PRELIMINARY PROXY STATEMENT - SUBJECT TO CHANGE
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12.
VERITAS DGC INC.
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(Name of Registrant as Specified in its Charter)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
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PRELIMINARY PROXY STATEMENT - SUBJECT TO CHANGE
[VERITAS LOGO]
VERITAS DGC INC.
10300 TOWN PARK DRIVE
HOUSTON, TEXAS 77072
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 2, 2003
----------
We will hold the annual meeting of the holders of common stock of
Veritas DGC Inc. and the holders of exchangeable shares and class A exchangeable
shares series 1 of Veritas Energy Services Inc., a wholly-owned subsidiary of
Veritas DGC (all such holders are collectively referred to in this Notice as
"stockholders") at the offices of Veritas DGC, 10300 Town Park Drive, Houston,
Texas 77072, on Tuesday, December 2, 2003, at 10:00 a.m., Houston time, for the
following purposes:
1) To elect a board of seven directors to serve until the next
annual meeting of stockholders and until their successors are
elected and qualified;
2) To consider an amendment to our Restated Certificate of
Incorporation to increase the number of shares of common stock
authorized for issuance from 40,000,000 shares to 78,500,000
shares;
3) To consider an amendment and restatement of the Company's 1997
Employee Stock Purchase Plan to, among other things, increase
the number of shares authorized under the plan from 1,000,000
shares to 2,000,000 shares;
4) To consent to a stock option exchange program under which
certain outstanding employee options could be exchanged for
new options to be issued no less than six months and one day
later; and
5) To transact any other business as may properly be presented at
the meeting or any adjournment of the meeting.
A record of stockholders has been taken as of the close of business on
October 13, 2003 and only those stockholders of record on that date are entitled
to notice of and to vote at the meeting. A stockholders' list will be available
beginning November 20, 2003, and may be inspected during normal business hours
before the annual meeting at the offices of Veritas DGC, 10300 Town Park Drive,
Houston, Texas.
By Order of the Board of Directors,
Larry L. Worden
Vice President, General Counsel and Secretary
Houston, Texas
October __, 2003
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY
PREVIOUSLY SUBMITTED PROXY AND VOTE IN PERSON.
VERITAS DGC INC.
10300 TOWN PARK DRIVE
HOUSTON, TEXAS 77072
PROXY STATEMENT
We are furnishing this proxy statement in connection with the
solicitation of proxies by our board of directors for use at our annual meeting
of stockholders to be held December 2, 2003, and at any adjournment of the
meeting. The meeting will be held at the time and place and for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders.
As of October 13, 2003, the record date for determining the
stockholders entitled to vote at the meeting, there were outstanding __________
shares of Veritas DGC common stock, par value $.01 per share, __________ Veritas
Energy Services Inc. exchangeable shares and __________ Veritas Energy Services
class A exchangeable shares series 1. In this proxy statement, all such shares
are referred to collectively as "shares," and all holders of shares are referred
to collectively as "stockholders." This proxy statement addresses you if you are
a stockholder. All shares vote together as a single class and each share
entitles its holder to one vote on each matter presented at the meeting. Holders
of a majority of the outstanding shares must be present, in person or by proxy,
to constitute a quorum for the transaction of business. Abstentions will be
treated as present for purposes of determining whether a quorum is present.
The proxy accompanying this proxy statement, when properly signed and
returned, permits your shares to be voted by proxy on all matters that come
before the meeting or any adjournment of the meeting. If you specify your choice
on the proxy with respect to a matter being voted upon, your shares will be
voted as you specify. IF YOU SIGN, DATE AND RETURN YOUR PROXY, THEN, UNLESS YOU
SPECIFY OTHERWISE, YOUR SHARES WILL BE VOTED IN FAVOR OF OUR SEVEN NOMINEES TO
THE BOARD OF DIRECTORS AND IN FAVOR OF EACH OF THE OTHER ITEMS SPECIFIED IN THE
NOTICE OF ANNUAL MEETING.
We are not aware of any business to be acted upon at the meeting other
than what is set forth in the accompanying Notice of Annual Meeting. If,
however, other matters are properly brought before the meeting, or any
adjournment of the meeting, the persons appointed as proxies will have
discretion to vote in the manner they determine to or to abstain from voting on
any such matter according to their best judgment.
You may revoke your proxy by (i) giving written notice to Larry L.
Worden, Vice President, General Counsel and Secretary, Veritas DGC Inc., 10300
Town Park Drive, Houston, Texas 77072, (ii) signing and delivering a later dated
proxy to Mr. Worden at any time before its exercise, or (iii) attending the
meeting and voting in person. Our inspector of election, who is required to
decide impartially any interpretive questions as to the conduct of the vote,
will tabulate the votes at the meeting and certify the results.
We will bear the cost of soliciting proxies in the accompanying form.
In addition to solicitations by mail, our directors and employees may solicit
proxies (without additional compensation) in person, by telephone, fax or
electronic mail.
This proxy statement and form of proxy is first being sent or given to
stockholders on or about October __, 2003.
ELECTION OF DIRECTORS
The stockholders will elect seven directors at the meeting. Each
director elected will hold office until the next annual meeting of stockholders,
until his successor is elected and qualified or until his earlier death,
resignation or removal. By signing, dating and returning the accompanying proxy,
you will grant your proxy to vote your shares as you direct. If you sign, date
and return your proxy, then, unless you specify otherwise, your shares will be
voted FOR election of our seven nominees to the board of directors. All
nominees, except for Mr. Carroll, who was appointed as a director by the board
in March 2003 have been previously elected directors by our stockholders. Each
of the nominees was recommended by the nominating and corporate governance
committee of our board of directors. If any nominee becomes unavailable for
election, the proxy may be voted for a substitute nominee selected by the
persons named in the proxy or the size of the board of directors may be reduced;
however, we are not aware of any circumstances likely to render any nominee
unavailable. Abstentions and broker non-votes will not be counted as a vote for
or against any nominee, and will not affect the outcome of the election.
Cumulative voting is not allowed.
As previously announced, Mr. David B. Robson has notified our board of
directors that he intends to step down as chief executive officer of Veritas DGC
as soon as a successor can be located. Mr. Robson intends to remain as a
director and as chairman of the board after a new chief executive officer is
hired and takes office. After a new chief executive officer is hired, our board
may expand the number of directors to eight and appoint the new chief executive
officer to our board of directors. The seven nominees who receive a majority of
the votes cast will be the duly elected directors of Veritas DGC.
The board of directors recommends a vote "FOR" all seven of our
nominees.
NOMINEES
The names of the seven nominees and certain information concerning each
of them is set forth below:
PRINCIPAL POSITION DIRECTOR
NAME WITH VERITAS DGC AGE SINCE MEMBER OF
---------------------- ---------------------------- ------ --------- ----------------------------------
Loren K. Carroll Director 60 2003 Audit committee; compensation
committee
Clayton P. Cormier Director 71 1991 Audit committee
James R. Gibbs Director 59 1997 Audit committee; compensation;
nominating and corporate
governance committee
Stephen J. Ludlow Director, Vice Chairman 53 1994 Health, safety and environment
committee
Brian F. MacNeill Director 64 1996 Compensation committee;
nominating and corporate
governance committee
Jan Rask Director 48 1998 Audit committee; health, safety
and environment committee;
nominating and corporate
governance committee
David B. Robson Director, Chairman and 64 1996 Health, safety and environment
Chief Executive Officer committee
LOREN K. CARROLL is currently president and chief executive officer of
M-I LLC and is also executive vice president of Smith International, Inc. Mr.
Carroll also serves as a director of Smith International Inc. and as a director
of Fleetwood Enterprises, Inc. Mr. Carroll joined Smith International in
December 1984 as vice president and chief financial officer. In January 1988 he
was appointed executive vice president and chief financial officer of Smith
International and served in that capacity until March 1989. Mr. Carroll then
rejoined Smith International in 1992 as executive vice president and chief
financial officer. Smith International holds a 60% interest in M-I LLC.
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CLAYTON P. CORMIER is currently a financial and insurance consultant.
Prior to that, Mr. Cormier was a senior vice president in the oil and gas
division of Johnson & Higgins, an insurance broker, from 1986 to 1991 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
Corp.
JAMES R. GIBBS is chairman, president and chief executive officer of
Frontier Oil Corporation, an oil refining and marketing company. He has been
chairman since January 1999, chief executive officer since 1992 and president
since 1987. He has been employed there for twenty-one years. Mr. Gibbs is a
director of Frontier Oil Corporation, Smith International and Gundle/SLT
Environmental, Inc. and is an advisory director of Frost Bank-Houston.
STEPHEN J. LUDLOW became vice chairman of Veritas DGC in January 1999.
From August 1996, upon consummation of the business combination between Veritas
DGC (formerly Digicon Inc.) and Veritas Energy Services until January 1999, he
was president and chief operating officer of Veritas DGC Inc. He has been
employed by Veritas DGC for 31 years and served as president and chief executive
officer of Veritas DGC from 1994 to 1996. Prior to 1994, he served as executive
vice president of Veritas DGC for four years following eight years of service in
a variety of management positions with increasing levels of responsibility,
including several years of service as the executive responsible for operations
in Europe, Africa and the Middle East.
BRIAN F. MACNEILL is currently chairman of PetroCanada, an integrated
oil and natural gas energy company and Dofasco Inc., a steel producer. Prior to
his retirement on January 1, 2001, he was president and chief executive officer
of Enbridge Inc., a crude oil and liquids transportation and natural gas
distribution company, for more than five years. Mr. MacNeill is a director of
PetroCanada, Dofasco Inc., TELUS Corporation, West Fraser Timber Co., Ltd.,
Sears Canada Inc., Toronto-Dominion Bank, Western Oil Sands, Inc., and Legacy
Hotel Real Estate Investment Trust.
JAN RASK is currently president and chief executive officer of TODCO,
formerly known as R & B Falcon and has held that position since July 2002. From
September 2001 to July 2002, he was the Managing Director-Acquisitions and
Special Projects of Pride International, Inc. and from July 1996 to September
2001, Mr. Rask was president, chief executive officer and director of Marine
Drilling Companies, Inc. Mr. Rask served as president and chief executive
officer of Arethusa (Off-Shore) Limited from May 1993 until the acquisition of
Arethusa (Off-shore) Limited by Diamond Offshore Drilling, Inc. in May 1996. Mr.
Rask joined Arethusa (Off-shore) Limited's principal operating subsidiary in
1990 as its president and chief executive officer.
DAVID B. ROBSON has been chairman and chief executive officer of
Veritas DGC since consummation of the business combination between Veritas DGC
and Veritas Energy Services in August 1996. Prior to that, he held similar
positions with Veritas Energy Services or its predecessors since 1974. Mr.
Robson is also a director of Pride International, Inc.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During fiscal year 2003, the board of directors held 10 regularly and
specially scheduled meetings. Committees of the board of directors held the
following number of meetings: audit committee - 9 meetings; compensation
committee - 4 meetings; nominating and corporate governance committee - 3
meetings; and health, safety and environment committee - 2 meetings. During
fiscal year 2003, all directors attended at least 75% of the aggregate of the
meetings of the board of directors and the committees on which they served.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established the following standing
committees:
Compensation Committee. The compensation committee approves the
compensation arrangements for officers of our company, including establishment
of salaries and bonuses and other compensation. Additionally, the compensation
committee approves and administers compensation plans in which officers and
directors are eligible to participate, and approves awards of stock options and
restricted stock. The compensation committee also reviews our succession plan
and significant issues that relate to changes in benefit plans.
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Nominating and Corporate Governance Committee. The nominating and
corporate governance committee identifies and recommends nominees for election
to our board of directors at annual meetings and to fill vacancies on our board
of directors, recommends nominees for appointment to our committees, annually
reviews the structure and operation of each board committee, and annually
reviews its charter. The nominating and corporate governance committee will
consider nominees recommended by stockholders. With respect to procedures that
must be followed in order for nominations from stockholders to be considered,
see "Stockholder Proposals and Director Nominations." In accordance with its
charter, the committee is developing a set of corporate governance guidelines to
be considered by the board of directors.
Health, Safety and Environmental Committee. The health, safety and
environment committee assists the board of directors by overseeing our
environmental and occupational health and safety policies and programs and
monitoring related current and future environmental and occupational health and
safety regulatory issues.
Audit Committee. The audit committee assists the board of directors in
ensuring that our accounting and reporting practices are in accordance with all
applicable requirements. Specifically, the audit committee annually reviews and
recommends to our board of directors the firm to be engaged to audit the
accounts of our company and its subsidiaries. Additionally, the audit committee
reviews with such independent accountant the plan and results of the auditing
engagement, makes inquiries as to the adequacy of internal accounting controls,
and considers the independence of our independent accountants. The committee
also reviews the scope and scheduling of our internal audits and reviews the
results of those audits.
All members of the audit committee are independent, as defined in
Sections 303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing
standards and as that term is used in Schedule 14A under the Securities Exchange
Act of 1934. Our board of directors has determined that each member of the audit
committee is financially literate and that Mr. Cormier has the necessary
accounting and financial expertise to serve as chairman. Our board of directors
has designated each of Messrs Carroll, Cormier, Gibbs and Rask as "audit
committee financial experts" following a determination that each met the
criteria for such designation under the Securities and Exchange Commission Rules
and Regulations.
Our board of directors adopted a written charter for the audit
committee which was most recently amended on September 23, 2003. A copy of the
amended charter is attached to this proxy statement as Annex A.
Notwithstanding anything to the contrary set forth in any of our
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act that might incorporate this proxy statement or future filings with
the Securities and Exchange Commission, in whole or in part, the preceding
description of our audit committee and the audit committee report included below
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission or incorporated by reference into any filing
except to the extent is specifically incorporated by reference therein.
REPORT OF THE AUDIT COMMITTEE
The audit committee has reviewed and discussed our audited financial
statements for the year ended July 31, 2003 with management and
PricewaterhouseCoopers LLP, our independent accountants, and has also discussed
with our independent accountants the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU Section 380) with respect
to those statements.
The audit committee has received and reviewed the written disclosures
and the letter from PricewaterhouseCoopers LLP required by Independence
Standards Board Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), and has discussed with
PricewaterhouseCoopers LLP its independence in connection with its audit of our
most recent financial statements. The audit committee has reviewed the services
provided by PricewaterhouseCoopers LLP and has determined that the services
provided are compatible with the maintenance of PricewaterhouseCoopers LLP's
independence.
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Based on the review and discussions referred to above, the audit
committee recommended to our board of directors that the most recent audited
financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended July 31, 2003, filed with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Clayton P. Cormier, Chairman
Loren K. Carroll
James R. Gibbs
Jan Rask
DIRECTOR COMPENSATION
Effective December 3, 2002, each of our directors who is not also an
employee is paid an annual fee of $25,000 plus travel expenses, a fee of $1,500
for attendance at each regular or special board and committee meeting (other
than telephonic meetings) and a fee of $750 for attendance at each telephonic
board or committee meeting. Also effective December 3, 2002, the chairman of the
audit committee is paid a fee of $10,000 annually in addition to the other fees
paid to non-employee directors. Prior to December 3, 2002, each non-employee
director was paid an annual fee of $15,000 plus travel expenses, a fee of $1,500
for attendance at each regular or special board of directors meeting (other than
telephonic meetings), $750 for attendance at each telephonic board of directors
meeting and $750 for attendance at each regular, special or telephonic committee
meeting. Prior to December 3, 2002, the chairman of the audit committee received
no additional fee for service as chairman. The increase in the annual fee for
non-employee directors and the additional fee for the chairman of the audit
committee were pro-rated for the period beginning December 3, 2002 and ending
July 31, 2003.
Under the company's Share Incentive Plan, non-employee directors are
eligible to receive (1) nonqualified options, (2) share appreciation rights, (3)
deferred share units, (4) restricted shares and (5) performance shares. The
compensation committee determines the type of awards granted and the terms of
each grant. It is our board's current policy to award to newly elected or
appointed non-employee directors options to purchase 10,000 shares of our common
stock at fair market value on the date of grant. The options granted to newly
elected or appointed non-employee directors have a five-year term and become
exercisable as follows: 2,500 options immediately upon the date of grant and an
additional 2,500 options on each subsequent year on the anniversary of the date
of grant. Each year after election or appointment, typically in March, each
non-employee director is granted options to purchase 5,000 shares of our common
stock at fair market value on the date of grant. These options vest immediately
and have a five-year term.
Commencing with annual director's fees paid in calendar year 2003, each
of our non-employee directors may elect to receive deferred share units issued
under our Share Incentive Plan in lieu of either 25, 50, 75 or 100 percent of
his or her annual director's fee. Once vested, each share unit is convertible
into one share of our common stock. A director who elects to receive deferred
share units prior to the end of any calendar year is entitled to receive on
January 1 of the following year that number of deferred share units with a fair
market value, as defined in the plan, equal to the amount deferred. The share
units then vest on the following dates: 25 percent on January 1 (the date of
grant); and 25 percent on each of the following dates: April 1, July 1, and
October 1. Vested share units automatically convert to shares of our common
stock upon the director's retirement or other termination. Only Mr. MacNeill
elected to receive share units in lieu of his annual director's fees. On January
1, 2003, he was issued in lieu of 100% his annual director's fee 3,165 share
units based on a price of our common shares of $7.90 per share on December 31,
2002.
