, will become the primary historical consolidated financial statements of Veritas DGC Inc. upon issuance of consolidated financial statements for a period that includes the date of consummation, August 30, 1996. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. UNAUDITED FINANCIAL INFORMATION In the opinion of management, the unaudited supplemental consolidated financial statements as of July 31, 1996 contain all adjustments necessary to present fairly the financial position of Veritas DGC Inc. and subsidiaries, and the results of its operations and its cash flows for the year ended July 31, 1996. RECLASSIFICATION OF PRIOR YEAR BALANCES Certain prior year balances have been reclassified for consistent presentation. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement is effective for financial statements with fiscal years beginning after December 15, 1995. The Company will be required to implement this statement for the fiscal year 1997. Implementation of this pronouncement is not expected to have a material effect on the Company's supplemental consolidated financial statements. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation." This statement established a fair value method of accounting for stock-based compensation plans either through recognition or disclosure. This statement is effective for fiscal years beginning after December 15, 1995. The Company will be required to implement this statement for the fiscal year 1997. The F-9 73 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company intends to adopt this standard by disclosing the pro forma net income (loss) and net income (loss) per share amounts assuming the fair value method was adopted on August 1, 1995. The adoption of this statement will have no material impact on the Company's supplemental consolidated financial statements. TRANSLATION OF FOREIGN CURRENCIES The Company has determined that the U.S. dollar is its primary functional currency and, accordingly, most foreign entities translate property and equipment (and related depreciation) and inventories into U.S. dollars at the exchange rate in effect at the time of their acquisition while other assets and liabilities are translated at year-end rates. Operating results (other than depreciation) are translated at the average rates of exchange prevailing during the year and remeasurement gains and losses are included in the determination of net income and are reflected in other costs and expenses (See Note 19). The remaining foreign entities use the Canadian dollar as the functional currency and translate all assets and liabilities at year-end exchange rates and operating results at average exchange rates prevailing during the year. Adjustments resulting from the translation of assets and liabilities are recorded in the cumulative foreign currency translation account in the stockholders' equity section. CASH EQUIVALENTS For purposes of the Supplemental Consolidated Statements of Cash Flows, the Company has elected to define "cash equivalents" as items readily convertible into known amounts of cash with original maturities of three months or less. RESTRICTED CASH INVESTMENTS Restricted cash investments in the amounts of $320,000, $670,000 and $327,000 at July 31, 1994, 1995 and 1996, respectively, were pledged as collateral on certain bank guarantees. ACCOUNTS RECEIVABLE Included in accounts and notes receivable at July 31, 1994, 1995 and 1996 are unbilled amounts of approximately $8,600,000, $11,036,000 and $12,682,000, respectively. Such amounts are either not billable to the customer at July 31 in accordance with the provisions of the contract and generally will be billed in one to four months or are currently billable and will be invoiced in the next monthly statement cycle. INVENTORIES Inventories of materials and supplies are stated at the lower of average cost or market. MULTI-CLIENT SURVEY DATA The Company collects and processes certain seismic data for its own account to which it retains all ownership rights and which it resells to clients on a non-transferable, non-exclusive basis. The Company may obtain precommitted sales contracts to help fund the cash requirements of these surveys which generally last from 5 to 7 months. The Company capitalizes the unfunded portion using an estimated sales method. Under that method the amount capitalized equals actual costs incurred less costs attributed to the precommitted sales contracts based on the percentage of total estimated costs to total estimated sales multiplied by actual sales. The cost of multi-client survey data is charged to operations in the period sales occur based on the percentage of total estimated costs to total estimated sales F-10 74 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) multiplied by actual sales. The Company periodically reviews the carrying value of multi-client survey data to assess whether there has been a permanent impairment of value and records losses in periods when the total estimated costs exceed total estimated sales or in periods when it is determined that sales would not be sufficient to cover the carrying value of the asset. In general, costs are expected to be recovered from sales over a period of less than 5 years. GOODWILL The Company records the purchase price of businesses or joint venture interests in excess of the fair value of net assets acquired as goodwill which is amortized over a period of 10 to 20 years which approximates the period benefits are expected to be derived. The Company periodically reviews the carrying value of goodwill in relation to the current and expected operating results of the businesses or joint ventures in order to assess whether there has been a permanent impairment of such amounts. There were no write-downs as a result of such review during the years ended July 31, 1993, 1994, 1995 or 1996. See Notes 4, 5 and 6 relating to the purchase of investment in FSU joint ventures, GFS Company and Data Graphics Ltd. MOBILIZATION COST Transportation and make-ready expenses of seismic operations prior to commencement of business in an area, that would not have been incurred otherwise, are deferred and amortized over the lesser of the term of the related contract or backlog of contracts in that area or one year. Amounts applicable to operations for the Company's own account are included in the cost of multi-client survey data. Unamortized mobilization costs are shown as other assets and totaled $973,000, $1,421,000 and $517,000 at July 31, 1994, 1995 and 1996, respectively. INCOME TAXES The Company's policy is not to provide for the income taxes, if any, which would be payable if undistributed earnings of foreign consolidated subsidiaries were paid as dividends to the parent company, since such earnings have been or will be reinvested in the business. In February 1992, the FASB issued SFAS 109 "Accounting for Income Taxes", which requires the use of the "liability method" in place of the previously required "deferred method". Under the liability method, deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. SFAS 109 allows recognition of all or a portion of benefits from net operating loss carryforwards as deferred tax assets if realization is "more likely than not". In periods of changing income tax rates, the liability method will cause fluctuations in net income of companies with deferred taxes. The Company adopted SFAS 109 effective August 1, 1993. The adoption of this standard did not result in a cumulative effect adjustment to equity or income for the year ended July 31, 1994. Recognition is given in the accompanying supplemental consolidated balance sheets to the future income tax benefits of loss carryforwards only to the extent that they can be used to offset existing deferred taxes. Since the Company's quasi-reorganization with respect to Digicon Inc. on July 31, 1991, in accordance with Staff Accounting Bulletin No. 86, the tax benefits of loss carryforwards existing at the date of the quasi-reorganization, when realized, have been recognized in the supplemental consolidated statements of operations by a charge in lieu of income taxes, representing the additional F-11 75 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income taxes which otherwise would have been provided, with an equal and offsetting direct addition to paid-in capital reflecting the utilization of the loss carryforward. LEASES Operating leases include those for office space, specialized seismic equipment rented for short periods of time, and the Company's seismic ships which generally are chartered on a short-term basis. QUASI-REORGANIZATION Digicon Inc. effected a quasi-reorganization adjustment as of July 31, 1991 in which its accumulated deficit at July 31, 1991 of $139,751,000 was offset against additional paid-in capital. REVENUES Revenues from data acquisition and data processing services are recorded as revenues based on contractual rates set forth in the related contract if the contract provides a separate rate for each segment. If the contract only provides a rate for the overall service, revenue is recognized based on the percentage of the work effort completed compared with the total work effort involved in the contract. DEPRECIATION Provision for depreciation is computed using the straight-line method based on estimated useful lives as follows:
AVERAGE YEARS ---- Seismic equipment..................................... 5 Data processing equipment............................. 3-6 Seismic ships......................................... 14 Leasehold improvements and other...................... 3-7
Expenditures for routine repairs and maintenance are charged to expense as incurred; expenditures for additions and improvements are capitalized and depreciated over the estimated remaining life of the related asset. Significant vessel biennial drydocking expenses are recorded as deferred charges in other assets and are amortized over a six to twelve month period. The net gain or loss on items of property and equipment retired or disposed of is included in other costs and expenses. See Note 19. It is the Company's policy to periodically review property and equipment lives. In fiscal 1993, a study indicated that the actual lives for certain asset categories generally were longer than the useful lives used for depreciation purposes in the Company's financial statements and accordingly, the Company extended the estimated useful lives for certain of its seismic acquisition equipment. The effect of this change was to reduce 1993 depreciation expense by $490,000 and increase net income by $490,000, or $.04 per share (as restated for the Reverse Split -- See Note 14). In fiscal 1994 and 1996, the Company recognized impairment of assets in the amount of $5,235,000 and $3,628,000, respectively or $.33 and $.20 respectively per share (as restated for the Reverse Split -- See Notes 14 and 18). F-12 76 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESEARCH AND DEVELOPMENT Research and development costs are charged to expense when incurred. Research and development costs for the years ended July 31, 1993, 1994, 1995 and 1996 were $4,727,000, $5,764,000, $3,589,000 and $3,193,000, respectively. EARNINGS (LOSS) PER SHARE Weighted average shares and earnings (loss) per share have been restated for all periods presented to reflect the effect of the Reverse Split consummated on January 17, 1995 (see Note 14) and shares issuable upon exchange of the Veritas Energy Services Inc. Exchangeable Stock (see Note 2). Primary loss per share is computed based on the weighted average number of shares of common stock. Primary earnings per share is computed based on the weighted average number of shares of common stock plus common stock equivalents. Common stock equivalents include (i) stock options (see Note 13), (ii) warrants (see Note 17) and (iii) contingent shares issuable. Shares issuable upon the conversion of stock options and warrants were disregarded since the treasury stock method of calculation produced no incremental shares or resulted in dilution of less than 3%. For the year ended July 31, 1994, contingent shares issuable under the second stage of the agreements discussed in Note 4 were disregarded due to net losses incurred. Fully diluted earnings per share is not presented for the year ended July 31, 1994 due to net losses incurred. Fully diluted earnings per share is not presented for the years ended July 31, 1993, 1995 and 1996 since stock options and warrants referenced above had no dilutive effect or resulted in dilution of less than 3%. 2. BUSINESS COMBINATION On August 30, 1996, Veritas Energy Services Inc. ("VES"), a Canadian company, was combined with and into Digicon Inc. ("Digicon"), a Delaware corporation (the "Combination"). The combined company changed its name to Veritas DGC Inc. (the "Company"). As a result of the Combination, each share of VES no par value common shares outstanding was converted into the right to receive VES no par value exchangeable stock (the "Exchangeable Stock") at an exchange ratio of 0.8 of a share of Exchangeable Stock per VES common share. All of the holders of VES common shares, except for those shareholders who perfected and properly exercised their right to dissent from the Combination and received fair value of their shares in cash, became holders of Exchangeable Stock and accordingly, 7,023,701 shares of Exchangeable Stock were issued. The aggregate stated capital of the Exchangeable Stock is equal to the aggregate stated capital immediately prior to the Combination of the VES common shares that were exchanged or $30,396,000. The Exchangeable Stock is convertible, at the discretion of the stockholder, on a one-for-one basis into shares of the Company's $0.01 par value common stock and their holders have rights identical to the holders of the Company's common stock. Options to purchase shares of VES common stock ("VES Option") were converted into options to purchase shares of the Company's common stock at an exchange ratio of 0.8 of an option in the Company's common stock per VES Option. See Note 13. The VES articles of amalgamation were amended to reduce the number of authorized VES common shares to one which will be held by the Company. The Combination has been accounted for as a pooling-of-interests and, accordingly, the accompanying supplemental consolidated financial statements have been prepared on a basis that includes the accounts of Digicon and VES. Information concerning common stock and per share data has been restated on an equivalent share basis. As a result of differing year ends of Digicon and VES, results of F-13 77 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) operations for dissimilar year ends have been combined. Digicon's results of operations for each of the three years ended July 31, 1995 have been combined with VES' results of operations for each of the three years ended October 31, 1995. Digicon's results of operations for the year ended July 31, 1996 have been combined with VES' results of operations for the twelve months ended July 31, 1996 and, accordingly, VES' operating results for the period August 1, 1995 through October 31, 1995 is included in the years ended July 31, 1995 and July 31, 1996. An adjustment in an amount equal to the results of operations for this three-month period is included in the unaudited supplemental consolidated statements of changes in stockholders' equity. Revenues, net income and net income per share were $22,150,000, $936,000 and $0.05, respectively, for the period August 1, 1995 through October 31, 1995. Presented below is the effect of the pooling of interests on previously reported results of operations. Amounts related to VES have been converted into the Company's reporting currency, United States ("U.S.") dollars, using weighted average exchange rates prevailing during the period and reflects adjustments for differences between U.S. and Canadian generally accepted accounting principles ("GAAP") and reclassifications to conform financial statement presentation. GAAP adjustments include adjustments to (i) write off foreign exchange gains and (losses) on borrowings which are deferred and amortized over the period of the debt affecting net income by approximately ($220,000), $253,000, ($25,000) and ($71,000) for the years ended July 31, 1993, 1994, 1995 and 1996, respectively, and (ii) reverse the effect of a prior period adjustment affecting net income by approximately ($834,000) and $314,000 for the years ended July 31, 1994 and 1995, respectively. Reclassification of $13,994,000, $27,213,000, $25,493,000 and $28,842,000 for the years ended July 31, 1993, 1994, 1995 and 1996 have been made to net amounts billed to customers for reimbursable costs against VES' revenues.
YEARS ENDED JULY 31, ----------------------------------------------- 1993 1994 1995 1996 -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues: Digicon.................................... $106,923 $115,535 $131,127 $160,847 VES........................................ 53,161 90,070 109,996 118,591 Reclassifications/adjustments.............. (13,994) (27,213) (25,493) (28,842) -------- -------- -------- -------- Total.............................. $146,090 $178,392 $215,630 $250,596 ======== ======== ======== ======== Net income (loss): Digicon.................................... $ (1,258) $(14,426) $ 2,778 $ 385 VES........................................ 2,052 4,653 2,527 967 Adjustments................................ (220) (581) 289 (71) -------- -------- -------- -------- Total.............................. $ 574 $(10,354) $ 5,594 $ 1,281 ======== ======== ======== ======== Net income (loss) per share: As previously reported..................... $ (.15) $ (1.48) $ .25 $ .04 ======== ======== ======== ======== As restated................................ $ .05 $ (.66) $ .31 $ .07 ======== ======== ======== ========
There were no material adjustments to the net assets of VES as a result of adopting the same accounting principles as the Company. During the year ended July 31, 1996, the Company incurred $3,666,000 of costs associated with the merger. These costs consist primarily of professional fees. F-14 78 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENT IN INDONESIAN JOINT VENTURE Summarized financial information of this joint venture is as follows:
JULY 31, JULY 31, JULY 31, 1994 1995 1996 --------- --------- --------- (IN THOUSANDS OF DOLLARS) Current assets................................... $ 2,734 $ 1,492 $ 1,837 Property and equipment -- net.................... 1,593 Proprietary seismic data......................... 1,138 468 617 -------- -------- -------- Total assets........................... $ 5,465 $ 1,960 $ 2,454 ======== ======== ======== Current liabilities.............................. 2,247 1,192 923 Other long-term liabilities...................... 635 Long-term debt................................... 922 Advances from Digicon............................ 9,692 12,439 14,531 -------- -------- -------- Total non-current liabilities.......... 10,614 13,074 14,531 Stockholders' equity Common stock..................................... 2,576 2,576 2,576 Accumulated deficit.............................. (9,972) (14,882) (15,576) -------- -------- -------- Total stockholders' equity............. (7,396) (12,306) (13,000) -------- -------- -------- Total liabilities and stockholders' equity............................... $ 5,465 $ 1,960 $ 2,454 ======== ======== ========
FOR THE YEARS ENDED JULY 31, -------------------------------------------------- 1993 1994 1995 1996 -------- -------- -------- -------- (IN THOUSANDS OF DOLLARS) Revenues.............................. $ 11,012 $ 2,518 $ 1,443 $ 4,188 Operating Expenses.................... 10,776 5,367 5,368 4,764 Depreciation and amortization......... 1,779 1,065 430 Other................................. 518 174 196 (48) ------- ------ ------ ------ Total....................... 13,073 6,606 5,994 4,716 Loss before (provision) benefit for income taxes........................ (2,061) (4,088) (4,551) (528) (Provision) benefit for income taxes............................... 36 -- (359) (166) ------- ------ ------ ------ Net loss.............................. $ (2,025) $ (4,088) $ (4,910) $ (694) ======= ====== ====== ======
4. INVESTMENT IN FSU JOINT VENTURES During the year ended July 31, 1994, the Company entered into a joint venture agreement with MD Seis International Ltd. to perform geophysical services in the former Soviet Union ("FSU"). In connection with the agreement, the Company placed 5,431,615 shares of its pre-Reverse Split common stock in escrow to be distributed in stages upon the execution and completion of certain conditions. The first stage was completed on April 1, 1994 and the Company exchanged 3,072,950 shares of pre-Reverse Split common stock valued at $2.375 per share, or $7,298,256, and a $1,000,000 cash commitment in return for interests in certain jointly owned companies. The second stage of the agreement was completed on August 25, 1994, and the Company increased its ownership interest in F-15 79 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) certain of these companies by exchanging 2,052,543 shares of pre-Reverse Split common stock valued at $1.125 per share, or $2,309,111, and an additional $2,000,000 cash commitment. In addition, the Company agreed to guarantee certain liabilities of the joint ventures. After adjustment for the Reverse Split consummated on January 17, 1995, MD Seis owned 1,708,497 shares of common stock. The investments were being accounted for under the equity method. The FSU joint ventures generated total revenues of approximately $300,000 and $6,994,000 and net losses of approximately $921,000 and $2,954,000 during the years ended July 31, 1994 and 1995, respectively. The Company's share of net losses was approximately $391,000 and $1,477,000 during the years ended July 31, 1994 and 1995, respectively. The excess purchase price over the fair value of the net assets acquired in the amount of $9,292,000 was being amortized over a 20 year period. Amortization expense for the years ended July 31, 1994 and 1995 was $100,000 and $392,000, respectively. On June 6, 1995, the Company sold its interests in the joint ventures for $6,000,000 in cash and the return of the 1,708,497 shares of the post-Split common stock owned by MD Seis (valued at $5.125 per share). In addition, the Company received $2,992,144 in short-term notes, which were collected on July 31, 1995, representing payments for equipment sold and a return of amounts previously advanced to the joint ventures and is entitled to receive royalties of up to $1,500,000 based on future sales of speculative data currently being acquired by the joint ventures. The net effect of these transactions was a gain of $4,370,000 which was recognized during 1995. 5. PURCHASE OF GFS COMPANY On October 30, 1992, the Company acquired GFS Company ("GFS") of Jackson, Mississippi. GFS operates land and transition zone seismic crews. Under the agreement, Digicon issued 225,000 shares of its pre-Reverse Split common stock (valued at $1,153,000) and $117,000 in notes in exchange for all of the outstanding stock of GFS. On completion of the transaction, GFS became a wholly-owned subsidiary of the Company. The acquisition was accounted for using the purchase method of accounting, and accordingly, goodwill of $4,245,000 was recorded representing the excess of the purchase price over the fair value of the net assets acquired. The goodwill is being amortized over a ten-year period and the operations of GFS are included in the consolidated financial statements beginning November 1, 1992. 6. PURCHASE OF DATA GRAPHICS LTD. On December 1, 1994, VES acquired all of the outstanding capital stock of Data Graphics Ltd. for a purchase price of $1,723,000, including $1,315,000 of assumed liabilities. The acquisition has been accounted for using the purchase method of accounting, and accordingly, goodwill of $1,155,000 was recorded representing the excess of the purchase price over the fair value of the assets acquired. The goodwill is being amortized over a ten-year period and the operations of Data Graphics Ltd. are included in the consolidated financial statements beginning December 1, 1994. 7. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES On August 31, 1994, the Company entered into a series of agreements with Syntron, Inc. ("Syntron") that provided for the sale of certain assets, inventories, and technologies by the Company to Syntron and the assumption of certain liabilities by Syntron. The sale price was $7,500,000 payable in cash of $3,000,000 and $4,500,000 in credits to be applied by the Company against future purchases from Syntron. The agreements also provide that for a period of three years, Syntron will be the sole supplier to the Company of certain acquisition, monitoring, and recording equipment that is competitively priced, deliverable on a timely basis and is technologically competitive. In addition, the Company F-16 80 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) agreed to lease back certain marine and land recording equipment from Syntron for a period of up to 36 months with minimum lease terms ranging from 7 1/2 to 17 1/2 months. The difference between the sale price and the net book value of the net assets sold after discounting the credits by 2 1/2% was a $1,001,000 gain which was recognized on a pro rata basis over the minimum lease terms as a reduction in rental expense. Unused credits in the amount of $1,168,000 are included in accounts and notes receivable at July 31, 1996. 8. SHORT-TERM RELATED PARTY LOANS The short-term related party loans provided for up to $3,000,000 in advances and were collateralized, on a subordinated basis, by a majority of the assets of Digicon. Interest was payable at prime plus 3% through January 26, 1995 and at prime plus 6% thereafter. Interest expense for the years ended July 31, 1994 and 1995 was $206,000 and $376,000, respectively. The loans were subject to mandatory prepayment from a portion of the proceeds of certain specified transactions, if and when such transactions occurred. As a result of the completion of several such transactions, the loans were fully repaid on June 13, 1995. As further consideration for the facility, the Company issued common stock purchase warrants in an amount directly related to the average outstanding balance of the loans. See Notes 17 and 21. 9. LONG-TERM DEBT The Company's long-term debt is as follows:
JULY 31, JULY 31, JULY 31, 1994 1995 1996 -------- -------- -------- (IN THOUSANDS OF DOLLARS) Revolving credit agreement due July 1998, at prime plus 1/4% (8.5% at July 31, 1996)................. $ 11,458 Revolving credit agreement due April 1997, at prime plus 3%............................................ $ 12,446 $ 14,123 Secured term loan due July 1999, at prime plus 3/4% (9.0% at July 31, 1996)............................ 6,000 Secured term loan due June 1997, at 10.75%........... 6,000 4,500 Secured term loan due July 1999, at prime plus 1/2% (6.25% at July 31, 1996)........................... 1,240 Secured term loan due July 1999, at prime plus 1/2% (8.75% at July 31, 1996)........................... 2,832 Equipment purchase obligations maturing through July 1999, at a weighted average rate of 10.28% at July 31, 1996........................................... 12,089 17,720 19,319 Secured term loan due July 1996, at 7.75%............ 454 185 Mortgage note payable due October 2005, at 10%....... 260 241 Real estate note maturing April 1995, at prime plus 1.25%.............................................. 80 Unsecured notes maturing through January 1995, at 10%................................................ 35 ------- ------- ------- Total...................................... 31,104 36,788 41,090 Less current maturities.............................. 7,650 10,895 13,739 ------- ------- ------- Due after one year......................... $ 23,454 $ 25,893 $ 27,351 ======= ======= =======
The revolving credit agreement due July 1998 is with a commercial bank and provides a facility of up to $15,000,000. Advances under the agreement are limited by a borrowing formula and are F-17 81 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) collateralized by a majority of the assets of the Company (except those assets directly or indirectly owned by VES). The agreement provides for the collection of certain of the Company's accounts receivable into cash collateral accounts. Amounts applied against outstanding advances are available for reborrowing upon presentation of evidence of adequate borrowing base coverage. Interest is payable monthly at prime plus 1/4%. The agreement limits, among other things, the Company's right, without consent of the lender, to take certain actions including creating indebtedness in excess of specified amounts and declaring or paying dividends, and requires the Company to maintain certain financial ratios. At July 31, 1996, $3,542,000 was available for borrowing under this agreement. The revolving credit agreement due April 1997 was with a finance company and provided a revolving credit facility of up to $17,000,000 (increased from $15,000,000 in April 1995) through April 11, 1997. The facility was repaid in July 1996 with proceeds from the revolving credit agreement due July 1998. The secured term loan due July 1999 is with a commercial bank and is due in 36 monthly installments of $166,667 plus interest at prime plus 3/4% and is secured by a majority of the assets of the Company (except those assets directly or indirectly owned by VES. The secured term loan due June 30, 1997, bore interest at 10.75% payable quarterly. A principal payment of $1,500,000 was paid on June 30, 1996, and the remaining unpaid principal was due June 30, 1997. In connection with the loan, the Company issued common stock purchase warrants to the lender. See Note 17. The loan was repaid with proceeds from the secured term loan due July 1999. The secured term loans due July 1999 provide for advances for equipment purchases up to Canadian $5.5 million and Canadian $4.0 million, respectively, and advances are payable in 36 equal monthly installments. Advances bear interest at the prime rate (as defined) plus .5% and are secured by the equipment purchased. The agreements require VES to maintain certain financial ratios. Amounts available for borrowing under the agreements at July 31, 1996 were $2,760,000 and $76,000, respectively. The Company's equipment purchase obligations represent installment loans and capitalized lease obligations primarily related to computer and seismic equipment. Annual maturities of long-term debt for the next five years are as follows:
JULY 31, JULY 31, FISCAL YEAR 1995 1996 ------------------------------------------------------- -------- -------- (IN THOUSANDS OF DOLLARS) 1996................................................. $ 10,895 1997................................................. 22,246 $ 13,739 1998................................................. 3,231 21,531 1999................................................. 230 5,555 2000................................................. 24 86 2001................................................. 162 29 Thereafter........................................... 150 -------- -------- Total........................................ $ 36,788 $ 41,090 ======= =======
F-18 82 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the year ended July 31, 1993, the Company incurred interest costs of $1,928,000. The Company capitalized $204,000 of this amount as a cost of leasehold improvements to a chartered vessel. No interest was capitalized during the years ended July 31, 1994, 1995 and 1996. 10. INCOME TAXES The tax effects of significant items comprising the Company's net deferred tax position are as follows:
JULY 31, JULY 31, JULY 31, 1994 1995 1996 -------- -------- -------- (IN THOUSANDS OF DOLLARS) Deferred tax assets: Difference between book and tax basis of property and equipment........... $ 3,488 $ 4,544 $ 3,107 Difference between book and tax basis of proprietary seismic data......... 1,943 4,526 8,443 Operating loss carryforwards........... 47,046 50,156 45,902 Tax credit carryforwards............... 6,023 5,761 3,580 Other.................................. 595 156 1,304 -------- -------- -------- Total.......................... 59,095 65,143 62,336 Deferred tax liabilities: Other.................................. (1,923) (840) (1,748) -------- -------- -------- Net deferred tax assets.................. 57,172 64,303 60,588 Valuation allowance...................... (58,612) (64,829) (61,055) -------- -------- -------- Net deferred tax liability............... $ (1,440) $ (526) $ (467) ======== ======== ========
Provision for income taxes consists of the following:
FOR THE YEARS ENDED JULY 31, --------------------------------------- 1993 1994 1995 1996 ------ ------ ------ ------ (IN THOUSANDS OF DOLLARS) Current -- U.S........................ $ 54 $ 34 Current -- foreign.................... 3,143 $2,449 4,687 $2,068 Deferred -- foreign................... (14) 3,480 (914) (59) ------ ------ ------ ------ Total....................... $3,183 $5,929 $3,807 $2,009 ====== ====== ====== ======
As of July 31, 1995 and 1996, the Company had U.S. net operating loss carryforwards ("NOL's") of approximately $88,756,000 and $86,890,000, respectively which expire in the years 1998 through 2010. Included in such amounts are $76,885,000 and $73,681,000, at July 31, 1995 and 1996, respectively, of NOL's that existed prior to the quasi-reorganization. See Note 1. As of July 31, 1995 and 1996, approximately $5,761,000 and $3,580,000, respectively of investment tax credit carryforwards, which will expire in the years 1997 through 1999, were available to reduce future U.S. income taxes. Foreign operations had NOL's of approximately $62,498,000 and $49,061,000 at July 31, 1995 and 1996, respectively, which are available indefinitely to reduce future foreign taxable income in specific jurisdictions. Included in such amounts are $48,900,000 and $38,315,000 at July 31, 1995 and 1996, respectively of NOL's that existed prior to the quasi-reorganization. See Note 1. The foreign component of income (loss) before provision for income taxes was $241,000, $4,018,000, $(747,000) and $(135,000) for the years ended July 31, 1993, 1994, 1995 and 1996, respectively. F-19 83 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of income tax expense computed at the statutory rate to the provision included in the supplemental Consolidated Statements of Operations is as follows:
YEARS ENDED JULY 31, ------------------------------------- 1993 1994 1995 1996 ----- ----- ------ ------ Income tax at the statutory rate...................... 2,027 183 5,105 1,541 Increase (reduction) in taxes resulting from: Foreign losses with no tax recovery................. 764 4,221 2,505 4,985 Foreign withholding tax cost........................ 0 1,400 274 Foreign exchange capital loss....................... 2,410 148 51 Foreign rate adjustment............................. (710) (93) (131) Non deductible expenses............................. 419 258 315 Write-off of capital investment in foreign subsidiary....................................... 0 (5,775) (4,734) Other............................................... 392 (594) 259 (292) ----- ------ ------ ------ 3,183 5,929 3,807 2,009 ===== ====== ====== ======
IRS regulations restrict utilization of NOL's for any company in which an "ownership change" (as defined in Section 382 of the Internal Revenue Code) has occurred. The Company has performed the required testing and has concluded that an "ownership change" occurred in connection with the issuance of common stock through a public offering made by the Company on January 6, 1992. As a result, the future utilization of U.S. NOL's existing at the date of the "ownership change" will be limited to approximately $4,000,000 per year. This limitation had no effect on the provision for income taxes for the years ended July 31, 1993, 1994, 1995 and 1996. To the extent that any portion of this annual limitation is not used in any year, it may be carried over and added to the annual limitation of succeeding years. At July 31, 1995 and 1996, the accumulated unused limitation on NOL's existing at the date of the "ownership change" was approximately $12,948,000 and $16,003,000, respectively. 11. DEFERRED CREDITS In August 1992, the Company entered into agreements with a customer pursuant to which the Company received certain seismic equipment with a fair value of approximately $1,792,000 and was obligated to allow $7,800,000 in discounts at specified rates on future seismic services performed by the Company for such customer. The Company recorded deferred revenue equal to the fair value of seismic equipment at the time the equipment was received. The deferred revenue is amortized as an adjustment to revenues at a rate determined by the ratio of revenues generated by the customer during a reporting period to total revenues as the customer purchases seismic services eligible for the discounts. At July 31, 1996 remaining discounts in the amount of $3,041,000 were available to such customer and the remaining unrecognized deferred revenue is $363,000. The Company also has $1,500,000, $880,000 and $2,078,000 at July 31, 1994, 1995 and 1996, respectively, included in other accrued liabilities relating to deferred credits earned by certain customers in conjunction with their original participation in certain of the Company's multi-client data surveys. These credits may be applied by the customers against future invoiced amounts. F-20 84 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. COMMITMENTS AND CONTINGENT LIABILITIES Total rentals of vessels, equipment and office facilities charged to operations amounted to $17,904,000, $22,631,000, $27,651,000 and $28,210,000 for the years ended July 31, 1993, 1994, 1995 and 1996, respectively. Minimum rentals payable under operating leases, principally for office space and vessel charters with remaining noncancellable terms of at least one year are as follows:
FISCAL JULY 31, JULY 31, YEAR 1995 1996 --------------------------------------------------------------- -------- -------- (IN THOUSANDS OF DOLLARS) 1996......................................................... $ 15,532 1997......................................................... 8,640 $ 15,268 1998......................................................... 7,539 9,650 1999......................................................... 6,855 8,373 2000......................................................... 3,576 4,222 2001......................................................... 7,562 7,373 2002-2013...................................................... 6,745
In connection with the Company's 1997 capital expenditure program the Company has commitments of $4,546,000 outstanding at July 31, 1996. The Company has an employment agreement with a former employee, who was also a director, that provides for salary payments of $25,417 per month plus certain employee benefits through December 31, 1995, the end of the employment period as defined. The agreement also contains a non-compete clause for a period of three years after the employment period during which time the employee will receive payments of $12,709 per month plus certain employee benefits. 13. EMPLOYEE BENEFITS The Company maintains a 401(k) plan in which employees of certain of Digicon's majority-owned domestic foreign subsidiaries are eligible to participate. However, employees of Digicon's foreign subsidiaries who are covered under a foreign deferred compensation plan are not eligible. Employees are permitted to make contributions of up to 10% of their salary to a maximum of $9,240 per year. Generally, the Company will contribute an amount equal to one-half of the employee's contribution up to $6,000 or 6% (whichever is less) of the employee's salary; however, if consolidated pre-tax income for any fiscal year is less than the amount required to be contributed by the Company, the Company may elect to reduce its contribution, but in no event may it reduce the total contribution to less than 25% of the employee contribution. The Company may make additional contributions from its current or cumulative net profits in an amount to be determined by the Board of Directors. Employer matching contributions to the 401(k) plan were $137,000 in 1993, $286,000 in 1994, $281,000 in 1995 and $314,000 in 1996. F-21 85 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company initiated an employee nonqualified stock option plan on September 1, 1992. Options are granted to Digicon's officers and key employees and are exercisable no earlier than six months after the date of grant. The option price per share shall not be less than the lesser of (i) fair market value of the common stock on the date the option is granted or (ii) the average fair market value for the common stock during the 30 trading days ending on the trading day next preceding the date the option is granted. Options expire ten years from the date of grant. The exercise prices and number of options existing prior to January 17, 1995 have been adjusted for the Reverse Split. See Note 14. The Company has authorized 1,158,333 shares of post-Reverse Split common stock to be issued under the plan.
NUMBER OF EXERCISE OPTIONS PRICE --------- ------------ Balance, July 31, 1993............................ 560,000 $13.50 Options cancelled............................... (70,667) $6.40-$13.50 ------- Balance, July 31, 1994............................ 489,333 $13.50 Options issued.................................. 13,333 $6.00 Options cancelled............................... (79,666) $13.50 ------- Balance, July 31, 1995............................ 423,000 $6.00-$13.50 Options issued.................................. 195,500 $5.25 Options cancelled............................... (31,680) $5.25-$13.50 Options exercised............................... (181,497) $13.50 ------- Balance, July 31, 1996............................ 405,323 $5.25-$13.50 ======= Options exercisable, July 31, 1996................ 234,823 =======
The Company also initiated a stock option plan for Digicon's non-employee directors (the "Director Plan") providing for stock options to be granted to each non-employee director of the Company. The Director Plan provides that on December 31 of each year, each eligible director shall be granted an option to purchase 3,333 shares of the Company's post-Reverse Split common stock, subject to an aggregate limit of 16,667 shares for each director. The exercise price for each option granted shall be the average closing price of the common stock for the 30 trading days prior to the date of grant. The exercise prices of options existing prior to January 17, 1995 have been adjusted for the Reverse Split. Options may be exercised at any time (i) after the later of six months following the date of grant or the first anniversary of the director's service on the board and (ii) before the sixth anniversary of the date of grant, when the option expires. No options under the Director Plan have been exercised. The Company has authorized 200,000 shares of post-Reverse Split common stock to be issued under the Director Plan.
NUMBER OF EXERCISE OPTIONS PRICE ------ ------------ Balance, July 31, 1993.............................. 20,000 $12.87 Options issued.................................... 16,667 $6.72 ------ Balance, July 31, 1994.............................. 36,667 $6.72-$12.87 Options issued.................................... 19,998 $4.13 ------ Balance, July 31, 1995.............................. 56,665 $4.13-$12.87 Options issued.................................... 19,994 $6.76 ------ Balance, July 31, 1996.............................. 76,659 $4.13-$12.87 ====== Options exercisable, July 31, 1996.................. 76,659 ======
F-22 86 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company maintains a contributory defined benefit pension plan (the "Pension Plan") for eligible participating employees in Digicon's United Kingdom offices. Monthly contributions by employees are equal to 3.5% of their salaries with the Company providing an additional contribution in an actuarially determined amount necessary to fund future benefits to be provided under the Pension Plan. Benefits provided are based upon 1/60 of the employee's final pensionable salary (as defined) for each complete year of service up to 2/3 of the employee's final pensionable salary and increase annually at 5%. The Pension Plan also provides for 50% of such actual or expected benefits to be paid to a surviving spouse upon the death of a participant. Pension Plan assets consist mainly of investments in marketable securities which are held and managed by an independent trustee. The net periodic pension costs are as follows:
FOR THE YEARS ENDED JULY 31, ---------------------------- 1994 1995 1996 ------ ------ ------ (IN THOUSANDS OF DOLLARS) Service costs (benefits earned during the period)........................................ $ 288 $ 275 $ 224 Interest costs on projected benefit obligation... 249 253 292 Return on assets................................. (226) (275) (312) Net amortization and deferral.................... 4 5 5 ----- ----- ------ Net periodic pension costs....................... $ 315 $ 258 $ 209 ===== ===== ======
The funded status of the Pension Plan is as follows:
JULY 31, JULY 31, JULY 31, 1994 1995 1996 ------ ------ ------ (IN THOUSANDS OF DOLLARS) Plan assets at fair value...................... $2,841 $3,444 $4,029 Actuarial present value of accumulated vested benefit obligations.......................... 2,472 3,026 3,696 Effect of future salary increases.............. 437 517 633 ------- ------- ------ Projected benefit obligation................. 2,909 3,543 4,329 ------- ------- ------ Projected benefit obligation in excess of plan assets....................................... (68) (99) (300) Unrecognized prior service cost................ 68 13 179 ------- ------- ------ Pension liability.............................. $ $ (86) $ (121) ======= ======= ======
The weighted average assumptions used to determine the projected benefit obligation and the expected long-term rate of return on assets for the years ended July 31, 1994, 1995 and 1996 are as follows: Discount rate........................................................ 8.5% Rates of increase in compensation levels............................. 6.5% Expected long-term rate of return on assets.......................... 9.0%
F-23 87 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At the date of combination (see Note 2), options to purchase of VES Common Stock ("VES Option") were converted into options to purchase shares of the Company's common stock at an exchange ratio of 0.8 of an option in the Company's common stock per VES Option. All options are immediately exercisable. Options to purchase the Company's common stock converted from VES Options are as follows:
NUMBER OF EXERCISE OPTIONS PRICE --------- ------------ Balance, July 31, 1993............................ -- -- Options issued.................................. 256,500 $7.28 Options cancelled............................... (14,200) $7.28 Options exercised............................... (17,620) $7.28 ------- Balance, July 31, 1994............................ 224,680 $7.28 Options issued.................................. 200,016 $7.28 Options cancelled............................... (27,098) $7.28 Balance, July 31, 1995............................ 397,598 $7.28 Options issued.................................. 184,666 $5.79-$7.16 Options cancelled............................... (19,734) $5.79-$7.28 Options exercised............................... (206,674) $5.79-$7.28 ------- Balance, July 31, 1996............................ 355,858 $5.79-$7.28 =======
14. REVERSE STOCK SPLIT On December 14, 1994, shareholders approved a one for three reverse stock split (the "Reverse Split") to holders of record on January 17, 1995, with no change in par value. On January 17, 1995, there were 33,404,816 shares of common stock outstanding which were converted into 11,134,939 shares of post-Reverse Split common stock. The net effect of these transactions was a charge to common stock and a credit to additional paid-in capital of approximately $223,000. All references to the number of shares and per share amounts have been retroactively adjusted for the effects of the Reverse Split unless otherwise indicated. On January 17, 1995, there were 1,363,637 publicly traded common stock purchase warrants expiring on July 5, 1996 with an exercise price of $6.00 per share. In connection with the Reverse Split and as required by the American Stock Exchange, the publicly traded warrants were converted, effective January 17, 1995, into approximately 454,545 post-Reverse Split common stock purchase warrants with an exercise price of $18.00. Also on January 17, 1995, there were 340,000 common stock purchase warrants expiring on June 29, 1997 with an exercise price of $2.00 per share which were adjusted in connection with the Reverse Split to represent 113,333 shares of post-Reverse Split common stock issuable upon exercise of these warrants at an exercise price of $6.00. Additionally, there were 1,975,000 and 600,000 shares of pre-Reverse Split common stock authorized under the 1992 Employee Nonqualified Stock Option Plan and 1992 Non-Employee Director Stock Option Plan, respectively. In connection with the Reverse Split, these authorized shares were decreased to 658,333 and 200,000 authorized shares of post-Reverse Split common stock under the Employee Plan and Director Plan, respectively, and the new exercise prices were tripled. F-24 88 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. COMMON AND PREFERRED STOCK See Note 14 relating to the Reverse Split consummated on January 17, 1995. In December 1992, the Company sold, in an underwritten public offering, 5,456,900 shares of pre-Reverse Split common stock at $4.25 per share. The Company incurred approximately $2,104,000 of issuance costs in conjunction with the offering and these costs have been charged to additional paid-in capital. See also Notes 4 and 5 relating to the issuance of pre-Reverse Split common stock for the purchase of investment in FSU joint ventures and GFS Company. On June 6, 1995, 850,000 shares of treasury stock were sold to an institutional investor at a price of $4.6875 per share. In September 1995, the Company sold its 858,497 shares of treasury stock to a group of institutional investors at a price of $4.6875 per share for total cash proceeds of $4,024,204. The board of directors, without any action by the stockholders, is authorized to issue up to 1 million shares of preferred stock, par value, $.01, in one or more series and to determine the voting rights, preferences as to dividends and in liquidation and the conversion and other rights of such stock. There are no shares of preferred stock outstanding as of July 31, 1996. 16. EMPLOYEE STOCK PURCHASE In July 1991, the Company authorized 707,547 shares of pre-Reverse Split common stock for sale to its employees at a price of $2.12 per share. Employee purchases were voluntary and the stock was fully subscribed at the Closing Date. On the Closing Date, the Company issued the stock to the employees upon receipt of cash in an amount of par value. At the employee's option, the remaining purchase price could be paid in cash on the Closing Date or by payroll deductions over a period of 24 months. At July 31, 1992, agreements in the amount of $48,000 were outstanding and in accordance with Staff Accounting Bulletin No. 40, Topic 4-E were excluded from additional paid-in capital. As of July 31, 1993, all proceeds due under the agreements had been received and are included in additional paid-in capital. 17. WARRANTS The following number of warrants issued and exercise prices have been adjusted for the Reverse Split consummated on January 17, 1995. See Note 14. In conjunction with the cancellation of a previous issue of common and preferred stock and certain other liabilities, the Company authorized 454,545 warrants which could exercised for 454,545 shares of common stock. The warrants were issued for a term of five years beginning July 5, 1991 at an exercise price of $18.00 per share. The warrants could only be exercised for cash. Warrants for 29,433 shares were exercised on July 5, 1996 and the remaining warrants expired. In conjunction with the Company's secured term loan due June 30, 1997, the Company issued 113,333 warrants which expire June 29, 1997. The warrants were exercisable for cash at a price of $18.00 per share. In conjunction with an amendment to the loan in August 1994, which revised certain financial ratio covenants, the exercise price of the warrants was reduced to $6.00 per share. F-25 89 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In conjunction with the Company's short-term related party loans, the Company issued warrants to purchase 120,000 common shares to the lenders. The warrants may be exercised for cash at a price of $4.50 per share and will expire July 26, 1999. 18. WRITE-OFF/WRITE-DOWN OF ASSETS AND RESTRUCTURING CHARGES In connection with the Combination (see Note 2), management committed the Company to a plan to upgrade its seismic data processing hardware (see Note 12). Certain equipment is scheduled to be replaced by October 1996. During July 1996, the Company recognized impairment of $3,628,000 relating to the abandonment of the equipment to be replaced. In response to operating losses in certain markets which adversely impacted the Company's liquidity during the year ended July 31, 1994, management made a decision to restructure its operations and revalue certain assets in April 1994 and accordingly incurred $7,261,000 in total expenses relating to such decision. Costs of $1,188,000 are included in cost of services and include non-recurring expenses associated with certain contract liabilities. Also included in the $7,261,000 is $5,235,000 for the write-off/write-down for the impairment of assets to their net realizable value. A portion of the write-off pertains to marine ($2,437,000) and land ($552,000) acquisition assets related to decommissioned marine vessels and stacked land crews. The write-off/write-down for impairment of assets also includes the write-down of certain other marine and land acquisition assets that were not a direct result of the restructuring program ($1,048,000). In addition, the Company wrote down data processing equipment ($1,198,000), particularly in the Far East, based on the declining market. The remaining costs are restructuring charges of $838,000 which relates to severance costs for a reduction in the Company's workforce of 82 employees. Employees to be terminated are from the processing centers, marine and land crews, marine support, manufacturing, research and development and corporate groups. As of July 31, 1996, 79 employees have been terminated and $670,000 in severance costs have been paid. The Company estimates that all remaining liabilities in the amount of $168,000 will be paid during fiscal 1997. 19. OTHER COSTS AND EXPENSES Other costs and expenses consist of the following:
FOR THE YEARS ENDED JULY 31, ----------------------------------------- 1993 1994 1995 1996 ------ -------- ------ ------ (IN THOUSANDS OF DOLLARS) Net foreign currency exchange (gains) losses... $ 636 $ 554 $ 290 $ (156) Net (gain) loss on disposition of property and equipment.................................... (488) (1,592) 919 875 Interest income................................ (320) (540) (943) (547) Other.......................................... (38) (255) (34) 374 ---- ---- ---- ---- Total................................ $ (210) $ (1,833) $ 232 $ 546 ==== ==== ==== ====
F-26 90 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. GEOGRAPHICAL INFORMATION Substantially all of the Company's operations consist of geophysical services. The following tables provide relevant information for the four years ended July 31, 1993, 1994, 1995 and 1996, grouped by major geographic areas. Intersegment sales between geographic areas are valued at current market prices.
