SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1995
OR
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 1-9037
International Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 33-0001212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23456 Hawthorne Boulevard, Torrance, California 90505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 378-9933
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
------------------- -------------------------------
Common Stock, $1.00 Par Value New York Stock Exchange; Pacific Stock
Exchange
Preferred Stock Depositary Shares New York Stock Exchange; Pacific Stock
Exchange
9 3/8% Senior Notes Due 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ...X.... No ........
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.___
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at June 14, 1995, was approximately
$95,162,000 (based upon the closing sale price of its common stock on the
New York Stock Exchange as reported by The Wall Street Journal on such date.)
At June 14, 1995 the registrant had issued and outstanding an aggregate of
35,785,823 shares of its common stock, including 243,715 shares held in
treasury.
Documents Incorporated by Reference
Certain information included in the registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission for the Annual Meeting of
Stockholders of the registrant to be held on September 7, 1995 is
incorporated by reference into Part III hereof.
THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FILED ON JUNE 30, 1995
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
TABLE OF CONTENTS
Item Page
---- ----
PART I
1 Business.................................................... 2
General................................................... 2
Background................................................ 3
Operations................................................ 3
General................................................. 3
New Organizational Structure............................ 4
Consulting, Engineering and Design...................... 4
Remediation............................................. 4
Quanterra............................................... 5
International........................................... 5
Technology Development.................................. 6
Customers............................................... 6
Competition............................................. 7
Regulations............................................. 8
Environmental Contractor Risks.......................... 10
Insurance and Risk Management........................... 12
Discontinued Operations................................... 13
Employees................................................. 13
2 Properties.................................................. 13
3 Legal Proceedings........................................... 14
4 Submission of Matters to a Vote of Shareholders............. 19
--------------
4A Executive Officers of the Company........................... 20
PART II
5 Market for the Registrant's Common Stock and Related
Shareholder Matters....................................... 22
6 Selected Financial Data..................................... 23
7 Management's Discussion and Analysis of Results of Operations
and Financial Condition................................... 23
8 Financial Statements and Supplementary Data................. 33
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 59
PART III
10 Directors and Executive Officers of the Registrant........... 59
11 Executive Compensation....................................... 59
12 Security Ownership of Certain Beneficial Owners and Management 59
13 Certain Relationships and Related Transactions............... 59
PART IV
14 Exhibits, Financial Statement Schedule and Reports on Form 8-K 60
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PART I
ITEM 1. BUSINESS.
GENERAL
International Technology Corporation, a Delaware corporation (the Company
or IT), provides a wide range of environmental management services and
technologies including the assessment, decontamination, and remediation of
situations involving hazardous materials and pollution prevention and
minimization. The Company was incorporated in 1983; the earliest antecedent
of the Company commenced operations in California in 1926.
The Company's services are provided to a broad array of governmental and
commercial entities predominantly in the U.S. market. Additionally, the
Company pursues selected international business opportunities on a
project-specific basis. The Company's business strategy is to provide its
environmental services on a full-service basis, particularly by focusing on
its capabilities to manage complex environmental issues from the initial
assessment of the level and extent of contamination through the design,
engineering and execution of a solution. In recent years, the Company has
worked on several hundred Superfund sites for various governmental and
commercial clients. The success of the Company in developing its
capabilities is demonstrated by IT's designation by Engineering News-Record as
the largest hazardous waste design firm for each of the last six years.
Demand for the Company's services is heavily influenced by the level of
enforcement of environmental laws and regulations, funding levels for
government projects and spending patterns of commercial clients. Over the
last several years, spending by commercial clients has slowed primarily due
to reduced implementation and enforcement activities by government
regulatory agencies, an uncertain regulatory climate and weak economic
conditions. In recent years, the Company's revenues have been derived primarily
from its business with federal, state and local governmental clients. Revenues
attributable to contracts with governmental agencies accounted for 71%, 63%
and 62% of total revenues in fiscal 1995, 1994 and 1993, respectively. In
the last three years, IT's business with the U.S. Department of Defense
(DOD) has increased significantly, growing from 19% of revenues in fiscal
1993 to 33% of revenues in fiscal 1994 and 47% of revenues in fiscal 1995.
The Company expects that revenues attributable to federal, state and local
governmental agency contracts, particularly those with DOD, will continue to
represent a substantial percentage of total revenues in the near term.
Efforts to constrain the federal budget deficit may impact the level of
spending on environmental restoration by the DOD, the U.S. Department of
Energy (DOE) and other federal governmental agencies. (See Business -
Operations - Customers.)
The operations of the Company are performed subject to a comprehensive
federal, state, and local environmental regulatory structure which is
currently the subject of proposals for significant change. (See Business -
Operations - Regulations.) Although this regulatory structure creates
opportunities for the Company, the analysis, assessment, and remediation of
hazardous substances necessarily involves significant risks, including the
possibility of damages or injuries caused by the escape of hazardous
substances into the environment. (See Business - Operations - Environmental
Contractor Risks, and Legal Proceedings.)
In June 1994, the Company and an affiliate of Corning Incorporated
(Corning) combined the two companies' environmental analytical services
businesses into a newly formed 50/50 jointly-owned company (Quanterra).
Since its formation, Quanterra has had the highest revenues of any
environmental analytical services laboratory company in the United States.
Quanterra operates independently with a separate board of directors which
has representation from IT and Corning, and provides services primarily to third
parties as well as to the Company. (See Business - Operations - Quanterra.)
In April 1995, an outside investment banker retained by the Company
completed a review of the Company's business and financial strategy. Based
on this strategic review, the Company intends to emphasize exploitation of
the Company's strong market position in consulting, engineering, design and
remediation and continued improvement of operating fundamentals. The
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Company also expects to consider external growth and diversification
opportunities, including possible acquisitions. Additionally, the Company is
evaluating alternatives to refinance its $50,000,000 of outstanding senior
notes due July 1, 1996.
BACKGROUND
Hazardous materials management and remediation as well as air and water
pollution control are widely acknowledged as significant national
priorities. As of May 1995, the U.S. Environmental Protection Agency (USEPA)
had designated approximately 1,300 sites as Superfund locations with significant
concentrations of hazardous materials, although only approximately 30% of
these sites had undergone substantial remediation. In addition, there are a
large number of small commercial and governmental sites that will require
cleanup. The assessment, decontamination and remediation of hazardous sites
are governed by complex environmental and occupational safety and health
regulations administered by numerous federal, state and local agencies.
Many of the Company's clients, both governmental and commercial, are
continuing to require a full-service solution, in which a single supplier or
team takes responsibility for the entire process from identification and
assessment through remediation. Successful remediation of hazardous sites
requires a multidisciplinary approach, since such sites typically involve a
variety of waste which affects air, soil and/or water. Depending on the
circumstances, the required skills may include analytical chemistry, risk
assessment, computer modeling, ambient air monitoring, process and design
engineering, and construction/remediation. The application of these
disciplines to solve client problems requires substantial operational
know-how, and the Company believes that it is well-positioned to solve client
problems because of the combination of its capabilities and experience.
Additionally, the Company's technical expertise and operational experience
are sought by other firms for project-specific teaming and joint venture
relationships, thereby allowing the Company access to an increased number of
large scale governmental and commercial programs.
Over the past several years, the environmental management and hazardous
waste remediation industry has been characterized by an increasing number of
well-capitalized competitors, reduced government enforcement of
environmental regulations and regulatory uncertainty. This has resulted in
reduced commercial spending on environmental cleanup and intense pricing
competition for hazardous waste cleanup projects. Lower demand in the private
sector has been offset to a certain extent by new major project opportunities
in the public sector, primarily major cleanup projects at DOD and DOE
installations. These major projects require a broad range of project
management and field execution skills, limiting the number of potential
bidders. As a result of the changes impacting the industry, consolidation has
occurred through downsizing and mergers. The Company's strategy is to be a
strong competitor for the major project opportunities offered by the DOD and
DOE, to continue to actively serve the commercial market, and, to the extent
it is able, to participate selectively in the ongoing consolidation in the
industry.
OPERATIONS
General
- -------
The major part of IT's business is the management of complex hazardous
waste remediation projects involving the assessment, planning and execution
of the decontamination and restoration of property, plant and equipment that
have been contaminated by hazardous substances. These projects include the
cleanup of land disposal sites where hazardous or toxic substances have been
improperly disposed and pose a threat to the surrounding environment;
rivers, streams and groundwater contaminated by chemical substances and
buildings, production facilities and storage sites contaminated with hazardous
chemical and/or radioactive materials. These projects require considerable
engineering and analytical effort to determine the substances involved, the
extent of the contamination, the appropriate alternatives for containing or
removing the contamination, and the selection of the technologies for treatment,
including transportable treatment equipment, to perform the cleanup of the
site. The Company is involved in many areas of the United States in the
assessment or cleanup phases of site remedial action projects.
Additionally, the Company performs a variety of consulting services for
clients to help them comply with environmental and/or health and safety
regulations. The Company also provides assistance to these clients in
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developing corporate policies and procedures in areas such as pollution
prevention and waste minimization that integrate environmental regulations
into their business decisions.
New Organizational Structure
- ----------------------------
Prior to the June 1994 formation of Quanterra, the Company was organized
into three business areas, Environmental Services, Construction and
Remediation, and Analytical Services. Subsequent to June 1994, the Company
has operated in the first two of these business areas. Effective April 1,
1995, the Company implemented organizational structure changes in an effort
to deliver more cost-effective services to clients. The Company's
operations are now principally managed under a structure consisting of three
regions with full service capabilities. Each region has its own technical,
project management, sales and administrative support functions. The
Construction and Remediation group's project management capabilities and
related infrastructure have been integrated throughout the Company to strengthen
project execution skills and enhance client service on a company-wide basis.
Accordingly, IT offers all of its services in each region in which it
operates. The Company currently operates 43 offices, including project
offices, located across the United States.
Consulting, Engineering and Design
- ----------------------------------
The Company's clients may have need for consulting, engineering and
design services with respect to contamination of air, water or soil. Federal
legislation such as the Clean Air Act and Safe Drinking Water Act provide
environmental regulations which require compliance by the Company's clients.
Environmental problems generally require multidisciplinary capabilities.
Each region is staffed by professionals with expertise in a variety of
disciplines and the operating experience required to provide clients with
full-service, cost-effective environmental solutions. The full-service
strategy supports the Company's marketing efforts toward developing
partnering arrangements with clients in which IT is the primary supplier of
all client environmental management services.
The Company's revenues related to air pollution assessment and control
grew substantially in the past year, reflecting the general increase in demand
for air quality services and the Company's expansion of its capabilities in this
area.
The Company provides a wide range of consulting, engineering and design
services including remedial design, environmental permitting, facility
siting and design, environmental compliance/auditing, risk assessment/
management, environmental assessment/characterization, consulting engineering,
pollution prevention, waste minimization, permitting assistance, and equipment
design, installation, and start-up services.
Remediation
- -----------
The Company provides full-service capabilities for major projects,
primarily in the area of DOD and DOE delivery order program management,
remedial construction, mobile treatment, and decontamination/decommissioning
capabilities. In the area of remedial construction, IT offers diverse
services, such as excavation and isolation, installation of subsurface
recovery systems, thermal treatment solutions, bioremediation approaches,
chemical treatment, soil washing, fixation or stabilization, facility or
site closures, solidification, landfill cell construction, and slurry wall and
cap installation. IT also offers other remedial services such as chemical
packaging services, underground storage tank (UST) or aboveground storage
tank (AST) management and emergency response.
On large scale remediation projects, IT uses various capabilities to
assess, design, and implement environmental solutions, and design treatment
systems. A solution to many hazardous waste remediation projects is to
locate treatment equipment on site. IT's transportable proprietary Hybrid
Thermal Treatment System (HTTS) was designed by the Company to incinerate
large quantities of hazardous waste on-site. The HTTS technology has found
principal applications on large scale remediation projects and is suitable
for use at integrated hazardous waste treatment facilities. From the
introduction of HTTS technology in 1987 through fiscal year 1995, the
Company has processed approximately 900,000 tons of contaminated materials at
various projects, representing more materials than those processed through
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incineration by all other companies using on-site, rather than fixed-base,
treatments in the aggregate. (See Business - Operations - Regulations -
Resource Conservation and Recovery Act of 1976.)
During fiscal year 1995, the Company completed the cleanup of the Sikes
Disposal Pits Superfund site near Houston, Texas using the HTTS technology.
Currently, IT is utilizing an HTTS unit for the incineration of hazardous
materials at the Bayou Bonfouca Superfund site in Slidell, Louisiana, which
is nearing completion. In September 1992, the Company was awarded the
thermal remediation contract at the Superfund site in Times Beach, Missouri.
Permits for incineration at this site were received in April 1995 and
significant preparatory work on the project is now underway. In April 1994,
IT with a partner, was the apparent low bidder on a contract utilizing an
HTTS unit at the Texarkana Wood Processing Company (Texarkana) Superfund
site in Texarkana, Texas. However, the award of this project has been delayed
pending a review of the use of incineration technology at that site and all
contractors' bids, including IT's, were allowed to expire. (See Business -
Operations - Regulations - Resource Conservation and Recovery Act of 1976.)
In June 1994, the Company was awarded a contract utilizing an HTTS unit at
the American Creosote site in Winnfield, Louisiana.
Quanterra
- ---------
In June 1994, the Company and Corning combined the two companies'
environmental analytical services businesses into a newly formed joint
company, Quanterra. Since its formation, Quanterra has had the highest
revenues of any environmental analytical services laboratory company in the
United States. Quanterra operates independently with a separate board of
directors which has representation from IT and Corning, and provides
services primarily to third parties, as well as to the Company. In
Quanterra's first nine months of operation, approximately 13% of its
revenues were derived from services provided to the Company. The Company has
agreed to use reasonable efforts to use Quanterra's services in its projects,
and Quanterra has agreed to provide services to the Company on terms at least as
favorable as those offered by Quanterra to third parties.
In connection with the formation, IT and Corning contributed the net
assets of their respective laboratory businesses to Quanterra and IT issued to
Corning 333,000 shares of IT common stock and a five-year warrant to
purchase 2,000,000 shares of IT common stock at $5.00 per share. Quanterra
has a $60,000,000 bank line of credit. IT's 50 percent investment in Quanterra
is accounted for under the equity method.
Quanterra provides qualitative and quantitative analytical chemistry
services to governmental and commercial clients. Quanterra operates 12
analytical laboratories located across the U.S., along with 13 mobile field
laboratories. These labs provide routine and specialty chemical analyses of
organic, inorganic, and biological constituents in chemical and
radiochemical mixed wastes, air, water and soil; and non-routine analyses of
dioxin, pesticides and polychlorinated biphenyl compounds (PCBs). Quanterra
provides specialized analyses of radioactive and radiochemical mixed wastes
including bioassay, immunoassay, and environmental radiochemistry. The
majority of Quanterra's revenues result from analytical work performed for
federal, state and local governmental agencies or commercial clients, both
directly and as a subcontractor to IT and other environmental management firms.
An integration plan was implemented in the early stages of Quanterra's
operations. The plan included consolidation and closure of redundant
laboratory facilities and equipment, a reduction in work force to eliminate
duplicative overhead and excess capacity and a consolidation of laboratory
management and accounting systems. IT reported a pre-tax charge of
$9,264,000 related to the integration in its consolidated statement of
operations for the quarter ended June 30, 1994.
International
- -------------
The Company currently is pursuing selected international opportunities on
a project-specific basis with a focus in the Far East and Mexico. In the
Far East, the Company has sought projects in several countries. Currently,
the Company is performing a project utilizing its thermal process
engineering and construction expertise in South Korea. In Mexico, the Company
has entered into a joint marketing agreement with a major Mexican engineering
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and construction firm, for the purpose of jointly pursuing projects. The
Company sold or closed its remaining European operations in fiscal years 1993
and 1994.
Technology Development
- ----------------------
IT emphasizes the innovative application of existing technologies and
methods and technology development, principally through client projects.
The Company's technology development program is primarily directed toward the
evaluation and implementation of technologies developed outside the Company
which present commercialization opportunities for IT. The program also
includes efforts directed to internal development of technologies. The
Company's commitment to technology development is demonstrated by the IT
Technical Associates Program, which recognizes associates who have a unique
value to the Company due to their technical qualifications and
accomplishments. This program provides a forum for communication of IT's
latest advances in various technical disciplines to associates and clients.
Additionally, the Company continues to defend and expand its patent position
in thermal incineration technology, bioremediation and various soil cleaning
processes.
Through the Company's technology development program, IT has obtained an
exclusive license for photocatalytic oxidation technology applied to the
destruction of air toxics. Development efforts have advanced to the field
demonstration phase, with demonstrations anticipated at several sites in
fiscal year 1996. The technology has also been sub-licensed for use in room
air conditioners. IT has also licensed a chemically enhanced soil- or
waste-washing process for the treatment of certain refinery wastes. A project
to treat certain refinery wastes has been completed successfully. Early market
introduction of a licensed analytical method to identify a particular class
of toxic substances in oil industry wastewaters has also generated interest
from refineries. In addition, the Company operates the USEPA Test &
Evaluation Facility in Cincinnati, Ohio, which is available for
private-party use in treatability and technology testing for various types of
contaminated wastewaters, sludges and soils.
Customers
- ---------
The Company's services are provided to a broad range of federal, state
and local governmental and commercial clients in the U.S. market. Over the last
several fiscal years, the Company has experienced a significant shift in its
revenues from the commercial sector to the governmental sector.
Federal, State and Local Governmental Clients
---------------------------------------------
Due to its technical expertise, project management experience and
full-service capabilities, the Company has successfully bid on and executed
contracts with federal and other governmental agencies for the performance
of various CERCLA and RCRA (as defined below) activities. (See Business -
Operations - Regulations.) The Company's governmental contracts are often
multi-year but can generally be canceled, delayed or modified at the sole
option of the client. Additionally, government contracts are typically
subject to annual funding limitations and public sector budgeting
constraints. Some of these contracts (indefinite delivery order contracts or
IDOs) provide a maximum contractual amount of services that may be performed
by the Company with the specific services to be performed authorized from
time to time by the government agency through a series of task orders under
the master contract. The Company may be asked to perform services for the
full amount of an IDO or for only a portion thereof. IDOs generated
approximately 37% of the Company's revenues in fiscal year 1995. The major
contracts with federal government agencies typically involve a competitive
bidding process pursuant to federal procurement policies involving several
bidders and result in a period of contract negotiation after a successful
bidder is selected. Although the Company generally serves as the prime
contractor on its contracts or as a part of a joint venture which is a prime
contractor, the Company serves as a subcontractor to other prime contractors
on some federal government programs. As has recently become typical in the
industry, the Company has entered into joint venture or teaming arrangements
with competitors when bidding on certain of the largest, most complex
contracts with federal governmental agencies, in order to provide the
increased work force capacity and breadth of technical expertise required
for the project.
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The following table shows, for the last three years, the Company's
revenues attributable to federal, state and local governmental contracts as a
percentage of the Company's consolidated revenues, including Analytical
Services through June 1994:
Year ended March 31,
---------------------------------
Source 1995 1994 1993
------ ---- ---- ----
Federal government:
DOD................................... 47% 33% 19%
DOE................................... 12 15 16
Other federal agencies................ 4 5 10
-- -- --
63 53 45
State and local governments............... 8 10 17
-- -- --
Total..................................... 71% 63% 62%
== == ==
Commercial Clients
------------------
The Company serves numerous commercial clients including chemical,
petroleum and other manufacturing firms, utilities, and real estate and
transportation service companies. A substantial portion of the Company's
commercial work represents new contracts awarded by existing clients. No
single commercial client accounted for 10% or more of the Company's
consolidated revenues in fiscal years 1995, 1994 or 1993.