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APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES
DESCRIPTION OF PROPOSED AMENDMENT
On September 23, 2003, our board of directors adopted resolutions
approving a proposed amendment to Article IV of our Restated Certificate of
Incorporation (the "Certificate") to increase the number of shares of common
stock that we are authorized to issue from 40,000,000 shares to 78,500,000
shares. Our board of directors determined that the amendment is advisable and
directed that the amendment be considered at the 2003 annual meeting of
stockholders.
Accordingly, it is proposed to amend Article IV, Section 1, of our
Certificate to read in its entirety as follows:
"Section 1. The aggregate number of shares that the Corporation will
have authority to issue is 79,500,000, of which 78,500,000 will be
shares of common stock, par value $.01 per share ("Ordinary Shares"),
and 1,000,000 will be shares of preferred stock, par value $.01 per
share ("Preferred Stock")."
If the proposed amendment is adopted by the required vote of
stockholders, it will become effective upon its being filed with the Delaware
Secretary of State.
PURPOSES AND EFFECTS OF THE AMENDMENT
As of October 13, 2003, _____ shares of our common stock were
outstanding; _____ shares were reserved for issuance upon exchange of the
outstanding exchangeable shares of Veritas Energy Services and _____ shares were
reserved for issuance under equity compensation plans. In addition, we are
obligated to issue to the former owners of Fairweather Geophysical L.L.C, in
which we acquired an interest in December 2000, shares having a fair market
value of $500,000 if certain conditions are met on or before May 1, 2004. As a
result, as of October 13, 2003, only _____ shares of common stock were available
for issuance. Our board of directors believes that it is advisable and in our
best interests to have available additional authorized but unissued shares of
common stock in an amount adequate to provide for our future needs. The shares
of common stock proposed for authorization under the amendment may be issued for
any proper corporate purpose, including, without limitation: acquiring other
businesses or technologies in exchange for shares of common stock; entering into
joint venture arrangements with other companies in which common stock or the
right to acquire common stock are part of the consideration; stock splits or
stock dividends; raising capital through the sale of common stock; attracting
and retaining valuable employees by the issuance of additional stock options or
use of stock-based compensation plans. Our board of directors has no current
plans or commitments to issue any of the additional common stock.
The increase in authorized common stock will not have any immediate
effect on the rights of existing stockholders. However, if the proposed
amendment is approved, the additional shares will be available for issuance from
time to time by us, in the discretion of our board of directors, without further
authorization or vote of the stockholders unless such authorization is otherwise
required by applicable law or regulation or the rules of any exchange on which
the common stock is listed. An increase in the authorized number of shares of
common stock could make more difficult, and thereby discourage, attempts to
acquire control of the company, even though stockholders of the company may deem
such an acquisition to be desirable. Issuance of shares of common stock could
dilute the ownership interest and voting power of stockholders of the company
who are seeking control of the company. Shares of common stock could be issued
in a private placement to one or more persons or organizations sympathetic to
management and opposed to any takeover bid, or under other circumstances that
could make more difficult, and thereby discourage, attempts to acquire control
of the company. To the extent that it impedes any such attempts, the proposed
amendment may serve to perpetuate management.
Holders of the common stock, including the additional shares proposed
for authorization under the amendment, do not have preemptive rights, which
means that current stockholders do not have a prior right to purchase any new
issue of our capital stock to maintain their proportionate ownership. Thus, the
issuance of additional shares of common stock might dilute, under certain
circumstances, the ownership and voting rights of
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existing stockholders. Each of the additional authorized shares of common stock,
if and when issued, will have the same rights and privileges as the currently
authorized common stock.
VOTE REQUIRED
By signing, dating and returning the accompanying proxy, you will grant
your proxy to vote your shares as you direct. The persons named in the proxy
intend to vote for adoption of the amendment unless otherwise instructed. The
affirmative vote of the holders of a majority of our outstanding shares will be
required to approve the amendment to our Certificate. Therefore, abstentions and
broker non-votes will have the same legal effect as a vote against the
amendment. Cumulative voting is not allowed.
RECOMMENDATION OF THE BOARD
The board of directors recommends a vote "FOR" approval of the
amendment.
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APPROVAL OF AMENDMENT AND RESTATEMENT OF
OUR EMPLOYEE SHARE PURCHASE PLAN
Veritas DGC's 1997 Employee Stock Purchase Plan (the "Share Purchase
Plan" or "Plan") was adopted by our board of directors in September 1997 and
approved by our stockholders in December 1997. A total of 500,000 shares were
initially reserved for issuance under the Share Purchase Plan. In 2001, our
board of directors and our stockholders approved an amendment to the Plan to
increase the aggregate number of shares authorized for issuance under the Plan
by 500,000, bringing the total number of shares authorized for issuance under
the Share Purchase Plan to 1,000,000. The Plan provides, in general, that each
participating employee is deemed to have been granted an option to purchase, on
the first day of the fiscal quarter, as many whole and fractional shares as may
be purchased with the payroll deductions credited to the participant's account
during the quarter. As of October 13, 2003, approximately 153 employees, or 22%
of our eligible U.S. employees, were participating in the Share Purchase Plan.
DESCRIPTION OF AMENDMENT AND RESTATEMENT
Effective January 1, 2003, we amended and restated our Share Purchase Plan,
subject to approval by stockholders, to:
o Allow the Plan's administrative committee discretion to determine which
of our affiliates may participate in the Plan;
o Clarify when employment is deemed terminated when an employee is on an
authorized leave of absence;
o Clarify the effect of termination of employment due to retirement or
disability;
o Specify that any income derived from the Plan is not part of an
employee's regular compensation or salary;
o State that participation in the Plan is completely voluntary;
o Change the name of the Plan to the Veritas DGC Inc. Employee Share
Purchase Plan;
o Allow shares issued under the Plan to be represented by a book entry;
o Amend the definition of "fair market value;"
o Require written consent of a spouse if a participant is married and
designates a beneficiary other than the spouse.
These changes were made to conform the Plan to current requirements of
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), allow
those of our employees who work for certain of our foreign subsidiaries to
participate in the Plan, and ease our administration of the Plan.
In addition, on September 23, 2003, our board of directors approved a
further amendment to increase the aggregate number of shares authorized for
issuance under the Plan by 1,000,000 shares, bringing the total number of shares
authorized for issuance under the Share Purchase Plan to 2,000,000. In
accordance with the terms of the Plan, we are seeking stockholder approval of
the amended and restated Plan.
We consider the increase in shares necessary to meet our current needs.
The Share Purchase Plan is an integral component of our benefits program that is
intended to provide employees with an incentive to exert maximum effort for our
success and to participate in that success through the acquisition of our common
stock. As of September 30, 2003, a total of 899,791 shares had been issued under
the terms of the Share Purchase Plan since inception. As of July 31, 2003, only
100,209 shares remained available to be issued under the Plan. Based on current
participation and assuming a share price of $8.08 or more on October 31, 2003,
we estimate that we will issue approximately 48,400 shares under the Share
Purchase Plan for the period that began on August 1, 2003 and
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will end on October 31, 2003. Based on this estimate, less than 52,000 shares
will be available to be issued under the Plan after October 31, 2003.
A copy of the proposed amended and restated Share Purchase Plan is
attached as Annex B to this proxy statement.
GENERAL DESCRIPTION OF THE PLAN
All employees who have completed at least six consecutive months of
continuous employment with Veritas DGC or any of its majority-owned subsidiaries
may participate in the Plan. Subject to eligibility requirements, participation
is voluntary. No employee is eligible to obtain an option to purchase shares
under the Share Purchase Plan if, immediately after the grant of the option
under the Plan, the employee would own shares, and/or hold outstanding options
to purchase shares, possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of Veritas DGC or of any of its
subsidiaries. In addition, no employee is eligible to obtain an option under the
Plan that would permit him or her to purchase shares in any calendar year with a
value in excess of $25,000 (determined at fair market value of the shares at the
time the option is granted).
Offering periods under the Plan are August 1 through October 31,
November 1 through January 31, February 1 through April 30 and May 1 through
July 31. The offering periods will continue until the Plan is terminated.
The compensation committee of the board of directors administers the
Share Purchase Plan.
For each fiscal quarter, each participant is deemed to have been
granted an option to purchase, on the first day of the fiscal quarter, as many
whole and fractional shares as may be purchased with the payroll deductions
credited to the participant's account during the quarter. The purchase price per
share at which shares will be sold in an offering under the Share Purchase Plan
is the lower of (i) 85% of the fair market value of a share on the first day of
the fiscal quarter or (ii) 85% percent of the fair market value of a share on
the last day of the fiscal quarter. Under the Share Purchase Plan, the fair
market value of our shares on a given date is the closing price as of the
immediately preceding business day as reported on the New York Stock Exchange.
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The Share Purchase Plan provides that the aggregate of
such payroll deductions during the offering period shall not exceed 15% of the
participant's base pay. Base pay is defined as regular straight-time earnings or
base salary, excluding bonuses and other types of extraordinary compensation.
All payroll deductions made for a participant are credited to the participant's
account under the Share Purchase Plan and are included with our general funds.
Funds received upon sales of stock under the Share Purchase Plan are used for
general corporate purposes.
Option holders are protected against dilution in the event of a stock
dividend, stock split, subdivision combination, recapitalization or similar
event. If the company is not the surviving corporation in any merger or
consolidation (or survives only as a subsidiary) or if the company is dissolved
or liquidated, then unless the surviving corporation assumes or substitutes new
options for all options then outstanding, the date of exercise for all options
then outstanding will be accelerated to dates fixed by the board of directors
prior to the effective date of such merger, consolidation, dissolution or
liquidation.
A participant may abandon his or her election to purchase shares under
the Share Purchase Plan by signing and delivering to us a notice of withdrawal
from the Share Purchase Plan at least 15 days prior to the end of the fiscal
quarter. The participant may also withdraw all of the accumulated balance in his
account being held to purchase shares.
Termination of a participant's employment for any reason, other than
retirement, death or disability, immediately terminates his or her participation
in the Plan. In such event the payroll deductions credited to the participant's
account will be returned without interest to such participant. If a
participant's termination of employment is due to retirement on or after the age
of 65, death, or disability, the participant or his or her estate may elect to
either (i) withdraw that balance of the participant's account as of the
termination date; or (ii) exercise the option to purchase shares on the last day
of the fiscal quarter based upon the balance in the participant's account as of
the termination date.
8
Our board of directors may at any time amend or terminate the Share
Purchase Plan, except that no such termination will affect options previously
granted and no amendment will make any change in an option granted prior to such
time that adversely affects the rights of any participant. Under the Share
Purchase Plan, an amendment to increase the number of shares authorized for
issuance or an amendment to the class of employees eligible to purchase stock
under the Plan requires the approval of our stockholders. The Plan will
terminate in October 2007, unless terminated earlier by our board of directors.
OPTIONS GRANTED
During the last fiscal year ended July 31, 2003, options to purchase an
aggregate of 296,740 shares were exercised by 141 participants at an average
cost of $6.47 per share, including options to the named executive officers as
follows: Mr. Robson - 0, Mr. Ludlow - 693, Mr. Wells - 0, Mr. Fitzgerald -
2,645, and Mr. Worden - 991; all current executive officers as a group - 4,329;
and to all employees excluding current executive officers - 292,411 shares. For
the offering period that began August 1, 2003 and will end on October 31, 2003,
the only named executive officers who have elected to participate are Mr. Ludlow
and Mr. Fitzgerald. The number of options granted to Mr. Ludlow and Mr.
Fitzgerald is equal to that number of whole and fractional shares that may be
purchased by the amount in each of their payroll deduction accounts on October
31, 2003 at the option price determined as described above. The remaining named
executive officers, including Mr. Robson, Mr. Wells and Mr. Worden, and the
other current executive officers have not elected to participate in the Plan and
have not been granted options under the Plan during the current period. As
described above, each employee determines his or her own level of participation
in the Plan, subject to the limitations set forth in the Plan and the number of
options granted is based upon the employee's selected withholding amount and the
fair market value of shares of the company's common stock. As a result, the
number of options to be granted in the future to executive officers is not
determinable. Based upon the closing stock price of $7.98 on September 30, 2003
and the limitations in the Plan, no executive officer can receive options for
more than 3,132 shares during any calendar year.
CERTAIN UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE EMPLOYEE SHARE
PURCHASE PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN OF THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE SHARE PURCHASE PLAN BASED ON
UNITED STATES FEDERAL INCOME TAX LAWS CURRENTLY IN EFFECT. THIS SUMMARY APPLIES
TO THE SHARE PURCHASE PLAN AS NORMALLY OPERATED AND IS NOT INTENDED TO PROVIDE
OR SUPPLEMENT TAX ADVICE TO ELIGIBLE EMPLOYEES. THE SUMMARY CONTAINS GENERAL
STATEMENTS BASED ON CURRENT UNITED STATES FEDERAL INCOME TAX STATUTES,
REGULATIONS AND CURRENTLY AVAILABLE INTERPRETATIONS THEREOF. THIS SUMMARY IS NOT
INTENDED TO BE EXHAUSTIVE AND DOES NOT DESCRIBE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OR THE EFFECT, IF ANY, OF GIFT, ESTATE AND INHERITANCE TAXES. THE
SHARE PURCHASE PLAN, AND THE RIGHT OF PARTICIPANTS TO MAKE PURCHASES THEREUNDER,
IS INTENDED TO QUALIFY UNDER THE PROVISIONS OF SECTIONS 421 AND 423 OF THE CODE.
A participant's payroll deductions to purchase common stock are made on
an after-tax basis. There is no federal income tax liability to the participant
when shares of common stock are purchased pursuant to the Share Purchase Plan.
However, the participant may incur federal income tax liability upon disposition
(including by way of gift) of the shares acquired under the Share Purchase Plan.
The participant's U.S. federal income tax liability will depend on whether the
disposition is a qualifying disposition or a disqualifying disposition as
described below.
If a qualifying disposition of the shares is made by the participant
(i.e., a disposition that occurs more than two years after the first day of the
option period in which the shares were purchased), or in the event of death
(whenever occurring) while owning the shares, the participant will recognize in
the year of disposition (or, if earlier, the year of the participant's death)
ordinary income in an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of disposition (or death) over the amount
paid for the shares under the option or (2) 15% of the fair market value of the
shares at the date of grant (the beginning of the option period). Upon the sale
of the shares, any amount realized in excess of the ordinary income recognized
by the participant will be taxed to the participant as a long-term capital gain.
If the shares are sold at less than the purchase price under the option, then
there will be no ordinary income. Instead, the participant will have a capital
loss equal to the difference between the sales price and the purchase price paid
under the option.
If a disqualifying disposition of the shares is made (i.e., a
disposition (other than by reason of death) within two years after the first day
of the option period in which the shares were purchased), the participant
generally will recognize ordinary income in the year of disposition in an amount
equal to any excess of the fair market value of the
9
shares at the date of exercise over the purchase price paid for the shares under
the option (even if no gain is realized on the sale or if a gratuitous transfer
is made). Any further gain (or loss) realized by the participant generally will
be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
We will be entitled to a deduction only if the participant makes a
disqualifying disposition of any shares purchased under the Share Purchase Plan.
In such case, we can deduct as a compensation expense the amount that is
ordinary income to the participant provided that, among other things, (1) the
amount meets the test of reasonableness, is an ordinary and necessary business
expense and is not an "excess parachute payment" within the meaning of Section
280G of the Code, (2) any applicable reporting obligations are satisfied and (3)
the one million dollar limitation of Section 162(m) of the Code is not exceeded.
VOTE REQUIRED
By signing, dating and returning the accompanying proxy, you will grant
your proxy to vote your shares as you direct. If you sign, date and return your
proxy, then, unless you specify otherwise, your shares will be voted for the
amendment and restatement of the Share Purchase Plan. The affirmative vote of a
majority of the votes cast will be required to approve the amendment and
restatement to the Share Purchase Plan. Abstentions and broker non-votes will
not be counted as a vote for or against the approval of the amendment and
restatement, and will not affect the outcome of the vote. Cumulative voting is
not allowed.
RECOMMENDATION OF THE BOARD
The board of directors recommends a vote "FOR" the amendment and
restatement of the Share Purchase Plan.
10
PROPOSAL TO PERMIT A STOCK OPTION EXCHANGE PROGRAM
Our board of directors has determined that it is in the best interests
of our stockholders to implement a stock option exchange program. This program
will enhance long-term stockholder value by improving our ability to incent and
retain our employees. Under this program, our employees will be given a one-time
opportunity to exchange all of the eligible stock options they currently hold
for a lesser number of options with a new exercise price equal to the fair
market value of our common stock on the grant date of the new option, which
grant date is expected to be in February 2005. Our five most highly compensated
executive officers named in the Summary Compensation Table of this proxy
statement and members of our board of directors will not be eligible to
participate in this program.
To enhance long-term stockholder value we must implement and maintain
competitive employee compensation, incentive and retention programs. Stock
options have been, and continue to be, a key part of our employee compensation,
incentive and retention program. Stock options motivate and reward our
employees' efforts toward the growth and success of our business. By granting
stock options to talented employees, we align their interests with those of our
stockholders, incent them to grow long-term stockholder value and encourage
their long-term employment with us.
As a result of the seismic industry slowdown over the past two years
and the resulting decline in our stock price, a significant number of our
employees hold stock options with exercise prices that greatly exceed the
current market price of our common stock. Consequently, these options no longer
provide the long-term incentive and retention objectives they were intended to
provide.