REVENUES ---------------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS --------- -------- --------- -------- --------- (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1993: Geographic areas: Europe & Middle East......... $ 24,699 $ 108 $ 24,807 $ 4,374 $ 33,327 Africa....................... 13,020 13,020 2,392 3,850 Far East..................... 27,783 74 27,857 (425) 17,159 South America................ 4,571 4,571 697 8,172 Canada....................... 32,244 32,244 5,605 10,815 Eliminations................. (182) (182) --------- -------- --------- -------- --------- Totals.................. 102,317 102,317 12,643 73,323 United States................ 43,773* 4,520 48,293* (852) 53,745 Eliminations................. (4,520) (4,520) --------- -------- --------- -------- --------- Totals.................. 146,090 146,090 11,791 127,068 Other........................ 210 Corporate, general and administrative expenses.... (4,112) Interest..................... (1,928) Income taxes................. (3,183) Investments in 50% or less- owned companies and joint ventures................... (2,204) 7,033 Corporate assets............. 7,364 --------- -------- --------- -------- --------- Totals.................. $ 146,090 $ $ 146,090 $ 574 $ 141,465 ======== ======= ======== ======= ========
- --------------- * Includes export sales of $10,138. During 1993, United States, Europe & Middle East, Africa and Far East revenues include sales to a client which accounted for 12% of total revenues. Depreciation and amortization expense was $2,363,000 for Europe & Middle East, $230,000 for Africa, $430,000 for Far East, $140,000 for South America, $3,529,000 for Canada and $5,049,000 for United States. Capital expenditures were $15,302,000 for Europe & Middle East, $275,000 for Africa, $2,688,000 for Far East, $3,692,000 for South America, $8,690,000 for Canada and $11,456,000 for United States. F-27 91 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES ---------------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS --------- -------- --------- -------- --------- (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1994: Geographic areas: Europe & Middle East........ $ 29,891 $ 1,697 $ 31,588 $ (3,120) $ 28,848 Far East.................... 16,958 16,958 (7,851) 14,151 South America............... 17,669 17,669 (531) 16,545 Canada...................... 46,501 26 46,527 8,552 26,048 Eliminations................ (1,697) (1,697) --------- ------- --------- --------- --------- Totals................. 111,019 26 111,045 (2,950) 85,592 United States............... 67,373* 1,936 69,309* 8,061 69,365 Eliminations................ (1,962) (1,962) --------- ------- --------- --------- --------- Totals................. 178,392 178,392 5,111 154,957 Other....................... 1,833 Corporate, general and administrative expenses... (3,191) Interest.................... (3,213) Income taxes................ (5,929) Investments in 50% or less- owned companies and joint ventures.................. (4,965) 9,639 Corporate assets............ 7,218 --------- ------- --------- --------- --------- Totals................. $ 178,392 $ $ 178,392 $ (10,354) $ 171,814 ======== ======= ======== ======== ========
- --------------- * Includes export sales of $1,501. There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1994. Operating profit (loss) includes restructuring charges and write-off/writedown for impairment of assets of $182,000 for Europe & Middle East, $1,416,000 for Far East, and $5,663,000 for United States. Depreciation and amortization expense was $4,214,000 for Europe & Middle East, $877,000 for Far East, $1,730,000 for South America, $4,927,000 for Canada, and $7,350,000 for United States. Capital expenditures were $2,031,000 for Europe & Middle East, $444,000 for Far East, $2,291,000 for South America, $16,481,000 for Canada and $8,514,000 for United States. F-28 92 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES ------------------------------------ OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS --------- ------ --------- -------- --------- (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1995: Geographic areas: Europe & Middle East........... $ 20,230 $ 579 $ 20,809 $ 2,188 $ 11,976 Far East....................... 25,918 22 25,940 2,621 20,455 South America.................. 37,867 83 37,950 (82) 26,735 Canada......................... 44,297 148 44,445 5,668 27,617 Eliminations................... (601) (601) --------- ------ --------- -------- --------- Totals.................... 128,312 231 128,543 10,395 86,783 United States.................. 87,318 387 87,705 8,170 90,522 Eliminations................... (618) (618) --------- ------ --------- -------- --------- Totals.................... 215,630 215,630 18,565 177,305 Other.......................... (232) Corporate, general and administrative expenses...... (2,946) Interest....................... (5,170) Income taxes................... (3,807) Gain on sale of investment in FSU joint ventures........... 4,370 Investments in 50% or less-owned companies and joint ventures............... (5,186) 187 Corporate assets............... 6,848 --------- ------ --------- -------- --------- Totals.................... $ 215,630 $ $ 215,630 $ 5,594 $ 184,340 ======== ====== ======== ======= ========
- --------------- * Includes export sales of $ . There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1995. During 1995, depreciation and amortization expense was $3,984,000 for Europe & Middle East, $1,040,000 for Far East, $4,390,000 for South America, $6,593,000 for Canada and $7,919,000 for United States. Capital expenditures were $1,709,000 for Europe & Middle East, $1,240,000 for Far East, $6,651,000 for South America, $10,531,000 for Canada and $13,502,000 for United States. F-29 93 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES -------------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS --------- -------- --------- -------- --------- (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1996: Geographic areas: Europe & Middle East......... $ 37,394 $ 1,532 $ 38,926 $ 7,220 $ 35,463 Far East..................... 30,558 30,558 1,055 23,590 South America................ 36,346 92 36,438 (1,915) 29,758 Canada....................... 47,423 87 47,510 3,683 30,666 Eliminations................. --------- -------- --------- -------- --------- Totals.................. 151,721 1,711 153,432 10,043 119,477 United States................ 98,875 61 98,936 6,910 77,561 Eliminations................. (1,772) (1,772) --------- -------- --------- -------- --------- Totals.................. 250,596 250,596 16,953 197,038 Other........................ (546) Corporate, general and administrative expenses.... (2,872) Interest..................... (5,466) Income taxes................. (2,009) Merger Related Costs......... (3,666) Gain on sale of investment in FSU joint ventures......... Investments in 50% or less- owned companies and joint ventures................... (1,113) 1,463 Corporate assets............. 92 --------- -------- --------- -------- --------- Totals.................. $ 250,596 $ $ 250,596 $ 1,281 198,593 ======== ======= ======== ======= ========
- --------------- * Includes export sales of $ . There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1996. During 1996, depreciation and amortization expense was $5,182,000 for Europe & Middle East, $1,707,000 for Far East, $4,655,000 for South America, $7,689,000 for Canada and $7,682,000 for United States. Capital expenditures were $4,088,000 for Europe & Middle East, $6,795,000 for Far East, $4,945,000 for South America, $5,737,000 for Canada and $14,016,000 for United States. F-30 94 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 21. CERTAIN TRANSACTIONS During fiscal 1994, the Company entered into two credit facilities with shareholders SOROS Capital L.P., CCF Jupiter L.P. and Jupiter Management Co., Inc. (collectively, "the Lenders"). In November 1993, the Company executed a secured term loan agreement with the Lenders which provided loans totaling $3,386,000. The loans were repaid in full in April 1994, and the facility was terminated. In July 1994, the Company executed a second secured loan agreement with the Lenders providing up to $3,000,000 of advances. See Note 8. The second facility was repaid in full in June 1995. In connection with the second facility, the Lenders received warrants to purchase the Company's common stock. See Note 17. During the fiscal year ended July 31, 1994 and 1995, $206,000 and $376,000, respectively, was paid to the Lenders as interest and fees under the two facilities. In fiscal 1994 and 1995, the Company performed certain data acquisition, processing, marketing and training services for various co-venturers and recorded sales in the amount of $1,279,000 and $1,633,000, respectively. At July 31, 1994 and 1995, there was approximately $310,000 and $300,000, respectively, in outstanding receivables related to these transactions. The Company sold certain assets during July 1994 to Caspian Geophysical, a joint venture in which the Company had an indirect 10% interest, for a note receivable payable in 36 monthly installments of $41,667 with an imputed interest rate of 10%. The net gain recorded after eliminating intercompany profits was $148,000. The note receivable was repaid in June 1995 as a result of the sale of the Company's interest in the joint venture. See Note 4. The Company is party to transactions with P.T. Digicon Mega Pratama ("P.T. Digicon"), on 80% owned joint venture (see Note 3) in the normal course of business. During the years ended July 31, 1993, 1994, 1995 and 1996 the Company charged P.T. Digicon $3,762,000, $1,069,000, $607,000 and $1,207,000 relating to allocations of corporate administrative expenses and actual expenses incurred by P.T. Digicon for salary cost, insurance and equipment charges. The Company purchased certain equipment from P.T. Digicon during the years ended July 31, 1993 and 1994 for a purchase price of $108,000 and $1,580,000, respectively, which represented P.T. Digicon's net book value of such equipment. Additionally, during the year ended July 31, 1993, P.T. Digicon purchased certain proprietary software from the Company for $1,436,000. Advances from the Company to P.T. Digicon of $9,692,000, $12,439,000 and $14,531,000 at July 31, 1994, 1995 and 1996, respectively, have no formal repayment terms and do not bear interest. F-31 95 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 22. SELECTED UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA The Company's quarterly supplemental consolidated financial statements for the years ended July 31, 1994, 1995 and 1996 have been restated to account for a pooling of interests between Digicon Inc. and Veritas Energy Services Inc. (See Note 2). In addition, the Company's quarterly supplemental consolidated financial statements for the year ended July 31, 1996 has been restated to account for the Company's investment in an 80% owned joint venture on the equity method of accounting rather than on consolidation accounting (See Note 3). FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)*
FOR THE YEAR ENDED JULY 31, 1994 --------------------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER --------------------- --------------------- --------------------- --------------------- AS AS AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenues...................... $ 31,384 $48,013 $ 29,759 $46,614 $ 24,882 $ 37,519 $ 29,510 $46,246 Operating expense: Cost of services............ 25,259 37,185 24,580 36,683 25,092 35,169 23,340 35,947 Restructuring............... 838 838 Write-off/write-down for impairment of assets........ 5,235 5,235 Depreciation and amortization................ 2,969 4,287 3,257 4,758 3,291 4,890 3,176 5,184 Selling, general and administrative.............. 1,080 1,263 1,716 1,963 1,438 1,721 867 1,349 Income (loss) before provision for income taxes and equity in (earnings) loss of 50% or less-owned companies and joint ventures.............. 1,554 4,539 42 2,817 (10,791) (9,890) 1,255 3,074 Net income (loss)............. 717 1,762 (982) 543 (13,688) (12,964) (473) 305 Net income (loss) per share of common stock................ .08 .12 (.10) .04 (1.40) (.82) (.05) .02
FOR THE YEAR ENDED JULY 31, 1995 --------------------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER --------------------- --------------------- --------------------- --------------------- AS AS AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenues...................... $ 31,811 $54,558 $ 29,993 $51,482 $ 34,197 $ 52,314 $ 35,126 $57,276 Operating expense: Cost of services............ 24,109 41,441 22,225 38,718 27,320 44,008 29,163 46,257 Write-off/write-down for impairment of assets........ Depreciation and amortization................ 3,285 5,670 3,346 5,891 3,361 5,994 3,341 6,177 Selling, general and administrative.............. 1,106 1,520 1,058 1,504 1,244 1,482 1,020 1,349 Gain on sale of investment in FSU joint ventures.......... (4,370) (4,370 ) Income (loss) before provision for income taxes and equity in (earnings) loss of 50% or less-owned companies and joint ventures.............. 2,557 5,176 1,825 3,899 1,054 (301) 3,939 5,813 Net income (loss)............. 607 2,023 829 2,047 479 (276) 863 1,800 Net income (loss) per share of common stock................ .06 .11 .07 .11 .04 (.02) .08 .10
F-32 96 VERITAS DGC INC. NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED JULY 31, 1996 --------------------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER --------------------- --------------------- --------------------- --------------------- AS AS AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- --------- -------- Revenues...................... $ 38,178 $59,824 $ 40,068 $62,719 $ 36,279 $ 59,139 $ 68,914 Operating expense: Cost of services............ 30,433 46,806 33,247 53,297 27,837 44,991 53,617 Write-off/write-down for impairment of assets........ 3,628 Depreciation and amortization................ 3,623 6,352 3,899 6,695 4,015 6,954 6,920 Selling, general and administrative.............. 1,251 1,580 1,276 1,824 1,431 1,866 1,985 Merger related costs.......... 3,666 Income (loss) before provision for income taxes and equity in loss of 50% or less-owned companies and joint ventures.................... 1,478 3,683 351 (412 ) 2,041 4,010 (2,878) Net income (loss)............. 752 1,690 1,077 1,269 1,864 2,829 (4,507) Net income (loss) per share of common stock................ .07 .10 .10 .07 .17 .16 (.25)
- ------------ * Reported quarterly earnings (loss) per share is based on each quarter's weighted average shares outstanding. The quarters may not total to the reported annual earnings (loss) per share due in part to fluctuations in common shares outstanding. Weighted average shares for all periods presented have been restated for the Reverse Split consummated on January 17, 1995. See Note 14. F-33 97 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY SENIOR NOTES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 4 Risk Factors........................... 11 The Company............................ 15 Use of Proceeds........................ 15 Capitalization......................... 16 Selected Supplemental Consolidated Financial Data....................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 18 Business............................... 23 Management............................. 32 Description of Senior Notes............ 34 Underwriting........................... 61 Legal Matters.......................... 62 Experts................................ 62 Index to Supplemental Consolidated Financial Statements................. F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ [VERITAS LOGO] VERITAS DGC INC. ------------------------ $75,000,000 % SENIOR NOTES DUE 2003 -------------------- PROSPECTUS -------------------- DILLON, READ & CO. INC. SALOMON BROTHERS INC RAUSCHER PIERCE REFSNES, INC. RAYMOND JAMES & ASSOCIATES, INC. - ------------------------------------------------------ - ------------------------------------------------------ 98 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses payable by the Company in connection with the offering of the Senior Notes to be registered and offered hereby are as follows: Commission registration fee....................................... $ 25,863 National Association of Securities Dealers, Inc. fees............. 8,000 Printing expenses................................................. 125,000 Legal fees and expenses........................................... 150,000 Blue Sky fees and expenses (including legal expenses)............. 10,000 Rating agency fees................................................ 50,000 Accounting fees and expenses...................................... 115,000 Trustee fees and expenses......................................... 10,000 Miscellaneous..................................................... 6,137 --------- Total................................................... $ 500,000 =========
All such expenses are estimated except for the Commission registration fee and the NASD fee. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action. In a suit brought to obtain a judgment in the corporation's favor, whether by the corporation itself or derivatively by a stockholder, the corporation may only indemnify for expenses, including attorney's fees, actually and reasonably incurred in connection with the defense or settlement of the case, and the corporation may not indemnify for amounts paid in satisfaction of a judgment or in settlement of the claim. In any such action, no indemnification may be paid in respect of any claim, issue or matter as to which such persons shall have been adjudged liable to the corporation except as otherwise approved by the Delaware Court of Chancery or the court in which the claim was brought. In any other type of proceeding, the indemnification may extend to judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with such other proceeding, as well as to expenses (including attorneys' fees). The statute does not permit indemnification unless the person seeking indemnification has acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, in the case of criminal actions or proceedings, the person had no reasonable cause to believe his conduct was unlawful. There are additional limitations applicable to criminal actions and to actions brought by or in the name of the corporation. The determination as to whether a person seeking indemnification has met the required standard of conduct is to be made (i) by a majority vote of a quorum of disinterested members of the board of directors, or (ii) by independent legal counsel in a written opinion, if such a quorum does not exist or if the disinterested directors so direct, or (iii) by the stockholders. II-1 99 The certificate of incorporation and bylaws of the Company require the Company to indemnify the Company's directors and officers to the fullest extent permitted under Delaware law, and to implement provisions pursuant to contractual indemnity agreements the Company has entered into with its directors and executive officers. The Company's Certificate of Incorporation limits the personal liability of a director to the corporation or its stockholders to damages for breach of the director's fiduciary duty. The Company has purchased insurance on behalf of its directors and officers against certain liabilities that may be asserted against, or incurred by, such persons in their capacities as directors or officers of the registrant, or that may arise out of their status as directors or officers of the registrant, including liabilities under the federal and state securities laws. ITEM 16. EXHIBITS. The following is a list of all the exhibits and financial statement schedules filed as part of the Registration Statement. (a) Exhibits
EXHIBIT NO. DESCRIPTION - --------------------- ---------------------------------------------------------------------- *1 Form of Underwriting Agreement by and among Dillon, Read & Co. Inc., Salomon Brothers Inc, Rauscher Pierce Refsnes, Inc., Raymond James & Associates, Inc., and Veritas DGC Inc. 2 Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Incorporated herein by reference to Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K, dated May 10, 1996) 4-A Specimen certificate for Senior Notes. (Included as part of Section 201 of Exhibit 4-B) *4-B Form of Trust Indenture relating to the % Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. *5 Opinion of Porter & Hedges, L.L.P. with respect to legality of securities, including consent. 9 Voting and Exchange Trust Agreement dated August 30, 1996, among Digicon Inc., Veritas Energy Services Inc. and The R-M Trust Company. (Incorporated herein by reference to Exhibit 9.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996) 10-A Salary Continuation Agreement executed by Nicholas A. C. Bright, Kevin P. Callaghan, Richard W. McNairy and Allen C. Pogach. (Incorporated herein by reference to Exhibit 10-E of Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) *10-B Salary Continuation Agreement executed by Stephen J. Ludlow. 10-C Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc. and Digicon Inc. (Incorporated herein by reference to Exhibit 10-M of Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) 10-D 1992 Non-Employee Director Stock Option Plan. (Incorporated herein by reference to Exhibit 10-T of Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992) *10-E Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
II-2 100
EXHIBIT NO. DESCRIPTION - --------------------- ---------------------------------------------------------------------- 10-F Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Incorporated herein by reference to Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996) *10-G Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks. 11-A Computation of Income (Loss) Per Common and Common Equivalent Share for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1995). *12 Computation of historical and pro forma earnings to fixed charges ratio. *23-A Consent of Deloitte & Touche LLP. *23-B Consent of Price Waterhouse, Chartered Accountants. 23-C Consent of Porter & Hedges, L.L.P. (included in Exhibit 5) 24 Power of Attorney. (included on the signature page hereto) *25 Form T-1 Statement of Eligibility and Qualification of Fleet National Bank to act as Trustee of the Senior Notes. *27 Financial Data Schedule
- ------------ * Filed herewith. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 101 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Robson, Stephen J. Ludlow, Richard W. McNairy and Rene M. J. VandenBrand, and each of them, any of whom may act without joinder of the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all pre- and post-effective amendments to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or the substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof. SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on September 19, 1996. VERITAS DGC INC. By: /s/ DAVID B. ROBSON ------------------------------------ David B. Robson, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the indicated capacities and on the 19th day of September, 1996.
SIGNATURE TITLE - --------------------------------------------- ---------------------------- /s/ DAVID B. ROBSON Director, Chairman of the - --------------------------------------------- Board and Chief Executive David B. Robson Officer /s/ RICHARD W. McNAIRY Executive Vice President and - --------------------------------------------- Chief Accounting and Richard W. McNairy Financial Officer /s/ GEORGE F. BAKER Director - --------------------------------------------- George F. Baker /s/ CLAYTON P. CORMIER Director - --------------------------------------------- Clayton P. Cormier Director - --------------------------------------------- Ralph M. Eeson
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SIGNATURE TITLE - --------------------------------------------- ---------------------------- /s/ LAWRENCE C. FICHTNER Director - --------------------------------------------- Lawrence C. Fichtner Director - --------------------------------------------- Steven J. Gilbert /s/ STEPHEN J. LUDLOW Director - --------------------------------------------- Stephen J. Ludlow /s/ BRIAN F. MacNEILL Director - --------------------------------------------- Brian F. MacNeill /s/ DOUGLAS B. THOMPSON Director - --------------------------------------------- Douglas B. Thompson /s/ JACK C. THREET Director - --------------------------------------------- Jack C. Threet
II-5 103 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - --------------------- ---------------------------------------------------------------------- *1 Form of Underwriting Agreement by and among Dillon, Read & Co. Inc., Salomon Brothers Inc, Rauscher Pierce Refsnes, Inc., Raymond James & Associates, Inc., and Veritas DGC Inc. 2 Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Incorporated herein by reference to Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K, dated May 10, 1996) 4-A Specimen certificate for Senior Notes. (Included as part of Section 201 of Exhibit 4-B) *4-B Form of Trust Indenture relating to the % Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. *5 Opinion of Porter & Hedges, L.L.P. with respect to legality of securities, including consent. 9 Voting and Exchange Trust Agreement dated August 30, 1996, among Digicon Inc., Veritas Energy Services Inc. and The R-M Trust Company. (Incorporated herein by reference to Exhibit 9.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996) 10-A Salary Continuation Agreement executed by Nicholas A. C. Bright, Kevin P. Callaghan, Richard W. McNairy and Allen C. Pogach. (Incorporated herein by reference to Exhibit 10-E of Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) *10-B Salary Continuation Agreement executed by Stephen J. Ludlow. 10-C Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc. and Digicon Inc. (Incorporated herein by reference to Exhibit 10-M of Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) 10-D 1992 Non-Employee Director Stock Option Plan. (Incorporated herein by reference to Exhibit 10-T of Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992) *10-E Amended and Restated 1992 Employee Nonqualified Stock Option Plan. 10-F Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Incorporated herein by reference to Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996) *10-G Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks. 11-A Computation of Income (Loss) Per Common and Common Equivalent Share for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1995). *12 Computation of historical and pro forma earnings to fixed charges ratio. *23-A Consent of Deloitte & Touche LLP. *23-B Consent of Price Waterhouse, Chartered Accountants.
104
EXHIBIT NO. DESCRIPTION - --------------------- ---------------------------------------------------------------------- 23-C Consent of Porter & Hedges, L.L.P. (included in Exhibit 5) 24 Power of Attorney. (included on the signature page hereto) *25 Form T-1 Statement of Eligibility and Qualification of Fleet National Bank to act as Trustee of the Senior Notes. *27 Financial Data Schedule
- ------------ * Filed herewith. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 VERITAS DGC INC. $75,000,000 ___% Senior Notes due 2003 UNDERWRITING AGREEMENT ,1996 2 UNDERWRITING AGREEMENT ,1996 DILLON, READ & CO. INC. SALOMON BROTHERS INC RAUSCHER PIERCE REFNSES, INC. RAYMOND JAMES & ASSOCIATES, INC. as Managing Underwriters 535 Madison Avenue New York, New York 10022 Ladies and Gentlemen: Veritas DGC Inc., a Delaware corporation, (the "Company") proposes to issue and sell to the underwriters named in Schedule A annexed hereto (the "Underwriters") $75,000,000 aggregate principal amount of its ___% Senior Notes Due 2003 (the "Notes"). The Notes are to be issued pursuant to the provisions of an indenture dated as of _________, 1996 (the "Indenture") between the Company and Fleet National Bank, as Trustee (the "Trustee"). The Company has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the "Act"), with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-2, including a prospectus, relating to the Notes which incorporates by reference documents which the Company has filed in accordance with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively called the "Exchange Act"). The Company has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses and the documents incorporated by reference therein (each thereof, including the documents incorporated therein by reference, being herein called a "Preliminary Prospectus") relating to the Notes. Except where the context otherwise requires, the registration statement, as amended when it becomes effective, including all documents filed as a part thereof or incorporated by reference therein, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430(A) under the Act, is herein called the "Registration Statement," and the prospectus, including all documents incorporated therein by reference, in the form filed by the Company with the Commission pursuant to Rule 424(b) under the Act or, if no such filing is required, the form of final prospectus included in the Registration Statement at the time it became effective, is herein called the "Prospectus." 3 The Company and the Underwriters agree as follows: 1. Sale and Purchase. Upon the basis of the representations and warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a purchase price of ___% of the principal amount per Note (the "purchase price per Note") plus accrued interest, if any, from _______, 1996 to the date of payment and delivery, the respective principal amount of Notes set forth opposite such Underwriter's name on Schedule A hereto. 2. Payment and Delivery. Payment of the purchase price for the Notes shall be made to the Company by wire transfer of immediately available funds against delivery of the certificates for the Notes to you for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York City time, on , 1996 (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 10 hereof). The time at which such payment and delivery are actually made is hereinafter sometimes called the "time of purchase." Certificates for the Notes shall be delivered to you in definitive form in such denominations and registered in such names as you shall specify on the second business day preceding the time of purchase. For the purpose of expediting the checking of the certificates for the Notes by you, the Company agrees to make such certificates available to you for such purpose at least one full business day preceding the time of purchase. 3. Representations and Warranties of the Company. The Company represents and warrants to each of the Underwriters that: (a) when the Registration Statement becomes effective, the Registration Statement and the Prospectus will fully comply in all material respects with the provisions of the Act and the Trust Indenture Act of 1939, as amended (the "TIA"), and the Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no warranty or representation with respect to any statement contained in the Registration Statement or the Prospectus in reliance upon and in conformity with (a) information concerning the Underwriters and furnished in writing by or on behalf of any Underwriter through you to the Company expressly for use in the Registration Statement or the Prospectus or (b) the Trustee's Statement of Eligibility and Qualification (Form T-1) under the TIA; the documents incorporated by reference in the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act, and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; -2- 4 (b) as of the date of this Agreement, the Company has authorized capital stock as set forth under the heading entitled "Actual" in the section of the Registration Statement and the Prospectus entitled "Capitalization"; all of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; the Indenture, the Notes and the Credit Facility conform in all material respects to their respective descriptions thereof contained in the Registration Statement and Prospectus; (c) the only subsidiaries of the Company are the subsidiaries on Exhibit A attached hereto (the "Subsidiaries"); the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and each of its Subsidiaries has been duly incorporated and is validly existing under the laws of its respective jurisdiction of incorporation; each of the Company and its Subsidiaries have full power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, (d) the Company and each of its Subsidiaries are duly qualified or licensed by and are in good standing in each jurisdiction in which they conduct their respective businesses and in which the failure, individually or in the aggregate, to be so licensed or qualified could have a material adverse effect on the operations, business or condition of the Company and its Subsidiaries, taken as a whole; and the Company and each of its Subsidiaries are in compliance in all material respects with the laws, orders, rules, regulations and directives issued or administered by such jurisdictions; (e) neither the Company nor any of its Subsidiaries is in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under), its respective charter or by-laws or in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them is bound, and the execution, delivery and performance of this Agreement, the Indenture and the Notes and the consummation of the transactions contemplated hereby and thereby will not conflict with, not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to, or result in any breach of or constitute a default under (nor constitute any event which with notice, lapse of time, or both would constitute a breach of, or default under), or result in the acceleration of any obligation under, any provisions of the charter or by-laws, of the Company or any of its Subsidiaries or under any provision of any license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; -3- 5 (f) the Company has full corporate power and authority to execute and deliver this Agreement, the Indenture and the Notes; this Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); the Indenture has been duly authorized and, when executed and delivered by the Company and the Trustee and qualified under the Trust Indenture Act, will constitute a legal, valid and binding agreement of the Company enforceable in accordance with its terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); (g) the Notes have been duly and validly authorized for issuance and sale to the Underwriters by the Company pursuant to this Agreement and, when issued, authenticated and delivered to the Underwriters against payment therefor in accordance with the terms of this Agreement and the Indenture, the Notes will be legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); (h) no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Notes as contemplated hereby other than registration of the Notes under the Act, any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Notes are being offered by the Underwriters and the TIA, and any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"); (i) Deloitte & Touche LLP, whose reports on the consolidated financial statements of the Company and its Subsidiaries are filed with the Commission as part of the Registration Statement and Prospectus, are independent public accountants as required by the Act and the applicable published rules and regulations thereunder; (j) each of the Company and its Subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other persons, in order to conduct its respective business; neither the Company nor any of its Subsidiaries is in violation of, or in default -4- 6 under, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any of its Subsidiaries the effect of which could have a material adverse effect on the Company and its Subsidiaries taken as a whole; (k) all legal or governmental proceedings, contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement have been so described or filed as required; (l) there are no actions, suits or proceedings pending or threatened against the Company or any of its Subsidiaries or any of their respective properties, at law or in equity, or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency which could result in a judgment, decree or order having a material adverse effect on the business, condition, prospects or property of the Company and its Subsidiaries taken as a whole; (m) the audited financial statements included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of operations and changes in financial position of the Company and its Subsidiaries for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved; (n) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as may be otherwise stated in the Registration Statement or Prospectus, there has not been (A) any material and unfavorable change, financial or otherwise, in the business, properties, prospects, regulatory environment, results of operations or condition (financial or otherwise), present or prospective, of the Company and its Subsidiaries taken as a whole, (B) any transaction, which is material to the Company and its Subsidiaries taken as a whole, contemplated or entered into by the Company or any of its Subsidiaries or (C) any obligation, contingent or otherwise, directly or indirectly incurred by the Company or any of its Subsidiaries which is material to the Company and its Subsidiaries taken as a whole; 4. Certain Covenants of the Company. The Company hereby agrees: (a) to furnish such information as may be required and otherwise to cooperate in qualifying the Notes for offering and sale under the securities or blue sky laws of such states as you may designate and to maintain such qualifications in effect so long as required for the distribution of the Notes provided that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such state (except services of process with respect to the offering and sale of the Notes); and to promptly advise you of the receipt by the Company of any notification with respect to the -5- 7 suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (b) to make available to you in New York City, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time to furnish to the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the Registration Statement) as the Underwriters may request for the purposes contemplated by the Act; (c) to advise you promptly and (if requested by you) to confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective and (ii) if Rule 430A under the Act is used, when the Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act (which the Company agrees to file in a timely manner under such Rules); (d) to advise you promptly, confirming such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for, or the entry of a stop order suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting or removal of such order as soon as possible; to advise you promptly of any proposal to amend or supplement the Registration Statement or Prospectus including by filing any documents that would be incorporated therein by reference and to file no such amendment or supplement to which you shall object in writing; (e) to furnish to you and, upon request, to each of the other Underwriters for a period of five years from the date of this Agreement (i) copies of any reports or other communications which the Company shall send to its stockholders or shall from time to time published or publicly disseminate, (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the Commission, and (iii) such other information as you may reasonably request regarding the Company or its Subsidiaries; (f) to advise the Underwriters promptly of the happening of any event known to the Company within the time during which a prospectus relating to the Notes is required to be delivered under the Act which, in the judgment of the Company, would require the making of any change in the Prospectus then being used, or in the information incorporated therein by reference, so that the Prospectus would not include an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and, during such time, to prepare and furnish, at the Company's expense, to the Underwriters promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such -6- 8 change and to furnish you a copy of such proposed amendment or supplement before filing any such amendment or supplement with the Commission; (g) to make generally available to its security holders, and to deliver to you, an earnings statement of the Company (which will satisfy the provisions of Section 11(a) of the Act) covering a period of twelve months beginning after the effective date of the Registration Statement as soon as is reasonably practicable after the termination of such twelve-month period but no later than January 31, 1998; (h) to furnish to you four signed copies of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto and documents incorporated by reference therein) and sufficient conformed copies of the foregoing (other than exhibits) for distribution of a copy to each of the other Underwriters; (i) to furnish to you as early as practicable prior to the time of purchase but not later than two business days prior thereto, a copy of the latest available unaudited interim consolidated financial statements, if any, of the Company and its Subsidiaries which have been read by the Company's independent certified public accountants, as stated in their letter to be furnished pursuant to Section 7(b) of this Agreement; (j) to apply the net proceeds from the sale of the Notes in the manner set forth under the caption "Use of Proceeds" in the Prospectus; (k) to furnish to you, before filing with the Commission subsequent to the effective date of the Registration Statement and during the period referred to in paragraph (e) above, a copy of any document proposed to be filed pursuant to Sections 13, 14, or 15(d) of the Exchange Act; 5. Payment of Expenses. The Company agrees to pay all expenses, fees and taxes (other than any transfer taxes and fees and disbursements of counsel for the Underwriters except as set forth under Section 6 hereof or (iii) or (iv) below) in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the issuance (including the printing and engraving of the Notes), sale and delivery of the Notes by the Company, (iii) the word processing and/or printing of this Agreement, the Indenture, any Agreement Among Underwriters, any dealer agreements, any Statements of Information and the reproduction and/or printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (iv) the qualification of the Notes for offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including the legal fees and filing fees and other disbursements of counsel to the Underwriters) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) the fees and expenses of rating agencies, (vi) the filing for review of the public offering of the Notes by the NASD (vii) all fees and expenses of the Trustee and (viii) the performance of the Company's other obligations hereunder. -7- 9 6. Reimbursement of Underwriters' Expenses. If the Notes are not delivered for any reason other than the termination of this Agreement pursuant to the first two paragraphs of Section 9 hereof or the default by one or more of the Underwriters in its or their respective obligations hereunder, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel. 7. Conditions of Underwriters' Obligations. The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the time of purchase, the performance by the Company of their obligations hereunder and to the following conditions: (a) The Company shall furnish to you at the time of purchase an opinion of Porter & Hedges, L.L.P., counsel for the Company, addressed to the Underwriters, and dated the time of purchase, with reproduced copies for each of the other Underwriters and in form satisfactory to Vinson & Elkins L.L.P., counsel for the Underwriters, stating that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, to execute and deliver this Agreement and to issue, sell and deliver the Notes as herein contemplated; (ii) each of the Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its respective jurisdiction of incorporation with full corporate power and authority to own its respective properties and to conduct its respective business; (iii) the Company and its Subsidiaries are duly qualified or licensed by each jurisdiction in which they conduct their respective businesses and in which the failure, individually or in the aggregate, to be so licensed or qualified could have a material adverse effect on the operations, business or condition of the Company and its Subsidiaries taken as a whole, and the Company and its Subsidiaries are duly qualified, and are in good standing, in each jurisdiction in which they own or lease real property or maintain an office and in which such qualification is necessary; (iv) the Company has full corporate power and authority to enter into this Agreement, and this Agreement has been duly authorized, executed and delivered by the Company is a legal, valid and binding obligation of the Company, enforceable in accordance with its terms; -8- 10 (v) the Indenture has been duly authorized and, when executed and delivered by the Company and the Trustee and qualified under the TIA, will constitute a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); (vi) the Notes have been duly and validly authorized and, when issued, delivered and sold and authenticated by the Trustee, in accordance with this Agreement and the Indenture, will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms and entitled to the benefits provided by the Indenture, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); (vii) statements set forth in the Prospectus under the heading "Description of Senior Notes" and in the Registration Statement in Item 15 insofar as such statements constitute summary of the legal matters, documents or proceedings referred to therein fairly present the information called for with respect to such legal matters, documents and proceedings; (viii) the Registration Statement and the Prospectus (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the TIA; (ix) the Registration Statement has become effective under the Act and, to the best of such counsel's knowledge, no stop order proceedings with respect thereto are pending or threatened under the Act; (x) no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Notes as contemplated hereby other than registration of the Notes under the Act, qualification of the Indenture under the TIA and filings required to be made with the NASD (except such counsel need express no opinion as to any necessary qualification under the state securities or blue sky laws of the various jurisdictions in which the Notes are being offered by the Underwriters); -9- 11 (xi) the execution, delivery and performance of this Agreement, the Notes and the Indenture by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not conflict with, or result in any breach of, or constitute a default under (nor constitute any event which with notice, lapse of time, or both, would constitute a breach of or default under), or result in the creation of any lien, charge or encumbrance on any property, or assets of the Company or any of its Subsidiaries pursuant to, any provisions of the charter or by-laws of the Company or any of its Subsidiaries or under any provision of any license, indenture, mortgage, deed of trust, bank loan, credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; (xii) to the best of such counsel's knowledge, neither the Company nor any of its Subsidiaries is in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under), any license, indenture, mortgage, deed of trust, bank loan or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected or under any law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; (xiii) to the best of such counsel's knowledge, there are no contracts, licenses, agreements, leases or documents of a character which are required to be filed as exhibits to the Registration Statement or to be summarized or described in the Prospectus which have not been so filed, summarized or described; (xiv) to the best of such counsel's knowledge, there are no actions, suits or proceedings pending or threatened against the Company or any of its Subsidiaries or any of their respective properties, at law or in equity or before or by any commission, board, body, authority or agency which are required to be described in the Prospectus but are not so described; (xv) the documents incorporated by reference in the Registration Statement and Prospectus, when they were filed (or, if an amendment with respect to any such document was filed when such amendment was filed), complied as to form in all material respects with the Exchange Act (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein as to which such counsel need express no opinion); and (xvi) such counsel have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the -10- 12 contents of the Registration Statement and Prospectus were discussed and, although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus (except as and to the extent stated in subparagraphs (vii) and (viii) above), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company) nothing has come to the attention of such counsel that causes them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any supplement thereto at the date of such Prospectus or such supplement, and at all times up to and including the time of purchase or additional time of purchase, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (b) You shall have received from Deloitte & Touche LLP, letters dated, respectively, the date of this Agreement and the time of purchase and addressed to the Underwriters (with reproduced copies for each of the Underwriters) in the forms heretofore approved by the Managing Underwriters. (c) You shall have received at the time of purchase, the favorable opinion of Vinson & Elkins L.L.P., counsel for the Underwriters, dated the time of purchase or the additional time of purchase, as the case may be, as to the matters referred to in subparagraphs (iv), (v), (vi), (vii) (but only as to statements in the Prospectus under "Description of Senior Notes"), and (x) of paragraph (a) of this Section 7. In addition, such counsel shall state that such counsel have participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the contents of the Registration Statement and Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as to matters referred to under subparagraph (vii) of paragraph (a) of this Section 7), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to the attention of such counsel which lead them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary -11- 13 to make the statements therein not misleading or that the Prospectus as of its date or any supplement thereto as of its date contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no comment with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (d) No amendment or supplement to the Registration Statement or Prospectus, including documents deemed to be incorporated by reference therein, shall be filed prior to the time the Registration Statement becomes effective to which you object in writing. (e) The Registration Statement shall become effective, or if Rule 430A under the Act is used, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act, at or before 5:00 P.M., New York City time, on the date of this Agreement, unless a later time (but not later than 5:00 P.M., New York City time, on the second full business day after the date of this Agreement) shall be agreed to by the Company and you; provided, however, that the Company, and you and any group of Underwriters, including you, who have agreed hereunder to purchase in the aggregate at least 50% of the principal amount of the Notes may from time to time agree on a later date. (f) Prior to the time of purchase, (i) no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the Act or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement and all amendments thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) the Prospectus and all amendments or supplements thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. (g) Between the time of execution of this Agreement and the time of purchase (i) no material and unfavorable change, financial or otherwise (other than as referred to in the Registration Statement and Prospectus), in the business, condition or prospects of the Company and its Subsidiaries taken as a whole shall occur or become known and (ii) no transaction which is material and unfavorable to the Company shall have been entered into by the Company or any of its Subsidiaries. (h) The Company will, at the time of purchase, deliver to you a certificate of two of its executive officers to the effect that the representations and warranties of the Company as set forth in this Agreement and the conditions set forth in paragraph (f) and paragraph (g) have been met and that they are true and correct as of such date. -12- 14 (i) The Company shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement and the Prospectus as of the time of purchase, as you may reasonably request. (j) The Company shall perform such of their respective obligations under this Agreement as are to be performed by the terms hereof at or before the time of purchase and at or before the additional time of purchase, as the case may be. 8. Effective Date of Agreement; Termination: This Agreement shall become effective (i) if Rule 430A under the Act is not used, when you shall have received notification of the effectiveness of the Registration Statement, or (ii) if Rule 430A under the Act is used, when the parties hereto have executed and delivered this Agreement. The obligations of the several Underwriters hereunder shall be subject to termination in the absolute discretion of you or any group of Underwriters (which may include you) which has agreed to purchase in the aggregate at least 50% of the principal amount of the Notes, if, at any time prior to the time of purchase, trading in securities on the New York Stock Exchange or American Stock Exchange shall have been suspended or minimum prices shall have been established on the New York Stock Exchange or American Stock Exchange, or if a banking moratorium shall have been declared either by the United States or New York State authorities, or if the United States shall have declared war in accordance with its constitutional processes or there shall have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on the financial markets of the United States as, in your judgment or in the judgment of such group of Underwriters, to make it impracticable to proceed with the offering of the Notes on the terms and as contemplated in the Registration Statement and the Prospectus. If you or any group of Underwriters elects to terminate this agreement as provided in this Section 9, the Company and each other Underwriter shall be notified promptly by letter or telegram. If the sale to the Underwriters of the Notes, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement or if such sale is not carried out because the Company shall be unable to comply with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 5, 6 and 10 hereof), and the Underwriters shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 10 hereof) or to one another hereunder. 9. Increase in Underwriters' Commitments: If any Underwriter shall default in its obligation to take up and pay for the Notes to be purchased by it hereunder and if the aggregate principal amount of Notes which all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total aggregate principal amount of Notes , the non-defaulting Underwriters shall take up and pay for (in addition to the aggregate principal amount of Notes they are obligated to purchase pursuant to Section 1 hereof) the aggregate principal amount -13- 15 of Notes agreed to be purchased by all such defaulting Underwriters, as hereinafter provided. Such Notes shall be taken up and paid for by such non-defaulting Underwriter or Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such Notes shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate principal amount of Notes set opposite the names of such non-defaulting Underwriters in Schedule A. Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that they will not sell any Notes hereunder unless all of the Notes are purchased by the Underwriters (or by substituted Underwriters selected by you with the approval of the Company or selected by the Company with your approval). If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or you shall have the right to postpone the time of purchase for a period not exceeding five business days in order that any necessary changes in the Registration Statement and Prospectus and other documents may be effected. The term Underwriter as used in this agreement shall refer to and include any Underwriter substituted under this Section 9 with like effect as if such substituted Underwriter had originally been named in Schedule A. 10. Indemnity by the Company and the Underwriters. (a) The Company agrees to indemnify, defend and hold harmless each Underwriter and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any loss, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such controlling person may incur under the Act, the Exchange Act or otherwise insofar as such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus (the term "Prospectus" for the purpose of this Section 10 being deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus as amended or supplemented by the Company), or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein not misleading, except insofar as any such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by any Underwriter through you to the Company expressly for use with reference to such Underwriter in such Registration Statement or such Prospectus or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated -14- 16 in either such Registration Statement or Prospectus or necessary to make such information not misleading; If any action is brought against an Underwriter or controlling person in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such Underwriter shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment of counsel and payment of expenses. Such Underwriter or such controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or of such controlling person unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Company as the case may be, and paid as incurred (it being understood, however, that the Company shall not be liable for the expenses of more than one separate counsel in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent. (b) Each Underwriter severally agrees to indemnify, defend and hold harmless the Company, its directors and officers, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any loss, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, the Company or any such person may incur under the Act or otherwise, insofar as such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use with reference to such Underwriter in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated either in such Registration Statement or Prospectus or necessary to make such information not misleading. If any action is brought against the Company or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Company or such person shall promptly notify such Underwriter in writing of the institution of such action and such Underwriter shall assume the defense of such action, including the employment of counsel and payment of expenses. The Company or -15- 17 such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company or such person unless the employment of such counsel shall have been authorized in writing by such Underwriter in connection with the defense of such action or such Underwriter shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to such Underwriter (in which case such Underwriter shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that such Underwriter shall not be liable for the expenses of more than one separate counsel in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, no Underwriter shall be liable for any settlement of any such claim or action effected without the written consent of such Underwriter. (c) If the indemnification provided for in this Section 10 is unavailable to an indemnified party under subsections (a) and (b) of this Section 10 in respect of any losses, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the Company on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, expenses, liabilities and claims referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. (d) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined by pro rata allocation -16- 18 (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. Notwithstanding the provisions of this Section 10, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Notes underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue statements or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriter's obligations to contribute pursuant to this Section 10 are several in proportion to their respective underwriting commitments and not joint. (e) The indemnity and contribution agreements contained in this Section 10 and the covenants, warranties and representations of the Company contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, or any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of the Company, its directors and officers, or any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the issuance and delivery of the Notes. The Company and each Underwriter agree promptly to notify the others of the commencement of any litigation or proceeding against it and, in the case of the Company against any of the Company's officers and directors in connection with the issuance and sale of the Notes, or in connection with the Registration Statement or Prospectus. 11. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022, Attention: Syndicate Department and if to the Company shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 3701 Kirby Drive, Houston, Texas 77098, Attention: Richard W. McNairy. 12. Construction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement. 13. Parties at Interest. The Agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 10 hereof, and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement. -17- 19 14. Counterparts. This agreement may be signed by the parties in counterparts which together shall constitute one and the same agreement among the parties. If the foregoing correctly sets forth the understanding among the Company and the Underwriters, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement between the Company and the Underwriters, severally. Very truly yours, VERITAS DGC INC. By -------------------------------- Title: Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A. DILLON, READ & CO. INC. SALOMON BROTHERS INC RAYMOND JAMES & ASSOCIATES, INC. RAUSCHER PIERCE REFNES, INC. By: DILLON, READ & CO. INC. By: -------------------------------- Title: -18- 20 SCHEDULE A PRINCIPAL AMOUNT UNDERWRITER OF NOTES - ----------- ---------------- DILLON, READ & CO. INC. SALOMON BROTHERS INC RAYMOND JAMES & ASSOCIATES, INC. RAUSCHER PIERCE REFNES, INC. ----------- TOTAL ----------- EX-4.B 3 FORM OF TRUST INDENTURE 1 EXHIBIT 4-B ________________________________________________________________________________ VERITAS DGC INC. and FLEET NATIONAL BANK Trustee _______________ INDENTURE Dated as of _________, 1996 _______________ $75,000,000 _____% Senior Notes due 2003 ________________________________________________________________________________ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . . 2 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . 21 Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE II SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.2 Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.3 Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . 24 Section 2.4 Form of Trustee's Certificate of Authentication . . . . . . . . . . . 28 ARTICLE III THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 3.1 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 3.3 Execution, Authentication, Delivery and Dating . . . . . . . . . . . 29 Section 3.4 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.5 Registration of Transfer and Exchange . . . . . . . . . . . . . . . . 31 Section 3.6 Book-Entry Provisions for Global Securities . . . . . . . . . . . . . 32 Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . 33 Section 3.8 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . 33 Section 3.9 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 3.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 3.11 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE IV SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 4.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . 35 Section 4.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE V REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 5.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 5.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . 38
i 3 Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . 40 Section 5.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . 41 Section 5.5 Trustee May Enforce Claims Without Possession of Securities . . . . . 41 Section 5.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . 42 Section 5.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 5.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . 43 Section 5.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . 43 Section 5.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . 43 Section 5.12 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 5.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . 44 Section 5.14 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . 44 ARTICLE VI THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.2 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities . . . 47 Section 6.4 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 6.5 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 6.6 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . 47 Section 6.7 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . 48 Section 6.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.9 Resignation and Removal; Appointment of Successor . . . . . . . . . . 48 Section 6.10 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . 50 Section 6.11 Merger, Conversion, Consolidation or Succession to Business . . . . . 50 Section 6.12 Preferential Collection of Claims Against Company . . . . . . . . . . 50 Section 6.13 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . . 51 Section 7.1 Holders' Lists; Holder Communications; Disclosures Respecting Holders . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.2 Reports By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.3 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . . . . . 52 Section 8.1 Company May Consolidate, etc., Only on Certain Terms . . . . . . . . 52 Section 8.2 Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . 54
ii 4 ARTICLE IX SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.1 Supplemental Indentures Without Consent of Holders . . . . . . . . . 54 Section 9.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . 55 Section 9.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . 56 Section 9.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . 56 Section 9.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . 56 Section 9.6 Reference in Securities to Supplemental Indentures . . . . . . . . . 56 Section 9.7 Notice of Supplemental Indentures and Waivers . . . . . . . . . . . . 57 ARTICLE X COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.1 Payment of Principal, Premium, if any, and Interest . . . . . . . . . 57 Section 10.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . 57 Section 10.3 Money for Security Payments to Be Held in Trust . . . . . . . . . . . 58 Section 10.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.5 Payment of Taxes; Maintenance of Properties; Insurance . . . . . . . 59 Section 10.6 Limitation on Sale-Leaseback Transactions . . . . . . . . . . . . . . 60 Section 10.7 Limitation on Conduct of Business . . . . . . . . . . . . . . . . . . 60 Section 10.8 Statement by Officers as to Default . . . . . . . . . . . . . . . . . 60 Section 10.9 Provision of Financial Information . . . . . . . . . . . . . . . . . 61 Section 10.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . 61 Section 10.11 Limitation on Indebtedness and Disqualified Capital Stock . . . . . . 64 Section 10.12 Limitation on Issuances and Sales of Capital Stock by Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 64 Section 10.13 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 10.14 Purchase of Securities Upon Change of Control . . . . . . . . . . . . 65 Section 10.15 Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . 66 Section 10.16 Limitation on Transactions with Affiliates . . . . . . . . . . . . . 69 Section 10.17 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . 70 Section 10.18 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . 70 ARTICLE XI REDEMPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 11.1 Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 11.2 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . 71 Section 11.3 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . 71 Section 11.4 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . 72 Section 11.5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 11.6 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . 73 Section 11.7 Securities Payable on Redemption Date. . . . . . . . . . . . . . . . 73
iii 5 Section 11.8 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance . . . . 74 Section 12.2 Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . 74 Section 12.3 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 12.4 Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . 75 Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . 77 Section 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 13.1 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . 78 Section 13.2 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . 78 Section 13.3 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 13.4 Notices, etc. to Trustee and the Company . . . . . . . . . . . . . . 80 Section 13.5 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . 80 Section 13.6 Effect of Headings and Table of Contents . . . . . . . . . . . . . . 81 Section 13.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 81 Section 13.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 13.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 13.10 Governing Law; Trust Indenture Act Controls . . . . . . . . . . . . . 81 Section 13.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 13.12 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . 82 Section 13.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 13.14 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . 82 Exhibit A - Form of Legend for Global Securities
iv 6 Reconciliation and Tie between Trust Indenture Act of 1939 and Indenture, dated as of_________________ ____, 1996
Trust Indenture Indenture Act Section Section Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . 6.7 (a)(2) . . . . . . . . . . . . . . . . . . . . 6.7 (b) . . . . . . . . . . . . . . . . . . . . 6.7,6.8, 6.9 Section 311 (a) . . . . . . . . . . . . . . . . . . . . 6.12 (b) . . . . . . . . . . . . . . . . . . . . 6.12 Section 312 . . . . . . . . . . . . . . . . . . . . 7.1 Section 313 . . . . . . . . . . . . . . . . . . . . 7.2 Section 314 (a) . . . . . . . . . . . . . . . . . . . . 7.3 (a)(4) . . . . . . . . . . . . . . . . . . . . 10.8(a) (c)(1) . . . . . . . . . . . . . . . . . . . . 13.1 (c)(2) . . . . . . . . . . . . . . . . . . . . 13.1 (e) . . . . . . . . . . . . . . . . . . . . 13.1 Section 315 (a) . . . . . . . . . . . . . . . . . . . . 6.1 (b) . . . . . . . . . . . . . . . . . . . . 6.13 (c) . . . . . . . . . . . . . . . . . . . . 6.1 (d) . . . . . . . . . . . . . . . . . . . . 6.1 Section 316 (a) (last sentence) . . . . . . . . . . . . . . . . . . . . 1.1("Outstanding") (a)(1)(A) . . . . . . . . . . . . . . . . . . . . 5.2,5.12 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . 5.13 (b) . . . . . . . . . . . . . . . . . . . . 5.8 (c) . . . . . . . . . . . . . . . . . . . . 13.3(d) Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . . 5.3 (a)(2) . . . . . . . . . . . . . . . . . . . . 5.4 (b) . . . . . . . . . . . . . . . . . . . . 10.3 Section 318 (a) . . . . . . . . . . . . . . . . . . . . 14.10(b)
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 7 THIS INDENTURE, dated as of ___________ ___,1996, is between VERITAS DGC INC., a Delaware corporation (hereinafter called the "Company") and FLEET NATIONAL BANK, a national banking association (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of _____% Senior Notes due 2003, (herein, as amended or supplemented from time to time in accordance with the terms hereof, called the "Securities"), of substantially the tenor and in the aggregate principal amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary have been done on the part of the Company to make the Securities, when issued and executed by the Company and authenticated and delivered by the Trustee as herein provided, the valid obligations of the Company and to make this Indenture a valid agreement of the Company and the Trustee, in accordance with their respective terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: 1 8 ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1 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 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 from such Person. "Act," when used with respect to any Holder, has the meaning specified in Section 13.3. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this definition, beneficial ownership of 10% or more of the voting common equity (on a fully diluted basis) or options or warrants to purchase such equity (but only if exercisable at the date of determination or within 60 days thereof) of a Person shall be deemed to constitute control of such Person. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition to any Person other than the Company or any of its Restricted Subsidiaries (including, without limitation, by means of a Sale/Leaseback Transaction or a merger or consolidation) (collectively, for purposes of this definition, a "transfer"), directly or indirectly, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the Company or any other Restricted Subsidiary, (b) all or substantially all of the Properties of any division or line of business of the Company or any of its Restricted Subsidiaries or (c) any other Properties of the Company or any of its Restricted Subsidiaries other than transfers of cash, Cash Equivalents, accounts receivable, or other Properties in the ordinary course of business or transfers in accordance with the proviso to clause (vi) of the definition of Permitted Investments. For the purposes of this definition, the term "Asset Sale" also shall not include any of the following: (i) any transfer of Properties (including Capital Stock) which is governed by, and made in accordance with, the provisions of Article VIII hereof; (ii) any transfer of Properties to an Unrestricted Subsidiary, if permitted under Section 10.10 hereof; (iii) sales of damaged, worn-out or obsolete equipment or assets that, in the Company's reasonable judgment, are either (x) no longer used or (y) no longer useful in the business of the Company or its Restricted Subsidiaries; (iv) any lease of any Property entered into in the ordinary course of business and with respect to which the Company or any Restricted Subsidiary is the lessor, except any such lease that provides for the acquisition of such Property by the lessee during or at the end of the term thereof for an amount 2 9 that is less than the fair market value thereof at the time the right to acquire such property is granted; (v) any transfers that, but for this clause (v), would be Asset Sales, if (A) the Company elects to designate such transfers as not constituting Asset Sales and (B) after giving effect to such transfers, the aggregate fair market value of the Properties transferred in such transaction or any such series of related transactions so designated by the Company does not exceed $500,000. "Attributable Indebtedness" means, with respect to any particular lease under which any Person is at the time liable, whether or not accounted for as a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under the lease during the primary term thereof, without giving effect to any renewals at the option of the lessee, discounted from the respective due dates thereof to such date of determination at a rate of interest per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term in accordance with GAAP. As used in the preceding sentence, the "net amount of rent" under any such lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (a) the sum of the products of (i) the number of years (and any portion thereof) from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. "Board of Directors" means, with respect to the Company, either the board of directors of the Company or any duly authorized committee of such board of directors, and, with respect to any Subsidiary, either the board of directors of such Subsidiary or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee, and with respect to a Subsidiary, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Subsidiary to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or Hartford, Connecticut are authorized or obligated by law or executive order to close. 3 10 "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents in the equity interests (however designated) in such Person, and any rights (other than debt securities convertible into an equity interest), warrants or options exercisable for, exchangeable for or convertible into such an equity interest in such Person (for purposes of the Indenture the Exchangeable Shares of VES shall be treated as Capital Stock of the Company, for which they are exchangeable, and shall not be treated as Capital Stock of VES). "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any Property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) demand and time deposits and certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000 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 $500,000,000; (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-l by S&P or at least P-l by Moody's; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any commercial bank meeting the specifications of clause (ii) above; (v) overnight bank deposits and bankers' acceptances at any commercial bank meeting the qualifications specified in clause (ii) above; (vi) demand and time deposits and certificates of deposit with any commercial bank organized in the United States not meeting the qualifications specified in clause (ii) above, provided that such deposits and certificates support bond, letter of credit and other similar types of obligations incurred in the ordinary course of business; and (vii) investments in money market or other mutual funds substantially all of whose assets comprise securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of any event or series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Stock of the Company; (b) the Company consolidates with or merges into another Person or any Person consolidates with, or merges into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other Property, other than any such transaction where (i) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving or resulting Person that is Qualified Capital Stock and (ii) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving or resulting Person immediately after such transaction; (c) the Company, either individually or in conjunction with one or more Restricted Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise disposes of, 4 11 or the Restricted Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all or substantially all of the Properties of the Company and the Restricted Subsidiaries, taken as a whole (either in one transaction or a series of related transactions), including Capital Stock of the Restricted Subsidiaries, to any Person (other than the Company or a Wholly Owned Restricted Subsidiary); (d) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a two-thirds of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (e) the liquidation or dissolution of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations thereunder issued by the Internal Revenue Service. "Commission" or "SEC" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "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. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Trustee. "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 Charge, Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in each case, for such period, of the Company and its Restricted Subsidiaries on a consolidated basis, all determined in accordance with GAAP, to (b) the sum of such Consolidated Fixed Charges for such period; provided, however, that (i) the Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma basis assuming that (A) the Indebtedness to be incurred (and all other Indebtedness incurred after the first day of such period of four full fiscal quarters referred to in Section 10.11(a) hereof 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 5 12 of purchase, merger or otherwise) also had occurred on such date with the appropriate adjustments with respect to such acquisition being included in such pro forma calculation and (B) any acquisition or disposition by the Company or any Restricted Subsidiary of any Properties outside the ordinary course of business, or any repayment of any principal amount of any Indebtedness of the Company or any Restricted Subsidiary prior to the Stated Maturity thereof, in either case since the first day of such period of four full fiscal quarters through and including the date of determination, had been consummated on such first day of such four-quarter period, (ii) in making such computation, the Consolidated Fixed Charge attributable to interest on any Indebtedness required to be computed on a pro forma basis in accordance with Section 10.11(a) hereof and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or floating rate, (iii) in making such computation, the Consolidated Fixed Charges attributable to interest on any Indebtedness under a revolving credit facility required to be computed on a pro forma basis in accordance with Section 10.11(a) hereof shall be computed based upon the average daily balance of such Indebtedness during the applicable period, provided that such average daily balance shall be reduced by the amount of any repayment of Indebtedness under a revolving credit facility during the applicable period, which repayment permanently reduced the commitments or amounts available to be reborrowed under such facility, (iv) notwithstanding clauses (ii) and (iii) of this proviso, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, shall be deemed to have accrued at the rate per annum resulting after giving effect to the operation of such agreements, and (v) if after the first day of the period referred to in clause (a) of this definition the Company has permanently retired any Indebtedness out of the Net Cash Proceeds of the issuance and sale of shares of Qualified Capital Stock of the Company within 30 days of such issuance and sale, Consolidated Fixed Charges shall be calculated on a pro forma basis as if such Indebtedness had been retired on the first day of such period. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes (including state franchise taxes accounted for as income taxes in accordance with GAAP) of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Fixed Charges" means, for any period, without duplication, (i) the sum of (a) the interest expense of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (A) any amortization of debt discount, (B) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (C) the interest portion of any deferred payment obligation constituting Indebtedness, (D) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (E) all accrued interest, in each case to the extent attributable to such period, (b) to the extent any Indebtedness of any Person (other than the Company or a Restricted Subsidiary) is guaranteed by the Company or any Restricted Subsidiary, the aggregate amount of interest paid (to the extent not accrued in a prior period) or accrued by such other Person during such period attributable to any such Indebtedness, in each case 6 13 to the extent attributable to that period, (c) the aggregate amount of the interest component of Capitalized Lease Obligations paid (to the extent not accrued in a prior period), accrued or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period and (d) the aggregate amount of dividends paid (to the extent not accrued in a prior period) or accrued on Preferred Stock or Disqualified Capital Stock of the Company and its Restricted Subsidiaries, to the extent such Preferred Stock or Disqualified Capital Stock is owned by Persons other than the Company or its Restricted Subsidiaries and (e) one third of the rental expense (including without limitation marine vessel charter payments) under operating leases with remaining noncancellable terms of at least one year excluding leases in respect of office space of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, less (ii), to the extent included in clause (i) above, amortization of capitalized debt issuance costs of the Company and its Restricted Subsidiaries during such period. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding (a) net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the net income (or net loss) of any Person (other than the Company or any of its Restricted Subsidiaries), in which the Company or any of its Restricted Subsidiaries has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries in cash by such other Person during such period (regardless of whether such cash dividends or distributions are attributable to net income (or net loss) of such Person during such period or during any prior period), (d) net income (or net loss) of any Person (other than Veritas Energy Services, Inc.) combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its net income is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (f) income resulting from transfers of assets received by the Company or any Restricted Subsidiary from an Unrestricted Subsidiary and (g) for the fiscal year ended July 31, 1996, merger related costs reflected in the Company's consolidated financial statements. "Consolidated Net Tangible Assets" means, at any date, the aggregate amount of assets included on the most recent consolidated balance sheet of the Company and its Restricted Subsidiaries, less applicable reserves and other properly deductible items and after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (ii) current liabilities (other than current liabilities constituting Indebtedness for borrowed money), all in accordance with GAAP. "Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Company less the amount of such stockholders' equity attributable to Disqualified Capital Stock or treasury stock of the Company and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, depletion, amortization and other non-cash expenses (excluding non-cash expenses related to multi- 7 14 client seismic data sales and write-offs and write-downs related to its multi-client data library) of the Company and its Restricted Subsidiaries reducing Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge for which an accrual of or reserve for cash charges for any future period is required). "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at 777 Main Street, Hartford, Connecticut 06115. "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. "Defaulted Interest" has the meaning specified in Section 3.8 hereof. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors of the Company is required to deliver a Board Resolution hereunder, a member of the Board of Directors of the Company who does not have any material direct or indirect financial interest (other than an interest arising solely from the beneficial ownership of Capital Stock of the Company) in or with respect to such transaction or series of transactions. "Disqualified Capital Stock" means any Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed or repurchased, in whole or in part, prior to the final Stated Maturity of the Securities 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 Section 10.11(a) hereof, 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 8 15 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 specified in Section 5.1 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor act thereto. "Fair Market Value" means the fair market value of a Property (including shares of Capital Stock) as determined in good faith by the Board of Directors of the Company and evidenced by a Board Resolution, which determination shall be conclusive for purposes of this Indenture; provided, however, that unless otherwise specified herein, the Board of Directors shall be under no obligation to obtain any valuation or assessment from any investment banker, appraiser or other third party. "Federal Bankruptcy Code" means the United States Bankruptcy Code of Title 11 of the United States Code, as amended from time to time. "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 this Indenture. The term "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments or documents for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down under letters of credit. When used as a verb, "guarantee" has a corresponding meaning. "Holder" means a Person in whose name a Security is registered in a Security Register. "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person, contingent or otherwise, for borrowed money or for the deferred purchase price of Property or services (excluding any trade accounts payable and other accrued current liabilities incurred in the ordinary course of business) and all liabilities of such Person incurred in connection with any letters of credit, bankers' acceptances or other similar credit transactions or any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, outstanding on the date of this 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 9 16 GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (c) all Indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), but excluding trade accounts payable arising in the ordinary course of business, (d) the Attributable Indebtedness respecting all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon Property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such Property or the amount of the obligation so secured), (f) all guarantees by such Person of Indebtedness referred to in this definition and (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. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Insolvency or Liquidation Proceeding" means, with respect to any Person, (a) an insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or similar case or proceeding in connection therewith, relative to such Person or its creditors, as such, or its assets or (b) any liquidation, dissolution or other winding-up proceeding of such Person, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of such Person. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "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 and 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 to others or any payment for Property or services for the 10 17 account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities (including derivatives) or evidences of Indebtedness issued by, any other Person. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude (a) extensions of trade credit or other advances to customers on commercially reasonable terms in accordance with normal trade practices or otherwise in the ordinary course of business, (b) Interest Rate Protection Obligations and Currency Hedge Obligations, but only to the extent that the same constitute Permitted Investments, and (c) endorsements of negotiable instruments and documents in the ordinary course of business. "Issue Date" means the date of first issuance of the Securities under this Indenture. "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 Security, the date on which any principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants and investment banks) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the Property subject to the Asset Sale or having a Lien thereon and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment 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. 11 18 "Net Available Proceeds" means, with respect to any Event of Loss, the proceeds to the Company or any Restricted Subsidiary as a result thereof in the form of cash or Cash Equivalents, including insurance proceeds paid to the Company or any Restricted Subsidiary, and all payments received by the Company or any Restricted Subsidiary from any government or any instrumentality or agency thereof by way of compensation for the requisition of title to Property, net of all fees and expenses incurred by the Company or any Restricted Subsidiary related to the collection or receipt of such proceeds, all as reflected in an Officers' Certificate delivered to the Trustee. "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 the Company or any Restricted Subsidiary incurred in connection with the acquisition by the Company or such Restricted Subsidiary of any Property and as to which (a) the holders of such Indebtedness agree that they will look solely to the Property so acquired and securing such Indebtedness for payment on or in respect of such Indebtedness, and neither the Company nor any Subsidiary (other than an Unrestricted Subsidiary) (i) provides credit support, including any undertaking, agreement or instrument which would constitute Indebtedness or (ii) is directly or indirectly liable for such Indebtedness, and (b) no default with respect to such Indebtedness would permit (after notice or passage of time or both), according to the terms thereof, any holder of any Indebtedness of the Company or a Restricted Subsidiary to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "Officers" means, with respect to any Person, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer and the Treasurer of such Person. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company including an employee of the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent 12 19 (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities, except to the extent provided in Sections 12.2 and 12.3 hereof, with respect to which the Company has effected legal defeasance or covenant defeasance as provided in Article XII hereof; and (iv) Securities which have been paid pursuant to Section 3.7 hereof or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, consent, notice or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any, on) or interest on any Securities on behalf of the Company. "Permitted Indebtedness" means any of the following: (i) Indebtedness (and any guarantee thereof) under one or more working capital credit facilities with banks and other financial institutions in an aggregate principal amount at any one time outstanding not to exceed $20,000,000, less any amounts derived from Asset Sales and applied to the permanent reduction of the Indebtedness under any such credit facilities as contemplated by Section 10.15 hereof (the "Maximum Bank Credit Amount"), and any renewals, amendments extensions, supplements, modifications, deferrals, refinancings or replacements (each, for purposes of this clause (i), a "refinancing") thereof, including any successive refinancings thereof, so long as the aggregate principal amount of any such new Indebtedness, together with the aggregate 13 20 principal amount of all other Indebtedness outstanding pursuant to this clause (i), shall not at any one time exceed the Maximum Bank Credit Amount; (ii) Indebtedness under the Securities; (iii) Indebtedness outstanding or in effect on the date of this Indenture (and not repaid or defeased with the proceeds of the offering of the Securities); (iv) Indebtedness under Interest Rate Protection Obligations, provided that (1) such Interest Rate Protection Obligations are related to payment obligations on Permitted Indebtedness or Indebtedness otherwise permitted by Section 10.11(a) hereof, and (2) the notional principal amount of such Interest Rate Protection Obligations does not exceed the principal amount of such Indebtedness to which such Interest Rate Protection Obligations relate; (v) Indebtedness under Currency Hedge Obligations, provided that (1) such Currency Hedge Obligations are related to payment obligations on Permitted Indebtedness or Indebtedness otherwise permitted by Section 10.11(a) hereof, or to the foreign currency cash flows reasonably expected to be generated by the Company and its Restricted Subsidiaries, and (2) the notional principal amount of such Currency Hedge Obligations does not exceed the principal amount of such Indebtedness and the amount of such foreign currency cash flows to which such Currency Hedge Obligations relate; (vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary; provided, however, that upon any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Restricted Subsidiary), such Indebtedness shall be deemed, in each case, to be incurred and shall be treated as an incurrence for purposes of Section 10.11(a) hereof at the time the Wholly Owned Restricted Subsidiary in question ceased to be a Wholly Owned Restricted Subsidiary or the time such subsequent transfer occurred; (vii) Indebtedness in respect of bid, performance or surety bonds issued for the account of the Company in the ordinary course of business, including guaranties or obligations of the Company with respect to letters of credit supporting such bid, performance or surety obligations (in each case other than for an obligation for money borrowed); (viii) Non-Recourse Indebtedness; (ix) any renewals, substitutions, refinancings or replacements (each, for purposes of this clause (ix), a "refinancing") by the Company or a Restricted Subsidiary of any Indebtedness, including any successive refinancings by the Company or such 14 21 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 new Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company or such Restricted Subsidiary as necessary to accomplish such refinancing, plus the amount of expenses of the Company or such Restricted Subsidiary incurred in connection with such refinancing, (B) in the case of any refinancing of Indebtedness (including the Securities) that is pari passu with or subordinated in right of payment to the Securities, then such new Indebtedness is pari passu with or subordinated in right of payment to the Securities 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 lease 91 days later than the final Stated Maturity of the Indebtedness being refinanced; and (x) any additional Indebtedness in an aggregate principal amount not in excess of $5,000,000 at any one time outstanding and any guarantee thereof. "Permitted Investments" means any of the following: (i) Investments in Cash Equivalents; (ii) Investments in the Company or any of its Wholly Owned Restricted Subsidiaries; (iii) Investments by the Company or any of its Restricted Subsidiaries in another Person, if as a result of such Investment (A) such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its Properties to, the Company or a Wholly Owned Restricted Subsidiary; (iv) Investments permitted under Section 10.15 or 10.16 hereof; (v) Investments made in the ordinary course of business in prepaid expenses, lease, utility, workers' compensation, performance and other similar deposits; and (vi) Investments in stock, obligations or securities received in settlement of debts owing to the Company or any Restricted Subsidiary as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in each case as to debt owing to the Company or any Restricted Subsidiary that arose in the ordinary course of business of the Company or any such Restricted Subsidiary, provided that any stocks, obligations or securities received in settlement of debts that arose in the ordinary course of business (and received other than as a result of bankruptcy or insolvency proceedings or upon foreclosure, perfection or enforcement of any Lien) that are, within 30 days of receipt, converted into cash or Cash Equivalents shall be treated as having been cash or Cash Equivalents at the time received. "Permitted Liens" means the following types of Liens: (a) Liens existing as of the date of this Indenture; (b) Liens securing the Securities or the Subsidiary Guarantees; 15 22 (c) Liens in favor of the Company; (d) Liens on accounts receivable or inventory securing Indebtedness that constitutes (A) Permitted Indebtedness pursuant to clause (i) of the definition of "Permitted Indebtedness" or (B) Permitted Subsidiary Indebtedness; (e) Liens securing Indebtedness that constitutes Permitted Indebtedness pursuant to clause (ix) of the definition of "Permitted Indebtedness" incurred as a refinancing of any Indebtedness secured by Liens described in clause (a) or (d) of this definition; (f) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (g) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety and appeal bonds, bids, government contracts and leases, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (h) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (i) any interest or title of a lessor under any Capitalized Lease Obligation (to the extent the Attributable Indebtedness related thereto constitutes Indebtedness permitted to be incurred under the terms of the Indenture) or operating lease; (j) purchase money Liens; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any Property of the Company or any Restricted Subsidiary other than the Property so acquired and the proceeds thereof and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (k) Liens securing obligations under or in respect of either Currency Hedge Obligations or Interest Rate Protection Obligations; (l) Liens upon specific items of inventory or other goods and proceeds 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; 16 23 (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other Property relating to such letters of credit and products and proceeds thereof; (n) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off and; (o) Liens securing Non-Recourse Indebtedness; provided, however, that the related Non-Recourse Indebtedness shall not be secured by any Property of the Company or any Restricted Subsidiary other than the Property acquired by the Company or any Restricted Subsidiary with the proceeds of such Non-Recourse Indebtedness. "Permitted Subsidiary Indebtedness" means Indebtedness in an aggregate principal amount at any time outstanding up to the excess, if any, of (A) 10% of the Company's Consolidated Net Tangible Assets over (B) $20,000,000. "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. "Predecessor Security" of any particular Security means every previous Security, including any Security of a different series, evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.7 hereof in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "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 this Indenture, including, without limitation, all classes and series of preferred or preference stock of such Person. "Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock in any other Person. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Disqualified Capital Stock. "Record Date" for the interest payable on any Interest Payment Date means the or (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. 17 24 "Responsible Officer," when used with respect to the Trustee, means any officer in the Corporate Trust Department of the Trustee, and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means (without duplication) (i) the designation of a Subsidiary as an Unrestricted Subsidiary in the manner described in the definition of "Unrestricted Subsidiary" and (ii) any Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company, whether existing on or after the date of this Indenture, unless such Subsidiary of the Company is an Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms of this 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 are sold or transferred by the Company or a Restricted Subsidiary and are thereafter leased back from the purchaser or transferee thereof by the Company or one of its Restricted Subsidiaries. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor act thereto. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5 hereof. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.8 hereof. "Stated Maturity" means, when used with respect to any Indebtedness or any installment of interest thereon, means the date specified in the instrument evidencing or governing such Indebtedness as the fixed date an which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company which is expressly subordinated in right of payment to the Securities. 18 25 "Subsidiary" means, with respect to any Person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation), including, without limitation, a joint venture, in which such Person, one or more Subsidiaries thereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Persons performing similar functions). "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and in force at the date as of which this Indenture was executed until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.5 hereof. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors of the Company as provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted Subsidiary is directly or indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; (c) such designation as an Unrestricted Subsidiary would be permitted under Section 10.10 hereof; and (d) such designation shall not result in the creation or imposition of any Lien on any of the Properties of the Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien the creation or imposition of which shall have been in compliance with Section 10.13 hereof); provided, however, that with respect to clause (a), the Company or a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a Permitted Investment or a Restricted Payment permitted by Section 10.10 hereof, in each case at the time of incurrence, or (y) the liability would be a Permitted Investment at the time of designation of such Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a Board Resolution with the Trustee giving effect to such designation. The Board of Directors of the Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving effect to such designation, on a pro forma basis (i) no Default or Event of Default shall have occurred and be continuing, (ii) the Company could incur $1.00 of additional Indebtedness (not including the incurrence of Permitted Indebtedness) under Section 10.11(a) hereof and (iii) if any of the Properties of the Company or any of its Restricted Subsidiaries would upon such designation become subject to any Lien (other than a Permitted 19 26 Lien), the creation or imposition of such Lien shall have been in compliance with Section 10.13 hereof. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "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 any Restricted Subsidiary to the extent (i) all of the Capital Stock or other ownership interests in such Restricted Subsidiary, other than any directors' qualifying shares mandated by applicable law, is owned directly or indirectly by the Company or (ii) such Restricted Subsidiary is organized in a foreign jurisdiction and is required by the applicable laws and regulations of such foreign jurisdiction to be partially owned by the government of such foreign jurisdiction or individual or corporate citizens of such foreign jurisdiction in order for such Restricted Subsidiary to transact business in such foreign jurisdiction, provided that the Company, directly or indirectly, owns the remaining Capital Stock or ownership interest in such Restricted Subsidiary and, by contract or otherwise, controls the management and business of such Restricted Subsidiary and derives the economic benefits of ownership of such Restricted Subsidiary to substantially the same extent as if such Restricted Subsidiary were a wholly owned Subsidiary. Section 1.2 Other Definitions.