Competition
- -----------
The environmental management industry is very competitive and requires
professional personnel with technical and project management skills. The
Company believes that the principal competitive factors in all areas of its
business are operational experience, technical proficiency, breadth of
services offered, local presence and, often most importantly, price.
The Company faces competition from a diverse array of small and large
organizations including national or regional environmental management firms;
national, regional and local architectural, engineering and construction
firms; environmental management divisions or subsidiaries of international
engineering, construction and aerospace companies; and hazardous waste
generators which have developed in-house capabilities similar to those of
the Company. Major competitors in consulting, engineering and design include
Bechtel, CH2M Hill, Dames and Moore, Earth Technology, ERM Group, Fluor,
Jacobs Engineering, and Roy F. Weston. Major competitors in remediation
include Bechtel, Fluor, Groundwater Technology, Handex, Jacobs Engineering,
Morrison-Knudsen, OHM, and Smith Environmental.
Increased competition, combined with changes in client procurement
procedures, has resulted in general market trends over the past several
years toward lower contract margins, unfavorable changes in contract terms and
conditions in areas such as indemnification, and a client preference for
fixed-price arrangements for environmental management contracts.
Additionally, certain of the Company's larger competitors benefit from certain
economies of scale and have greater financial resources which allow for
better access to bonding and insurance markets at a lower cost. These
larger competitors have a competitive advantage over the Company in providing
the financial assurance instruments which are frequently required by clients.
The entry of aerospace and other defense contractors and international
construction and engineering firms into the environmental management
industry has materially increased the level of competition for major federal
governmental contracts and programs, which have been the primary source of
the Company's revenue over the past several years. Over the past several
years, there has been consolidation in the industry as the larger
corporations have acquired smaller firms, which may impact the level of
competition.
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Quanterra competes with a few national, several regional and many
single-location analytical services firms; analytical services divisions or
subsidiaries of national or regional environmental management companies; and
laboratory operations associated with universities or other nonprofit or
governmental agencies. Due to the fragmented nature of this market, pricing
for analytical services is highly competitive.
Regulations
- -----------
The Company and its clients are subject to extensive and rapidly evolving
environmental laws and regulations which affect the demand for many of the
services offered by the Company (see Business - Operations - Environmental
Contractor Risks) and create certain significant risks for the Company in
providing its services and at its inactive disposal sites in Northern
California. (See Notes to Consolidated Financial Statements - Discontinued
operations - Transportation, treatment and disposal.)
Recently, a number of significant changes to existing environmental
legislation have been proposed. Some of the proposed changes are a part of
legislation commonly referred to as the Republican Party's "Contract With
America." Portions of that legislation, which have passed the U.S. House of
Representatives, would overhaul the government regulatory process by
instituting a Congressional "veto" on regulations, requiring regulatory risk
assessments and cost-benefit analyses, restricting enactment of unfunded
mandates on state and local governments, and reducing requirements for
reporting to the government. The impact of these proposed changes upon the
Company's business cannot yet be predicted. The Company believes that it
generally has benefitted from increased environmental regulations affecting
business, and from more stringent enforcement of those regulations. The
currently contemplated changes in regulations could decrease the demand for
certain of the Company's services, as customers anticipate and adjust to the
new regulations. However, the proposed legislation could also result in
increased demand for certain of the Company's services if regulatory
changes decrease the cost of remediation projects or result in more funds being
spent for actual remediation. The ultimate impact of the proposed changes will
depend upon a number of factors, including the overall strength of the
economy and customers' views on the cost effectiveness of remedies available
under the changed regulations.
The principal environmental legislation affecting the Company and its
clients is described below:
National Environmental Policy Act of 1969 (NEPA). Under NEPA, all
federal agencies must consider ecological factors when dealing with activities
that may have an impact on the environment. Among other things, NEPA was the
first federal legislation to establish guidelines and requirements for
environmental baseline studies, impact assessments and mitigation studies
for a variety of major industrial and governmental projects, including
development and construction of power plants and transmission lines,
pipelines, highways, landfills, mines, reservoirs and residential and
commercial developments.
Resource Conservation and Recovery Act of 1976 (RCRA). RCRA regulates
the treatment, storage and disposal of hazardous and solid wastes. The 1984
Hazardous and Solid Waste Amendments to RCRA (HSWA) expanded RCRA's scope by
providing for the listing of additional wastes as hazardous and lowering the
quantity threshold of wastes subject to regulation. HSWA also imposed
restrictions on land disposal of certain wastes, prescribed more stringent
management standards for hazardous waste disposal sites, set standards for
UST management and provided for corrective action procedures. Under RCRA,
liability and stringent management standards are imposed on a person who is
an RCRA permit holder, namely a generator or transporter of hazardous waste
or an owner or operator of a waste treatment, storage or disposal facility.
RCRA's standards for waste disposal and treatment facilities apply to
hazardous waste incinerators. Changes in these standards have impacted the
market for the Company's mobile, on-site incineration services using the
HTTS technology. The USEPA, on May 18, 1993, citing its authority under RCRA,
announced a draft strategy involving an 18-month freeze on the permitting of
any new fixed-base hazardous waste incinerators or cement kilns, and a
proposed policy imposing additional requirements and costs on such
facilities. In public remarks at the time these plans were announced, USEPA
stated that its freeze would not affect on-site incineration of hazardous waste
at Superfund sites, such as projects utilizing the Company's HTTS on-site
incineration units. In May 1994, the USEPA issued a new policy which, while
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seemingly affirming incineration as an allowable remedy under CERCLA (as
defined below), called for additional procedures and studies to be conducted
before incineration may be selected as a remedy, or which may result in the
deselection of incineration as a remedy, at a Superfund site. In November
1994, the USEPA finalized its strategy, which continued the draft strategy's
policy of granting a lower priority to consideration of new fixed-base
hazardous waste incinerators or cement kilns. Additionally, the USEPA
finalized its direction of favoring waste minimization over com-
bustion/incineration and of increasing regulatory burdens upon combustion
and incineration facilities, whether fixed-based or on-site. Furthermore,
incineration as a remediation remedy continues to be the subject of
considerable public opposition and controversy. In May 1995, the Company
was served with a notice by a group of residents in Slidell, Louisiana of its
intent to sue the USEPA, the Company and others in connection with the
USEPA's proposal to use the Company's HTTS incinerator erected at the Bayou
Bonfouca Superfund site to receive and remediate waste from the nearby
Southern Shipbuilders Superfund site. The notice claims certain
deficiencies in the USEPA's proposals to use the Company's incinerator to
remediate the waste from the Southern Shipbuilders site.
The USEPA strategy has impacted the demand for, and use of, the Company's
HTTS technology. In July 1994, the Company was advised by the USEPA and the
Texas Natural Resources Conservation Commission that incineration at the
Texarkana Superfund site would be delayed until the Congressional Office of
Technology Assessment (OTA) completed a study on the safety of incineration
and the assessment of possible alternatives to incineration and that all
offerors' bids, including IT's, were allowed to expire. In April 1995,
however, the State of Missouri granted the Company's applications to erect
and operate its HTTS units at the Times Beach Superfund site, after a
significant delay.
The heightened scrutiny and higher cost of, and public opposition to,
incineration as a treatment solution may lead to delays and added
costs in permitting the Company's HTTS units, or may also cause the USEPA
and/or private parties to prefer other remedies in Superfund remediations.
Such actions may have a material adverse impact on the Company's business.
(See Management's Discussion and Analysis of Results of Operations and Financial
Condition - Results of Operations - Continuing Operations - Revenues.)
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA). CERCLA addresses cleanup of sites at which there has been or
may be a release of hazardous substances into the environment. CERCLA
assigns liability for costs of cleanup and damage to natural resources to
any person who, currently or at the time of disposal of a hazardous substance,
owned or operated any facility at which hazardous substances were released;
to any person who by agreement or otherwise arranged for disposal or
treatment, or arranged with a transporter for transport of hazardous
substances owned or possessed by such person for disposal or treatment by
others; and to any person who accepted hazardous substances for transport to
disposal or treatment facilities or sites from which there is a release or
threatened release of hazardous substances. CERCLA authorizes the federal
government either to clean up these sites itself or to order persons
responsible for the situation to do so. CERCLA created the Superfund to be
used by the federal government to pay for the cleanup efforts. Where the
federal government expends money for remedial activities, it must seek
reimbursement from the potentially responsible parties (PRPs). CERCLA
generally imposes strict, joint and several retroactive liability upon such
parties. CERCLA was amended in 1986 by the Superfund Amendments and
Reauthorization Act (SARA) which authorized increased federal expenditures
and imposed more stringent cleanup standards and accelerated timetables.
SARA also contained provisions which expanded the enforcement powers of the
USEPA.
CERCLA was scheduled to be reauthorized in 1994, but has not, to-date,
been reauthorized, as the interested parties and Congress have been unable to
come to agreement on the proposed legislation. CERCLA's authorization to
expend funds originally expired in September 1994, but Congress appropriated
operating funds for the current governmental fiscal year. CERCLA's taxing
authority, from which appropriations are made, expires in December 1995.
A number of changes to CERCLA have been proposed as a part of the
reauthorizing legislation. Amendments to repeal CERCLA's retroactive
liability aspect have been introduced. It has also been proposed that
CERCLA's preference for permanent treatment remedies such as incineration be
changed to favor confinement and containment remedies. The current
standards for acceptable cleanups have also been the subject of proposals for
change.
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At the same time, legislation has been enacted to reduce the current
governmental fiscal year environmental cleanup budgets of DOD and DOE, by
$300,000,000 (6%) and $200,000,000 (4%), respectively. Additional
reductions for DOE's cleanup budget, as well as USEPA's Superfund, and state
clean water and safe drinking water revolving funds, are currently being
considered. President Clinton has also proposed that DOE's waste management and
cleanup budget be further reduced over the next five years by $4,400,000,000, or
approximately 15%. Congress has before it recommendations for funding
levels in each environmental cleanup budget below those requested by the
President. Such reductions in current and future environmental restoration
budgets as a result of the November 1994 elections may adversely affect future
government contracting opportunities and funding of the Company's contracted
backlog.
Although the impact upon the Company of the failure, to-date, of Congress
to reauthorize CERCLA cannot be determined, delays may adversely impact the
environmental industry in which the Company participates. Failure of
Congress to reauthorize CERCLA, or substantial changes in or uncertainty
concerning the details of the legislation, cleanup standards, and remedy
selection (such as proposed changes that would change CERCLA's preference
for permanent treatment remedies such as incineration in favor of confinement
and containment), may result in project delays and/or the failure of clients to
initiate or proceed with projects.
Clean Air Act and 1990 Amendments. The Clean Air Act requires compliance
with ambient air quality standards and empowers the USEPA to establish and
enforce limits on the emission of various pollutants from specific types of
facilities. The Clean Air Act Amendments of 1990 modified the Clean Air Act
in a number of significant areas. Among other things, they established
emissions allowances for sulfur and nitrogen oxides, established strict
requirements applicable to ozone emissions and other air toxics, established
a national permit program for all major sources of pollutants and create
significant new penalties, both civil and criminal, for violations of the
Clean Air Act. It is anticipated that changes will be proposed in the
Clean Air Act, including in the Act's emissions monitoring and facility
permitting provisions.
Other Federal and State Environmental Laws. The Company's services are
also utilized by its clients in complying with, and the Company's operations
are subject to regulation under, among others, the following federal laws:
the Toxic Substances Control Act, the Clean Water Act, the Safe Drinking
Water Act, the Occupational Safety and Health Act and the Hazardous
Materials Transportation Act. In addition, many states passed Superfund-type
legislation and other regulations and policies to cover more detailed
aspects of hazardous materials management. This legislation addressed such
topics as air pollution control, UST and AST management, water quality, solid
waste, hazardous waste, surface impoundments, site cleanup and wastewater
discharge.
Most important environmental laws are currently overdue for Congressional
reauthorization, including RCRA, CERCLA, the Clean Water Act and the Safe
Drinking Water Act. Delays in reauthorization and attendant lack of
regulatory direction and enforcement could adversely affect the
environmental industry. In addition, many states that passed Superfund-type
legislation and other environmental regulations are now reviewing those laws and
regulations because of their alleged adverse impact upon business and
competitiveness.
Environmental Contractor Risks
- ------------------------------
Although the Company believes that it generally benefits from increased
environmental regulations affecting business, and from enforcement of those
regulations, increased regulation and enforcement also create significant
risks for the Company. These risks include potentially large civil and
criminal liabilities from violations of environmental laws and regulations
and liabilities to customers and to third parties for damages arising from
performing services for clients. (For a discussion of the environmental
regulatory risks posed by the Company's Northern California sites, see Notes
to Consolidated Financial Statements - Discontinued operations -
Transportation, treatment and disposal.)
Liabilities Arising out of Environmental Laws and Regulations
-------------------------------------------------------------
All facets of the Company's business are conducted in the context of an
extensive and rapidly changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation
by a number of federal agencies including the USEPA, Occupational Safety and
Health Administration (OSHA), and Nuclear Regulatory Commission as well as
10
<PAGE>
applicable state and local regulatory agencies. (For a description of
certain applicable laws and regulations, see Business - Operations -
Regulations.)
There have been efforts by litigants to expand the reach of CERCLA and
RCRA to make contractor firms responsible for cleanup costs through claims that
environmental contractors are owners or operators of hazardous waste
facilities or that they arranged for treatment, transportation or disposal
of hazardous substances. Although no clear direction has emerged from the
cases decided to date, several recent court decisions have accepted these
claims. Should the Company be held responsible under CERCLA or RCRA for damages
caused while performing services or otherwise, it may be forced to bear such
liability by itself, notwithstanding the potential availability of
contribution or indemnity from other parties.
Other environmental statutes and regulations also pose risks for the
Company. For example, the Company's employee health and safety practices,
particularly its activities at hazardous waste sites, are extensively
regulated by OSHA. RCRA and similar state statutes regulate the Company's
practices for the treatment, transportation, storage, disposal and other
handling of hazardous materials. Substantial fines and penalties may be
imposed not only for the mishandling of such substances, but also for
failure to keep proper records and other administrative practices. The
Company's failure to observe such laws and/or the terms and conditions of
licenses and permits it holds under these and other laws, could adversely
impact the Company's ability to carry on one or more of its businesses as
presently constituted.
Potential Liabilities Involving Customers and Third Parties
-----------------------------------------------------------
In performing services for its customers, the Company could potentially
be liable for breach of contract, personal injury, property damage, and
negligence, including claims for lack of timely performance and/or for
failure to deliver the service promised (including improper or negligent
performance or design, failure to meet specifications, and breaches of
express or implied warranties). The damages available to a customer, should
it prevail in its claims, are potentially large and could include
consequential damages.
Many of those contracting for environmental management services,
particularly those involving large scale remediations, seek to shift to
contractors the risk of completing the project in the event the
contamination is either more extensive or difficult to resolve than originally
anticipated. The Company has from time to time been involved in claims and
litigation involving disputes over such issues. (See Legal Proceedings.)
Environmental management contractors, in connection with work performed
for customers, also potentially face liabilities to third parties from various
claims including claims for property damage or personal injury stemming from
a release of toxic substances or otherwise. Claims for damage to third
parties could arise in a number of ways, including through a release or
discharge of contaminants or pollutants during the performance of services,
or through reliance by others on reports prepared by the Company. Personal
injury claims could arise contemporaneously with performance of the work or
long after completion of the project as a result of alleged exposure to
toxic substances. In addition, increasing numbers of claimants assert that
companies performing environmental remediation should be adjudged strictly
liable, i.e., liable for damages even though its services were performed
using reasonable care, on the grounds that the Company's services involved
"abnormally dangerous activities".
Customers frequently attempt to shift various of the liabilities arising
out of remediation of their own environmental problems to contractors
through contractual indemnities. Such provisions seek to require the Company to
assume liabilities for damage or injury to third parties and property and
for environmental fines and penalties. The Company has adopted risk management
policies designed to address these problems, but cannot assure their
adequacy. (See Business - Operations - Insurance and Risk Management.)
Over the past several years, the USEPA has constricted significantly the
circumstances under which it will indemnify its contractors against
liabilities incurred in connection with CERCLA projects and continues its
attempts to renegotiate previously agreed indemnities. Other federal
agencies continue to resist offering indemnification to contractors for
third party claims. While Congress last year considered broadening the
11
<PAGE>
availability of indemnification, and is expected to do so again this year,
there is no assurance that Congress will change federal government
indemnification policies. The continued lack of indemnification may have a
material adverse effect on the Company's business.
Government Contracting Risk
---------------------------
As a major provider of services to governmental agencies, the Company
also faces the risks associated with government contracting, which include
substantial civil and criminal fines and penalties for, among other matters,
failure to follow procurement integrity and bidding rules, employing
improper billing practices or otherwise failing to follow cost accounting
standards, receiving/paying kickbacks or filing false claims. Government
contracting requirements are complex, highly technical and subject to varying
interpretations. As a result of its government contracting business, the
Company has been, is, and expects in the future to be, the subject of audits and
investigations by governmental agencies. (See Legal Proceedings.) In
addition to the potential damage to the Company's business reputation, the
failure to comply with the terms of one or more of its government contracts
could also result in the Company's suspension or debarment from future
government contract projects for a significant period of time. The fines
and penalties which could result from non-compliance with appropriate standards
and regulations, or the Company's suspension or debarment, could have a
material adverse effect on the Company's business, particularly in light of
the increasing importance to the Company of work for various governmental
agencies. (See Business - Operations - Customers.)
Insurance and Risk Management
- -----------------------------
The Company has adopted a range of insurance and risk management programs
designed to reduce potential liabilities, including insurance policies,
programs to seek indemnity where possible in its contracts, other contract
administration procedures, and employee health, safety, training, and
environmental monitoring programs. In addition, as a result of the
substantial increase over the past several years in the percentage of the
Company's revenues derived from work for governmental agencies, the Company
has been actively implementing a government contracts compliance program.
The Company cannot assure the adequacy of the program and compliance failure
could have a material adverse effect on the Company's business.
The Company's insurance program includes policies of $5,000,000 per
fiscal year for each of commercial general liability, product liability and
automotive liability. With respect to all such coverages, the Company's
captive insurance company (the Captive) generally is obligated to indemnify
the carrier against liabilities and costs of defense, subject to certain
limitations. Letters of credit are provided to support the indemnity
commitment; at present, the aggregate amount of such letters of credit is
$12,060,000. From a risk management perspective, the policies provided by
the Captive are, in effect, a self-insurance layer. The Company has
$70,000,000 in excess liability policies insuring claims in excess of the
$5,000,000 covered by the policies noted above. The Company also has other
insurance policies with various retentions or deductibles for the management
of its risk including but not limited to all risk property coverage,
workers' compensation, employer's liability, consultants' environmental
liability (including errors and omissions) and directors' and officers'
liability insurance coverage.
Environmental Impairment Liability coverage for IT's inactive treatment,
storage and disposal sites located in Northern California is provided
through the Captive which has issued a $32,000,000 policy which meets the
current requirements of both federal and state law. (See Notes to Consolidated
Financial Statements - Discontinued operations - Transportation, treatment
and disposal.)
Although the Company believes its insurance program to be appropriate for
the management of its risk, its insurance policies may not fully cover risks
arising from the Company's operations. The exclusion of certain pollution
and other liabilities, such as punitive damages, from some insurance
policies, or losses in excess of the coverage, may cause all or a portion of
one or more losses not to be covered by such insurance. Further, the cost
and limited availability of insurance has resulted in the Company's use of
self-insurance through the Captive, thus exposing the Company to additional
liabilities.