The proposed exchange program is intended to remedy this situation by
providing employees a one-time opportunity to exchange eligible options for a
lesser number of new options with a new exercise price equal to the closing
price of our common stock on the date the new options are granted, which is
expected to be in February 2005. To meet our need to provide incentive and
retention for our employees while simultaneously protecting the interests of
stockholders, we have structured the program to be a "value-for-value" exchange,
meaning that employees who elect to participate must exchange a number of old
options with a value that approximates or is greater than the value of the
number of new options they receive in the exchange.
To achieve the accounting treatment we desire for the program, we
cannot commence the program until at least six months and one day have elapsed
since our last option grant date to eligible employees. Because our next regular
option grant to eligible employees will occur in January 2004, if the exchange
program is approved by the stockholders, we expect to offer the exchange program
to employees in July 2004. Employees will have 20 business days (or longer if we
so determine) to elect to participate. The new options issued in exchange for
the surrendered options will not be granted until at least six months and one
day after the exchange offer period expires. Thus, we expect the new options to
be granted in February of 2005.
Under all foreseeable scenarios, the exchange program, if commenced,
would reduce the number of outstanding options. For example, based upon the
exchange ratios that would be used if our common stock was valued at $8.00 per
share shortly before the exchange offer commenced and if all eligible employees
participated in the program, we would have 568,880 fewer stock options
outstanding after the exchange is completed and the new options are issued. The
actual net reduction in options outstanding from this exchange program will
depend on a variety of factors, including the level of participation in the
exchange program and the final exchange ratios. The number of shares subject to
the cancelled options, however, will be available for future grants of options
or other awards under the Share Incentive Plan.
On December 2, 2002, our stockholders approved the adoption of our
Share Incentive Plan. Effective with the adoption of the Share Incentive Plan,
no further options have been or may be made granted under previous stock option
or restricted stock plans, including the 1992 Employee Non-Qualified Stock
Option Plan and the 2001 Key Employee Non-Qualified Stock Option Plan. Options
previously granted under either the 1992 plan or the 2001 plan continue to be
governed by the terms of those plans and remain outstanding until they are
exercised or terminated in accordance with the terms of the applicable plan. At
any time an option issued under the 1992 plan or the 2001 plan terminates
unexercised for any reason, the shares subject to those terminated options
become eligible
11
for issue under the Share Incentive Plan. All of the options eligible for
exchange under the proposed program were issued either under the 1992 plan or
the 2001 plan.
Our Share Incentive Plan expressly prohibits, without stockholder
approval, cancellation of any option with an exercise price that exceeds the
fair market value of the shares. None of the options proposed for exchange was
issued under the Share Incentive Plan; however, all of the new options proposed
to be issued in exchange for previously granted options will be issued under the
Share Incentive Plan. Our 1992 plan, under which most of the options proposed
for exchange were granted, prohibits any decrease in the price of an existing
option without stockholder approval. The 2001 plan contains no such limitation.
Because the proposed program is structured as an exchange of options granted
under the 1992 plan and the 2001 plan for a lesser number of options issued
under the Share Incentive Plan, stockholder approval may not be required by
either the Share Incentive Plan or the 1992 plan. However, in keeping with the
intent of both plans, our board of directors has determined that we will
not proceed with the exchange program unless stockholders approve it. On
September 23, 2003, upon the recommendation of the compensation committee, the
board of directors approved the exchange program, subject to stockholder
approval. Accordingly, we are seeking stockholder approval to permit the
one-time exchange program described herein.
DESCRIPTION OF THE EXCHANGE PROGRAM
Eligible Employees. We expect to offer the exchange program to all of
our employees who hold eligible stock options, other than our five highest paid
executive officers named in this proxy statement and members of our board of
directors. Our one remaining executive officer, Mr. Thielen, who held eligible
options for 4,696 shares at August 31, 2003, will be permitted to participate in
the exchange program. If implementation of the program is not feasible or
practical in certain non-U.S. jurisdictions, we may exclude employees in these
countries from the program. As of August 31, 2003, approximately 263 eligible
employees worldwide held options that will be eligible for exchange through the
program. Participation in the program is voluntary.
To be eligible an employee must be employed by us on the last day of
the exchange offer. If an eligible employee who surrenders options in the
program is not employed by us on the date of grant of the replacement options,
that employee will not receive any replacement options, except in the event of
the employee's death in which case his or her estate will receive the
replacement options he or she would have otherwise received.
Options Eligible for Exchange. Outstanding options under our plans will
be eligible for the exchange program if they meet the following criteria:
o held by an eligible employee;
o have an exercise price of $15.00 per share or higher; and
o are fully vested on the date of the exchange offer.
Of the total of 3,103,468 options held by eligible employees as of
August 31, 2003, options to acquire 747,816 shares met these specific criteria
on August 31, 2003. Assuming that all employees holding these options remain
employed by us in July 2004, when we expect to make the exchange offer, an
additional 90,639 options to acquire shares will be vested, making a total of
838,455 options available for exchange at that time.
Exchange Ratio. Under the proposed amendment authorizing the exchange
program, a series of exchange ratios has been established such that, based on
the valuation methodology described below, the value of the old options
surrendered will be equal to or greater than the value of the new options
granted. In all cases, an option holder will be required to surrender a greater
number of existing stock options than the number of new stock options issued in
this exchange.
The exact number of outstanding options an employee must surrender in
order to receive one new replacement option will be determined as described
below based on the Black-Scholes option valuation model, which is a widely
recognized and accepted method to determine the value of a stock option. The
Black-Scholes valuation model takes into account a number of variables,
including current stock price, stock volatility, risk-free rate of return, and
the duration of the options being valued.
12
In determining the exchange ratios, these Black-Scholes valuation
factors, except for the current market price of Veritas DGC common stock, will
be based on information available as of August 31, 2003. Because the exchange
will not commence until July 2004, we have elected to have our valuation
methodology take into account changes in our common stock price that occur
between September 1, 2003 and the time at which the exchange offer is commenced.
We have relied on Frederic W. Cook & Co., a nationally recognized independent
compensation-consulting firm, in determining the appropriate option values and
exchange ratios based on the Black-Scholes valuation methodology. Using this
valuation methodology and the table below, we will determine the actual exchange
ratios to be used in the exchange program based on the fair market value of our
common stock shortly before the time the exchange offer is commenced. For this
purpose, the fair market value of our common stock will be the average of the
closing prices of the common stock over a period of 7 consecutive trading days
ending no earlier than 30 days and no later than 14 days prior to the
commencement of the exchange offer (the "Current Stock Price").
We have set forth in the following table the exchange ratios that would
be used for the exchange program based on hypothetical Current Stock Prices. The
actual exchange ratios will be calculated using the actual Current Stock Price.
EXCHANGE RATIOS BASED UPON SELECTED HYPOTHETICAL CURRENT STOCK PRICES
Hypothetical Current Price Per Share
------------------------------------------------------------------------------------------
Option
Tier Exercise Price $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00
---- -------------- --------- --------- --------- --------- --------- ---------- ----------
1 $15.00 - $17.49 3.25 to 1 2.50 to 1 2.25 to 1 1.75 to 1 1.50 to 1 1.50 to 1 1.25 to 1
2 $17.50 - $19.99 9.50 to 1 6.25 to 1 4.50 to 1 3.50 to 1 2.75 to 1 2.50 to 1 2.00 to 1
3 $20.00 - $24.99 4.25 to 1 3.50 to 1 2.75 to 1 2.50 to 1 2.00 to 1 2.00 to 1 1.75 to 1
4 $25.00 - $29.99 4.50 to 1 3.50 to 1 3.00 to 1 2.50 to 1 2.25 to 1 2.00 to 1 2.00 to 1
5 $30.00 - $56.00 8.50 to 1 6.00 to 1 4.50 to 1 3.75 to 1 3.25 to 1 2.75 to 1 2.50 to 1
If the actual Current Stock Price is below $5.00 per share, the
exchange ratios will be increased appropriately using the same valuation
methodology described above. Our board of directors has determined that the
exchange program will be cancelled in its entirety if the Current Stock Price is
greater than 11.00 per share. On October 13, 2003, our common stock last traded
on the New York Stock Exchange for $_______ per share. Regardless of the final
exchange ratios, to participate in the program, an employee must elect to
voluntarily surrender all outstanding options with exercise prices above $15.00
per share.
Because the decision whether to participate in the exchange program is
voluntary, we are not able to predict who will participate or how many options
employees will elect to exchange. Assuming all eligible options are tendered,
the following table shows the impact of the exchange program on outstanding
options.
EFFECT OF EXCHANGE ON OUTSTANDING OPTIONS AT SELECTED CURRENT STOCK PRICES
Current Stock Price Per Share
--------------------------------------------------------------------------------------
Options $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00
------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Options cancelled (838,455) (838,455) (838,455) (838,455) (838,455) (838,455) (838,455)
New options issued 130,397 176,679 222,931 269,575 313,410 354,748 387,422
--------- -------- --------- --------- --------- --------- ---------
Net reduction (708,058) (661,776) (615,524) (568,880) (525,045) (483,707) (451,033)
Surrendered options will be cancelled and the number of shares subject
to surrendered options will be available for future option grants or other
awards under the Share Incentive Plan.
Grant of New Options. We currently expect that the new options will be
issued on the first business day that is at least six months and one day after
the cancellation of the surrendered options. All new options will be granted
under our Share Incentive Plan. All new options granted under the exchange
program will be non-qualified stock options for U.S. federal income tax
purposes. The new options will have the following terms and conditions unless
otherwise required or deemed advisable under local laws outside the United
States:
13
o Exercise Price. All new options will be granted with an exercise price
equal to the last reported price for one share traded on the NYSE on the
business day immediately preceding the date of grant, which is expected
to be in February 2005.
o Vesting. The new options will vest 100% on the six-month anniversary of
the date of grant.
o Term. Each new option will have a term of five years from the date of
grant.
o Other Terms and Conditions. All other terms and conditions of the new
options will be consistent with the terms of the Share Incentive Plan.
The shares of common stock for which the new options will be
exercisable have been registered with the Securities and Exchange Commission.
Implementation of the Stock Option Exchange Program. On September 23,
2003, upon the recommendation of the compensation committee, our board of
directors approved the exchange program, subject to stockholder approval. As
described above, the program is expected to commence in July 2004. If the
stockholders approve the amendment, then we expect that beginning in July 2004,
eligible employees will be offered the opportunity to participate in the
exchange program under an Offer of Exchange filed with the Securities and
Exchange Commission and distributed to all eligible employees. Employees will
have an election period of at least 20 business days to accept the offer to
receive new options in exchange for the surrender of all of their existing
eligible options. Replacement options will be granted on the first business day
that is at least six months and one day after the cancellation of the old
options, which we expect to occur in February 2005. If circumstances change
prior to the implementation of the stock option exchange program, our board of
directors will have the authority, in its discretion, to terminate or postpone
the exchange program for up to six months.
Accounting Treatment. We have structured the program to comply with
existing U.S. Financial Accounting Standards Board guidelines so that we will
avoid any variable accounting compensation charges against our earnings. In
other words, we expect to receive the same accounting treatment for the new
options as we receive for the currently outstanding options that are surrendered
in the exchange. We are aware that accounting standards in this area may change
prior to the commencement of the exchange program or the issuance of the new
options. Accordingly, we may not realize the intended accounting treatment or we
may modify the program as necessary to ensure the same accounting treatment or
terminate the offer if the desired accounting treatment cannot be obtained.
Income Tax Consequences. The exchange is intended to be treated as a
non-taxable exchange for U.S. federal income tax purposes. Therefore,
participating employees are not expected to recognize any income for U.S.
federal income tax purposes upon the grant of the new options. The tax
consequences for participating non-U.S. employees may differ from the U.S.
federal income tax consequences described above.
Effect on Stockholders. We are not able to predict with certainty the
precise impact the exchange program will have on our stockholders, because we
are unable to predict how many eligible employees will exchange their options or
what the future market price of our common stock will be. Some effects of the
exchange are predictable. The lower strike price of the new options makes their
exercise more likely, increasing the probability of stockholder dilution.
SUMMARY DESCRIPTION OF THE SHARE INCENTIVE PLAN
The following overall description of certain features of the Share
Incentive Plan is qualified in its entirety by reference to the Share Incentive
Plan. Capitalized terms not otherwise defined have the meaning ascribed to them
in the Share Incentive Plan. We have not included a description of the other
option plans because no additional options will be granted under those plans.
The Share Incentive Plan provides that the following types of awards
may be granted: (1) nonqualified options to purchase our common stock, (2)
incentive stock options to purchase our common stock, (3) share appreciation
rights ("SARs"), (4) deferred share units, (5) restricted shares and (6)
performance shares. Awards may be a combination of one or more of these types.
14
Subject to certain adjustment provisions in the Share Incentive Plan,
the committee may grant as awards an aggregate maximum of the sum of the
following numbers of shares to eligible persons during the Share Incentive Plan
term: (i) 1,200,000 (no more than 300,000 of which may be granted in a form
other than options), (ii) 1,146,156 shares, representing the number of shares
available for issuance under the Veritas DGC Inc. Restricted Stock Agreements,
Veritas DGC Inc. Restricted Stock Plan, Veritas DGC Inc. 2001 Key Employee
Restricted Stock Plan, Veritas DGC Inc. 1992 Employee Nonqualified Stock Option
Plan, Veritas DGC Inc. 1992 Non-Employee Director Stock Option Plan and Veritas
DGC Inc. 2001 Key Employee Nonqualified Stock Option Plan (collectively,
"Existing Stock Plans") which were not the subject of an option or restricted
stock award granted under one of the Existing Stock Plans as of the date our
stockholders approved the Share Incentive Plan; and (iii) the number of shares
subject to unexercised options or unvested restricted stock awards granted under
the Existing Stock Plans prior to the date the Share Incentive Plan was approved
by our stockholders that expire or are cancelled, terminated or forfeited after
the date our stockholders approved the Share Incentive Plan. Of those dedicated
shares, the maximum number of shares with respect to which options characterized
by us as incentive stock options may be granted under the Share Incentive Plan
is 2,000,000; the maximum number with respect to which options and SARs may be
granted to any person under the Share Incentive Plan during any three
consecutive calendar years is 500,000; and the maximum number with respect to
which performance shares may be granted to any person under the Share Incentive
Plan during any three consecutive calendar years cannot exceed 250,000. Should
an outstanding award granted under the Share Incentive Plan expire, terminate,
be settled in cash in lieu of shares or be surrendered for any reason, the
shares allocated to any unexercised portion of that award may again be subject
to award under the Share Incentive Plan. If the exercise price of an option is
paid in shares or if shares are withheld from payment of an award to satisfy tax
obligations with respect to the award, such shares also will not count against
any of the above limits.
Administration. A committee of at least two persons who are members of
and appointed by the compensation committee of our board of directors or to the
extent it chooses to operate as the committee, the compensation committee of our
board of directors will administer the Share Incentive Plan. The committee
designates the persons to be granted awards and the types and amount of awards
to be granted and has authority to interpret the Share Incentive Plan, adopt,
alter and repeal administrative regulations, accelerate the time at which awards
may be exercised or will vest, and determine and amend the terms of the awards.
No award will be granted after July 31, 2012.
Eligibility. The committee may make awards under the Share Incentive
Plan to persons, including our officers, directors, employees, consultants and
advisors who have substantial responsibility for the management and growth of
Veritas DGC or any of its affiliates. The Share Incentive Plan provides that
options intended to qualify as incentive stock options may only be granted to
key employees of Veritas DGC or its parent or subsidiary corporations. The
committee, in its sole discretion, will select the persons eligible to
participate in the Share Incentive Plan. The approximate number of individuals
who are eligible to participate in the Share Incentive Plan is 300.
Stock Options. The Share Incentive Plan provides that the committee is
authorized to grant incentive and nonqualified options to purchase shares
subject to such terms and conditions as the committee may determine in its sole
discretion. The price for which shares may be purchased shall not be less than
the fair market value of the shares on the date the option is granted; provided,
however, that the price for which shares may be purchased shall not be less than
110% of the fair market value of the shares on the date an option characterized
as an incentive stock option is granted if such option is granted to a person
who, at the time of the grant, owns (or is deemed to own under section 424(d) of
the Code) shares of outstanding stock possessing more than 10% of the total
combined voting power of all classes of stock of Veritas DGC or of Veritas DGC's
parent, if any, or subsidiary corporations (a "10% Owner").
Unless the option agreement specifies a shorter term, an option expires
on the tenth anniversary of the date the option is granted (fifth anniversary of
the date an option characterized as an incentive stock option is granted to a
10% Owner). Unless the option agreement specifies otherwise, an option shall not
continue to vest after the termination of the option holder's employment or
affiliation relationship with Veritas DGC and its affiliates for any reason
other than death, disability or retirement. The Share Incentive Plan gives the
committee discretion to accelerate the vesting of an option on a case-by-case
basis at any time.
An option may be exercised at the time, in the manner, and subject to
the conditions the committee specifies in the option agreement in its sole
discretion. Payment of the exercise price of an option may be made in such
manner as the committee may provide, including cash, delivery of shares already
held for at least six months, or a broker-assisted cashless exercise. No option
holder will have any rights as a stockholder with respect to Veritas DGC shares
covered by an option.