Defined Term in Section ---- ---------- "Additional Interest" . . . . . . . . . . . . . . . . . . 3.1 "Agent Members" . . . . . . . . . . . . . . . . . . . . . 3.6 "Change of Control Notice" . . . . . . . . . . . . . . . 10.14(c) "Change of Control Offer" . . . . . . . . . . . . . . . . 10.14(a) "Change of Control Purchase Date" . . . . . . . . . . . . 10.14(c) "Change of Control Purchase Price" . . . . . . . . . . . 10.14(a) "Defaulted Interest" . . . . . . . . . . . . . . . . . . 3.8 "Excess Proceeds" . . . . . . . . . . . . . . . . . . . . 10.15(b) "Global Security" . . . . . . . . . . . . . . . . . . . . 2.1 "Net Proceeds Deficiency" . . . . . . . . . . . . . . . . 10.15(c) "Net Proceeds Offer" . . . . . . . . . . . . . . . . . . 10.15(c) "Net Proceeds Payment Date" . . . . . . . . . . . . . . . 10.15(c) "Offered Price" . . . . . . . . . . . . . . . . . . . . . 10.15(c) "Payment Amount" . . . . . . . . . . . . . . . . . . . . 10.15(c) "Payment Restriction" . . . . . . . . . . . . . . . . . . 10.17 "Physical Securities" . . . . . . . . . . . . . . . . . . 2.1 "Purchase Notice" . . . . . . . . . . . . . . . . . . . . 10.15(c) "Restricted Payment" . . . . . . . . . . . . . . . . . . 10.10(a) "Surviving Entity" . . . . . . . . . . . . . . . . . . . 8.1(a) "Trigger Date" . . . . . . . . . . . . . . . . . . . . . 10.15(c) "U.S. Government Obligations" . . . . . . . . . . . . . . 12.4(a)
20 27 Section 1.3 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities, "indenture security holder" means a Holder, "indenture to be qualified" means this Indenture, "indenture trustee" or "institutional trustee" means the Trustee, and "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.4 Rules of Construction. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP and all accounting calculations will be determined in accordance with GAAP; (c) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (d) the masculine gender includes the feminine and the neuter; (e) a "day" means a calendar day; (f) the term "merger" includes a statutory share exchange and the term "merged" has a correlative meaning; and (g) references to agreements and other instruments include subsequent amendments and waivers but only to the extent not prohibited by this Indenture. 21 28 ARTICLE II SECURITY FORMS Section 2.1 Forms Generally. The definitive Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities as evidenced by their execution of such Securities. Securities (including the Trustee's certificate of authentication) shall be issued initially in the form of one or more permanent global Securities substantially in the form set forth in Sections 2.2 through 2.4 hereof (each being herein called a "Global Security") deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Subject to the limitation set forth in Section 3.1, the principal amounts of the Global Securities may be increased or decreased from time to time by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Securities (including the Trustee's certificate of authentication) exchanged for beneficial interest in a Global Security as described in Section 3.6 shall be issued in the form of permanent certificated securities in registered form in substantially the form set forth in Sections 2.2 through 2.4 hereto ("Physical Securities"). The Securities and the Trustee's certificate of authentication shall be in substantially the respective forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, CUSIP or other numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. In addition to the requirements of Section 2.3, the Securities may also have set forth on the reverse side thereof a form of assignment and forms to elect purchase by the Company pursuant to Section 10.14 or 10.15 hereof. Section 2.2 Form of Face of Security. VERITAS DGC INC. _______% Senior Note due 2003 No._____ $____________ CUSIP No.__________ 22 29 Veritas DGC Inc., a Delaware corporation (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _________ or registered assigns the principal sum of _________ Dollars on_________, ___ 2003, at the office or agency of the Company referred to below, and to pay interest thereon, commencing on ___________ ___, 1996 and continuing semiannually thereafter, on __________ ___and __________ ___in each year, from __________ ___ 1997, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of _____%per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand interest on any overdue interest at the rate borne by the Securities from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered on the Security Register at the close of business on the Regular Record Date for such interest, which shall be the __________ ___or __________ ___(whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest, and (to the extent lawful) interest on such Defaulted Interest at the rate borne by the Securities, may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered on the Security Register at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any, on) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made on Physical Securities at the option of the Company on or before the due date (i) by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register or (ii) with respect to any Holder owning Securities in the principal amount of $500,000 or more, by wire transfer to an account maintained by the Holder located in the United States, as specified in a written notice to the Trustee by any such Holder requesting payment by wire transfer and specifying the account to which transfer is requested. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. 23 30 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. VERITAS DGC INC. By: ------------------------------- President Attest: - ---------------------------- Secretary Section 2.3 Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company designated as its _____% Senior Notes due 2003, (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $75,000,000 which may be issued under an indenture (herein called the "Indenture") dated as of __________ ___,1996 between the Company and Fleet National Bank (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to redemption, at the option of the Company, in whole or in part, at any time on or after __________, 2000, upon not less than 30 or more than 60 days' notice at the following Redemption Prices (expressed as percentages of principal amount) set forth below if redeemed during the 12-month period beginning October 1 of the years indicated below:
Redemption Year Price ---- ---------- 2000 . . . . . . . . . . . . . . . . . . . . _____% 2001 . . . . . . . . . . . . . . . . . . . . _____% 2002 and thereafter . . . . . . . . . . . . . 100.00%
together in the case of any such redemption with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), all as provided in the Indenture. 24 31 Notwithstanding the foregoing, at any time on or prior to __________, 1999, up to $20,000,000 in aggregate principal amount of Securities may be redeemed, at the option of the Company, upon not less than 30 or more than 60 days' notice, from the Net Cash Proceeds of a Public Equity Offering, at a Redemption Price equal to _____% of the principal amount thereof, together with accrued and unpaid interest to the Redemption Date, provided that at least $55,000,000 in aggregate principal amount of Securities remains Outstanding immediately after such redemption and that such redemption occurs within 60 days following the closing of such Public Equity Offering. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date. In the event of redemption or purchase of this Security in part only, a new Security or Securities for the unredeemed or unpurchased portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. The Securities do not have the benefit of any mandatory redemption of sinking fund obligations. In the event of a Change of Control of the Company, and subject to certain conditions and limitations provided in the Indenture, the Company will be obligated to make an offer to purchase, on a Business Day not more than 60 or less than 30 days following the occurrence of a Change of Control of the Company, all of the then Outstanding Securities at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the Change of Control Purchase Date, all as provided in the Indenture. In the event of Asset Sales, under certain circumstances, the Company will be obligated to make a Net Proceeds Offer to purchase all or a specified portion of each Holder's Securities at a purchase price equal to 100% of the principal amount of the Securities, together with accrued and unpaid interest, if any, to the Net Proceeds Payment Date. As set forth in the Indenture, an Event of Default is generally (i) failure to pay principal upon maturity, redemption or otherwise (including pursuant to a Change of Control Offer or a Net Proceeds Offer); (ii) default for 30 days in payment of interest on any of the Securities; (iii) default in the performance of agreements relating to mergers, consolidations and sales of all or substantially all assets or the failure to make or consummate a Change of Control Offer or a Net Proceeds Offer; (iv) failure for 30 days after notice to comply with any other covenants in the Indenture or the Securities; (v) certain payment defaults under, and the acceleration prior to the maturity of, certain Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount in excess of $5,000,000; (vi) certain final judgments or orders against the Company or any Restricted Subsidiary in an aggregate amount of more than $5,000,000 over the coverage under applicable insurance policies which remain unsatisfied and either become subject to commencement of enforcement proceedings or remain unstayed for a period of 30 days; and (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Restricted 25 32 Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the Outstanding Securities may declare the principal amount of all the Securities to be due and payable immediately, except that (i) in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Restricted Subsidiary, the principal amount of the Securities will become due and payable immediately without further action or notice, and (ii) in the case of an Event of Default which relates to certain payment defaults or acceleration with respect to certain Indebtedness, any such Event of Default and any consequential acceleration of the Securities will be automatically rescinded if any such Indebtedness is repaid or if the default relating to such Indebtedness is cured or waived and if the holders thereof have accelerated such Indebtedness then such holders have rescinded their declaration of acceleration. No Holder may pursue any remedy under the Indenture unless the Trustee shall have failed to act after notice from such Holder of an Event of Default and written request by Holders of at least 25% in aggregate principal amount of the Outstanding Securities, and the offer to the Trustee of indemnity reasonably satisfactory to it; however, such provision does not affect the right to sue for enforcement of any overdue payment on a Security by the Holder thereof. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except default in payment of principal, premium or interest) if it determines in good faith that withholding the notice is in the interest of the Holders. The Company is required to file annual and quarterly reports with the Trustee as to the absence or existence of defaults. The Indenture contains provisions for (i) defeasance at any time of the entire indebtedness of the Company on this Security and (ii) discharge from certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to qualify or maintain the qualification of the Indenture under the Trust Indenture Act and to make certain other specified changes and other changes that do not materially adversely affect the interests of any Holder in any material respect. 26 33 No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any, on) and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for such purpose duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A director, officer, employee, incorporator, stockholder or Affiliate of the Company, as such, past, present or future shall not have any personal liability under this Security or any other Security or the Indenture by reason of his or its status as such director, officer, employee, incorporator, stockholder or Affiliate, or any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder, by accepting this Security, waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of this Security. Prior to the time of due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company at 3701 Kirby Drive, Suite 112, Houston, Texas 77098, Attention: Richard W. McNairy (or such other address as the Company may have furnished in writing to the Trustee). 27 34 Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders thereof. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identifying information printed hereon. Interest on this Security shall be computed on the basis of a 360-day year comprised of twelve 30-day months. This Security shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of law principles. Section 2.4 Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within mentioned Indenture. Dated: Fleet National Bank, -------------------------- Trustee By: -------------------------- Authorized Signatory ARTICLE III THE SECURITIES Section 3.1 Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture for original issue is limited to $75,000,000. The aggregate principal amount of Securities Outstanding at any one time may not exceed such amount except as provided in Section 3.7 hereof. The Securities shall be known and designated as the "_____% Senior Notes due 2003" of the Company. Their Stated Maturity shall be __________ ___, 2003, and they shall bear interest at the rate of _____% per annum from __________ ___, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable semiannually on 28 35 __________ ___ and __________ ___ in each year, commencing __________ ___, 1997, and at said Stated Maturity, until the principal thereof is paid or duly provided for. The principal of (and premium, if any, on) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York; provided, however, that, at the option of the Company, interest may be paid on Physical Securities on or before the due date (i) by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register, or (ii) with respect to any Holder owning Securities in the principal amount of $500,000 or more, by wire transfer to an account maintained by the Holder located in the United States, as specified in a written notice to the Trustee by any such Holder requesting payment by wire transfer and specifying the account to which transfer is requested. The Securities shall be redeemable as provided in Article XI hereof. The Securities shall be subject to defeasance at the option of the Company as provided in Article XII hereof. Section 3.2 Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. Section 3.3 Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or a Vice President of the Company, under its corporate seal reproduced thereon and attested by its Secretary or an Assistant Secretary of the Company. The signature of any of these officers on the Securities may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities thereon as provided in this Indenture. Such Company Order shall specify the principal amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. Each Security shall be dated the date of its authentication. 29 36 No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to and in compliance with Article VIII hereof, shall be consolidated or merged with or into any other Person or shall sell, convey, transfer, lease or otherwise dispose of all or substantially all of its Properties to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a sale, conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article VIII hereof, any of the Securities authenticated or delivered prior to such sale, consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. Section 3.4 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 10.2 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. 30 37 Section 3.5 Registration of Transfer and Exchange. The Company shall cause to be kept a register (the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times and during normal business hours, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Security Registrar") for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 10.2 hereof, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of like tenor and of any authorized denomination and of a like aggregate principal amount, each such Security. Furthermore, any Holder of a Global Security shall, by acceptance of such Global Security, be deemed to have agreed that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Depository (or its agent), and that ownership of a beneficial interest in a Global Security shall be required to be reflected in a book entry. At the option of any Holder, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at the office or agency of the Company designated pursuant to Section 10.2 hereof. Whenever any Securities are so surrendered for exchange, the Company shall execute and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6 or 11.8 hereof not involving any transfer. 31 38 Neither the Trustee, the Security Registrar nor the Company shall be required (i) to issue, register the transfer of or exchange any Physical Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities selected for redemption under Section 11.4 hereof and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Physical Security so selected for redemption in whole or in part, except the unredeemed portion of any such Security being redeemed in part. Section 3.6 Book-Entry Provisions for Global Securities. Each Global Security shall be registered in the name of the Depository for such Global Security or the nominee of such Depository and be delivered to the Trustee as custodian for such Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under such Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or shall impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. Transfers of a Global Security shall be limited to transfers of such Global Security in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in a Global Security may be transferred or exchanged for Physical Securities if, and only if, the Depository notifies the Company that it is unwilling or unable to continue as depositary for the Global Security and a successor depositary is not appointed by the Company within 90 days of such notice. In connection with the transfer of an entire Global Security to beneficial owners pursuant to this Section, the Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon Company Order authenticate and deliver, to each beneficial owner identified by the Depository, in exchange for its beneficial interest in the Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. The Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. 32 39 Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities. If (i) any mutilated Security is surrendered to the Trustee or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security and principal amount bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 3.8 Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.2 hereof. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: 33 40 (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, and such money when deposited shall be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 13.5 hereof, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 3.9 Persons Deemed Owners. Prior to the due presentment of a Security for registration of transfer, the Company, the Security Registrar, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any, on) and (subject to Section 3.8 hereof) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Security Registrar, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. 34 41 Section 3.10 Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order or in accordance with the Trustee's usual practice; provided, however, that the Trustee shall not be required to destroy canceled Securities. Section 3.11 Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. ARTICLE IV SATISFACTION AND DISCHARGE Section 4.1 Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities, as expressly provided for in this Indenture) as to all Outstanding Securities, and the Trustee, at the expense of the Company, shall, upon payment of all amounts due the Trustee under Section 6.6 hereof, execute proper instruments acknowledging satisfaction and discharge of this Indenture when (a) either (1) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.7 hereof and (ii) Securities for whose payment money or United States governmental obligations of the type described in clause (i) of the definition of Cash Equivalents have theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3 hereof) have been delivered to the Trustee for cancellation, or (2) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or 35 42 (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii) above, has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with instructions from the Company irrevocably directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (b) the Company has paid or caused to be paid all other sums then due and payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, which, taken together, state that all conditions precedent herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.6 hereof and, if money shall have been deposited with the Trustee pursuant to this Section, the obligations of the Trustee under Section 4.2 hereof and the last paragraph of Section 10.3 hereof shall survive. Section 4.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3 hereof, all money deposited with the Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. 36 43 ARTICLE V REMEDIES Section 5.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of the principal of or premium, if any, on any of the Securities when the same becomes due and payable, 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 Securities, when it becomes due and payable, and the continuance of such default for a period of 30 days; or (c) default in the performance or breach of the provisions of Article VIII hereof, the failure to make or consummate a Change of Control Offer in accordance with the provisions of Section 10.14 or the failure to make or consummate a Net Proceeds Offer in accordance with the provisions of Section 10.15; or (d) the Company shall fail to perform or observe any other term, covenant or agreement contained in the Securities or this Indenture (other than a default specified in subparagraph (a), (b) or (c) above) for a period of 30 days after written notice of such failure stating that it is a "notice of default" hereunder and requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Securities then Outstanding; or (e) the occurrence and continuation beyond any applicable grace period of any default in the payment of the principal of or premium, if any, on or interest on any Indebtedness of the Company (other than the Securities) or any Restricted Subsidiary for money borrowed when due, or any other default resulting in acceleration of any Indebtedness of the Company or any Restricted Subsidiary for money borrowed, provided that the aggregate principal amount of such Indebtedness shall exceed $5,000,000 and provided, further, that if any such default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under the Indenture and any consequential acceleration of the Senior Notes shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree; or 37 44 (f) final judgments or orders rendered against the Company or any Restricted Subsidiary that are unsatisfied and that require the payment in money, either individually or in an aggregate amount, that is more than $5,000,000 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 the Company or any Restricted Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) adjudging the Company or any Restricted Subsidiary bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company or any Restricted Subsidiary under the Federal Bankruptcy Code or any applicable federal or state law, or appointing under any such law a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Restricted Subsidiary or of a substantial part of its consolidated assets, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (h) the commencement by the Company or any Restricted Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or any other case or proceeding to be adjudicated bankrupt or insolvent, or the consent by the Company or any Restricted Subsidiary to the entry of a decree or order for relief in respect thereof in an involuntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by the Company or any Restricted Subsidiary of a petition or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it under any such law to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Restricted Subsidiary or of any substantial part of its consolidated assets, or the making by it of an assignment for the benefit of creditors under any such law, or the admission by it in writing of its inability to pay its debts generally as they become due or taking of corporate action by the Company or any Restricted Subsidiary in furtherance of any such action. Section 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(g) or (h) hereof) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities then Outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall, 38 45 by a notice in writing to the Company, declare all unpaid principal of, premium, if any, and accrued and unpaid interest on all the Securities to be due and payable immediately, upon which declaration all amounts payable in respect of the Securities shall be immediately due and payable. If an Event of Default specified in Section 5.1(f) or (h) hereof occurs and is continuing, the amounts described above shall become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Securities Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay, (1) all overdue interest on all Outstanding Securities, (2) all unpaid principal of (and premium, if any, on) any Outstanding Securities which have become due otherwise than by such declaration of acceleration, including any Securities required to have been purchased on a Change of Control Date or a Net Proceeds Payment Date pursuant to a Change of Control Offer or a Net Proceeds Offer, as applicable, and interest on such unpaid principal at the rate borne by the Securities, (3) to the extent that payment of such interest is lawful, interest on overdue interest and overdue principal at the rate borne by the Securities (without duplication of any amount paid or deposited pursuant to clauses (1) and (2) above), and (4) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction as certified to the Trustee by the Company; and (c) all Events of Default, other than the non-payment of amounts of principal of (or premium, if any, on) or interest on Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13 hereof. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the foregoing, if an Event of Default specified in Section 5.1(e) hereof shall have occurred and be continuing, such Event of Default and any consequential acceleration shall be automatically rescinded if the Indebtedness that is the subject of such Event of Default has been repaid, or if the default relating to such Indebtedness is waived or cured and if such 39 46 Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness (provided, in each case, that such repayment, waiver, cure or rescission is effected within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration), and written notice of such repayment, or cure or waiver and rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the holders of such Indebtedness or a trustee, fiduciary or agent for such holders or other evidence satisfactory to the Trustee of such events is provided to the Trustee, within 30 days after any such acceleration in respect of the Securities, and so long as such rescission of any such acceleration of the Securities does not conflict with any judgment or decree as certified to the Trustee by the Company. Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof or with respect to any Security required to have been purchased by the Company on the Change of Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of Control Offer or Net Proceeds Offer, as applicable, then the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the money adjudged or decreed to be payable in the manner provided by law out of the Property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, 40 47 whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 5.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company, or any other obligor upon the Securities, their creditors or the Property of the Company or of such other obligor, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company or such other obligor for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents and take any other actions including participation as a full member of any creditor or other committee as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any money or other Property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.6 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 5.5 Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. 41 48 Section 5.6 Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: to the payment of all amounts due the Trustee under Section 6.6 hereof; SECOND: to the payment of the amounts then due and unpaid for principal of (and premium, if any, on) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: the balance, if any, to the Company. Section 5.7 Limitation on Suits. No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference 42 49 over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article XII hereof) and in such Security of the principal of (and premium if any, on) and (subject to Section 3.8 hereof) interest on, such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 5.9 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereunder and all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 5.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.7 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 43 50 Section 5.12 Control by Holders. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall 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, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (c) the Trustee need not take any action which might involve it in personal liability or be unduly prejudicial to the Holders not joining therein. Section 5.13 Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any existing Default or Event of Default hereunder and its consequences, except a Default or Event of Default (a) in respect of the payment of the principal of (or premium, if any, on) or interest on any Security, or (b) in respect of a covenant or provision hereof which under Article IX hereof cannot be modified or amended without the consent of the Holder of each Outstanding Security affected thereby. Upon any such waiver, such Default or Event of Default shall cease to exist for every purpose under this Indenture, but no such waiver shall extend to any subsequent or other fault or Event of Default or impair any right consequent thereon. Section 5.14 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that each may lawfully do so) that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension, or usury law or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal of (premium, if any, on) or interest on the Securities as contemplated herein, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 44 51 ARTICLE VI THE TRUSTEE Section 6.1 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, and shall be fully protected in so relying, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, however, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (i) this paragraph shall not limit the effect of Section 6.1(b); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.12. Section 6.2 Certain Rights of Trustee. Subject to the provisions of Section 6.1 hereof: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 45 52 (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may reasonably see fit; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it in good faith to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (i) the Trustee shall not be deemed to have notice or knowledge of any matter unless a Responsible Officer has actual knowledge thereof or unless written notice thereof is received by the Trustee at its Corporate Trust Office and such notice references the Securities generally, the Company or this Indenture. The Trustee shall not be required to advance, expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 46 53 Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. The Trustee shall not be accountable for the use or application by the Company of any Securities or the proceeds thereof. Section 6.4 May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311 in the case of the Trustee, may otherwise deal with the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. Section 6.5 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. Section 6.6 Compensation and Reimbursement. The Company agrees: (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's wilful misconduct, negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without wilful misconduct, negligence or bad faith on its part, (i) arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder or (ii) in connection with enforcing this indemnification provision. 47 54 The obligations of the Company under this Section 6.6 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or any other termination under any Insolvency or Liquidation Proceeding. As security for the performance of such obligations of the Company, the Trustee shall have a claim and lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for payment of principal of (and premium, if any, on) or interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture or any other termination under any Insolvency or Liquidation Proceeding. When the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in paragraph (g) or (h) of Section 5.1 of this Indenture, such expenses and the compensation for such services are intended to constitute expenses of administration under any Insolvency or Liquidation Proceeding. Section 6.7 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.7, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 6.8 Conflicting Interests. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act; provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. Section 6.9 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10 hereof. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 hereof shall not have been delivered to the Trustee within 30 days after the giving of such notice of 48 55 resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.7 hereof and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. The evidence of such successorship may, but need not be, evidenced by a supplemental indenture. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided 49 56 for in Section 13.5 hereof. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 6.10 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of all amounts due it under Section 6.6 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all money and other Property held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 6.11 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities; and in case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities of like tenor or in this Indenture provided; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 6.12 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). 50 57 Section 6.13 Notice of Defaults. Within 60 days after the occurrence of any Default hereunder, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any, on) or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 7.1 Holders' Lists; Holder Communications; Disclosures Respecting Holders. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. Neither the Company nor the Trustee shall be under any responsibility with regard to the accuracy of such list. If the Trustee is not the Security Registrar, the Company shall furnish to the Trustee semi-annually before each Regular Record Date, and at such other times as the Trustee may reasonably request in writing, a list, in such form as the Trustee may reasonably request, as of such date of the names and addresses of the Holders then known to the Company. The Company and the Trustee shall also satisfy any other requirements imposed upon each of them by TIA Section 312(a). Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under this Indenture or the Securities. Every Holder of Securities, by receiving and holding the same, agrees with the Company, the Security Registrar and the Trustee that none of the Company, the Security Registrar or the Trustee, or any agent of any of them, shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, that each of such Persons shall have the protection of TIA Section 312(c) and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). Section 7.2 Reports By Trustee. Within 60 days after __________ ___ of each year commencing with __________ ___, 1997, the Trustee shall transmit by mail to the Holders, as their names and addresses appear in the Security Register, a brief report dated as of such __________ ___ in accordance with and to 51 58 the extent required under TIA Section 313(a). The Trustee shall also comply with TIA Sections 313(b) and 313(c). The Company shall promptly notify the Trustee in writing if the Securities become listed on any stock exchange or automatic quotation system. A copy of each Trustee's report, at the time of its mailing to Holders of Securities, shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. Section 7.3 Reports by Company. The Company shall: (a) file with the Trustee, within 30 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then the Company shall file with the Trustee such information, documents or reports as required pursuant to Section 10.9 hereof; (b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), such summaries of any information, documents and reports (without exhibits except to the extent required by TIA Section 313(c)) required to be filed by the Company pursuant to paragraph (a) or (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 8.1 Company May Consolidate, etc., Only on Certain Terms. The Company shall not, in any single transaction or a series of related transactions, merge or consolidate with or into any other Person, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all the Properties of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or group of Affiliated Persons, and the Company shall not 52 59 permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the Properties of the Company and its Restricted Subsidiaries on a consolidated basis to any other Person or group of Affiliated Persons, unless at the time and after giving affect thereto: (a) either (i) if the transaction is a merger or consolidation, the Company shall be the surviving Person of such merger or consolidation, or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which the Properties of the Company or its Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of (any such surviving Person or transferee Person being called the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume by a supplemental indenture to this Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture, and, in each case, this Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Restricted Subsidiaries which becomes the obligation of the Company or any of its Restricted Subsidiaries in connection with or as a result of such transaction or transactions as having been incurred at the time of such transaction or transactions), no Default or Event of Default shall have occurred and be continuing; (c) except in the case of the consolidation or merger of any Restricted Subsidiary with or into the Company, immediately after giving effect to such transaction or transactions on a pro forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or transactions; (d) except in the case of the consolidation or merger of the Company with or into a Restricted Subsidiary or any Restricted Subsidiary with or into the Company or another Restricted Subsidiary, immediately before and immediately after giving effect to such transaction or transactions on a pro forma basis (assuming that the transaction or transactions occurred on the first day of the period of four full fiscal quarters ending immediately prior to the consummation of such transaction or transactions, with the appropriate adjustments with respect to the transaction or transactions being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur $1.00 of additional Indebtedness (excluding Permitted Indebtedness) under Section 10.11(a) hereof; (e) if any of the Properties of the Company or any of its Restricted Subsidiaries would upon such transaction or series of related transactions become subject to any Lien (other than a Permitted Lien), the creation or imposition of such Lien shall have been in compliance with Section 10.13 hereof; and 53 60 (f) the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) shall have delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, (i) an Officers' Certificate stating that such consolidation, merger, conveyance, transfer, lease or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Indenture and (ii) an Opinion of Counsel stating that the requirements of Section 8.1(a) have been satisfied. Section 8.2 Successor Substituted. Upon any consolidation of the Company with or merger of the Company into any other corporation or any sale, assignment, lease, conveyance, transfer or other disposition of all or substantially all of the Properties of the Company and its Restricted Subsidiaries on a consolidated basis in accordance with Section 8.1 hereof, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein, and in the event of any such sale, assignment, lease, conveyance, transfer or other disposition, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 8.1 hereof), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Securities, and the Company may be dissolved and liquidated and such dissolution and liquidation shall not cause a Change of Control under clause (e) of the definition thereof to occur unless the sale, assignment, lease, conveyance, transfer or other disposition of all or substantially all of the Properties of the Company and its Restricted Subsidiaries on a consolidated basis to any Person otherwise results in a Change of Control. ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.1 Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution and the Trustee upon Company Request, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or 54 61 (c) to comply with any requirement of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (d) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Sections 6.9 and 6.10 hereof; or (e) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture provided that such action shall not adversely affect the interests of the Holders in any material respect; or (f) to secure the Securities pursuant to the requirements of Section 10.13 hereof or otherwise; or (g) to provide for uncertificated Securities in addition to or in place of certificated Securities. Section 9.2 Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution and the Trustee upon Company Request may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium thereon, or change the coin or currency in which principal of any Security or any premium or the interest on any Security is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); or (b) reduce the percentage of aggregate principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder or the consequences of a default provided for in this Indenture; or (c) modify any of the provisions of this Section or Sections 5.13 and 10.18 hereof, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; 55 62 (d) change the ranking of the Securities in a manner adverse to the Holders or expressly subordinate in right of payment the Securities to any other Indebtedness; or (e) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control, or to make and consummate a Net Proceeds Offer with respect to any Asset Sale, or modify any of the provisions or definitions with respect thereto. It shall not be necessary for any Act of the Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.5 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.6 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of like tenor. 56 63 Section 9.7 Notice of Supplemental Indentures and Waivers. Promptly after (i) the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 9.2 hereof or (ii) a waiver under Section 5.13 or 10.18 hereof becomes effective, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 13.5 hereof, setting forth in general terms the substance of such supplemental indenture or waiver, as the case may be. ARTICLE X COVENANTS Section 10.1 Payment of Principal, Premium, if any, and Interest. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any, on) and interest (including Additional Interest) on the Securities in accordance with the terms of the Securities and this Indenture. Section 10.2 Maintenance of Office or Agency. The Company shall maintain an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Corporate Trust Office shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the aforementioned office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation. Further, if at any time there shall be no such office or agency in The City of New York where the Securities may be presented or surrendered for payment, the Company shall forthwith designate and maintain such an office or agency in The City of New York, in order that the Securities shall at all times be payable in The City of New York. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. 57 64 Section 10.3 Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before 11:00 a.m., Eastern time, on each due date of the principal of (and premium, if any, on) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sum shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it will on or before 11:00 a.m., Eastern time, on each due date of the principal of (and premium, if any, on), or interest on, any Securities, deposit with a Paying Agent immediately available funds sufficient to pay the principal (and premium, if any) or interest so becoming due, such funds to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any, on) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Subject to applicable escheat and abandoned property laws, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any, on) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee 58 65 or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 10.4 Corporate Existence. Except as expressly permitted by Article VIII hereof, Section 10.15 hereof or other provisions of this Indenture, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such existence of its Restricted Subsidiaries, rights or franchises, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 10.5 Payment of Taxes; Maintenance of Properties; Insurance. The Company shall or, as applicable, shall cause its Restricted Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or Property of the Company or any Restricted Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a Lien upon the Property of the Company or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate provision has been made in accordance with GAAP. The Company shall or, as applicable, shall cause its Restricted Subsidiaries to, cause all material Properties owned by the Company or any Restricted Subsidiary and used or held for use in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted), all as in the judgment of the Company or such Restricted Subsidiary may be necessary so that its business may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any Restricted Subsidiary from discontinuing the maintenance of any of such Properties if such discontinuance is, in the judgment of the Company or such Restricted Subsidiary, as the case may be, desirable in the conduct of the business of the Company or such Restricted Subsidiary and not disadvantageous in any material respect to the Holders. Notwithstanding the foregoing, nothing contained in this Section 10.5 shall limit or 59 66 impair in any way the right of the Company and its Restricted Subsidiaries to sell, divest and otherwise to engage in transactions that are otherwise permitted by this Indenture. The Company shall at all times keep all of its, and cause its Restricted Subsidiaries to keep their, Properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character and in a similar location is usually so insured by corporations similarly situated and owning like Properties. The Company or any Restricted Subsidiary may adopt such other plan or method of protection, in lieu of or supplemental to insurance with insurers, whether by the establishment of an insurance fund or reserve to be held and applied to make good losses from casualties, or otherwise, conforming to the systems of self-insurance maintained by corporations similarly situated and in a similar location and owning like Properties, as may be determined by the Board of Directors of the Company or such Restricted Subsidiary. Section 10.6 Limitation on Sale-Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, assume, guarantee or otherwise become liable with respect to any Sale/Leaseback Transaction unless (a) the Company or such Restricted Subsidiary, as the case may be, would be able to incur Indebtedness (not including the incurrence of Permitted Indebtedness) pursuant to and in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to Section 10.11(a) and 10.11(c) hereof, (b) the Company or such Restricted Subsidiary receives proceeds from such Sale/Leaseback Transaction at least equal to the Fair Market Value of the Property subject thereto and (c) the Company applies an amount in cash equal to the Net Available Proceeds of the Sale/Leaseback Transaction in accordance with the provisions of Section 10.15 hereof as if such Sale/Leaseback Transaction were an Asset Sale. Section 10.7 Limitation on Conduct of Business. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in the conduct of any business other than the businesses being conducted on the date of this Indenture (such businesses being providing data acquisition, data processing, multi-client data surveys and information services to the petroleum industry) and such other businesses as are reasonably necessary or desirable to facilitate the conduct and operation of such businesses. Section 10.8 Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company and within 45 days of the end of each of the first, second and third quarters of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal quarter or fiscal year, as applicable, has been made under the supervision of the signing Officers with a view 60 67 to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and no Default or Event of Default has occurred and is continuing (or, if a Default or Event of Default shall have occurred to either such Officer's knowledge, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company is taking or proposes to take with respect thereto). Such Officers' Certificate shall comply with TIA Section 314(a)(4). For purposes of this Section 10.8(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) The Company shall, so long as any of the Securities is outstanding, deliver to the Trustee, upon any of its Officers becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company proposes to take with respect thereto, within 10 days of its occurrence. Section 10.9 Provision of Financial Information. The Company shall file on a timely basis with the SEC, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. The Company shall also file with the Trustee (with exhibits), and provide to each Holder of Securities (without exhibits), without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and, if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, the Company shall supply at its cost copies of such reports and documents (including any exhibits thereto) to any Holder of Securities, securities analyst or prospective investor promptly upon written request given in accordance with Section 13.4 hereof. Section 10.10 Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, take the following actions: (i) declare or pay any dividend on, or make any other distribution to holders of, any shares of Capital Stock of the Company (other than dividends or distributions payable solely in shares of Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Affiliate thereof (other than any Restricted Subsidiary or except pursuant to a Permitted Investment) or any options, warrants or other rights to acquire such Capital Stock; 61 68 (iii) make any principal payment on or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, scheduled sinking fund payment or maturity, any Subordinated Indebtedness, except in any case out of the Net Cash Proceeds of any Permitted Indebtedness referred to in clause (ix) of the definition thereof, or (iv) make any Restricted Investment; (such payments or other actions described in clauses (i) through (iv) being collectively referred to as "Restricted Payments"), unless at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the amount determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution), (A) no Default or Event of Default shall have occurred and be continuing, (B) the Company could incur $1.00 of additional Indebtedness (excluding Permitted Indebtedness) in accordance with Section 10.11(a) hereof and (C) the aggregate amount of all Restricted Payments declared or made after the date of this Indenture shall not exceed the sum (without duplication) of the following: (1) 50% of the Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on August 1, 1996 and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment (or, if such Consolidated Net Income shall be a loss, minus 100% of such loss), plus (2) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such shares of Qualified Capital Stock of the Company, plus (3) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company (other than from any of its Restricted Subsidiaries) upon the exercise of any options, warrants or rights to purchase shares of Qualified Capital Stock of the Company, plus (4) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of Indebtedness or shares of Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate cash received by the Company at the time of such conversion or exchange, plus (5) to the extent not otherwise included in Consolidated Net Income, the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or a Restricted Subsidiary after the date of this Indenture from any Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of Investment), not to exceed in the case of any Unrestricted 62 69 Subsidiary the total amount of Investments (other than Permitted Investments) in such Unrestricted Subsidiary made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary that which was previously treated as a Restricted Payment, plus (6) $2,500,000. (b) Notwithstanding paragraph (a) above, the Company and its Restricted Subsidiaries may take the following actions so long as (in the case of clauses (ii) and (iii) below) no Default or Event of Default shall have occurred and be continuing: (i) the payment of any dividend on any Capital Stock of the Company or any Restricted Subsidiary within 60 days after the date of declaration thereof, if at such declaration date such declaration complied with the provisions of paragraph (a) above (and such payment shall be deemed to have been paid on such date of declaration for purposes of any calculation required by the provisions of paragraph (a) above); (ii) the repurchase, redemption or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds of, a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; and (iii) the repurchase, redemption, repayment, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness in exchange for, or out of the aggregate Net Cash Proceeds from, a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company. The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall be Restricted Payments that shall be permitted to be made in accordance with this paragraph (b) but shall reduce the amount that would otherwise be available for Restricted Payments under clause (C) of paragraph (a), provided that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce the amount that would otherwise be available under clause (C) of paragraph (a) when declared, but not also when subsequently paid pursuant to such clause (i). (c) In computing Consolidated Net Income under paragraph (a) above, (1) the Company shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (2) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment would in the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture 63 70 notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. Section 10.11 Limitation on Indebtedness and Disqualified Capital Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume, guarantee or in any manner become directly or indirectly liable for the payment of (collectively, "incur") any Indebtedness (including any Acquired Indebtedness but excluding any Permitted Indebtedness), or any Disqualified Common Stock, unless, on a pro forma basis after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters immediately preceding such event, taken as one period, would have been equal to or greater than 2.5 to 1.0. (b) The Company shall not incur any Indebtedness that is expressly subordinated to any other Indebtedness of the Company unless such Indebtedness, by its terms or the terms of any agreement or instrument pursuant to which such Indebtedness is issued or outstanding, is also expressly made subordinate to the Securities at least to the extent it is subordinated to such other Indebtedness. (c) The Company will not permit any of its Restricted Subsidiaries to incur any Indebtedness (excluding Permitted Indebtedness referred to in clauses (i) and (vi) (to the extent consisting of Indebtedness to the Company) of the definition thereof and Permitted Subsidiary Indebtedness) or to issue any Preferred Stock. (d) For purposes of this Section 10.11, Indebtedness of any Person that becomes a Restricted Subsidiary by merger, consolidation or other acquisition shall be deemed to have been incurred by the Company and the Restricted Subsidiary at the time such Person becomes a Restricted Subsidiary. Section 10.12 Limitation on Issuances and Sales of Capital Stock by Restricted Subsidiaries. The Company (a) shall not permit any Restricted Subsidiary to issue or sell any Capital Stock to any Person other than to the Company or a Wholly Owned Restricted Subsidiary and (b) shall not permit any Person other than the Company or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any Restricted Subsidiary, in each case except with respect to a Wholly Owned Restricted Subsidiary as described in clause (i) or (ii) of the definition of "Wholly Owned Restricted Subsidiary." Section 10.13 Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm or suffer to exist or become effective any Lien of any kind, except for Permitted Liens, upon any of their respective Properties, whether now owned or acquired after the date of this Indenture, or any income or profits therefrom, to secure (a) any Indebtedness of the Company or such Restricted Subsidiary, unless prior to, or contemporaneously 64 71 therewith, the Securities are equally and ratably secured; provided, however, that if such Indebtedness is expressly subordinated to the Securities, the Lien securing such Indebtedness shall be subordinated and junior to the Lien securing the Securities with the same relative priority as such Indebtedness has with respect to the Securities. The foregoing covenant shall not apply to any Lien securing Acquired Indebtedness, provided that any such Lien extends only to the Properties that were subject to such Lien prior to the related acquisition by the Company or such Restricted Subsidiary and was not created, incurred or assumed in contemplation of such transaction. Section 10.14 Purchase of Securities Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer") all of the then Outstanding Securities, in whole or in part, from the Holders of such Securities in integral multiples of $1,000, at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount of such Securities, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date (as defined below), in accordance with the procedures set forth in paragraphs (b), (c) and (d) of this Section. The Company shall, subject to the provisions described below, be required to purchase all Securities properly tendered into the Change of Control Offer and not withdrawn. The Company will not be required to make a Change of Control Offer upon a Change of Control if another Person makes the Change of Control Offer at the same purchase price, at the same times and otherwise in substantial compliance with the requirements applicable to a Change of Control Offer to be made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (b) 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 (as defined below). (c) Not later than the 30th day following any Change of Control, the Company shall give to the Trustee in the manner provided in Section 13.4 and each Holder of the Securities in the manner provided in Section 13.5, a notice (the "Change of Control Notice") governing the terms of the Change of Control Offer and stating: (1) that a Change in Control has occurred and that such Holder has the right to require the Company to repurchase such Holder's Securities, or portion thereof, at the Change of Control Purchase Price; (2) any information regarding such Change of Control required to be furnished pursuant to Rule 13e-1 under the Exchange Act and any other securities laws and regulations thereunder; (3) a purchase date (the "Change of Control Purchase Date") which shall be on a Business Day and no earlier than 30 days nor later than 60 days from the date the Change of Control occurred; 65 72 (4) that any Security, or portion thereof, not tendered or accepted for payment will continue to accrue interest: (5) that unless the Company defaults in depositing money with the Paying Agent in accordance with the last paragraph of clause (d) of this Section 10.14, or payment is otherwise prevented, any Security, or portion thereof, accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date; and (6) the instructions a Holder must follow in order to have his Securities repurchased in accordance with paragraph (d) of this Section. (d) Holders electing to have Securities purchased will be required to surrender such Securities to the Paying Agent at the address specified in the Change of Control Notice at least five Business Days prior to the Change of Control Purchase Date. Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three Business Days prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the certificate number(s) (in the case of Physical Securities) and principal amount of the Securities delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Securities purchased. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof validly tendered pursuant to a Change of Control Offer, (ii) irrevocably deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered, and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted. The Paying Agent shall promptly mail or deliver to Holders of the Securities so tendered payment in an amount equal to the purchase price for the Securities, and the Company shall execute and the Trustee shall authenticate and mail or make available for delivery to such Holders a new Security equal in principal amount to any unpurchased portion of the Security which any such Holder did not surrender for purchase. The Company shall announce the results of a Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. For purposes of this Section 10.14, the Trustee will act as the Paying Agent. (e) The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Securities as described in this Section 10.14. Section 10.15 Limitation on Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the 66 73 Properties sold or otherwise disposed of pursuant to the Asset Sale, (ii) at least 80% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, in respect of such Asset Sale consists of cash or Cash Equivalents and (iii) the Company delivers to the Trustee an Officers' Certificate certifying that such Asset Sale complies with clauses (i) and (ii) of this Section 10.15(a). The amount (without duplication) of any Indebtedness (other than Subordinated Indebtedness) of the Company or such Restricted Subsidiary that is expressly assumed by the transferee in such Asset Sale and with respect to which the Company or such Restricted Subsidiary, as the case may be, is unconditionally released by the holder of such Indebtedness, shall be deemed to be cash or Cash Equivalents for purposes of clause (ii) and shall also be deemed to constitute a repayment of, and a permanent reduction in, the amount of such Indebtedness for purposes of the following paragraph. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale or incurs an Event of Loss, the Company or such Restricted Subsidiary may either, no later than 270 days after such Asset Sale or such Event of Loss, (i) apply all or any of the Net Available Proceeds therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the Company or any Restricted Subsidiary, provided, in each case, that the related loan commitment (if any) is thereby permanently reduced by the amount of such Indebtedness so repaid, or (ii) invest all or any part of the Net Available Proceeds thereof in Properties that replace the Properties that were the subject of such Asset Sale or such Event of Loss, as the case may be, or in other Properties that will be used in the business of the Company and its Restricted Subsidiaries. The amount of such Net Available Proceeds not applied or invested as provided in this paragraph shall constitute "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds equals or exceeds $5,000,000 (the "Trigger Date"), the Company shall make an offer to purchase, from all Holders of the Securities, an aggregate principal amount of Securities equal to such Excess Proceeds as follows: (1) Not later than the 30th day following the Trigger Date, the Company shall give to the Trustee in the manner provided in Section 13.4 hereof and each Holder of the Securities in the manner provided in Section 13.5 hereof, a notice (a "Purchase Notice") offering to purchase (a "Net Proceeds Offer") from all Holders of the Securities the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Payment Amount") equal to such Excess Proceeds. (2) The offer price for the Securities shall be payable in cash in an amount equal to 100% of the principal amount of the Securities tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date such Net Proceeds Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in paragraph (d) of this Section. To the extent that the aggregate Offered Price of the Securities tendered pursuant to a Net Proceeds Offer is less than the Payment Amount relating thereto (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or a portion thereof, for general corporate purposes, subject to the limitations of Section 10.10 hereof. 67 74 (3) If the aggregate Offered Price of Securities validly tendered and not withdrawn by Holders thereof exceeds the Payment Amount, Securities to be purchased will be selected on a pro rata basis by the Trustee based on the aggregate principal amount of Securities so tendered. Upon completion of a Net Proceeds Offer, the amount of Excess Proceeds shall be reset to zero. (4) The Purchase Notice shall set forth a purchase date (the "Net Proceeds Payment Date"), which shall be on a Business Day no earlier than 30 days nor later than 60 days from the Trigger Date. The Purchase Notice shall also state (i) that a Trigger Date with respect to one or more Asset Sales has occurred and that such Holder has the right to require the Company to repurchase such Holder's Securities at the Offered Price, subject to the limitations described in the foregoing paragraph (3), (ii) any information regarding such Net Proceeds Offer required to be furnished pursuant to Rule 13e-1 under the Exchange Act and any other securities laws and regulations thereunder, (iii) that any Security, or portion thereof, not tendered or accepted for payment will continue to accrue interest, (iv) that, unless the Company defaults in depositing money with the Paying Agent in accordance with the last paragraph of clause (d) of this Section 10.15, or payment is otherwise prevented, any Security, or portion thereof, accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Payment Date, and (v) the instructions a Holder must follow in order to have his Securities repurchased in accordance with paragraph (d) of this Section. (d) Holders electing to have Securities purchased will be required to surrender such Securities to the Paying Agent at the address specified in the Purchase Notice at least five Business Days prior to the Net Proceeds Payment Date. Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three Business Days prior to the Net Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the certificate number(s) (in the case of Physical Securities) and principal amount of the Securities delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Securities purchased. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On the Net Proceeds Payment Date, the Company shall (i) accept for payment Securities or portions thereof validly tendered pursuant to a Net Proceeds Offer in an aggregate principal amount equal to the Payment Amount or such lesser amount of Securities as has been tendered, (ii) irrevocably deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered in an aggregate principal amount equal to the Payment Amount or such lesser amount and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted. The Paying Agent shall promptly mail or deliver to Holders of the Securities so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall authenticate and mail or make available for delivery to such Holders a new Security equal in principal amount to any unpurchased portion of the Security which any such Holder did not surrender for purchase. Any Securities not so accepted will be promptly mailed or delivered to the Holder thereof. The Company shall announce the results of a Net 68 75 Proceeds Offer on or as soon as practicable after the Net Proceeds Payment Date. For purposes of this Section 10.15, the Trustee will act as the Paying Agent. (e) The Company shall not permit any Restricted Subsidiary to enter into or suffer to exist any agreement that would place any restriction of any kind (other than pursuant to law or regulation) on the ability of the Company to make a Net Proceeds Offer following any Asset Sale. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, if applicable, in the event that an Asset Sale occurs and the Company is required to purchase Securities as described in this Section 10.15. Section 10.16 Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of Property or the rendering of any services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary), unless (i) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than would be available in a comparable transaction in arm's-length dealings with an unrelated third party, (ii) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $1,000,000 but less than $5,000,000 in the aggregate, the Company delivers an Officers' Certificate to the Trustee certifying that (A) such transaction or series of related transactions complies with clause (i) above and (B) such transaction or series of related transactions has been approved by the Board of Directors (including a majority of the Disinterested Directors) of the Company, and (iii) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $5,000,000, the Company delivers an Officers' Certificate to the Trustee certifying to the two matters referred to in clause (ii) above and that the Company has obtained a written opinion from an independent nationally recognized investment banking firm or appraisal firm specializing or having a speciality in the type and subject matter of the transaction or series of related transactions at issue, which opinion shall be to the effect set forth in clause (i) above or shall state that such transaction or series of related transactions is fair from a financial point of view to the Company or such Restricted Subsidiary; provided, however, that the foregoing restriction shall not apply to (w) loans or advances to officers, directors and employees of the Company or any Restricted Subsidiary made in the ordinary course of business and consistent with past practices of the Company and its Restricted Subsidiaries in an aggregate amount not to exceed $1,000,000 outstanding at any one time, (x) indemnities of officers, directors and employees of the Company or any Restricted Subsidiary permitted by bylaw or statutory provisions, (y) the payment of reasonable and customary regular fees to directors of the Company or any of its Restricted Subsidiaries who are not employees of the Company or any Affiliate and (z) the Company's employee compensation and other benefit arrangements. 