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DISCONTINUED OPERATIONS
Pollution Control Manufacturing
- -------------------------------
In 1992, the Company sold the manufacturing operations of IT's Pollution
Control Systems division. This business, located in Tulsa, Oklahoma and
Hull, England, designed and manufactured combustion, hydrocarbon vapor
recovery, waste treatment and other environmental control systems for
domestic and international clients.
Transportation, Treatment and Disposal
- --------------------------------------
In December 1987, the Company's Board of Directors adopted a strategic
restructuring program which included a formal plan to divest the transporta-
tion, treatment and disposal operations through sale of some facilities and
closure of certain other facilities. These operations included the handling
and transportation of clients' wastes and their treatment and/or disposal at
Company or third party-owned facilities. In June 1989, the Company
completed the sale of IT's active treatment and disposal operations in Imperial
Valley and at Bakersfield, California, as well as its transportation business.
The Company's four inactive treatment, storage and disposal sites located in
Northern California were not included in this transaction. Substantial
progress has been made to date toward the closure of these facilities, with
two of these sites closed and the others in the process of closure.
There are substantial financial implications related to the
Transportation, Treatment and Disposal discontinued operations. For further
information regarding the Company's discontinued operations, see Notes to
Consolidated Financial Statements - Discontinued operations, Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Liquidity and Capital Resources, and Legal Proceedings.
EMPLOYEES
- ---------
At March 31, 1995, the Company employed 2,766 regular employees. Of
these employees, 340 were in sales, corporate office and group administration
and the remainder were in operations. The Company's professional and technical
employees engage in disciplines which include chemical and civil
engineering, geology, hydrology/hydrogeology and computer/data processing.
Over 500 of the Company's employees hold advanced degrees. Growth in the
Company's operations is partially dependent upon its ability to attract, train
and retain qualified professional staff.
At March 31, 1995, none of the Company's employees were represented by
labor unions under collective bargaining agreements. The Company employs
union labor from time to time on a project basis. The Company cannot
predict whether any of its employees who currently are not represented by unions
will elect to be so represented in the future. The Company considers its
relations with its employees to be good and has not experienced a
significant work stoppage in the past ten years.
ITEM 2. PROPERTIES.
IT owns or leases property in 24 states and the United Kingdom.
Excluding its discontinued operations, the Company owns approximately 50 acres
and leases approximately 930,000 square feet of property for various uses,
including regional and project offices, technology and process development
laboratories, equipment yards and a corporate office. Management considers
the facilities adequate for the present and anticipated activities of the
Company.
Additionally, the Company owns approximately 3,900 acres related to its
discontinued operations, principally in Northern California and Louisiana,
of which approximately 500 acres have been used for hazardous waste disposal
facilities and approximately 2,200 are adjacent to those facilities.
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ITEM 3. LEGAL PROCEEDINGS.
Class Action Lawsuit
- --------------------
Mancino et al. v. International Technology Corporation, et al., (U.S.D.C.
- - Central District No. 89 - 7244 RMT) is a class action lawsuit filed in
federal court in December 1989, on behalf of stockholders of the Company
alleging violations of the federal Securities Exchange Act of 1934 in
connection with the purchase of shares of the Company's common stock by members
of the purported class between January 1986 and April 1987. The complaint also
names as defendants the underwriters who performed services in connection
with the Company's senior note offering in July 1986. In addition, the com-
plaint alleges that certain of the Company's officers and directors sold
shares of the Company's common stock at artificially inflated prices based
on undisclosed information about the Company. The plaintiffs seek unspecified
damages, plus costs associated with the litigation. Discovery concerning
the facts underlying the action has been substantially completed and trial in
this action is now set for November 28, 1995. Although the Company is
defending the action vigorously, at the request of the plaintiffs, the
parties have participated in voluntary, mediated settlement discussions, but
have thus far been unable to reach a settlement. Although it is not
possible to determine the ultimate outcome of the litigation, the Company
intends to further pursue settlement of the matter and has recorded a charge of
$3,800,000 in the fourth quarter of fiscal year 1995 to provide for
potential settlement and defense costs.
After consultation with outside counsel and in consideration of the
availability of insurance coverage and the Company's $3,800,000 provision,
management believes the ultimate outcome of the Mancino action will not have
a material adverse effect on the consolidated financial condition of the
Company.
Motco
- -----
On December 4, 1991, the Company announced the suspension of work on the
Motco project, the cleanup of a Superfund site in Texas, and the filing of a
$56,000,000 breach of contract lawsuit, captioned IT Corporation v. Motco
Site Trust Fund and Monsanto Company in the United States District Court for
the Southern District of Texas, Houston Division, Civil Action No.
H-91-3532, against the Motco Trust, the PRP group that agreed to finance
remediation of the site, and Monsanto Company, the leader of the PRP group.
In January 1988, the Company was retained by the Motco Trust to destroy
waste contained in pits at the site using two transportable incinerators
designed and operated by IT. Based on information provided to IT in the
Motco Trust's request for proposal, the Company bid and was awarded a
fixed-price contract which was subsequently increased through change orders.
In early 1991, IT advised the Motco Trust and Monsanto that it would cost
substantially more to complete the project because the scope of work had
changed and because the chemical makeup, quantities and mixture of waste at
the site were dramatically different from that portrayed by data provided to
IT in Motco Trust's request for proposal. Additionally, the project was
impacted by other actions of the Motco Trust and Monsanto, including the
pumping of contaminated water and waste into the Motco pits from an
unrelated project which was managed by the Motco Trust and Monsanto.
IT continued work at the site in good faith while negotiations were
occurring with the Motco Trust and Monsanto. Approximately $31,000,000 of
direct costs were incurred in excess of those recovered under the contract
and were recorded as a contract claim receivable and are included in
noncurrent assets in the Company's consolidated balance sheets at March 31,
1995 and 1994. IT has not recognized any overhead cost recovery or profit
on this project to date. IT sued to recover costs and profit of approximately
$56,000,000.
On December 26, 1991, the Motco Trust and Monsanto filed an answer to
IT's lawsuit and asserted a counterclaim against IT. In their answers to IT's
lawsuit, the Motco Trust and Monsanto denied liability to IT on the grounds
that the Motco Trust had previously executed a change order addressing many
of the claims and purported underlying events alleged in the lawsuit and had
received a full release from IT regarding those matters, that IT had failed
to mitigate its alleged damages, that IT had failed to manage and control
its costs on the project, and that IT's lawsuit failed to state a claim upon
which relief could be granted as it claimed extra-contractual compensation.
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<PAGE>
In its counterclaim, the Motco Trust sought recovery of $27,000,000
monetary damages including all payments to third parties to complete
performance of the project, all penalties or other liabilities to any
governmental entity, and any related damages which occurred as a result of
the breach of contract by IT which is alleged to have occurred upon the
filing of the lawsuit by IT and concurrent suspension of work at the site.
The case was tried before a jury during March and April of 1994. As a
result of that trial, the jury rendered a verdict in IT's behalf wherein
they found that Monsanto had breached its contract with IT, had defrauded IT and
had provided IT with information which constituted a negligent
misrepresentation as to the waste characteristics. The jury found that the
amount of damages caused IT as a result of these acts was in the amount of
$52,800,000. The jury also found that Monsanto should pay punitive damages in
the amount of $28,550,000, together with attorneys' fees in the amount of
approximately $2,300,000. The jury further found that IT was excused from
performance and that Motco Trust should not recover on its $27,000,000
counterclaim.
On December 14, 1994, the court ruled that IT was entitled to a judgment
in the amount of $43,700,000 plus prejudgment interest and attorneys' fees.
The court's order reduced the jury's previous compensatory damage award by
$9,100,000 and set aside the jury's award of $28,550,000 in punitive
damages. On May 8, 1995, the court entered a final judgment in the approximate
amount of $66,000,000, consisting of the $43,700,000 in compensatory damages,
and $2,300,000 in attorneys' fees, plus prejudgment interest of approximately
$20,000,000. On June 20, 1995, the court denied all pending postjudgment
motions. Notices of appeal have been filed by both the Company and
Monsanto. The final judgment amount accrues postjudgment interest at the one-
year U.S. Treasury rate (approximately 6.3%) in effect at the time of judgment
from the date the judgment is entered until paid. While it is not possible to
predict, the appellate process could take as long as two years.
After consideration of the merits of the Company's position in the
lawsuit and after consultations with its outside counsel, management believes
that, subject to the inherent uncertainties of litigation, the Company more
likely than not will recover the contract claim receivable recorded to date and
prevail on Motco Trust's counterclaim. However, if this matter is resolved
in an amount significantly lower than the contract claim receivable of
approximately $31,000,000 recorded by IT or if the Motco Trust prevails in
its counterclaim and recovers any significant amount of damages, a material
adverse effect to the consolidated financial condition of the Company would
result.
Central Garden
- --------------
On July 14, 1992, the Company responded to an emergency call to clean up
a chemical spill at a finished product warehouse facility leased by Central
Garden & Pet Supply Company (Central) in Baton Rouge, Louisiana. While
cleanup was under way, a fire began which damaged the warehouse facility.
In addition to the owner of the facility, Central and two other lessees of the
finished product warehouse facility (an electrical supply company and a
pharmaceutical company) incurred significant property damage and substantial
loss of inventory. A total of nine lawsuits arising from the fire have now
been filed and these cases have been consolidated for discovery purposes
only.
On August 2, 1992, in the first action to be filed (Gravois et al. v. IT
Corporation, et al., #92-649, U.S. District Court, Central District of
Louisiana), residents of a nearby apartment complex filed a petition for
damages against the Company and Central alleging personal injuries caused by
the release of hazardous and noxious materials into the atmosphere as a
result of the fire. Central filed an answer, cross-claim, and third-party
complaint. Central alleged, among other things, that the Company was the
cause of the fire in failing to exercise proper care in the cleanup of the
spill, and was responsible for the property damage, loss of contents, loss
of profits and other economic injury, and expenses incurred in the cleanup.
Further, Central claimed a set-off for monies due the Company for cleanup
services rendered by the Company after the fire and seeks indemnity for any
damages assessed against Central. The Company responded by alleging, among
other things, improper storage and handling of hazardous materials by
Central. In August 1993, this case was remanded to state court (19th
Judicial District, Parish of East Baton Rouge, Louisiana, #383,887). The
Company also filed its own cross-complaint against Central for services
rendered after the fire and denied responsibility for the fire, raised
certain defenses, and further claimed that Central was not entitled to a
set-off. The monies due the Company for services rendered to Central
approximate $1,700,000 and are included in accounts receivable in the Company's
consolidated balance sheets at March 31, 1995 and 1994.
15
<PAGE>
The Company believes that the allegations in the other actions arising
out of the fire are substantially duplicative of the Gravois case and each
other. For example, the insurer for the electrical supply company, American
Manufacturers Mutual Insurance Company, also filed a complaint in state
court (19th Judicial District Court, Parish of East Baton Rouge, Louisiana,
#390,241) against the Company, Central, the lessor and certain insurers.
The owner of the adjacent pharmaceutical company, Bergen Brunswig Company, and
its insurers filed suit against the Company, Central, the lessor, a
construction company which built a fire wall that allegedly did not meet the
building code, the manufacturer of the chemicals which were spilled and
certain insurers (19th Judicial District Court, Parish of East Baton Rouge,
Louisiana, #393,056). The lessor also filed a cross-claim and third party
complaint against the Company and others in this action.
Pursuant to a Case Management Order entered in the Gravois action and
applicable to all of the filed cases, a schedule has been established for
the completion of discovery and the submission of reports concerning damages
claimed and the causation of the fire. In March 1995, pursuant to the Case
Management Order, the parties propounded to each other reports concerning
the types and amount of damages sought. These reports collectively claim a
total of $23,000,000 from all of the defendants but do not apportion the damages
claimed among the various defendants. The largest single claim is by Bergen
Brunswig, which claims approximately $11,000,000, principally for lost
inventory. In its report, Central claims approximately $4,400,000,
including approximately $1,000,000 in damages resulting from the postponement of
its initial public offering, and the $1,700,000 sought by the Company for
services rendered in cleaning up after the fire. The personal injury
plaintiffs in the Gravois and related actions claim approximately $2,400,000
in damages. In addition, most of the claimants demand punitive damages in
unspecified amounts. The Company believes that certain of the claimants'
damage claims are inflated and contain elements that are not legally
recoverable or are not properly documented.
While the Company is pursuing settlement of this matter, the Company is
defending the actions vigorously and believes that it has meritorious
challenges to some of the damages claimed and meritorious claims for
contribution against some parties. Additionally, the Company believes that
it is likely that it will recover from Central, by collection or set-off, on
breach of contract claims for the cleanup services provided. The parties
have agreed to submit the case to nonbinding mediation in October 1995.
Trial is scheduled for May 1996. Based on discovery to date, there is a
risk that the Company will be found liable for at least some damages. If
the Company is held liable for damages, there is the further risk that the
Company could be held liable for punitive damages. Discovery has not been
completed; the Company cannot predict the amount or range of damages for
which it and/or the other parties may be found responsible.
The Company's insurance carrier has been notified of the matter and is a
defendant in one of the actions. The Company's carrier is defending the
actions subject to a reservation of its rights to contest coverage at a
later date. The Company previously filed a protective lawsuit seeking
determination of coverage, but later agreed to a dismissal of the action in
accordance with a standstill agreement with the carrier pursuant to which,
subject to applicable policy limits, the carrier has agreed to fund
provisionally any final judgment or settlement of the matter. However, the
insurer has retained its right to challenge coverage under the policy after any
such funding. If the Company settles the matter or is held liable for damages
and the insurance carrier funds the settlement or judgment, the Company may face
reimbursement claims by its carrier, based on assertions that the Company's
policies do not cover damages resulting from the fire because of allegations
that such damages are excluded pollution liabilities or punitive damages.
(See Business - Operations - Environmental Contractor Risks and Insurance
and Risk Management.)
In the fourth quarter of fiscal year 1995, the Company recorded a
$5,300,000 charge, covering both defense and potential settlement costs, to
provide for its self-insured retention under its general liability insurance
coverage for the Central Garden matter. Should the cases result in a
significant award of damages against the Company or payment by the Company
of a significant amount in settlement, either of which is not substantially
covered by the Company's insurance policies, additional litigation costs
would be recorded related to the matter.
Helen Kramer Contract
- ---------------------
On May 3, 1993, the Company received an administrative subpoena from the
Office of the Inspector General (OIG) of the USEPA seeking documents
relating to certain of the Company's claims which were submitted to the U.S.
16
<PAGE>
Army Corps of Engineers with regard to the Helen Kramer remediation contract, a
completed project which the Company performed in joint venture. Since
August 1992, the Defense Contract Audit Agency (DCAA) has been conducting an
audit of certain claims submitted by the joint venture. The Company has been
informed that there is a federal civil and criminal investigation into the
claims. In April 1995, the Company was informed that several of its joint
venture partner's employees have been subpoenaed to discuss their knowledge
of the matter.
In October 1993, a shareholder of the Company alleged that the acts
giving rise to the Helen Kramer investigation constituted, among other things,
a waste of the Company's assets and demanded that the Company institute an
action against those responsible for the alleged wrongdoing. The Audit
Committee (Committee) of the Board of Directors investigated the allegations
of the OIG. The Committee, acting with the assistance of outside counsel and
experts, determined that there was no evidence of intentional wrongdoing or
negligence by the Company or any employee. The Board approved the report of
the Committee and advised counsel to the shareholder of its conclusions on
September 2, 1994. (See Business - Operations - Environmental Contractor
Risks and Notes to Consolidated Financial Statements - Summary of
significant accounting policies - Contract accounting and accounts receivable.)
Discontinued Operations Legal Proceedings
- -----------------------------------------
The actions discussed below relate to the transportation, treatment and
disposal discontinued operations of the Company and have been considered in
the provision for loss on disposition. (See Notes to Consolidated Financial
Statements - Discontinued operations - Transportation, treatment and
disposal.)
Operating Industries, Inc. Superfund Site
-----------------------------------------
Under CERCLA, the USEPA and the California EPA Department of Toxic
Substances Control (DTSC) have investigated and are continuing to
investigate the operation of and shipments of wastes to certain disposal sites
in California and elsewhere, including the Operating Industries, Inc. (OII)
Superfund site in Monterey Park, California. In June 1986, USEPA notified a
number of entities, including the Company, that they were PRPs under CERCLA
with respect to OII and, as such, faced joint and several liability for the
cost to investigate and clean up this site. USEPA requested these entities
to work as a single group to settle with USEPA and DTSC their alleged
liability for certain past response costs and to perform future remedial
work. A number of these PRPs subsequently formed the OII Steering Committee
(Steering Committee) and negotiated a series of settlements addressing cost
reimbursement demands and performing certain interim remedial measures
(IRMs). The Company did not join the Steering Committee or enter these
settlements. USEPA currently contends that the Company remains a PRP and is
liable for its share of costs associated with the past settlements which
total approximately $8,500,000 (including a premium but not interest). The
Steering Committee also contends the Company is liable to it for a share of
these settlement costs and has quantified the Company's share of the first
two settlements at approximately $2,700,000. On October 11, 1994, the
Company was served with a summons and complaint in a cost recovery action
brought by members of the Steering Committee (National Railroad Passenger
Corporation, et al. v. Harshaw Filtrol, U.S.D.C. Central District No. CV 94
2861 WMB (GHKx)). The action seeks (1) recovery from the Company of a
portion of certain of plaintiffs' costs incurred at OII allegedly
attributable to the Company and (2) a declaration from the court as to the
Company's share of future costs in the OII response action. The Company is
defending this action vigorously while continuing to attempt a joint settlement
with both the Steering Committee and the USEPA. Trial in this action, which was
set for July 17, 1995, has been taken off the calendar and has not been
rescheduled.
The Company believes the USEPA's and the Steering Committee's claims
essentially overlap. Both assume the Company or its predecessor and
subsidiaries arranged for the disposal of the identical volume of wastes at
OII and are based on the relative percentage of that volume to the known
volume of liquid wastes sent to the site. The Steering Committee has not
quantified and the USEPA claim does not specifically address future costs
for site remediation and long-term monitoring and maintenance. These figures
are not known but are expected to be substantial. Based on the available
information regarding the operations of the Company's subsidiaries and
predecessor in handling the wastes, the Company believes its share of
responsibility for the site, if any, is less than the share attributed to it
by the USEPA and the Steering Committee. Accordingly, the Company has not
been able to agree to USEPA's or the Steering Committee's claims. IT has
met with USEPA attempting to settle its response cost claims and is continuing
17
<PAGE>
to negotiate for a settlement. No settlement has been reached. Instead, in
October 1994, USEPA advised the Company in writing that it continued to
regard the Company and its subsidiaries as liable for response costs. In
that notice, USEPA provided the Company and other non-Steering Committee
PRPs the opportunity to make a limited challenge as to USEPA's volume
determinations. Subject to its review of that challenge, USEPA further stated
it intended to offer the Company and other non-settling PRPs, another
opportunity to resolve their liability for response costs by paying the amount
determined by USEPA based on volume plus a substantial premium based on
failure to join the earlier settlements. The Company submitted a volume
challenge on January 10, 1995, but has received no response from USEPA
although it is continuing to pursue settlement discussions.
The inability of the Company to effect a satisfactory settlement with the
Steering Committee and the USEPA could have a material adverse effect on the
consolidated financial condition of the Company. The Company has advised
its liability insurance carriers as to the pendency of the USEPA's and the
Steering Committee's claims and requested indemnification and legal
representation. The carriers dispute their obligations to the Company.