15
SAR's. The committee shall specify in a SAR award agreement the term of
a SAR as well as vesting and termination provisions. Upon the exercise of a SAR,
the award holder is entitled to receive, for each share with respect to which a
SAR is exercised, an amount (the "appreciation") equal to the excess of the fair
market value of a share on the exercise date over the grant price of the SAR
which exercise price may not be less than the fair market value of a share on
the date of the grant of the SAR and in no event less than the par value of one
share. The committee, in its sole discretion and subject to applicable law,
determines the form in which to pay the appreciation - solely in cash, solely in
shares (valued at fair market value on the date of the exercise of the SAR) or
partly in cash and partly in shares. Only the actual number of shares delivered
pursuant to the exercise of SARs will be charged against the aggregate maximum
number of shares available for awards under the Share Incentive Plan. However,
the number of shares subject to the SAR shall be reduced by the number of
underlying shares as to which the exercise related unless the SAR Agreement
provides otherwise. The Share Incentive Plan gives the committee discretion to
accelerate the vesting of an SAR on a case-by-case basis at any time.
Deferred Share Units. The committee is authorized to award deferred
share units subject to such terms and conditions as the committee may determine
in its sole discretion. The committee shall maintain a bookkeeping ledger
account that reflects the number of deferred share units credited under the
Share Incentive Plan for the benefit of a holder. Deferred share units shall be
similar to restricted shares (described below) except that no shares are
actually transferred to the recipient until a later date specified in the
recipient's award agreement. Each deferred share unit shall have a value equal
to the fair market value of a share on the date the share is actually
transferred to the recipient. The Share Incentive Plan gives the committee
discretion to credit the holder's bookkeeping account with dividend units with
respect to dividends declared on shares, subject to the same vesting and payout
restrictions as applicable to the holder's deferred share units, and to
accelerate the vesting of deferred share units on a case-by-case basis at any
time.
Restricted Stock Awards. The committee is authorized to award
restricted shares subject to such terms and conditions as the committee may
determine in its sole discretion. The committee has authority to determine the
number of restricted shares to be awarded, the price, if any, to be paid by the
recipient of the restricted shares, the date or dates on which the restricted
shares will vest, and the transferability restrictions on a holder's rights with
respect to restricted shares. The Share Incentive Plan gives the committee
discretion to accelerate the vesting of restricted shares on a case-by-case
basis at any time.
Subject to the terms and conditions of the Share Incentive Plan,
holders of restricted shares shall have all the rights of a stockholder
including, without limitation, the right to vote such shares if holders of
unrestricted shares of the same class have the right to vote during any period
in which such shares are subject to forfeiture and restrictions on transfer.
Dividends paid with respect to restricted shares in Veritas DGC shares or rights
to acquire shares will be added to and become a part of the restricted shares;
dividends paid in other property or in cash will be paid to the holder
currently.
Performance Share Awards. The committee is authorized to award
performance shares, which are subject to the attainment of one or more
performance goals, to eligible persons selected by it. A performance share
consists of a grant of shares upon or subject to the attainment of one or more
objective performance goals. A performance share will be paid, vested or
otherwise deliverable solely upon the attainment of one or more pre-established
objective performance goals established by the committee. The committee must
establish objective goals within the first 90 days of the performance period or
within the first 25% of the performance period, whichever is earlier, and in any
event, while the outcome is substantially uncertain. A performance goal is
objective if a third party having knowledge of the relevant facts could
determine whether the goal has been met. A performance goal may be based upon
one or more business criteria that apply to the individual, one or more of
business units of Veritas DGC or Veritas DGC as a whole. In interpreting Share
Incentive Plan provisions applicable to performance and performance share
awards, it is intended that the Share Incentive Plan will conform with the
standards of section 162(m) of the Code and Treasury Regulations Section
1.162-27(e)(2)(i), and the committee in establishing such goals and interpreting
the Share Incentive Plan shall be guided by such provisions. Prior to the
payment of any compensation based on the achievement of performance goals, the
committee must certify in writing that applicable performance goals and any of
the material terms thereof were, in fact, satisfied. Subject to the foregoing
provisions, the committee shall determine the terms, conditions and limitations
applicable to any performance share awards made pursuant to the Share Incentive
Plan.
Subject to the terms and conditions of the Share Incentive Plan,
holders of performance shares shall not have the rights of a stockholder until
such shares have been earned and distributed.
16
Transferability. Except as specified in the applicable award agreement
or in a domestic relations court order, an award may not be transferred other
than by will or under the laws of descent and distribution. During the
recipient's lifetime, only the recipient may exercise any award under the Share
Incentive Plan.
Other Provisions. As a general matter, upon the occurrence of a change
of control as defined in the Share Incentive Plan all outstanding share options,
SARs, deferred share units, restricted shares and performance shares will become
fully exercisable and vested.
Without the prior approval of stockholders, the committee may not
cancel any option that has an exercise price on the date of cancellation that
exceeds the fair market value of the shares that may be purchased under the
option.
The Share Incentive Plan permits employees to satisfy all or a portion
of their federal, state, local, foreign or other tax liabilities with respect to
awards under the Share Incentive Plan by delivering previously-owned shares
(that have been owned by the holder for at least six months) or by having
Veritas DGC withhold from the shares otherwise deliverable to such holder shares
having a value not to exceed the required employer's minimum statutory
withholding tax obligations.
As a general matter, upon the occurrence of a "change of control," as
defined in the Share Incentive Plan, all outstanding share options, SARs,
deferred units, restricted shares and performance shares will become fully
vested and exercisable.
In the event of specified changes in Veritas DGC's capital structure,
the committee has the power to adjust the number and kind of shares authorized
by the Share Incentive Plan (including any limitation on individual awards), and
the number, option price and kinds of shares covered by outstanding awards.
The committee may amend or terminate the Share Incentive Plan at any
time in its sole discretion, provided that no amendment may change the aggregate
number of shares that may be issued or the class of employees eligible to
receive incentive stock options under the Plan without prior stockholder
approval.
Notwithstanding any provision of the Share Incentive Plan to the
contrary, the committee, in its sole discretion, may take the action necessary
to ensure that the Share Incentive Plan complies with the laws of other
countries in which Veritas DGC or its affiliates operate or have employees. Such
action may be taken either before or after an award is made, and may include,
without limitation, determining plan coverage and eligibility, amending the
Share Incentive Plan or the terms of any award, establishing subplans and
modifying exercise or other procedures.
OPTIONS GRANTED
SHARE INCENTIVE PLAN
During the last fiscal year ended July 31, 2003, we granted options
under the Share Incentive Plan on March 3 and March 28, 2003. On March 3, 2003,
we granted options to purchase an aggregate of 904,000 shares to 90 participants
at an exercise price of $7.95 per share, including options granted to our
directors and named executive officers as follows: Mr. Carroll - 0, Mr. Cormier
- 5,000, Mr. Gibbs - 5,000, Mr. MacNeill - 5,000, Mr. Rask - 5,000, Mr. Robson -
79,100, Mr. Ludlow - 24,700, Mr. Wells - 24,700, Mr. Fitzgerald - 24,700, and
Mr. Worden - 12,400, all directors and current executive officers as a group -
193,600, and to all participants excluding directors and executive officers -
710,400. On March 28, 2003, we granted options to Mr. Carroll to purchase 10,000
shares at an exercise price of $7.11 per share. Each option granted expires five
years from the date of grant. Each grant is exercisable as follows: 25% of the
options are immediately exercisable on the date of grant and an additional 25%
becomes exercisable on each succeeding anniversary of the date of grant until
all are exercisable on the third anniversary of the date of grant. None of the
options granted under the Share Incentive Plan in the last fiscal year would be
eligible for exchange under the exchange program. No additional grants have been
made under the Share Incentive Plan between August 1, 2003 and October 13, 2003.
1992 EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN
During the last fiscal year ended July 31, 2003, we granted options
under the 1992 plan to purchase an aggregate of 347,582 shares to 12
participants at an exercise price of $10.96 per share, including options granted
to
17
the named executive officers as follows: Mr. Robson - 94,662, Mr. Ludlow -
36,271, Mr. Wells - 35,584, Mr. Fitzgerald - 30,794, and Mr. Worden - 17,336,
all current executive officers as a group - 214,647, and to all participants
excluding executive officers - 562,229. Each grant was made on August 6, 2002,
and is exercisable as follows: 25% of the options are immediately exercisable on
the date of grant and an additional 25% becomes exercisable on each succeeding
anniversary of the date of grant until all are exercisable on the third
anniversary of the date of grant. None of the options granted under the 1992
plan in the last fiscal year would be eligible for exchange under the exchange
program.
Since the adoption of the Share Incentive Plan on December 3, 2002, no
further grants were made under the 1992 plan and none can be made in the future.
2001 KEY EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN
During the last fiscal year ended July 31, 2003, we granted options
under the 2001 plan to purchase an aggregate of 1,423,995 shares to 226
participants at an exercise price of $10.96 per share, including options granted
to the named executive officers - 0, granted to current executive officers as a
group - 9,580 (granted to Mr. Thielen), and to all participants excluding
executive officers - 1,433,575. Each grant was made on August 6, 2002, and is
exercisable as follows: 25% of the options are immediately exercisable on the
date of grant and an additional 25% becomes exercisable on each succeeding
anniversary of the date of grant until all are exercisable on the third
anniversary of the date of grant. None of the options granted under the 2001
plan in the last fiscal year would be eligible for exchange under the exchange
program.
Since the adoption of the Share Incentive Plan on December 3, 2002, no
further grants were made under the 2001 plan and none can be made in the future.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE SHARE INCENTIVE
PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN OF THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE SHARE INCENTIVE PLAN BASED ON
UNITED STATES FEDERAL INCOME TAX LAWS CURRENTLY IN EFFECT. THIS SUMMARY APPLIES
TO THE SHARE INCENTIVE PLAN AS NORMALLY OPERATED AND IS NOT INTENDED TO PROVIDE
OR SUPPLEMENT TAX ADVICE TO EMPLOYEES WHO PARTICIPATE. THE SUMMARY CONTAINS
GENERAL STATEMENTS BASED ON CURRENT UNITED STATES FEDERAL INCOME TAX STATUTES,
REGULATIONS AND CURRENTLY AVAILABLE INTERPRETATIONS THEREOF. THIS SUMMARY IS NOT
INTENDED TO BE EXHAUSTIVE AND DOES NOT DESCRIBE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OR THE EFFECT, IF ANY, OF GIFT, ESTATE AND INHERITANCE TAXES.
Nonqualified Stock Options. The grant of nonqualified stock options
under the Share Incentive Plan will not result in the recognition of any U.S.
federal taxable income by the option holder. The option holder will recognize
ordinary income on the date of exercise of the nonqualified stock option equal
to the difference between (1) the fair market value on the date of exercise and
(2) the exercise price. The tax basis of our shares for the purpose of a
subsequent sale includes the option price paid and the ordinary income reported
on exercise of the nonqualified stock option. To the extent it is subject to
federal income taxation, we or one of our subsidiaries will be entitled to a
deduction in the amount reportable as income by the option holder on the
exercise of a nonqualified stock option.
Incentive Stock Options. We believe that certain options granted under
the Share Incentive Plan may qualify as "incentive stock options" within the
meaning of section 422(d) of the Code. The grant of options under the Share
Incentive Plan that are characterized as incentive stock options will not result
in the recognition of any United States federal taxable income by the option
holder. To the extent that an option granted under the Share Incentive Plan
qualifies as an incentive stock option under section 422(d) of the Code,
generally, the exercise of such option will also not result in the recognition
of any U.S. federal income tax, but the difference between the exercise price
and the fair market value of our shares at the time of exercise is an item of
tax preference which may require payment of an alternative minimum tax. On the
sale of our shares acquired through exercise of an option granted under the
Share Incentive Plan that qualifies as an incentive stock option under section
422(d) of the Code (assuming such sale does not occur within two years of the
date of grant of the option or within one year from the date of exercise), any
gain (or loss) will be taxed as long term capital gain (or loss) and we will not
be entitled to any deduction in connection with the sale (or the grant or
exercise of the option). However, if a holder sells our shares acquired upon
exercise of such an option before the later of (i) two years from the date of
grant and (ii) one year from the date of exercise, the holder will be treated as
having received, at the time
18
of sale, compensation taxable as ordinary income, and we will be entitled to a
corresponding deduction, subject to the compensation deduction limitation
(described below). The amount treated as compensation income in the excess of
the fair market value of our shares at the time of exercise over the exercise
price, and any amount realized in excess of the fair market value of our shares
at the time of exercise would be treated as long or short term capital gain,
depending on how long such shares were held.
Share Appreciation Rights. The grant of SARs under the Share Incentive
Plan will not result in the recognition of any taxable income by the recipient.
The recipient will recognize ordinary income in the year of exercise in an
amount equal to the amount of appreciation paid to him upon the exercise of a
SAR. Upon the exercise of a SAR, we or one of our subsidiaries will be entitled
to a deduction in the amount equal to the income recognized by the recipient.
Restricted Shares. A recipient of restricted shares under the Share
Incentive Plan will not recognize taxable income at the time of grant, and
neither we nor any of our subsidiaries will be entitled to a deduction at that
time, assuming that the restrictions constitute a substantial risk of forfeiture
for federal income tax purposes. Upon the expiration of the forfeiture
restrictions, the recipient will recognize ordinary income in an amount equal to
the excess of the fair market value of the shares at such time over the amount,
if any, paid for such shares. We or one of our subsidiaries will be entitled to
a corresponding deduction. Dividends paid during the period that the forfeiture
restrictions apply will also be treated as compensation income to the recipient
and deductible as such by us or one of our subsidiaries.
However, a recipient of restricted shares may elect, pursuant to the
terms of the grant agreement, to be taxed at the time of grant of the restricted
shares based on the fair market value of the shares on the date of the grant. If
this election is made, (1) we or one of our subsidiaries will be entitled to a
deduction at the time of grant of the restricted shares based on the fair market
value of the shares on the date of the grant, (2) dividends paid during the
period the forfeiture restrictions apply will be taxable as dividends and will
not be deductible by us or any of our subsidiaries, and (3) there will be no
further federal income tax consequences when the forfeiture restrictions lapse.
Deferred Share Units. The grant of deferred share units under the Share
Incentive Plan will not result in the recognition of any taxable income by the
recipient. At the time deferred share units are settled in our shares, the
recipient will recognize ordinary income, and we or one of our subsidiaries will
be entitled to a corresponding deduction. Generally, the measure of the income
and deduction will be the fair market value of our shares at the time the
deferred share units are settled.
Performance Shares. The recipient of performance shares will recognize
ordinary income and we or one of its subsidiaries will be entitled to a
corresponding deduction when the shares are earned and distributed.
Compensation Deduction Limitation. Under section 162(m) of the Code,
our federal income tax deductions for certain compensation paid to designated
executives is limited to $1 million per year. These executives include our chief
executive officer and our next four highest compensated officers. Section 162(m)
of the Code provides an exception to this deduction for certain "performance
based" compensation approved by a committee consisting solely of at least two
"outside directors". We believe that options to purchase our shares, SARs and
performance shares granted under the Share Incentive Plan should qualify as
performance based compensation for purposes of section 162(m) of the Code.
VOTE REQUIRED
By signing, dating and returning the accompanying proxy, you will grant
your proxy to vote your shares as you direct. If you sign, date and return your
proxy, then, unless you specify otherwise, your shares will be voted to permit
the option exchange program. The affirmative vote of a majority of the votes
cast will be required to grant the consent. Abstentions and broker non-votes
will not be counted as a vote for or against the approval of the amendment, and
will not affect the outcome of the vote. Cumulative voting is not allowed.
RECOMMENDATION OF THE BOARD
The board of directors recommends a vote "FOR" consent to the stock
option exchange program.
19
MANAGEMENT
EXECUTIVE OFFICERS
Except as described under the heading "Employment Agreements" below,
our executive officers serve at the pleasure of our board of directors and are
subject to annual appointment by our board of directors at its first meeting
following each annual meeting of stockholders. In addition to Messrs. Robson and
Ludlow, who are listed under "Election of Directors -- Nominees" with their
biographical information, our executive officers include the following
individuals:
TIMOTHY L. WELLS, age 50, was appointed president and chief operating
officer of Veritas DGC in January 1999. He has been employed by Veritas DGC for
eighteen years, having served as president of Veritas DGC's Asia Pacific
division, regional manager of North and South American processing, manager of
research and programming and in various other capacities in North and South
America.
MATTHEW D. FITZGERALD, age 44, was appointed executive vice president,
chief financial officer and treasurer of Veritas DGC in March 2001. Prior to his
appointment, Mr. Fitzgerald was employed by BJ Services Company, an oilfield
services company, from 1989 to 2001, where he served as vice president and
controller from 1998 to 2001 and as controller from 1989 to 1998. Mr. Fitzgerald
was also a senior manager with the accounting firm of Ernst & Whinney.
VINCENT M. THIELEN, age 43, was appointed vice president, corporate
controller of Veritas DGC in September 2003. Prior to his appointment, he had
been employed by Veritas DGC for 4 years as corporate controller. Prior to that
time, he served for eighteen years in various technical, operational and
financial roles at Baker-Hughes Incorporated.
LARRY L. WORDEN, age 51, was appointed vice president, general counsel
and secretary of Veritas DGC in December 1998. For ten years prior to that time,
Mr. Worden served as vice president, general counsel and secretary of King
Ranch, Inc., a privately held Texas corporation. Prior to his employment with
King Ranch, Inc. he served as division counsel at National Gypsum Company and
practiced law at two private law firms.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messrs. Robson,
Ludlow, Wells, Fitzgerald, Thielen and Worden.