69 76 Section 10.17 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or suffer to exist or allow to become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise, or make any other distributions on its Capital Stock, or make payments on any Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to make loans or advances to the Company or any other Restricted Subsidiary, (c) to transfer any of its Property to the Company or any other Restricted Subsidiary or (d) to guarantee the Securities (any such restrictions being collectively referred to herein as a "Payment Restriction"), except in any such case for such encumbrances or restrictions existing under or by reason of (i) this Indenture, the Credit Facility or any other agreement in effect or entered into on the date of this Indenture, or (ii) any agreement, instrument or charter of or in respect of a Restricted Subsidiary entered into prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary and outstanding on such date and not entered into in connection with or in contemplation of becoming a Restricted Subsidiary, provided such consensual encumbrance or restriction is not applicable to any Properties other than those owned or held by the Restricted Subsidiary at the time it became a Restricted Subsidiary or subsequently acquired by such Restricted Subsidiary other than the Company or any other Restricted Subsidiary, or (iii) pursuant to an agreement effecting a modification, renewal, refinancing, replacement or extension of any agreement, instrument or charter (other than this Indenture) referred to in clause (i) or (ii) above, provided, however, that the provisions relating to such encumbrance or restriction are not materially less favorable to the Holders of the Securities than those under or pursuant to the agreement, instrument or charter so modified, renewed, refinanced, replaced or extended, or (iv) customary provisions restricting the subletting or assignment of any lease or the transfer of copyrighted or patented materials, or (v) provisions in agreements that restrict the assignment of such agreements or rights thereunder, or (vi) the sale or other disposition of any Properties subject to a Lien securing Indebtedness. Section 10.18 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 10.5 through 10.11, Sections 10.12 and 10.13 and Sections 10.16 through 10.17 hereof if, before or after the time for such compliance, the Holders of at least a majority in aggregate principal amount of the Outstanding Securities, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. 70 77 ARTICLE XI REDEMPTION OF SECURITIES Section 11.1 Right of Redemption. The Securities may be redeemed, at the election of the Company, as a whole or from time to time in part, at any time on or after ___________, 2000, upon not less than 30 or more than 60 days' notice to each Holder of Securities to be redeemed, subject to the conditions and at the Redemption Prices (expressed as percentages of principal amount) specified in the form of Security, together with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). In addition, at any time on or prior to ______________, 1999, up to $20,000,000 in aggregate principal amount of Securities may be redeemed, at the election of the Company, upon not less than 30 or more than 60 days' notice to each Holder of Securities to be redeemed, from the Net Cash Proceeds of a Public Equity Offering, at the Redemption Price (expressed as a percentage of principal amount) specified in the form of Security, together with accrued and unpaid interest, if any, to the Redemption Date, provided that at least $55,000,000 in aggregate principal amount of Securities remains Outstanding immediately after such redemption and that such redemption occurs within 60 days following the closing of such Public Equity Offering. Section 11.2 Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. Section 11.3 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 11.1 hereof shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 11.4 hereof. Any election to redeem Securities shall be revocable until the Company gives a notice of redemption pursuant to Section 11.5 hereof to the Holders of Securities to be redeemed. 71 78 Section 11.4 Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not less than 30 days nor more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, pro rata, by lot or by any other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities; provided, however, that any such partial redemption shall be in integral multiples of $1,000. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs of this Section 11.4 shall not apply with respect to any redemption affecting only a Global Security, whether such Global Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Global Security shall be in an authorized denomination. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. Section 11.5 Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 13.5 hereof not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) in the case of a partial redemption of Physical Securities, the identification of the particular Securities to be redeemed, and, if any Global Security or Physical Security is to be redeemed in part, the portion of the principal amount thereof to be redeemed; (d) that on the Redemption Date the Redemption Price (together with accrued interest, if any, to the Redemption Date payable as provided in Section 11.7 hereof) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that, unless the Company shall default in the payment of the Redemption Price and any applicable accrued and unpaid interest, interest thereon will cease to accrue on and after said date; and 72 79 (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Failure to give such notice by mailing to any Holder of Securities or any defect therein shall not affect the validity of any proceedings for the redemption of other Securities. Section 11.6 Deposit of Redemption Price. On or before 11:00 a.m., Eastern time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3 hereof) immediately available funds in an amount sufficient to pay the Redemption Price of, and accrued and unpaid interest on, all the Securities which are to be redeemed on such Redemption Date. Section 11.7 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued and unpaid interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued and unpaid interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.8 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Securities. Section 11.8 Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 10.2 hereof (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate 73 80 principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 12.2 or Section 12.3 hereof be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article XII. Section 12.2 Defeasance and Discharge. Upon the Company's exercise under Section 12.1 hereof of the option applicable to this Section 12.2, the Company shall be deemed to have been discharged from their respective obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 12.4 hereof are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed (i) to have paid and discharged their respective obligations under the Outstanding Securities, provided, however, that the Securities shall continue to be deemed to be "Outstanding" for purposes of Section 12.5 hereof and the other Sections of this Indenture referred to in clauses (A) and (B) below, and (ii) to have satisfied all their other obligations with respect to such Securities and this Indenture (and the Trustee, at the expense and direction of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 12.4 hereof and as more fully set forth in such Section, payments in respect of the principal of (and premium if any, on) and interest on such Securities when such payments are due (or at such time as the Securities would be subject to redemption at the option of the Company in accordance with this Indenture), (B) the obligations of the Company under Sections 3.3, 3.4, 3.5, 3.6, 3.7, 5.8, 6.6, 6.9, 6.10, 10.2, 10.3 (to the extent it relates to the foregoing Sections and this Article XII), (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder, and (D) the obligations of the Company under this Article XII. Subject to compliance with this Article XII, the Company may exercise its option under this Section 12.2 notwithstanding the prior exercise of its option under Section 12.3 hereof with respect to the Securities. Section 12.3 Covenant Defeasance. Upon the Company's exercise under Section 12.1 hereof of the option applicable to this Section 12.3, (i) the Company and shall be released from its obligations under any covenant contained in Article VIII, in Sections 10.5 through 10.17 and (ii) the occurrence of any event specified in Section 5.1(c) or 5.1(d) hereof (with respect to any of Article VIII, Sections 10.5 through 10.17, and Section 10.19) shall be deemed not to be or result in an Event of Default, in 74 81 each case with respect to the Outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Article or Section (to the extent so specified in the case of Sections 5.1(c) and 5.1(d) hereof), whether directly or indirectly, by reason of any reference elsewhere herein to any such Article or Section or by reason of any reference in any such Article or Section to any other provision herein or in any other document, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 12.1 hereof of the option applicable to this Section 12.3, subject to the satisfaction of the conditions set forth in Section 12.4 hereof, Sections 5.1(e) and 5.1(f) hereof shall not constitute Events of Default. Section 12.4 Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 12.2 or Section 12.3 hereof to the Outstanding Securities: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.7 hereof who shall agree to comply with the provisions of this Article XII applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) cash in United States dollars in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (and premium, if any, on) and interest on the Outstanding Securities on the Stated Maturity thereof (or Redemption Date, if applicable), provided that the Trustee shall have been irrevocably instructed in writing by the Company to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. Before such a deposit, the Company may give to the Trustee, in accordance with Section 11.3 hereof, a notice of its election to redeem all of the Outstanding Securities at a future date in accordance with Article XI hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, 75 82 and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (b) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit or, insofar as Sections 5.1(g) and 5.1(h) are concerned, at any time during the period ending on the 91st day after the date of such deposit. (c) Such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest under this Indenture or the Trust Indenture Act with respect to any securities of the Company. (d) Such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound, as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee concurrently with such deposit. (e) In the case of an election under Section 12.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax laws, in either case providing that the Holders of the Outstanding Securities 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 (it being understood that (x) such Opinion of Counsel shall also state that such ruling or applicable law is consistent with the conclusions reached in such Opinion of Counsel and (y) the Trustee shall be under no obligation to investigate the basis or correctness of such ruling). (f) In the case of an election under Section 12.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities 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. (g) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, which, taken together, state that all conditions precedent provided for relating to either the legal defeasance under Section 12.2 hereof or the covenant defeasance under Section 12.3 (as the case may be) have been complied with. 76 83 Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.3 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against all taxes, fees or other charges imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 12.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article XII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance, as applicable, in accordance with this Article. Section 12.6 Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 12.5 hereof by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.2 or 12.3 hereof, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.5 hereof; provided, however, that if the Company makes any payment of principal of (or premium, if any, on) or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. 77 84 ARTICLE XIII MISCELLANEOUS Section 13.1 Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act or this Indenture. Each such certificate and each such opinion shall be in the form of an Officers' Certificate or an Opinion of Counsel, as applicable, and shall comply with the requirements of this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each Person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such Person, such Person has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such Person, such condition or covenant has been complied with. The certificates and opinions provided pursuant to this Section 13.1 and the statements required by this Section 13.1 shall comply in all respects with TIA Sections 314(c) and (e). Section 13.2 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such 78 85 Opinion of Counsel may be based, insofar as it relates to factual matters, upon an officers' certificate, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate with respect to such matters is erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 13.3 Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership, principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. (d) If the Company shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the 79 86 purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date, provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. Section 13.4 Notices, etc. to Trustee and the Company Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to or filed with, (1) the Trustee by any Holder or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing (in the English language) and delivered in person or mailed by certified or registered mail (return receipt requested) to the Trustee at its Corporate Trust Office; or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing (in the English language) and delivered in person or mailed by certified or registered mail (return receipt requested) to the Company, addressed to it at the Company's offices located at 3701 Kirby Drive, Suite 112, Houston, Texas 77098, Attention: Richard W. McNairy, or at any other address otherwise furnished in writing to the Trustee by the Company. Section 13.5 Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company, the Trustee or any Paying Agent, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing (in the English language) and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of 80 87 notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. Section 13.6 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 13.7 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.8 Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. Section 13.9 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person (other than the parties hereto, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders) any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 13.10 Governing Law; Trust Indenture Act Controls. (a) THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. THE COMPANY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES, AND THE COMPANY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH COURT. 81 88 (b) This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of Section 318(c) of the Trust Indenture Act, or conflicts with any provision (an "incorporated provision") required by or deemed to be included in this Indenture by operation of such Trust Indenture Act section, such imposed duties or incorporated provision shall control. Section 13.11 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, or Stated Maturity or Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or at the Stated Maturity or Maturity; provided, however, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be. Section 13.12 No Recourse Against Others. A director, officer, employee, stockholder, incorporator or Affiliate, as such, past, present or future, of the Company shall not have any personal liability under the Securities or this Indenture by reason of his or its status as a director, officer, employee, stockholder, incorporator or Affiliate or any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder, by accepting any of the Securities, waives and releases all such liability to the extent permitted by applicable law. Section 13.13 Duplicate Originals. The parties may sign any number of copies or counterparts of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 13.14 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 82 89 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. ISSUER: VERITAS DGC INC. By: -------------------------------------- Name: ------------------------------ Title: ------------------------------ TRUSTEE: FLEET NATIONAL BANK By: -------------------------------------- Name: ------------------------------ Title: ------------------------------ 90 EXHIBIT A FORM OF LEGEND FOR GLOBAL SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. A-1 EX-5 4 OPINION OF PORTER & HEDGES, L.L.P. 1 EXHIBIT 5 [PORTER & HEDGES, L.L.P. LETTERHEAD] September 20, 1996 Veritas DGC Inc. 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Re: Opinion as to legality of __% Senior Notes due October 1, 2003 Gentlemen: We have examined the Certificate of Incorporation, the bylaws, and the corporate proceedings of Veritas DGC Inc., a Delaware corporation (the "Company"), and the proceedings before the Securities and Exchange Commission relating to the registration under the Securities Act of 1933 of $75,000,000 aggregate principal amount of __% Senior Notes due October 1, 2003 (the "Notes"), to be issued pursuant to an Indenture dated as of October 1, 2003, between the Company and Fleet National Bank, as Trustee (the "Indenture"); and the qualification of the Indenture under the Trust Indenture Act of 1939, on behalf of the Company, for the purpose of sale to the underwriter for offering to the public, and have made such other examinations as we deem necessary in the premises; and from such examinations we are of the opinion that: 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. 2. The Indenture has been duly authorized by all necessary corporate action, and upon execution and delivery, it will constitute a legal, valid, and binding instrument enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, or other laws relating to or affecting enforcement of creditors' rights generally, and except that remedies of specific performance and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court. 3. The issuance and sale of the Notes of the Company have been duly authorized by all necessary corporate action, and when authenticated, and delivered to and paid for by the underwriters, will be legal, valid, and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable in accordance with its and their terms, except as enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' 2 Veritas DGC Inc. September 20, 1996 Page 2 rights generally, and except that remedies of specific performance and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court. We consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus included as a part of the Registration Statement. Very truly yours, PORTER & HEDGES, L.L.P. EX-10.B 5 SALARY CONTINUATION AGREEMENT - STEPHEN J. LUDLOW 1 EXHIBIT 10-B CONFIDENTIAL ANNEX B DIGICON INC. December 21, 1995 Stephen J. Ludlow Digicon, Inc. 3701 Kirby Drive Houston, Texas 77098 Dear Steve: Digicon Inc. (the "Company") hereby agrees that in the event that the Company terminates your employment with the Company for any reason other than "cause" (as that term is defined in Exhibit A attached), the Company will continue for the period of one year following such termination to pay you your base salary (as of the date of termination), plus a bonus equal to that earned for the most recent fiscal year, each in the manner in which the Company's payroll is customarily handled. The Company's agreement set forth herein will terminate on December 31, 2000. All services to be performed by you as an employee (other than for temporary trips in connection with the Company's business) shall be performed at the Company's main office in Houston. This letter is executed in consideration of and is intended to encourage your continued employment with the Company. DIGICON INC. By: /s/ Jack C. Threet ---------------------------------- Jack C. Threet, Chairman, Compensation Committee of the Board of Directors ACCEPTED AND AGREED TO: By: /s/ Stephen J. Ludlow ------------------------------ Stephen J. Ludlow Date: 01/31/96 ---------------------------- 2 EXHIBIT A As used in the letter dated December 21, 1995 to Steven J. Ludlow ("Employee") the word "cause" means: (a) the conviction of Employee by a court of competent jurisdiction, from which conviction no further appeal can be taken, of any felony, or of an other crime involving moral turpitude committed during the period of employment; or (b) the commission by Employee of an act of "fraud" upon, or materially evidencing bad faith toward, the Company with the term "fraud" defined for this purpose to encompass only the commission of any act defined by a relevant statute of the United States or a state thereof to constitute fraud and the commission of which by Employee is accompanied by scienter, or (c) the willful, continued or unreasonable failure by Employee to (i) perform the lawful duties assigned to him, or (ii) abide by the material policies of the Company or (iii) perform up to the standards of performance expected of the position occupied by Employee; or (d) the knowing engagement in any direct conflict of interest with the Company by Employee. EX-10.E 6 AMEND. 1992 EMPLOYEE NONQUALIFIED STOCK OP. PLAN 1 EXHIBIT 10-E DIGICON INC. AMENDED AND RESTATED 1992 EMPLOYEE NONQUALIFIED STOCK OPTION PLAN 1. PURPOSE. The purpose of this 1992 Employee Nonqualified Stock Option Plan (the "Plan") of Digicon Inc. (the "Company") is to provide officers and other key employees with a continuing proprietary interest in the Company. The Plan is intended to advance the interests of the Company by enabling it (i) to increase the interest in the Company's welfare of those members of management who share the primary responsibility for the management, growth, and protection of the business of the Company, (ii) to furnish an incentive to such persons to continue their services to the Company, (iii) to provide a means through which the Company may continue to induce able management personnel to enter its employ, and (iv) to provide a means through which the Company may effectively compete with other organizations offering similar incentive benefits in obtaining and retaining the services of competent management personnel. 2. STOCK SUBJECT TO THE PLAN. The Company may grant from time to time options to purchase shares of the Company's authorized but unissued common stock, par value $.01 per share, or treasury shares of the common stock. Subject to adjustment as provided in Section 11 hereof, the aggregate number of shares which may be issued or covered by options pursuant to the Plan is 1,158,333 shares, as adjusted for the one for three reverse stock split effective January 17, 1995. Shares of common stock applicable to options which have expired unexercised or terminated for any reason may again be subject to an option or options under the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Compensation Committee of the Company's board of directors (the "Committee"). The board of directors may, from time to time, remove members from or add members to the Committee. Vacancies in the Committee, however caused, shall be filled by the board of directors. No member of the Committee shall be eligible to receive options under the Plan. The Committee shall select one of its members chairman and shall hold meetings at such times and places as it may determine. The Committee may appoint a secretary and, subject to the provisions of the Plan and to policies determined by the board of directors, may make such rules and regulations for the conduct of its business as it shall deem advisable. A majority of the Committee shall constitute a quorum. All action of the Committee shall be taken by a majority of its members. Any action may be taken by a written instrument signed by a majority of the members, and action so taken shall be fully as effective as if it had been taken by a vote of the majority of the members at a meeting duly called and held. (b) Subject to the express terms and conditions of the Plan, the Committee shall have full power to construe or interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for its administration. 2 (c) Subject to the provisions of Sections 4 and 5 hereof, the Committee may, from time to time, determine which employees of the Company or subsidiary corporations shall be granted options under the Plan, the number of shares subject to each option, and the time or times at which options shall be granted. (d) The Committee shall report to the board of directors the names of employees granted options, and the number of option shares subject to, and the terms and conditions of, each option. (e) No member of the board of directors or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option. 4. ELIGIBILITY. Only full-time salaried officers and other key personnel of the Company and of its majority-owned subsidiaries shall be eligible to participate in the Plan. In determining the employees to whom options shall be granted and the number of shares to be covered by each option, the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contributions to the success of the Company, and such other factors as the Committee in its discretion shall deem relevant. The Company shall effect the granting of options under the Plan in accordance with the determination made by the Committee. 5. PRICE OF OPTIONS. The option price per share shall be not less than the lesser of (i) fair market value of the common stock on the date the option is granted or (ii) the average fair market value for the common stock during the thirty trading days ending on the trading day next preceding the date the option is granted. Fair market value on any day shall be deemed to be the last reported sale price of the common stock on the principal stock exchange on which the Company's common stock is traded on that date. If no trading occurred on such date, or, if at the time the common stock shall not be listed for trading, fair market value shall be deemed to be the mean between the quoted bid and asked prices for the common stock on such exchange or in the over-the-counter market, as the case may be, on that date. 6. TERM OF OPTION. No option shall be exercisable after the expiration of ten years from the date the option is granted. 7. EXERCISE OF OPTIONS. (a) General. Except as provided below, each option may be exercised at such times and in such amounts as the Committee in its discretion may provide. No option may be exercised prior to six months from the date of grant. (b) Manner of Exercising Options. Shares of common stock purchased under options shall at the time of purchase be paid for in full. To the extent that the right to purchase shares has -2- 3 accrued hereunder, options may be exercised from time to time by written notice to the Company stating the full number of shares with respect to which the option is being exercised, and the time of delivery thereof, which shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At such time, the Company shall, without transfer or issue tax to the optionee (or other person entitled to exercise the option) deliver to the optionee (or to such other person) at the principal office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such shares against prior payment of the option price in full on the date of notice of exercise for the number of shares to be delivered by certified or official bank check or the equivalent thereof acceptable to the Company; provided, however, that the time of such issuance and delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any requirements of law, the listing requirements of the American Stock Exchange or any other exchange on which the common stock may then be listed. If the optionee (or other person entitled to exercise the option) fails to pay for all or any part of the number of shares specified in such notice or to accept delivery of such shares upon tender of delivery thereof, the right to exercise the option with respect to such undelivered shares shall be terminated. 8. NON-ASSIGNABILITY OF OPTION RIGHTS. No option granted under the Plan shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of an optionee, the option shall be exercisable only by him. 9. TERMINATION OF EMPLOYMENT. Except as otherwise provided in this paragraph, options shall terminate 90 days following the termination of the optionee's employment with the Company for any reason, but shall be exercisable following termination only to the extent that the option had become vested on the termination date. In the event that the optionee retires from the Company (at or after normal retirement age) the optionee shall have the right, subject to the provisions of Section 6, to exercise his option at any time within one year after such termination, to the extent that such option had become vested on the termination date. If, however, the optionee shall die in the employment of the Company, then for the lesser of the maximum period during which such option might have been exercisable or one year after the date of death, his estate, personal representative, or beneficiary shall have the same right to exercise the option of such employee as he would have had if he had survived and remained in the employment of the Company. For purposes of this Section 9, employment by any majority-owned subsidiary corporation of the Company shall be deemed employment by the Company. In the discretion of the Committee, a leave of absence approved in writing by the board of directors of the Company shall not be deemed a termination of employment; however, no option may be exercised during such leave of absence. -3- 4 10. CHANGE OF CONTROL. If, at any time, a person, entity or group (including, in each case, all other persons, entities or groups controlling, controlled by, or under common control with or acting in concert or concurrently with, such person, entity or group) shall hold, purchase or acquire beneficial ownership (including, without limitation, power to vote) of 50% or more of the then outstanding shares of the Company's common stock, then any portion of the Options which have not yet become exercisable shall thereupon become immediately exercisable, and, except with respect to the limitations set forth in paragraph 6 hereof, the limitations set forth above as to the earliest date at which an option may be exercised shall thereupon become null and void and of no further effect whatsoever. 11. ADJUSTMENT OF OPTIONS ON RECAPITALIZATION OR REORGANIZATION. The aggregate number of shares of common stock on which options may be granted to persons participating under the Plan, the aggregate number of shares of common stock on which options may be granted to any one such person, the number of shares thereof covered by each outstanding option, and the price per share thereof in each such option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock of the Company resulting from the subdivision or combination of shares or other capital adjustments, or the payment of a stock dividend after the effective date of this Plan, or other increase or decrease in such shares effected without receipt of consideration by the Company; provided, however, that no adjustment shall be made unless the aggregate effect of all such increases and decreases occurring in any one fiscal year after the effective date of this Plan will increase or decrease the number of issued shares of common stock of the Company by 5% or more; and, provided, further, that any options to purchase fractional shares resulting from any such adjustment shall be eliminated. Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any option granted hereunder shall pertain to and apply to the securities to which a holder of the number of shares of common stock subject to option would have been entitled had such option been exercised immediately preceding such merger or consolidation; but a dissolution or liquidation of the Company, or a merger or consolidation in which the Company is not the surviving or resulting corporation, shall cause every option outstanding hereunder to terminate, except that the surviving or resulting corporation may, in its absolute and uncontrolled discretion, tender an option or options to purchase its shares on its terms and conditions, both as to the number of shares and otherwise. Adjustments under this Section shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. 12. AGREEMENTS BY OPTIONEE. Each individual optionee shall agree: (a) if requested by the Company, at the time of exercise of any option, to execute an agreement stating that he is purchasing the shares subject to option for investment purposes and not with a view to the resale or distribution thereof; -4- 5 (b) to authorize the Company to withhold from his gross pay any tax which it believes is required to be withheld with respect to any benefit under the Plan, and to hold as security for the amount to be withheld any property otherwise distributable to the optionee under the Plan until the amounts required to be withheld have been so withheld. 13. RIGHTS AS A SHAREHOLDER. The optionee shall have no rights as a stockholder with respect to any shares of common stock of the Company held under option until the date of issuance of the stock certificates to him for such shares. 14. EFFECTIVE DATE. The plan shall be effective as of September 1, 1992, if within one year of that date it shall have been approved by the holders of a majority of the shares of outstanding capital stock present at a duly called meeting of the Company's stockholders at which a quorum is present. 15. AMENDMENTS. (a) The board of directors may, from time to time, alter, suspend or terminate the Plan, or alter or amend any and all option agreements granted thereunder but only for one or more of the following purposes: (1) to modify the administrative provisions of the Plan or options; or (2) to make any other amendment which does not materially alter the intent or benefits of the Plan. (b) It is expressly provided that no such action of the board of directors may, without the approval of the stockholders, alter the provisions of the Plan or option agreements granted thereunder so as to: (1) increase the maximum number of shares as to which options may be granted under the Plan either to all persons participating in the Plan or to any one such person; (2) decrease the option price applicable to any options granted under the Plan, provided, however, that the provisions of this clause (2) shall not prevent the granting, to any person holding an option under the Plan, of additional options under the Plan exercisable at a lower option price; or (3) alter any outstanding option agreement to the detriment of the optionee, without his consent. -5- 6 16. EMPLOYMENT OBLIGATION. The granting of any option under this Plan shall not impose upon the Company any obligation whatsoever to employ or to continue to employ any optionee, and the right of the Company to terminate the employment of any officer or other employee shall not be diminished or affected by reason of the fact that an option has been granted to him under the Plan. 17. VERITAS OPTIONS. In order to carry out the terms of (i) the Combination Agreement dated May 10, 1996, between the Company and Veritas Energy Services Inc. ("Veritas") which was approved by the Company's stockholders at a special meeting held on August 20, 1996 and (ii) the Plan of Arrangement under Part 15 of the Business Corporations Act (Alberta) relating to the combination of the Company and Veritas which, pursuant to an interim order of the Court of Queen's Bench of Alberta date July 18, 1996, was approved at special meetings of Veritas optionholders and shareholders held August 20, 1996, this Plan shall include under its terms each of the options (the "Veritas Options") outstanding on the Effective Date (as defined in the Combination Agreement)(which includes all outstanding options granted under Veritas' Stock Option Plan for Directors, Officers and Key Employees (the "Veritas Option Plan")) without any further action on the part of any holder thereof (each a "Veritas Optionholder"). Effective as of the Effective Time, each Veritas Option will be exercisable to purchase that number of shares of the Company's common stock determined by multiplying the number of Veritas common shares (the "Veritas Common Shares") subject to such Veritas Option at the Effective Time by the Exchange Ration (as defined in the Combination Agreement), at an exercise price per share of such Veritas Option immediately prior to the Effective Time, divided by the Exchange Ratio. On the Effective Date (as defined in the Combination Agreement), such option price shall be converted into a United States dollar equivalent based on the noon spot rate of exchange of the Bank of Canada on such date. If the foregoing calculation results in an exchanged Veritas Option being exercisable for a fractional share of Digicon Common Stock, then the number of shares of Digicon common stock subject to such option will be rounded down to the nearest whole number of shares and the total exercise price for the option will be reduced by the exercise price of the fractional share. The term, exercisability, vesting schedule and all other terms and conditions of the Veritas Options will otherwise be unchanged and shall operate in accordance with their terms, notwithstanding anything to the contrary contained herein. -6- EX-10.G 7 CREDIT AGREEMENT DATED 07/18/96 1 EXHIBIT 10-G ****************************************************************************** DIGICON INC., DIGICON GEOPHYSICAL CORP., DIGICON/GFS INC., DIGICON GEOPHYSICAL LIMITED AND DIGICON EXPLORATION, LTD. AS BORROWERS CREDIT AGREEMENT DATED AS OF JULY __, 1996 WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION AS ISSUING BANK, AS A BANK AND AS AGENT FOR THE BANKS ****************************************************************************** 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.2 The Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.3 Repayment of Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.6 Revolving Credit Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.7 Reduction or Termination of Revolving Credit Commitment . . . . . . . . . . . . . . . 3 ARTICLE III Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 3.1 Term Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 3.2 The Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.3 Repayment of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 4.1 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 4.4 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4.5 Participation by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4.6 Payments Constitute Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . 6 Section 4.7 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4.8 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.9 Letter of Credit Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.10 Replacement of the Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE V Borrowing Procedure; Payments; Facilities Fees; Joint Borrower Provisions . . . . . . 8 Section 5.1 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 5.2 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 5.3 Voluntary Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.4 Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.5 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.6 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.7 Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5.8 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5.9 Facilities Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3
PAGE ---- Section 5.10 Joint Borrower Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE VI Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.1 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VII Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 7.1 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 7.2 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VIII Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 8.1 Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 8.2 All Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE IX Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.4 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.6 Rights in Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.7 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.8 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.11 Use of Proceeds; Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.17 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.18 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.19 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE X Positive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.2 Maintenance of Existence; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 10.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ii 4 TABLE OF CONTENTS (CONT.)
PAGE ---- Section 10.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.7 Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.12 Annual Collateral and Systems Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.13 Lockboxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 10.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE XI Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 11.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 11.3 Mergers, Dissolutions, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 11.4 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 11.5 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 11.6 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 11.7 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 11.8 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 11.9 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 11.10 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 11.11 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 11.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE XII Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 12.1 Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 12.2 Cash Flow Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 12.3 Funded Debt to Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 12.4 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 12.5 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 12.6 Renegotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE XIII Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 13.2 Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 13.3 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 13.4 Performance by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
iii 5 TABLE OF CONTENTS (CONT.)
PAGE ---- ARTICLE XIV The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 14.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 14.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 14.3 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 14.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 14.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 14.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 14.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 14.8 Partial Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE XV Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 15.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 15.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.5 Lender Not Fiduciary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.6 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 15.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 15.10 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 15.11 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.13 Governing Law; Venue; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 15.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 15.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 15.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 15.17 Non-Application of Chapter 15 of Texas Credit Code . . . . . . . . . . . . . . . . . . . . . . 50 Section 15.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 15.19 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 15.20 Arbitration Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
iv 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of July _____, 1996, is among DIGICON INC., a Delaware corporation ("Digicon"), DIGICON GEOPHYSICAL CORP., a Delaware corporation ("Geophysical Corp."), DIGICON/GFS INC., a Mississippi corporation ("GFS"), DIGICON EXPLORATION, LTD., a Delaware corporation ("Exploration") and DIGICON GEOPHYSICAL LIMITED, a company organized under the laws of England and Wales ("Geophysical Limited", and together with Digicon, Geophysical Corp., GFS, and Exploration, collectively the "Borrowers", and each individually a "Borrower"), each of the banks or other lending institutions which is or which may from time to time become a signatory hereto or any successor or assignee thereof (individually, a "Bank" and, collectively, the "Banks") and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national banking association as issuing bank (in such capacity, together with its successors in such capacity, the "Issuing Bank") and as agent for itself, the Issuing Bank and the other Banks (in such capacity, together with its successors in such capacity, the "Agent"). R E C I T A L S : The Borrowers have requested the Banks to extend credit to the Borrowers in the form of (a) a revolving credit facility not to exceed $15,000,000 outstanding at any time under which the Borrowers may request (i) Revolving Credit Advances and (ii) Letters of Credit (subject to a $5,000,000 sublimit) and (b) Term Loans to the Borrowers in the aggregate principal amount of $6,000,000. The Banks are willing to make such credit facilities available to the Borrowers upon the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I Definitions Section 1 Definitions. As used in this Agreement, the terms defined in Appendix A hereto have the meanings ascribed to them in Appendix A. Section 2 Other Definitional Provisions. All definitions contained in this Agreement or incorporated herein from Appendix A are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. All accounting terms not specifically defined herein or in Appendix A shall be construed in accordance with GAAP. Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC. 7 ARTICLE II Revolving Credit Advances Section 1 Revolving Credit Commitments. Subject to the terms and conditions of this Agreement, each Bank severally agrees to make one or more Revolving Credit Advances to the Borrowers from time to time from the date hereof to and including the Revolving Credit Termination Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of such Bank's Revolving Credit Commitment, provided that the aggregate amount of all Revolving Credit Advances at any time outstanding shall not exceed the lesser of (a) the aggregate of the Revolving Credit Commitments minus the outstanding Letter of Credit Liabilities and (b) the Borrowing Base minus the outstanding Letter of Credit Liabilities. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, the Borrowers may borrow, repay, and reborrow hereunder the aggregate amount of the Revolving Credit Commitments by means of Revolving Credit Advances. Each Revolving Credit Advance made by each Bank shall be made and maintained at such Bank's Principal Office. Section 2 The Revolving Credit Notes. The joint and several obligation of the Borrowers to repay the Revolving Credit Advances and interest thereon shall be evidenced by a Revolving Credit Note executed by the Borrowers, payable to the order of each Bank, in the principal amount of such Bank's Revolving Credit Commitment as originally in effect and dated the date hereof or such later date as may be required with respect to transactions contemplated by Section 15.8. Section 3 Repayment of Revolving Credit Advances. The Borrowers shall repay the unpaid principal amount of all Revolving Credit Advances on the Revolving Credit Termination Date. Section 4 Interest. The unpaid principal amount of the Revolving Credit Advances shall bear interest prior to maturity at a varying rate per annum equal from day to day to the lesser of (a) the Maximum Rate, and (b) the Applicable Rate. If at any time the Applicable Rate for any Revolving Credit Advance shall exceed the Maximum Rate, thereby causing the interest accruing on such Revolving Credit Advance to be limited to the Maximum Rate, then any subsequent reduction in the Applicable Rate for such Revolving Credit Advance shall not reduce the rate of interest on such Revolving Credit Advance below the Maximum Rate until the aggregate amount of interest accrued on such Revolving Credit Advance equals the aggregate amount of interest which would have accrued on such Revolving Credit Advance if the Applicable Rate had at all times been in effect. Accrued and unpaid interest on the Revolving Credit Advances shall be due and payable as follows: (i) on each Monthly Payment Date; and (ii) on the Revolving Credit Termination Date. Notwithstanding the foregoing, any outstanding principal of any Revolving Credit Advance and (to the fullest extent permitted by law) any other amount payable by the Borrowers under this Agreement 2 8 or any other Loan Document that is not paid in full when due (whether at stated maturity, by acceleration, or otherwise) shall bear interest at the Default Rate for the period from and including the due date thereof to but excluding the date the same is paid in full. Interest payable at the Default Rate shall be payable from time to time on demand. Section 5 Use of Proceeds. The proceeds of Advances shall be used by the Borrowers to pay off and retire existing Debt to Foothill Capital Corporation, a California corporation, and for general corporate purposes (including the purchase of fixed assets) in the ordinary course of business. Section 6 Revolving Credit Commitment Fee. The Borrowers jointly and severally agree to pay to the Agent for the account of each Bank a commitment fee on the daily average unused amount of such Bank's Revolving Credit Commitment for the period from and including the date of this Agreement to and including the Revolving Credit Termination Date at the rate of 0.375% per annum based on a 360 day year and the actual number of days elapsed. Accrued commitment fee shall be payable in arrears on each Quarterly Fee Payment Date and on the Revolving Credit Termination Date. Section 7 Reduction or Termination of Revolving Credit Commitment. The Borrowers shall have the right to terminate in whole or reduce in part the unused portion of the Revolving Credit Commitments upon at least three Business Days prior notice (which notice shall be irrevocable) to the Agent specifying the effective date thereof, whether a termination or reduction is being made, and the amount of any partial reduction, provided, however, that the Revolving Credit Commitments shall never be reduced below an amount equal to the aggregate outstanding Letter of Credit Liabilities. Each partial reduction shall be in the amount of $1,000,000 or an integral multiple thereof and the Borrowers shall simultaneously prepay the Revolving Credit Advances by the amount by which the unpaid principal amount of the Revolving Credit Advances exceeds the sum of (a) all of the Revolving Credit Commitments (after giving effect to such notice) plus (b) the aggregate outstanding Letter of Credit Liabilities, plus accrued and unpaid interest on the principal amount so prepaid. The Revolving Credit Commitments may not be reinstated after they have been terminated or reduced. ARTICLE III Term Loans Section 1 Term Loan Commitments. Subject to the terms and conditions of this Agreement, each Bank agrees to make a loan (the "Term Loans") to the Borrowers in a principal amount equal to the amount of such Bank's Term Loan Commitment in a single Advance on the date hereof. Section 2 The Term Notes. The joint and several obligation of the Borrowers to repay the Term Loans shall be evidenced by a Term Note executed by the Borrowers, payable to the order of such Bank, in the principal amount of such Bank's Term Loan Commitment, and dated the date 3 9 hereof or such later date as may be required with respect to transactions contemplated by Section 15.8. Section 3 Repayment of Term Loan. The Borrowers shall repay the unpaid principal amount of the Term Loan in 35 equal consecutive installments in the amount of $166,667 each, payable on each Monthly Payment Date, with a final additional installment in the amount of all outstanding principal of the Term Loan payable on the Term Loan Maturity Date. Section 4 Interest. The unpaid principal amount of the Term Loans shall bear interest prior to maturity at a varying rate per annum equal from day to day to the lesser of (a) the Maximum Rate and (b) the Applicable Rate. If at any time the Applicable Rate shall exceed the Maximum Rate, thereby causing the interest accruing on the Term Loans to be limited to the Maximum Rate, then any subsequent reduction in the Applicable Rate shall not reduce the rate of interest on the Term Loans below the Maximum Rate until the aggregate amount of interest accrued on the Term Loans equals the aggregate amount of interest which would have accrued on the Term Loans if the Applicable Rate had at all times been in effect. Accrued and unpaid interest on the Term Loan Advances shall be payable on each Monthly Payment Date. Notwithstanding the foregoing, any outstanding principal of any Term Loan Advance and (to the fullest extent permitted by law) any other amount payable by the Borrower under this Agreement or any other Loan Document that is not paid in full when due (whether at stated maturity, by acceleration, or otherwise) shall bear interest at the Default Rate for the period from and including the due date thereof to but excluding the date the same is paid in full. Interest payable at the Default Rate shall be payable from time to time on demand. Section 5 Use of Proceeds. The proceeds of the Term Loans shall be used by the Borrowers to refinance existing term Debt. ARTICLE IV Letters of Credit Section 1 Letters of Credit. (a) Subject to, and upon the terms, conditions, covenants and agreements contained herein and in the Letter of Credit Agreements, prior to the Revolving Credit Termination Date, the Issuing Bank agrees to issue irrevocable standby letters of credit ("Letters of Credit"), in form satisfactory to the Issuing Bank, for the account of any Borrower; provided, however, that the outstanding Letter of Credit Liabilities shall not at any time exceed the least of (a) $5,000,000, (b) an amount equal to the aggregate amount of the Revolving Credit Commitments minus the outstanding Revolving Credit Advances, and (c) the Borrowing Base minus the outstanding Revolving Credit Advances. In the event of an actual conflict between the terms and conditions of this Agreement and the terms and conditions of any Letter of Credit Agreement, then the terms and conditions of this Agreement shall prevail. Letters of Credit shall expire no later than one year after the 4 10 Revolving Credit Termination Date, must be satisfactory in form to the Issuing Bank, and must be issued pursuant to a Letter of Credit Agreement. No Letter of Credit shall require any payment by the Issuing Bank to the beneficiary thereof pursuant to a drawing prior to the third Business Day following presentment of a draft and any related documents to the Issuing Bank. (b) On or before the Revolving Credit Termination Date, the Borrowers jointly and severally agree to deposit with and pledge to the Agent cash or cash equivalent investments in an amount equal to all outstanding Letter of Credit Liabilities. Section 2 Letter of Credit Procedure. Each Letter of Credit shall be issued upon receipt by the Issuing Bank of a written request of any Borrower (a "Credit Request"), together with a duly executed Letter of Credit Agreement, not later than 11:00 A.M., (Houston, Texas time) three Business Days prior to the date set for the issuance of such Letter of Credit. Each Credit Request shall contain or specify, among other things: (a) the proposed date of the issuance of the Letter of Credit, which shall be a Business Day; (b) the stated amount of the Letter of Credit; (c) the date of expiration of the Letter of Credit; (d) the name and address of the beneficiary of the Letter of Credit; (e) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (f) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; (g) the purpose of the Letter of Credit; and (h) the aggregate amount of Letter of Credit Liabilities (including the requested Letter of Credit) to be existing on the date of issuance of such requested Letter of Credit. Section 3 Amendments to Letters of Credit. Any request for amendment to or extension of the expiry date of any previously issued Letter of Credit shall be submitted pursuant to a Credit Request by the Borrowers to the Issuing Bank not later than three Business Days prior to the date of the proposed amendment or extension. The Issuing Bank shall not amend or extend the expiry date of any Letter of Credit if the issuance of a new Letter of Credit having the same terms and conditions as such Letter of Credit as so amended or extended would be prohibited by any provision hereof. 5 11 Section 4 Letter of Credit Fees. The Borrowers jointly and severally agree in all instances, to pay to the Issuing Bank a letter of credit fee for the account of the Banks that is equal to 1% per annum of the Dollar equivalent at the applicable Exchange Rate of the face amount of each Letter of Credit (with a $400 minimum letter of credit fee per Letter of Credit issued), each computed from the date of issuance until the stated termination date based on the initial face amount of such Letter of Credit, and payable in advance, non-refundable, and based on a year of 360 days. Section 5 Participation by Banks. By the issuance of any Letter of Credit and without any further action on the part of the Issuing Bank or any of the Banks in respect thereof, the Issuing Bank hereby grants to each Bank and each Bank hereby agrees to acquire from the Issuing Bank a participation in each such Letter of Credit and the related Letter of Credit Liabilities, effective upon the issuance thereof without recourse or warranty, equal to such Bank's pro rata part (based on the Revolving Credit Commitments) of such Letter of Credit and Letter of Credit Liabilities. The Issuing Bank shall provide a copy of each Letter of Credit to each other Bank promptly after issuance. This agreement to grant and acquire participations is an agreement between the Issuing Bank and the Banks, and neither Borrower nor any beneficiary of a Letter of Credit shall be entitled to rely thereon. Borrowers agree that each Bank purchasing a participation from the Issuing Bank pursuant to this Section 4.5 may exercise all its rights to payment against Borrowers including the right of setoff, with respect to such participation as fully as if such Bank were the direct creditor of Borrowers in the amount of such participation. Section 6 Payments Constitute Revolving Credit Loans. Each payment by the Issuing Bank pursuant to a drawing under a Letter of Credit shall constitute and be deemed a Revolving Credit Loan by each Bank in its percentage of the aggregate Revolving Credit Commitments to the Borrowers under such Bank's Revolving Credit Note and this Agreement as of the day and time such payment is made by the Issuing Bank and in the Dollar equivalent at the applicable Exchange Rate of the aggregate amount of such payment. Section 7 Obligations Absolute. The obligations of the Borrowers under this Agreement and the other Loan Documents (including without limitation the obligation of the Borrower to reimburse the Issuing Bank for draws under any Letter of Credit) shall be joint and several, absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the other Loan Documents under all circumstances whatsoever, including without limitation the following circumstances: (a) Any lack of validity or enforceability of any Letter of Credit or any other Loan Document; (b) Any amendment or waiver of or any consent to departure from any Loan Document; 6 12 (c) The existence of any claim, set-off, counterclaim, defense or other rights which any Borrower, any Obligated Party, or any other Person may have at any time against any beneficiary of any Letter of Credit, the Issuing Bank, or any other Person, whether in connection with this Agreement or any other Loan Document or any unrelated transaction; or (d) Any statement, draft, or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever. Section 8 Limitation of Liability. The Borrowers jointly and severally assume all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank, the Agent, any Bank nor any of their officers or directors shall have any responsibility or liability to any Borrower or any other Person for: (a) errors, omissions, interruptions, or delays in transmission or delivery of any messages, or (b) the validity, sufficiency, or genuineness of any draft or other document, or any endorsement(s) thereon, even if any such draft, document or endorsement should in fact prove to be in any and all respects invalid, insufficient, fraudulent, or forged or any statement therein is untrue or inaccurate in any respect, provided that in each case such actions taken or omitted by the Issuing Bank, the Agent or any Bank are done or omitted in the absence of gross negligence or willful misconduct. The Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. Section 9 Letter of Credit Agreements. Certain additional provisions regarding the obligations, liabilities, rights, remedies and agreements of the Borrowers and the Issuing Bank relative to the Letters of Credit shall be set forth in the Letter of Credit Agreements. Section 10 Replacement of the Issuing Bank. The Borrowers may, with the approval of the Required Banks, appoint a successor Issuing Bank hereunder upon the condition precedent that such successor Issuing Bank shall become a party to this Agreement and expressly agree to be bound by the terms and conditions contained in this Agreement pertaining to the Issuing Bank. Upon the appointment of a successor Issuing Bank, the Issuing Bank replaced by such successor Issuing Bank shall cease to issue Letters of Credit but shall continue to carry out its obligations hereunder and shall continue to have the benefit of this Agreement and the other Loan Documents with respect to the outstanding Letters of Credit issued by it until all such Letters of Credit have expired and any drawings thereunder have been reimbursed in full. 7 13 ARTICLE V Borrowing Procedure; Payments; Facilities Fees; Joint Borrower Provisions Section 1 Borrowing Procedure. The Borrowers shall give the Agent notice by means of the appropriate Advance Request Form of each requested Advance at least one Business Day before the requested Advance (unless the Agent is the only Bank in which case notice shall be by 11:00 A.M. Houston, Texas time on the day of such requested Advance), specifying: (a) the requested date of such Advance (which shall be a Business Day), and (b) the amount of such Advance. The Agent at its option may accept telephonic requests for Advances, provided that such acceptance shall not constitute a waiver of the Agent's right to delivery of the appropriate Advance Request Form in connection with subsequent Advances. Any telephonic request for an Advance by the Borrowers shall be promptly confirmed by submission of a properly completed Advance Request Form to the Agent. Each Revolving Credit Advance shall be in a minimum principal amount of $100,000 or an integral multiple thereof and the Term Loans shall be in a single aggregate Advance in the aggregate amount of the Term Loan Commitments. The Agent shall notify each Bank of the contents of each such notice. Not later than 11:00 A.M. Houston, Texas time on the date specified for each Advance hereunder, each Bank will make available to the Agent at the Principal Office in immediately available funds, for the account of the Borrowers, its pro rata share of each Advance. After the Agent's receipt of such funds and subject to the other terms and conditions of this Agreement, the Agent will make each Advance available to the Borrowers by depositing the same, in immediately available funds, in an account of the Borrowers (designated by the Borrowers) maintained with the Agent at the Principal Office. All notices under this Section shall be irrevocable and shall be given not later than 11:00 A.M. Houston, Texas, time on the day which is not less than the number of Business Days specified above for such notice. Section 2 Method of Payment. All payments of principal, interest, and other amounts to be made by the Borrowers under this Agreement and the other Loan Documents shall be made to the Agent at the Principal Office for the account of each Bank's Principal Office in Dollars and in immediately available funds, without setoff, deduction, or counterclaim, not later than 11:00 A.M., Houston, Texas time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). The Borrowers shall, at the time of making each such payment, specify to the Agent the sums payable by the Borrowers under this Agreement and the other Loan Documents to which such payment is to be applied (and in the event that the Borrowers fail to so specify, or if an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order and manner as it may elect in its sole discretion, subject to Section 5.5 hereof). Each payment received by the Agent under this Agreement or any other Loan Document for the account of a Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Principal Office. Whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be. 8 14 Section 3 Voluntary Prepayment. The Borrower may, upon at least one Business Days' prior notice to the Agent, prepay the Term Loan Advances in whole at any time or from time to time in part without premium or penalty but with accrued interest to the date of prepayment on the amount so prepaid, provided that each partial prepayment shall be in the principal amount of $100,000 or an integral multiple thereof. All notices under this Section shall be irrevocable and shall be given not later than 11:00 A.M. Houston, Texas, time on the day which is not less than the number of Business Days specified above for such notice. Section 4 Mandatory Prepayment. If at any time the sum of the outstanding Revolving Credit Advances plus the outstanding Letter of Credit Liabilities exceeds the Borrowing Base, the Borrowers shall promptly (and in any event within 15 Business Days after the earlier of (a) the discovery of such excess by the Borrower and (b) the delivery by the Borrowers of the Borrowing Base Report indicating such excess) prepay the outstanding Revolving Credit Advances by the amount of the excess plus accrued and unpaid interest on the amount so prepaid or, if no Revolving Credit Advances are outstanding (either before or after such prepayments), the Borrowers shall immediately pledge to the Agent for the benefit of itself, the Issuing Bank, and the Banks, cash or cash equivalent investments in an amount equal to the excess as security for the Obligations. Section 5 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each Advance shall be made by the Banks under Section 2.1 and Section 3.1 or deemed made by the Banks under Section 4.6, each payment of fees under Section 2.6 and Section 5.10 and letter of credit fees under Section 4.4 shall be made for the account of the Banks, and each termination or reduction of the Revolving Credit Commitments under Section 2.7 shall be applied to the Revolving Credit Commitments of the Banks, pro rata according to the respective unused Revolving Credit Commitments and each Letter of Credit shall be deemed participated in by the Banks, pro rata according to the amounts of their respective Revolving Credit Commitments; and (b) each payment and prepayment of principal of or interest on Advances by the Borrower shall be made to the Agent for the account of the Banks pro rata in accordance with the respective unpaid principal amounts of such Advances held by such Banks. Section 6 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrowers (the "Payor") prior to the date on which such Bank is to make payment to the Agent of the proceeds of an Advance to be made or participated in as applicable, by it hereunder or the Borrowers is to make a payment to the Agent for the account of one or more of the Banks, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period. 9 15 Section 7 Withholding Tax Exemption. Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to Digicon for distribution to the Borrowers and the Agent two duly completed copies of Form 1001 or 4224, certifying in either case that such Bank is entitled to receive payments from the Borrowers under any Loan Document without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form 1001 or 4224 further undertakes to deliver to Digicon for distribution to Borrowers and the Agent two additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrowers or the Agent, in each case certifying that such Bank is entitled to receive payments from the Borrowers under any Loan Document without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrowers and the Agent that it is not capable of receiving such payments without any deduction or withholding of United States federal income tax. Section 8 Computation of Interest. Interest on the Advances and all other amounts payable by the Borrowers hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. Section 9 Facilities Fees. The Borrowers jointly and severally agree to pay to the Agent for the account of the Banks a non-refundable facilities fee in connection with the Revolving Credit Commitments and the Term Loan Commitments of $75,000 payable in full upon the execution of this Agreement (Agent acknowledging that it has already received $25,000 of such fee). Section 10 Joint Borrower Provisions. (a) The Borrowers agree to establish and maintain a single designated deposit account for the purpose of receiving the proceeds of the Advances to be made by the Agent hereunder. Any Advance made by the Agent hereunder shall be made jointly to the Borrowers and shall be charged to the Borrowers, jointly and severally. Any payments received by the Agent hereunder likewise shall be credited, jointly and severally, for the account of the Borrowers. (b) The Agent is authorized to make Advances under this Agreement based upon telephonic or other instructions received from anyone purporting to be an authorized officer of any Borrower. Unless otherwise instructed by any of the Borrowers, the Agent will credit the amount of Advances made to Borrowers to Borrowers' designated deposit account. It 10 16 is expressly agreed and understood by each Borrower that neither the Agent or any Bank shall have any responsibility to inquire into the apportionment, allocation, or disposition of any Advances made to the Borrowers. All Advances are to be made for the collective account of Borrowers. (c) For the purpose of implementing the joint borrower provisions of the Loan Documents, each Borrower hereby irrevocably appoints each other Borrower as its agent and attorney-in-fact, coupled with an interest, for all purposes of the Loan Documents, including the making of requests for Advances, or Letters of Credit, the execution and delivery of certificates and the receiving and allocating of disbursements from the Agent, the Issuing Bank or any Bank. (d) It is understood and agreed that the handling of the Advances and the Letters of Credit on a joint borrowing basis as set forth in this Agreement is solely as an accommodation to the Borrowers and at their request, and that the Agent, the Issuing Bank and the Banks shall incur no liability to the Borrowers as a result thereof. To induce the Agent, the Issuing Bank and the Banks to do so, and in consideration thereof, each of the Borrowers hereby agrees to indemnify each of the Agent, the Issuing Bank and the Banks and hold each such Person harmless from and against any and all liabilities, expenses, losses, damages or claims of damage or injury asserted against any such Person by any of the Borrowers or by any other Person arising form or incurred by reason of the handling by any of the Agent, the Issuing Bank or the Banks of the financing arrangement of the Borrowers as herein provided, reliance by any of the Agent, the Issuing Bank or the Banks on any requests or instructions from any Borrower, or any other related action taken by any of the Agent, the Issuing Bank or the Banks hereunder in the absence of gross negligence or willful misconduct. (e) Each Borrower represents and warrants to the Agent, the Issuing Bank and the Banks that the request for joint handling of the advances and other financial accommodations to be made by the Agent, the Issuing Banks and the Banks hereunder was made because the Borrowers are engaged in an integrated operation that requires financing on a basis permitting the availability of credit from time to time to each of the Borrowers. Each of the Borrowers expects to derive benefit, directly or indirectly, from such availability because the successful operation of the Borrowers is dependent on the continued successful performance of the functions of the integrated group. (f) Each of the Borrowers represents and warrants to the Agent, the Issuing Bank and the Banks that (i) such Borrower has established adequate means of obtaining from the other Borrowers on a continuing basis financial and other information pertaining to the business, operations, and condition (financial and otherwise) of the other Borrowers, and their property, and (ii) such Borrower now is and hereafter will be completely familiar with the business, operations and condition (financial and otherwise) of the other Borrowers, and their property. Each of the Borrowers hereby waives and relinquishes any duty on the part of any 11 17 of the Agent, the Issuing Bank or the Banks to disclose to such Borrower any matter, fact or thing relating to the business, operations or condition (financial or otherwise) of the other Borrowers, or the property of the other Borrowers, whether now or hereafter known by any of the Agent, the Issuing Bank or the Banks during the term of this Agreement. (g) Each Borrower acknowledges that the obligations of such Borrower undertaken herein might be construed to consist, at least in part, of the guaranty of obligations of Persons or entities other than such Borrower (including the other Borrowers party hereto and the Guarantors) and, in full recognition of that fact, each Borrower consents and agrees that the Agent may, at any time and from time to time, without notice or demand, except as otherwise required herein, whether before or after any actual or purported termination, repudiation or revocation of this Agreement by any one or more Borrowers, and without affecting the enforceability or continuing effectiveness hereof as to each Borrower, agree with one or more Borrowers or Guarantors to: (i) supplement, restate, modify, amend, increase, decrease, extend, renew, accelerate or otherwise change the time for payment or the terms of the Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon; (ii) supplement, restate, modify, amend, increase, decrease or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof, or any of the Loan Documents or any additional security or guarantees, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (iii) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof; (iv) accept partial payments on the Obligations; (v) receive and hold additional security or guarantees for the Obligations or any part hereof; (vi) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer or enforce any security or guarantees, and apply any security and direct the order or manner of the sale thereof as the Agent in its sole and absolute discretion may determine; (vii) release any Person from any personal liability with respect to the Obligations or any part thereof; (viii) settle, release on terms satisfactory to the Agent or by operation of applicable laws or otherwise liquidate or enforce any Obligations and any security therefor or guaranty thereof in any manner, consent to the transfer of any security and bid and purchase at any sale; or (ix) consent to the merger, change or any other restructuring or termination of the corporate or partnership existence of any Borrower or any other Person, and correspondingly restructure the Obligations, and any such merger, change, restructuring or termination shall not affect the liability of any Borrower or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Obligations. (h) Upon the occurrence and during the continuance of any Event of Default, the Agent may enforce this Agreement independently as to each Borrower and independently of any other remedy or security the Agent at any time may have or hold in connection with the Obligations, and it shall not be necessary for the Agent to marshal assets in favor of any Borrower or any other person or to proceed upon or against or exhaust any security or remedy before proceeding to enforce this Agreement. Each Borrower expressly waives any 12 18 right to require the Agent to marshal assets in favor of any Borrower or any other Person or to proceed against any other Borrower or any collateral provided by any Person, and agrees that the Agent may proceed against Borrowers or any Collateral in such order as it shall determine in its sole and absolute discretion. (i) The Agent may file a separate action or actions against any Borrower, whether such action is brought or prosecuted with respect to any security or against any other Person, or whether any other Person is joined in any such action or actions. Each Borrower agrees that the Agent and any Borrower and any Affiliate of any Borrower may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the continuing efficacy of this Agreement. Each Borrower expressly waives the benefit of any statute of limitations affecting its liability hereunder or the enforcement of the Obligations or any rights of the Agent, the Banks or the Issuing Bank created or granted herein. (j) The Agent's, the Banks' and the Issuing Bank's rights hereunder shall be reinstated and revived, and the enforceability of this Agreement shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by any of the Agent, any Bank or the Issuing Bank, all as though such amount had not been paid. The rights of the Agent, the Banks and/or the Issuing Bank created or granted herein and the enforceability of this Agreement at all times shall remain effective to cover the full amount of all the Obligations even though the Obligations, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any Borrower and whether or not any other Borrower shall have any personal liability with respect thereto. (k) To the maximum extent permitted by applicable law, each Borrower expressly waives any and all defenses now or hereafter arising or asserted by reason of (i) any disability or other defense of any other Borrower with respect to the Obligations, (ii) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations, (iii) the cessation for any cause whatsoever of the liability of any other Borrower (other than by reason of the full payment and performance of all Obligations), (iv) any failure of the Agent to marshal assets in favor of any Borrower or any other Person, (v) any failure of the Agent to give notice of sale or other disposition of collateral to any Borrower or any other Person or any defect in any notice that may be given in connection with any sale or disposition of collateral, (vi) any failure of the Agent to comply with applicable law in connection with the sale or other disposition of any Collateral or other security for any Obligation, including any failure of the Agent to conduct a commercially reasonable sale or other disposition of any Collateral or other security for any Obligation, (vii) any act or omission of any Bank or the Issuing Bank or others that directly or indirectly results in or aids the discharge or release of any of any Borrower, any Guarantor or the Obligations or any security or guaranty therefor 13 19 by operation of law or otherwise, (viii) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (ix) any failure of the Agent to file or enforce a claim in any bankruptcy or other proceeding with respect to any Person, (x) the election by the Agent of the application or non-application of Section 1111(b)(2) of the Bankruptcy Code, (xi) any extension of credit or the grant of any lien under Section 364 of the Bankruptcy Code, (xii) any use of cash collateral under Section 363 of the Bankruptcy Code, (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person, (xiv) the avoidance of any lien in favor of the Agent for any reason, or (xv) any action taken by the Agent, any Bank or the Issuing Bank that is authorized by this Section or any other provision of any Loan Document. Until such time, if any, as all of the Obligations have been paid and performed in full and no portion of any commitment of the Agent to any Borrower under any Loan Document remains in effect, no Borrower shall have any right of subrogation, contribution, reimbursement or indemnity, and each Borrower expressly waives any right to enforce any remedy that the Agent, any Bank or the Issuing Bank now has or hereafter may have against any other Person and waives the benefit of, or any right to participate in, any Collateral now or hereafter held by the Agent. Each Borrower expressly waives all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations, and all notices of acceptance of this Agreement or of the existence, creation or incurring of new or additional Obligations. (l) To the fullest extent permitted by applicable law, each Borrower expressly waives any suretyship defenses to the enforcement of this Agreement or any rights of any of the Agent, any Bank or the Issuing Bank created or granted hereby or to the recovery by any such Person against any Borrower, any Guarantor or any other Person liable therefor of any deficiency after a judicial or nonjudicial foreclosure or sale, even though such a foreclosure or sale may impair the subrogation rights of the Borrowers and may preclude the Borrowers from obtaining reimbursement or contribution from other Borrowers. Each Borrower expressly waives any defenses or benefits that may be derived pursuant to or from Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of the Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as amended, or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses it otherwise might or would have under Texas law or other applicable law. (m) The Borrowers and each of them warrant and agree that each of the waivers and consents set forth herein are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which the Borrowers otherwise may have against other Borrowers, the Guarantors, the Agent, the Banks, the Issuing Bank or others, or against Collateral, and that, under the 14 20 circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or law. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law. ARTICLE VI Yield Protection Section 1 Capital Adequacy. If after the date hereof, any adoption or implementation of any applicable law, rule, or regulation regarding capital adequacy (including, without limitation, any law, rule, or regulation implementing the Basle Accord), or any change therein, or any change in the interpretation or administration thereof by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or compliance by such Bank (or its parent) with any guideline, request, or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other Governmental Authority (including, without limitation, any guideline or other requirement implementing the Basle Accord), has or would have the effect of reducing the rate of return on such Bank's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which such Bank (or its parent) could have achieved but for such adoption, implementation, change, or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 10 Business Days after demand by the such Bank (with a copy to the Agent), the Borrowers agree to jointly and severally pay to such Bank (or its parent) such additional amount or amounts as will compensate such Bank for such reduction. Any such demand shall be accompanied by a certificate of such Bank claiming compensation under this Section and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be conclusive (absent manifest error), provided that the determination thereof is made on a reasonable basis. In determining such amount or amounts, such Bank may use any reasonable averaging and attribution methods. ARTICLE VII Security Section 1 Collateral. To secure full and complete payment and performance of the Obligations, the Borrowers shall execute and deliver or cause to be executed and delivered the documents described below covering the property and collateral described in this Section 7.1 each in form and substance satisfactory to the Agent, (which, together with any other property and collateral which may now or hereafter secure the Obligations or any part thereof, is sometimes herein called the "Collateral"): (a) Each of the Borrowers and the Guarantors shall grant to the Agent for the benefit of the Banks a first priority security interest in all of its respective domestic, and as 15 21 applicable, foreign, Data Library, accounts, accounts receivable, equipment, machinery, fixtures, inventory, chattel paper, documents, instruments, investment property (other than stock of Subsidiaries), goods, general intangibles and other property as more fully described in its, as applicable, respective Security Agreement, Charge Debenture (U.K.), or Charge Debenture (Malaysia), whether now owned or hereafter acquired, and all products and proceeds thereof, pursuant to such security documents. (b) The Borrowers and the Guarantors shall execute and cause to be executed such further documents and instruments, including without limitation, as applicable, Uniform Commercial Code financing statements, as the Agent, in its sole discretion, deems necessary or desirable to create, preserve, evidence, and perfect its liens and security interests in the Collateral. Section 2 Setoff. If an Event of Default shall have occurred and is continuing, the Agent, the Issuing Bank and each Bank are hereby authorized at any time and from time to time, without notice to any Borrower (any such notice being hereby expressly waived by the Borrowers), to set off and apply any and all deposits (general, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Issuing Bank, the Agent or such Bank to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement, the Notes, or any other Loan Document, irrespective of whether or not the Agent, the Issuing Bank or such Bank shall have made any demand under this Agreement, the Notes or any other Loan Document and although such obligations may be unmatured. The Issuing Bank, the Agent and each Bank agree promptly to notify such Borrower (with a copy to the Agent) after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights and remedies of the Issuing Bank, the Agent and each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Issuing Bank, the Agent and such Bank may have. ARTICLE VIII Conditions Precedent Section 1 Initial Advance. The obligation of each Bank to make any initial Advance and of the Issuing Bank to issue any initial Letter of Credit is subject to the condition precedent that the Agent shall have received on or before the day of such Advance or Letter of Credit issuance all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to the Agent: (a) Resolutions. Resolutions of the Board of Directors of each Borrower and each Guarantor certified by a Secretary or an Assistant Secretary of such Person which authorize the execution, delivery, and performance by such Person, as applicable, of this Agreement and the other Loan Documents to which such Person is or is to be a party; 16 22 (b) Incumbency Certificates. A certificate of incumbency certified by the Secretary or an Assistant Secretary of each Borrower and each Guarantor certifying the names of the officers of such Person authorized to sign, as applicable, this Agreement and each of the other Loan Documents to which such Person is or is to be a party (including the certificates contemplated herein) together with specimen signatures of such officers; (c) Articles of Incorporation. The articles of incorporation of each Borrower and each Guarantor certified by the Secretary of State of state of incorporation or, as applicable, the appropriate governmental official of any foreign jurisdiction of organization, of such Person and dated within 10 days prior to the date of any initial Advance or Letter of Credit issuance; (d) Bylaws. The bylaws or, as applicable, other similar organizational document of each Borrower and each Guarantor certified by the Secretary or an Assistant Secretary of such Person; (e) Governmental Certificates. Certificates of the appropriate government officials of the state of incorporation or, as applicable, foreign jurisdiction of organization, of each Borrower and each Guarantor as to the existence and account status of such Person, each dated within 10 days prior to the date of any initial Advance or Letter of Credit issuance; (f) Revolving Credit Notes. The Revolving Credit Notes executed by the Borrowers; (g) Term Notes. The Term Notes executed by the Borrowers; (h) Security Agreements. A Security Agreement, Charge Debenture (U.K.) or Charge Debenture (Malaysia), executed, as applicable, by the Borrowers and the Guarantors; (i) Trademark Assignment. A trademark assignment executed by Digicon in form and substance satisfactory to the Agent; (j) Patent Assignment. A patent assignment executed by Digicon in form and substance satisfactory to the Agent; (k) Financing Statements. Uniform Commercial Code financing statements executed by the Borrowers and Euroseis and covering such Collateral as the Lender may request; (l) Guaranties. A Guaranty executed by each Guarantor; (m) Lockbox Agreements. A Lockbox Agreement executed by each of Digicon, Geophysical Corp., GFS and Geophysical Limited; 17 23 (n) Insurance Policies. Copies of all insurance policies or a certificate reflecting the insurance coverages required by Section 10.5, together with loss payable endorsements in favor of the Agent with respect to all insurance policies covering Collateral; (o) UCC Searches. The results of a Uniform Commercial Code search showing all financing statements and other documents or instruments on file against any of the domestically incorporated Borrowers and Guarantors in the offices of the Secretary of State of the States of Texas, Delaware, and Mississippi, as applicable, such searches to be as of a date no more than 10 days prior to the date of any initial Advance or Letter of Credit issuance; (p) Foreign Searches. The results of a company registry search for Geophysical Limited in England and Wales and Digicon (Malaysia) in the Federation of Malaysia; (q) Opinions of Counsel. A favorable opinion of: (i) Porter & Hedges, legal counsel to the Borrowers and the Guarantor in such form as the Agent may request; (ii) Baker & McKenzie, legal counsel to Geophysical Limited, in such form as the Agent may request; and (iii) Skrine & Co., legal counsel to the Guarantor, in such form as the Agent may request; (r) Facilities Fee. Evidence satisfactory to the Agent that the Borrowers have paid the $75,000 facilities fee required hereunder to the Agent; (s) Payoff of Other Debt/Releases. Evidence satisfactory to the Agent that the Borrowers have made arrangements satisfactory to the Agent to (i) repay in full all (1) Debt of the Borrowers outstanding to Foothill Capital Corporation and (2) Debt of Digicon to Hanseatic Corporation, as agent, and (ii) to obtain all releases and terminations as requested by the Agent; (t) Collateral Audit. The Agent shall have conducted a satisfactory pre-closing collateral audit and accounts receivable systems review, the costs and expenses of which must have been paid by the Borrowers; (u) Fiscal 1996 and 1997 Financial Projections. The Agent shall have received and approved in its sole discretion financial projections for Digicon and the Subsidiaries for fiscal years 1996 and 1997; 18 24 (v) Borrowing Base Report. A Borrowing Base Report satisfactory to the Agent in its sole discretion executed by the Borrowers dated as of the date hereof; and (w) Attorneys' Fees and Expenses. Evidence that the costs and expenses (including attorneys' fees) referred to in Section 15.1, to the extent incurred, shall have been paid in full by the Borrowers, or arrangements satisfactory to the Agent shall have been made for payment thereof. Section 2 All Advances. The obligation of each Bank to make any Advance (including any initial Advance) and of the Issuing Bank to issue any Letter of Credit (including any initial Letter of Credit) is subject to the following additional conditions precedent: (a) Advance Request Form. The Agent shall have received, in accordance with the applicable terms hereof, an appropriate Advance Request Form, executed by an authorized officer of the Borrowers; (b) No Default. No Default shall have occurred and be continuing, or would result from such Advance and/or Letter of Credit issuance, as applicable; (c) Representations and Warranties. All of the representations and warranties contained in Article IX hereof and in the other Loan Documents shall be true and correct on and as of the date of such Advance and/or Letter of Credit issuance, as applicable with the same force and effect as if such representations and warranties had been made on and as of such date; and (d) Additional Documentation. The Agent shall have received such additional approvals, opinions, or documents as the Agent or its legal counsel, Winstead Sechrest & Minick P.C., may request. ARTICLE IX Representations and Warranties To induce the Agent, the Issuing Bank and the Banks to enter into this Agreement, each of the Borrowers, jointly and severally, represents and warrants to each such Person that: Section 1 Corporate Existence. Each of the Borrowers and each Guarantor (a) is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a material adverse effect on its business, condition (financial or otherwise), operations, prospects, or properties. Each of the Borrowers and each Guarantor has the corporate 19 25 power and authority to execute, deliver, and perform its obligations under this Agreement and the other Loan Documents to which it is or may become a party. Section 2 Financial Statements. Digicon has delivered to the Agent audited consolidated financial statements of Digicon and its Subsidiaries as at and for the fiscal year ended July 31, 1995 and unaudited consolidated financial statements of Digicon and its Subsidiaries for the nine-month period ended April 30, 1996. Such financial statements are true and correct, have been prepared in accordance with GAAP, and fairly and accurately present, on a consolidated basis, the financial condition of Digicon and its Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. Neither Digicon nor any of its Subsidiaries has any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments except as referred to or reflected in such financial statements. There has been no material adverse change in the business, condition (financial or otherwise), operations, prospects, or properties of Digicon or any of its Subsidiaries since the effective date of the most recent financial statements referred to in this Section. Section 3 Corporate Action; No Breach. The execution, delivery, and performance by the Borrowers of this Agreement and the other Loan Documents to which any of the Borrowers is or may become a party and compliance with the terms and provisions hereof and thereof have been duly authorized by all requisite corporate action on the part of such Borrower and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation or bylaws or other organizational documents of Digicon or any of the Subsidiaries, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any agreement or instrument to which Digicon or any of the Subsidiaries is a party or by which any of them or any of their property is bound or subject, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien (except as provided in Article VII) upon any of the revenues or assets of Digicon or any Subsidiary. Section 4 Operation of Business. Digicon and each of its Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and Digicon and each of its Subsidiaries are not in violation of any valid rights of others with respect to any of the foregoing in any respect that could reasonably be expected to have a Material Adverse Effect. Section 5 Litigation and Judgments. Except as disclosed on Schedule 9.5 hereto, there is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of Digicon, threatened against or affecting Digicon or any Subsidiary, that would, if adversely determined, have a Material Adverse Effect. There are no outstanding judgments against Digicon or any Subsidiary. 20 26 Section 6 Rights in Properties; Liens. Digicon and each Subsidiary have good and indefeasible title to or valid leasehold interests in all material respects in their respective properties and assets, real and personal, including the properties, assets, and leasehold interests reflected in the financial statements described in Section 9.2, and none of the properties, assets, or leasehold interests of Digicon or any Subsidiary is subject to any Lien, except as permitted by Section 11.2. Section 7 Enforceability. This Agreement constitutes, and the other Loan Documents to which any of the Borrowers is party, when delivered, shall constitute legal, valid, and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors' rights and by general equitable principles. Section 8 Approvals. No authorization, approval, or consent of, and no filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by any Borrower of this Agreement and the other Loan Documents to which any such Borrower is or may become a party or the validity or enforceability thereof, except for (a) filings and recordings in respect of the Liens created pursuant to Loan Documents, (b) those which have been obtained or made prior to the date hereof, and (c) authorizations, approvals, consents, filings and registrations to be made in the ordinary course of business in connection with such Borrower's performance of its obligations hereunder. Section 9 Debt. Digicon and its Subsidiaries have no Debt, except as disclosed on Schedule 9.9 hereto. Section 10 Taxes. Digicon and each Subsidiary have filed all tax returns (federal, state, local and foreign) required to be filed, including all income, franchise, employment, property, and sales tax returns, and have paid all of their respective liabilities for taxes, assessments, governmental charges, and other levies that are due and payable. The Borrowers know of no pending investigation of Digicon or any Subsidiary by any taxing authority or of any pending but unassessed tax liability of Digicon or any Subsidiary. Section 11 Use of Proceeds; Margin Securities. Neither Digicon nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Section 12 ERISA. Digicon and each Subsidiary are in compliance in all material respects with all applicable provisions of ERISA and the applicable provisions of the Code relating thereto. No Reportable Event which is required to be reported to the PBGC pursuant to Section 4043(b) of ERISA or Prohibited Transaction which could reasonably be expected to have a Material Adverse Effect has occurred and is continuing with respect to any Plan. No notice of intent to terminate a 21 27 Plan has been filed, nor has any Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Neither any Borrower nor any ERISA Affiliate (nor any predecessor to either a Borrower or any ERISA Affiliate) has completely or partially withdrawn from a Multiemployer Plan. Each Borrower and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA. Neither any Borrower nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. Section 13 Disclosure. No statement, information, report, representation, or warranty made by any Borrower in this Agreement or in any other Loan Document or furnished to the Agent or any Bank in connection with this Agreement or any of the transactions contemplated hereby (but excluding all projections and proforma financial statements which shall have been prepared in good faith and based upon reasonable assumptions) contains any untrue statement of a material fact and all such statements, information, reports, representations and warranties, taken as a whole, do not omit to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to any Borrower which has a Material Adverse Effect, or which could reasonably be expected to have, in the reasonable judgment of any Borrower, in the future a Material Adverse Effect, that has not been disclosed in writing to the Agent. Section 14 Subsidiaries. Digicon has no Subsidiaries other than those listed on Schedule 9.14 hereto, and Schedule 9.14 sets forth the jurisdiction of incorporation of each Subsidiary and the percentage of Digicon's and its Subsidiaries' ownership of the outstanding voting stock of each such Subsidiary. All of the outstanding capital stock of each Subsidiary has been validly issued, is fully paid, and is nonassessable. Section 15 Agreements. Neither Digicon, any Borrower nor any Guarantor is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither Digicon, any Borrower nor any Guarantor is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party where such default or the effect thereof could reasonably be expected to result in a Material Adverse Effect. Section 16 Compliance with Laws. Neither Digicon nor any Subsidiary is in violation of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator except where such Person's failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 17 Inventory. All inventory that is produced by the Borrowers has been and will hereafter be produced in compliance with all applicable laws, rules, regulations, and governmental standards, domestic and foreign, including, without limitation, the minimum wage and overtime 22 28 provisions of the Fair Labor Standards Act, as amended (29 U.S.C. Section Section 201-219), and the regulations promulgated thereunder except where such Person's failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 18 Investment Company Act. Neither Digicon nor any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 19 Public Utility Holding Company Act. Neither Digicon nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 20 Environmental Matters. Except as disclosed on Schedule 9.20 hereto: (a) Digicon, each Subsidiary, and all of their respective properties, assets, and operations are in full compliance with all Environmental Laws, except for occurrences of noncompliance which could not individually, or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Borrowers are not aware of, nor has any Borrower received notice of, any past, present, or future conditions, events, activities, practices, or incidents which may interfere with or prevent the compliance or continued compliance of Digicon and the Subsidiaries with all Environmental Laws, except for occurrences of noncompliance which could not individually, or in the aggregate, reasonably be expected to have a Material Adverse Effect; (b) Digicon and each Subsidiary have obtained all permits, licenses, and authorizations that are required under applicable Environmental Laws, and all such permits are in good standing and Digicon and its Subsidiaries are in compliance with all of the terms and conditions of such permits, except where failure to obtain or comply with such permits, licenses or authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (c) No Hazardous Materials exist on, about, or within or have been used, generated, stored, transported, disposed of on, or Released from any of the properties or assets of Digicon or any Subsidiary except (i) in amounts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect and (ii) for dynamite and other explosives for which such Person possesses all licenses and permits necessary to comply with all Environmental Laws and other federal, state, local and foreign laws, regulations and requirements pertaining to the use, possession, disposal, storage or sale thereof, and such use, possession, disposal, storage or sale thereof is in compliance with Environmental Laws and such other laws, regulations and requirements except where failure to obtain or comply with such licenses or permits or to comply with such laws, regulations or requirements could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The use which Digicon and the Subsidiaries make and intend to 23 29 make of their respective properties and assets will not result in the use, generation, storage, transportation, accumulation, disposal, or Release of any Hazardous Material on, in, or from any of their properties or assets except (i) in amounts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect and (ii) for dynamite and other explosives for which such Person possesses all licenses and permits necessary to comply with all Environmental Laws and other federal, state, local and foreign laws, regulations and requirements pertaining to the use, possession, disposal, storage or sale thereof, and such use, possession, disposal, storage or sale thereof is in compliance with Environmental Laws and such other laws, regulations and requirements, except where failure to comply with such laws, regulations or requirements could not, individually or int he aggregate reasonably be expected to have a Materially Adverse Effect; (d) Neither Digicon nor any of its Subsidiaries nor any of their respective currently or previously owned or leased properties or operations is subject to any outstanding or, to the best of its knowledge, threatened order from or agreement with any Governmental Authority or other Person or subject to any judicial or docketed administrative proceeding with respect to (i) failure to comply with Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities arising from a Release or threatened Release, which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (e) There are no conditions or circumstances associated with the currently or previously owned or leased properties or operations of Digicon or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect; (f) Neither Digicon nor any of its Subsidiaries is a treatment, storage, or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., regulations thereunder or any comparable provision of state law. Digicon and its Subsidiaries are in compliance with all applicable financial responsibility requirements of all Environmental Laws except where failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect; (g) Neither Digicon nor any of its Subsidiaries has filed or failed to file any notice required under applicable Environmental Law reporting a Release, which Release or any aggregation thereof, or failure to file, could reasonably be expected to have a Material Adverse Effect; and (h) To the best of Digicon's and the other Borrowers' knowledge, no Lien arising under any Environmental Law has attached to any property or revenues of Digicon or its Subsidiaries. 24 30 ARTICLE X Positive Covenants The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder or the Issuing Bank has any obligation to issue any Letter of Credit hereunder or any Letter of Credit Liabilities exist, each of the Borrowers, jointly and severally, will perform and observe the following positive covenants: Section 1 Reporting Requirements. The Borrowers will furnish to the Agent, the Issuing Bank and the Banks: (a) Annual Financial Statements. As soon as available, and in any event within 120 days after the end of each fiscal year of Digicon, beginning with the fiscal year ending July 31, 1996, (i) a copy of the annual audit report of Digicon and the Subsidiaries for such fiscal year containing, on a consolidated basis, balance sheets and statements of operations, cash flow and changes in stockholders equity as at the end of such fiscal year and for the 12-month period then ended, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited by, and accompanied by the report of, Deloitte & Touche LLP, or other independent certified public accountants of recognized standing acceptable to the Agent, to the effect that such report has been prepared in accordance with GAAP; and (ii) a certificate of such independent certified public accountants to the Agent (A) stating that to their knowledge no Default has occurred and is continuing, or if in their opinion a Default has occurred and is continuing, a statement as to the nature thereof, and (B) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith; (b) Quarterly 10-Q of Digicon. As soon as available, and in any event within 30 days after filing deadline therefor, a copy of the 10-Q Quarterly Reports of Digicon filed with the Securities and Exchange Commission or any successor agency; (c) Certificate of No Default/Compliance. Concurrently with the delivery of each of the financial statements or 10-Qs, as applicable, referred to in subsections 10.1(a) and 10.1(b), a Compliance/Certificate of No Default of the chief financial officer, the chief accounting officer or the treasurer of Digicon (i) stating, among other things, that no Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) showing in reasonable detail the calculations demonstrating compliance with Article XII; (d) Annual Projected Financial Statements and Capital Expenditure Projections. Concurrently with the delivery of the financial statements referred to in subsection 10.1(a) above, projected financial statements for the upcoming fiscal year of Digicon and its Subsidiaries, including projected capital expenditures, in form and detail satisfactory to the 25 31 Agent and prepared under the supervision of the chief financial officer or the chief accounting officer of Digicon; (e) Monthly Borrowing Base Report/Agings. As soon as available, and in any event within 45 days after the end of each calendar month or such other request of the Agent, a Borrowing Base Report in form and detail satisfactory to the Agent, including, without limitation, (i) a reconciliation of accounts receivable including a calculation and description of all accounts which are not or should not be included in the definition of "Eligible Domestic/Domestic Accounts," "Eligible Domestic/Foreign Accounts" or "Eligible Foreign/Foreign Accounts" and (ii) detailed agings of accounts receivable and accounts payable, all certified by the chief financial officer, the chief accounting officer or the treasurer of Digicon; (f) Address List for Account Debtors. Within 15 days after the request therefor by the Agent, an address list for all of the Borrowers' and the Guarantors' account debtors in form and detail satisfactory to the Agent; (g) Management Letters. Promptly upon receipt thereof, a copy of any management letter or written report submitted to Digicon by independent certified public accountants with respect to the business, condition (financial or otherwise), operations, prospects, or properties of Digicon and the Subsidiaries; (h) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any Governmental Authority or arbitrator affecting Digicon or any Subsidiary which could, in the opinion of the management of Digicon, reasonably be expected to have a Material Adverse Effect; (i) Notice of Default. As soon as possible and in any event within 15 days after any of the chief executive officer, the chief financial officer, the chief accounting officer, the treasurer or any other employee serving in a comparable capacity (regardless of title) of any Borrower or Guarantor obtains any knowledge, becomes aware or should have known through the exercise of prudent business judgment of the occurrence of any Default, a written notice setting forth the details of such Default and the action that the Borrowers have taken and propose to take with respect thereto; (j) ERISA Reports. Upon the request of the Agent from time to time copies of all reports, including annual reports, and notices which Digicon or any Subsidiary files with or receives from the PBGC, the U.S. Department of Labor under ERISA or the Internal Revenue Service under the Code; and as soon as possible and in any event within five days after Digicon or any Subsidiary knows or has reason to know that any Reportable Event which is required to be reported to the PBGC pursuant to Section 4043 (b) of ERISA or Prohibited Transaction which could be reasonably expected to have a Material Adverse Effect has occurred with respect to any Plan or that the PBGC or Digicon or any Subsidiary has 26 32 instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, a certificate of the chief financial officer of Digicon setting forth the details as to such Reportable Event or Prohibited Transaction or Plan termination and the action that the Borrowers propose to take with respect thereto; (k) Notice of Material Adverse Change. As soon as possible and in any event within 15 days after any of the chief executive officer, the chief financial officer, the chief accounting officer, the treasurer or any other employee serving in a comparable capacity (regardless of title) of any other Borrower or any Guarantor obtains any knowledge, becomes aware or should have known through the exercise of prudent business judgment of the occurrence thereof, written notice of any matter that could reasonably be expected to have a Material Adverse Effect; (l) Proxy Statements, Etc. As soon as available, one copy of each financial statement, report, notice or proxy statement sent by Digicon or any Subsidiary to its stockholders generally and one copy of each regular, periodic or special report, registration statement, or prospectus, including, without limitation, each Form 10-K Annual Report and each 8-K Current Report, filed by Digicon or any Subsidiary with the Securities and Exchange Commission or any successor agency or with any securities exchange; and (m) General Information. Promptly, such other information concerning Digicon or any Subsidiary as the Agent or any Bank may from time to time reasonably request. Section 2 Maintenance of Existence; Conduct of Business. Except as provided in Section 11.3, each Borrower will preserve and maintain, and will cause each Guarantor to preserve and maintain, its corporate existence and all of its leases, privileges, licenses, permits, franchises, qualifications, and rights that are necessary or desirable in the ordinary conduct of its business, except if (a) in the reasonable business judgment of such Borrower or such Guarantor, as applicable, it is in the best economic interest not to preserve and maintain such rights and franchises, and (b) such failure to preserve and maintain such leases, privileges, licenses, permits, franchises, qualifications and rights could not reasonably be expected to have a Material Adverse Effect. Each Borrower will conduct, and will cause each Subsidiary to conduct, its businesses in an orderly and efficient manner in accordance with good business practices. Section 3 Maintenance of Properties. Each Borrower will maintain, keep, and preserve, and cause each Subsidiary to maintain, keep, and preserve, in all material respects, all of its properties (tangible and intangible) necessary in the proper conduct of its business in good working order and condition. Section 4 Taxes and Claims. Each Borrower will pay or discharge, and will cause each Subsidiary to pay or discharge, at or before maturity or before becoming delinquent all taxes, levies, assessments, and governmental charges imposed on it or its income or profits or any of its property; provided, however, that neither the Borrowers nor any Subsidiary shall be required to pay or 27 33 discharge any tax, levy, assessment, or governmental charge which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established. Section 5 Insurance. Each Borrower will maintain, and will cause each of the Subsidiaries to maintain, insurance with financially sound and reputable insurance companies in such amounts and covering such risks as is usually carried by corporations engaged in similar businesses and owning similar properties in the same general areas in which the Borrowers and the Subsidiaries operate, provided that in any event each Borrower will maintain and cause each Subsidiary to maintain workmen's compensation insurance, property insurance, comprehensive general liability insurance, and business interruption insurance with respect to processing centers in accordance with Borrowers' current practices reasonably satisfactory to the Agent. Each insurance policy covering Collateral shall name the Agent as additional insured and as loss payee for the benefit of the Banks and the Issuing Bank and shall provide that such policy will not be cancelled or reduced without 10 days prior written notice to the Agent. Except upon the occurrence and during the continuance of an Event of Default, any loss payable pursuant to any such policy of insurance shall be payable to the Borrowers as their interests may appear. Upon the occurrence and during the continuance of an Event of Default any such loss shall be payable to the Agent and may be applied (and upon the request of the Borrower incurring such loss any such loss shall be applied) to the Obligations. Section 6 Inspection Rights. At any reasonable time during business hours and from time to time, each Borrower will permit, and will cause each Subsidiary to permit, representatives of the Agent, the Banks and the Issuing Bank to examine, copy, and make extracts from its books and records, to visit and inspect its properties, and to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants. Section 7 Keeping Books and Records. Each Borrower will maintain, and will cause each Subsidiary to maintain, proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities. Section 8 Compliance with Laws. Each Borrower will comply, and will cause each Subsidiary to comply with all applicable laws, rules, regulations, orders, and decrees of any Governmental Authority or arbitrator if its failure to comply could reasonably be expected to result in a Material Adverse Effect. Section 9 Compliance with Agreements. Each Borrower will comply, and will cause each Subsidiary to comply with all agreements, contracts, and instruments binding on it or affecting its properties or business if its failure to comply could reasonably be expected to result in a Material Adverse Effect. Section 10 Further Assurances. Each Borrower will, and will cause each Subsidiary to, execute and deliver such further agreements and instruments and take such further action as may be 28 34 requested by the Lender to carry out the provisions and purposes of this Agreement and the other Loan Documents and to create, preserve, and perfect the Liens of the Agent in the Collateral. Section 11 ERISA. Each Borrower will comply, and will cause each Subsidiary to comply, with all minimum funding requirements, and all other material requirements, of ERISA and the applicable provisions of the Code relating thereto, if applicable, so as not to give rise to any liability thereunder if its failure to comply could reasonably be expected to result in a Material Adverse Effect. Section 12 Annual Collateral and Systems Review. At any reasonable time and from time to time, upon reasonable notice to the Borrowers, not more than once during any fiscal year of Digicon (unless a Default or Event of Default then exists, in which case such reviews shall not be so limited), the Borrowers will permit, and the Borrowers will cause each Guarantor to permit, the Agent and its representatives, at the sole cost and expense of such Borrower or such Guarantor, as applicable, not to exceed $5,000 per annum in the aggregate as to the Borrowers and the Guarantors taken as a group if no Default exists, to conduct an audit of the accounts receivable of the Borrowers and the Guarantors and reviews of accounts receivable control systems of the Borrowers and the Guarantors, and in connection therewith, examine, copy, and make extracts from the Borrowers' and the Guarantors' books and records, to visit and inspect its properties and facilities. Section 13 Lockboxes. (a) Each of Digicon, Geophysical Corp. and GFS will direct its respective account debtors to send all payments on their accounts to the appropriate Domestic Lockbox, or if payment is to be made by wire transfer to such Person, then to the appropriate Domestic Lockbox Account. (b) Geophysical Limited will direct its account debtors to send all Dollar denominated payments on their accounts to the appropriate U.K. Lockbox, or if payment is to be made by wire transfer to such Person, then to the appropriate U.K. Lockbox Account. (c) Borrowers will deliver to the Agent, at the Agent's request, copies of all letters and/or sales invoices from such Person to its account debtors directing that accounts be paid into such Lockbox and/or Lockbox Account. Section 14 Contracts. (a) The Borrowers shall disclose to the Agent in writing any express rights of offset arising under geophysical or seismic service contracts of any of the Borrowers or the Guarantors and under amendments, modifications, addenda, or supplements thereto. 29 35 (b) The Borrowers shall disclose each geophysical or seismic service contract to which any Borrower or the Guarantors shall hereafter become a party, and each amendment, supplement, addendum, or modification hereafter made to any existing geophysical or seismic service contract, that contains an express provision that restricts such Person from freely assigning its rights to payment under such contract. (c) To the extent practicable, each Borrower will use reasonable efforts to select, and shall cause each Guarantor to use reasonable efforts to select, as the choice of law to govern future geophysical or seismic service contracts to which such Person is a party, the law of a state of the United States, England, or a foreign jurisdiction that permits free transferability of the rights to payment under such contracts. (d) Within 15 days after the request by the Agent the Borrowers shall provide the Agent with true and complete copies of all existing geophysical and seismic service contracts to which any Borrower or any Guarantor is a party and that provide for aggregate consideration payable to such Person in excess of $1,000,000, and all future amendments, supplements, addenda, or modifications to any such existing or future geophysical or seismic service contract. ARTICLE XI Negative Covenants The Borrowers jointly and severally covenant and agree that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder or the Issuing Bank has any obligation to issue any Letter of Credit hereunder or any Letter of Credit Liabilities exist, each of the Borrowers, jointly and severally, will observe the following negative covenants: Section 1 Debt. No Borrower will incur, create, assume, or permit to exist, and will permit any Guarantor to incur, create, assume, or permit to exist, any Debt, except: (a) Debt and Contingent Liabilities to the Agent, the Banks and the Issuing Banks pursuant to the Loan Documents; (b) Purchase money Debt incurred solely for the purpose of financing the acquisition of fixed assets so long as Borrowers are and remain in compliance with all of the terms and conditions hereof including without limitation Section 12.3; 30 36 (c) Existing Debt and Contingent Liabilities described on Schedule 9.9 hereto; (d) Extensions, renewals or replacements of Debt permitted by clauses (b) and (c) above provided that no such extension, renewal or replacement shall (i) if such Debt is Subordinated Debt, amend or modify any subordination provisions, if any, contained in the original Debt so that the Debt, as extended, renewed or replaced, is not longer Subordinated Debt, or (ii) shorten the fixed maturity or increase the principal amount of, or increase the rate of interest to a rate greater than the current market rate at the time of the extension, renewal or replacement of the original Debt; (e) Debt (without duplication) of the type described in sub-clauses (f) and (h) in the definition of Debt (other than (i) Funded Debt and (ii) Contingent Liabilities unless the primary obligor is Digicon or one of its Subsidiaries) incurred in the ordinary course of business; (f) Subordinated Indebtedness; and (g) Additional Debt in an aggregate principal amount not to exceed $5,000,000 at any time outstanding. Section 2 Limitation on Liens. The Borrowers will not incur, create, assume, or permit to exist, and will not permit any Guarantor to incur, create, assume, or permit to exist, any Lien upon any of their respective properties, assets, or revenues, whether now owned or hereafter acquired, except the following (herein referred to as "Permitted Liens"): (a) Liens disclosed on Schedule 11.2 hereto; (b) Liens in favor of the Agent for the benefit of the Banks and the Issuing Bank; (c) Encumbrances consisting of minor easements, zoning restrictions, or other restrictions on the use of property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of the Borrowers or the Subsidiaries to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (d) Liens for taxes, assessments, or other governmental charges which are not delinquent for longer than 90 days or which are being contested in good faith and for which adequate reserves have been established; (e) Liens of landlords, tenants, vendors, mechanics, materialmen, warehousemen, carriers, or other similar statutory Liens securing obligations that are not delinquent for longer 31 37 than 90 days and are incurred in the ordinary course of business or which are being contested in good faith and for which adequate reserves have been established; (f) Liens resulting from good faith deposits to secure payments of workmen's compensation or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, or contracts (other than for payment of Debt), or leases made in the ordinary course of business; (g) Liens on property securing purchase money Debt permitted by Section 11.1 incurred solely for the purpose of financing the acquisition of such property; and (h) Licenses of surveys or portions thereof in the Data Library to others in the ordinary course of business. Section 3 Mergers, Dissolutions, Etc. The Borrowers will not, and will not permit any Guarantor to, become a party to a merger or consolidation, or sell all or substantially all of their assets or wind-up, dissolve, or liquidate except (a) the Combination, (b) any Borrower or any Guarantor may be merged or consolidated with or into another Borrower or another Guarantor, as applicable (provided that a Borrower shall be the continuing or surviving corporation) and (c) any Borrower or any Guarantor may liquidate or dissolve itself if, in connection therewith, all of its assets are transferred to a Borrower. Section 4 Restricted Payments. Digicon will not declare or pay any Dividends (other than Dividends payable in common stock of Digicon) without the prior written approval of the Agent or make any other payment or distribution (in cash, property, or obligations) on account of its capital stock, or redeem, purchase, retire, or otherwise acquire any of its capital stock, or permit any of their respective Subsidiaries to purchase or otherwise acquire any capital stock of Digicon or another Subsidiary, or set apart any money for a sinking or other analogous fund for any dividend or other distribution on its capital stock or for any redemption, purchase, retirement, or other acquisition of any of its capital stock. Section 5 Loans and Investments. The Borrowers will not make, and will not permit any Guarantor to make, any advance, loan, extension of credit, or capital contribution to or investment in, or purchase, or permit any Guarantor to purchase, any stock, bonds, notes, debentures or other securities of, any Person, except: (a) advances or loans to, or investments in, Subsidiaries (other than the Borrowers and the Guarantors) not to exceed $5,000,000 in the aggregate at any time outstanding (net of repayments of advances and loans by such Subsidiaries taken as a group and of returns on such investments) plus the proceeds of equity offerings after the date hereof; (b) the non-cash allocation of overhead by Digicon to its various Subsidiaries in accordance with its historical practices; 32 38 (c) investments in and loans and advances by one Borrower or one Guarantor to another Borrower or, as applicable, another Guarantor; (d) acquisitions of stock or assets, individually or in the aggregate, during the term hereof, less than $25,000,000 in total purchase price (including assumed liabilities), whether for cash, debt, stock or other property, or any combination thereof; (e) the Combination; (f) extensions of credit to customers in the ordinary course of business; (g) stocks, bonds, notes, debentures and other securities accepted from customers in connection with good faith work-outs of past due receivables or in bankruptcy, insolvency or similar proceedings; (h) loans and advances to employees of Digicon or any Subsidiary for travel, entertainment and relocation expenses incurred in the ordinary course of business; (i) the making or acquisition of beneficial interests in, or the making of loans, advances or capital contributions to, one or more joint ventures as to which Digicon or any Subsidiary is a venturer, so long as such joint ventures are formed for the purpose of operating seismic data acquisition or processing businesses, in an aggregate principal amount not to exceed $3,000,000 at any time outstanding; (j) any bonds or other obligations of the United States of America which, as to principal and interest, constitute direct obligations or are guaranteed by the United States of America; (k) any bonds, debentures, participation certificates, notes or other obligations of any agency or corporation or instrumentality of the United States of America, the obligations of which are unconditionally guaranteed by the United States of America; (l) obligations of a state, territory or possession of the United States, the interest on which is excluded from gross income for federal income taxation purposes and which bear a rating in one of the two highest rating categories by Standard & Poor's Corporation or Moody's Investors Service; (m) interest bearing accounts, interest bearing deposits, eurodollar investments, or certificates of deposit issued by or bankers acceptances drawn or accepted by, banks or trust companies, including the Agent, organized under the laws of the United States or any state thereof, but only with institutions whose capital and surplus is in excess of $50,000,000; 33 39 (n) commercial paper, floating rate notes or master notes rated A-2 or better by Standard & Poor's Corporation or P-2 or better by Moody's Investors Service; (o) repurchase agreements collateralized by obligations issued or guaranteed as to the payment of principal and interest by the full faith and credit of the United States; (p) units of taxable money market mutual funds comprised of obligations described in (j) through (o) above; and (q) loans, advances, extensions of credit, capital contributions to or investments in, or purchases of stocks, bonds, notes, debentures, or other securities in an aggregate principal amount not to exceed $2,000,000 at any time outstanding. Section 6 Transactions With Affiliates. The Borrowers will not enter into, and will not permit any Guarantor to enter into, any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate of any Borrower or any Guarantor, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Guarantor's business and upon fair and reasonable terms no less favorable to such Borrower or such Guarantor's than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of such Borrower or such Guarantor; provided that the foregoing shall not prohibit the Borrowers or the Guarantors from entering into management contracts with Affiliates upon fair and reasonable terms in the ordinary course of business or from entering into transactions permitted by this Agreement. Section 7 Disposition of Assets. The Borrowers will not sell, lease, assign, transfer, or otherwise dispose of any of their assets, or permit any Guarantor to do so with any of its assets, except (a) licensing of surveys in the Data Library in the ordinary course of business, (b) dispositions of inventory in the ordinary course of business, and, (c) so long as no Event of Default has occurred and is continuing, isolated dispositions of tangible personal property of the Borrowers (not including the Data Library) that do not exceed $250,000 individually or that do not aggregate in excess of $1,000,000, in each case per annum. Section 8 Sale and Leaseback. The Borrowers will not enter into, and will not permit any Guarantor to enter into, any arrangement with any Person pursuant to which any of them leases from such Person real or personal property that has been or is to be sold or transferred, directly or indirectly, by any of them to such Person, except that the Borrowers and the Guarantors may enter into such arrangements as financing techniques affecting assets acquired after the date hereof to the extent permitted by Section 11.1 hereof. Section 9 Nature of Business. The Borrowers will not, and will not permit any Guarantor to, engage in any business other than the businesses in which they are engaged as of the date hereof and other businesses reasonably related thereto. 34 40 Section 10 Environmental Protection. If, as a result thereof, a Material Adverse Effect could be reasonably be expected to result therefrom, the Borrowers will not, and will not permit any Guarantor to, (a) use (or permit any tenant to use) any of their respective properties or assets for the handling, processing, storage, transportation, or disposal of any Hazardous Material except in compliance with Environmental Law, (b) generate any Hazardous Material except in compliance with Environmental Law, (c) conduct any activity that is likely to cause a Release or threatened Release of any Hazardous Material, or (d) otherwise conduct any activity or use any of their respective properties or assets in any manner that is likely to violate any Environmental Law or create any Environmental Liabilities for which any Borrower or any of the Subsidiaries would be responsible. Section 11 Accounting. The Borrowers will not, and will not permit any of their respective Subsidiaries to, change its fiscal year or make any change (a) in accounting treatment or reporting practices, except as required by GAAP and disclosed to the Agent, the Banks and the Issuing Banks, or (b) in tax reporting treatment, except as required by law and disclosed to the Agent, the Banks and the Issuing Banks. Section 12 Contracts. The Borrowers will not, and will not permit any Guarantor to, assign the rights to payment under a geophysical or seismic service contract to any Person, other than to the Agent. ARTICLE XII Financial Covenants The Borrowers jointly and severally covenant and agree that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder or the Issuing Bank has any obligation to issue Letters of Credit hereunder or any Letter of Credit Liabilities exist, the Borrowers jointly and severally will observe and perform the following financial covenants: Section 1 Consolidated Tangible Net Worth. Digicon will maintain Consolidated Tangible Net Worth, in an amount not less than $64,000,000 less expenses and asset writedowns incurred or made, as applicable, in connection with the Combination and other mergers permitted under Section 11.3, from the date hereof throughout the remainder of the term of this Agreement. Section 2 Cash Flow Coverage Ratio. Digicon and its Subsidiaries will at all times maintain on a consolidated basis a Cash Flow Coverage Ratio, calculated quarterly as at the end of each January, April, July and October, of at least 1.30 to 1.00. Section 3 Funded Debt to Capitalization Ratio. Digicon and its Subsidiaries will at all times maintain on a consolidated basis a Funded Debt to Capitalization Ratio, calculated quarterly as at the end of each January, April, July and October, of not greater than 0.50 to 1.00 from the date hereof throughout the remaining term of this Agreement. 35 41 Section 4 Capital Expenditures. Digicon will not permit the aggregate capital expenditures, calculated on a consolidated basis, of Digicon and the Subsidiaries to exceed $25,000,000 during any fiscal year of Digicon plus amounts financed through equity offering proceeds received after the date hereof during such fiscal year. Section 5 Current Ratio. Digicon and its Subsidiaries will at all times maintain a minimum Current Ratio, calculated quarterly as of the end of each January, April, July and October, of at least 1.15 to 1.00. Section 6 Renegotiation. Upon the completion of any merger or acquisition involving at least $25,000,000, including without limitation, the Combination, the financial covenants in this Article XII shall be renegotiated as agreed among the Borrowers and the Agent. If the Borrowers and the Agent do not agree on new financial covenants within 30 days of the Combination or any merger or acquisition, the Revolving Credit Commitments and the Term Loan Commitments shall terminate 180 days thereafter, and the Revolving Credit Advances and the Term Loan Advances shall automatically become due in each case 180 days after such merger, acquisition or Combination. The Borrowers jointly and severally agree to repay the Revolving Credit Notes and the Term Notes in full on or before the expiration of such 180 day period and deposit with and pledge to the Agent cash or cash equivalent investments in an amount equal to outstanding Letter of Credit Liabilities on such date. ARTICLE XIII Default Section 1 Events of Default. Each of the following shall be deemed an "Event of Default": (a) The Borrowers shall fail to pay any interest or principal portion of the Obligations when due or any other portion of the Obligations within five days after notice from the Agent or any Bank. (b) Any representation or warranty made or deemed made by any Borrower or any Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice, or financial statement furnished at any time in connection with this Agreement shall be false, misleading, or erroneous in any material respect when made or deemed to have been made. (c) Any Borrower or any Obligated Party shall fail to perform, observe, or comply with any covenant, agreement, or term contained in Section 10.1(i), Article XI or Article XII of this Agreement. 36 42 (d) Any Borrower or any Obligated Party shall fail to perform, observe, or comply with any covenant, agreement, or term contained in this Agreement (other than the covenants, agreements and terms the subject of Sections 13.1(a) or 13.1(c) above) or any other Loan Document and such failure shall continue unremedied for a period ended on the earlier to occur of (i) 15 days after notice from the Agent or any Bank and (ii) the chief executive officer, the chief financial officer, the chief accounting officer, the treasurer or any other employee serving in a comparable capacity (regardless of title) of any Borrower or any Guarantor obtains knowledge thereof. (e) Any Borrower or any Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or a substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing. (f) An involuntary proceeding shall be commenced against any Borrower or any Obligated Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official for it or a substantial part of its property, and such involuntary proceeding shall remain undismissed and unstayed for a period of 60 days. (g) Any Borrower or any Obligated Party shall fail to discharge within a period of 30 days after the commencement thereof any attachment, sequestration, or similar proceeding or proceedings involving an aggregate amount in excess of $1,000,000 against any of its assets or properties. (h) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against any Borrower, any of its Subsidiaries, or any Obligated Party and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and such Borrower or the relevant Subsidiary or Obligated Party shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. (i) Any Borrower, any Subsidiary, or any Obligated Party shall fail to pay when due any principal of or interest on any Debt (other than the Obligations), or the maturity of 37 43 any such Debt shall have been accelerated, or any such Debt shall have been required to be prepaid prior to the stated maturity thereof. (j) This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by any Borrower, any Subsidiary, any Obligated Party or any of their respective shareholders, or any Borrower or any Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents, or any lien or security interest created by the Loan Documents shall for any reason cease to be a valid, first priority perfected security interest in and lien upon any of the Collateral purported to be covered thereby. (k) The Consolidated Net Income of Digicon for any two consecutive calendar quarters shall be negative (i.e., a loss) and 15 days shall have expired since the requested time for delivery of the financial statements reflecting such loss; provided that for the fiscal quarter during which the Combination is consummated, expenses related to the Combination and writedowns (determined in accordance with GAAP) shall be excluded from the computation of Consolidated Net Income for the purposes of this sub-section. (l) The Consolidated Net Income of Digicon for any fiscal year shall be negative (i.e., a loss) and 15 days shall have expired since the requested time for delivery of the financial statements reflecting such loss; provided that for fiscal year end 1996, Merger related expenses and writedowns (determined in accordance with GAAP) shall be excluded from the computation of Consolidated Net Income for the purposes of this sub-section. (m) Any Borrower, any of its Subsidiaries, or any Obligated Party, or any of their properties, revenues, or assets, shall become subject to an order of forfeiture, seizure, or divestiture (whether under RICO or otherwise) and the same shall not have been discharged within 30 days from the date of entry thereof. Section 2 Remedies Upon Default. If any Event of Default shall occur and be continuing, the Agent may (and if directed by Required Banks, shall) without notice terminate the Commitments and declare the Obligations or any part thereof to be immediately due and payable, and the same shall thereupon become immediately due and payable, without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that upon the occurrence of an Event of Default under Section 13.1(e) or Section 13.1(f), the Commitments shall automatically terminate, and the Obligations shall become immediately due and payable without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrowers. Except as otherwise set forth herein, if any Event of Default shall occur and be continuing, the Agent may exercise all rights and remedies available to it in law or in equity, under the Loan Documents, or otherwise. 