GBF Pittsburg Superfund Site
----------------------------
On September 25, 1987, the Company was served with a Remedial Action
Order (RAO) issued by the California Department of Health Services, now the
DTSC, concerning the GBF Pittsburg landfill site near Antioch, California, a
site which has been proposed by the USEPA to be added to the National Priorities
List under CERCLA. IT and 17 other firms and individuals were characterized
as responsible parties in the RAO and directed to undertake investigation
and potential remediation of the site which consists of two contiguous parcels.
From 1968 through 1974, a predecessor to IT Corporation operated a portion
of one parcel as a liquid hazardous waste site. The activity ceased in 1974,
and the disposal site was closed pursuant to a closure plan approved by the
appropriate Regional Water Quality Control Board (RWQCB). Both of the
parcels then served as a municipal and industrial waste site and, until
1991, continued to accept municipal waste. Water quality samples from
monitoring wells in the vicinity of the site were analyzed by the property owner
in August 1986 and indicated the presence of volatile organics and heavy metals
along the periphery of the site.
Additional PRPs, consisting primarily of known waste generators, were
subsequently served with an amended RAO by the DTSC. IT and other PRPs (the
PRP group) are participating on a voluntary basis to further investigate the
nature and extent of any subsurface contamination beneath the site and
beyond its borders. During fiscal year 1992, the PRP group submitted Remedial
Investigation and Feasibility Study reports to the DTSC. The studies
indicate that groundwater quality impact is not affecting drinking water
supplies and is not attributable solely to the portion of the site
previously operated by IT's predecessor. The current owner/operator at the site
was ordered to cease the municipal landfill operations and close the site and,
pursuant to a court approved settlement, ceased accepting waste and is
proceeding with the capping of the landfill.
In July 1993, the Company, along with the other PRPs at the site, was
issued a revised RAO and Imminent and Substantial Endangerment Order that,
although it appears primarily to restate previous RAOs, also directs all
previously named PRPs to undertake specific additional tasks including the
closure of the municipal landfill.
In July 1994, the DTSC issued to the Company and 49 other alleged PRPs a
proposed determination of non-compliance with the July 1993 DTSC order to
prepare a work plan for specified remediation at the site. The Company and
a group of cooperating PRPs submitted a draft work plan in compliance with
the order and are currently taking measures to attempt to obtain
reimbursement from those PRPs who do not contribute their appropriate share of
response costs at the site.
Environmental Protection Corporation Superfund Site
---------------------------------------------------
On March 23, 1995, IT was notified by the DTSC that it was among 13
companies identified as potentially responsible for costs associated with
investigation and cleanup of the Environmental Protection Corporation (EPC)
site known as the Eastside Facility near Bakersfield, California. The DTSC
18
<PAGE>
notice letter states that IT is believed to have arranged for disposal of
hazardous substances at the Eastside Facility during the period between 1972
and 1985 when it was permitted and operated as a land treatment facility.
IT transported various waste streams on behalf of its customers to the
Eastside Facility at various times during that facility's operations and it
was a minority shareholder in EPC for a period of its operations. DTSC has
directed IT and the other parties which were notified to form a group and to
respond to a proposed administrative order directing them to characterize
the facility and undertake any appropriate remedial action to deal with any
releases or threatened releases identified.
IT has no estimate of the potential costs associated with investigation
and remediation of the Eastside Facility. IT has had preliminary discussions
with the other parties which were notified, is reviewing the draft
administrative order and is evaluating its options.
Yakima Railroad Area Superfund Site
-----------------------------------
On July 14, 1994 the Company was notified that the State of Washington
Department of Ecology (WDOE) considers the Company a PRP at the Yakima
Railroad Area (YRRA) state superfund site in Yakima, Washington, based upon
its alleged disposal of materials at a carbon recycling facility within the
YRRA site. WDOE alleges that groundwater in a six square mile area of the
YRRA has been contaminated with hazardous substances from 15 facilities,
including the carbon recycling facility, and is supplying alternative water
sources for residents whose wells are alleged to have been affected. The
Company disputes its alleged liability, but is cooperating with the other
PRPs in attempting to locate and notify other PRPs and in investigating the
contamination at the carbon recycling facility.
Other Site Cleanup Actions
--------------------------
The Company, as a major provider of hazardous waste transportation,
treatment and disposal operations in California prior to the December 1987
adoption of its strategic restructuring program, has been named a PRP at a
number of other sites and may, from time to time be so named at additional
sites and may also face damage claims by third parties for alleged releases
or discharges of contaminants or pollutants arising out of its
transportation, treatment and disposal discontinued operations. The Company
has either denied responsibility and/or is participating with others named by
the USEPA and/or the DTSC in conducting investigations as to the nature and
extent of contamination at the sites.
Other
- -----
The Company is subject to other claims and lawsuits in the ordinary
course of its business. In the opinion of management, all such other pending
claims are either adequately covered by insurance or, if not insured, will not
individually or in the aggregate result in a material adverse effect on the
consolidated financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
There were no matters submitted to a vote of the Company's common
shareholders during the fourth quarter of fiscal year 1995.
19
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information as of June 26, 1995 regarding
the Company's executive officers and the positions they hold with the Company.
The officers are appointed annually by the Board of Directors to serve at
the discretion of the Board.
First
elected as
Term as director or
director officer of
Name Age Position expires the Company
---- --- -------- -------- -----------
Robert B. Sheh 55 President and Chief 1997 1992
Executive Officer
Larry M. Hart 54 Senior Vice President and ---- 1993
Chief Operating Officer
Franklin E. Coffman 53 Senior Vice President, ---- 1984
Government and Commercial
Program Development
Anthony J. DeLuca 48 Senior Vice President and ---- 1990
Chief Financial Officer
James R. Mahoney 56 Senior Vice President, ---- 1991
Regional and Technical
Operations and Corporate
Development
Raymond J. Pompe 61 Senior Vice President, ---- 1988
Project Operations
Eric Schwartz 48 Senior Vice President, Law ---- 1992
and Administration, General
Counsel and Secretary
Mr. Sheh joined the Company in July 1992 as President and Chief Executive
Officer and a Director. Prior to joining the Company, Mr. Sheh was
President of The Ralph M. Parsons Company, a subsidiary of The Parsons
Corporation, since 1989. Mr. Sheh had a broad range of management
responsibilities during his 21 years with Parsons, including international
operations, corporate business development and management of major divisional
operations. Parsons is a major international engineering and construction
company, which serves the energy, natural resource, environmental and defense
industries. Mr. Sheh serves on the Board of Directors of Davidson & Associates,
Inc.
Mr. Hart joined the Company in November 1993 as Senior Vice President and
Chief Operating Officer. Prior to joining the Company, Mr. Hart served from
1967 to 1993 in several capacities for Fluor Daniel, Inc., a major
engineering and construction firm. At Fluor Daniel, Inc., Mr. Hart served as
Project Director for several multi-million dollar engineering and construction
projects, President of the Power Business Sector, and a Fluor Daniel Group
Executive.
Mr. Coffman joined the Company in October 1984 as Vice President,
Government Programs and was named Senior Vice President, Government and
Commercial Program Development, in March 1995. Prior to joining the
Company, Mr. Coffman served in various capacities for DOE including Deputy
Assistant Secretary of Waste Management, Director of the Office of Advanced
Nuclear Systems and Projects, and Director of the Division of Fusion Development
and Technology. Previously, he was employed in the Atomic Energy Commission as
Chief, Energy Research Development Agency, Fusion Systems and Applications -
Applications Studies Branch, Washington, D.C. and as a health physicist.
20
<PAGE>
Mr. DeLuca joined the Company in April 1990 as Senior Vice President and
Chief Financial Officer. Prior to then, he was with the public accounting
firm Ernst & Young LLP for 20 years, including the last 8 years as a partner
in the firm.
Mr. Mahoney who joined the Company in January 1991 as Senior Vice
President and Director of Technology was named Senior Vice President,
Corporate Development and Sales in April 1992 and Senior Vice President,
Regional and Technical Operations and Corporate Development in March 1995.
Prior to joining the Company, Mr. Mahoney was Director of the National Acid
Precipitation Assessment Program, a U.S. government research and assessment
program, from 1988 to 1991. From 1984 to 1988, Mr. Mahoney served in
various environmental managerial capacities with Bechtel Group, Incorporated, a
major construction firm.
Mr. Pompe joined the Company in 1988 as Vice President, Construction and
Remediation and was named Senior Vice President, Project Operations, in
March 1995. Prior to joining the Company, Mr. Pompe was employed by Dravo
Corporation, a major construction firm, from 1956 to 1988 in various
executive capacities, most recently as Senior Vice President responsible for
construction projects.
Mr. Schwartz joined the Company in October 1992. Prior to joining the
Company, Mr. Schwartz served in various capacities for Tosco Corporation, an
energy company, from 1978 to 1992, including that of Executive Vice
President, Finance, Administration and General Counsel, a member of its
Board of Directors and a consultant. From 1972 to 1978, Mr. Schwartz was
associated with the law firm of Cleary, Gottlieb, Steen & Hamilton.
21
<PAGE>
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange (NYSE)
under the symbol of ITX. The following table sets forth the high and low
sale prices, as reported by the NYSE.
Quarter ended High Low
------------- ---- ---
June 30, 1993..................................... $5 7/8 $4 5/8
September 30, 1993................................ 5 7/8 4
December 31, 1993................................. 4 1/4 3 3/8
March 31, 1994.................................... 3 3/4 2 3/4
June 30, 1994..................................... 3 1/4 2
September 30, 1994................................ 3 7/8 2 3/8
December 31, 1994................................. 4 1/2 2 3/4
March 31, 1995.................................... 3 1/4 2 1/4
On June 14, 1995, the closing sale price of the common stock on the NYSE
as reported by The Wall Street Journal was $2 7/8 per share. On that date
there were 2,286 shareholders of record.
The Company has not paid a cash dividend on its common stock for the three
years ended March 31, 1995. The Company has no present intention to pay
cash dividends on its common stock for the foreseeable future in order to retain
all earnings for investment in the Company's business. IT's credit
agreements prohibit cash dividends on common stock.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth income statement information for the
Company's continuing operations and other financial information for each of
the five years in the period ended March 31, 1995. (See Notes to
Consolidated Financial Statements - Discontinued operations.)
Year ended March 31,
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share data)
INCOME STATEMENT INFORMATION
Revenues $423,972 $392,803 $410,539 $420,453 $373,085
Income (loss) from
continuing operations
(net of preferred stock
dividends) (7,880) (3,241) (2,082) 8,895 14,618
Income (loss) per share
from continuing operations (.22) (.09) (.06) .27 .44
Weighted average shares 35,557 34,762 33,530 33,425 33,401
OTHER FINANCIAL INFORMATION
Working capital $ 73,838 $ 63,522 $ 60,281 $ 71,730 $ 48,788
Total assets 362,152 359,203 369,178 382,317 356,459
Long-term debt 80,189 68,625 115,811 136,413 101,408
Long-term accrued
liabilities 45,207 38,993 52,470 56,500 59,554
Stockholders' equity 145,921 160,548 106,178 98,531 105,687
No cash dividends were paid on common shares for any period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Overview
- --------
The Company operates in one industry segment and provides a broad range of
environmental management services to clients principally in the United
States. The Company's principal strategy is to market its services on a
full-service basis. There are operating and economic synergies between its
service areas, as they are complementary and often used in combination.
In fiscal year 1995, the Company increased its volume of business in the
federal governmental sector as spending programs remained strong,
particularly because of remediation work performed by the Company's
Construction and Remediation business area. Additionally, the Company
experienced lower overhead and administrative costs due to cost reduction
efforts and the transfer of certain costs related to the formation of Quanterra.
(See Quanterra.) Project margins continued to be negatively impacted by weak
market demand in the commercial sector, due to reduced levels of
23
<PAGE>
environmental regulation and enforcement, leading to increased competition and
in the governmental sector, due to the entry or expanded presence of certain
major firms as competitors.
New Organizational Structure
- ----------------------------
Prior to the June 1994 formation of Quanterra, the Company was organized
into three business areas, Environmental Services, Construction and
Remediation, and Analytical Services. Subsequent to June 1994, the Company
has operated in the first two of these business areas. Effective April 1,
1995, the Company implemented organizational structure changes in an effort
to deliver more cost-effective services to clients. The Company's
operations are now principally managed under a structure consisting of three
regions with full service capabilities. Each region has its own technical,
project management, sales and administrative support functions. The
Construction and Remediation group's project management capabilities and related
infrastructure have been integrated throughout the Company to strengthen
project execution skills and enhance client service on a company-wide basis.
Accordingly, IT offers all of its services in each region in which it
operates. The Company currently operates 43 offices, including project
offices, located across the United States.
Revenues
- --------
The following table provides information on revenues attributable to the
business areas of the Company.
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Percentage Percentage
revenue revenue
Gross increase Gross increase Gross
margin (decrease) margin (decrease) margin
Revenues percentage 1994-1995 Revenues percentage 1993-1994 Revenues percentage
-------- ---------- ---------- -------- ---------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Environmental
Services $266,358 16.0% 7.3% $248,184 16.4% (12.3)% $282,913 18.9%
Analytical
Services 13,075 3.1 (76.3) 55,218 10.1 (2.9) 56,848 15.2
Construction and
Remediation 144,539 13.1 61.7 89,401 13.4 26.3 70,778 15.6
------- ------- -------
Total $423,972 14.6 7.9 $392,803 14.8 (4.3) $410,539 17.8
======= ======= =======
</TABLE>
Revenues for fiscal year 1995 increased $31,169,000, or 7.9%, from fiscal
year 1994 levels as both the Environmental Services and the Construction and
Remediation business areas reported revenue growth. Effective with the
inception of operations for Quanterra in the second quarter of fiscal year
1995, the Company no longer records any revenue in the Analytical Services
area. However, since approximately 30 percent of Analytical Services
revenues had been derived from Environmental Services or Construction and
Remediation projects, additional revenue now is being recorded in those two
business areas related to analytical services subcontracts performed by
Quanterra for IT, similar to other third party contracts. After excluding
current and prior year Analtyical Services revenues other than those
provided to Environmental Services and Construction and Remediation projects,
revenues for the Company increased 16.6% for fiscal year 1995 due primarily
to an increased number of remediation contracts under federal governmental
agency programs.
Revenues for fiscal year 1994 declined $17,736,000, or 4.3%, from fiscal
year 1993 levels as revenue decreases were experienced in Environmental
Services and Analytical Services due to weak demand and lower pricing.
Construction and Remediation experienced a significant 26.3% year-to-year
increase in revenues primarily because of higher levels of work performed on
large thermal remediation projects and various federal governmental agency
programs.
An increasing percentage of the Company's revenues during the three years
ended March 31, 1995 was earned through executing governmental contracts for
various federal, state and local agencies. Although governmental clients
continued to spend at high levels through fiscal year 1995, many commercial
clients have reduced and deferred environmental expenditures in anticipation
of proposed legislative and regulatory changes. However, efforts to
24
<PAGE>
constrain the federal budget deficit may impact the level of spending by the
U.S. Department of Defense (DOD), the U.S. Department of Energy (DOE) and
other federal governmental agencies. Revenues from federal, state and local
governmental agency contracts accounted for 71% of the Company's revenues in
fiscal year 1995, compared to 63% and 62% in fiscal years 1994 and 1993,
respectively. Federal governmental revenues are derived principally from
work performed for the DOD and, to a lesser extent, the DOE. A transition
by DOE to emphasize remediation over studies is expected to be positive for the
Company based on the Company's favorable experience in winning and executing
similar work for the DOD as well as the Company's experience with DOE
related to its past performance of DOE studies. In the near term, the Company
expects that the percentage of total revenues from the execution of federal,
state and local governmental agency contracts will continue to be
substantial.
During fiscal year 1995, a significant though declining percentage of the
Company's revenues continued to be derived from large, complex thermal
remediation contracts utilizing the Company's Hybrid Thermal Treatment
System (HTTS ) technology, many of which are fixed-price. This type of
contract accounted for 32% of Construction and Remediation revenues in
fiscal year 1995 compared to 63% in fiscal year 1994 and 58% in fiscal year
1993. In fiscal year 1995, the Company substantially completed one HTTS
contract. Another HTTS contract is expected to be completed in fiscal year
1996. Permits for incineration were received at another site in April 1995 and
significant preparatory work at that project is now underway with
incineration expected to begin later in fiscal year 1996. The Company was
awarded another HTTS contract in fiscal year 1995 where work is expected to
commence in fiscal year 1997. Certain of the contracts are executed in joint
venture with other companies.
Incineration as an allowable remedy under the Comprehensive Environmental
Response, Compensation andLiability Act (CERCLA) continues to come under
legislative and regulatory pressures. In May 1993, the U.S. Environmental
Protection Agency (USEPA), citing its authority under the Resource
Conservation and Recovery Act (RCRA), announced a draft strategy imposing
additional requirements and costs on incineration facilities, the effect of
which was a "freeze" on the permitting of any new fixed-base hazardous waste
incinerators or cement kilns. In May 1994, the USEPA issued a new policy which,
while seemingly affirming incineration as an allowable remedy under CERCLA,
calls for additional procedures and studies to be conducted before incineration
may be selected as a remedy, or which may result in the deselection of
incineration as a remedy, at a Superfund site. In November 1994, the USEPA
finalized its strategy, which continued the draft strategy's policy of granting
a lower priority to consideration of new fixed-base hazardous
waste incinerators or cement kilns. The final strategy also finalized the
USEPA's direction of favoring waste minimization over combustion/incineration
and of increasing regulatory burdens upon combustion and incineration
facilities whether fixed-base or on-site. If policies were implemented or
regulations were changed such that the Company was unable to permit and use
incinerators on remediation projects due to either regulatory or market factors,
the Company would have to find alternative uses for its HTTS equipment, which
currently has a net book value of approximately $29,000,000. If alternative
uses, such as foreign installations, were not found or were uneconomical, there
could be a material adverse effect to the Company's consolidated financial
condition due to impairment of HTTS assets as well as lost project
opportunities.
The Company's total funded and unfunded backlog at March 31, 1995 was
approximately $1,176,000,000 (including approximately $294,000,000 of
contracted backlog scheduled to be completed during fiscal year 1996 and
between $30,000,000 and $60,000,000 of additional project work expected to
be defined and performed in fiscal year 1996 under existing governmental
indefinite delivery order contracts). This compares to $1,099,000,000 at
March 31, 1994 excluding the $141,000,000 of backlog of the Analytical
business at that date which was transferred to Quanterra. Backlog revenues
are expected to be earned primarily over the next one to five years, with a
substantial portion of the backlog consisting of governmental contracts, many of
which are subject to annual funding and definition of project scope. The
backlog amounts at March 31, 1995 and 1994 include $760,000,000 and
$600,000,000, respectively, of future work the Company estimates it will receive
(based on historical experience) under existing governmental indefinite delivery
order programs which provide for a general undefined scope of work. In
accordance with industry practices, substantially all of the Company's contracts
are subject to cancellation, delay or modification by the customer. Prior to
fiscal year 1995, the Company had not experienced cancellations which had a
material effect on backlog. During fiscal year 1995, the Company
experienced a substantial reduction in backlog on its DOE Hanford contract where
project responsibilities were modified such that IT will not have any
subcontract procurement responsibilities and the scope of IT's overall
assignment has been reduced due to budget cutbacks. Accordingly, the Company
25
<PAGE>
has reduced its backlog on this contract to approximately $54,000,000 at
March 31, 1995 from approximately $140,000,000 at December 31, 1994. Although
the Company will receive a slightly higher margin percentage than originally
anticipated on this contract, overall profit will decline significantly due to
the loss of revenue.