Our agreement with Mr. Robson continues until December 7, 2004, unless
earlier terminated by prior written notice of either party. Under his agreement,
Mr. Robson is entitled to receive a minimum salary of $450,000 per annum as
chairman and chief executive officer. In light of Mr. Robson's decision to step
down as chief executive officer, we have agreed that once a new chief executive
officer is appointed, Mr. Robson will remain chairman of the board and will
receive a fee of $250,000 for the period beginning on the date of such
appointment and ending on December 7, 2004, paid over that period. If Mr.
Robson's employment as chairman is terminated prior to December 7, 2004, by
either party, we will pay him the remaining unpaid balance of the $250,000 fee.
In addition, we have agreed to allow Mr. Robson and his spouse to purchase
health insurance coverage under our group health insurance for the remainder of
each of their lives and have agreed that stock options awarded to Mr. Robson
will be continued for the term originally granted regardless of his retirement.
Our agreements with Messrs. Ludlow, Wells, Fitzgerald, Thielen and
Worden continue until the employee reaches age 65 unless the agreement is
earlier terminated by prior written notice of either party. As of July 31, 2003,
the executive officers are entitled to minimum annual salaries under their
employment agreements as follows: Mr. Ludlow - $265,021; Mr. Wells - $260,000;
Mr. Fitzgerald - $225,000; Mr. Thielen -- $159,600 and Mr. Worden - $200,000. In
the event of a termination without cause (other than in connection with a change
of control of Veritas DGC), each executive officer is entitled to payment under
his employment agreement equal to one or more years of annual base salary as
follows: Messrs. Ludlow, Wells and Fitzgerald - two years; and Messrs. Thielen
and Worden - one year. Payment of these amounts will be made over the specified
period unless we exercise our option to pay them in a lump sum. Within thirty
days after a change in control of Veritas DGC, each executive officer is
entitled to a lump
20
sum payment under his employment agreement equal to the following number times
the sum of his annual base salary and annual bonus: Messrs. Ludlow, Wells and
Fitzgerald - three; and Messrs. Thielen and Worden - two.
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
us for the three years ended July 31, 2003, 2002 and 2001 of those individuals
who (i) served as our chief executive officer during fiscal 2003, or (ii) were
among our four most highly compensated executive officers at July 31, 2003,
other than the chief executive officer.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- -------------------------
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (1) COMPENSATION STOCK AWARDS OPTIONS (2) COMPENSATION (3)
----------------------- ------ ------------ ------------ ------------- ------------ ----------- ----------------
David B. Robson (4) ......... 2003 $ 450,000 $ 41,025 -- -- 173,762(5) --
Chairman and Chief 2002 415,000 298,369 -- -- -- --
Executive Officer 2001 399,134 300,216 -- -- 30,130 --
Stephen J. Ludlow ........... 2003 $ 265,021 $ 20,246 $ -- -- 60,971(5) $ --
Vice Chairman 2002 265,021 90,100 3,000(6) -- -- 4,000
2001 265,021 182,320 -- -- 11,555 3,355
Timothy L. Wells ............ 2003 $ 276,154 $ 19,110 $ -- -- 60,284(5) $ 8,241
President and Chief 2002 260,000 88,400 11,586(6) -- -- 4,000
Operating Officer 2001 248,077 170,853 -- -- 11,337 3,058
Matthew D. Fitzgerald (7) ... 2003 $ 241,154 $ 18,463 -- -- 55,494(5) $ 6,183
Executive Vice 2002 225,000 76,500 -- -- -- 711
President, Chief 2001 87,404 70,000 -- $589,720(8) 9,112 --
Financial Officer
and Treasurer
Larry L. Worden ............. 2003 $ 194,039 $ 14,834 -- -- 29,736(5) $ 5,657
Vice President, 2002 190,000 64,600 -- -- -- 2,303
General Counsel and 2001 190,000 130,720 -- -- 5,523 2,477
Secretary
----------
(1) Bonus reported for each fiscal year, although earned in that year, were
partially paid in September of the following fiscal year. Bonuses are
reported for the year in which they were earned.
(2) All options granted were options to purchase our common shares.
(3) Represents company matching contributions to officers' accounts pursuant to
our 401(k) Plan.
(4) Mr. Robson's compensation is paid in Canadian dollars - amounts shown have
been converted to U.S. dollars.
(5) Includes two option grants, one in August 2002, which was delayed from
March 2002 due to a pending business combination subsequently terminated in
July 2002, and the second in March 2003.
(6) For Mr. Ludlow, reflects a service award for 30 years of employment with
us, and for Mr. Wells, reflects repatriation expense reimbursement for
previous relocation from Singapore to Houston in 1999.
(7) Mr. Fitzgerald joined the company in March 2001.
(8) 15,947 shares of restricted stock valued at $36.98, the closing price of
our common stock on the New York Stock Exchange on March 9, 2001, the date
of grant. On July 31, 2003, the restricted shares had a value of $156,600
based on the July 31, 2003, closing price of our common stock of $9.82 per
share on the New York Stock Exchange. Of the restricted shares granted,
one-third vested on March 9, 2002, one-third vested on March 9, 2003 and
assuming that we then still employ Mr. Fitzgerald, the remaining one-third
will vest on March 9, 2004. We do not currently pay dividends on our common
stock; however, we would pay dividends on the restricted stock should our
dividend policy change.
EQUITY COMPENSATION PLAN INFORMATION
The following table presents data related to all of our equity
compensation plans for both non-employee directors and key employees as of July
31, 2003, and provides information related to potential ownership dilution as of
such date:
21
EQUITY COMPENSATION PLAN INFORMATION
AS OF JULY 31, 2003
NUMBER OF SECURITIES AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER EQUITY
TO BE ISSUED UPON EXERCISE PRICE OF COMPENSATION PLANS (EXCLUDING
EQUITY COMPENSATION PLAN EXERCISE OF OUTSTANDING SECURITIES RESERVED FOR ISSUANCE IN
CATEGORY OUTSTANDING OPTIONS OPTIONS CONNECTION WITH OUTSTANDING OPTIONS)
-------------------------------- --------------------- ----------------- ------------------------------------
Stock option plans
approved by stockholders....... 2,443,471 $ 14.89 1,455,893
Stock option plans
not approved by stockholders... 1,596,028 $ 15.87 0
Restricted stock plans
approved by stockholders....... 5,665 0(1) 294,335
Restricted stock plans
not approved by stockholders... 42,925 0(1) 0
----------
(1) Restricted stock vests upon completion of specified years of service. No
cash payment is required from the recipient.
Our existing stock option and restricted stock plans are described
further in Notes to Consolidated Financial Statements included in our Form 10-K
for the fiscal year ended July 31, 2003, which description is incorporated in
this proxy statement by reference.
The following table sets forth options we granted during the fiscal
year ended July 31, 2003 to Messrs. Robson, Ludlow, Wells, Fitzgerald and
Worden:
OPTION GRANTS IN FISCAL YEAR ENDED JULY 31, 2003
INDIVIDUAL GRANTS
---------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME OF OFFICER OPTIONS GRANTED(1) FISCAL YEAR ($/SHARE) DATE VALUE $ (2)
----------------------------- ------------------ ---------------- --------- ---------- -----------
David B. Robson.............. 94,662 3.5 10.96 8/6/2007 562,292
79,100 3.0 7.95 3/3/2008 333,011
Stephen J. Ludlow............ 36,271 1.4 10.96 8/6/2007 215,450
24,700 0.9 7.95 3/3/2008 103,987
Timothy L. Wells............. 35,584 1.3 10.96 8/6/2007 211,369
24,700 0.9 7.95 3/3/2008 103,987
Matthew D. Fitzgerald........ 30,794 1.2 10.96 8/6/2007 182,916
24,700 0.9 7.95 3/3/2008 103,987
Larry L. Worden.............. 17,336 0.6 10.96 8/6/2007 102,976
12,400 0.5 7.95 3/3/2008 52,204
----------
(1) Each option expires five years from the date of grant. Each grant is
exercisable as follows: 25% of the options are immediately exercisable on
the date of grant and an additional 25% becomes exercisable on each
succeeding anniversary of the date of grant until all are exercisable on
the third anniversary of the date of grant.
(2) Calculated using the Black-Scholes option valuation method assuming no
dividends, a 3.3% risk-free interest rate, 69% expected volatility and a
4 year expected life for the $10.96 grant and a 2.6% risk free interest
rate, 68% expected volatility and 4 year expected life for the $7.95 grant.
The following table sets forth information with respect to Messrs.
Robson's, Ludlow's, Wells', Fitzgerald's and Worden's options to purchase our
shares that were exercised during the fiscal year ended July 31, 2003 or were
unexercised at fiscal year end.
22
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED JULY 31, 2003
AND FISCAL YEAR END OPTION VALUES
OPTIONS EXERCISED VALUE OF IN-THE-MONEY
DURING NUMBER OF UNEXERCISED OPTIONS UNEXERCISED OPTIONS
FISCAL YEAR HELD AT FISCAL YEAR END(#) HELD AT FISCAL YEAR END ($)(1)
------------------------- ----------------------------- ------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- ----------- ------------ ------------- ----------- -------------
David B. Robson 66,537 (5,136) 183,314 114,189 36,979 110,938
Stephen J. Ludlow -- -- 87,543 39,550 11,547 34,642
Timothy L. Wells -- -- 51,352 39,152 11,547 34,642
Matthew D. Fitzgerald -- -- 28,413 41,519 11,547 34,642
Larry L. Worden -- -- 31,189 19,349 5,797 17,391
----------
(1) Based on the difference between the July 31, 2003, closing price of our
common stock of $9.82 per share on the New York Stock Exchange and the
exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the three members of the compensation committee - Messrs.
Carroll, Gibbs or MacNeill - is or has been at any time an executive officer or
employee of Veritas DGC or any of its subsidiaries nor has any of them had any
relationship with Veritas DGC that would otherwise require disclosure.
Mr. Robson, chairman and chief executive officer of Veritas DGC, was an
ex officio non-voting member of the compensation committee until he resigned
from the committee on September 25, 2002. Prior to his resignation, he was
invited to and attended meetings of the compensation committee from time to
time. At no time was he allowed to vote on any item that came before the
committee, nor was he allowed to be present during the committee's discussions
of his compensation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the board of directors has furnished the
following report on executive compensation for fiscal year 2003:
We seek to relate a significant portion of potential total executive
compensation to Veritas DGC's financial performance. Our executive compensation
consists of three elements: (1) base compensation, (2) bonus awards and (3)
stock-based benefits.
Base Salary. We intend the base compensation for executive officers to
afford a reasonable degree of financial security and flexibility to those
individuals whom we regard as acceptably discharging the levels and types of
responsibility implicit in the various executive positions. In setting base
compensation we initially consider the compensation plans of executives in other
companies, including companies in the oil services industry. We target base
compensation at levels consistent with median levels for public companies of our
relative size. We generally do not consider the compensation plans of executives
in other seismic companies, because some of our principal competitors are
subsidiaries of larger, more diversified oilfield service concerns, and
compensation data is not publicly available for the comparable executive
positions in those subsidiaries. Moreover, the few publicly held seismic
operators have such disparate operating and financial characteristics and are of
such dissimilar sizes, that the compensation committee has found little basis
for reliable comparison. In setting the base compensation of our executive
officers, we also consider the executive's salary history, level of
responsibility, breadth of knowledge, past performance, credentials and
experience with Veritas DGC, as well as his perceived future utility to Veritas
DGC.
We last increased the base compensation for certain executive officers,
including Messrs Robson, Wells, Fitzgerald and Worden in March 2003. At that
time, the compensation committee set the base compensation for Mr. David B.
Robson, chairman and chief executive officer, at $450,000 per year. This salary
was established by comparing the compensation of chief executive officers in a
group of comparable companies.
23
Mr. Robson has announced his intention to resign as chief executive
officer as soon as the committee locates and the board of directors appoints a
successor. At that time, it is anticipated that Mr. Robson will remain as
chairman of the board until the next annual stockholders meeting, unless either
he or the board elects otherwise. We have agreed that Mr. Robson will receive a
fee of $250,000 for his service as chairman of the board after stepping down as
chief executive officer. We anticipate that he will devote approximately half of
his time to service as chairman and arrived at the fee based on that reduced
number of hours.
Bonus Awards. We require a minimum level of company financial
performance before the executive officers earn any annual bonuses, and we award
bonuses for achieving higher levels of performance directly tied to the level
achieved. In fiscal 1998, we recommended and the board of directors adopted an
incentive compensation program pursuant to which some 300 managerial personnel
(including the named executive officers) became eligible to earn bonuses based
upon two criteria: (1) Veritas DGC's actual results of operations as a
percentage of those results anticipated in the annual budget approved by the
board of directors at the beginning of the fiscal year; and (2) the attainment
of individual performance goals assigned at the beginning of the year. Based on
their achievement of performance objectives in fiscal year 2003, we awarded the
following bonuses to the named executive officers (these bonuses were paid in
two separate payments, one in March 2003 and the other in September 2003): Mr.
Robson - $41,025; Mr. Ludlow - $20,246; Mr. Wells - $19,110; Mr. Fitzgerald -
$18,463; and Mr. Worden - $14,834.
Stock-based Benefits. We believe periodic grants of stock options to
executive officers helps to align the executive's economic interests with those
of stockholders and to provide a direct and continuing focus on the goal of
increasing stockholder value. We consider such grants every year. We did not
grant options in March 2002, as would have been our custom because of then
ongoing merger discussions with Petroleum Geo-Services ASA. After those
discussions ended in July 2002, we made the grants in August that we would have
normally made in March. On August 6, 2002, options were granted to the following
executive officers to purchase the specified number of shares for $10.96 per
share, the fair market value of our shares at the date of the grant: Mr. Robson
- 94,662; Mr. Ludlow - 36,271; Mr. Wells - 35,584; Mr. Fitzgerald - 30,794 and
Mr. Worden - 17,336. On March 3, 2003, additional options were granted to the
following executive officers to purchase the specified number of shares for
$7.95 per share, the fair market value of our shares at the date of the grant:
Mr. Robson - 79,100; Mr. Ludlow - 24,700; Mr. Wells - 24,700; Mr. Fitzgerald -
24,700; and Mr. Worden - 12,400. Each option granted in August 2002 and March
2003 expires five years from the date of grant. Each grant is exercisable as
follows: 25% of the options were immediately exercisable on the date of grant,
and an additional 25% becomes exercisable on the anniversary of the grant in
each succeeding year until all are exercisable on the third anniversary of the
grant.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended, currently imposes a $1 million limitation on the deductibility of
certain compensation paid to the chief executive officer and four highest paid
executives. Certain performance-based compensation and certain other
compensation that has been approved by stockholders are not subject to the
deduction limit. The deductibility of compensation paid to Veritas DGC's
officers has not, to date, been limited by the application of Section 162(m).
The compensation committee has and will continue to take into account the
potential application of Section 162(m) on incentive compensation awards and
other compensation decisions.
The compensation committee of our board of directors believes that the
compensation program for the executives of our company is comparable with the
compensation programs provided by comparable companies and serves the best
interests of our stockholders. The committee also believes that annual
performance pay is appropriately linked to individual performance, annual
financial performance of our company and stockholder value.
COMPENSATION COMMITTEE
Brian F. MacNeill, Chairman
Loren K. Carroll
James R. Gibbs
24
COMMON STOCK PERFORMANCE GRAPH
The following graph illustrates the performance of our shares of common
stock compared with the cumulative total return on (i) Standard & Poor's 500
Stock Index and (ii) an index of five peer companies we selected. The graph
assumes that the value of the investment in our shares and each index was $100
at July 31, 1998. In all cases the cumulative total return assumes, as
contemplated by the Securities and Exchange Commission rules, that any cash
dividends were reinvested in that security. The peer group investment is
weighted at the beginning of each period based on the market capitalization of
each individual company within the group.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
(PERFORMANCE GRAPH)
July 31,
--------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
Veritas DGC Inc. ......... $100.00 $ 53.76 $ 64.66 $ 68.87 $ 37.05 $ 29.53
S & P 500 ................ $100.00 $120.20 $130.99 $112.22 $ 85.70 $ 94.83
Peer Group ............... $100.00 $103.51 $120.31 $ 88.20 $ 68.43 $ 72.89
The index of peer companies in the graph above consists of Compagnie
Generale de Geophysique, Dawson Geophysical Company, Petroleum Geo-Services ASA,
Schlumberger Limited, and Seitel, Inc. Western Atlas Inc. is included in the
index of peer companies for 1998. Because Western Atlas became a wholly-owned
subsidiary of Baker Hughes Incorporated, the index includes Baker Hughes for
1999 and 2000. Commencing with fiscal year 2001, Baker Hughes was removed from
the index of peer companies since its seismic operations were merged with
Schlumberger's seismic operations to form WesternGeco, which is already included
in the peer group as a part of Schlumberger. In our prior year's Proxy Statement
dated October 23, 2002, the group of peer companies did not include Compagnie
Generale de Geophysique. The previous peer group, without Compagnie Generale de
Geophysique, is not included in the graph above because the difference between
the new peer group including Compagnie Generale de Geophysique and the previous
peer group excluding it is not material.
The graph above depicts the past performance of our shares and should
not be used to predict future performance. We do not make or endorse any
predictions as to future share performance. These price performance comparisons
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934 except to
the extent that we specifically incorporate this graph by reference, and shall
not otherwise be deemed filed under such acts.