38 44 Section 3 Letters of Credit. If any Event of Default shall occur and be continuing, Borrower shall, if requested by the Agent, immediately deposit with and pledge to the Agent cash or cash equivalent investments in an amount equal to outstanding Letter of Credit Liabilities. Section 4 Performance by the Agent. If any Borrower shall fail to perform any covenant or agreement contained in any of the Loan Documents, the Agent may, at the direction of Required Banks, perform or attempt to perform such covenant or agreement on behalf of such Borrower. In such event, the Borrowers shall, at the request of the Agent, promptly pay any amount expended by the Agent or the Banks in connection with such performance or attempted performance to the Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that neither the Agent, the Issuing Bank nor any Bank shall have any liability or responsibility for the performance of any obligation of any Borrower under this Agreement or any other Loan Document. ARTICLE XIV The Agent Section 1 Appointment, Powers and Immunities. In order to expedite the various transactions contemplated by this Agreement, the Banks and the Issuing Bank hereby irrevocably appoint and authorize Agent to act as their Agent hereunder and under each of the other Loan Documents. Agent consents to such appointment and agrees to perform the duties of the Agent as specified herein. The Banks and the Issuing Bank authorize and direct the Agent to take such action in their name and on their behalf under the terms and provisions of the Loan Documents and to exercise such rights and powers thereunder as are specifically delegated to or required of the Agent for the Banks and the Issuing Bank, together with such rights and powers as are reasonably incidental thereto. The Agent is hereby expressly authorized to act as the Agent on behalf of itself, the other Banks and the Issuing Bank: (a) To receive on behalf of each of the Banks, the Issuing Bank and the Agent any payment of principal, interest, fees or other amounts paid pursuant to this Agreement and the Notes and to distribute to each Bank, the Issuing Bank and the Agent, or any or some of them its share of all payments so received as provided in this Agreement; (b) To receive all documents and items to be furnished under the Loan Documents; (c) To act as nominee for and on behalf of the Banks, the Issuing Bank and the Agent in and under the Loan Documents; (d) To arrange for the means whereby the funds of the Banks are to be made available to the Borrower; 39 45 (e) To distribute to the Banks and the Issuing Bank information, requests, notices, payments, prepayments, documents and other items received from the Borrower, the other Obligated Parties, and other Persons; (f) To execute and deliver to the Borrower, the other Obligated Parties, and other Persons, all requests, demands, approvals, notices, and consents received from the Banks and the Issuing Bank; (g) To the extent permitted by the Loan Documents, to exercise on behalf of itself, each Bank and the Issuing Bank all rights and remedies of Banks upon the occurrence of any Event of Default; (h) To accept, execute, and deliver any security documents as the secured party, including, without limitation all UCC financing statements; and (i) To take such other actions as may be requested by Required Banks. Neither the Agent nor any of its Affiliates, officers, directors, employees, attorneys, or agents shall be liable for any action taken or omitted to be taken by any of them hereunder or otherwise in connection with this Agreement or any of the other Loan Documents except for its or their own gross negligence or willful misconduct. Without limiting the generality of the preceding sentence, the Agent (i) may treat the payee of any Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (ii) shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Bank or the Issuing Bank; (iii) shall not be required to initiate any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by Required Banks; (iv) shall not be responsible to the Banks or the Issuing Bank for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, enforceability, or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by any Person to perform any of its obligations hereunder or thereunder; (v) may consult with legal counsel (including counsel for the Borrowers), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. As to any matters not expressly provided for by this Agreement, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by Required Banks, and such instructions of Required Banks and any action taken or failure to act pursuant thereto shall be binding on all of the 40 46 Banks; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable law. Section 2 Rights of Agent as a Bank. With respect to its Commitment, the Advances made by it and the Notes issued to it, Agent in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent or the Issuing Bank and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Banks or the Issuing Bank) accept deposits from, lend money to, act as trustee under indentures of, provide merchant banking services to, and generally engage in any kind of business with the Borrowers, any of their Subsidiaries, any other Obligated Party, and any other Person who may do business with or own securities of any of the Borrowers, any Subsidiary, or any other Obligated Party, all as if it were not acting as the Agent and without any duty to account therefor to the Banks or the Issuing Bank. Section 3 Sharing of Payments, Etc. If any Bank shall obtain any payment of any principal of or interest on any Advance made by it under this Agreement or payment of any other obligation under the Loan Documents then owed by any Borrower or any other Obligated Party to such Bank, whether voluntary, involuntary, through the exercise of any right of setoff, banker's lien, counterclaim or similar right, or otherwise, in excess of its pro rata share, such Bank shall promptly purchase from the other Banks participations in the Advances held by them hereunder in such amounts, and make such other adjustments from time to time as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of the other Banks in accordance with its pro rata portion thereof. To such end, all of the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Bank so purchasing a participation in the Advances made by the other Banks may exercise all rights of setoff, banker's lien, counterclaim, or similar rights with respect to such participation as fully as if such Bank were a direct holder of Advances to such Borrower in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Borrower. Section 4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE AGENT FROM AND HOLD THE AGENT AND THE ISSUING BANK HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 15.1 AND 15.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWERS UNDER SECTIONS 15.1 AND 15.2), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR 41 47 NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT OR THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENT OR THE ISSUING BANK UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S OR THE ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT AND THE ISSUING BANK SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR THE ISSUING BANK. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO REIMBURSE THE AGENT AND THE ISSUING BANK PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT OR THE ISSUING BANK IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE AGENT OR THE ISSUING BANK IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWERS. Section 5 Independent Credit Decisions. Each Bank agrees that it has independently and without reliance on the Agent, the Issuing Bank, or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrowers and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, the Issuing Bank, or any other Bank, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers or any Obligated Party of this Agreement or any other Loan Document or to inspect the properties or books of the Borrowers or any Obligated Party. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility to provide the Issuing Bank, or any Bank with any credit or other financial information concerning the affairs, financial condition or business of the Borrowers or any Obligated Party (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates. 42 48 Section 6 Several Commitments. The Commitments and other obligations of the Banks under this Agreement are several. The default by any Bank in making an Advance in accordance with its Commitment shall not relieve the other Banks of their obligations under this Agreement. In the event of any default by any Bank in making any Advance, each nondefaulting Bank shall be obligated to make its Advance but shall not be obligated to advance the amount which the defaulting Bank was required to advance hereunder. In no event shall any Bank be required to advance an amount or amounts which shall in the aggregate exceed such Bank's Commitment. No Bank shall be responsible for any act or omission of any other Bank. Section 7 Successor Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Borrower and the Agent may be removed at any time with or without cause by Required Banks. Upon any such resignation or removal, Required Banks (with the consent of Digicon, with consent will not be unreasonably withheld) will have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or any State thereof and having combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities, and duties of the resigning or removed Agent, and the resigning or removed Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any Agent's resignation or removal as Agent, the provisions of this Article XIV shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was the Agent. Section 8 Partial Releases. So long as no Event of Default (or event which, with the giving of notice or the passage of time or both, would constitute an Event of Default) has occurred and is continuing, the Agent (on behalf of itself, the Issuing Bank and the Banks) shall release its security interest in any item or items sold or otherwise disposed of in a transaction permitted hereby, and hereby agrees to execute such partial releases and other statements or agreements as the Borrowers shall reasonably request and at the Borrower's expense to evidence the release of Agent's security interest therein. 43 49 ARTICLE XV Miscellaneous Section 1 Expenses. The Borrowers hereby jointly and severally agree to pay on demand: (a) all reasonable costs and expenses of the Agent in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, the Issuing Bank and/or the Banks, (b) all reasonable costs and expenses of the Agent, the Issuing Bank and/or the Banks in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, the Issuing Bank and/or the Banks, (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all costs, expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any security interest or Lien contemplated by this Agreement or any other Loan Document, and (e) all other reasonable costs and expenses incurred by the Agent, the Issuing Bank and/or the Banks in connection with this Agreement or any other Loan Document, including, without limitation, all costs, expenses, and other charges incurred in connection with obtaining audit, or appraisal in respect of the Collateral. SECTION 2 INDEMNIFICATION. THE BORROWERS JOINTLY AND SEVERALLY SHALL INDEMNIFY EACH OF THE AGENTS, THE ISSUING BANK, AND THE BANKS AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY ANY BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF ANY BORROWER OR ANY SUBSIDIARY, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, 44 50 LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON, BUT NOT SUCH PARTIES' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Section 3 Limitation of Liability. Neither the Agent, the Issuing Bank or the Banks nor any Affiliate, officer, director, employee, attorney, or agent of the Agent, the Issuing Bank or the Banks shall have any liability with respect to, and the Borrowers hereby waive, release, and agree not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by any Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. The Borrowers hereby waive, release, and agree not to sue the Agent, the Issuing Bank or the Banks or any of such Person's Affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Nothing contained in this Section shall affect the rights of the Borrowers to collect actual damages awarded to them against any of the Agents, the Issuing Bank, the Banks or any Affiliate of any of the foregoing Persons. Section 4 No Duty. All attorneys, accountants, appraisers, and other professional Persons and consultants retained by any of the Agent, the Issuing Bank or the Banks shall have the right to act exclusively in the interest of such Persons and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Borrowers or any of the Borrowers' shareholders or any other Person. Section 5 Lender Not Fiduciary. The relationship between the Borrowers, on one hand, and the Agent, the Issuing Bank and the Banks, on the other hand, is solely that of debtor and creditor, and no such Person has any fiduciary or other special relationship with the Borrowers, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between the Borrowers and such Persons to be other than that of debtor and creditor. Section 6 Equitable Relief. The Borrowers recognize that in the event the Borrowers fail to pay, perform, observe, or discharge any or all of the Obligations, any remedy at law may prove to be inadequate relief to the Agent, the Issuing Bank and the Banks. The Borrowers therefore agree that the Agent, the Issuing Bank and the Banks, if any of such Persons so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. Section 7 No Waiver; Cumulative Remedies. No failure on the part of any of the Agent, the Issuing Bank or the Banks to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor 45 51 shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law. Section 8 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrowers may not assign or transfer any of their rights or obligations hereunder without the prior written consent of the Agent and all of the Banks. Any Bank may sell participations to one or more banks or other institutions in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments and the Advances owing to it); provided, however, that (i) such Bank's obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitments) shall remain unchanged, (ii) such Bank shall remain solely responsible to the Borrowers for the performance of such obligations, (iii) such Bank shall remain the holder of its Notes for all purposes of this Agreement, (iv) the Borrowers shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents, and (v) such Bank shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under this Agreement or any other Loan Document, other than the right to vote upon or consent to (A) any increase of such Bank's Commitments, (B) any reduction of the principal amount of, or interest to be paid on, the Advances of such Bank, (C) any reduction of any commitment fee or other amount payable to such Bank under any Loan Document, or (D) any postponement of any date for the payment of any amount payable in respect of the Advances of such Bank. (b) The Borrowers and each of the Banks agree that any Bank (the "Assigning Bank") may, with the Agent's consent and unless an Event of Default has occurred, the Borrowers' consent, which consent of the Borrowers shall not be unreasonably withheld or delayed, at any time assign to one or more Eligible Assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitments and Advances) (each an "Assignee"); provided, however, that (i) each such assignment shall be of a consistent, and not a varying, percentage of all of the Assigning Bank's Commitments, rights and obligations under this Agreement and the other Loan Documents, (ii) except in the case of an assignment of all of a Bank's rights and obligations under this Agreement and the other Loan Documents, the amount of the Commitments of the Assigning Bank being assigned pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, and (iii) the parties to each such assignment shall execute and deliver to the Agent for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with the Notes subject to such assignment, and a processing and recordation fee of $3,500 to be paid by the 46 52 Assignee. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by the Agent, (x) the assignee thereunder shall be a party hereto as a "Bank" and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and under the Loan Documents and (y) the Bank that is an assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a Bank's rights and obligations under the Loan Documents, such Bank shall cease to be a party thereto). (c) By executing and delivering an Assignment and Acceptance, the Bank that is an assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Loan Documents or the execution, legality, validity, and enforceability, genuineness, sufficiency, or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such Assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or any Obligated Party or the performance or observance by the Borrowers or any Obligated Party of its obligations under the Loan Documents; (iii) such assignee confirms that it has received a copy of the other Loan Documents, together with copies of the financial statements referred to in Section 9.2 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent or such assignor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank. (d) The Agent shall maintain at its Principal Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent, 47 53 the Issuing Bank and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes under the Loan Documents. The Register shall be available for inspection by the Borrowers, the Issuing Bank or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assigning Bank and assignee representing that it is an Eligible Assignee, together with any Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in the form satisfactory to the Agent in its sole discretion, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt written notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, the Borrowers, at their expense, shall execute and deliver to the Agent in exchange for the surrendered Notes, new Notes to the order of such Eligible Assignee in an amount equal to the Commitments assumed by it pursuant to such Assignment and Acceptance and, if the Assigning Bank has retained a portion of its Commitments, new Notes to the order of the Assigning Bank in an amount equal to the Commitments retained by it hereunder (each such promissory note shall constitute a "Note" for purposes of the Loan Documents). Such new Notes shall be in an aggregate principal amount of the surrendered Notes, shall be dated the last interest payment date prior to the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of the appropriate Notes initially issued pursuant hereto with appropriate changes. (f) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or its Subsidiaries furnished to such Bank by or on behalf of the Borrower or its Subsidiaries. Section 9 Survival. All representations and warranties made in this Agreement or any other Loan Document or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and no investigation by any of the Agent, the Issuing Bank or the Banks or any closing shall affect the representations and warranties or the right of any such Person to rely upon them. Without prejudice to the survival of any other obligation of the Borrowers hereunder, the obligations of the Borrowers under Article VI and Sections 15.1 and 15.2 shall survive repayment of the Notes and termination of the Commitments. SECTION 10 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR 48 54 DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE PROVISIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY OF THE BORROWERS IS A PARTY MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO. Section 11 Maximum Interest Rate. No provision of this Agreement or any other Loan Document shall require the payment or the collection of interest in excess of the maximum amount permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in any Loan Document or otherwise in connection with this loan transaction, the provisions of this Section shall govern and prevail and neither the Borrowers nor the sureties, guarantors, successors, or assigns of the Borrowers shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance, or detention of sums loaned pursuant hereto. In the event any of the Agent, the Issuing Bank or the Banks ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the indebtedness evidenced by the Notes; and, if the principal of the Notes has been paid in full, any remaining excess shall forthwith be paid to the Borrowers. In determining whether or not the interest paid or payable exceeds the Maximum Rate, the Borrowers and the Agent, the Issuing Bank and the Banks shall, to the extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by the Notes so that interest for the entire term does not exceed the Maximum Rate. Section 12 Notices. All notices and other communications provided for in this Agreement and the other Loan Documents to which any of the Borrowers is a party shall be given or made by telex, telegraph, telecopy, cable, or in writing and telexed, telecopied, telegraphed, cabled, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopy, subject to telephone confirmation of receipt, or delivered to the telegraph or cable office, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid; provided, however, notices to the Agent pursuant to Articles II, III and IV shall not be effective until received by the Agent. SECTION 13 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN HARRIS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS. SUBJECT TO SECTION 15.20, ANY ACTION OR PROCEEDING 49 55 AGAINST THE BORROWERS UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS. THE BORROWERS HEREBY IRREVOCABLY (A) SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVE ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWERS AGREE THAT SERVICE OF PROCESS UPON THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT THEIR ADDRESSES SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 15.12. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE AGENT, THE ISSUING BANK OR THE BANKS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR, SUBJECT TO SECTION 15.20, SHALL LIMIT THE RIGHT OF SUCH PERSONS TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWERS OR WITH RESPECT TO ANY OF THEIR RESPECTIVE PROPERTY IN COURTS IN OTHER JURISDICTIONS. SUBJECT TO SECTION 15.20, ANY ACTION OR PROCEEDING BY THE BORROWERS AGAINST ANY OF THE AGENT, THE ISSUING BANK OR THE BANKS SHALL BE BROUGHT ONLY IN A COURT LOCATED IN HARRIS COUNTY, TEXAS. Section 14 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 15 Severability. Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal. Section 16 Headings. The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 17 Non-Application of Chapter 15 of Texas Credit Code. The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes, Article 5069-15) are specifically declared by the parties hereto not to be applicable to this Agreement or any of the other Loan Documents or to the transactions contemplated hereby. Section 18 Construction. The Borrowers and the Agent, the Issuing Bank and the Banks acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the Borrowers, the Agent, the Issuing Bank and the Banks. 50 56 Section 19 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists. SECTION 20 ARBITRATION PROGRAM. THE PARTIES AGREE TO BE BOUND BY THE TERMS AND CONDITIONS OF THE CURRENT ARBITRATION PROGRAM OF THE AGENT, WHICH IS INCORPORATED HEREIN BY REFERENCE AND ACKNOWLEDGED AS RECEIVED BY THE PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY. A TRUE AND CORRECT COPY OF SUCH PROGRAM HAS BEEN FURNISHED TO DIGICON. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. BORROWERS: --------- DIGICON INC., a Delaware corporation By: /s/ ALLAN C. POGACH --------------------------------------------- Allan C. Pogach Vice President and Treasurer Address for Notices: 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Fax No.: (713) 630-4456 Telephone No.: (713) 526-5611 Attention: Allan C. Pogach 51 57 DIGICON GEOPHYSICAL CORP., a Delaware corporation By: /s/ ALLAN C. POGACH ----------------------------------------------- Allan C. Pogach Vice President and Treasurer Address for Notices: 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Fax No.: (713) 630-4456 Telephone No.: (713) 526-5611 Attention: Allan C. Pogach DIGICON/GFS INC., a Mississippi corporation By: /s/ ALLAN C. POGACH ---------------------------------------------- Allan C. Pogach Vice President and Treasurer Address for Notices: 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Fax No.: (713) 630-4456 Telephone No.: (713) 526-5611 Attention: Allan C. Pogach 52 58 DIGICON GEOPHYSICAL LIMITED, a company organized under the laws of England and Wales By: /s/ ALLAN C. POGACH ----------------------------------------------- Allan C. Pogach Vice President and Treasurer Address for Notices: 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Fax No.: (713) 630-4456 Telephone No.: (713) 526-5611 Attention: Allan C. Pogach DIGICON EXPLORATION, LTD., a Delaware corporation By: /s/ ALLAN C. POGACH ----------------------------------------------- Allan C. Pogach Vice President and Treasurer Address for Notices: 3701 Kirby Drive, Suite 112 Houston, Texas 77098 Fax No.: (713) 630-4456 Telephone No.: (713) 526-5611 Attention: Allan C. Pogach 53 59 AGENT: ----- WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: /s/ RANDALL S. WADE ----------------------------------------------- Randall S. Wade Banking Officer Address for Notices: 1000 Louisiana Houston, Texas 77002 Fax No.: (713) 250-7031 Telephone No.: (713) 250-7240 Attention: Marc A. Dunmire ISSUING BANK: ------------ WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: /s/ RANDALL S. WADE ----------------------------------------------- Randall S. Wade Banking Officer Address for Notices: 1000 Louisiana Houston, Texas 77002 Fax No.: (713) 250-7031 Telephone No.: (713) 250-7240 Attention: Marc A. Dunmire 54 60 BANKS: ----- WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION Revolving Credit Commitment: $15,000,000 By: /s/ RANDALL S. WADE - --------------------------- --------------------------------- Term Loan Commitment: $6,000,000 Randall S. Wade - -------------------- Banking Officer Address for Notices: 1000 Louisiana Houston, Texas 77002 Fax No.: (713) 250-7031 Telephone No.: (713) 250-7240 Attention: Marc A. Dunmire 55 61 APPENDIX A to Credit Agreement dated July ___, 1996 among Digicon Inc., Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, Wells Fargo Bank (Texas), National Association as Agent, and the Issuing Bank and Banks named therein Reference to Sections and Articles are to Sections and Articles in the Agreement. As used in the Agreement, the following terms have the following meanings: "Advance" means, as applicable, any of a Revolving Credit Advance or a Term Loan Advance. "Advance Request Form" means, as applicable, any of a Revolving Credit Advance Request Form, a Term Loan Advance Request Form or a Credit Request. "Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds 25% or more of any class of voting stock of such Person; or (c) 25% or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, in no event shall any of the Agent, the Issuing Bank and the Banks be deemed an Affiliate of Digicon or any of its Subsidiaries. "Applicable Lending Office" means as to each Bank the office located at the address shown on the signature pages hereto for such Bank or on the signature pages of an Assignment and Acceptance, as the case may be. "Applicable Rate" means: (a) for any Revolving Credit Advance, the sum of the Prime Rate plus 1/4%; and (b) for any Term Loan Advance, the sum of the Prime Rate plus 3/4%. "Assignee" has the meaning assigned to it in Section 15.8(b). "Basle Accord" means the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, supplemented and otherwise modified and in effect from time to time, or any replacement thereof. Appendix A 1 62 "Borrowing Base" means, at any particular time, an amount equal to the sum of (a) 80% of Eligible Domestic/Domestic Accounts, plus (b) 70% of Eligible Domestic/Foreign Accounts, plus (c) 50% of Eligible Foreign/Foreign Accounts; provided that all accounts not payable in Dollars shall be calculated at the applicable Exchange Rate. "Borrowing Base Report" means a borrowing base report in substantially the form of Exhibit "E" attached hereto, properly completed and delivered or to be delivered to the Agent pursuant to this Agreement. "Business Day" means any day on which commercial banks are not authorized or required to close in Houston, Texas. "Capital Lease Obligations" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP. For purposes of this Agreement, the amount of such Capital Lease Obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Flow Coverage Ratio" means as to any Person, at any date (a) EBITDA for the 12-month period ended on such date (i) minus Cash Taxes for such period, (ii) minus Dividends for such period, and (iii) plus Non-Cash Charges for such period, divided by (b) the sum of (i) Current Maturities as of such date and (ii) Interest Expense for such period. "Cash Taxes" means the sum of all cash income taxes paid or required to be paid during the period in question, as determined in accordance with GAAP applied consistently, with respect to any Person. "Charge Debenture (Malaysia)" means a charge debenture of Guarantor in favor of the Agent, in substantially the form of Exhibit "B-2" attached hereto, as the same may be amended, supplemented or modified from time to time. "Charge Debenture (U.K.)" means a charge debenture of Geophysical Limited in favor of the Agent, in substantially the form of Exhibit "B-3" attached hereto with appropriate completions, as the same may be amended, supplemented or modified from time to time. "Code" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder. "Collateral" has the meaning specified in Section 7.1. Appendix A 2 63 "Combination" means the consummation of the combination of Digicon with Veritas Energy Services Inc. as substantially described in that certain Joint Management Informational Circular and Proxy Statement With Respect To An Arrangement Involving Digicon Inc. And Veritas Energy Services Inc. dated June 27, 1996. "Commitment" means, as applicable, any of the Revolving Credit Commitments, or the Term Loan Commitments. "Compliance/Certificate of No Default" means a certificate, in substantially the form of Exhibit "F" attached hereto, properly completed and signed by the Borrowers in connection with Section 10.1(c). "Consolidated Current Assets" means, at any particular time, all amounts which, in conformity with GAAP, would be included as current assets on a consolidated balance sheet of Digicon and the Subsidiaries. "Consolidated Current Liabilities" means, at any particular time, all amounts which, in conformity with GAAP, would be included as current liabilities on a consolidated balance sheet of Digicon and the Subsidiaries. "Consolidated Liabilities" means, at any particular time, all amounts which, in conformity with GAAP, would be included as liabilities on a consolidated balance sheet of Digicon and the Subsidiaries. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) after income and franchise taxes determined in conformity with GAAP of Digicon and the Subsidiaries, but excluding: (a) the income of any other Person (other than the Subsidiaries) in which Digicon or any of the Subsidiaries has an ownership interest, unless and except to the extent received by such Person or its Subsidiaries in a cash distribution; and (b) to the extent not included in clause (a) above, any after tax extraordinary noncash gains or extraordinary noncash losses. "Consolidated Tangible Net Worth" means, at any particular time, all amounts which, in conformity with GAAP, would be included as Stockholders' Equity on a consolidated balance sheet of Digicon and the Subsidiaries; provided, however, there shall be excluded therefrom intangible assets (other than the Data Library), including: (a) any amount at which shares of capital stock of Digicon appear as an asset on Digicon's balance sheet, (b) goodwill, including any amounts, however designated, that represent the excess of the purchase price paid for assets or stock over the value assigned thereto, and (c) loans (to the extent that such are not fully secured) to any stockholder, director, officer, or employee of Digicon or any Affiliate of Digicon. Appendix A 3 64 "Contingent Liabilities" means, as applied to any Person, those direct or indirect liabilities of that Person (other than non-monetary performance obligations) which in conformity with GAAP, would be included as liabilities of that Person on a consolidated balance sheet of Digicon and the Subsidiaries, with respect to any Debt, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof. The amount of any Contingent Liabilities shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Liabilities are made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Digicon in good faith. "Credit Request" has the meaning ascribed to it in Section 4.2 hereof. "Current Maturities" means as to any Person, at any date, the current maturities of Funded Debt (other than Revolving Credit Advances) determined in accordance with GAAP applied consistently. "Current Ratio" means, at any particular time, the ratio of Consolidated Current Assets to Consolidated Current Liabilities. "Data Library" means all of each of Borrowers' and the Guarantor's library of proprietary seismic reports and other data. "Debt" means as to any Person at any time (without duplication as to such Person and as to such Person's Subsidiaries): (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than 120 days or which are being contested in good faith and for which adequate reserves have been established, (d) all Capital Lease Obligations of such Person, (e) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person, (f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, Appendix A 4 65 surety or other bonds and similar instruments, (g) all liabilities of such Person in respect of unfunded vested benefits under any Plan, and (h) all Contingent Liabilities. "Default" means an Event of Default or the occurrence of an event or condition which with notice or lapse of time or both would become an Event of Default. "Default Rate" means the lesser of (a) the Applicable Rate plus three percent (3%) and (b) the Maximum Rate. "Digicon (Malaysia)" means Digicon (Malaysia) Sdn. Bhd., a company organized under the laws of the Federation of Malaysia. "Dividends" means as to any Person, for any period, dividends or other payments or distributions (in cash, property or obligations) paid or made, as applicable, on account of the capital stock of such Person, determined in accordance with GAAP applied consistently to any Person other than Digicon or one of the Subsidiaries. "Dollars" and "$" mean lawful money of the United States of America. "Domestic Lockbox" means a lockbox established pursuant to any Domestic Lockbox Agreement. "Domestic Lockbox Account" means a segregated account or accounts established in the name of the Agent maintained at its Principal Office into which all of Digicon's, Geophysical Corp.'s, GFS's and Exploration's receivables will be deposited pursuant to a Domestic Lockbox Agreement, with the Agent having the right to apply the same to the Obligations after an Event of Default has occurred and is continuing. "Domestic Lockbox Agreement" means the standard lockbox agreement then called for pursuant to the Agent's standard Cash Management Terms and Conditions, as the same may be amended, modified or supplemented from time to time. "EBITDA" means as to any Person, for any period, the sum of the Consolidated Net Income for such period, Interest Expense, Cash Taxes and Non-Cash Charges to the extent deducted from Consolidated Net Income in such period. "Eligible Assignee" means any commercial bank, savings and loan association, savings bank, finance company, insurance company, pension fund, mutual fund, or other financial institution (whether a corporation, partnership, or other entity) acceptable to the Agent, and having combined capital and surplus of at least $500,000,000. Appendix A 5 66 "Eligible Domestic/Domestic Accounts" means, at any time, all aggregate accounts receivable of the Borrowers other than Geophysical Limited and Exploration that are created in the ordinary course of business and satisfy the following minimum conditions: (a) The account complies with all applicable laws, rules, and regulations, including, without limitation, usury laws, the Federal Truth in Lending Act, and Regulation Z of the Board of Governors of the Federal Reserve System; (b) The account has not been outstanding for more than 90 days past the original due date of the related invoice and 120 days have not expired since the date of the related invoice; (c) The account was created in connection with (i) the sale of goods by such Person in the ordinary course of business and such sale has been consummated and such goods have been shipped and delivered to and received by the account debtor, or (ii) the performance of services by such Person in the ordinary course of business and such services have been completed and accepted by the account debtor; (d) The account arises from an enforceable contract, the performance of which either (i) has been completed by such Person, or (ii) has been partially completed with respect to accounts which give rise to progress payments; provided that only that portion of such account for which performance has been completed is eligible; (e) The account does not arise from the sale of any goods that is on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval, consignment, or any other repurchase or return basis; (f) Such Person has good and indefeasible title to the account and the account is not subject to any Lien except perfected first priority Liens in favor of the Agent; (g) The account is not subject to any "contra-account", setoff, counterclaim, defense, dispute, recoupment, or adjustment other than normal discounts for prompt payment; provided, however, that so long as the account debtor is not refusing or failing timely to pay the balance of the amounts owed by it to such Person with respect to the subject account, then there shall be excluded from eligibility only that portion of the subject account that is the subject of such "contra-account," set off, counterclaim, defense, dispute, recoupment or adjustment; (h) The account debtor is not insolvent or the subject of any bankruptcy or insolvency proceeding and has not made an assignment for the benefit of creditors, suspended normal business operations, dissolved, liquidated, terminated its existence, ceased to pay its debts as they become due, or suffered a receiver or trustee to be appointed for any of its assets or affairs; (i) The account is not evidenced by chattel paper or an instrument; Appendix A 6 67 (j) The account debtor has not retained or refused to retain, or otherwise notified such Person of any dispute concerning, or claimed nonconformity of, any of the goods from the sale of which the account arose; provided, however, that so long as the account debtor is not refusing or failing timely to pay the balance of the amounts owed by it to such Person with respect to the subject account or other accounts, then there shall be excluded from eligibility only that portion of the subject account that is subject of such retention, refusal, notice or claim; (k) The account is not owed by an Affiliate of such Person or any employee of such Person or of any such Affiliate; (l) The account is payable in Dollars by the account debtor; (m) The account shall be ineligible if more than 25% of the aggregate balances then outstanding on accounts owed by such account debtor and its Affiliates to such Person are more than 120 days past due from the due dates of their original invoices or if more than 150 days have expired from the dates of the original invoices; (n) The account shall be ineligible if the account debtor is the United States of America, any state or municipality, or any department, agency, or instrumentality of the foregoing; (o) The account shall be ineligible if the account is owed by an account debtor not a resident of the United States of America; (p) That portion of the aggregate amount of accounts owed by any one account debtor which is in excess of 20% of the then aggregate amount of all Eligible Domestic/Domestic Accounts, Eligible Domestic/Foreign Accounts and Eligible Foreign/Foreign Accounts shall be ineligible; (q) Accounts which arise out of or are bill and holds, retentions and prebillings shall be ineligible; (r) The account has not been otherwise determined by the Agent in its reasonable discretion to be ineligible because of the credit worthiness of the account debtor; and (s) The account is subject to a first priority Lien in favor of the Agent. "Eligible Domestic/Foreign Accounts" means, at any time, all aggregate accounts of the Borrowers other than Geophysical Limited and Exploration, that (a) are created in the ordinary course of business and which would constitute Eligible Domestic/Domestic Accounts according to the definition thereof in this Appendix A but for either or both of the requirements set forth at paragraph (o) of such definition that such account is not eligible if it is owed by an account debtor not resident in the United States and at paragraph (l) of such definition that such account is not eligible if it is not payable in Dollars, and (b) if such accounts are governed by the law of a jurisdiction other than one of the states of the United States, (i) are not subject to contractual restrictions of the rights to payment thereunder, or Appendix A 7 68 (ii) the applicable Borrower has obtained written consent to its assignment of the rights to payment thereunder from the account debtor and has provided a copy thereof to the Agent, or (iii) the Agent has received satisfactory legal advice that such restrictions are unenforceable. "Eligible Foreign/Foreign Accounts" means, at any time, all aggregate accounts of Geophysical Limited, Exploration and Guarantor, that (a) are created in the ordinary course of business and which would constitute Eligible Domestic/Domestic Accounts according to the definition thereof set forth in this Appendix A but for any or all of the requirements that (i) the account be owed to a Borrower other than Geophysical Limited and Exploration, (ii) the account be payable in Dollars, (iii) the account be owed by an account debtor resident in the United States of America, and (b) if such accounts are governed by the law of a jurisdiction other than one of the States of the United States or England (i) are not subject to contractual restrictions of the rights to payment thereunder, or (ii) the applicable Borrower or the Guarantor, as applicable, has obtained written consent to the assignment of the rights to payment thereunder from the account debtor and has provided the Agent with a copy thereof, or (iii) the agent has received satisfactory legal advice that such restrictions are unenforceable. "Environmental Laws" means any and all foreign, federal, state, and local laws, regulations, and requirements pertaining to health, safety, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., and the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as such laws, regulations, and requirements may be amended or supplemented from time to time. "Environmental Liabilities" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs, and expenses, (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any Environmental Law, permit, order or agreement with any Governmental Authority or other Person, arising from environmental, health or safety conditions or the Release or threatened Release of a Hazardous Material into the environment, resulting from the past, present, or future operations of such Person or its Affiliates. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder. Appendix A 8 69 "ERISA Affiliate" means any corporation or trade or business which is or has been a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as any Borrower or is or has been under common control (within the meaning of Section 414(c) of the Code) with any Borrower. "Euroseis" means Euroseis, Inc., a Delaware corporation. "Event of Default" has the meaning specified in Section 13.1. "Exchange Rate" means and refers to the nominal rate of exchange available to Agent in a chosen foreign exchange market for the purchase by Agent at __________, Houston, Texas time, _____ Business Day prior to any date of determination, expressed as the number of units of such currency per one Dollar. "Federal Funds Rate" means, for any day, the rate per annum, (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published on such next succeeding Business Day, the Federal Funds Rate for any day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent. "Funded Debt" means, at any time, the aggregate obligations of Digicon and its Subsidiaries (determined on a consolidated basis) for Debt for borrowed money and the deferred purchase price of property, including, without limitation, Capital Lease Obligations. "Funded Debt to Capitalization Ratio" means, at any time, the ratio of (a) Funded Debt (other than Subordinated Debt) to (b) the sum of (i) Funded Debt plus (ii) Stockholders Equity plus (iii) Subordinated Debt. "GAAP" means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. Appendix A 9 70 "Governmental Authority" means any nation or government, any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation or indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantors" means Digicon (Malaysia) and Euroseis, and "Guarantor" means any one of the Guarantors. "Guaranty" means a guaranty of each of Euroseis and Digicon (Malaysia) in favor of the Agent, in substantially the form attached hereto as Exhibit "C" with appropriate completions, as the same may be amended, supplemented, or modified from time to time and Guaranties means more than one Guaranty. "Hazardous Material" means any substance, product, waste, pollutant, material, chemical, contaminant, constituent, or other material which is or becomes listed, regulated, or addressed under any Environmental Law, including, without limitation, asbestos, petroleum, and polychlorinated biphenyls. "Interest Expense" means the sum of all cash interest expense paid or required by its terms to be paid during the period in question, as determined in accordance with GAAP applied consistently, with respect to the Funded Debt of a Person or any portion thereof. "Letter of Credit" means a Letter of Credit issued pursuant to Article IV of the Agreement and "Letters of Credit" means more than one Letter of Credit. "Letter of Credit Agreements" means the application and letter of credit agreements and other documents, if any, then required by the Issuing Bank now or hereafter executed by the Borrower, such agreements to be on the Issuing Bank's standard form (with such changes thereto as the Borrower and the Issuing Bank may agree from time to time) and completed in form and substance satisfactory to the Issuing Bank. Appendix A 10 71 "Letter of Credit Liabilities" means, at any time, the aggregate undrawn face amounts of all outstanding Letters of Credit in Dollars calculated at the applicable Exchange Rate. "Lien" means any lien, mortgage, security interest, tax lien, financing statement, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise. "Loan Documents" means this Agreement and all promissory notes, security agreements, deeds of trust, assignments, guaranties, and other instruments, documents, and agreements executed and delivered pursuant to or in connection with this Agreement, as such instruments, documents, and agreements may be amended, modified, renewed, extended, or supplemented from time to time. "Lockbox" means any U.K. Lockbox or Domestic Lockbox. "Lockbox Account" means any U.K. Lockbox Account or Domestic Lockbox Account. "Lockbox Agreement" means any U.K. Lockbox Agreement or Domestic Lockbox Agreement. "Material Adverse Effect" means (a) a material adverse effect on (i) the business, operations, property, condition (financial or otherwise) or prospects of the Borrowers and the Guarantor, taken as a whole, (ii) the ability of the Borrowers and the Guarantor, taken as a whole, to perform their respective obligations under this Agreement or any of the other Loan Documents, or (iii) the validity or enforceability of this Agreement or any of the other Loan Documents, or the rights or remedies of the Agent, the Banks or the Issuing Bank hereunder or thereunder or (b) civil or criminal liability for the Agent or the Banks under Environmental Laws. "Maximum Rate" means, at any time, the maximum rate of interest under applicable law that the Agent, the Issuing Bank and the Banks, as applicable, may charge the Borrowers. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrowers at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the indicated rate ceiling described in, and computed in accordance with, Article 5069-1.04, Vernon's Texas Civil Statutes. Appendix A 11 72 "Monthly Payment Date" means the last day of each calendar month of each year, the first of which shall be the first such day after the date of this Agreement. "Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by any Borrower or any predecessor thereto or any ERISA Affiliate and which is covered by Title IV of ERISA. "Non-Cash Charges" means as to any Person, for any period, depreciation, amortization and other non-cash charges (including amortization of the capitalized balance of the Data Library), determined in accordance with GAAP applied consistently. "Notes" collectively means the Revolving Credit Notes and the Term Notes and "Note" means any one of the Notes. "Obligated Party" means Guarantor or any other Person who is or becomes party to any agreement that guarantees or secures payment and performance of the Obligations or any part thereof. "Obligations" means all obligations, indebtedness, and liabilities of any and all of the Borrowers to the Agent, the Issuing Banks and the Banks, or any of some of them, arising pursuant to any of the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including, without limitation, the obligations, indebtedness, and liabilities of the Borrowers under this Agreement and the other Loan Documents (including, without limitation, all of Borrowers' contingent reimbursement obligations in respect of Letters of Credit), and all interest accruing thereon and all attorneys' fees and other expenses incurred in the enforcement or collection thereof. "Payor" has the meaning assigned to it in Section 5.6. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Permitted Liens" has the meaning assigned to it in Section 11.2. "Person" means any individual, corporation, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity. "Plan" means any employee benefit or other plan established or maintained by any Borrower or any ERISA Affiliate. "Prime Rate" means the variable per annum rate of interest then most recently announced by the Agent as its "prime rate", with the understanding that the Agent's "prime Appendix A 12 73 rate" may be one of several base rates and serves as a basis upon which effective rates of interest from time to time are calculated by making reference thereto and may not be the lowest rate of the Agent's base rates. Each change in any interest rate provided for herein based upon the Prime Rate resulting from a change in the Prime Rate shall take effect without notice to the Borrowers at the time of such change in the Prime Rate. "Principal Office" means the respective principal office of the Agent, the Issuing Banks and the Banks, presently located for such Persons at the addresses shown under the signature line of such Persons in this Agreement. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Quarterly Fee Payment Date" means the last day of each [March, June, September, and December] of each year, the first of which shall be the first such day after the date of this Agreement. "Register" has the meaning assigned to it in Section 15.8(d). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Release" means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, disbursement, leaching, or migration of Hazardous Materials into the indoor or outdoor environment or into or out of property owned by such Person, including, without limitation, the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or property. "Remedial Action" means all actions required to (a) clean up, remove, treat, or otherwise address Hazardous Materials in the indoor or outdoor environment, (b) prevent the Release or threat of Release or minimize the further Release of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (c) perform pre-remedial studies and investigations in post-remedial monitoring and care. "Reportable Event" means any of the events set forth in Section 4043 of ERISA. "Revolving Credit Advance" means an advance of funds by a Bank to the Borrowers pursuant to Article II. "Revolving Credit Advance Request Form" means a certificate, in substantially the form attached hereto as Exhibit "D-1", properly completed and signed by the Borrowers requesting a Revolving Credit Advance. Appendix A 13 74 "Revolving Credit Commitment" means as to each Bank, the obligation of such Bank to make (a) Revolving Credit Advances and (b) subject to applicable sublimits, to purchase participations in Letters of Credit pursuant to Section 4.5, in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Bank on the signature pages hereto under the heading "Revolving Credit Commitment," or on the signature pages of an Assignment and Acceptance, as the case may be, as such amount may be reduced pursuant to Section 2.7 or terminated pursuant to Section 2.7 or Section 13.2. "Revolving Credit Notes" means the promissory notes of the Borrowers payable to the order of the Banks, in substantially the form attached hereto as Exhibit "A-1" with appropriate completions, and all extensions, renewals, replacements, modifications, supplements or rearrangements thereof from time to time, and " Revolving Credit Note" means any one of the Revolving Credit Notes. "Revolving Credit Termination Date" means 11:00 a.m. Houston, Texas time on July ____, 1998, or such earlier date and time on which the Revolving Credit Commitment terminates as provided in this Agreement. "RICO" means the Racketeer Influenced and Corrupt Organization Act of 1970, as amended from time to time. "Security Agreement" means a security agreement of each of Digicon, Geophysical Corp., Exploration and GFS in favor of the agent in substantially the form attached hereto as Exhibit "B-1" with appropriate completions, as the same may be amended, supplemented, or modified from time to time and "Security Agreements" means more than one Security Agreement. "Stockholders Equity" has the meaning assigned to it under GAAP. "Subordinated Debt" means Debt of a Person which has been subordinated to the Obligations in form and substance and upon terms satisfactory to the Agent. "Subsidiary" means any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by Digicon or one or more of the Subsidiaries or by Digicon and one or more of the Subsidiaries. "Term Loan" means the loan by a Bank to the Borrowers pursuant to Article III. "Term Loan Advance" means an advance of funds by a Bank to the Borrowers pursuant to Article III. Appendix A 14 75 "Term Loan Advance Request Form" means a certificate, in substantially the form attached hereto as Exhibit "D-2", properly completed and signed by the Borrowers requesting a Term Loan Advance. "Term Loan Commitment" means, as to each Bank, the obligation of such Bank to make the Term Loan Advances to the Borrower hereunder in the principal amount up to but not exceeding the amount set forth opposite the name of such Bank on the signature pages hereto under the heading "Term Loan Commitment," or on the signature pages of an Assignment and Acceptance, as the case may be, as such amount may be terminated pursuant to Section 13.2. "Term Loan Maturity Date" means 11:00 a.m., Houston, Texas time on July __, 1999, or such earlier date and time on which the Term Notes mature as provided in this Agreement. "Term Notes" means the promissory notes of the Borrowers payable to the order of the Banks, in substantially the form attached hereto as Exhibit "A-2" with appropriate completions, and all extensions, renewals, replacements, modifications, supplements or rearrangements thereof from time to time and " Term Note" means any one of the Term Notes. "UCC" means the Uniform Commercial Code as in effect in the State of Texas from time to time. "U.K. Lockbox" means the lockbox established pursuant to the U.K. Lockbox Agreement. "U.K. Lockbox Account" means a segregated account or accounts established in the name of _________ at _________ Bank in _________, England into which all of Geophysical Limited's Dollar denominated receivables will be deposited pursuant to the U.K. Lockbox Agreement, with the Agent having the right to apply same to the Obligations after an Event of Default has occurred and is continuing. "U.K. Lockbox Agreement" means a _____________, as the same may be amended, modified or supplemented from time to time. Appendix A 15 76 INDEX TO APPENDICES Appendix Section - -------- ------- A Definitions 1.1 INDEX TO SCHEDULES - ------------------ Schedule Description of Schedule Section - -------- ----------------------- ------- 9.5 Existing Litigation 9.5 9.9 Existing Debt 9.9 9.14 List of Subsidiaries 9.14 9.20 Environmental Matters 9.20 11.2 Existing Liens 11.2 INDEX TO EXHIBITS - ----------------- Exhibit Description of Exhibit Section/ ------- ---------------------- -------- Appendix -------- "A-1" Form of Revolving Credit Note "A-2" Form of Term Note "B-1" Form of Security Agreement "B-2" Charge Debenture (Malaysia) "B-3" Charge Debenture (U.K.) "C" Form of Guaranty "D-1" Revolving Credit Advance Request Form "D-2" Term Loan Advance Request Form "E" Borrowing Base Report "F" Form of Compliance/Certificate of No Default EX-12 8 COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO 1 EXHIBIT 12 VERITAS DGC INC. COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO (IN 000'S OF DOLLARS)
FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (UNAUDITED) (UNAUDITED) Earnings: Income before provision for income taxes and equity in loss of 50% or less-owned companies and joint ventures............ $ 7,025 $ 5,961 $ 540 $ 14,587 $ 4,403 Equity in loss of 50% or less-owned companies and joint ventures............ 1,521 2,204 4,965 5,186 1,113 Fixed charges.............................. 9,516 8,100 10,757 14,387 14,869 Capitalized interest....................... 204 ------- ------- ------- ------- ------- Total.............................. $ 15,020 $ 11,653 $ 6,332 $ 23,788 $ 18,159 ======= ======= ======= ======= ======= Fixed charges: Interest expense........................... $ 2,579 $ 1,928 $ 3,213 $ 5,170 $ 5,466 Capitalized interest....................... 204 1/3 Rent expense.......................... 6,937 5,968 7,544 9,217 9,403 ------- ------- ------- ------- ------- Total.............................. $ 9,516 $ 8,100 $ 10,757 $ 14,387 $ 14,869 ------- ------- ------- ------- ------- Ratio of earnings to fixed charges(2)........ 1.58 1.44 0.59(1) 1.65 1.22 ======= ======= ======= ======= =======
- --------------- (1) Earnings are inadequate to cover fixed charges by $4,425,000. (2) The effect of the refinancing impacts the ratio of earnings to fixed charges by less than 10%. Therefore the pro forma ratio is not presented. EX-23.A 9 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23-A CONSENT OF INDEPENDENT AUDITORS We consent to the use in this Registration Statement of Veritas DGC Inc. on Form S-3 of our report dated July 15, 1996 (September 20, 1996 as to Note 2), and to the reference to us under the headings "Selected Financial Data" and "Experts" appearing in the Prospectus, which is part of this Registration Statement. We also consent to the incorporation by reference in this Registration Statement of Veritas DGC Inc. on Form S-3 of our reports dated October 12, 1995 (July 15, 1996 as to Notes 10, 20 and 21) appearing in the Annual Report on Form 10-K of Digicon Inc. for the year ended July 31, 1995, as amended by Form 10-K/A dated June 17, 1996, Form 10-K/A-2 dated July 19, 1996 and Form 10-K/A-3 dated August 20, 1996. We also consent to the incorporation by reference in this Registration Statement of Veritas DGC Inc. on Form S-3 of our report dated March 10, 1995 (which expresses an unqualified opinion and includes an explanatory paragraph regarding substantial doubt about the ability of such entities to continue as a going concern) on the combined financial statements of DG Seis Overseas Limited and MD Seis Geophysical Co. Ltd. and Seismic Technology, Inc. as of December 31, 1994 and for the period from April 1, 1994 (date of inception) to December 31, 1994 appearing in Form 10-K/A of Digicon Inc. dated June 17, 1996. We also consent to the incorporation by reference in this Registration Statement of Veritas DGC Inc. on Form S-3 of our report dated August 16, 1996 on the financial statements of P. T. Digicon Mega Pratama as of July 31, 1995 and 1994 and for each of the three years in the period ended July 31, 1995 appearing in Form 10-K/A-3 of Digicon Inc. dated August 20, 1996. DELOITTE & TOUCHE LLP Houston, Texas September 20, 1996 EX-23.B 10 CONSENT OF PRICE WATERHOUSE, CHARTERED ACCOUNTANTS 1 EXHIBIT 23-B CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated December 11, 1995 which appears on page F-31 of the Definitive Joint Management Information Circular and Proxy Statement of Digicon Inc. and Veritas Energy Services Inc. dated July 19, 1996. We also Consent to the references to us under the heading "Experts" in such prospectus. PRICE WATERHOUSE Chartered Accountants Calgary, Alberta September 19, 1996 EX-25 11 FORM T-1 STMT. OF ELIGIBILITY - FLEET NAT. BANK 1 EXHIBIT 25 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 ---------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------- / / CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) FLEET NATIONAL BANK --------------------------------------------------------- (Exact name of trustee as specified in its charter) Not applicable 04-317415 - ---------------------------------------- ----------------------------- (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. Identification No.) national bank) One Monarch Place, Springfield, MA 01102 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065 -------------------------------------------------------------- (Name, address and telephone number of agent for service) VERITAS DGC INC. --------------------------------------------------- (Exact name of obligor as specified in its charter) Delaware 76-0343152 - ------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3701 Kirby Drive, Suite 112 Houston, Texas 77098 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
Senior Notes due 2003 ------------------------------------------------------------------ (Title of the indenture securities) 2 Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject, The Comptroller of the Currency, Washington, D.C. Federal Reserve Bank of Boston Boston, Massachusetts Federal Deposit Insurance Corporation Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers: The trustee is so authorized. Item 2. Affiliations with obligor and underwriter. If the obligor or any underwriter for the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this statement of eligibility and qualification. (1) A copy of the Articles of Association of the trustee as now in effect. (2) A copy of the Certificate of Authority of the trustee to commence business. (3) A copy of the Certification of Fiduciary Powers of the trustee. (4) A copy of the By-Laws of the trustee as now in effect. (5) Consent of the trustee required by Section 321(b) of the Act. (6) A copy of the latest Consolidated Reports of Condition and Income of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTES In as much as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base answers to Item 2, the answers to said Items are based upon incomplete information. Said Items may, however, be considered correct unless amended by an amendment to this Form T-1. -2- 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Fleet National Bank, a national banking association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Hartford, and State of Connecticut, on the 17th day of September, 1996. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ ELIZABETH C. HAMMER --------------------------- Elizabeth C. Hammer Its Vice President -3- 4 EXHIBIT 1 ARTICLES OF ASSOCIATION OF FLEET NATIONAL BANK FIRST. The title of this Association, which shall carry on the business of banking under the laws of the United States, shall be "Fleet National Bank." SECOND. The main office of the Association shall be in Springfield, Hampden County Commonwealth of Massachusetts. The general business of the Association shall be conducted at its main office and its branches. THIRD. The board of directors of this Association shall consist of not less than five (5) nor more than twenty-five (25) shareholders, the exact number of directors within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full board of directors or by resolution of the shareholders at any annual or special meeting thereof. Unless otherwise provided by the laws of the United States, any vacancy in the board of directors for any reason, including an increase in the number thereof, may be filled by action of the board of directors. FOURTH. The annual meeting of the shareholders for the election of directors and the transaction of whatever other business may be brought before said meeting shall be held at the main office or such other place as the board of directors may designate, on the day of each year specified therefore in the bylaws, but if no election is held on that day, it may be held on any subsequent day according to the provisions of law; and all elections shall be held according to such lawful regulations as may be prescribed by the board of directors. FIFTH. The authorized amount of capital stock of this Association shall be eight million five hundred thousand (8,500,000) shares of which three million five hundred thousand (3,500,000) shares shall be common stock with a par value of six and 25/100 dollars ($6.25) each, and of which five million (5,000,000) shares without par value shall be preferred stock. The capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. No holder of shares of the capital stock of any class of the Association shall have any pre-emptive or preferential right of subscription to any shares of any class of stock of the Association, whether now or hereafter authorized, or to any obligations convertible into stock of the Association, issued or sold, nor any right of subscription to any thereof other than such, if any, as the board of directors, in its discretion, may from time to time determine and at such price as the board of directors may from time to time fix. 5 The board of directors of the Association is authorized, subject to limitations prescribed by law and the provisions of this Article, to provide for the issuance from time to time in one or more series of any number of the preferred shares, and to establish the number of shares be included in each series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. The authority of the board of directors with respect to each series shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series; b. The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and whether they shall be payable in preference to, or in another relation to, the dividends payable to any other class or classes or series of stock; c. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; d. Whether that series shall have conversion or exchange privileges, and, if so, the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the board of directors shall determine; e. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all shares are to be redeemed, the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; f. Whether that series shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that series, and, if so, the terms and amounts of such sinking fund; g. The right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Association or any subsidiary, upon the issue of any additional stock (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Association or any subsidiary of any outstanding stock of the Association; h. The right of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Association and whether such rights shall be in preference to, or in another relation to, the comparable rights of any other class or classes or series of stock; and i. Any other relative, participating, optional or other special rights, qualifications, limitations or restrictions of that series. Shares of any series of preferred stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of preferred stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors or as part of any other series or preferred stock, all subject to the conditions and the restrictions adopted by the board of directors providing for the issue of any series of preferred stock and by the provisions of any applicable law. Subject to the provisions of any applicable law, or except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, the holders of outstanding shares of common stock shall exclusively possess voting power for the election of directors and for all purposes, each holder of record of shares of common stock being entitled to one vote for each share of common stock standing in his name on the books of the Association. Except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, after payment shall have been made to the holders of preferred stock of the full amount of dividends to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any other series of preferred stock, the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to receive such dividends as from time to time may be declared by the board of directors. Except as otherwise provided by the resolution or resolutions for the issue of any series of preferred stock, in the event of any liquidation, dissolution or winding up of the Association, whether voluntary or involuntary, after payment shall have been made to the holders of preferred stock of the full amount to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any series of preferred stock the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to share, ratable according to the number of shares of common stock held by them, in all remaining assets of the Association available for distribution to its shareholders. The number of authorized shares of any class may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Association entitled to vote. 6 SIXTH. The board of directors shall appoint one of its members president of this Association, who shall be chairman of the board, unless the board appoints another director to be the chairman. The board of directors shall have the power to appoint one or more vice presidents; and to appoint a secretary and such other officers and employees as may be required to transact the business of this Association. The board of directors shall have the power to define the duties of the officers and employees of the Association; to fix the salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of the Association shall be made; to manage and administer the business and affairs of the Association; to make all bylaws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a board of directors to do and perform. SEVENTH. The board of directors shall have the power to change the location of the main office to any other place within the limits of the City of Hartford, Connecticut, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency; and shall have the power to establish or change the location of any branch or branches of the Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. NINTH. The board of directors of this Association, or any three or more shareholders owning, in the aggregate, not less than ten percent (10%) of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place and purpose of every annual and special meeting of the shareholders shall be given by first class mail, postage prepaid, mailed at least ten (10) days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of this Association. TENTH. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer or employee of the Association or is or was serving at the request of the Association as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, or other enterprise, including service with respect to an employee benefit plan, shall be indemnified and held harmless by the Association to the fullest extent authorized by the law of the state in which the Association's ultimate parent company is incorporated, except as provided in subsection (b). The aforesaid indemnity shall protect the indemnified person against all expense, liability and loss (including attorney's fees, judgements, fines ERISA excise taxes or penalties, and amounts paid in settlement) reasonably incurred by such person in connection with such a proceeding. Such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors, and administrators, but shall only cover such person's period of service with the Association. The Association may, by action of its Board of Directors, grant rights to indemnification to agents of the Association and to any director, officer, employee or agent of any of its subsidiaries with the same scope and effect as the foregoing indemnification of directors and officers. (b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no person shall be indemnified hereunder by the Association against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by a federal bank regulatory agency which proceeding or action results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and any advancement of expenses to that person in that proceeding must be repaid; and (ii) no person shall be indemnified hereunder by the Association and no advancement of expenses shall be made to any person hereunder to the extent such indemnification or advancement of expenses would violate or conflict with any applicable federal statute now or hereafter in force or any applicable final regulation or interpretation now or hereafter adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal Deposit Insurance Corporation ("FDIC"). The Association shall comply with any requirements imposed on it by any such statue or regulation in connection with any indemnification or advancement of expenses hereunder by the Association. With respect to proceedings to enforce a claimant's rights to indemnification, the Association shall indemnify any such claimant in connection with such a proceeding only as provided in subsection (d) hereof. (c) Advancement of Expenses. The conditional right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Association the reasonable expenses (including attorney's fees) incurred in defending a proceeding in advance of its final disposition (an "advancement of expenses"); provided, however, that an advancement of expenses shall be made only upon (i) delivery to the Association of a binding written undertaking by or on behalf of the person receiving the advancement to repay all amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified in such proceeding, including if such proceeding results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and (ii) compliance with any other actions or determinations required by applicable law, regulation or OCC or FDIC interpretation to be taken or made by the Board of Directors of the Association or other persons prior to an advancement of expenses. The Association shall cease advancing expenses at any time its Board of Directors believes that any of the prerequisites for advancement of expenses are no longer being met. (d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the section is not paid in full by the Association within thirty (30) days after written claim has been received by the Association, the claimant may at any time thereafter bring suit against the Association to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the claimant shall be entitled to be paid also the expense of prosecuting or defending such claim. It shall be a defense to any such action brought by the claimant to enforce a right to indemnification hereunder (other than an action brought to enforce a claim for an advancement of expenses where the required undertaking, if any, has been tendered to the Association) that the claimant has not met any applicable standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. In any suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the Association shall be entitled to recover such expenses upon a final adjudication that the claimant has not met any applicable standard for indemnification standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. (e) Non-Exclusivity of Rights. The rights to indemnification and the advancement of expenses conferred in this section shall not be exclusive of any other right which any person may have or hereafter acquired under any statute, agreement, vote of stockholders or disinterested directors or otherwise. (f) Insurance. The Association may purchase, maintain, and make payment or reimbursement for reasonable premiums on, insurance to protect itself and any director, officer, employee or agent of the Association or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Association would have the power to indemnify such person against such expense, liability or loss under the law of the state in which the Association's ultimate parent company is incorporated; provided however, that such insurance shall explicitly exclude insurance coverage for a final order of a federal bank regulatory agency assessing civil money penalties against an Association director, officer, employee or agent. ELEVENTH. These articles of association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Association, unless the vote of the holders of greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. The notice of any shareholders' meeting at which an amendment to the articles of association of this Association is to be considered shall be given as hereinabove set forth. I hereby certify that the articles of association of this Association, in their entirety, are listed above in items first through eleventh. Secretary/Assistant Secretary - -------------------------------------------------- Dated at , as of . --------------------------------------- -------------------- Revision of February 15, 1996 7 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 CERTIFICATE I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that: (1) The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering, regulation and supervision of all National Banking Associations. (2) "Fleet National Bank", Springfield, Massachusetts (Charter No. 1338), is a National Banking Association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 4th day of April, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 8 EXHIBIT 3 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 Certification of Fiduciary Powers I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records in this Office evidence "Fleet National Bank", Springfield, Massachusetts, (Charter No. 1338), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the authority so granted remains in full force and effect. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of Office of the Comptroller of the Currency to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 4th day of April, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 9 EXHIBIT 4 AMENDED AND RESTATED BY-LAWS OF FLEET NATIONAL BANK ARTICLE I MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The regular annual meeting of the shareholders for the election of Directors and the transaction of any other business that may properly come before the meeting shall be held at the Main Office of the Association, or such other place as the Board of Directors may designate, on the fourth Thursday of April in each year at 1:15 o'clock in the afternoon unless some other hour of such day is fixed by the Board of Directors. If, from any cause, an election of Directors is not made on such day, the Board of Directors shall order the election to be held on some subsequent day, of which special notice shall be given in accordance with the provisions of law, and of these bylaws. Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors, the President, or any shareholders owning not less than twenty-five percent (25%) of the stock of the Association. Section 3. Notice of Meetings of Shareholders. Except as otherwise provided by law, notice of the time and place of annual or special meetings of the shareholders shall be mailed, postage prepaid, at least ten (10) days before the date of the meeting to each shareholder of record entitled to vote thereat at his address as shown upon the books of the Association; but any failure to mail such notice to any shareholder or any irregularity therein, shall not affect the validity of such meeting or of any of the proceedings thereat. Notice of a special meeting shall also state the purpose of the meeting. Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a quorum for the transaction of business at every meeting of the shareholders shall consist of not less than two-fifths (2/5) of the outstanding capital stock represented in person or by proxy; less than such quorum may adjourn the meeting to a future time. No notice need be given of an adjourned annual or special meeting of the shareholders if the adjournment be to a definite place and time. Section 5. Votes and Proxies. At every meeting of the shareholders, each share of the capital stock shall be entitled to one vote except as otherwise provided by law. A majority of the votes cast shall decide every question or matter submitted to the shareholder at any meeting, unless otherwise provided by law or by the Articles of Association or these By-laws. Share- holders may vote by proxies duly authorized in writing and filed with the Cashier, but no officer, clerk, teller or bookeeper of the Association may act as a proxy. 10 Section 6. Nominations to Board of Directors. At any meeting of shareholders held for the election of Directors, nominations for election to the Board of Directors may be made, subject to the provisions of this section, by any share- holder of record of any outstanding class of stock of the Association entitled to vote for the election of Directors. No person other than those whose names are stated as proposed nominees in the proxy statement accompanying the notice of the meeting may be nominated as such meeting unless a shareholder shall have given to the President of the Association and to the Comptroller of the Currency, Washington, DC written notice of intention to nominate such other person mailed by certified mail or delivered not less than fourteen (14) days nor more than fifty (50) days prior to the meeting of shareholders at which such nomination is to be made; provided, however, that if less than twenty-one (21) days' notice of such meeting is given to shareholders, such notice of intention to nominate shall be mailed by certified mail or delivered to said President and said Comptroller on or before the seventh day following the day on which the notice of such meeting was mailed. Such notice of intention to nominate shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of the Association that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Association owned by the notifying shareholder. In the event such notice is given, the proposed nominee may be nominated either by the shareholder giving such notice or by any other shareholder present at the meeting at which such nomination is to be made. Such notice may contain the names of more than one proposed nominee, and if more than one is named, any one or more of those named may be nominated. Section 7. Action Taken Without a Shareholder Meeting. Any action requiring shareholder approval or consent may be taken without a meeting and without notice of such meeting by written consent of the shareholders. ARTICLE II DIRECTORS Section 1. Number. The Board of Directors shall consist of such number of shareholders, not less than five (5) nor more than twenty-five (25), as from time to time shall be determined by a majority of the votes to which all of its shareholders are at the time entitled, or by the Board of Directors as hereinafter provided. Section 2. Mandatory Retirement for Directors. No person shall be elected a director who has attained the age of 68 and no person shall continue to serve as a director after the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 68; provided, however, that any director serving on the Board as of December 15, 1995 who has attanined the age of 65 on or prior to such date shall be permitted to continue to serve as a director until the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 70. -2- 11 Section 3. General Powers. The Board of Directors shall exercise all the coporate powers of the Association, except as expressly limited by law, and shall have the control, management, direction and dispositon of all its property and affairs. Section 4. Annual Meeting. Immediately following a meeting of shareholders held for the election of Directors, the Cashier shall notify the directors- elect who may be present of their election and they shall then hold a meeting at the Main Office of the Association, or such other place as the Board of Directors may designate, for the purpose of taking their oaths, organizing the new Board, electing officers and transacting any other business that may come before such meeting. Section 5. Regular Meeting. Regular meetings of the Board of Directors shall be held without notice at the Main Office of the Association, or such other place as the Board of Directors may designate, at such dates and times as the Board shall determine. If the day designated for a regular meeting falls on a legal holiday, the meeting shall be held on the next business day. Section 6. Special Meetings. A special meeting of the Board of Directors may be called at anytime upon the written request of the Chairman of the Board, the President, or of two Directors, stating the purpose of the meeting. Notice of the time and place shall be given not later than the day before the date of the meeting, by mailing a notice to each Director at his last known address, by delivering such notice to him personally, or by telephoning. Section 7. Quorum; Votes. A majority of the Board of Directors at the time holding office shall constitute a quorum for the transaction of all business, except when otherwise provided by law, but less than a quorum may adjourn a meeting from time to time, and the meeting may be held, as adjourned, without further notice. If a quorum is present when a vote is taken, the affirmative vote of a majority of Directors present is the act of the Board of Directors. Section 8. Action by Directors Without a Meeting. Any action requiring Director approval or consent may be taken without a meeting and without notice of such meeting by written consent of all the Directors. Section 9. Telephonic Participation in Directors' Meetings. A Director or member of a Committee of the Board of Directors may participate in a meeting of the Board or of such Committee may participate in a meeting of the Board or of such Committee by means of a conference telephone or similar communications equipment enabling all Directors participating in the meeting to hear one another, and participation in such a meeting shall constitute presence in person at such a meeting. Section 10. Vacancies. Vacancies in the Board of Directors may be filled by the remaining members of the Board at any regular or special meeting of the Board. Section 11. Interim Appointments. The Board of Directors shall, if the share- holders at any meeting for the election of Directors have determined a number of Directors less than twenty-five (25), have the power, by affirmative vote of the majority of all the Directors, to increase such number of Directors to not more than twenty-five (25) and to elect Directors to fill the resulting vacancies and to serve until the next annual meeting of shareholders or the next election of Directors; provided, however, that the number of Directors shall not be so increased by more than two (2) if the number last determined by shareholders was fifteen (15) or less, or increased by more than four (4) if the number last determined by shareholders was sixteen (16) or more. Section 12. Fees. The Board of Directors shall fix the amount and direct the payment of fees which shall be paid to each Director for attendance at any meeting of the Board of Directors or of any Committees of the Board. ARTICLE III COMMITTEES OF THE BOARD Section 1. Executive Committee. The Board of Directors shall appoint from its members an Executive Committee which shall consist of such number of persons as the Board of Directors shall determine; the Chairman of the Board and the President shall be members ex-officio of the Executive Committee with full voting power. The Chairman of the Board or the President may from time to time appoint from the Board of Directors as temporary additional members of the Executive Committee, with full voting powers, not more than two members to serve for such periods as the Chairman of the Board or the President may determine. The Board of Directors shall designate a member of the Executive Committee to serve as Chairman thereof. A meeting of the Executive Committee may be called at any time upon the written request of the Chairman of the Board, the President or the Chairman of the Executive Committee, stating the purpose of the meeting. Not less than twenty four hours' notice of said meeting shall be given to each member of the Committee personally, by telephoning, or by mail. The Chairman of the Executive Committee or, in his absence, a member of the Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee. -3- 12 The Executive Committee shall possess and may exercise all the powers of the Board when the Board is not in session except such as the Board, only, by law, is authorized to exercise; it shall keep minutes of its acts and proceedings and cause same to be presented and reported at every regular meeting and at any special meeting of the Board including specifically, all its actions relating to loans and discounts. All acts done and powers and authority conferred by the Executive Committee, from time to time, within the scope of its authority, shall be deemed to be, and may be certified as being, the acts of and under the authority of the Board. Section 2. Risk Management Committee. The Board shall appoint from its members a Risk Management Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Risk Management Committee to serve as Chairman thereof. It shall be the duty of the Risk Management Committee to (a) serve as the channel of communication with management and the Board of Directors of Fleet Financial Group, Inc. to assure that formal processes supported by management information systems are in place for the identification, evaluation and management of significant risks inherent in or associated with lending activities, the loan portfolio, asset-liablity management, the investment portfolio, trust and investment advisory activities, the sale of nondeposit investment products and new products and services and such additional activities or functions as the Board may determine from time to time; (b) assure the formulation and adoption of policies approved by the Risk Management Committee or Board governing lending activities, management of the loan portfolio, the maintenance of an adequate allowance for loan and lease losses, asset-liability management, the investment portfolio, the retail sale of non-deposit investment products, new products and services and such additional activities or functions as the Board may determine from time to time (c) assure that a comprehensive independent loan review program is in place for the early detection of problem loans and review significant reports of the loan review department, management's responses to those reports and the risk attributed to unresolved issues; (d) subject to control of the Board, exercise general supervision over trust activities, the investment of trust funds, the disposition of trust investments and the acceptance of new trusts and the terms of such acceptance, and (e) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 3. Audit Committee. The Board shall appoint from its members and Audit Committee which shall consist of such number as the Board shall determine no one of whom shall be an active officer or employee of the Association or Fleet Financial Group, Inc. or any of its affiliates. In addition, members of the Audit Committee must not (i) have served as an officer or employee of the Association or any of its affiliates at any time during the year prior to their appointment; or (ii) own, control, or have owned or controlled at any time during the year prior to appointment, ten percent (10%) or more of any outstanding class of voting securities of the Association. At least two (2) members of the Audit Committee must have significant executive, professional, educational or regulatory experience in financial, auditing, accounting, or banking matters. No member of the Audit Commitee may have significant direct or indirect credit or other relationships with the Association, the termination of which would materially adversely affect the Association's financial condition or results of operations. The Board shall designate a member of the Audit Committee to serve as Chairman thereof. It shall be the duty of the Audit Committee to (a) cause a continuous audit and examination to be made on its behalf into the affairs of the Association and to review the results of such examination; (b) review significant reports of the internal auditing department, management's responses to those reports and the risk attributed to unresolved issues; (c) review the basis for the reports issued under Section 112 of The Federal Deposit Insurance Corporation Improvement Act of 1991; (d) consider, in consultation with the independent auditor and an internal auditing executive, the adequacy of the Association's internal controls, including the resolution of identified material weakness and reportable conditions; (e) review regulatory communications received from any federal or state agency with supervisory jurisdiction or other examining authority and monitor any needed corrective action by management; (f) ensure that a formal system of internal controls is in place for maintaining compliance with laws and regulations; (g) cause an audit of the Trust Department at least once during each calendar year and within 15 months of the last such audit or, in liew thereof, adopt a continuous audit system and report to the Board each calendar year and within 15 months of the previous report on the performance of such audit function; and (h) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. The Audit Committee may consult with internal counsel and retain its own outside counsel without approval (prior or otherwise) from the Board or management and obligate the Association to pay the fees of such counsel. -4- 13 Section 4. Community Affairs Committee. The Board shall appoint from its members a Community Affairs Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Community Affairs Committee to serve as Chairman thereof. It shall be the duty of the Commmunity Affairs Committee to (a) oversee compliance by the Association with the Community Reinvestment Act of 1977, as amended, and the regulations promulgated thereunder; and (b) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 5. Regular Meetings. Except for the Executive Committee which shall meet on an ad hoc basis as set forth in Section 1 of this Article, regular meetings of the Committees of the Board of Directors shall be held, without notice, at such time and place as the Committee or the Board of Directors may appoint and as often as the business of the Association may require. Section 6. Special Meetings. A Special Meeting of any of the Committees of the Board of Directors may be called upon the written request of the Chairman of the Board or the President, or of any two members of the respective Committee, stating the purpose of the meeting. Not less than twenty-four hours' notice of such special meeting shall be given to each member of the Committee personally, by telephoning, or by mail. Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees of the Board of Directors may be called at the request of the Chairman of the Board or the President, who shall state that an emergency exists, upon not less than one hour's notice to each member of the Committee personally or by telephoning. Section 8. Action Taken Without a Committee Meeting. Any Committee of the Board of Directors may take action without a meeting and without notice of such meeting by resolution assented to in writing by all members of such Committee. Section 9. Quorum. A majority of a Committee of the Board of Directors shall constitute a quorum for the transaction of any business at any meeting of such Committee. If a quorum is not available, the Chairman of the Board or the President shall have power to make temporary appointments to a Committee of- members of the Board of Directors, to act in the place and stead of members who temporarily cannot attend any such meeting; provided, however, that any temporary appointment to the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 10. Record. The committes of the Board of Directors shall keep a record of their respective meetings and proceedings which shall be presented at the regular meeting of the Board of Directors held in the calendar month next following the meetings of the Committees. If there is no regular Board of Directors meeting held in the calendar month next following the meeting of a Committee, then such Committee's records shall be presented at the next regular Board of Directors meeting held in a month subsequent to such Committee meeting. Section 11. Changes and Vacancies. The Board of Directors shall have power to change the members of any Committee at any time and to fill vacancies on any Committee; provided, however, that any newly appointed member of the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 12. Other Committees. The Board of Directors may appoint, from time to time, other committees of one or more persons, for such purposes and with such powers as the Board may determine. ARTICLE IV WAIVER OF NOTICE OF MEETINGS Section 1. Waiver. Whenever notice is required to be given to any shareholder, Director, or member of a Committee of the Board of Directors, such notice may be waived in writing either before or after such meeting by any shareholder, Director or Committee member respectively, as the case may be, who may be entitled to such notice; and such notice will be deemed to be waived by attendance at any such meeting. -5- 14 ARTICLE V OFFICERS AND AGENTS Section 1. Officers. The Board shall appoint a Chairman of the Board and a President, and shall have the power to appoint one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and- such other officers as are deemed necessary or desirable for the proper transaction of business of the Association. The Chairman of the Board and the President shall be appointed from members of the Board of Directors. Any two or more offices, except those of President and Cashier, or Secretary, may be held by the same person. The Board may, from time to time, by resolution passed by a majority of the entire Board, designate one or more officers of the Association or of an affiliate or of Fleet Financial Group, Inc. with power to appoint one or more Vice Presidents and such other officers of the Association below the level of Vice President as the officer or officers designated in such resolution deem necessary or desirable for the proper transaction of the business of the Association. Section 2. Chairman of the Board. The chairman of the Board shall preside at all meetings of the Board of Directors. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. Section 3. President. The President shall preside at all meetings of the Board of Directors if there be no Chairman or if the Chairman be absent. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. -6- 15 Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the Board and of the Executive Committee, and shall keep accurate minutes of their meetings and of all meetings of the shareholders. He shall attend to the giving of all notices required by these By-laws. He shall be custodian of the corporate seal, records, documents and papers of the Association. He shall have such powers and perform such duties as pertain by law or regulation to the office of Cashier, or as are imposed by these By-laws, or as may be delegated to him from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. Auditor. The Auditor shall be the chief auditing officer of the Association. He shall continuously examine the affairs of the Association and from time to time shall report to the Board of Directors. He shall have such powers and perform such duties as are conferred upon, or assigned to him by these By-laws, or as may be delegated to him from time to time by the Board of Directors. Section 6. Officers Seriatim. The Board of Directors shall designate from time to time not less than two officers who shall in the absence or disability of the Chairman or President or both, succeed seriatim to the duties and responsibilities of the Chairman and President respectively. Section 7. Clerks and Agents. The Board of Directors may appoint, from time to time, such clerks, agents and employees as it may deem advisable for the prompt and orderly transaction of the business of the Association, define their duties, fix the salaries to be paid them and dismiss them. Subject to the authority of the Board of Directors, the Chairman of the Board or the President, or any other officer of the Association authorized by either of them may appoint and dismiss all or any clerks, agents and employees and prescribe their duties and the conditions of their employment, and from time to time fix their compensation. Section 8. Tenure. The Chairman of the Board of Directors and the President shall, except in the case of death, resignation, retirement or disqualification under these By-laws, or unless removed by the affirmative vote of at least two- thirds of all of the members of the Board of Directors, hold office for the term of one year or until their respective successors are appointed. Either of such officers appointed to fill a vacancy occurring in an unexpired term shall serve for such unexpired term of such vacancy. All other officers, clerks, agents, attorneys-in-fact and employees of the Association shall hold office during the pleasure of the Board of Directors or of the officer or committee appointing them respectively. ARTICLE VI TRUST DEPARTMENT Section 1. General Powers and Duties. All fiduciary powers of the Association shall be exercised through the Trust Department, subject to such regulations as the Comptroller of the Currency shall from time to time establish. The Trust Department shall be to placed under the management and immediate supervision of an officer or officers appointed by the Board of Directors. The duties of all officers of the Trust Department shall be to cause the policies and instructions of the Board and the Risk Management Committee with respect to the trusts under their supervision to be carried out, and to supervise the due performance of the trusts and agencies entrusted to the Association and under their supervision, in accordance with law and in accordance with the terms of such trusts and agencies. -7- 16 ARTICLE VII BRANCH OFFICES Section 1. Establishment. The Board of Directors shall have full power to establish, to discontinue, or, from time to time, to change the location of any branch office, subject to such limitations as may be provided by law. Section 2. Supervision and Control. Subject to the general supervision and control of the Board of Directors, the affairs of branch offices shall be under the immediate supervision and control of the President or of such other officer or officers, employee or employees, or other individuals as the Board of Directors may from time to time determine, with such powers and duties as the Board of Directors may confer upon or assign to him or them. ARTICLE VIII SIGNATURE POWERS Section 1. Authorization. The power of officers, employees, agents and attorneys to sign on behalf of and to affix the seal of the Association shall be prescribed by the Board of Directors or by the Executive Committee or by both; provided that the President is authorized to restrict such power of any officer, employee, agent or attorney to the business of a specific department or departments, or to a specific branch office or branch offices. Facsimile signatures may be authorized. -8- 17 ARTICLE IX STOCK CERTIFICATES AND TRANSFERS Section 1. Stock Records. The Trust Department shall have custody of the stock certificate books and stock ledgers of the Association, and shall make all transfers of stock, issue certificates thereof and disburse dividends declared thereon. Section 2. Form of Certificate. Every shareholder shall be entitled to a certificate conforming to the requirements of law and otherwise in such form as the Board of Directors may approve. The certificates shall state on the face thereof that the stock is transferable only on the books of the Association and shall be signed by such officers as may be prescribed from time to time by the Board of Directors or Executive Committee. Facsimile signatures may be authorized. Section 3. Transfers of Stock. Transfers of stock shall be made only on the books of the Association by the holder in person, or by attorney duly authorized in writing, upon surrender of the certificate therefor properly endorsed, or upon the surrender of such certificate accompanied by a properly executed written assignment of the same, or a written power of attorney to sell, assign or transfer the same or the shares represented thereby. Section 4. Lost Certificate. The Board of Directors or Executive Committee may order a new certificate to be issued in place of a certificate lost or destroyed, upon proof of such loss or destruction and upon tender to the Association by the shareholder, of a bond in such amount and with or without surety, as may be ordered, indemnifying the Association against all liability, loss, cost and damage by reason of such loss or destruction and the issuance of a new certificate. Section 5. Closing Transfer Books. The Board of Directors may close the transfer books for a period not exceeding thirty days preceding any regular or special meeting of the shareholders, or the day designated for the payment of a dividend or the allotment of rights. In lieu of closing the transfer books the Board of Directors may fix a day and hour not more than thirty days prior to the day of holding any meeting of the shareholders, or the day designated for the payment of a dividend, or the day designated for the allotment of rights, or the day when any change of conversion or exchange of capital stock is to go into effect, as the day as of which shareholders entitled to notice of and to vote at such meetings or entitled to such dividend or to such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of capital stock, shall be determined, and only such shareholders as shall be shareholders of record on the day and hour so fixed shall be entitled to notice of and to vote at such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be. ARTICLE X THE CORPORATE SEAL Section 1. Seal. The following is an impression of the seal of the Association adopted by the Board of Directors. ARTICLE XI BUSINESS HOURS Section 1. Business Hours. The main office of this Association and each branch office thereof shall be open for business on such days, and for such hours as the Chairman, or the President, or any Executive Vice President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office to conform to local custom and convenience, provided that any one or more of the main and branch offices or certain departments thereof may be open for such hours as the President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office or department on any legal holiday on which work is not prohibited by law, and provided further that any one or more of the main and branch offices or certain departments thereof may be ordered closed or open on any day for such hours as to each office or department as the President, or such other officer as the Board of Directors shall from time to time designate, subject to applicable laws regulations, may determine when such action may be required by reason of disaster or other emergency condition. ARTICLE IX CHANGES IN BY-LAWS Section 1. Amendments. These By-laws may be amended upon vote of a majority of the entire Board of Directors at any meeting of the Board, provided ten (10) day's notice of the proposed amendment has been given to each member of the Board of Directors. No amendment may be made unless the By-law, as amended, is consistent with the requirements of law and of the Articles of Association. These By-laws may also be amended by the Association's shareholders. A true copy Attest: Secretary/Assistant Secretary - --------------------------------------- Dated at , as of . --------------------------------------- ---------------------- Revision of January 11, 1993 -9- 18 EXHIBIT 5 CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939 The undersigned, as Trustee under the Indenture to be entered into between Veritas DGC Inc. and Fleet National Bank, as Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of examinations with respect to the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FLEET NATIONAL BANK, AS TRUSTEE By /s/ Elizabeth C. Hammer ------------------------------- Elizabeth C. Hammmer Its: Vice President Dated: 19 EXHIBIT 6 Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31, 1999 Federal Financial Institutions Examination Council - -------------------------------------------------------------------------------- [FEDERAL FINANCIAL Please refer to page i, [1] INSTITUTIONS EXAMINATION Table of Contents, for COUNCIL LOGO] the required disclosure of estimated burden. - -------------------------------------------------------------------------------- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031 (960630) REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1996 ----------- (RCRI 9999) This report is required by law: 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. - -------------------------------------------------------------------------------- NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, Giro S. DeRosa, Vice President ----------------------------------------------------------------------------- Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ Giro DeRosa - -------------------------------------------------------------------------------- Signature of Officer Authorized to Sign Report July 25, 1996 - -------------------------------------------------------------------------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ - -------------------------------------------------------------------------------- Director (Trustee) /s/ - -------------------------------------------------------------------------------- Director (Trustee) /s/ - -------------------------------------------------------------------------------- Director (Trustee) - -------------------------------------------------------------------------------- For Banks Submitting Hard Copy Report Forms: State Member Banks: Return the original and one copy to the appropriate Federal Reserve District Bank. State Nonmember Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. National Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - -------------------------------------------------------------------------------- FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | Banks should affix --------------------- the address label (RCRI 90150) in this space. CALL NO. 196 31 06-30-96 STAR: 25-0590 00327 STCERT: 25-02490 FLEET NATIONAL BANK ONE MONARCH PLACE SPRINGFIELD, MA 01102 Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 20 FOR BANKS SUBMITTING HARD COPY REPORT FORMS: STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal Reserve District Bank. STATE NONMEMBER BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. NATIONAL BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- ----------------------------------------------------------------------------------------------------------------------------- ___ ___ FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | | Banks should affix the address label in this space. | ______________________ (RCRI 9050) CALL NO. 196 31 06-30-96 STBK: 25-0590 00327 STCERT: 25-02499 FLEET NATIONAL BANK ONE MONARCH PLACE SPRINGFIELD, MA 01102 |___ ___|
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 21 FFIEC 031 Page i /2/ Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices ________________________________________________________________________________ TABLE OF CONTENTS SIGNATURE PAGE Cover REPORT OF INCOME Schedule RI--Income Statement...........................................RI-1,2,3 Schedule RI-A--Changes in Equity Capital....................................RI-4 Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses..................................................................RI-4,5 Schedule RI-C--Applicable Income Taxes by Taxing Authority..........................................................RI-5 Schedule RI-D--Income from International Operations..................................................RI-6 Schedule RI-E--Explanations...............................................RI-7,8 REPORT OF CONDITION Schedule RC--Balance Sheet................................................RC-1,2 Schedule RC-A--Cash and Balances Due From Depository Institutions..............................................RC-3 Schedule RC-B--Securities...............................................RC-3,4,5 Schedule RC-C--Loans and Lease Financing Receivables: Part I. Loans and Leases..............................................RC-6,7 Part II. Loans to Small Businesses and Small Farms (included in the forms for June 30 only).....................................................RC-7a,7b Schedule RC-D--Trading Assets and Liabilities (to be completed only by selected banks)..................................RC-8 Schedule RC-E--Deposit Liabilities....................................RC-9,10,11 Schedule RC-F--Other Assets................................................RC-11 Schedule RC-G--Other Liabilities...........................................RC-11 Schedule RC-H--Selected Balance Sheet Items for Domestic Offices.........................................................RC-12 Schedule RC-I--Selected Assets and Liabilities of IBFs..................................................................RC-13 Schedule RC-K--Quarterly Averages..........................................RC-13 Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16 Schedule RC-M--Memoranda................................................RC-17,18 Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets..............................................RC-19,20 Schedule RC-O--Other Data for Deposit Insurance Assessments.................................................RC-21,22 Schedule RC-R--Regulatory Capital.......................................RC-23,24 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income.....................................................RC-25 Special Report (TO BE COMPLETED BY ALL BANKS) Schedule RC-J--Repricing Opportunities (sent only to and to be completed only by savings banks) DISCLOSURE OF ESTIMATED BURDEN The estimated average burden associated with this information collection is 32.2 hours per respondent and is estimated to vary from 15 to 230 hours per response, depending on individual circumstances. Burden estimates include the time for reviewing instructions, gathering and maintaining data in the required form, and completing the information collection, but exclude the time for compiling and maintaining business records in the normal course of a respondent's activities. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503, and to one of the following: Secretary Board of Governors of the Federal Reserve System Washington, D.C. 20551 Legislative and Regulatory Analysis Division Office of the Comptroller of the Currency Washington, D.C. 20219 Assistant Executive Secretary Federal Deposit Insurance Corporation Washington, D.C. 20429 For information or assistance, National and State nonmember banks should contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C. 20429, toll free on (800) 688-FDIC (3342), Monday through Friday between 8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their Federal Reserve District Bank. 22
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-1 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Consolidated Report of Income for the period January 1, 1996 - June 30, 1996 All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
Schedule RI--Income Statement _________ | I480 | ______________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________|_____________________| 1. Interest income: | ////////////////// | a. Interest and fee income on loans: | ////////////////// | (1) In domestic offices: | ////////////////// | (a) Loans secured by real estate .................................................. | 4011 616,395 | 1.a.(1)(a) (b) Loans to depository institutions .............................................. | 4019 588 | 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers ........... | 4024 286 | 1.a.(1)(c) (d) Commercial and industrial loans ............................................... | 4012 562,807 | 1.a.(1)(d) (e) Acceptances of other banks .................................................... | 4026 261 | 1.a.(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// | (1) Credit cards and related plans ............................................ | 4054 9,643 | 1.a.(1)(f)(1) (2) Other ..................................................................... | 4055 97,346 | 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions ........................ | 4056 0 | 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political | ////////////////// | subdivisions in the U.S.: | ////////////////// | (1) Taxable obligations ....................................................... | 4503 0 | 1.a.(1)(h)(1) (2) Tax-exempt obligations .................................................... | 4504 5,232 | 1.a.(1)(h)(2) (i) All other loans in domestic offices ........................................... | 4058 84,576 | 1.a.(1)(i) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4059 1,981 | 1.a.(2) b. Income from lease financing receivables: | ////////////////// | (1) Taxable leases .................................................................... | 4505 75,341 | 1.b.(1) (2) Tax-exempt leases ................................................................. | 4307 791 | 1.b.(2) c. Interest income on balances due from depository institutions:(1) | ////////////////// | (1) In domestic offices ............................................................... | 4105 914 | 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4106 142 | 1.c.(2) d. Interest and dividend income on securities: | ////////////////// | (1) U.S. Treasury securities and U.S. Government agency and corporation obligations ... | 4027 209,142 | 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// | (a) Taxable securities ............................................................ | 4506 0 | 1.d.(2)(a) (b) Tax-exempt securities ......................................................... | 4507 2,953 | 1.d.(2)(b) (3) Other domestic debt securities .................................................... | 3657 12,164 | 1.d.(3) (4) Foreign debt securities ........................................................... | 3658 3,348 | 1.d.(4) (5) Equity securities (including investments in mutual funds) ......................... | 3659 10,212 | 1.d.(5) e. Interest income from trading assets.................................................... | 4069 360 | 1.e. ______________________
____________ (1) Includes interest income on time certificates of deposit not held for trading. 3 23 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-2 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI--Continued ________________ Dollar Amounts in Thousands | Year-to-date | ___________________________________________________________________________________ ______________ 1. Interest income (continued) | RIAD Bil Mil Thou | f. Interest income on federal funds sold and securities purchased | ////////////////// | under agreements to resell in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 24,925 | 1.f. g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 1,719,407 | 1.g. 2. Interest expense: | ////////////////// | a. Interest on deposits: | ////////////////// | (1) Interest on deposits in domestic offices: | ////////////////// | (a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// | telephone and preauthorized transfer accounts) .............. | 4508 8,583 | 2.a.(1)(a) (b) Nontransaction accounts: | ////////////////// | (1) Money market deposit accounts (MMDAs) ................... | 4509 133,915 | 2.a.(1)(b)(1) (2) Other savings deposits .................................. | 4511 26,678 | 2.a.(1)(b)(2) (3) Time certificates of deposit of $100,000 or more ........ | 4174 88,690 | 2.a.(1)(b)(3) (4) All other time deposits ................................. | 4512 214,225 | 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// | subsidiaries, and IBFs .......................................... | 4172 50,022 | 2.a.(2) b. Expense of federal funds purchased and securities sold under | ////////////////// | agreements to repurchase in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 152,094 | 2.b. c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// | liabilities, and other borrowed money ............................... | 4185 121,525 | 2.c. d. Interest on mortgage indebtedness and obligations under | ////////////////// | capitalized leases .................................................. | 4072 361 | 2.d. e. Interest on subordinated notes and debentures ....................... | 4200 26,110 | 2.e. f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 822,203 | 2.f. ___________________________ 3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 897,204 | 3. ___________________________ 4. Provisions: | ////////////////// | ___________________________ a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 21,672 | 4.a. b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b. ___________________________ 5. Noninterest income: | ////////////////// | a. Income from fiduciary activities .................................... | 4070 144,614 | 5.a. b. Service charges on deposit accounts in domestic offices ............. | 4080 111,736 | 5.b. c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// | items 8.a through 8.d)............................................... A220 10,646 5.c. d. Other foreign transaction gains (losses) ............................ | 4076 247 | 5.d. e. Not applicable | ////////////////// | f. Other noninterest income: | ////////////////// | (1) Other fee income ................................................ | 5407 372,950 | 5.f.(1) (2) All other noninterest income* ................................... | 5408 211,593 | 5.f.(2) ___________________________ g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 851,786 | 5.g. 6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a. b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 16,126 | 6.b. ___________________________ 7. Noninterest expense: | ////////////////// | a. Salaries and employee benefits ...................................... | 4135 322,146 | 7.a. b. Expenses of premises and fixed assets (net of rental income) | ////////////////// | (excluding salaries and employee benefits and mortgage interest) .... | 4217 114,912 | 7.b. c. Other noninterest expense* .......................................... | 4092 631,554 | 7.c. ___________________________ d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 1,068,612 | 7.d. ___________________________ 8. Income (loss) before income taxes and extraordinary items and other | ////////////////// | ___________________________ adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 674,833 | 8. 9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 280,303 | 9. ___________________________ 10. Income (loss) before extraordinary items and other adjustments | ////////////////// | ___________________________ (item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 394,530 | 10. _________________________________________________
____________ *Describe on Schedule RI-E--Explanations. 4 24 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-3 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI--Continued ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________ ______________ 11. Extraordinary items and other adjustments: | ////////////////// | a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a. b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b. c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |__________________________ (item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c. 12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 394,530 | 12. _________________________________________________
__________ | I481 | _______________ Memoranda | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________________ ____________________ 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// | August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 1,798 | M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// | (included in Schedule RI, item 8) ............................................................... | 8431 20,910 | M.2. 3.-4. Not applicable | ////////////////// | 5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number | nearest whole number) ........................................................................... | 4150 9,852 | M.5. 6. Not applicable | ////////////////// | 7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY | accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7. 8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// | (sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou | a. Interest rate exposures ...................................................................... | 8757 1,428 | M.8.a. b. Foreign exchange exposures ................................................................... | 8758 9,218 | M.8.b. c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c. d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d. 9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// | a. Net increase (decrease) to interest income.....................................................| 8761 (5,575)| M.9.a. b. Net (increase) decrease to interest expense ...................................................| 8762 (5,752)| M.9.b. c. Other (noninterest) allocations ...............................................................| 8763 (172)| M.9.c. 10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.
____________ *Describe on Schedule RI-E--Explanations. 5 25 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-4 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-A--Changes in Equity Capital Indicate decreases and losses in parentheses. _________ | I483 | _____________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________________|____________________| 1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// | and Income ...................................................................................... | 3215 1,342,473 | 1. 2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3. 4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 394,530 | 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5. 6. Changes incident to business combinations, net .................................................. | 4356 4,161,079 | 6. 7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7. 8. LESS: Cash dividends declared on common stock ................................................... | 4460 490,634 | 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// | for this schedule) .............................................................................. | 4411 0 | 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (46,607)| 11. 12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12. 13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 (1,003,722)| 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// | item 28) ........................................................................................ | 3210 4,357,119 | 14. ______________________
____________ *Describe on Schedule RI-E--Explanations.
Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses Part I. Charge-offs and Recoveries on Loans and Leases Part I excludes charge-offs and recoveries through the allocated transfer risk reserve. __________ | I486 | __________________________________________ | (Column A) | (Column B) | | Charge-offs | Recoveries | ____________________ ____________________ | Calendar year-to-date | _________________________________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 1. Loans secured by real estate: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ......................................... | 4651 35,701 | 4661 8,412 | 1.a. b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b. 2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a. b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b. 3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 22 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ......................................... | 4645 38,139 | 4617 19,005 | 4.a. b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 102 | 4.b. 5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures: | ////////////////// | ////////////////// | a. Credit cards and related plans ........................................ | 4656 1,137 | 4666 733 | 5.a. b. Other (includes single payment, installment, and all student loans) ... | 4657 7,864 | 4667 2,681 | 5.b. 6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6. 7. All other loans .......................................................... | 4644 826 | 4628 541 | 7. 8. Lease financing receivables: | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ......................................... | 4658 3,729 | 4668 3,241 | 8.a. b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b. 9. Total (sum of items 1 through 8) ......................................... | 4635 87,398 | 4605 34,737 | 9. ___________________________________________
6 26 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-5 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-B--Continued Part I. Continued Memoranda __________________________________________ | (Column A) | (Column B) | | Charge-offs | Recoveries | ____________________ ____________________ | Calendar year-to-date | _________________________________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 1-3. Not applicable | ////////////////// | ////////////////// | 4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// | development activities (not secured by real estate) included in | ////////////////// | ////////////////// | Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 383 | 5410 1,374 | M.4. 5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// | Schedule RI-B, part I, item 1, above): | ////////////////// | ////////////////// | a. Construction and land development ..................................... | 3582 189 | 3583 253 | M.5.a. b. Secured by farmland ................................................... | 3584 145 | 3585 131 | M.5.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ..................... | 5411 2,650 | 5412 108 | M.5.c.(1) (2) All other loans secured by 1-4 family residential properties ...... | 5413 13,892 | 5414 1,231 | M.5.c.(2) d. Secured by multifamily (5 or more) residential properties ............. | 3588 837 | 3589 395 | M.5.d. e. Secured by nonfarm nonresidential properties .......................... | 3590 17,988 | 3591 6,294 | M.5.e. |_________________________________________|
Part II. Changes in Allowance for Loan and Lease Losses
_____________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1. 2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 34,737 | 2. 3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 87,398 | 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 21,672 | 4. 5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 636,497 | 5. 6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// | item 4.b) ..................................................................................... | 3123 872,451 | 6. |____________________|
____________ *Describe on Schedule RI-E--Explanations. Schedule RI-C--Applicable Income Taxes by Taxing Authority Schedule RI-C is to be reported with the December Report of Income.
| I489 | <- ____________ ________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Federal ....................................................................................... | 4780 N/A | 1. 2. State and local................................................................................ | 4790 N/A | 2. 3. Foreign ....................................................................................... | 4795 N/A | 3. 4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4. ____________________________| | 5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5. __________________________________________________
7 27 Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-6 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-D--Income from International Operations For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income. Part I. Estimated Income from International Operations __________ | I492 | <- ______ ________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// | and IBFs: | ////////////////// | a. Interest income booked ................................................................... | 4837 N/A | 1.a. b. Interest expense booked .................................................................. | 4838 N/A | 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// | (item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c. 2. Adjustments for booking location of international operations: | ////////////////// | a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a. b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b. c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c. 3. Noninterest income and expense attributable to international operations: | ////////////////// | a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a. b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b. c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c. d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// | minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d. 4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// | adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// | the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5. 6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// | adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6. 7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7. 8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8. ______________________ Memoranda ______________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1. 2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2. ______________________
Part II. Supplementary Details on Income from International Operations Required by the Departments of Commerce and Treasury for Purposes of the U.S. International Accounts and the U.S. National Income and Product Accounts ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1. 2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2. 3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs): | ////////////////// | a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a. b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b. 4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// | domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4. 5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs) ............................................................................ | 4853 N/A | 5. ______________________
8 28 Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-7 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-E--Explanations Schedule RI-E is to be completed each quarter on a calendar year-to-date basis. Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.) __________ | I495 | <- ______ ________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// | Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// | a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a. b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b. c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 5.f.(2): | ////////////////// | _____________ d. | TEXT 4461 | Income on Mortgages Held for Resale | 4461 81,194 | 1.d. e. | TEXT 4462 | Gain From Branch Divestitures | 4462 77,976 | 1.e. ___________ f. | TEXT 4463 |______________________________________________________________________________| 4463 | 1.f. _____________ 2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// | a. Amortization expense of intangible assets ................................................ | 4531 135,939 | 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// | b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b. c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c. d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 7.c: | ////////////////// | _____________ e. | TEXT 4464 | Intercompany Corporate Support Function Charges | 4464 143,184 | 2.e. ___________ f. | TEXT 4467 | Intercompany Data Processing & Programming Charges | 4467 158,034 | 2.f. ___________ g. | TEXT 4468 |______________________________________________________________________________| 4468 | 2.g. _____________ 3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// | applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// | all extraordinary items and other adjustments): | ////////////////// | _____________ a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1) _____________ (2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2) _____________ ____________________________ b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1) _____________ (2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2) _____________ ____________________________ c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1) _____________ (2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2) ____________________________ 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// | item 2) (itemize and describe all adjustments): | ////////////////// | _____________ a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a. ___________ b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b. _____________ 5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// | Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// | _____________ a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a. ___________ b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b. _____________ 6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// | item 10) (itemize and describe all corrections): | ////////////////// | _____________ a. | TEXT 4496 | 4496 | 6.a. ___________|______________________________________________________________________________ b. | TEXT 4497 4497 | 6.b. ____________|____________________________________________________________________________________________________
9 29 Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-8 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-E--Continued ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// | (itemize and describe all such transactions): | ////////////////// | _____________ a. | TEXT 4498 | Fleet National Bank Surplus Distribution to FFG | 4498 (1,003,722) | 7.a. __________________________________________________________________________________________| | b. | TEXT 4499 | | 4499 | 7.b. ___________________________________________________________________________________________ 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// | item 5) (itemize and describe all adjustments): | ////////////////// | _____________ | | a. | TEXT 4521 | 12/31/95 Ending Balance of Pooled Entities | 4521 | 8.a. ___________________________________________________________________________________________| | b. | TEXT 4522 | | 4522 | 8.b. ___________________________________________________________________________________________| | ____________________ 9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | <- ______________________ at its option, any other significant items affecting the Report of Income): ___ No comment |X| (RIAD 4769) ___ Other explanations (please type or print clearly): (TEXT 4769)
10 30 Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-1 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for June 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet __________ | C400 | <- ____________ ________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ ASSETS | ////////////////// | 1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// | a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 4,130,928 | 1.a. b. Interest-bearing balances(2) ............................................................ | 0071 46,521 | 1.b. 2. Securities: | ////////////////// | a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 257,441 | 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 7,250,067 | 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// | of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// | a. Federal funds sold ...................................................................... | 0276 17,428 | 3.a. b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b. 4. Loans and lease financing receivables: ____________________________| ////////////////// | a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 31,278,251 | ////////////////// | 4.a. b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 872,451 | ////////////////// | 4.b. c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c. ____________________________ d. Loans and leases, net of unearned income, | ////////////////// | allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 30,405,800 | 4.d. 5. Trading assets (from schedule RC-D )........................................................ | 3545 71,354 | 5. 6. Premises and fixed assets (including capitalized leases) ................................... | 2145 534,844 | 6. 7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 34,546 | 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8. 9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 16,634 | 9. 10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 2,283,414 | 10. 11. Other assets (from Schedule RC-F) .......................................................... | 2160 3,978,638 | 11. 12. Total assets (sum of items 1 through 11) ................................................... | 2170 49,027,615 | 12. ______________________
____________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 11 31 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-2 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC--Continued ___________________________ Dollar Amounts in Thousands | ///////// Bil Mil Thou | _______________________________________________________________________________________________ _________________________ LIABILITIES | /////////////////////// | 13. Deposits: | /////////////////////// | a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, | /////////////////////// | part I) ............................................................................... | RCON 2200 34,110,580 | 13.a. ____________________________ (1) Noninterest-bearing(1) ................................ | RCON 6631 10,202,036 | /////////////////////// | 13.a.(1) (2) Interest-bearing ...................................... | RCON 6636 23,908,544 | /////////////////////// | 13.a.(2) ____________________________ b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// | part II) .............................................................................. | RCFN 2200 1,745,663 | 13.b. ____________________________ (1) Noninterest-bearing ................................... | RCFN 6631 400 | /////////////////////// | 13.b.(1) (2) Interest-bearing ...................................... | RCFN 6636 1,745,263 | /////////////////////// | 13.b.(2) ____________________________ 14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// | a. Federal funds purchased ............................................................... | RCFD 0278 4,302,800 | 14.a. b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 566,036 | 14.b. 15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 14,411 | 15.a. b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 57,446 | 15.b. 16. Other borrowed money: | /////////////////////// | a. With a remaining maturity of one year or less.......................................... | RCFD 2332 487,435 | 16.a. b. With a remaining maturity of more than one year........................................ | RCFD 2333 893,259 | 16.b. 17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 11,561 | 17. 18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 16,634 | 18. 19. Subordinated notes and debentures ........................................................ | RCFD 3200 1,213,219 | 19. 20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 1,251,452 | 20. 21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 44,670,496 | 21. | /////////////////////// | 22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22. EQUITY CAPITAL | /////////////////////// | 23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23. 24. Common stock ............................................................................. | RCFD 3230 19,487 | 24. 25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 2,551,927 | 25. 26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 1,693,408 | 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (32,703)| 26.b. 27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27. 28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 4,357,119 | 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// | and 28) .................................................................................. | RCFD 3300 49,027,615 | 29. ___________________________
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the Number most comprehensive level of auditing work performed for the bank by independent external __________________ auditors as of any date during 1995 ............................................................... | RCFD 6724 N/A | M.1. __________________ 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
____________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 12 32 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-3 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-A--Cash and Balances Due From Depository Institutions Exclude assets held for trading. __________ | C405 | <- _________________________________ ________ | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// | coin .................................................................... | 0022 3,402,522 | ////////////////// | 1. a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 2,655,163 | 1.a. b. Currency and coin .................................................... | ////////////////// | 0080 747,539 | 1.b. 2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 500,301 | 2. a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a. b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// | in the U.S. (including their IBFs) ................................... | 0085 500,373 | ////////////////// | 2.b. 3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 7,902 | 3. a. Foreign branches of other U.S. banks ................................. | 0073 690 | ////////////////// | 3.a. b. Other banks in foreign countries and foreign central banks ........... | 0074 7,948 | ////////////////// | 3.b. 4. Balances due from Federal Reserve Banks ................................. | 0090 265,916 | 0090 0 | 4. 5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// | Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 4,177,449 | 0010 4,176,641 | 5. ___________________________________________ ______________________ Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// | column B above) .............................................................................. | 0050 453,780 | M.1. ______________________
Schedule RC-B--Securities Exclude assets held for trading.