The Company's backlog at any given time is subject to changes in scope of
services required by the contracts as well as increases or decreases in
costs relating to the contracts in backlog. The increased volume of contracts
performed subject to such scope changes has also increased the number of
contract claims requiring negotiations with clients in the ordinary course
of business, leading to some estimates of claim amounts being included in
revenues. When such amounts are finalized, any changes from the estimates
are reflected in earnings.
The Company cannot predict the impact upon the Company of the failure,
to-date, of Congress to reauthorize CERCLA, or of the many legislative and
regulatory changes proposed since the November 1994 elections. Delays in
the reauthorization of CERCLA may adversely impact the environmental industry in
which the Company participates. Failure of Congress to reauthorize CERCLA,
or substantial changes in or uncertainty concerning the details of the
legislation, cleanup standards, and remedy selection (such as proposed
changes that would change CERCLA's preference for permanent treatment
remedies such as incineration in favor of confinement and containment), may
result in project delays and/or the failure of clients to initiate or
proceed with projects. Additionally, reductions in current and future
environmental restoration budgets as a result of the November 1994 elections may
adversely affect future government contracting opportunities and funding of the
Company's backlog. The Company believes that it generally has benefitted
from increased environmental regulations affecting business, and from more
stringent enforcement of those regulations. The currently contemplated
changes in regulations could decrease the demand for certain of the
Company's services, as customers anticipate and adjust to the new regulations.
However, the proposed legislation could also result in increased demand for
certain of the Company's services if regulatory changes decrease the cost
of remediation projects or result in more funds being spent for actual
remediation. The ultimate impact of the proposed changes will depend upon a
number of factors, including the overall strength of the economy and
customers' views on the cost effectiveness of remedies available under the
changed regulations.
Gross Margin
- ------------
Gross margin increased $3,729,000 or 6.4% in fiscal year 1995 compared to
fiscal year 1994 principally due to the increase in revenues. Environmental
Services' gross margins in fiscal year 1995 declined from those of the prior
year because of a $5,300,000 provision for anticipated costs associated with
major litigation which was recorded in the fourth quarter of fiscal year
1995 (see Notes to Consolidated Financial Statements - Commitments and
contingencies - Central Garden) and lower pricing. These factors, however,
were substantially offset by the impact of higher staff utilization and
productivity gains experienced throughout fiscal year 1995. Excluding the
provision for litigation, Environmental Services gross margin would have
increased from 16.0% to 18.0% of revenues. In fiscal year 1994, Environmental
Services' gross margin percentage declined from the prior year level due to
overall pricing pressure resulting from generally lower commercial client demand
leading to increased competition. Such factors have caused lower hourly
billing rates on time-and-material contracts as well as lower bidding
margins required to win small remediation and groundwater services projects.
In fiscal year 1995, Construction and Remediation experienced a decline in
gross margin percentage from 13.4% to 13.1% in the prior fiscal year because
competitive conditions required the Company to offer contract terms with lower
margins than those in the prior fiscal year, primarily with respect to major
DOD remedial action programs. This trend is expected to continue in the future.
Construction and Remediation gross margin percentage decreased in fiscal year
1994 from 15.6% to 13.4% primarily because fiscal year 1993 gross margin was
favorably affected by a positive margin adjustment related to the closeout of a
thermal remediation project which was completed in a prior fiscal year.
Analytical Services experienced a significant decline in gross margin
percentage in its one quarter of operations in fiscal year 1995 due to
competitive market conditions as well as operational inefficiencies related
to the planned start-up of Quanterra in June 1994. In fiscal year 1994,
Analytical Services reported a decrease in gross margin percentage
from 15.2% to 10.1% because of increased pricing pressure in the chemical
analysis area due to weak customer demand, and decreased utilization of
26
<PAGE>
laboratory capacity resulting from start-up delays on certain governmental
projects in the radiochemical analysis area.
The Company's ability to maintain its gross margins is heavily dependent
on increasing utilization of professional staff, properly executing
projects, and successfully bidding new contracts at adequate margin levels. The
Company does not expect any significant margin improvement until current
industry pricing pressures are relieved as a result of commercial clients
requiring increased services. Additionally, since the cost of HTTS
equipment is generally recovered over three or more projects, margins in
Construction and Remediation are dependent on successful performance of
existing contracts and on winning new contracts utilizing existing HTTS
equipment upon the completion of previous projects; otherwise, depreciation on
HTTS equipment idle for significant periods of time will continue to negatively
affect gross margin.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses were 10.0%, 12.4% and 11.9%
of revenues in fiscal years 1995, 1994 and 1993, respectively. Selling,
general and administrative expenses in fiscal year 1995 were $42,476,000, a
decrease of $6,168,000 from the fiscal year 1994 level. This decrease is
principally attributable to a special charge of $4,500,000 in fiscal year
1994 which is described in the following paragraph. Additionally, in the
last nine months of fiscal year 1995, the Company experienced a decline in
selling, general and administrative expenses as certain expenses were
eliminated or transferred from the Company upon the formation of Quanterra
in June 1994. Selling, general and administrative expenses also declined in
fiscal year 1995 as a percentage of revenues due to ongoing cost containment
measures.
In the fourth quarter of fiscal year 1994, selling, general and
administrative expenses included $4,500,000 related to the actuarially
determined value of contractual retirement benefits to be provided to its former
Chairman of the Board (who was also Chief Executive Officer from 1975
through 1992) who retired from that position effective April 1, 1994. Ongoing
selling, general and administrative expense for discount amortization
related to this retirement agreement is initially approximately $300,000 per
year and will decline over time.
Selling, general and administrative expenses declined $260,000 from
$48,904,000 in fiscal year 1993 to $48,644,000 in fiscal year 1994.
Selling, general and administrative expenses excluding the retirement agreement
described above decreased in fiscal year 1994 from the prior year level due
to the elimination of management layers in the Environmental Services area
as a result of actions taken in late fiscal year 1993 involving organizational
realignment, the elimination of administrative costs in Europe, and ongoing
reductions in certain corporate office administrative costs. Excluding the
$4,500,000 charge, selling, general and administrative expenses would have
been 11.2% of revenues in fiscal year 1994, down from 11.9% of revenues in
the prior year.
Quanterra
- ---------
In June 1994, the Company and an affiliate of Corning Incorporated
(Corning) combined the two companies' environmental analytical services
businesses into a newly formed 50/50 jointly-owned company (Quanterra).
Quanterra operates independently with a separate board of directors which has
representation from IT and Corning, and provides services primarily to third
parties as well as to the Company. (See Notes to Consolidated Financial
Statements - Quanterra.) IT's 50 percent investment in Quanterra is accounted
for under the equity method. An integration plan was implemented in the early
stages of Quanterra's operations. The plan included consolidation and closure
of redundant lab facilities and equipment, a reduction in force to eliminate
duplicative overhead and excess capacity and a consolidation of laboratory
management and accounting systems. IT reported a pre-tax charge of $9,264,000
related to the integration in its operating results for the quarter ended June
30, 1994. Although the implementation of the integration plan has resulted in
operational efficiencies and cost reductions, the environmental laboratory
business continues to be faced with excess capacity and intense price
competition. Consequently, in the nine months ended March 31, 1995, the initial
period of Quanterra's operations, the Company reported equity in net loss of
27
<PAGE>
Quanterra of $563,000 and this trend is expected to continue for at least the
early part of fiscal year 1996. However, there are operating and strategic
activities underway to improve these operating trends.
Restructuring Charge
- --------------------
In connection with the realignment and streamlining of the Company's
organization which was initiated in the fourth quarter of fiscal year 1993,
the Company incurred a pre-tax restructuring charge of $8,378,000, which
represented 2.0% of revenues. The restructuring charge included costs for
the consolidation of facilities in the United States through office
combinations or shutdowns, related asset writeoffs, severance payments to
employees, and the disposition of most of the Company's European operations
through either closure or sale. At March 31, 1995, most of the costs
included in the restructuring charge had been paid. However, $1,500,000 of
the charge ($1,800,000 at March 31, 1994) remained to be paid, principally
related to certain long-term lease obligations for facilities no longer used
by the Company.
Other Expense
- -------------
In the fourth quarter of fiscal year 1995, the Company recorded a charge
of $3,800,000 to provide for potential settlement and defense costs related
to certain class action shareholder litigation. (See Notes to Consolidated
Financial Statements - Commitments and contingencies - Class action
lawsuit.)
In April 1994, the Company was notified that planning permission was
denied for an integrated treatment facility located in Salt End, North
Humberside, England. The Company wrote off its investment in the facility,
reporting a $2,500,000 non-cash charge to continuing operations in the
fourth quarter of fiscal year 1994.
At December 31, 1992, the Company recorded a provision of $1,981,000 for
the writeoff of nonrecoverable costs invested in a U.K. joint venture.
At December 31, 1992, the Company recorded a provision of $6,300,000 for
the anticipated settlement of certain class action shareholder litigation.
The litigation was tentatively settled in the quarter ended March 31, 1993,
and an additional $1,000,000 provision was recorded at that time,
principally for related litigation costs. (See Notes to Consolidated Financial
Statements - Shareholder class action lawsuit.)
In the first quarter of fiscal year 1993, the Company, in connection with
a secondary public offering, sold its investment in stock options of EXEL
Limited, an offshore casualty insurance company, and reported a pre-tax gain
of $3,483,000.
Interest, Net
- -------------
Net interest expense has averaged 2.2% of revenues for the past three
fiscal years. Net interest expense was 1.7%, 2.1% and 2.7% of revenues in
fiscal years 1995, 1994 and 1993, respectively. The following table shows
net interest expense for the three fiscal years ended March 31, 1995.
Year ended March 31,
------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Interest incurred..................... $ 8,065 $ 9,326 $11,716
Interest incurred allocated to
discontinued operations............. - - (40)
Capitalized interest.................. (484) (893) (518)
Interest income....................... (471) (160) (43)
------ ------ ------
Interest, net....................... $ 7,110 $ 8,273 $11,115
====== ====== ======
For fiscal year 1995, the decline in interest incurred is due principally
to lower levels of outstanding debt during the first half of the fiscal year
compared to the first half of fiscal year 1994. The decline resulted
principally from debt repayments which occurred in mid-fiscal year 1994 out
of the proceeds of an offering of depositary shares. The net proceeds of
28
<PAGE>
$57,130,000 received by the Company from the public offering (see Notes to
Consolidated Financial Statements - Preferred stock) were utilized to repay
$30,000,000 of outstanding cash advances at September 30, 1993 under the
Company's revolving credit facility and to repay $25,000,000 of the
Company's senior notes (see Notes to Consolidated Financial Statements - Long-
term debt). The effect of the debt reduction was only partly offset by higher
bank borrowing costs resulting from the general increase in interest rates
during fiscal year 1995. Capitalized interest for fiscal year 1995 declined
$409,000 or 45.8% from the level of the prior fiscal year due to the
cessation of capitalized interest on the Company's major company-wide
systems project, which was substantially completed during the fiscal year.
Additionally, the Company received a combined $278,000 of interest income
resulting from a settlement of a lawsuit and an income tax refund during
fiscal year 1995.
In fiscal year 1994, interest incurred declined $2,390,000 or 20.4% from
the level of the prior fiscal year due to the mid-year debt repayments noted
above. This significantly reduced interest incurred for the third and
fourth quarters of fiscal year 1994. During the first six months of fiscal
year 1994, which were prior to the public offering, net interest expense
declined slightly from the level of the prior year primarily because of lower
average borrowings under the Company's revolving credit facility resulting from
improved cash flows from the Company's operating activities. For fiscal
year 1994, capitalized interest increased because of the higher level of
capitalized costs related to a major company-wide systems project.
Income Taxes
- ------------
For fiscal year 1995, in which the Company reported a loss from continuing
operations before income taxes of $1,297,000, the Company recorded a
$2,383,000 income tax provision from continuing operations due to the
nondeductibility of certain expenses, including a significant portion of the
charge for integration related to the formation of Quanterra. (See Notes to
Consolidated Financial Statements - Quanterra.)
In fiscal year 1994, the Company recorded an income tax benefit of
$124,000. This amount differs from the $418,000 benefit which would be
implied at a 34% federal statutory rate primarily due to the partial
nondeductibility of certain expenses and a provision for state taxes.
During the third quarter of fiscal year 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109), effective April 1, 1992. The cumulative effect on
prior years of this change in accounting principle increased net income in
fiscal year 1993 by $13,000,000. Under the new standard, the Company's tax
provision from continuing operations at March 31, 1993, exclusive of the
one-time cumulative adjustment, was $1,160,000, despite the fact the Company
realized a pre-tax loss of $922,000. The income tax provision differs from
the $313,000 benefit which would be implied at a 34% federal statutory rate
as a result of the partial nondeductibility of certain expenses as well as a
provision for state taxes. (See Notes to Consolidated Financial Statements
- - Income taxes.)
Loss from Continuing Operations and Impact of Special Items
- -----------------------------------------------------------
The Company recorded a loss from continuing operations for each of the
three years ended March 31, 1995. The results of operations of these years,
however, contain certain special items. Management believes that an
understanding of the trends in the business is enhanced by evaluating the
impact of these special items upon the results presented. The following
table is a pro forma presentation of income from continuing operations for
the three years after rounded net of tax adjustments for the various special
items.
29
<PAGE>
Year ended March 31,
----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Loss from continuing operations, as reported,
net of preferred stock dividends of
$4,200,000 and $2,135,000 in 1995 and
1994, respectively........................... $(7,900) $(3,200) $(2,100)
Litigation charges............................. 6,500 - 6,100
Integration charge related to formation
of Quanterra................................. 8,000 - -
Write-off of U.K. treatment facilities......... - 1,600 1,700
Contractual benefits provided to former
Chairman..................................... - 3,000 -
Restructuring charge........................... - - 5,900
Gain on sale of EXEL stock options............. - - (2,200)
------ ------ ------
Pro forma income from continuing operations $ 6,600 $ 1,400 $ 9,400
====== ====== ======
DISCONTINUED OPERATIONS
Pollution Control Manufacturing
- -------------------------------
In the third quarter of fiscal year 1993, the Company recorded a charge of
$3,809,000 (net of income tax benefit of $2,176,000) to adjust the net gain
of $13,088,000 (net of provision for income taxes of $575,000) which had
been recorded in fiscal year 1992 from the sale of the manufacturing operations
of IT's Pollution Control Systems division located in Tulsa, Oklahoma and Hull,
England. This charge resulted from unexpected cost overruns in connection
with the completion and closeout of certain projects retained by the Company
as well as some difficulties the Company experienced in collecting
receivables and limiting its warranty obligations on certain projects. At
March 31, 1995, a limited number of warranty issues remain open, including one
matter which is in litigation.
Transportation, Treatment and Disposal
- --------------------------------------
In the fourth quarter of fiscal year 1995, the Company recorded an
increase in the provision for loss on disposition of its discontinued
transportation, treatment and disposal business of $10,603,000 (net of
income tax benefit of $6,397,000). This increased provision primarily relates
to expected additional costs resulting from delays in the regulatory approval
process at the Company's inactive disposal sites located in Northern
California and an additional accrual for estimated costs related to certain
waste disposal sites where IT has been named as a potentially responsible
party. A smaller portion of the provision is related to anticipated
increased closure construction costs due to plan revisions and to additional
costs experienced due to the unusually heavy rainfall experienced in
Northern California in January through March 1995.
In the fourth quarter of fiscal year 1993, the Company recorded an
increase in the provision for loss on disposition of its discontinued
transportation, treatment and disposal business of $6,800,000, with no
offsetting income tax benefit. This increased provision principally related
to additional costs resulting from delays in the regulatory approval process
and associated closure plan revisions pertaining to the closure of the
Company's inactive disposal sites located in Northern California.
For further information regarding the Company's discontinued operations,
see Notes to Consolidated Financial Statements - Discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $10,316,000 or 16.2%, to $73,838,000 at March
31, 1995 from $63,522,000 at March 31, 1994. The current ratio at March 31,
1995 was 1.81:1 which compares to 1.70:1 at March 31, 1994.
30
<PAGE>
Cash provided by operating activities for fiscal year 1995 totaled
$13,575,000, a $4,423,000 decrease from the $17,998,000 of cash provided by
operating activities in the prior fiscal year. Capital expenditures were
$10,533,000, $14,745,000 and $15,624,000 for fiscal years 1995, 1994 and
1993, respectively. During fiscal year 1995, capital expenditures were
reduced from the fiscal year 1994 level due principally to the elimination
of all capital requirements for the Analytical Services business as a result of
the formation of Quanterra. Management believes capital expenditures in
fiscal year 1996 will approximate fiscal year 1995 levels. Additionally,
depreciation has declined due to the Quanterra transaction. Closure costs
at the Company's inactive disposal sites in fiscal year 1996 are expected to be
higher than the $11,324,000 spent in fiscal year 1995 as interim
construction costs are anticipated to increase at the Vine Hill site while
continuing at a similar level at the Panoche site. At March 31, 1995, the
Company's consolidated balance sheet included accrued liabilities of
approximately $53,700,000 to complete the closure and post-closure of its
disposal sites and related matters, most of which is expected to be spent
through fiscal year 1999.
Long-term debt increased to $80,189,000 at March 31, 1995 from $68,625,000
at March 31, 1994 principally to finance the higher working capital levels
required by the increase in revenues. The Company's ratio of debt
(including current portion) to equity was 0.56:1, 0.46:1 and 1.13:1 at
March 31, 1995, 1994 and 1993, respectively.
On September 27, 1993, the Company completed a public offering at $25
per share of 2,400,000 depositary shares, each representing 1/100th of a
share of 7% Cumulative Convertible Exchangeable Preferred Stock (see Notes
to Consolidated Financial Statements - Preferred stock). The Company received
net cash proceeds of $57,130,000 from the public offering. On November 15,
1993, the Company prepaid at par value $25,000,000 of its 9 3/8% Senior
Notes (the Notes), utilizing proceeds from the public offering of depositary
shares. (See Notes to Consolidated Financial Statements - Long-term debt.)
With regard to the transportation, treatment and disposal discontinued
operations, a number of items could potentially affect the liquidity and
capital resources of the Company, including changes in closure and
post-closure costs, realization of excess and residual land values, demon-
stration of financial assurance and resolution of other regulatory and legal
contingencies. (See Notes to Consolidated Financial Statements -
Discontinued operations - Transportation, treatment and disposal.)
At March 31, 1995, a deferred tax asset in the amount of $19,175,000 (net
of a valuation allowance of $12,650,000) is included in the Company's
consolidated balance sheet. The asset represents the tax benefit of future
tax deductions and net operating loss, alternative minimum and investment
tax carryforwards. The asset will be realized principally as closure
expenditures related to the Company's inactive disposal sites over the next
several years are deductible in the years the expenditures are made, but only
to the extent the Company has sufficient levels of taxable income. The Company
will have to generate approximately $50,000,000 of pre-tax income to realize its
deferred tax asset. At current levels of pre-tax income from continuing
operations, excluding reserves for major litigation and the integration
charge related to the formation of Quanterra, the Company would realize the
full amount of its deferred tax asset in approximately three years. The
Company will evaluate the adequacy of the valuation allowance and the
realizability of the deferred tax asset on an ongoing basis.
The Company's current banking arrangement provides for a revolving credit
facility of up to $95,000,000 through July 31, 1996. At March 31, 1995, letters
of credit totaling approximately $33,300,000 were outstanding against the
Company's credit facility, including $13,200,000 issued to partially fulfill
financial assurance requirements of the Company's inactive disposal sites,
with the remainder being used to satisfy insurance and bonding requirements.