25
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of shares at October 13, 2003, by (i) each person we know
to own beneficially more than 5% of the outstanding shares, (ii) all directors
and director nominees, (iii) each executive officer named in the Summary
Compensation Table and (iv) all directors, director nominees and executive
officers as a group.
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS (1) OWNERSHIP (2), (3) PERCENT OF CLASS (4)
------------------------------------------------------------- -------------------- --------------------
Beneficial Owners of 5% or more:
Barclays Global Investors, NA (5)..................... 3,783,559 --
45 Fremont Street
San Francisco, CA 94105
Dimensional Fund Advisors Inc. (6).................... 1,857,400 --
1299 Ocean Avenue
Santa Monica, CA 90401-1005
Named Executive Officers, Directors and Director Nominees:
David B. Robson ...................................... 1,541,664 --
Stephen J. Ludlow..................................... 98,892 *
Timothy L. Wells...................................... 51,352 *
Matthew D. Fitzgerald................................. 48,522 *
Larry L. Worden....................................... 35,538 *
Loren K. Carroll...................................... 12,500 *
Clayton P. Cormier.................................... 29,554 *
James R. Gibbs........................................ 28,500 *
Brian F. MacNeill..................................... 34,415 *
Jan Rask.............................................. 22,750 *
ALL DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP (11 persons)..................... 1,928,064 --
----------
* Does not exceed one percent.
(1) The address of each person shown is c/o Veritas DGC Inc., 10300 Town Park
Drive, Houston, Texas 77072, unless another address is listed.
(2) Except as specified otherwise, each person has sole voting and investment
power with respect to the shares listed.
(3) Includes the following shares subject to options granted pursuant to a
Veritas DGC option plan and exercisable within 60 days: Mr. Robson -
183,314 shares; Mr. Ludlow - 87,543 shares; Mr. Wells - 51,352 shares; Mr.
Fitzgerald - 28,413; Mr. Worden - 31,189 shares; Mr. Carroll - 2,500; Mr.
Cormier - 27,550 shares; Mr. Gibbs - 27,500 shares; Mr. MacNeill - 31,250
shares; Mr. Rask - 22,750 shares; and all directors, director nominees and
executive officers as a group - 506,239 shares.
(4) Percentages are calculated based on total of all outstanding shares as of
October 13, 2003, which includes the Veritas Energy Services exchangeable
shares and the Veritas Energy Services class A exchangeable shares series
1.
(5) Based solely on information furnished in Schedule 13G filed with the
Securities and Exchange Commission by such person on August 11, 2003.
Includes 2,769,784 shares with sole voting and investment power.
(6) Based solely on information furnished in Schedule 13F filed with the
Securities and Exchange Commission by such person on August 8, 2003.
Includes 1,857,400 shares with sole voting and investment power, 147,460
shares with shares voting power and 1,75,866 shares with sole investment
power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 21 2002, we acquired Hampson-Russell Software Services Ltd.,
a Canadian provider of software tools and consulting services related to
reservoir interpretation. Under the terms of the agreement, we acquired
substantially all of the assets of Hampson-Russell in exchange for a cash
payment of $9,250,000, transfer of 589,623 shares of Veritas common stock
($12.30 per share), and Hampson-Russell's right to receive a percentage of the
revenues generated by the purchased assets over the five years following the
closing of the transaction, provided that certain financial targets are
obtained. David B. Robson, our chairman and chief executive officer beneficially
owns and controls Vada Industries Ltd., which was a 25% shareholder of
Hampson-Russell at the time
26
of the acquisition. The purchase price was determined at arm's length and was
approved by our board of directors without Mr. Robson's presence or
participation. We believe that the price paid was no less favorable to us than
would have been obtained from a wholly unrelated party.
Our Canadian subsidiary, Veritas Energy Services Inc., provides certain
services to Vada Industries Ltd., an Alberta corporation which David B. Robson,
our chairman and chief executive officer, beneficially owns and controls.
Veritas Energy Services provides to Vada certain payroll services and allows
Vada's three employees, including Mr. Robson's two sons, to participate in the
same group health, dental and life insurance programs we maintain for our
Canadian employees. Vada pays Veritas Energy Services on a monthly basis for
costs incurred on Vada's behalf. For the year ended July 31, 2003, the
reimbursement by Vada of costs incurred by Veritas Energy Services amounted to
approximately $278,000. In addition, Veritas Energy Services provides Vada with
two offices and certain office services in Calgary. Vada pays Veritas Energy
Services a monthly payment approximately equal to Veritas Energy Services' cost.
For the fiscal year ended July 31, 2003, Vada paid Veritas Energy Services
approximately $15,000 for such offices and office services.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes of ownership with the Securities and Exchange Commission. We believe,
based upon a review of the forms and amendments furnished to us, that each of
our officers and directors and greater than 10% stockholders met all applicable
filing requirements for fiscal year ended July 31, 2003.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent accountants, have served as the
independent accountants of Veritas DGC since November 1996. No action will be
taken at the meeting with respect to the continued engagement of
PricewaterhouseCoopers LLP, but we expect that PricewaterhouseCoopers LLP will
continue to provide audit services to us. Representatives of that firm plan to
attend the annual meeting and will be available to respond to appropriate
questions. Its representatives will also have an opportunity to make a statement
at the meeting if they so desire.
AUDIT FEES
The aggregate fees billed for professional services rendered for the
audit of our consolidated financial statements, statutory audits in foreign
jurisdictions, issuance of consents and the reviews of financial statements
included in the company's Forms 10-Q for the fiscal years ended July 31, 2003
and 2002 was $455,000 and $390,000, respectively. Our audit committee
pre-approved all fees for professional services for the audit of our audited
financial statements for the year ended July 31, 2003.
AUDIT RELATED FEES
The aggregate fees billed for audit related services (audits of our
employee benefit plans, accounting consultations and due diligence related to
mergers and acquisitions) for the fiscal years ended July 31, 2003 and 2002 was
$70,000 and $490,000, respectively. Our audit committee pre-approved all fees
for audited related services incurred during the year ended July 31, 2003.
TAX FEES
The aggregate fees billed for income tax and tax related services for
the fiscal years ended July 31, 2003 and 2002 was $225,000 and $655,000,
respectively. Our audit committee pre-approved all fees for tax and tax related
services incurred during the year ended July 31, 2003.
FINANCIAL INFORMATION SYSTEM DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP performed no services related to financial
information system design and implementation during the fiscal years ended July
31, 2003 or 2002, and billed no fees for such services.
27
ALL OTHER FEES
The aggregate fees billed by PricewaterhouseCoopers LLP during the
fiscal years ended July 31, 2003 and 2002 for other services totaled $2,000 and
$102,000, respectively. Our audit committee pre-approved all fees for such other
fees incurred during the year ended July 31, 2003.
AVAILABILITY OF ANNUAL REPORT AND FORM 10-K
We have mailed our annual report to stockholders covering the fiscal
year ended July 31, 2003 to each stockholder entitled to vote at the annual
meeting.
WE WILL PROVIDE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED JULY 31, 2003 WITHOUT CHARGE TO ANY STOCKHOLDER MAKING WRITTEN
REQUEST TO LARRY L. WORDEN, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, 10300
TOWN PARK DRIVE, HOUSTON, TEXAS 77072.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
PROPOSALS FOR 2004 ANNUAL MEETING
Pursuant to rules promulgated by the Securities and Exchange
Commission, any proposals of stockholders of our company intended to be
presented at our 2004 annual meeting of stockholders and included in our proxy
statement and form of proxy relating to that meeting, must be received at our
principal executive offices, 10300 Town Park Drive, Houston, Texas 77072
Attention: Secretary, no later than __________, 2004. Such proposals must be in
conformity with all applicable legal provisions, including Rule 14a-8 of the
General Rules and Regulations under the Securities Exchange Act.
In addition to the Securities and Exchange Commission rules described
in the preceding paragraph, our bylaws provide that for business to be properly
brought before any annual meeting of shareholders, it must be either (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of our board of directors, (ii) otherwise brought before the
meeting by or at the direction of our board of directors, or (iii) otherwise
properly brought before the meeting by a stockholder of our company who is a
shareholder of record at the time of giving of the required notice described
below, who shall be entitled to vote at such meeting and who complies with the
following notice procedures. For business to be brought before an annual meeting
by a stockholder of our company, the shareholder must have given timely notice
in writing of the business to be brought before such annual meeting to the
Secretary of the Company. TO BE TIMELY FOR THE 2004 ANNUAL MEETING, A
STOCKHOLDER'S NOTICE MUST BE DELIVERED TO OR MAILED AND RECEIVED AT OUR
PRINCIPAL EXECUTIVE OFFICES, 10300 TOWN PARK DRIVE, HOUSTON, TEXAS 77072, ON OR
AFTER AUGUST 4, 2004 BUT NOT LATER THAN SEPTEMBER 2, 2004. A stockholder's
notice to the Secretary of our company must set forth (a) as to any business
that the stockholder proposes to bring before the meeting, the reasons for
conducting such business at the meeting, any material interest in such business
of such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made, and a representation that the stockholder will appear in
person or by proxy at the meeting to present the proposal; and (b) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address, as they appear on
our books, of such stockholder, and (ii) the class and number of shares of
capital stock of our company which are beneficially owned by the stockholder.
NOMINATIONS FOR 2004 ANNUAL MEETING AND FOR ANY SPECIAL MEETINGS
Pursuant to our bylaws, only persons who are nominated in accordance
with the following procedures are eligible for election as directors.
Nominations of persons for election to our board of directors may be made at a
meeting of stockholders only (a) by or at the direction of our board of
directors or (b) by any stockholder of our company who is a stockholder of
record at the time of giving of the required notice described below, who is
entitled to vote for the election of directors at the meeting, and who complies
with the following notice procedures. All
28
nominations, other than those made by or at the direction of our board of
directors, must be made pursuant to timely notice in writing to the Secretary of
the Company. TO BE TIMELY, A STOCKHOLDER'S NOTICE MUST BE DELIVERED TO OR MAILED
AND RECEIVED AT OUR PRINCIPAL EXECUTIVE OFFICES, 10300 TOWN PARK DRIVE, HOUSTON,
TEXAS 77072, (i) WITH RESPECT TO AN ELECTION TO BE HELD AT THE 2004 ANNUAL
MEETING ON OR AFTER AUGUST 4, 2004 BUT NOT LATER THAN SEPTEMBER 2, 2004, AND
(II) WITH RESPECT TO ANY ELECTION TO BE HELD AT A SPECIAL MEETING OF
STOCKHOLDERS, NO EARLIER THAN THE NINETIETH DAY PRIOR TO SUCH SPECIAL MEETING
AND NOT LATER THAN THE CLOSE OF BUSINESS ON THE LATER OF THE SEVENTIETH DAY
PRIOR TO SUCH SPECIAL MEETING OR THE TENTH DAY FOLLOWING THE DAY ON WHICH PUBLIC
ANNOUNCEMENT IS FIRST MADE OF THE DATE OF THE SPECIAL MEETING OR OF THE NOMINEES
PROPOSED BY OUR BOARD OF DIRECTORS TO BE ELECTED AT SUCH MEETING. A
stockholder's notice to the Secretary of our company must set forth (a) as to
each person whom the stockholder proposes to nominate for election as a
director, all information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors, or is
otherwise required, pursuant to Regulation 14A under the Securities Exchange Act
(including the written consent of such person to be named in the proxy statement
as a nominee and to serve as a director if elected); and (b) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address, as they appear on
our books, of such stockholder, and (ii) the class and number of shares of
capital stock of our company which are beneficially owned by the stockholder.
29
(VERITAS LOGO)
VERITAS DGC INC.
AUDIT COMMITTEE CHARTER
(Including All Amendments Through September 23, 2003)
1. PURPOSE
1.1 The Audit Committee is appointed by the Board of Directors of the
Company (the "Board") to assist the Board in fulfilling its oversight
responsibilities.
1.2 The Committee's general purposes are to:
A. Assist the Board with its oversight of (i) the reliability and
integrity of the Company's financial statements; (ii) the Company's
compliance with legal and regulatory requirements; (iii) the
qualifications and independence of the external independent auditors
("Independent Auditors"); and (iv) the performance of the Company's
internal audit function and Independent Auditors; and
B. Prepare the report that SEC rules require be included in the
Company's annual proxy statement.
2. MEMBERSHIP
2.1 The Committee will be comprised of not less than three members of the
Board. Audit Committee members and the Audit Committee chairman will be
designated by the full Board upon the recommendation of the Nominating and
Corporate Governance Committee and will serve at the pleasure of the Board.
ANNEX A
2.2 All members of the Audit Committee will be financially literate, as
such qualification is interpreted by the Board in its business judgment, and
have a familiarity with basic finance and accounting practices. At least one
member of the Committee will have accounting or related financial management
expertise, as the Board interprets such qualification in its business judgment
and will be a financial expert as defined in Section 407(a) of the
Sarbanes-Oxley Act of 2002 and rules issued thereunder.
2.3 Each member of the Audit Committee will be independent, meaning that no
such member will have any relationship that may interfere with the exercise of
his or her independence from management and the Company. No director will be
eligible to be a member of the Audit Committee unless the Board will have first
made an affirmative determination that such director has no material
relationship with the Company (either directly or indirectly or as a partner,
shareholder or officer of an organization that has a relationship with the
Company). In addition, the following restrictions will apply to each Committee
member:
A. Employees. A director who is an employee (including non-employee
executive officers) of the Company or any of its Affiliates may not
serve on the Audit Committee until five years following the termination
of his or her employment. In the event the employment relationship is
with a former parent or predecessor of the Company, the director may
serve on the Audit Committee after five years following the termination
of the relationship between the Company and the former parent or
predecessor.
"Affiliate" includes a subsidiary, sibling company, predecessor, parent
company, or former parent company.
B. Independent Auditors. A director who is, or in the past five years
has been, affiliated with or employed by a present or former auditor of
the Company or of an Affiliate may not serve on the Audit Committee
until five years after the end of either the affiliation or the
auditing relationship.
-2-
C. Business Relationship. A director (i) who is a partner, controlling
shareholder, or executive officer of an organization that has a
business relationship with the Company, or (ii) who has a direct
business relationship with the Company (e.g., a consultant) may serve
on the Audit Committee only if the Company's Board determines in its
business judgment that the relationship does not interfere with the
director's exercise of independent judgment. In making a determination
regarding the independence of a director pursuant to this paragraph,
the Board will consider, among other things, the materiality of the
relationship to the Company, to the director, and, if applicable, to
the organization with which the director is affiliated.
"Business relationships" can include commercial, industrial, banking,
consulting, legal, accounting and other relationships. A director can
have this relationship directly with the Company, or the director can
be a partner, officer or employee of an organization that has such a
relationship. The director may serve on the Audit Committee without the
above-referenced Board determination after three years following the
termination of, as applicable, either (1) the relationship between the
organization with which the director is affiliated and the Company, (2)
the relationship between the director and his or her partnership
status, shareholder interest or executive officer position, or (3) the
direct business relationship between the director and the Company.
"Officer" will have the meaning specified in Rule 16a-l(f) under the
Securities Exchange Act of 1934 or any successor rule.
D. Cross Compensation Committee Link. A director may not serve on the
Audit Committee if he or she is or has been, within the past five
years, part of an interlocking directorate in which an executive
officer of the Company serves on the compensation committee of another
company that employs that director.
E. Immediate Family. A director may not serve on the Audit Committee if
he or she is an Immediate Family member of an individual who would be
disqualified from serving as a member of the Audit Committee under
paragraphs (a) through (d) above.
-3-
"Immediate Family" includes a person's spouse, parents, children,
siblings, mothers-in-law and fathers-in-law, sons and daughters-in-law,
brothers and sisters-in-law, and anyone (other than employees) who
shares such person's home.
F. Payment of Fees. The Company will not pay to any member of the Audit
Committee any consulting, advisory or other compensatory fees, other
than fees paid to such member in his or her capacity as a member of the
Audit Committee, the Board or any other Board committee.
3. COMMITTEE MEETINGS
3.1 The Audit Committee will hold regular meetings at least once each
fiscal quarter.
3.2 In addition to regular meetings, the Audit Committee will hold such
special meetings as the Chairman of the Audit Committee may call. The Chairman
will call a special meeting if requested to do so by the Company's senior
internal auditor or the Independent Auditors.
3.3 A quorum of the Audit Committee will consist of at least two members.
4. INDEPENDENT AUDITORS AND INTERNAL AUDITORS
4.1 The Audit Committee has the ultimate authority and responsibility to
select, evaluate, and, where appropriate, replace the Independent Auditors.
4.2 The Audit Committee will:
A. Require the Independent Auditors to submit to it on a periodic
basis, not less than annually, a formal written statement delineating
all relationships between the Independent Auditors and the Company;
-4-
B. Actively engage in a dialogue with the Independent Auditors with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the Independent Auditors and recommend
that the Board take appropriate action in response to the Independent
Auditors' report to satisfy itself of the Independent Auditors'
independence;
C. Review the performance of the Independent Auditors and internal
auditors and make recommendations to the Board regarding the
appointment or termination of the Independent Auditors and internal
auditors;
D. Obtain and review, at least annually, a report by the Independent
Auditors describing: the firm's internal quality-control procedures;
and any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry
or investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such
issues;
E. Confer with the Independent Auditors concerning the scope of their
examinations of the books and records of the Company and its
subsidiaries;
F. Review and approve the Independent Auditors' annual engagement
letter and approve the Independent Auditors fees for the audit
services;
G. Review and approve the Company's internal audit plans and reports,
annual audit plans and budgets;
H. Direct the special attention of the internal auditors and the
Independent Auditors to specific matters or areas deemed by the
Committee, the internal auditors or the Independent Auditors to be of
special significance;
-5-
I. Review with the Independent Auditors any audit problems or
difficulties with management's response;
J. Authorize the internal auditors or the Independent Auditors to
perform such supplemental reviews or audits as the Committee may deem
appropriate;
K. Review and approve in advance the range and cost of any non-audit
services performed by the Independent Auditors; provided, however, that
in no event will the Independent Auditors be allowed to perform any
services which are prohibited by Section 10A of the Securities Exchange
Act of 1934, 15 U.S.C. Section 78j-1; and
L. Set clear hiring policies for employees or former employees of the
Independent Auditors.