_______ | C410 | <- ___________________________________________________________________________ ________ | Held-to-maturity | Available-for-sale | _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | ____________________ ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________ ____________________ ____________________ ____________________ ____________________ 1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 1,274,624 | 1287 1,252,546 | 1. 2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a. b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// | Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// | agencies(3) ................... | 1294 0 | 1295 0 | 1297 498 | 1298 505 | 2.b. _____________________________________________________________________________________
_____________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 13 33 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-4 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-B--Continued _____________________________________________________________________________________ | Held-to-maturity | Available-for-sale | _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | ____________________ ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________________________ ____________________ ____________________ ____________________ ____________________ 3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// | and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// | in the U.S.: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. General obligations ......... | 1676 150,357 |1677 150,242 | 1678 0 | 1679 0 | 3.a. b. Revenue obligations ......... | 1681 8,887 |1686 8,889 | 1690 0 | 1691 0 | 3.b. c. Industrial development | ////////////////// |////////////////// | ////////////////// | ///////////////// | and similiar obligations .....| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c. 4. Mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | (1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// | GNMA ....................... | 1698 0 |1699 0 | 1701 861,176 | 1702 852,929 | 4.a.(1) (2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// | and FHLMC ................. | 1703 908 |1705 908 | 1706 4,854,605 | 1707 4,831,023 | 4.a.(2) (3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// | secruities ................. | 1709 4 |1710 4 | 1711 0 | 1713 0 | 4.a.(3) b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// | REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// | MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// | (1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// | by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// | or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1) (2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// | by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// | guaranteed by FNMA, | ////////////////// |////////////////// | ////////////////// | ///////////////// | FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2) (3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// | backed securities ..... | 1733 0 |1734 0 | 1735 518 | 1736 518 | 4.b.(3) 5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities.................. | 1737 0 |1738 0 | 1739 817 | 1741 812 | 5.a. b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities ................. | 1742 97,035 |1743 78,878 | 1744 0 | 1746 0 | 5.b. 6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// | funds ...................... | ////////////////// |////////////////// | 1747 0 | 1748 0 | 6.a. b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// | with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// | able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b. c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (1) ............. | ////////////////// |////////////////// | 1752 311,734 | 1753 311,734 | 6.c. 7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// | through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// | column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// | Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// | (total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// | equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// | item 2.b) ..................... | 1754 257,441 | 1771 239,171 | 1772 7,303,972 | 1773 7,250,067 | 7. |__________________________________________________________________________________|
____________ 1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. 14 34 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-5 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-B--Continued ___________ Memoranda | C412 | <- ___________ _________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. Pledged securities(2) ......................................................................... | 0416 2,308,912 | M.1. 2. Maturity and repricing data for debt securities(2),(3),(4) (excluding those in | ////////////////// | nonaccrual status): | ////////////////// | a. Fixed rate debt securities with a remaining maturity of: | ////////////////// | (1) Three months or less ................................................................... | 0343 72,490 | M.2.a.(1) (2) Over three months through 12 months .................................................... | 0344 77,125 | M.2.a.(2) (3) Over one year through five years ....................................................... | 0345 2,734,577 | M.2.a.(3) (4) Over five years ........................................................................ | 0346 2,925,207 | M.2.a.(4) (5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 5,809,399 | M.2.a.(5) b. Floating rate debt securities with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently ........................................................... | 4544 531,365 | M.2.b.(1) (2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 855,010 | M.2.b.(2) (3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3) (4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4) (5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 1,386,375 | M.2.b.(5) c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// | securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// | debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 7,195,774 | M.2.c. 3. Not applicable | ////////////////// | 4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// | in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4. 5. Not applicable | ////////////////// | 6. Floating rate debt securities with a remaining maturity of one year or less(2),(4) (included in | ////////////////// | Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 3,700 | M.6. 7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// | trading securities during the calendar year-to-date (report the amortized cost at date of sale | ////////////////// | or transfer ................................................................................... | 1778 0 | m.7. 8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// | accounts in Schedule RC-B, item 4.b): | ////////////////// | a. Amortized cost ............................................................................. | 8780 0 | M.8.a. b. Fair Value ................................................................................. | 8781 0 | M.8.b. 9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// | Schedule RC-B, items 2, 3, and 5): | ////////////////// | a. Amortized cost ............................................................................. | 8782 0 | M.9.a. b. Fair Value ................................................................................. | 8783 0 | M.9.b. ----------------------
____________ (2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 15 35
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-6 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-C--Loans and Lease Financing Receivables Part I. Loans and Leases _________ Do not deduct the allowance for loan and lease losses from amounts | C415 | <- reported in this schedule. Report total loans and leases, net of unearned _________________________________|________| income. Exclude assets held for trading. | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Loans secured by real estate ........................................... | 1410 11,754,916 | ////////////////// | 1. a. Construction and land development ................................... | ////////////////// | 1415 433,880 | 1.a. b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// | improvements) ....................................................... | ////////////////// | 1420 2,172 | 1.b c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ................... | ////////////////// | 1797 2,022,596 | 1.c.(1) (2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (a) Secured by first liens ...................................... | ////////////////// | 5367 4,418,239 | 1.c.(2)(a) (b) Secured by junior liens ..................................... | ////////////////// | 5368 492,952 | 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 559,373 | 1.d. e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 3,825,704 | 1.e. 2. Loans to depository institutions: | ////////////////// | ////////////////// | a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 143,682 | 2.a. (1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1) (2) To other commercial banks in the U.S. ........................... | 1507 143,682 | ////////////////// | 2.a.(2) b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 12,345 | 2.b. c. To banks in foreign countries ....................................... | ////////////////// | 1510 672 | 2.c. (1) To foreign branches of other U.S. banks ......................... | 1513 149 | ////////////////// | 2.c.(1) (2) To other banks in foreign countries ............................. | 1516 523 | ////////////////// | 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers .... | 1590 5,889 | 1590 5,889 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ....................................... | 1763 12,446,547 | 1763 12,402,858 | 4.a. b. To non-U.S. addressees (domicile) ................................... | 1764 83,521 | 1764 54,074 | 4.b. 5. Acceptances of other banks: | ////////////////// | ////////////////// | a. Of U.S. banks ....................................................... | 1756 0 | 1756 0 | 5.a. b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b. 6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 2,217,352 | 6. a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// | revolving credit plans) ............................................. | 2008 161,652 | ////////////////// | 6.a. b. Other (includes single payment, installment, and all student loans).. | 2011 2,055,700 | ////////////////// | 6.b. 7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// | foreign central banks) ................................................. | 2081 0 | 2081 0 | 7. 8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// | subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// | obligations) ........................................................... | 2107 167,100 | 2107 167,100 | 8. 9. Other loans ............................................................ | 1563 2,146,172 | ////////////////// | 9. a. Loans for purchasing or carrying securities (secured and unsecured).. | ////////////////// | 1545 156,275 | 9.a. b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 1,989,897 | 9.b. 10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 2,300,055 | 10. a. Of U.S. addressees (domicile) ....................................... | 2182 2,300,055 | ////////////////// | 10.a. b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 0 | 2123 0 | 11. 12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// | 10 minus item 11) (total of column A must equal Schedule RC, item 4.a).. | 2122 31,278,251 | 2122 31,205,115 | 12. ___________________________________________
16 36 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page: RC-7 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C--Continued Part I. Continued ___________________________________________ | (Column A) | (Column B) | | Consolidated | Domestic | Memoranda | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1. 2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// | (included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// | or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// | a. Loans secured by real estate: | ////////////////// | ////////////////// | (1) To U.S. addressees (domicile) ................................... | 1687 511 | M.2.a.(1) (2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2) b. All other loans and all lease financing receivables (exclude loans | ////////////////// | to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b. c. Commercial and industrial loans to and lease financing receivables | ////////////////// | of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// | above ............................................................... | 8692 0 | M.2.c. 3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// | in nonaccrual status): | ////////////////// | a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// | (1) Three months or less ............................................ | 0348 10,215,575 | M.3.a.(1) (2) Over three months through 12 months ............................. | 0349 369,421 | M.3.a.(2) (3) Over one year through five years ................................ | 0356 3,479,742 | M.3.a.(3) (4) Over five years ................................................. | 0357 5,791,166 | M.3.a.(4) (5) Total fixed rate loans and leases (sum of | ////////////////// | Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 19,855,904 | M.3.a.(5) b. Floating rate loans with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently .................................... | 4554 8,960,876 | M.3.b.(1) (2) Annually or more frequently, but less frequently than quarterly . | 4555 1,848,295 | M.3.b.(2) (3) Every five years or more frequently, but less frequently than | ////////////////// | annually ........................................................ | 4561 250,031 | M.3.b.(3) (4) Less frequently than every five years ........................... | 4564 12,721 | M.3.b.(4) (5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// | through 3.b.(4)) ................................................ | 4567 11,071,923 | M.3.b.(5) c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// | (must equal the sum of total loans and leases, net, from | ////////////////// | Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// | Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// | leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 30,927,827 | M.3.c. d. FLOATING RATE LOANS WITH A REMAINING MATURITY OF ONE YEAR OR LESS | ////////////////// | (INCLUDED IN MEMORANDUM ITEMS 3.b.(1) THROUGH 3.b.(4) ABOVE)......... | A246 1,543,411 | M.3.d. 4. Loans to finance commercial real estate, construction, and land | ////////////////// | development activities (NOT SECURED BY REAL ESTATE) included in | ////////////////// | Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 271,706 | M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// | above .................................................................. | 5369 0 | M.5. | ////////////////// |_____________________ 6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// | RCON Bil Mil Thou | residential properties (included in Schedule RC-C, part I, item | ////////////////// | ___________________| 1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 1.655.898 | M.6. |_________________________________________|
_____________________________ (1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J. (2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. 17 37 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-7a City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C--Continued Part II. Loans to Small Businesses and Small Farms Schedule RC-C, Part II is to be reported only with the June Report of Condition. Report the number and amount currently outstanding as of June 30 of business loans with "original amounts" of $1,000,000 or less and farm loans with "original amounts" of $500,000 or less. The following guidelines should be used to determine the "original amount" of a loan: (1) For loans drawn down under lines of credit or loan commitments, the "original amount" of the loan is the size of the line of credit or loan commitment when the line of credit or loan commitment was most recently approved, extended, or renewed prior to the report date. However, if the amount currently outstanding as of the report date exceeds this size, the "original amount" is the amount currently outstanding on the report date. (2) For loan participations and syndications, the "original amount" of the loan participation or syndication is the entire amount of the credit originated by the lead lender. (3) For all other loans, the "original amount" is the total amount of the loan at origination or the amount currently outstanding as of the report date, whichever is larger. Loans to Small Businesses
1. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C, part I, item 1.e, column B, and all or substantially all of the dollar volume of your bank's "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, __________ part I, item 4.a, column B, have original amounts of $100,000 or less (If your bank has no loans ________| C415 | <- outstanding in both of these two loan categories, place an "X" in the box marked "NO" and go to | RCON YES NO| Item 5; otherwise, see instructions for further information.).................................. | 6999 | |///| x | 1. ___________________ If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5. If NO and your bank has loans outstanding in either loan category, skip items 2.a and 2.b, complete items 3 and 4 below, and go to item 5. _____________________ | Number of Loans | 2. Report the total number of loans currently outstanding for each of the |____________________| following Schedule RC-C, part I, loan categories: | RCON |/////////// | a. "Loans secured by nonfarm nonresidential properties" in domestic | ////////////////// | offices reported in Schedule RC-C, part I, item 1.e, column B....... | 5562 N/A | 2.a. b. "Commercial and industrial loans to U.S. addressees" in domestic | ////////////////// | offices reported in Schedule RC-C, part I, item 4.a, column B ...... | 5563 N/A | 2.b. ______________________
___________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | ____________________ ____________________ Dollar Amounts in Thousands | RCON | ///////////| RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 3. Number and amount currently outstanding of "Loans secured by nonfarm | /////////////////////////////////////// | 1. nonresidential properties" in domestic offices reported in Schedule RC-C | /////////////////////////////////////// | 1.a. part I item 1.e, column B (sum of items 3.a through 3.c must be less | /////////////////////////////////////// | or equal to Schedule RC-C, part I, item 1.e, column B): | /////////////////////////////////////// | 1.b a. With original amounts of $100,000 or less ........................... | 5564 1,988 | 5565 76,370 | 3.a. b. With original amounts of more than $100,000 through $250,000 ........ | 5566 2,805 | 5567 332,639 | 3.b. c. With original amounts of more than $250,000 through $1,000,000 ...... | 5568 2,736 | 5569 952,476 | 3.c. 4. Number and amount currently outstanding of "Commercial and industrial | /////////////////////////////////////// | loans to U.S. addressees" in domestic offices reported in Schedule RC-C, | /////////////////////////////////////// | part I, item 4.a, column B (sum of items 4.a through 4.c must be less | /////////////////////////////////////// | than or equal to Schedule RC-C, part I, item 4.a, column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ........................... | 5570 11,433 | 5571 337,759 | 4.a. b. With original amounts of more than $100,000 through $250,000 ........ | 5572 2,127 | 5573 228,713 | 4.b. c. With original amounts of more than $250,000 through $1,000,000 ...... | 5574 1,968 | 5575 601,126 | 4.c. ___________________________________________
17a 38 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-7b City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C -- Continued Part II. Continued Agricultural Loans to Small Farms 5. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B, and all or substantially all of the dollar volume of your bank's "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B, have original amounts of $100,000 or less (If your bank has no loans outstanding in both of these two YES NO loan categories, place an "X" in the box marked "NO" and do not complete items 7 _______________________ and 8; otherwise, see instructions for further information.)................................... | 6860 | | /// | X | 5. |_____________________| If YES, complete items 6.a and 6.b below and do not complete items 7 and 8. If NO and your bank has loans outstanding in either loan category, skip items 6.a and 6.b and complete items 7 and 8 below.
______________________ | Number of Loans | 6. Report the total number of loans currently outstanding for each of the |____________________| following Schedule RC-C, part I, loan categories: | RCON |//////////// | a. "Loans secured by farmland (including farm residential and other |______| | improvements)" in domestic offices reported in Schedule RC-C, part I, | ////////////////// | item 1.b, column B........................................................ | 5576 N/A | 6.a. b. "Loans to finance agricultural production and other loans to farmers" in | ////////////////// | domestic offices reported in Schedule RC-C, part I, item 3, column B...... | 5577 N/A | 6.b. |____________________|
_____________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | |_____________________|______________________| Dollar Amounts in Thousands | RCON |/////////////| RCON Bil Mil Thou | ________________________________________________________________________________| ______| |_____________________ | 7. Number and amount currently outstanding of "Loans secured by farmland | ////////////////////////////////////////// | (including farm residential and other improvements)" in domestic offices | ////////////////////////////////////////// | reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a | ////////////////////////////////////////// | through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, | ////////////////////////////////////////// | column B): | ////////////////////////////////////////// | a. With original amounts of $100,000 or less............................... | 5578 18 | 5579 292 | 7.a. b. With original amounts of more than $100,000 through $250,000............ | 5580 8 | 5581 850 | 7.b. c. With original amounts of more than $250,000 through $500,000............ | 5582 4 | 5583 1,030 | 7.c. 8. Number and amount currently outstanding of "Loans to finance agricultural | ////////////////////////////////////////// | production and other loans to farmers" in domestic offices reported in | ////////////////////////////////////////// | Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c | ////////////////////////////////////////// | must be less than or equal to Schedule RC-C, part I, item 3, column B): | ////////////////////////////////////////// | a. With original amounts of $100,000 or less............................... | 5584 46 | 5585 992 | 8.a. b. With original amounts of more than $100,000 through $250,000............ | 5586 17 | 5587 1,877 | 8.b. c. With original amounts of more than $250,000 through $500,000............ | 5588 4 | 5589 1,054 | 8.c. |_____________________|______________________|
17b 39
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-8 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-D--Trading Assets and Liabilities Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D). __________ | C420 | __________________________ Dollar Amounts in Thousands | ////////// Bil Mil Thou| __________________________________________________________________________________________________| ________________________| ASSETS | /////////////////////// | 1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1. 2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// | backed securities) .......................................................................... | RCON 3532 0 | 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3. 4. Mortgage-backed securities (MBS) in domestic offices: | /////////////////////// | a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// | (include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b. c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c. 5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5. 6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6. 7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7. 8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8. 9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9. 10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts: | /////////////////////// | a. In domestic offices ...................................................................... | RCON 3543 66,696 | 11.a. b. In foreign offices ....................................................................... | RCFN 3544 4,658 | 11.b. 12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 71,354 | 12. ___________________________ ___________________________ | ///////// Bil Mil Thou | LIABILITIES | ________________________|_ 13. Liability for short positions ............................................................... | RCFD 3546 0 | 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts ................................................................................... | RCFD 3547 57,446 | 14. 15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 57,446 | 15. ___________________________
18 40 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-9 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-E--Deposit Liabilities Part I. Deposits in Domestic Offices __________ | C425 | <- ______________________________________________________ ________ | | Nontransaction | | Transaction Accounts | Accounts | _________________________________________ ____________________ | (Column A) | (Column B) | (Column C) | | Total transaction | Memo: Total | Total | | accounts (including| demand deposits | nontransaction | | total demand | (included in | accounts | | deposits) | column A) | (including MMDAs) | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou | __________________________________________________________ ____________________ ____________________ ____________________ Deposits of: | ////////////////// | ////////////////// | ////////////////// | 1. Individuals, partnerships, and corporations .......... | 2201 8,615,650 | 2240 8,158,203 | 2346 22,594,478 | 1. 2. U.S. Government ...................................... | 2202 58,650 | 2280 58,605 | 2520 42,512 | 2. 3. States and political subdivisions in the U.S. ........ | 2203 818,151 | 2290 706,072 | 2530 702,686 | 3. 4. Commercial banks in the U.S. ......................... | 2206 836,005 | 2310 836,005 | 2550 771 | 4. 5. Other depository institutions in the U.S. ............ | 2207 221,571 | 2312 221,571 | 2349 2,968 | 5. 6. Banks in foreign countries ........................... | 2213 18,445 | 2320 18,445 | 2236 0 | 6. 7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// | (including foreign central banks) .................... | 2216 108 | 2300 108 | 2377 0 | 7. 8. Certified and official checks ........................ | 2330 198,585 | 2330 198,585 | ////////////////// | 8. 9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// | columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// | item 13.a) ........................................... | 2215 10,767,165 | 2210 10,197,594 | 2385 23,343,415 | 9. ________________________________________________________________
______________________ Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou | ____________________________________________________________________________________________________ ____________________ 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// | a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 2,735,425 | M.1.a. b. Total brokered deposits ..................................................................... | 2365 1,636,611 | M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// | (1) Issued in denominations of less than $100,000 ........................................... | 2343 2,350 | M.1.c.(1) (2) Issued EITHER in denominations of $100,000 OR in denominations greater than $100,000 | ////////////////// | and participated out by the broker in shares of $100,000 or less ........................ | 2344 1,634,261 | M.1.c.(2) d. MATURITY DATA FOR BROKERED DEPOSITS: | ////////////////// | (1) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF LESS THAN $100,000 WITH A REMAINING | ////////////////// | MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.c.(1) ABOVE)................. | A243 171 | M.1.d.(1) (2) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF $100,000 OR MORE WITH A REMAINING | ////////////////// | MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.b ABOVE)..................... | A244 509,265 | M.1.d.(2) e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// | reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 457,587 | M.1.e. 2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// | equal item 9, column C above): | ////////////////// | a. Savings deposits: | ////////////////// | (1) Money market deposit accounts (MMDAs) ................................................... | 6810 10,738,339 | M.2.a.(1) (2) Other savings deposits (excludes MMDAs) ................................................. | 0352 2,655,659 | M.2.a.(2) b. Total time deposits of less than $100,000 ................................................... | 6648 7,247,099 | M.2.b. c. Time certificates of deposit of $100,000 or more ............................................ | 6645 2,702,318 | M.2.c. d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d. 3. All NOW accounts (included in column A above) .................................................. | 2398 569,571 | M.3. 4. Not applicable ______________________
19 41 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-10 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-E--Continued Part I. Continued Memoranda (continued) _________________________________________________________________________________________________________________________________
______________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// | Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// | a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// | (1) Three months or less.................................................................... | A225 1,684,248 | M.5.a.(1) (2) Over three months through 12 months..................................................... | A226 3,493,722 | M.5.a.(2) (3) Over one year........................................................................... | A227 2,002,999 | M.5.a.(3) b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently............................................................ | A228 66,130 | M.5.b.(1) (2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2) (3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3) c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// | one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 45,084 | M.5.c. 6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// | of deposit of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// | (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// | items 2.c and 2.d above):(1) | ////////////////// | a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: | ////////////////// | (1) Three months or less ................................................................... | A232 534,657 | M.6.a.(1) (2) Over three months through 12 months .................................................... | A233 754,429 | M.6.a.(2) (3) Over one year through five years ....................................................... | A234 1,282,541 | M.6.a.(3) (4) Over five years ........................................................................ | A235 36,761 | M.6.a.(4) b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently ........................................................... | A236 31,182 | M.6.b.(1) (2) Annually or more frequently, but less frequently than quarterly ........................ | A237 37,950 | M.6.b.(2) (3) Every five years or more frequently, but less frequently than annually ................. | A238 24,798 | M.6.b.(3) (4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4) c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// | one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 19,186 | M.6.c. ______________________
_______________ (1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 20 42 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-11 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-E--Continued Part II. Deposits in Foreign Offices (including Edge and Agreement subsidiaries and IBFs) ______________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ Deposits of: | ////////////////// | 1. Individuals, partnerships, and corporations ................................................... | 2621 1,730,162 | 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 0 | 3. 4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4. 5. Certified and official checks ................................................................. | 2330 0 | 5. 6. All other deposits ............................................................................ | 2668 15,501 | 6. 7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 1,745,663 | 7. Memorandum Dollar Amounts in Thousands |RCFN Bil Mil Thou | ________________________________________________________________________________________________________________________ 1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 1,745,263 | M.1. ______________________
Schedule RC-F--Other Assets __________ | C430 | <- _________________ ________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. Income earned, not collected on loans ........................................................ | RCFD 2164 167,538 | 1. 2. Net deferred tax assets(1) ................................................................... | RCFD 2148 0 | 2. 3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 134,288 | 3. 4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 3,676,812 | 4. _____________ ___________________________ a. | TEXT 3549 | Mortgages held for Resale | RCFD 3549 | 1,858,683 | /////////////////////// | 4.a. _________________________________________________________________| | | | ___________ b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b. ___________ c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c. _____________ ___________________________ 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 3,978,638 | 5. ___________________________ Memorandum ___________________________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1. ___________________________
Schedule RC-G--Other Liabilities __________ | C435 | <- _________________ ________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 58,011 | 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 594,954 | 1.b. 2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 119,644 | 2. 3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3. 4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 478,843 | 4. _____________ ___________________________ a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a. ___________ b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b. ___________ c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c. _____________ ___________________________ 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 1,251,452 | 5.
____________ (1) See discussion of deferred income taxes in Glossary entry on "income taxes." (2) For savings banks, include "dividends" accrued and unpaid on deposits. 21 43 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-12 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices __________ | C440 | <- ____________ ________ | Domestic Offices | ____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ 1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 16,634 | 1. 2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 16,634 | 2. 3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 17,428 | 3. 4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 4,868,836 | 4. 5. Other borrowed money ............................................................................ | 3190 1,380,694 | 5. EITHER | ////////////////// | 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6. OR | ////////////////// | 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 1,669,058 | 7. | ////////////////// | 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 48,946,123 | 8. | ////////////////// | 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 42,919,946 | 9. ______________________
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________ | RCON Bil Mil Thou | ____________________ 10. U.S. Treasury securities ....................................................................... | 1779 1,252,796 | 10. 11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// | securities) .................................................................................... | 1785 505 | 11. 12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 159,244 | 12. 13. Mortgage-backed securities (MBS): | ////////////////// | a. Pass-through securities: | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 5,684,860 | 13.a.(1) (2) Other pass-through securities ........................................................... | 1869 4 | 13.a.(2) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1) (2) All other mortgage-backed securities..................................................... | 2253 518 | 13.b.(2) 14. Other domestic debt securities ................................................................. | 3159 812 | 14. 15. Foreign debt securities ........................................................................ | 3160 97,035 | 15. 16. Equity securities: | ////////////////// | a. Investments in mutual funds ................................................................. | 3161 0 | 16.a. b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b. c. All other equity securities ................................................................. | 3169 311,734 | 16.c. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 7,507,508 | 17. ______________________
Memorandum (to be completed only by banks with IBFs and other "foreign" offices) ______________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ EITHER | ////////////////// | 1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 0 | M.1. OR | ////////////////// | 2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2. ______________________
22 44
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-13 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-I--Selected Assets and Liabilities of IBFs To be completed only by banks with IBFs and other "foreign" offices. __________ | C445 | <- ____________ ________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) ................. | 2133 0 | 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// | column A) ..................................................................................... | 2076 0 | 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) .... | 2077 0 | 3. 4. Total IBF liabilities (component of Schedule RC, item 21) ..................................... | 2898 0 | 4. 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// | part II, items 2 and 3) ....................................................................... | 2379 0 | 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ..... | 2381 0 | 6. ______________________
Schedule RC-K--Quarterly Averages (1) __________ | C455 | <- _________________ ________ Dollar Amounts in Thousands | ///////// Bil Mil Thou | _______________________________________________________________________________________________ _________________________ ASSETS | /////////////////////// | 1. Interest-bearing balances due from depository institutions .............................. | RCFD 3381 10,737 | 1. 2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ...... | RCFD 3382 6,349,267 | 2. 3. Securities issued by states and political subdivisions in the U.S.(2) ................... | RCFD 3383 155,938 | 3. 4. a. Other debt securities(2) ............................................................. | RCFD 3647 98,458 | 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock). | RCFD 3648 347,675 | 4.b. 5. Federal funds sold and securities purchased under agreements to resell in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3365 812,114 | 5. 6. Loans: | ///////////////////// // | a. Loans in domestic offices: | /////////////////////// | (1) Total loans ...................................................................... | RCON 3360 31,884,320 | 6.a.(1) (2) Loans secured by real estate ..................................................... | RCON 3385 14,940,513 | 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers .............. | RCON 3386 5,935 | 6.a.(3) (4) Commercial and industrial loans .................................................. | RCON 3387 12,923,362 | 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures ...... | RCON 3388 2,224,980 | 6.a.(5) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............ | RCFN 3360 70,458 | 6.b. 7. Trading assets .......................................................................... | RCFD 3401 105,824 | 7. 8. Lease financing receivables (net of unearned income) .................................... | RCFD 3484 2,231,479 | 8. 9. Total assets (4) ........................................................................ | RCFD 3368 52,282,230 | 9. LIABILITIES | /////////////////////// | 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// | and telephone and preauthorized transfer accounts) (exclude demand deposits) ............ | RCON 3485 965,535 | 10. 11. Nontransaction accounts in domestic offices: | /////////////////////// | a. Money market deposit accounts (MMDAs) ................................................ | RCON 3486 9,210,475 | 11.a. b. Other savings deposits ............................................................... | RCON 3487 3,907,216 | 11.b. c. Time certificates of deposit of $100,000 or more ..................................... | RCON 3345 2,653,452 | 11.c. d. All other time deposits .............................................................. | RCON 3469 7,513,443 | 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs.. | RCFN 3404 1,765,593 | 12. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3353 6,363,286 | 13. 14. Other borrowed money .................................................................... | RCFD 3355 2,670,145 | 14. ___________________________
_______________ (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost. 23 45 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-14 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-L--Off-Balance Sheet Items Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________ | C460 | <- ____________ ________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | ____________________________________________________________________________________________________ ____________________ 1. Unused commitments: | ////////////////// | a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// | equity lines ............................................................................... | 3814 1,637,875 | 1.a. b. Credit card lines .......................................................................... | 3815 32,940 | 1.b. c. Commercial real estate, construction, and land development: | ////////////////// | (1) Commitments to fund loans secured by real estate ....................................... | 3816 648,369 | 1.c.(1) (2) Commitments to fund loans not secured by real estate ................................... | 6550 383,022 | 1.c.(2) d. Securities underwriting .................................................................... | 3817 0 | 1.d. e. Other unused commitments ................................................................... | 3818 18,626,522 | 1.e. 2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 2,337,268 | 2. ___________________________ a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 158,029 | ////////////////// | 2.a. ___________________________ 3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 175,703 | 3. a. Amount of performance standby letters of credit conveyed to | ////////////////// | ___________________________ others .......................................................... | RCFD 3822 | 12,580 | ////////////////// | 3.a. ___________________________ 4. Commercial and similar letters of credit ...................................................... | 3411 176,335 | 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// | the reporting bank ............................................................................ | 3428 16,524 | 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// | (nonaccepting) bank ........................................................................... | 3429 7,409 | 6. 7. Securities borrowed ........................................................................... | 3432 0 | 7. 8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// | against loss by the reporting bank) ........................................................... | 3433 0 | 8. 9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// | Call Report purposes: | ////////////////// | a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 246,244 | 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 246,244 | 9.a.(2) b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 33,550 | 9.b.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 33,550 | 9.b.(2) c. Farmer Mac agricultural mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2) d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// | Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// | (1) Outstanding principal balance of small business obligations transferred | ////////////////// | as of the report date................................................................... | A249 0 | 9.d.(1) (2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2) 10. When-issued securities: | ////////////////// | a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a. b. Gross commitments to sell .................................................................. | 3435 0 | 10.b. 11. Spot foreign exchange contracts ............................................................... | 8765 622,366 | 11. 12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12. a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a. b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b. ___________ c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c. _____________ d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d. _____________ _______________________________________________ Dollar Amounts in Thousands RCFD Bil Mil Thou _________________________________________________________________________________________________________________________ 13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13. _____________ __________________________ a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a. ___________ b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b. ___________ c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c. _____________ d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d. _____________ ________________________________________________
24 46
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-15 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-L -- Continued _____________ | C461 | <- _________________________________________ ____________________________|___________| | (Column A) | (Column B) | (Column C) | (Column D) | | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other| | Contracts | Contracts | Contracts | Contracts | |___________________|____________________|____________________|____________________| Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | _______________________________________________________________________________________________________________________| | Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// | | Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// | ____________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// | 14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// | amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | items 14.a through 14.e must equal | ///////////////// | ////////////////// | ////////////////// | ////////////////// | sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________| a. Futures contracts ............. | 1,229,392 | 0 | 0 | 36,486 | 14.a. |___________________|____________________|____________________|____________________| | RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 | |___________________|____________________|____________________|____________________| b. Forward contracts ............. | 2,576,500 | 1,931,682 | 0 | 21,832 | 14.b. |___________________|____________________|____________________|____________________| | RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 | |___________________|____________________|____________________|____________________| c. Exchange-traded option contracts:| ///////////////// | ////////////////// | ////////////////// | ////////////////// | |___________________|____________________|____________________|____________________| (1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1) |___________________|____________________|____________________|____________________| | RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 | |___________________|____________________|____________________|____________________| (2) Purchased options ........ | 450,000 | 0 | 0 | 2,206 | 14.c.(2) |___________________|____________________|____________________|____________________| | RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 | |___________________|____________________|____________________|____________________| d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// | (1) Written options .......... | 1,324,980 | 3,887 | 0 | 0 | 14.d.(1) |___________________|____________________|____________________|____________________| | RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 | |___________________|____________________|____________________|____________________| (2) Purchased options ........ | 10,131,934 | 3,887 | 0 | 0 | 14.d.(2) |___________________|____________________|____________________|____________________| | RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 | |___________________|____________________|____________________|____________________| e. Swaps ............................ | 19,502,262 | 0 | 0 | 0 | 14.e. |___________________|____________________|____________________|____________________| | RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 | |___________________|____________________|____________________|____________________| 15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading ......................... | 3,386,305 | 1,939,456 | 0 | 2,206 | 15. |___________________|____________________|____________________|____________________| | RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 | |___________________|____________________|____________________|____________________| 16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// | derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// | purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// | |___________________|____________________|____________________|____________________| a. Contracts marked to market ... | 4,202,500 | 0 | 0 | 36,486 | 16.a. |___________________|____________________|____________________|____________________| | RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 | |___________________|____________________|____________________|____________________| b. Contracts not marked to market | 27,626,263 | 0 | 0 | 21,832 | 16.b. |___________________|____________________|____________________|____________________| | RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 | |___________________|____________________|____________________|____________________|
25 47
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-16 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-L -- Continued _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | Dollar Amounts in Thousands | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other| ___________________________________| Contracts | Contracts | Contracts | Contracts | | Off-balance Sheet Derivatives |___________________|____________________|____________________|____________________| | Position Indicators |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | |_____________________________________________________________________________________________________________________| 17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8733 29,782 | 8734 41,523 | 8735 0 | 8736 58 | 17.a.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8737 20,932 | 8738 36,511 | 8739 0 | 8740 0 | 17.a.(2) b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// | to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8741 524 | 8742 0 | 8743 0 | 8744 1,452 | 17.b.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8745 2,834 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2) c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// | marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .................. | 8749 64,085 | 8750 0 | 8751 0 | 8752 100 | 17.c.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8753 111,703 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2) |__________________________________________________________________________________|
______________________ Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou | _________________________________________________________________________________________________________________________ 1. -2. Not applicable | ////////////////// | 3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// | Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// | that are fee paid or otherwise legally binding) ................................................ | 3833 16,829,602 | M.3. a. Participations in commitments with an original maturity | ////////////////// | exceeding one year conveyed to others ................................|RCFD 3834 | 1,310,691 | ////////////////// | M.3.a. ________________________ 4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// | to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 341,139 | M.4. 5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// | have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// | by type of loan: | ////////////////// | a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// | September report only)....................................................................... | 2741 N/A | M.5.a. b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b. c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// | September report only........................................................................ | 2743 N/A | M.5.c |____________________|
26 48
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-17 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| _____________ | C465 | _________|___________| Schedule RC-M--Memoranda | | Dollar Amounts in Thousands | RCFD Bil Mil Thou | ______________________________________________________________________________________________________|____________________| 1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// | shareholders, and their related interests as of the report date: | ////////////////// | a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// | shareholders and their related interests ..................................................... | 6164 605,294 | 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// | extensions of credit by the reporting bank (including extensions of credit to | ////////////////// | related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// | ___________________________| ////////////////// | of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 24 | ////////////////// | ___________________________| ////////////////// | 1.b. 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// | and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2. 3. Not applicable. | ////////////////// | 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// | (include both retained servicing and purchased servicing): | ////////////////// | a. Mortgages serviced under a GNMA contract ...................................................... | 5500 28,855,729 | 4.a. b. Mortgages serviced under a FHLMC contract: | ////////////////// | (1) Serviced with recourse to servicer ........................................................ | 5501 55,604 | 4.b.(1) (2) Serviced without recourse to servicer ..................................................... | 5502 32,340,522 | 4.b.(2) c. Mortgages serviced under a FNMA contract: | ////////////////// | (1) Serviced under a regular option contract .................................................. | 5503 190,640 | 4.c.(1) (2) Serviced under a special option contract .................................................. | 5504 38,282,672 | 4.c.(2) d. Mortgages serviced under other servicing contracts ............................................ | 5505 8,508,320 | 4.d. 5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// | equal Schedule RC, item 9): | ////////////////// | a. U.S. addressees (domicile) .................................................................... | 2103 16,297 | 5.a. b. Non-U.S. addressees (domicile) ................................................................ | 2104 337 | 5.b. 6. Intangible assets: | ////////////////// | a. Mortgage servicing rights ..................................................................... | 3164 1,483,959 | 6.a. b. Other identifiable intangible assets: | ////////////////// | (1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1) (2) All other identifiable intangible assets .................................................. | 5507 126,463 | 6.b.(2) c. Goodwill ...................................................................................... | 3163 672,992 | 6.c. d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 2,283,414 | 6.d. e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// | are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e. 7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// | redeem the debt ...................................................................................| 3295 75,000 | 7. ______________________
- ------------ (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item. 27 49
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-18 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-M--Continued ________________________ Dollar Amounts in Thousands | Bil Mil Thou| _____________________________________________________________________________________________ |_______________________| 8. a. Other real estate owned: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1) (2) All other real estate owned: | /////////////////////// | (a) Construction and land development in domestic offices ....................... | RCON 5508 4,537 | 8.a.(2)(a) (b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 8,067 | 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 740 | 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 21,202 | 8.a.(2)(e) (f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 34,546 | 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3) c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c. 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// | item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 125,000 | 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// | proprietary, private label, and third party products): | /////////////////////// | a. Money market funds .................................................................. | RCON 6441 55,245 | 10.a. b. Equity securities funds ............................................................. | RCON 8427 108,359 | 10.b. c. Debt securities funds ............................................................... | RCON 8428 13,250 | 10.c. d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d. e. Annuities ........................................................................... | RCON 8430 102,292 | 10.e. f. Sales of proprietary mutual funds and annuities (included in items 10.a through | /////////////////////// | 10.e. above) ........................................................................... | RCON 8784 150,100 | 10.f. _________________________
_________________________________________________________________________________________________________________________________ | | ______________________ |Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | | _________________________________________________________________________________________________ ____________________ |1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | | | a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. | | b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. | ______________________ | | _________________________________________________________________________________________________________________________________
28 50 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-19 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets The FFIEC regards the information reported in __________ all of Memorandum item 1, in items 1 through 10, | C470 | <- column A, and in Memorandum items 2 through 4, ______________________________________________________ ________ column A, as confidential. | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | | accruing | accruing | | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________ ____________________ ____________________ ____________________ 1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ................ | 1245 | 1246 71,390 | 1247 223,962 | 1.a. b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b. 2. Loans to depository institutions and | ///// | ////////////////// | ////////////////// | acceptances of other banks: | ///// | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository | ///// | ////////////////// | ////////////////// | institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a. b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b. 3. Loans to finance agricultural production and | ///// | ////////////////// | ////////////////// | other loans to farmers .......................... | 1594 | 1597 385 | 1583 531 | 3. 4. Commercial and industrial loans: | ///// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ................ | 1251 | 1252 11,945 | 1253 108,334 | 4.a. b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b. 5. Loans to individuals for household, family, and | ///// | ////////////////// | ////////////////// | other personal expenditures: | ///// | ////////////////// | ///////////////// | a. Credit cards and related plans ............... | 5383 | 5384 1,187 | 5385 669 | 5.a. b. Other (includes single payment, installment, | ///// | ////////////////// | ////////////////// | and all student loans) ....................... | 5386 | 5387 22,600 | 5388 8,465 | 5.b. 6. Loans to foreign governments and official | ///// | ////////////////// | ////////////////// | institutions .................................... | 5389 | 5390 0 | 5391 0 | 6. 7. All other loans ................................. | 5459 | 5460 14,909 | 5461 1,919 | 7. 8. Lease financing receivables: | ///// | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ................ | 1257 | 1258 95 | 1259 6,544 | 8.a. b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b. 9. Debt securities and other assets (exclude other | ///// | ////////////////// | ////////////////// | real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 85,778 | 9. ________________________________________________________________
==================================================================================================================================== Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8. ________________________________________________________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ ____________________ 10. Loans and leases reported in items 1 | | | | through 8 above which are wholly or partially | ///// | ////////////////// | ////////////////// | guaranteed by the U.S. Government ............... | 5612 | 5613 18,447 | 5614 21,415 | 10. a. Guaranteed portion of loans and leases | ///// | ////////////////// | ////////////////// | included in item 10 above .................... | 5615 | 5616 18,250 | 5617 16,952 | 10.a. ________________________________________________________________
29 51 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-20 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-N--Continued __________ | C473 | <- ______________________________________________________ ________ | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | Memoranda | accruing | accruing | | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________ ____________________ ____________________ ____________________ 1. Restructured loans and leases included in | ///// | /////////////////// | ///////////////// | Schedule RC-N, items 1 through 8, above (and not | ///// | //// | | reported in Schedule RC-C, part I, Memorandum | ///// | //// | | item 2) ......................................... | 1658 | 1659 | | M.1. 2. Loans to finance commercial real estate, | ///// | //// | | construction, and land development activities | ///// | //// | | (not secured by real estate) included in | ///// | /////////////////// | ///////////////// | Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 826 | 6560 7,043 | M.2. |____________________|____________________ |___________________ 3. Loans secured by real estate in domestic offices | RCON | RCON Bil Mil Thou | RCON Bil Mil Thou| |___________________ |____________________ ____________________ (included in Schedule RC-N, item 1, above): | ///// | ////////////////// | ////////////////// | a. Construction and land development ............ | 2759 | 2769 1,100 | 3492 26,422 | M.3.a. b. Secured by farmland .......................... | 3493 | 3494 161 | 3495 0 | M.3.b. c. Secured by 1-4 family residential properties: | ///// | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by | ///// | ////////////////// | ////////////////// | 1-4 family residential properties and | ///// | ////////////////// | ////////////////// | extended under lines of credit ........... | 5398 | 5399 5,114 | 5400 17,374 | M.3.c.(1) (2) All other loans secured by 1-4 family | ///// | ////////////////// | ////////////////// | residential properties ................... | 5401 | 5402 58,079 | 5403 75,430 | M.3.c.(2) d. Secured by multifamily (5 or more) | ///// | ////////////////// | ////////////////// | residential properties ....................... | 3499 | 3500 521 | 3501 12,491 | M.3.d. e. Secured by nonfarm nonresidential properties . | 3502 | 3503 6,415 | 3504 92,245 | M.3.e. ________________________________________________________________
___________________________________________ | (Column A) | (Column B) | | Past due 30 | Past due 90 | | through 89 days | days or more | ____________________ ____________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ 4. Interest rate, foreign exchange rate, and other | ///// | ////////////////// | commodity and equity contracts: | ///// | ////////////////// | a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a. b. Replacement cost of contracts with a | ///// | ////////////////// | positive replacement cost .................... | 3529 | 3530 0 | M.4.b. ___________________________________________
30 52 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-21 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
______________________ Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 | |____________________| Dollar Amounts in Thousands | RCON Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Unposted debits (see instructions): | ////////////////// | a. Actual amount of all unposted debits ...................................................... | 0030 216 | 1.a. OR | ////////////////// | b. Separate amount of unposted debits: | ////////////////// | (1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2) 2. Unposted credits (see instructions): | ////////////////// | a. Actual amount of all unposted credits ..................................................... | 3510 216 | 2.a. OR | ////////////////// | b. Separate amount of unposted credits: | ////////////////// | (1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// | deposits in domestic offices) ................................................................ | 3520 101,763 | 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// | Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// | a. Demand deposits of consolidated subsidiaries .............................................. | 2211 206,111 | 4.a. b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 20,089 | 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 8 | 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// | a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b. c. Interest accrued and unpaid on deposits in insured branches | ////////////////// | (included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c. ______________________ ______________________ Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// | Federal Reserve to act as pass-through correspondents. | ////////////////// | 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// | behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// | of the reporting bank: | ////////////////// | a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// | item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// | a. Unamortized premiums ...................................................................... | 5516 769 | 7.a. b. Unamortized discounts ..................................................................... | 5517 0 | 7.b. ______________________ _______________________________________________________________________________________________________________________________ | | |8. To be completed by banks with "Oakar deposits." | ______________________ | Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | | | the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 2,188,589 | 8. | ______________________ | | _______________________________________________________________________________________________________________________________ ______________________ 9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// | deposits in domestic offices) ................................................................ | 8432 0 | 10. ______________________ ______________ (1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits.
31 53 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-22 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-O--Continued Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// | certain reciprocal demand balances: | ////////////////// | a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// | between the reporting bank and savings associations were reported on a net basis | ////////////////// | rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a. b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// | between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// | reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b. c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// | collection were included in the calculation of net reciprocal demand balances between | ////////////////// | the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// | in Schedule RC-E ............................................................................ | A182 0 | 11.c. ____________________ Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________ ___________________________|____________________| 1. Total deposits in domestic offices of the bank (sum of Memorandum it ems 1.a. (1) and | ////////////////// | 1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// | a. Deposits accounts of $100,000 or less: | ////////////////// | (1) amount of deposit accounts of $100,000 or less ....................................... | 2702 19,755,631 | M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// | completed for the June report only) .............................|RCON 3779 3,742,107 | ////////////////// | M.1.a.(2) b. Deposit accounts of more than $100,000: | ////////////////// | (1) Amount of deposit accounts of more than $100,000 ..................................... | 2710 14,354,949 | M.1.b.(1) Number | ////////////////// | (2) Number of deposit accounts of more than $100,000 ................|RCON 2722 27,062 | ////////////////// | M.1.b.(2) 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by mutiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or procedure for determining a better estimate of uninsured deposits than the ____________YES_______NO__ estimated described above .................................................................. | 6861| |///| x | M.2.a. ____________________ b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou| determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b. _____________________________________________________________________________________________________________________________ | C477 | <- Person to whom questions about the Reports of Condition and Income should be directed: __________ PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194 ___________________________________________________________________________________ ______________________________________ Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
32 54 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-23 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-R--Regulatory Capital This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below. ____________ | C480 | <- 1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________| only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO | box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________ of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1. _____________________________ For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines.
___________________________________________ | (Column A) | (Column B) | |Subordinated Debt(1)| Other | _________________________________________________________________ | and Intermediate | Limited- | | NOTE: All banks are required to complete items 2 and 3 below | | Term Preferred | Life Capital | | See optional worksheet for items 3.a through 3.f. | | Stock | Instruments | |________________________________________________________________| ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 2. Subordinated debt(1) and other limited-life capital instruments (original | | | weighted average maturity of at least five years) with a remaining | | | maturity of: | | | a. One year or less ...................................................... | 3780 25,737 | 3786 0 | 2.a. b. Over one year through two years ....................................... | 3781 737 | 3787 0 | 2.b. c. Over two years through three years .................................... | 3782 10,745 | 3788 0 | 2.c. d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d. e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e. f. Over five years ....................................................... | 3785 1,101,000 | 3791 0 | 2.f. 3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// | determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou | a. Tier 1 capital......................................................... | ////////////////// | 8274 3,590,367 | 3.a. b. Tier 2 capital......................................................... | ////////////////// | 8275 1,755,646 | 3.b. c. Total risk-based capital............................................... | ////////////////// | 3792 5,346,013 | 3.c. d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 297,250 | 3.d. e. Risk-weighted assets................................................... | ////////////////// | A223 45,718,856 | 3.e. f. "Average total assets"................................................. | ////////////////// | A224 51,482,775 | 3.f. ___________________________________________ | (Column A) | (Column B) | Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- | by banks that answered NO to item 1 above and | Recorded | alent Amount | by banks with total assets of $1 billion or more. | on the | of Off-Balance | | Balance Sheet | Sheet Items(2) | ____________________ ____________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ 4. Assets and credit equivalent amounts of off-balance sheet items assigned | | | to the Zero percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// | guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// | OECD central governments .......................................... | 3794 2,147,648 | ////////////////// | 4.a.(1) (2) All other ......................................................... | 3795 1,115,265 | ////////////////// | 4.a.(2) b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 101,488 | 4.b. ___________________________________________
_____ (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7. (2) Do not report in column B the risk-weighted amount of assets reported in column A. 33 55 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-24 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-R--Continued ___________________________________________ | (Column A) | (Column B) | | Assets | Credit Equiv- | | Recorded | alent Amount | | on the | of Off-Balance | | Balance Sheet | Sheet Items(1) | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 20 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// | agencies and other OECD central governments ....................... | 3798 714,375 | ////////////////// | 5.a.(1) (2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// | ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// | securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// | by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2) (3) All other ......................................................... | 3800 8,774,345 | ////////////////// | 5.a.(3) b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 791,065 | 5.b. 6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 50 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................. | 3802 5,265,173 | ////////////////// | 6.a. b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 409,680 | 6.b. 7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 100 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................. | 3804 31,799,547 | ////////////////// | 7.a. b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 10,122,631 | 7.b. 8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// | risk-based capital ratio(2) .............................................. | 3806 83,713 | ////////////////// | 8. 9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// | items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// | item 12 plus items 4.b and 4.c) .......................................... | 3807 49,900,066 | ////////////////// | 9. ___________________________________________ Memoranda ______________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// | risked-based capital standards .................................................................| 8764 135,825| M.1. |___________________| _____________________________________________________________________ | With a remaining maturity of | |____________________________________________________________________| | (Column A) | (Column B) | (Column C) | | | | | | One year or less | Over one year | Over five years | | | through five years | | |______________________|______________________|______________________| |RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou| |______________________|______________________|______________________| 2. Notional principal amounts of | | | | off-balance sheet derivative contracts(3):| | | | a. Interest rate contracts ................. | 3809 8,320,956 | 8766 18,597,686 | 8767 801,055 | M.2.a. b. Foreign exchange contracts .............. | 3812 1,578,420 | 8769 101,907 | 8770 0 | M.2.b. c. Gold contracts .......................... | 8771 15,291 | 8772 0 | 8773 0 | M.2.c. d. Other precious metals contracts ......... | 8774 8,748 | 8775 0 | 8776 0 | M.2.d. e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e. f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f. |____________________________________________________________________|
_________________ 1) Do not report in column B the risk-weighted amount of assets reported in column A. 2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. 3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts. 34 56 Legal Title of Bank: FLEET NATIONAL BANK Address: ONE MONARCH PLACE Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 City, State, Zip: SPRINGFIELD, MA 01102 Page RC-25 FDIC Certificate No.: 02499
Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income at close of business on June 30, 1996 FLEET NATIONAL BANK SPRINGFIELD , MASSACHUSETTS - ------------------- ----------------- ------------- Legal Title of Bank City State The management of the reporting bank may, if it wishes, submit a brief narrative statement on the amounts reported in the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in response to any request for individual bank report data. However, the information reported in column A and in all of Memorandum item 1 of Schedule RC-N is regarded as confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a statement may check the "No comment" box below and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space such phrases as "No statement," "Not applicable," "N/A," "No comment," and "None." The optional statement must be entered on this sheet. The statement should not exceed 100 words. Further, regardless of the number of words, the statement must not exceed 750 characters, including punctuation, indentation, and standard spacing between words and sentences. If any submission should exceed 750 characters, as defined, it will be truncated at 750 characters with no notice to the submitting bank and the truncated statement will appear as the bank's statement both on agency computerized records and in computer-file releases to the public. All information furnished by the bank in the narrative statement must be accurate and not misleading. Appropriate efforts shall be taken by the submitting bank to ensure the statement's accuracy. The statement must be signed, in the space provided below, by a senior officer of the bank who thereby attests to its accuracy. If, subsequent to the original submission, material changes are submitted for the data reported in the Reports of Condition and Income, the existing narrative statement will be deleted from the files, and from disclosure; the bank, at its option, may replace it with a statement, under signature, appropriate to the amended data. The optional narrative statement will appear in agency records and in release to the public exactly as submitted (or amended as described in the preceding paragraph) by the management of the bank (except for the truncation of statements exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. __________________________________________________________________________ No comment |X| (RCON 6979) | c471 | C472 |<- BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) /s/__Gero DeRosa_______________________________ ___7/25/96________ Signature of Executive Officer of Bank Date of Signature 35 EX-27 12 FINANCIAL DATA SCHEDULE
5 YEAR JUL-31-1996 AUG-01-1995 JUL-31-1996 10,399,000 0 66,187,000 740,000 1,659,000 85,704,000 165,104,000 86,094,000 198,592,000 63,225,000 27,351,000 113,000 0 0 105,810,000 198,592,000 0 250,596,000 0 198,711,600 47,482,000 0 5,466,000 4,403,000 2,009,000 1,281,000 0 0 0 1,281,000 0.07 0
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