Additionally, the Company had $30,000,000 of cash advances outstanding under
the line, for total line usage of approximately $63,300,000. The amount of
current availability is limited to the amount of collateral available to
secure the loan as calculated in accordance with the loan agreement,
principally 70-80 percent of the Company's eligible accounts receivable.
At March 31, 1995, approximately $31,700,000 was available under the line,
all of which could be used based on available collateral, subject to a
limitation that cash advances under the line may not exceed $45,000,000 at
any time, with such limitation being reduced to $25,000,000 upon collection
of the Company's judgment in the Motco litigation. (See Notes to
Consolidated Financial Statements - Commitments and contingencies - Motco.)
Due to the Company's fourth quarter loss in fiscal year 1995, an amendment
was required to certain of the Company's loan covenants in order to maintain
31
<PAGE>
compliance. Terms of this amendment were approved subsequent to March 31,
1995 and the Company is in compliance with such amended terms.
At March 31, 1995, the Company had a remaining balance of $883,000 on a
five-year 11.63% loan amortizing through May 31, 1995 secured by certain HTTS
equipment. This balance was paid in full in April and May 1995 and the
collateral was released.
The Company's agreements with Corning relating to Quanterra contain
general provisions which could affect the Company's liquidity, including
restrictions on Quanterra's dividends to the partners, requirements that the
Company indemnify Quanterra and Corning from certain liabilities arising prior
to the closing of the transaction and buy-sell provisions obligating the Company
to sell its interests in Quanterra in certain circumstances and to contribute up
to an additional $5,000,000 to Quanterra under certain circumstances. Although
there are operating and strategic activities underway to improve Quanterra's
current weak operating trends, IT anticipates that it will be required to
contribute the $5,000,000 during fiscal year 1996, subject to certain
limitations under the Company's revolving credit facility. Add the
credit agreements for Quanterra prohibit the Company from pledging its
interest in Quanterra to other lenders, including the Company's current
lenders.
Over the past three years, the Company's liquidity has required careful
management. Although consummation of the September 1993 public offering and
application of the net proceeds principally to reduce debt improved the
Company's financial leverage and provided it with greater liquidity and
flexibility to address its cash needs, the Company will continue to have
significant cash requirements, including working capital, capital
expenditures, expenditures for the closure of its inactive disposal sites and
PRP matters, debt service, dividend obligations on the depositary shares and
contingent liabilities. Proceeds related to the disposition of the Motco
litigation could be used to address the above cash needs of the Company.
Although the Company paid down $25,000,000 of the Notes in fiscal year
1994, the remaining $50,000,000 of Notes outstanding will come due on July
1, 1996, if not repaid prior to that time. The Company is evaluating
alternatives to refinance the Notes at this time. Proceeds from a refinancing
in excess of $50,000,000, if any, would be used to pay down bank debt in the
near term, but would ultimately be applied to the above noted cash
requirements or to pursue external growth opportunities including acquisitions
and possible diversification.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE FOR THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1995
Consolidated Financial Statements. Page
----
Report of Ernst & Young LLP, Independent Auditors................. 34
Consolidated Balance Sheets ----- March 31, 1995 and 1994.......... 35
Consolidated Statements of Operations ----- Three Years Ended
March 31, 1995................................................... 36
Consolidated Statements of Stockholders' Equity ----- Three
Years Ended March 31, 1995....................................... 37
Consolidated Statements of Cash Flows ----- Three Years Ended
March 31, 1995................................................... 38
Notes to Consolidated Financial Statements......................... 39
Financial Statement Schedule.
II. Valuation and qualifying accounts............................. S-1
Schedules not filed herewith are omitted because of the absence of condi-
tions under which they are required or because the information called for is
shown in the consolidated financial statements or notes thereto.
33
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
International Technology Corporation
We have audited the accompanying consolidated financial statements and
financial statement schedule of International Technology Corporation listed
in the index at Item 8. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements and schedule referred
to above present fairly, in all material respects, the consolidated
financial position of International Technology Corporation at March 31, 1995
and 1994 and the consolidated results of operations and cash flows for each of
the three years in the period ended March 31, 1995 in conformity with generally
accepted accounting principles.
In December 1987, the Company adopted a plan to divest the transportation,
treatment and disposal operations through sale and in part closure. In con-
nection with the plan, the Company recorded a provision, which was
subsequently increased, for the estimated net loss involved in the
ultimate divestiture of these operations. Although the basis for the
provision appears reasonable, as more fully explained in the note
"Discontinued operations - Transportation, treatment and disposal," the
ultimate effect of the divestiture is dependent on future events, the outcome of
which cannot be determined at this time. Accordingly, the ultimate loss could
be greater or less than the amount recorded.
As more fully explained in the note "Commitments and contingencies - Motco,"
the Company has recorded a contract claim receivable related to the Motco
Site Trust Fund (Motco Trust) contract, the realization of which is
deendent on future events involving the final resolution of the Company's
lawsuit against Motco Trust and Motco Trust's counterclaim against the Company.
Although a trial court judgment awarding the Company an amount in excess of
its recorded claim receivable and denying Motco Trust's counterclaim has
been rendered, the ultimate outcome of this litigation cannot be determined at
this time.
ERNST & YOUNG LLP
Los Angeles, California
May 17, 1995
34
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
------------------------
1995 1994
------ ------
ASSETS (In thousands)
Current assets:
Cash and cash equivalents......................... $ 6,547 $ 10,646
Accounts receivable, less allowance for doubtful
accounts of $3,107,000 and $3,183,000,
respectively.................................... 137,896 126,910
Prepaid expenses and other current assets......... 5,630 7,674
Deferred income taxes............................. 14,600 9,329
------- -------
Total current assets............................ 164,673 154,559
------- -------
Property, plant and equipment, at cost:
Land and land improvements........................ 1,766 2,127
Buildings and leasehold improvements.............. 9,561 25,930
Machinery and equipment........................... 140,800 154,929
------- -------
152,127 182,986
Less accumulated depreciation and
amortization.................................. 82,324 91,557
------- -------
Net property, plant and equipment............. 69,803 91,429
------- -------
Construction-in-progress........................... 2,381 19,451
Cost in excess of net assets of acquired
businesses....................................... 7,728 10,469
Investment in Quanterra............................ 36,316 -
Other assets....................................... 34,971 36,129
Deferred income taxes.............................. 4,575 5,461
Long-term assets of discontinued operations........ 41,705 41,705
------- -------
Total assets...................................... $362,152 $359,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 28,823 $ 27,314
Accrued wages and related liabilities............. 20,175 20,297
Billings in excess of revenues.................... 3,977 9,315
Other accrued liabilities......................... 22,485 12,365
Short-term debt, including current portion of
long-term debt.................................. 1,154 5,268
Net current liabilities of discontinued
operations.................................... 14,221 16,478
------- -------
Total current liabilities..................... 90,835 91,037
------- -------
Long-term debt..................................... 80,189 68,625
Long-term accrued liabilities of discontinued
operations....................................... 39,480 32,547
Other long-term accrued liabilities................ 5,727 6,446
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value; 180,000 shares
authorized; 24,000 shares issued and
outstanding..................................... 2,400 2,400
Common stock, $1 par value; 100,000,000 shares
authorized; 35,737,313 and 35,201,052
shares issued and outstanding, respectively..... 35,737 35,201
Additional paid-in capital........................ 172,137 168,817
Deficit........................................... (64,353) (45,870)
------- -------
Total stockholders' equity...................... 145,921 160,548
------- -------
Total liabilities and stockholders' equity........ $362,152 $359,203
======= =======
See accompanying notes to consolidated financial statements.
35
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year ended March 31,
----------------------------
1995 1994 1993
---- ---- ----
Revenues..................................... $423,972 $392,803 $410,539
Cost and expenses:
Cost of revenues............................ 362,056 334,616 337,266
Selling, general and administrative
expenses.................................. 42,476 48,644 48,904
Equity in net loss of Quanterra............. 563 - -
Integration charge related to the
formation of Quanterra.................... 9,264 - -
Restructuring charge........................ - - 8,378
------- ------- -------
Operating income............................. 9,613 9,543 15,991
Interest, net................................ 7,110 8,273 11,115
Other expense................................ 3,800 2,500 5,798
------- ------- -------
Loss from continuing operations before
income taxes................................ (1,297) (1,230) (922)
(Provision) benefit for income taxes.......... (2,383) 124 (1,160)
------- ------- -------
Loss from continuing operations.............. (3,680) (1,106) (2,082)
Discontinued operations (net of income taxes):
Loss from disposition:
Pollution control manufacturing........... - - (3,809)
Transportation, treatment and disposal.... (10,603) - (6,800)
------- ------- -------
Loss before cumulative effect of change in
accounting for income taxes................ (14,283) (1,106) (12,691)
Cumulative effect of change in accounting for
income taxes............................... - - 13,000
------- ------- -------
Net income (loss)............................ (14,283) (1,106) 309
Less preferred stock dividends............... (4,200) (2,135) -
------- ------- -------
Net income (loss) applicable to common
stock...................................... $(18,483) $ (3,241) $ 309
======= ======= =======
Net income (loss) per share:
Continuing operations (net of preferred
stock dividends).......................... $ (.22) $ (.09) $ (.06)
Discontinued operations:
From disposition.......................... (.30) - (.32)
------- ------- --------
(.52) (.09) (.38)
Cumulative effect of change in accounting for
income taxes.............................. - - .39
------- ------- -------
$ (.52) $ (.09) $ .01
======= ======= =======
See accompanying notes to consolidated financial statements.
36
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended March 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Additional Common
Preferred Common paid-in stock to
stock stock capital be issued Deficit Totals
--------- ------ ---------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1992........... $ - $ 33,000 $108,653 $ - $(43,122) $ 98,531
Issuances of common stock.......... - 240 564 - - 804
Common stock to be issued.......... - - - 6,350 - 6,350
Cumulative translation adjustment.. - - - - 184 184
Net income......................... - - - - 309 309
------- ------- ------- ------- ------- -------
Balance at March 31, 1993........... - 33,240 109,217 6,350 (42,629) 106,178
Net proceeds from public offering
of depositary shares............. 2,400 - 54,730 - - 57,130
Issuances of common stock.......... - 1,961 4,870 (6,350) - 481
Dividends paid on preferred stock.. - - - - (2,135) (2,135)
Net loss........................... - - - - (1,106) (1,106)
------- ------- ------- ------ ------- -------
Balance at March 31, 1994........... 2,400 35,201 168,817 - (45,870) 160,548
Issuances of common stock.......... - 203 353 - - 556
Issuance of warrant and common stock
related to the formation of
Quanterra........................ - 333 2,967 - - 3,300
Dividends paid on preferred stock.. - - - - (4,200) (4,200)
Net loss........................... - - - - (14,283) (14,283)
------- ------- ------- ------ ------- -------
Balance at March 31, 1995........... $ 2,400 $ 35,737 $172,137 $ - $(64,353) $145,921
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended March 31,
----------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss)........................... $(14,283) $ (1,106) $ 309
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Net loss from disposition of
discontinued operations............... 10,603 - 10,609
Depreciation and amortization........... 19,150 22,372 19,771
Deferred income taxes................... (4,385) (654) 52
Equity in net loss of Quanterra......... 563 - -
Integration charge related to
the formation of Quanterra............ 9,264 - -
Provision for settlement of lawsuits.... 9,100 - 6,350
Writeoff of costs incurred in U.K.
investments........................... - 2,500 1,981
Gain on sale of investment in EXEL
Limited............................... - - (3,483)
Cumulative effect of change in accounting
for income taxes...................... - - (13,000)
Changes in assets and liabilities, net of
effects from acquisitions and dispositions
of businesses:
(Increase) decrease in receivables...... (21,149) 2,914 (8,879)
Decrease (increase) in prepaid expenses
and other current assets.............. 486 (2,475) (597)
Increase (decrease) in accounts payable. 2,681 (10,732) 2,291
Increase (decrease) in accrued wages
and related liabilities............... 1,636 (1,501) 2,941
(Decrease) increase in billings in
excess of revenues................... (5,338) 6,786 (2,760)
Increase (decrease) in other
accrued liabilities................... 5,966 (3,374) 803
(Decrease) increase in other long-term
accrued liabilities................... (719) 3,268 699
------- ------- -------
Net cash provided by operating activities.. 13,575 17,998 17,087
------- ------- -------
Cash flows from investing activities:
Capital expenditures........................ (10,533) (14,745) (15,624)
Investment in Quanterra..................... (1,208) - -
Proceeds from sale of pollution control
manufacturing business.................... - - 22,677
Proceeds from sale of investment in
EXEL Limited.............................. - - 3,733
Other, net.................................. 1,198 2,050 1,319
Investment activities of transportation,
treatment and disposal discontinued
operations................................ (11,324) (12,179) (10,671)
------- ------- -------
Net cash (used for) provided by investing
activities................................ (21,867) (24,874) 1,434
------- ------- -------
Cash flows from financing activities:
Repayments of long-term borrowings.......... (55,965) (89,648) (50,550)
Long-term borrowings........................ 63,802 43,035 30,440
Net proceeds from public offering
of depositary shares...................... - 57,130 -
Dividends paid on preferred stock........... (4,200) (2,135) -
Issuances of common stock................... 556 481 804
------- ------- -------
Net cash provided by (used for) financing
activities................................ 4,193 8,863 (19,306)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents................................. (4,099) 1,987 (785)
Cash and cash equivalents at beginning of
year........................................ 10,646 8,659 9,444
------- ------- ------
Cash and cash equivalents at end of year...... $ 6,547 $ 10,646 $ 8,659
======= ======= ======
See accompanying notes to consolidated financial statements.
38
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of significant accounting policies:
- ------------------------------------------
Basis of presentation and principles of consolidation
-----------------------------------------------------
The consolidated financial statements include International Technology
Corporation (IT or the Company) and its wholly owned subsidiaries. The
Company also includes its proportionate interest in joint ventures which were
entered into for the purpose of executing large remediation projects and in
which the Company does not have in excess of 50% of voting control.
Intercompany transactions are eliminated. Certain reclassifications have been
made to prior years' consolidated financial statements in order to conform to
the current year presentation.
Cash equivalents
----------------
Cash equivalents include highly liquid investments with an original
maturity of three months or less, principally commercial paper.
Contract accounting and accounts receivable
-------------------------------------------
The Company primarily derives its revenues from providing environmental
management services in the United States, principally to federal, state and
local governmental entities, large industrial companies, utilities and waste
generators. Services are performed under time-and-material, cost-reim-
bursement, fixed-price and unit-bid contracts.
Revenues from time-and-material and cost-reimbursement contracts are
recognized as costs are incurred. Estimated fees on such contracts and
revenues on fixed-price and certain unit-bid contracts are recognized under the
percentage-of-completion method determined based on the ratio of costs
incurred to estimated total costs. Anticipated losses on contracts are recorded
as identified. Certain contracts include provisions for revenue adjustments to
reflect scope changes and other matters, including claims, which require
negotiations with clients in the ordinary course of business, leading to
some estimates of claim amounts being included in revenues. When such amounts
are finalized, any changes from the estimates are reflected in earnings.
Unbilled receivables typically represent amounts earned under the Company's
contracts but not yet billable according to the contract terms, which
usually consider the passage of time, achievement of certain milestones or
completion of the project. Unbilled receivables, included in accounts
receivable, were $20,869,000 and $16,316,000 at March 31, 1995 and 1994,
respectively. Generally, unbilled receivables are expected to be billed and
collected in the subsequent fiscal year. Included in unbilled receivables at
March 31, 1995 is approximately $8,000,000 of claims related to the Helen
Kramer project which is subject to a governmental investigation. (See
Commitments and contingencies.)
At March 31, 1995 and 1994, an approximately $31,000,000 claim receivable
related to the Motco Site Trust Fund (Motco) contract, a major fixed-price
remediation contract, is included in noncurrent other assets as a result of
the Company's lawsuit involving the Motco Trust. (See Commitments and
contingencies.)
Billings in excess of revenues represent amounts billed in accordance with
contract terms, which are in excess of the amounts includable in revenue
determined based on the policies discussed above.
At March 31, 1995, accounts receivable are primarily concentrated in
federal, state and local governmental entities and in commercial clients in
which the Company does not believe there is any undue credit risk.
39
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, plant and equipment
-----------------------------
The cost of property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the individual
assets, except for the Hybrid Thermal Treatment System (HTTS )
transportable incineration units, which are generally depreciated on the basis
of operating days.
Capitalized interest
--------------------
Interest incurred on qualified capital expenditures is capitalized and is
included in the cost of such constructed assets. Interest incurred was
$8,065,000, $9,326,000 and $11,716,000 for fiscal years 1995, 1994 and
1993, respectively. Total interest capitalized was $484,000, $893,000 and
$518,000 for fiscal years 1995, 1994 and 1993, respectively.
Income taxes
------------
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS No. 109) as of April 1, 1992 and reported the cumulative effect of the
change in accounting for income taxes in the consolidated statement of
operations for fiscal year 1993. The Company reported the effect of the
adoption of SFAS No. 109 as a cumulative effect of a change in accounting
principle. (See Income taxes.)
Intangible assets
-----------------
Cost in excess of net assets of acquired businesses is amortized over 20
years on a straight-line basis. At March 31, 1995 and 1994, accumulated
amortization is $6,584,000 and $6,671,000, respectively. Other intangibles,
arising principally from acquisitions, are amortized on a straight-line
basis over periods not exceeding 20 years. The Company regularly reviews the
individual components of its intangible assets and recognizes, on a current
basis, any diminution in value.
Per share information
---------------------
Per share information is based on the weighted average number of out-
standing common shares and common share equivalents during each period which
aggregated 35,557,309 in 1995, 34,762,280 in 1994 and 33,530,420 in 1993.
Common share equivalents include dilutive stock options and, in 1994 and
1993, common shares to be issued in connection with the settlement of a
class action stockholders' lawsuit. (See Shareholder class action lawsuit.)
In fiscal years 1995 and 1994, the computation of net income per share,
assuming the conversion into common shares of the Company's 7% Cumulative
Convertible Exchangeable Preferred Stock, is antidilutive. (See Preferred
stock.)
Fair value of financial instruments
-----------------------------------
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
the following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates its fair value.
40
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long and short-term debt: The fair value of the 9 3/8% senior notes is
based upon the quoted market price. The carrying amount of other debt,
including borrowings under the Company's revolving credit facility and the
11.63% secured loan due May 31, 1995, approximates its fair value at March
31, 1995.
The carrying amounts and estimated fair values of the Company's financial
instruments are:
March 31,
----------------------------------------------
1995 1994
----------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
(In thousands)
Cash and cash equivalents $ 6,547 $ 6,547 $10,646 $10,646
Long and short-term debt:
9 3/8% senior notes 50,000 48,875 50,000 49,375
11.63% secured loan 883 883 5,835 5,927
Revolving credit facility 30,000 30,000 17,000 17,000
Other 460 460 1,058 1,058
Accrued contractual retirement benefits
---------------------------------------
In the fourth quarter of fiscal year 1994, the Company recorded a
$4,500,000 provision to selling, general and administrative expenses in the
consolidated statement of operations related to the actuarially determined
present value of contractual retirement benefits to be provided to its
former Chairman of the Board (who was also Chief Executive Officer from 1975
through 1992) who retired from that position effective April 1, 1994. The
retirement agreement was approved by the Board of Directors, following approval
by the Compensation Committee and advice of an independent compensation
consulting firm.