5. INTERNAL CONTROLS
5.1 The Audit Committee will:
A. Review with management, the Independent Auditors and internal
auditors significant risks and exposures, audit activities and
significant audit findings;
B. Through the internal audit process and the Independent Auditors,
review the adequacy of the Company's systems of internal control; and,
C. Obtain from the Independent Auditors and internal auditors their
recommendations regarding internal controls and other matters relating
to the accounting procedures and the books and records of the Company
and its subsidiaries and review corrective actions taken with regard to
controls deemed to be deficient.
-6-
6 FINANCIAL STATEMENTS AND DISCLOSURE
6.1 The Audit Committee will:
A. Discuss the annual audited financial statements and quarterly
financial statements with management and the Independent Auditors,
including the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," before such
statements are filed with the SEC and provided to shareholders; and
B. Discuss earnings press releases before such information is released.
7 OTHER
7.1 The Audit Committee will:
A. Establish or oversee the establishment of procedures for (i) the
receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing
matters; and (ii) the confidential, anonymous submission by employees
of the Company of concerns regarding questionable accounting or
auditing matters;
B. Engage and obtain advice and assistance from independent counsel and
other advisors, as the Audit Committee deems necessary to carry out its
duties;
C. Conduct or authorize investigations into any matters within the
Audit Committee's scope of responsibilities and retain independent
counsel, accountants, or others to assist it in the conduct of any such
investigation;
D. Obtain sufficient funds from the Company for payment of compensation
to (i) the Independent Auditors; and (ii) any independent advisors
employed by the Audit Committee;
-7-
E. Report regularly to the Board and provide an independent, direct
communication between the Board, internal auditors and Independent
Auditors;
F. Maintain minutes or other records of meetings and activities of the
Audit Committee;
G. Discuss policies with respect to assessment and management of
financial risk;
H. Consider such other matters in relation to the financial affairs of
the Company and its accounts, and in relation to the internal and
external audit of the Company as the Audit Committee may, in its
discretion, determine to be appropriate; and
I. Meet separately at least once each quarter with the director of
internal audit or his or her equivalent or the managing partner of the
accounting firm retained by the Audit Committee to conduct internal
audits, the Independent Auditors, and management to discuss any matters
that the Audit Committee or these groups believe should be discussed
privately with the Audit Committee.
8 ANNUAL REVIEWS
8.1 The Audit Committee will review and reassess the adequacy of the Audit
Committee Charter at least annually and make appropriate recommendations to the
Board.
8.2 At least annually, the Audit Committee will evaluate its performance
over the previous year.
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VERITAS DGC INC. EMPLOYEE SHARE PURCHASE PLAN
TABLE OF CONTENTS
SECTION
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ARTICLE I - PURPOSE, SHARE COMMITMENT AND INTENT
Purpose...............................................................1.1
Share Commitment......................................................1.2
Intent................................................................1.3
Shareholder Approval..................................................1.4
ARTICLE II - DEFINITIONS
Affiliate.............................................................2.1
Authorized Leave of Absence...........................................2.2
Base Pay..............................................................2.3
Beneficiary...........................................................2.4
Board.................................................................2.5
Code..................................................................2.6
Committee.............................................................2.7
Company...............................................................2.8
Disability............................................................2.9
Employee.............................................................2.10
Employer.............................................................2.11
Exercise Date........................................................2.12
Fair Market Value....................................................2.13
Fiscal Quarter.......................................................2.14
Five Percent Owner...................................................2.15
Grant Date...........................................................2.16
Offering Period......................................................2.17
Option...............................................................2.18
Option Price.........................................................2.19
Participant..........................................................2.20
Plan.................................................................2.21
Retirement...........................................................2.22
Shares...............................................................2.23
Trading Day..........................................................2.24
ARTICLE III - ELIGIBILITY
General Requirements..................................................3.1
Limitations Upon Participation........................................3.2
ARTICLE IV - PARTICIPATION
Grant of Option.......................................................4.1
Payroll Deduction.....................................................4.2
Payroll Deductions Continuing.........................................4.3
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Right to Stop Payroll Deductions......................................4.4
Accounting for Funds..................................................4.5
Employer's Use of Funds...............................................4.6
ARTICLE V - IN SERVICE WITHDRAWAL, TERMINATION OR DEATH
In Service Withdrawal.................................................5.1
Termination of Employment for any Reason Other Than Death,
Retirement or Disability............................................5.2
Termination of Employment due to Retirement, Death or Disability......5.3
ARTICLE VI - EXERCISE OF OPTION
Purchase of Shares....................................................6.1
Accounting for Shares.................................................6.2
Issuance of Shares....................................................6.3
ARTICLE VII - ADMINISTRATION
Powers................................................................7.1
Quorum and Majority Action............................................7.2
Standard of Judicial Review of Committee Actions......................7.3
ARTICLE VIII - ADOPTION OF PLAN BY OTHER EMPLOYERS
Adoption Procedure....................................................8.1
No Joint Venture Implied..............................................8.2
ARTICLE IX - TERMINATION AND AMENDMENT OF THE PLAN
Termination...........................................................9.1
Amendment.............................................................9.2
ARTICLE X - MISCELLANEOUS
Designation of Beneficiary...........................................10.1
Plan Not An Employment Contract......................................10.2
All Participants' Rights Are Equal...................................10.3
Options Are Not Transferable.........................................10.4
Voting of Shares.....................................................10.5
No Rights of Shareholder.............................................10.6
Governmental Regulations.............................................10.7
Notices..............................................................10.8
Indemnification of Committee.........................................10.9
Tax Withholding.....................................................10.10
Gender and Number...................................................10.11
Severability........................................................10.12
Persons Based Outside of the United States..........................10.13
Governing Law; Parties to Legal Actions.............................10.14
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ARTICLE I
PURPOSE, SHARE COMMITMENT AND INTENT
1.1 PURPOSE. The purpose of the Plan is to provide Employees of the
Company and its Affiliates that adopt the Plan an opportunity to purchase Shares
through periodic offerings of options to purchase Shares at a discount and thus
develop a stronger incentive to work for the continued success of the Company
and its Affiliates.
1.2 SHARE COMMITMENT. The aggregate number of Shares authorized to be
sold pursuant to Options granted under the Plan is 2,000,000, subject to
adjustment as provided in this Section. In computing the number of Shares
available for grant, any Shares relating to Options which are granted, but which
subsequently lapse, are cancelled or are otherwise not exercised by the final
date for exercise, shall be available for future grants of Options.
In the event of any stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, or the like, as a result of
which shares shall be issued in respect of the outstanding Shares, or the Shares
shall be changed into the same or a different number of the same or another
class of stock, the total number of Shares authorized to be committed to the
Plan, the number of Shares subject to each outstanding Option, the Option Price
applicable to each Option, and/or the consideration to be received upon exercise
of each Option shall be appropriately adjusted by the Committee. In addition,
the Committee shall, in its sole discretion, have authority to provide for (a)
acceleration of the Exercise Date of outstanding Options or (b) the conversion
of outstanding Options into cash or other property to be received in certain of
the transactions specified in this paragraph above upon the completion of the
transaction.
1.3 INTENT. It is the intention of the Company to have the Plan qualify
as an "employee stock purchase plan" under section 423 of the Code. Therefore,
the provisions of the Plan are to be construed to govern participation in a
manner consistent with the requirements of section 423 of the Code.
1.4 SHAREHOLDER APPROVAL. To be effective, the Plan must be approved by
the shareholders of the Company within 12 months after the Plan is adopted. The
approval of shareholders must comply with all applicable provisions of the
corporate charter, bylaws and applicable laws of the jurisdiction prescribing
the method and degree of shareholder approval required for the issuance of
corporate stock or options.
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ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout the Plan, unless the context in which
any word or phrase appears reasonably requires a broader, narrower, or different
meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations (other than the
Company) owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.2 "AUTHORIZED LEAVE OF ABSENCE" means a bona fide leave of absence
from service with the Company or an Affiliate if the period of the leave does
not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company or an Affiliate is guaranteed either by statute or
contract.
2.3 "BASE PAY" means regular straight-time earnings or base salary,
excluding payments for overtime, shift differentials, incentive compensation,
bonuses, and other special payments, fees, allowances or extraordinary
compensation.
2.4 "BENEFICIARY" means the person who is entitled to receive amounts
under the Plan upon the death of a Participant.
2.5 "BOARD" means the board of directors of the Company.
2.6 "CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.
2.7 "COMMITTEE" a committee of at least two persons, who are members of
the Compensation Committee of the Board and are appointed by the Compensation
Committee of the Board, or, to the extent it chooses to operate as the
Committee, the Compensation Committee of the Board.
2.8 "COMPANY" means Veritas DGC Inc., a Delaware corporation, or any
successor (by merger or otherwise).
2.9 "DISABILITY" means a permanent and total disability as defined in
section 22(e)(3) of the Code.
II-1
2.10 "EMPLOYEE" means any person who is a common-law employee of the
Company or any Affiliate.
2.11 "EMPLOYER" means the Company and all Affiliates that have adopted
the Plan.
2.12 "EXERCISE DATE" means the last day of each Offering Period, which
is the day that all Options that eligible Employees have elected to exercise are
to be exercised.
2.13 "FAIR MARKET VALUE" of one Share means the last reported sale
price for the Share on the principal exchange on which the Share is traded on
the business day for which the Fair Market Value is being determined (or, if the
Share was not traded on such date, on the immediately preceding date on which
the Share was so traded).
2.14 "FISCAL QUARTER" means the three consecutive month period
beginning on each November 1, February 1, May 1 and August 1.
2.15 "FIVE PERCENT OWNER" means an owner of five percent or more of the
total combined voting power of all classes of stock of the Company or any
Affiliate. An individual is considered to own any stock that is owned directly
or indirectly by or for his brothers and sisters (whether by whole or
half-blood), spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust is considered
as owned proportionately by or for its shareholders, partners, or beneficiaries.
An individual is considered to own stock that he may purchase under outstanding
options. The determination of the percentage of the total combined voting power
of all classes of stock of the Company or any Affiliate that is owned by an
individual is made by comparing the voting power or value of the shares owned
(or treated as owned) by the individual to the aggregate voting power of all
shares actually issued and outstanding immediately after the grant of the option
to the individual. The aggregate voting power or value of all shares actually
issued and outstanding immediately after the grant of the option does not
include the voting power or value of treasury shares or shares authorized for
issue under outstanding options held by the individual or any other person.
2.16 "GRANT DATE" means the first day of each Offering Period, which is
the day the Committee grants all eligible Employees an Option under the Plan.
2.17 "OFFERING PERIOD" means the period beginning on the Grant Date and
ending on the Exercise Date. The Offering Period shall commence on the first day
of each Fiscal Quarter and shall end on the last Trading Day on or before the
last day of each Fiscal Quarter, unless the Committee specifies another Offering
Period (which may not exceed 27 months).
2.18 "OPTION" means an option granted under the Plan to purchase Shares
at the Option Price on the Exercise Date.
2.19 "OPTION PRICE" means the price to be paid for each Share upon
exercise of an Option, which shall be 85 percent of the lesser of (a) the Fair
Market Value of a Share on the Grant Date or (b) the Fair Market Value of a
Share on the Exercise Date.
II-2
2.20 "PARTICIPANT" means a person who is eligible to be granted an
Option under the Plan and who elects to have payroll deductions withheld under
the Plan for the purpose of exercising that Option on the Exercise Date.
2.21 "PLAN" means the Veritas DGC Inc. Employee Share Purchase Plan, as
set out in this document and as it may be amended from time to time.
2.22 "RETIREMENT" means the occurrence of the Participant's voluntary
termination of employment with the Company and all Affiliates after he has
attained the age of 62 and completed ten years of employment with the Company
and/or any Affiliate, including any predecessor thereto.
2.23 "SHARES" means the common stock of the Company, $.01 par value per
share, or, in the event that the outstanding ordinary shares are later changed
into or exchanged for a different class of shares or securities of the Company
or another corporation, that other share or security. Shares, when issued, may
be represented by a certificate or by book or electronic entry.
2.24 "TRADING DAY" means a day on which the principal securities
exchange on which the Shares are listed is open for trading.
II-3
ARTICLE III
ELIGIBILITY
3.1 GENERAL REQUIREMENTS. Subject to Section 3.2, each Employee of each
Employer is eligible to participate in the Plan for a given Offering Period if,
prior to the Grant Date, he has completed six months of continuous employment
for the Company and/or its Affiliates, he is in the employ of an Employer on the
Grant Date and he completes a subscription form authorizing payroll deductions
and files it with the Employer's benefit office prior to the Grant Date.
Participation in the Plan is voluntary.
3.2 LIMITATIONS UPON PARTICIPATION. No Employee shall be granted an
Option to the extent that the Option would:
(a) cause the Employee to be a Five Percent Owner immediately
after the grant;
(b) permit the Employee to purchase Shares under all employee
stock purchase plans, as defined in section 423 of the Code, of the
Company and all Affiliates at a rate which exceeds $25,000 in Fair
Market Value of the Shares (determined at the time the Option is
granted) for each calendar year in which the option granted to the
Employee is outstanding at any time as provided in sections 423 and 424
of the Code; or
(c) permit the Employee to purchase Shares in excess of the
number of Shares determined under Section 4.1.
In addition, no Option shall be granted to an Employee who resides in a country
whose laws make participation in the Plan impractical.
III-1
ARTICLE IV
PARTICIPATION
4.1 GRANT OF OPTION. Effective as of the Grant Date of each Offering
Period, the Committee shall grant an Option to each Participant which shall be
exercisable on the Exercise Date only through funds accumulated by the Employee
through payroll deductions made during the Offering Period. The Option shall be
for that number of whole and fractional Shares that may be purchased by the
amount in the Participant's payroll deduction account on the Exercise Date at
the Option Price. If so determined by the Committee and announced to Employees
prior to an Offering Period, the Committee may establish a maximum number of
Shares that may be purchased by an Employee during the Offering Period.
4.2 PAYROLL DEDUCTION. For an Employee to participate during a given
Offering Period, he must complete a payroll deduction form and file it with his
Employer prior to the beginning of the Offering Period and in accordance with
procedures established by the Committee. The payroll deduction form shall permit
a Participant to elect to have withheld from his Base Pay a specified portion of
his Base Pay during the Offering Period in accordance with procedures
established by the Committee. Payroll deductions shall continue through the last
pay date prior to the Exercise Date. A Participant may not make additional
payments to his Plan account.
4.3 PAYROLL DEDUCTIONS CONTINUING. A Participant's payroll deduction
election shall remain in effect for all ensuing Offering Periods until changed
by him by filing an appropriate amended payroll deduction form prior to the
commencement of the Offering Period for which it is to be effective in
accordance with procedures established by the Committee.
Notwithstanding the foregoing, if a Participant takes a withdrawal from
the Veritas DGC Inc. Profit Sharing Plan for reasons of a financial hardship,
such Participant shall be deemed to have elected to discontinue payroll
deductions under the Plan for a period of six months following the withdrawal
and until the Participant files a new payroll deduction form under this Plan. A
Participant's subsequent election to have amounts withheld under this Plan
following such six-month period shall not be effective until the commencement of
the next Offering Period.
4.4 RIGHT TO STOP PAYROLL DEDUCTIONS. A Participant shall have the
right to discontinue payroll deductions by filing a subscription cancellation
form with the Company. The payroll deduction cancellation shall become effective
with the first full payroll period following the Company's receipt of the
subscription cancellation agreement in accordance with procedures established by
the Committee. With the exception of a complete discontinuance of payroll
deductions, a Participant may not change his participation rate during an
Offering Period.
4.5 ACCOUNTING FOR FUNDS. As of each payroll deduction period, the
Employer shall cause to be credited to the Participant's payroll deduction
account in a ledger established for that purpose the funds withheld from and
attributable to the Employee's cash compensation for that period. No interest
shall be credited to the Participant's payroll deduction account at any time.
The obligation of the Employer to the Participant for this account shall be a
general corporate
IV-1
obligation and shall not be funded through a trust nor secured by any assets
which would cause the Participant to be other than a general creditor of the
Employer.
4.6 EMPLOYER'S USE OF FUNDS. All payroll deductions received or held by
an Employer may be used by the Employer for any corporate purpose, and the
Employer shall not be obligated to segregate such payroll deductions.
IV-2
ARTICLE V
IN SERVICE WITHDRAWAL, TERMINATION OR DEATH
5.1 IN SERVICE WITHDRAWAL. A Participant may, at any time on or before
15 days prior to the Exercise Date, or such other date as shall be selected by
the Committee from time to time, elect to withdraw all of the funds then
credited to his Plan account by giving notice in accordance with the rules
established by the Committee. The amount elected to be withdrawn by the
Participant shall be paid to him as soon as administratively feasible. Any
election by a Participant to withdraw his cash balance under the Plan terminates
his right to exercise his Option on the Exercise Date and his entitlement to
elect any further payroll deductions for the then-current Offering Period. If
the Participant wishes to participate in any future Offering Period, he must
file a new payroll deduction election within the time frame required by the
Committee for participation for that Offering Period.