As a result of concerns expressed by shareholders, in June 1994 the Board
of Directors formed a special committee comprised of four non-employee
directors to review this retirement agreement. The special committee
engaged independent legal counsel and a new independent compensation consulting
firm to assist it in the review process. Following its review of the retirement
agreement, the special committee recommended that the agreement be modified
in various respects and engaged in negotiations with the former Chairman
concerning the proposed modifications.
Those negotiations resulted in an amended agreement which reduced the
present value of the contractual benefits by approximately $500,000. The
amended agreement was approved by the noninterested directors of the Board
on the recommendation of the special committee of the Board and on the advice
of counsel and an independent compensation consulting firm and executed on
January 6, 1995. Terms of the amended agreement provide for payments by the
Company of approximately $300,000 per year for the duration of the former
executive's lifetime.
41
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consolidated statements of cash flows supplemental disclosures:
- --------------------------------------------------------------
Supplemental cash flow information is:
Year ended March 31,
------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Interest paid, net of amounts
capitalized $ 7,230 $ 8,767 $10,869
Interest received 317 107 32
Income taxes paid 782 1,241 1,243
Income tax refunds received 989 1,783 724
Quanterra:
- ---------
Formation of Quanterra
----------------------
On June 28, 1994, pursuant to a definitive agreement signed on May 2,
1994, the Company and an affiliate of Corning Incorporated (Corning)
combined the two companies' environmental analytical services businesses into a
newly formed 50/50 jointly-owned company (Quanterra). Quanterra operates
independently with a separate board of directors which has representation
from IT and Corning, and provides services primarily to third parties, as
well as to the Company.
In connection with the formation, the Company contributed the
$38,766,000 net assets of its analytical business into Quanterra.
Additionally, IT incurred cash costs of $1,208,000 and issued to Corning
333,000 shares of IT common stock and a five-year warrant to purchase
2,000,000 shares of IT common stock at $5.00 per share which are valued in
the aggregate at $3,300,000. The Company's initial investment, recorded at
historical cost, consisted of the following at June 28, 1994 (in thousands):
Cash $ 1,208
Other current assets 11,721
Net property, plant and equipment 28,084
Other noncurrent assets 2,704
Current liabilities (3,404)
Noncurrent liabilities (339)
Common stock and warrants 3,300
-------
Initial investment in Quanterra $ 43,274
=======
42
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized financial data for investment in Quanterra
-----------------------------------------------------
Condensed financial information of Quanterra is presented below (in
thousands):
From inception
through
March 31,
1995
--------------
Condensed statement of operations:
Revenues (including $12,000 from the Company) $ 92,448
Operating income before integration charge 1,957
Integration charge (20,878)
Operating loss (18,921)
Net loss (12,879)
At March 31,
1995
-----------
Condensed balance sheet:
Assets:
Current assets $ 55,887
Net property, plant and equipment 58,481
Other noncurrent assets 11,154
-------
$125,522
=======
Liabilities and stockholders' equity:
Current liabilities $ 33,535
Noncurrent liabilities 44,134
Stockholders' equity 47,853
-------
$125,522
=======
IT's 50 percent investment in Quanterra is accounted for under the equity
method. Quanterra recorded the net assets contributed to it at its
stockholders' historical cost. Upon closing the transaction, an integration
plan was implemented to eliminate redundant laboratory facilities and
duplicative overhead and systems. The net impact, after income tax benefit,
of the $20,878,000 integration charge on Quanterra's net earnings was
$12,790,000. In the quarter ended June 30, 1994, IT's portion of the charge
for integration was $9,264,000 including integration costs of $2,869,000
incurred directly by IT.
Quanterra has a $60,000,000 bank line of credit. The Company's agreements
with Corning relating to Quanterra contain general provisions including
restrictions on dividends to the partners, buy-sell provisions obligating
the Company to sell its interests in Quanterra in certain circumstances and to
contribute up to an additional $5,000,000 to Quanterra under certain
circumstances, and requirements that the Company indemnify Quanterra and
Corning from certain liabilities arising prior to closing the transaction.
43
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following summarizes the status and results of the Company's
investment in Quanterra through March 31, 1995 (in thousands):
Initial investment (historical cost of net assets
transferred to Quanterra plus other costs incurred)
upon formation of Quanterra on June 28, 1994 $ 43,274
Integration charge related to the formation of Quanterra (6,395)
Equity in net loss of Quanterra from inception
through March 31, 1995 (563)
-------
Ending investment $ 36,316
=======
At March 31, 1995, the unamortized portion of the Company's initial
investment in Quanterra in excess of its 50% share of Quanterra's
stockholders' equity at the date of its formation was $12,428,000. This
excess amount is being amortized over 20 years. Amortization expense of
$484,000 is included in "Equity in net loss of Quanterra" of $563,000 for the
fiscal year ended March 31, 1995.
Discontinued operations:
- -----------------------
Pollution control manufacturing
-------------------------------
In the third quarter of fiscal year 1993, the Company recorded a charge
of $3,809,000 (net of income tax benefit of $2,176,000) to adjust the net
gain of $13,088,000 (net of provision for income taxes of $575,000) which
had been recorded in fiscal year 1992 from the sale of the manufacturing
operations of IT's Pollution Control Systems division located in Tulsa,
Oklahoma and Hull, England. This charge resulted from unexpected cost
overruns in connection with the completion and closeout of certain projects
retained by the Company as well as some difficulties the Company experienced
in collecting receivables and limiting its warranty obligations on certain
projects. At March 31, 1995, a limited number of warranty issues remain
open, including one matter which is in litigation.
Transportation, treatment and disposal
--------------------------------------
In December 1987, the Company's Board of Directors adopted a strategic
restructuring program which included a formal plan to divest the transporta-
tion, treatment and disposal operations through sale of some facilities and
closure of certain other facilities. As of March 31, 1995, two of the
Company's inactive disposal sites have been formally closed and the other
two are in the process of closure. In connection with the divestiture, at
December 31, 1987, the Company recorded a provision for loss on disposition
of transportation, treatment and disposal discontinued operations in the
amount of $110,069,000, net of income tax benefit of $24,202,000, which
included the estimated net loss on sale or closure and the results of
operations of the active disposal sites and the transportation business
through the then estimated sale date. At March 31, 1992, the Company
increased the provision for loss on disposition by the amount of
$32,720,000, net of income tax benefit of $2,280,000, principally due to the
writeoff of the $30,400,000 contingent purchase price from the earlier sale of
certain assets. The remaining loss represented expected costs related to a
waste disposal site where IT has been named as a potentially responsible party
(PRP) and an increase in costs related to the closure of the Company's
disposal sites in Northern California, principally due to delays in the
regulatory approval process. At March 31, 1993, the Company increased the
provision for loss on disposition by $6,800,000, with no offsetting income
tax benefit, related to estimated additional costs resulting from further
delays in the regulatory approval process and associated closure plan
revisions. At March 31, 1995, the Company recorded an increase in the
provision for loss on disposition of $10,603,000, net of income tax benefit
of $6,397,000, primarily for estimated increased costs resulting from
additional delays in the regulatory approval process at the Company's
inactive disposal sites in Northern California and an additional accrual for
estimated costs related to certain waste disposal sites where IT has been
named as a PRP. A smaller portion of the fiscal year 1995 provision
increase is related to anticipated increased closure construction costs due to
plan revisions and to additional costs experienced due to the unusually heavy
rainfall experienced in Northern California in January through March 1995.
44
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has incurred costs of $11,324,000 in 1995, $12,179,000 in 1994
and $10,671,000 in 1993 relating to the site closure plans and related
construction. The Company expects to incur significant closure and
post-closure costs over the next several years. At March 31, 1995, the
Company's consolidated balance sheet included accrued liabilities of
approximately $53,700,000 to complete the closure and post-closure of its
disposal sites and related matters.
The Company has closed two of the inactive disposal sites and is
pursuing formal permanent closure of its Panoche and Vine Hill disposal
sites, for which there will be significant closure and post-closure costs
over the next several years. Closure and post-closure plans for the Panoche
facility were revised to incorporate regulatory agency comments in March
1991 and an Environmental Impact Report (EIR), required by California law prior
to plan approval, is being prepared by the California EPA Department of Toxic
Substances Control (DTSC). While difficult to predict, the Company expects
final determination on those closure plans in fiscal year 1996 or early
fiscal year 1997. The Company is targeting completion of the closure for
fiscal year 1999. The California Supreme Court in December 1991 reversed a
lower court decision regarding an aspect of the closure plan at Panoche
relating to the County of Solano's authority in the closure process and the
method of closure of peripheral waste areas at the facility (the Buffer Zone
Areas). During fiscal year 1993, the Company was required to submit
additional information and closure designs for the Buffer Zone Areas,
including a design for excavation and relocation on-site of significant
quantities of wastes and soils. Clean closure by excavation and relocation
on-site of materials in the Buffer Zone Areas will be evaluated in the EIR.
The additional study of this and other alternatives has resulted in delays
to the closure plan approval. The delays have resulted in additional costs for
monitoring and maintaining the facility, conducting engineering and
permitting activities, and charges for the EIR contractor. A determination
to excavate and relocate a substantial amount of materials in the Buffer
Zone Areas would increase costs substantially which would have a material
adverse effect on the consolidated financial condition of the Company.
Progress on the Vine Hill Complex facility closure plan continues, with
a revised closure plan submitted to the DTSC in August 1991. In April 1992,
the Company received and subsequently responded to comments on the plan from
DTSC. In March 1995, the DTSC determined that the Company had met all the
technical requirements in its comments and published the administrative
draft of the EIR for the closure and post-closure plans. The Company expects
the plan to be approved in fiscal year 1996; however, significant work which
will ultimately be required for closure will have been completed by that time.
The Company is targeting completion of the closure for fiscal year 1998.
Closure construction was completed for the Montezuma Hills site and the
Benson Ridge facility in December 1991 and December 1992, respectively.
Upon completion of closure construction, the Company is required to perform
post-closure monitoring and maintenance of its disposal sites for at least 30
years. Operation of the sites in the closure and post-closure periods is
subject to numerous federal, state and local regulations. The Company may
be required to perform unexpected remediation work at the sites in the future
or to pay penalties for alleged noncompliance with regulatory permit
conditions.
Regulations of the DTSC and the U.S. Environmental Protection Agency
(USEPA) require that owners and operators of hazardous waste treatment,
storage and disposal facilities provide financial assurance for closure and
post-closure costs of those facilities. The Company has provided financial
assurance equal to its estimate for closure costs at March 31, 1995, which
could be subject to increase at a later time as a result of regulatory
requirements, in the form of a corporate guarantee of approximately
$10,600,000, letters of credit totaling approximately $13,200,000 and a
trust fund containing approximately $9,700,000, and has purchased annuities
which will ultimately mature over the next 30 years to pay for its estimates of
post-closure costs as part of a consent order with the DTSC entered on June
27, 1989. Among other provisions, the consent order requires IT to revise
its financial assurance estimates on March 1 of each year to reflect
inflation adjustments and any changes in the cost estimates resulting from
completion of interim closure procedures and from revisions in the closure
and post-closure plans. Thereafter, the Company has 60 days to adjust its
financial assurance mechanisms to reflect the changed costs. IT has
completed cost revisions required at March 1, 1995 and the DTSC has approved
the revised amounts. The Company has provided financial assurance on the
amounts called for by the cost revisions.
IT's inactive disposal sites are subject to the Resource Conservation
and Recovery Act and other federal laws including the Toxic Substances
Control Act, the Clean Water Act, the Clean Air Act and the regulations of
45
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Occupational Safety and Health Act. The provisions of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and its
amendments generally do not presently affect the Company's four inactive
disposal sites, but do apply in some cases to former business operations
where the Company is an alleged generator or transporter of waste or former
operator of a disposal site owned by others. California has been one of the
leading states in regulating the transportation, treatment and disposal of
hazardous waste substances. Under the Hazardous Waste Control Act, the DTSC
administers a comprehensive regulatory program. California operations are
also subject to regulation by the State Water Resources Control Board, the
California Air Resources Board, Regional Water Quality Control Boards
(RWQCBs), Air Quality Management Districts and various other state
authorities. At the local level, treatment and disposal sites are also
subject to zoning and land use restrictions, and other ordinances.
The California Toxic Pits Cleanup Act of 1984 (TPCA) required operators
of certain surface impoundments to cease discharging liquid hazardous wastes
into these units by a statutory deadline, unless the units were retrofitted
to meet minimum technology requirements. The Company has taken reasonable
measures and has made substantial progress toward compliance at the Vine
Hill Complex, but cannot fully meet statutory requirements until final closure
plans have been approved. The Company has discussed its TPCA compliance
activities with the applicable RWQCB. Although substantial civil penalties
are available for noncompliance with TPCA, the Company does not expect that
penalties, if imposed, would be material to the Company's financial
condition, given the circumstances and the Company's good faith efforts to
achieve compliance and conclude closure.
Closure and post-closure costs are incurred over a significant number
of years and are subject to a number of variables including, among others,
completion of negotiations regarding specific site closure and post-closure
plans with applicable regulatory agencies. Such closure costs are comprised
principally of engineering, design and construction costs and of caretaker
and monitoring costs during closure. The Company has estimated the impact
of closure and post-closure costs in the provision for loss on disposition of
transportation, treatment and disposal discontinued operations; however,
closure and post-closure costs could be higher than estimated if regulatory
agencies were to require closure and/or post-closure procedures
significantly different than those in the plans developed by the Company or if
there are additional delays in the closure plan approval process. Certain
revisions to the closure procedures could also result in impairment of the
residual land values attributed to certain of the sites.
The carrying value of the long-term assets of transportation, treatment
and disposal discontinued operations of $41,705,000 at March 31, 1995 is
principally comprised of residual land at the inactive disposal sites and
assumes that sales will occur at current market prices estimated by the
Company based on certain assumptions (entitlements, development agreements,
etc.), taking into account market value information provided by independent
real estate appraisers. During fiscal year 1992, the Company entered into
an agreement with a real estate developer to develop some of this property as
part of a larger development in the local area involving a group of
developers. The entitlement process has been delayed due to uncertainties
over the Company's closure plans for its adjacent disposal site and local
community review of growth strategy. If the developers' plans change or the
developers are unable to obtain entitlements as planned, the carrying value
of this property could be significantly impaired. With regard to this
property or any of the other residual land, there is no assurance as to the
timing of sales or the Company's ability to ultimately liquidate the land
for the sale prices assumed. If the assumptions used to determine such prices
are not realized, the value of the land could be materially different from
the current carrying value.
Under CERCLA, the USEPA and the DTSC have investigated and are
continuing to investigate the operation of and shipments of wastes to
certain disposal sites in California and elsewhere, including the Operating
Industries, Inc. (OII) Superfund site in Monterey Park, California. In June
1986, USEPA notified a number of entities, including the Company, that they
were PRPs under CERCLA with respect to OII and, as such, faced joint and
several liability for the cost to investigate and cleanup this site. USEPA
requested these entities to work as a single group to settle with USEPA and
DTSC their alleged liability for certain past response costs and to perform
future remedial work. A number of these PRPs subsequently formed the OII
Steering Committee (Steering Committee) and negotiated a series of
settlements addressing cost reimbursement demands and performing certain
interim remedial measures (IRMs). The Company did not join the Steering
Committee or enter these settlements. USEPA currently contends that the Company
remains a PRP and is liable for its share of costs associated with the past
settlements which total approximately $8,500,000 (including a premium for
failure to contribute to the earlier settlements but not interest). The
Steering Committee also contends the Company is liable to it for a share of
46
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
these settlement costs and has quantified the Company's share of the first
two settlements at approximately $2,700,000. On October 11, 1994, the
Company was served with a summons and complaint in a cost recovery action
brought by members of the Steering Committee. The action seeks (1) recovery
from the Company of a portion of certain of plaintiffs' costs incurred at
OII allegedly attributable to the Company and (2) a declaration from the court
as to the Company's share of future costs in the OII response action. The
Company is defending this action vigorously while continuing to attempt a
joint settlement with both the Steering Committee and the USEPA. Trial in
this action, which was set for July 17, 1995, has been taken off the
calendar and has not been rescheduled.
The Company believes the USEPA's and the Steering Committee's claims
essentially overlap. Both assume the Company or its predecessor and
subsidiaries arranged for the disposal of the same volume of wastes at OII
and are based on the relative percentage of that volume to the known volume
of liquid wastes sent to the site. The Steering Committee has not
quantified and the USEPA claim does not specifically address future costs for
site remediation and long-term monitoring and maintenance. These figures are
not known but are expected to be substantial. Based on the available
information regarding the operations of the Company's subsidiaries and
predecessor in handling the wastes, the Company believes its share of
responsibility for the site, if any, is less than the share attributed to it by
the USEPA and the Steering Committee. Accordingly, the Company has not been
able to agree to USEPA's or the Steering Committee's claims. IT has met with
USEPA attempting to settle its response cost claims and is continuing to
negotiate for a settlement. No settlement has been reached. Instead, in
October 1994, USEPA advised the Company in writing that it continued to regard
the Company and its subsidiaries as liable for response costs. In that notice,
USEPA provided the Company and other non-Steering Committee PRPs the opportunity
to make a limited challenge as to USEPA's volume determinations. Subject to
its review of that challenge, USEPA further stated it intended to offer the
Company and other non-settling PRPs, another opportunity to resolve their
liability for response costs by paying the amount determined by USEPA based
on volume plus a substantial premium based on failure to join the earlier
settlements. The Company submitted a volume challenge on January 10, 1995,
but has received no response from USEPA although it is continuing to pursue
settlement discussions.
The inability of the Company to effect a satisfactory settlement with
the Steering Committee and the USEPA could have a material adverse effect on
the consolidated financial condition of the Company. The Company has
advised its liability insurance carriers as to the pendency of the USEPA's and
the Steering Committee's claims and requested indemnification and legal
representation. The carriers dispute their obligations to the Company. The
Company, as a major provider of hazardous waste transportation, treatment
and disposal operations in California prior to the December 1987 adoption of
its strategic restructuring program, has been named a PRP at other sites and
may, from time to time be so named at additional sites and may also face damage
claims by third parties for alleged releases or discharges of contaminants
or pollutants arising out of its transportation, treatment and disposal
discontinued operations. The Company has either denied responsibility
and/or is participating with others named by the USEPA, the DTSC or other
state governmental agencies in conducting investigations as to the nature and
extent of contamination at the sites.
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions and
estimates, including those discussed above. The adequacy of the provision
for loss has been currently reevaluated in light of the developments since the
adoption of the divestiture plan, and management believes that the provision
as adjusted is reasonable; however, the ultimate effect of the divestiture
on the consolidated financial condition of the Company is dependent upon future
events, the outcome of which cannot be determined at this time. Outcomes
significantly different from those used to estimate the provision for loss
could result in a material adverse effect on the consolidated financial
condition of the Company.
47
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term debt:
- --------------
Long-term debt consists of the following:
March 31,
--------------------------
1995 1994
---- ----
(In thousands)
9 3/8% senior notes, due 1996 . . . $ 50,000 $ 50,000
11.63% secured loan . . . . . . . . 883 5,835
Revolving credit facility . . . . . 30,000 17,000
Other . . . . . . . . . . . . . . . 460 1,058
------- -------
81,343 73,893
Less current portion . . . . . . . 1,154 5,268
------- -------
$ 80,189 $ 68,625
======= =======
Aggregate amounts of long-term debt maturing in the five years following
March 31, 1995 are $1,154,000, $80,109,000, $29,000, $30,000, and $21,000,
respectively.
In July 1986, the Company issued $75,000,000 principal amount of senior
notes, 9 3/8%, due July 1, 1996, with interest payable semiannually. The
notes are redeemable at the Company's option at par after July 1, 1993. On
November 15, 1993, the Company prepaid at par value $25,000,000 of the
senior notes, utilizing the proceeds from the public offering of depositary
shares (see Preferred stock).