5.2 TERMINATION OF EMPLOYMENT FOR ANY REASON OTHER THAN DEATH; OR
RETIREMENT OR DISABILITY WHICH OCCURS MORE THAN THREE MONTHS PRIOR TO THE
EXERCISE DATE. If a Participant's employment with the Company and all Affiliates
is terminated for any reason other than death prior to the Exercise Date, or if
the Participant's employment with the Company and all Affiliates is terminated
more than three months prior to the Exercise Date as a result of Retirement of
Disability, the Option granted to the Participant for that Offering Period shall
lapse. If a Participant is on an Authorized Leave of Absence, for purposes of
the Plan, the Participant's employment with the Company and all Affiliates shall
be deemed to be terminated on the later of the 91st day of such leave or the
date through which the Participant's employment is guaranteed either by statute
or contract. The Participant's funds then credited to his Plan Account shall be
returned to him as soon as administratively feasible.
5.3 TERMINATION OF EMPLOYMENT DUE TO DEATH. If a Participant's
employment with the Company and all Affiliates is terminated due to death, the
Participant's Beneficiary (or such other person as may be entitled to amounts
credited to the Participant's account under Section 10.1) will have the right to
elect, either to:
(a) withdraw all of the funds then credited to his Plan
account as of his termination date; or
(b) exercise the Option for the maximum number of whole and
fractional Shares that can be purchased at the Option Price on the last
day of the Offering Period (in which the Participant's termination of
employment with the Company and all Affiliates occurs).
The Participant's Beneficiary (or such other person as may be entitled
to amounts credited to the Participant's account under Section 10.1) must make
such election by giving written notice to the Committee in accordance with
procedures established by the Committee. In the event the Beneficiary (or such
other person as may be entitled to amounts credited to the Participant's account
under Section 10.1) elects to withdraw the funds, any accumulated funds credited
to the Participant's Plan account as of the date of his termination of
employment with
V-1
the Company and all Affiliates will be delivered as soon as administratively
practicable thereafter.
5.4 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT OR DISABILITY WITHIN
THREE MONTHS PRIOR TO THE EXERCISE DATE. If a Participant's employment with the
Company and all Affiliates is terminated, within three months prior to the
Exercise Date, due to Retirement or Disability, the Participant (or the
Participant's personal representative or legal guardian in the event of
Disability) will have the right to elect either to:
(a) withdraw all of the funds then credited to his Plan
account as of his termination date; or
(b) exercise the Option for the maximum number of whole and
fractional Shares that can be purchased at the Option Price on the last
day of the Offering Period (in which the Participant's termination of
employment with the Company and all Affiliates occurs).
The Participant (or, if applicable, such other person designated in the
first paragraph of this Section 5.4) must make such election by giving written
notice to the Committee in accordance with procedures established by the
Committee. Any accumulated funds credited to the Participant's Plan account as
of the date of his termination of employment with the Company and all Affiliates
will be delivered to or on behalf of the Participant as soon as administratively
practicable thereafter.
5.5 AUTHORIZED LEAVE OF ABSENCE. If a Participant begins an Authorized
Leave of Absence during an Offering Period, then he shall have the right to
elect either of the options described in Section 5.3 (substituting references to
termination date with references to the date his leave of absence begins).
However, if the individual is deemed to have incurred a termination of
employment under Section 5.2, at that time the provisions of Section 5.2 rather
than this Section 5.5 shall apply to the individual.
V-2
ARTICLE VI
EXERCISE OF OPTION
6.1 PURCHASE OF SHARES. Subject to Section 3.2, on the Exercise Date of
each Offering Period, each Participant's payroll deduction account shall be used
to purchase the maximum number of whole and fractional Shares that can be
purchased at the Option Price for that Offering Period. Any funds remaining in a
Participant's payroll deduction account after the exercise of his Option for the
Offering Period shall be returned to him as soon as administratively feasible.
If in any Offering Period the total number of Shares to be purchased by all
Participants exceeds the number of Shares committed to the Plan, then each
Participant shall be entitled to purchase only his pro rata portion of the
Shares remaining available under the Plan based on the balances in each
Participant's payroll deduction account as of the Exercise Date. After the
purchase of all Shares available on the Exercise Date, all Options granted for
the Offering Period to the extent not used are terminated because no Option
shall remain exercisable after one calendar quarter from the date of Grant.
6.2 ACCOUNTING FOR SHARES. After the Exercise Date of each Offering
Period, a report shall be given to each Participant stating the amount of his
payroll deduction account, the number of Shares purchased and the Option Price.
6.3 ISSUANCE OF SHARES. As soon as administratively feasible after the
end of the Offering Period, the Committee shall advise the appropriate officer
of the Company that the terms of the Plan have been complied with and that it is
appropriate for the officer to cause to be issued the Shares upon which Options
have been exercised under the Plan. The Committee may determine in its
discretion the manner of delivery of the Shares purchased under the Plan, which
may be by electronic account entry into new or existing accounts, delivery of
Shares certificates or any other means as the Committee, in its discretion,
deems appropriate. The Committee may, in its discretion, hold the Shares
certificate for any Shares or cause it to be legended in order to comply with
the securities laws of the applicable jurisdiction, or should the Shares be
represented by book or electronic account entry rather than a certificate, the
Committee may take such steps to restrict transfer of the Shares as the
Committee considers necessary or advisable to comply with applicable law.
VI-1
ARTICLE VII
ADMINISTRATION
7.1 POWERS. The Committee has the exclusive responsibility for the
general administration of the Plan, and has all powers necessary to accomplish
that purpose, including but not limited to the following rights, powers, and
authorities:
(a) to make rules for administering the Plan so long as they
are not inconsistent with the terms of the Plan;
(b) to construe all provisions of the Plan;
(c) to correct any defect, supply any omission, or reconcile
any inconsistency which may appear in the Plan;
(d) to select, employ, and compensate at any time any
consultants, accountants, attorneys, and other agents the Committee
believes necessary or advisable for the proper administration of the
Plan;
(e) to determine all questions relating to eligibility, Fair
Market Value, Option Price and all other matters relating to benefits
or Participants' entitlement to benefits;
(f) to determine all controversies relating to the
administration of the Plan, including but not limited to any
differences of opinion arising between an Employer and a Participant,
and any questions it believes advisable for the proper administration
of the Plan; and
(g) to delegate any clerical or recordation duties of the
Committee as the Committee believes is advisable to properly administer
the Plan.
7.2 QUORUM AND MAJORITY ACTION. A majority of the Committee constitutes
a quorum for the transaction of business. The vote of a majority of the members
present at any meeting shall decide any question brought before that meeting. In
addition, the Committee may decide any question by a vote, taken without a
meeting, of a majority of its members via telephone, computer, fax or any other
media of communication.
7.3 STANDARD OF JUDICIAL REVIEW OF COMMITTEE ACTIONS. The Committee has
full and absolute discretion in the exercise of each and every aspect of its
authority under the Plan. Notwithstanding anything to the contrary, any action
taken, or ruling or decision made by the Committee in the exercise of any of its
powers and authorities under the Plan shall be final and conclusive as to all
parties other than the Company, including without limitation all Participants
and their beneficiaries, regardless of whether the Committee or one or more of
its members may have an actual or potential conflict of interest with respect to
the subject matter of the action, ruling, or decision. No final action, ruling,
or decision of the Committee shall be subject to de novo review in any judicial
proceeding; and no final action, ruling, or decision of the Committee
VII-1
may be set aside unless it is held to have been arbitrary and capricious by a
final judgment of a court having jurisdiction with respect to the issue.
VII-2
ARTICLE VIII
ADOPTION OF PLAN BY OTHER EMPLOYERS
8.1 ADOPTION PROCEDURE. With the approval of the Committee, any
Affiliate may adopt the Plan for all or any classification of its Employees by
depositing with the Sponsor:
(a) a duly executed adoption agreement setting forth agreement
to be bound as an Employer by all the terms, provisions, conditions and
limitations of the Plan except those, if any, specifically set forth in
the adoption agreement;
(b) all other information required by the Sponsor; and
(c) the written consent of the Sponsor to the adoption of the
Plan.
8.2 NO JOINT VENTURE IMPLIED. The document which evidences the adoption
of the Plan by an Affiliate shall become a part of the Plan. However, neither
the adoption of the Plan by an Affiliate nor any act performed by it in relation
to the Plan shall create a joint venture or partnership relation between it and
the Company or any other Affiliate.
VIII-1
ARTICLE IX
TERMINATION AND AMENDMENT OF THE PLAN
9.1 TERMINATION. The Company may, by action of the Committee, terminate
the Plan at any time and for any reason. The Plan shall automatically terminate
upon the purchase by Participants of all Shares committed to the Plan, unless
the number of Shares committed to the Plan is increased by the Committee or the
Board and approved by the shareholders of the Company. Upon termination of the
Plan, as soon as administratively feasible there shall be refunded to each
Participant the remaining funds in his payroll deduction account, and there
shall be forwarded to the Participants certificates for all Shares held under
the Plan for the account of Participants. The termination of the Plan shall not
affect the current Options already outstanding under the Plan to the extent
there are Shares committed, unless the Participants agree.
9.2 AMENDMENT. The Committee has the right to modify, alter or amend
the Plan at any time and from time to time to any extent that it deems
advisable, including, without limiting the generality of the foregoing, any
amendment to the Plan deemed necessary to ensure compliance with section 423 of
the Code. The Committee may suspend the operation of the Plan for any period as
it may deem advisable. However, no amendment or suspension shall operate to
reduce any amounts previously allocated to a Participant's payroll deduction
account, to reduce a Participant's rights with respect to Shares previously
purchased and held on his behalf under the Plan nor to affect the current Option
a Participant already has outstanding under the Plan without the Participant's
agreement. Any amendment changing the aggregate number of Shares to be committed
to the Plan, the class of employees eligible to receive Options under the Plan
or the description of the group of corporations eligible to adopt the Plan must
have shareholder approval as set forth in Section 1.4.
IX-1
ARTICLE X
MISCELLANEOUS
10.1 DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a
Beneficiary who is to receive any cash and Shares credited to the
Participant's account under the Plan. If a Participant is married and
the designated Beneficiary is not the Participant's spouse, written
spousal consent shall be required for the designation to be effective.
(b) A Participant may change his designation of a Beneficiary
at any time by written notice. If a Participant dies when he has not
validly designated a Beneficiary under the Plan, the Company shall
deliver such Shares and cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Shares and cash to the spouse or to any
one or more dependents or relatives of the Participant, or if no
spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
10.2 PLAN NOT AN EMPLOYMENT CONTRACT. The adoption and maintenance of
the Plan is not a contract between any Employer and its Employees which gives
any Employee the right to be retained in its employment. Likewise, it is not
intended to interfere with the rights of any Employer to discharge any Employee
at any time or to interfere with the Employee's right to terminate his
employment at any time.
10.3 ALL PARTICIPANTS' RIGHTS ARE EQUAL. All Participants will have the
same rights and privileges under the Plan as required by section 423 of the Code
and Department of Treasury Regulation section 1.423-2(f).
10.4 OPTIONS ARE NOT TRANSFERABLE. No Option granted a Participant
under the Plan is transferable by the Participant otherwise than by will or the
laws of descent and distribution, and must be exercisable, during his lifetime,
only by him. In the event any Participant attempts to violate the terms of this
Section, any Option held by the Participant shall be terminated by the Company
and, upon return to the Participant of the remaining funds in his payroll
deduction account, all of his rights under the Plan will terminate.
10.5 VOTING OF SHARES. Shares held under the Plan for the account of
each Participant shall be voted by the holder of record of those Shares in
accordance with the Participant's instructions.
10.6 NO RIGHTS OF SHAREHOLDER. No eligible Employee or Participant
shall by reason of participation in the Plan have any rights of a shareholder of
the Company until he acquires Shares as provided in the Plan.
10.7 GOVERNMENTAL REGULATIONS. The obligation to sell or deliver the
Shares under the Plan is subject to the approval of all governmental authorities
required in connection with the authorization, purchase, issuance or sale of the
Shares.
X-1
10.8 NOTICES. All notices and other communication in connection with
the Plan shall be in the form specified by the Committee and shall be deemed to
have been duly given when sent to the Participant at his last known address or
to his designated personal representative or beneficiary, or to the Employer or
its designated representative, as the case may be.
10.9 INDEMNIFICATION OF COMMITTEE. In addition to all other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any Option granted under the Plan, and against all amounts paid in
settlement (provided the settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
action, suit or proceeding, except in relation to matters as to which it is
adjudged in the action, suit or proceeding, that the Committee member is liable
for gross negligence or willful misconduct in the performance of his duties.
10.10 TAX WITHHOLDING. At the time a Participant's Option is exercised
or at the time a Participant disposes of some or all of the Shares purchased
under the Plan, the Participant must make adequate provision for the Employer's
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the Option or the disposition of the Shares. At any time, the
Employer may, but shall not be obligated to, withhold from the Participant's
compensation the amount necessary for the Employer to meet applicable
withholding obligations.
10.11 GENDER AND NUMBER. If the context requires it, words of one
gender when used in the Plan shall include the other genders, and words used in
the singular or plural shall include the other.
10.12 SEVERABILITY. Each provision of the Plan may be severed. If any
provision is determined to be invalid or unenforceable, that determination shall
not affect the validity or enforceability of any other provision.
10.13 PERSONS BASED OUTSIDE OF THE UNITED STATES. Notwithstanding any
provision of the Plan to the contrary, in order to comply with the laws in other
countries in which the Company and its Affiliates operate or have Employees, the
Committee, in its sole discretion, shall have the power and authority to:
(a) determine which Affiliates shall be covered by the Plan;
(b) determine which persons employed outside the United States
are eligible to participate in the Plan;
(c) modify the terms and conditions of any Option granted to
persons who are employed outside the United States to comply with
applicable foreign laws;
(d) establish subplans and modify exercise procedures and
other terms and procedures to the extent such actions may be necessary
or advisable. Any subplans and
X-2
modifications to Plan terms and procedures established under this
Section 10.13 by the Committee shall be attached to the Plan document
as Appendices; and
(e) take any action, before or after an Option is granted,
that it deems advisable to obtain or comply with any necessary local
government regulatory exemptions or approvals.
Notwithstanding the above, the Committee may not take any actions
hereunder, and no Options shall be granted, that would violate section 423 of
the Code, any securities law or governing statute or any other applicable law.
Any income derived under the Plan shall not be treated as a part of an
Employee's regular compensation or salary for purposes of computing statutorily
mandated severance benefits or other statutorily mandated benefits in foreign
jurisdictions.
10.14 GOVERNING LAW; PARTIES TO LEGAL ACTIONS. The provisions of the
Plan shall be construed, administered, and governed under the laws of the State
of Texas and, to the extent applicable, by the securities, tax, employment and
other laws of the United States.
X-3
VERITAS DGC INC.
PROXY SOLICITATION BY THE BOARD OF DIRECTORS FOR ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 2, 2003
PROXY THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints David B. Robson, Stephen
FOR J. Ludlow, Timothy L. Wells, Matthew D. Fitzgerald, Vincent
M. Thielen and Larry L. Worden, or any of them, attorneys
and proxies, with power of substitution and revocation, to
ANNUAL vote, as designated on the reverse side, all shares of stock
which the undersigned is entitled to vote, with all powers
which the undersigned would possess if personally present,
MEETING at the Annual Meeting (including all adjournments thereof)
of Stockholders of Veritas DGC Inc. to be held on Tuesday,
December 2, 2003 at 10:00 a.m., Houston Time, at the offices
OF of the Company, 10300 Town Park Drive, Houston, Texas 77072.
1. [ ] FOR all nominees (except as specified hereon):
STOCKHOLDERS Loren K. Carroll, Clayton P. Cormier, James R.
Gibbs, Stephen J. Ludlow, Brian F. MacNeill,
Jan Rask and David B. Robson.
DECEMBER 2,
[ ] WITHHOLD authority to vote for all nominees
listed above.
2003
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.
------------------------------------------------------------
2. Approval of an amendment to Restated Certificate of
Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment and restatement of the 1997
Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(THIS PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE)
4. Consent to the stock option exchange program.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. As such proxies may determine in their discretion upon such
other business (including procedural and other matters
relating to the conduct of the meeting) that may properly come
before the meeting and any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED. IN THE ABSENCE OF SUCH
INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN
ITEM 1, FOR APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION LISTED IN ITEM 2, FOR APPROVAL OF AN AMENDMENT AND
RESTATEMENT OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN LISTED IN
ITEM 3 AND FOR CONSENT TO THE STOCK OPTION EXCHANGE PROGRAM LISTED
IN ITEM 4.
The undersigned hereby acknowledges receipt of
the Notice of Annual Meeting of Stockholders
and the Proxy Statement furnished therewith.
Dated this ________ day of _____________, 2003
______________________________________________
______________________________________________
Signature(s) of Stockholders
(Sign exactly as name(s) appear on your stock
certificate. If shares are held jointly each
holder should sign. If signing for estate,
trust or corporation, title or capacity should
be stated.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED BUSINESS ENVELOPE.