On June 25, 1990, an asset-based lender funded a $25,000,000 five-year
installment loan at a fixed interest rate of 11.63%. The loan was secured
by certain of the Company's HTTS equipment. In March 1994, the Company prepaid
the $4,952,000 balloon payment due June 30, 1995 on the loan in return for a
partial release of collateral. At March 31, 1995, the Company had a
remaining balance of $883,000 on the loan. In May 1995, the Company paid
the final regular installment on the loan and the collateral was released.
The Company's current banking arrangement provides for a revolving credit
facility of up to $95,000,000 through July 31, 1996 and is secured
principally by accounts receivable. At March 31, 1995, interest on borrowings
under this line is at the bank's reference rate plus 1.5%, or in the case
of Eurodollar borrowings, at the interbank offered rate plus 2.5%. The
Company is subject to a 0.5% per annum charge on the unused portion of the
commitment. The line of credit agreement stipulates that the Company must
maintain certain minimum working capital, financial ratios and net worth
requirements. In addition, the agreement includes certain other restrictive
covenants, including prohibitions on the payment of cash dividends on common
stock and, if the Company is in default under the line, on the preferred stock),
and on the repurchase of stock other than to fund IT's compensation plans.
Additionally, the agreement contains limitations on the purchase or sale of
significant assets, the aggregate amount of capital expenditures, other
liens on the Company's assets and the incurrence of other debt. Due to the
Company's fourth quarter loss in fiscal year 1995, amendments were required
to certain of the Company's loan covenants in order to maintain compliance.
Terms of these amendments were approved subsequent to March 31, 1995 and the
Company is in compliance with such amended terms.
At March 31, 1995, the Company had $30,000,000 of borrowings outstanding
against its credit facility. Additionally, standby letters of credit
totaling approximately $33,300,000 were outstanding at March 31, 1995
related to financial assurance for the Company's inactive disposal facilities
(see Discontinued operations - Transportation, treatment and disposal), and the
Company's insurance and bonding requirements, for total line usage of
approximately $63,300,000. The amount of current availability under the
Company's line is limited to the amount of collateral available in
accordance with the loan agreement, principally 70-80 percent of the Company's
eligible accounts receivable. At March 31, 1995, approximately $31,700,000 was
available under the line and collateral available at March 31, 1995 allowed
for use of the entire amount, subject to a limitation that cash advances
under the line may not exceed $45,000,000 at any time, with such limitation
being reduced to $25,000,000 upon collection of the Company's judgment in
the Motco litigation. (See Commitments and Contingencies - Motco.)
48
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income taxes:
- ------------
The benefit for income taxes consists of the following:
Year ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Current:
Federal $ - $ (104) $ (2,356)
State 371 422 1,288
------- ------- -------
371 318 (1,068)
------- ------- -------
Deferred:
Federal (1,828) (442) 831
State (2,557) - (779)
------- ------- -------
(4,385) (442) 52
------- ------- -------
Total benefit $ (4,014) $ (124) $ (1,016)
======= ======= =======
The provision (benefit) for income taxes is included in the statements of
operations as follows:
Year ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Continuing operations $ 2,383 $ (124) $ 1,160
Discontinued operations (6,397) - (2,176)
------- ------- -------
Total benefit $ (4,014) $ (124) $ (1,016)
======= ======= =======
A reconciliation of the provision (benefit) for income taxes on continuing
operations computed by applying the federal statutory rate of 34% to loss
from continuing operations before income taxes and the reported provision
(benefit) for income taxes of continuing operations is as follows:
Year ended March 31,
------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Income tax benefit computed at
statutory federal income tax rate $ (441) $ (418) $ (313)
State income taxes, net of federal tax
benefit, if any 424 422 650
Equity in income (loss) of foreign
subsidiaries 57 (374) -
Amortization of cost in excess of net assets
of acquired businesses 200 212 212
Integration charge related to and
equity in net loss of Quanterra 2,366 - -
Research credit (212) - -
Other (principally nondeductible items) (11) 34 611
------- ------- -------
Total provision (benefit) $ 2,383 $ (124) $ 1,160
======= ======= =======
At March 31, 1995, the Company had net operating loss (NOL) carryforwards
of approximately $46,247,000 for tax reporting purposes expiring primarily
in 2007 through 2010. The Company also has tax credit carryforwards of
approximately $2,708,000 which expire in various years through 2009 and
Alternative Minimum Tax credit carryforwards of approximately $1,809,000.
49
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of April 1, 1992, the Company adopted SFAS No. 109. As allowed under
SFAS No. 109, the Company reported the effect of such adoption as a
cumulative effect of a change in accounting for income taxes of $13,000,000
of income, as of the date of adoption, and prior years' consolidated
financial statements were not restated. Upon adoption of SFAS No. 109, the
Company recorded a deferred tax asset and established a valuation allowance
of $7,700,000 against that asset. During the year ended March 31, 1993, the
Company increased the valuation allowance to $10,119,000 due to the relative
uncertainty that the tax benefits from the additional provision for loss
from discontinued operations recorded in that year would be realized. During
the year ended March 31, 1994, the Company increased the valuation allowance to
$13,519,000, principally due to the recognition of additional state deferred
tax assets, primarily state NOL carryforwards, and the relative uncertainty
that such state benefits will be fully utilized. During the year ended
March 31, 1995, the Company decreased the valuation allowance to $12,650,000,
principally to offset an adjustment made to reduce the gross deferred tax
asset to recognize the federal benefit of net operating losses for state
purposes. At March 31, 1995 and 1994, the Company had deferred tax assets
and liabilities as follows:
March 31,
----------------
1995 1994
---- ----
(In thousands)
Deferred tax assets:
Closure accruals - discontinued operations $ 28,211 $ 25,197
Net operating loss carryforwards 20,145 22,462
Alternative minimum tax credit carryforwards 1,809 1,809
Investment and other tax credit carryforwards 2,708 2,496
Other accrued liabilities 10,082 6,832
Other, net 3,658 3,526
------- -------
Gross deferred tax asset 66,613 62,322
Valuation allowance for deferred tax asset (12,650) (13,519)
------- -------
Total deferred tax asset 53,963 48,803
------- -------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (14,381) (13,736)
Asset basis difference -
discontinued operations (11,997) (11,997)
Other, net (8,410) (8,280)
------- -------
Total deferred tax liabilities (34,788) (34,013)
------- -------
Net deferred tax asset $ 19,175 $ 14,790
======= =======
Net current asset $ 14,600 $ 9,329
Net noncurrent asset 4,575 5,461
------- -------
Net deferred tax asset $ 19,175 $ 14,790
======= =======
Commitments and contingencies:
- -----------------------------
Lease commitments
-----------------
The Company's operating lease obligations are principally for buildings
and equipment. Generally, the Company is responsible for property taxes and
insurance on its leased property. At March 31, 1995, future minimum rental
commitments under noncancelable operating leases with terms longer than one
year aggregate $36,550,000 and require payments in the five succeeding years
and thereafter of $9,260,000, $8,483,000, $5,479,000, $4,204,000,
$2,832,000, and $6,292,000, respectively.
50
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Rental expense related to continuing operations was $11,550,000,
$14,912,000 and $17,467,000 (including $2,014,000 of the restructuring
charge) for fiscal years 1995, 1994 and 1993, respectively.
Contingencies
-------------
Class action lawsuit
--------------------
In December 1989, a purported class action lawsuit was filed in federal
court on behalf of stockholders of the Company alleging violations of the
federal Securities Exchange Act of 1934 in connection with the purchase of
shares of the Company's common stock by members of the purported class
between January 1986 and April 1987. The complaint also names as defendants
the underwriters who performed services in connection with the Company's
senior note offering in July 1986. In addition, the complaint alleges that
certain of the Company's officers and directors sold shares of the Company's
common stock at artificially inflated prices based on undisclosed
information about the Company. The plaintiffs seek unspecified damages, plus
costs associated with the litigation. Discovery concerning the facts underlying
the action has been substantially completed and trial in this action is now set
for November 28, 1995. Although the Company is defending the action
vigorously, at the request of the plaintiffs, the parties have participated
in voluntary, mediated settlement discussions, but have thus far been unable
to reach a settlement. Although it is not possible to determine the
ultimate outcome of the litigation, the Company intends to further pursue
settlement of the matter and has recorded a charge of $3,800,000 in the fourth
quarter of fiscal year 1995 to provide for potential settlement and defense
costs.
After consultation with outside counsel and in consideration of the
availability of insurance coverage and the Company's $3,800,000 provision,
management believes the ultimate outcome of this matter will not have a
material adverse effect on the consolidated financial condition of the
Company.
Motco
-----
On December 4, 1991, the Company announced the suspension of work on the
Motco project, the cleanup of a Superfund site in Texas, and the filing of a
$56,000,000 breach of contract lawsuit against the Motco Trust, the PRP
group that agreed to finance remediation of the site, and Monsanto Company, the
leader of the PRP group.
In January 1988, the Company was retained by the Motco Trust to destroy
waste contained in pits at the site using two transportable incinerators
designed and operated by IT. Based on information provided to IT in the
Motco Trust's request for proposal, the Company bid and was awarded a
fixed-price contract which was subsequently increased through change orders.
In early 1991, IT advised the Motco Trust and Monsanto that it would cost
substantially more to complete the project because the scope of work had
changed and because the chemical makeup, quantities and mixture of waste at
the site were dramatically different from that portrayed by data provided to
IT in Motco Trust's request for proposal. Additionally, the project was
impacted by other actions of the Motco Trust and Monsanto, including the
pumping of contaminated water and waste into the Motco pits from an
unrelated project which was managed by the Motco Trust and Monsanto.
IT continued work at the site in good faith while negotiations were
occurring with the Motco Trust and Monsanto. Approximately $31,000,000 of
direct costs were incurred in excess of those recovered under the contract
and were recorded as a contract claim receivable and are included in
noncurrent assets in the Company's consolidated balance sheets at March 31,
1995 and 1994. IT has not recognized any overhead cost recovery or profit
on this project to date. IT sued to recover costs and profit of approximately
$56,000,000.
On December 26, 1991, the Motco Trust and Monsanto filed an answer to IT's
lawsuit and asserted a counterclaim against IT. In their answers to IT's
lawsuit, the Motco Trust and Monsanto denied liability to IT on the grounds
that the Motco Trust had previously executed a change order addressing many
of the claims and purported underlying events alleged in the lawsuit and had
51
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
received a full release from IT regarding those matters, that IT had failed
to mitigate its alleged damages, that IT had failed to manage and control
its costs on the project, and that IT's lawsuit failed to state a claim upon
which relief could be granted as it claimed extra-contractual compensation.
In its counterclaim, the Motco Trust sought recovery of $27,000,000
monetary damages including all payments to third parties to complete
performance of the project, all penalties or other liabilities to any
governmental entity, and any related damages which occurred as a result of
the breach of contract by IT which is alleged to have occurred upon the
filing of the lawsuit by IT and concurrent suspension of work at the site.
The case was tried before a jury during March and April of 1994. As a
result of that trial, the jury rendered a verdict in IT's behalf wherein
they found that Monsanto had breached its contract with IT, had defrauded IT
and had provided IT with information which constituted a negligent
misrepresentation as to the waste characteristics. The jury found that the
amount of damages caused IT as a result of these acts was in the amount of
$52,800,000. The jury also found that Monsanto should pay punitive damages in
the amount of $28,550,000, together with attorneys' fees in the amount of
approximately $2,300,000. The jury further found that IT was excused from
performance and that Motco Trust should not recover on its $27,000,000
counterclaim.
On December 14, 1994, the court ruled that IT was entitled to a judgment
in the amount of $43,700,000 plus prejudgment interest and attorneys' fees.
The court's order reduced the jury's previous compensatory damage award by
$9,100,000 and set aside the jury's award of $28,550,000 in punitive
damages. On May 8, 1995, the court entered a final judgment in the approximate
amount of $66,000,000, consisting of the $43,700,000 in compensatory damages,
and $2,300,000 in attorneys' fees, plus prejudgment interest of approximately
$20,000,000. The final judgment amount is subject to appeals by the parties
and accrues postjudgment interest at the one-year U.S. Treasury rate
(approximately 6.3%) in effect at the time of judgment from the date the
judgment is entered until paid. While it is not possible to predict, the
appellate process could take as long as two years.
After consideration of the merits of the Company's position in the lawsuit
and after consultations with its outside counsel, management believes that,
subject to the inherent uncertainties of litigation, the Company more likely
than not will recover the contract claim receivable recorded to date and
prevail on Motco Trust's counterclaim. However, if this matter is resolved
in an amount significantly lower than the contract claim receivable of
approximately $31,000,000 recorded by IT or if the Motco Trust prevails in
its counterclaim and recovers any significant amount of damages, a material
adverse effect to the consolidated financial condition of the Company would
result.
Central Garden
--------------
On July 14, 1992, the Company responded to an emergency call to clean up
a chemical spill at a finished product warehouse facility leased by Central
Garden & Pet Supply Company (Central) in Baton Rouge, Louisiana. While
cleanup was under way, a fire began which damaged the warehouse facility.
In addition to the owner of the facility, Central and two other lessees of the
finished product warehouse facility (an electrical supply company and a
pharmaceutical company) incurred significant property damage and substantial
loss of inventory. A total of nine lawsuits arising from the fire have now
been filed and these cases have been consolidated for discovery purposes
only.
On August 2, 1992, in the first action to be filed, residents of a nearby
apartment complex filed a petition for damages against the Company and
Central alleging personal injuries caused by the release of hazardous and
noxious materials into the atmosphere as a result of the fire. Central
filed an answer, cross-claim, and third-party complaint. Central alleged, among
other things, that the Company was the cause of the fire in failing to
exercise proper care in the cleanup of the spill, and was responsible for
the property damage, loss of contents, loss of profits and other economic
injury, and expenses incurred in the cleanup. Further, Central claimed a
set-off or monies due the Company for cleanup services rendered by the Company
after the fire and seeks indemnity for any damages assessed against Central.
The Company responded by alleging, among other things, improper storage and
handling of hazardous materials by Central. In August 1993, this case was
52
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
remanded to state court. The Company also filed its own cross-complaint
against Central for services rendered after the fire and denied
responsibility for the fire, raised certain defenses, and further claimed that
Central was not entitled to a set-off. The monies due the Company for services
rendered to Central approximate $1,700,000 and are included in accounts
receivable in the Company's consolidated balance sheets at March 31, 1995
and 1994.
The Company believes that the allegations in the other actions arising out
of the fire are substantially duplicative of each other. For example, the
insurer for the electrical supply company, American Manufacturers Mutual
Insurance Company, also filed a complaint against the Company, Central, the
lessor and certain insurers. The owner of the adjacent pharmaceutical
company, Bergen Brunswig Company, and its insurers filed suit against the
Company, Central, the lessor, a construction company which built a fire wall
that allegedly did not meet the building code, the manufacturer of the
chemicals which were spilled and certain insurers. The lessor also filed a
cross-claim and third party complaint against the Company and others in this
action.
Pursuant to a Case Management Order applicable to all of the filed cases,
a schedule has been established for the completion of discovery and the
submission of reports concerning damages claimed and the causation of the
fire. In March 1995, pursuant to the Case Management Order, the parties
propounded to each other reports concerning the types and amount of damages
sought. These reports collectively claim a total of $23,000,000 from all of
the defendants but do not apportion the damages claimed between the various
defendants. The largest single claim is by Bergen Brunswig, which claims
approximately $11,000,000, principally for lost inventory. In its report,
Central claims approximately $4,400,000, including approximately $1,000,000
in damages resulting from the postponement of its initial public offering,
and the $1,700,000 sought by the Company for services rendered in cleaning
up after the fire. The personal injury plaintiffs claim approximately
$2,400,000 in damages. In addition, most of the claimants demand punitive
damages in unspecified amounts. The Company believes that certain of the
claimants' damage claims are inflated and contain elements that are not
legally recoverable or are not properly documented.
While the Company is pursuing settlement of this matter, the Company is
defending the actions vigorously and believes that it has meritorious
challenges to some of the damages claimed and meritorious claims for
contribution against some parties. Additionally, the Company believes that
it is likely that it will recover from Central, by collection or set-off, on
breach of contract claims for the cleanup services provided. The parties
have agreed to submit the case to nonbinding mediation in October 1995.
Trial is scheduled for May 1996. Based on discovery to date, there is a
risk that the Company will be found liable for at least some damages. If
the Company is held liable for damages, there is the further risk that the
Company could be held liable for punitive damages. Discovery has not been
completed; the Company cannot predict the amount or range of damages for
which it and/or the other parties may be found responsible.
The Company's insurance carrier has been notified on the matter and is a
defendant in one of the actions. The Company's carrier is defending the
actions subject to a reservation of its rights to contest coverage at a
later date. The Company previously filed a protective lawsuit seeking
determination of coverage, but later agreed to a dismissal of the action in
accordance with a standstill agreement with the carrier pursuant to which,
subject to applicable policy limits, the carrier has agreed to fund
provisionally any final judgment or settlement of the matter. However, the
insurer has retained its right to challenge coverage under the policy after any
such funding. If the Company settles the matter or is held liable for damages
and the insurance carrier funds the settlement or judgment, the Company may
face reimbursement claims by its carrier, based on assertions that the Company's
policies do not cover damages resulting from the fire because of allegations
that such damages are excluded pollution liabilities or punitive damages.
In the fourth quarter of fiscal year 1995, the Company recorded a
$5,300,000 charge, covering both defense and potential settlement costs, to
provide for its self-insured retention under its general liability insurance
coverage for the Central Garden matter. Should the cases result in a
significant award of damages against the Company or payment by the Company
of a significant amount in settlement, either of which is not substantially
covered by the Company's insurance policies, additional litigation costs
would be recorded related to the matter.
53
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Helen Kramer Contract
---------------------
On May 3, 1993, the Company received an administrative subpoena from the
Office of the Inspector General (OIG) of the USEPA seeking documents
relating to certain of the Company's claims which were submitted to the U.S.
Army Corps of Engineers with regard to the Helen Kramer remediation contract, a
completed project which the Company performed in joint venture. Since
August 1992, the Defense Contract Audit Agency (DCAA) has been conducting an
audit of certain claims submitted by the joint venture. The Company has been
informed that there is a federal civil and criminal investigation into the
claims. In April 1995, the Company was informed that several of its joint
venture partner's employees have been subpoenaed to discuss their knowledge
of the matter.
In October 1993, a shareholder of the Company alleged that the acts giving
rise to the Helen Kramer investigation constituted, among other things, a
waste of the Company's assets and demanded that the Company institute an
action against those responsible for the alleged wrongdoing. The Audit
Committee (Committee) of the Board of Directors investigated the allegations
of the OIG. The Committee, acting with the assistance of outside counsel and
experts, determined that there was no evidence of intentional wrongdoing or
negligence by the Company or any employee. The Board approved the report of
the Committee and advised counsel to the shareholder of its conclusions on
September 2, 1994.
Other
-----
The Company is subject to other claims and lawsuits in the ordinary course
of its business. In the opinion of management, all such other pending
claims are either adequately covered by insurance or, if not insured, will not
individually or in the aggregate result in a material adverse effect on the
consolidated financial condition of the Company.
The Company maintains a liability insurance program which includes
commercial general liability, product liability, automotive liability,
employers' liability, workers' compensation, all risk property coverage,
contractor's pollution liability, professional errors and omissions, and
directors' and officers' liability insurance coverage. A portion of the
Company's commercial general liability, automotive liability and workers'
compensation insurance is provided through arrangements which require the
Company to indemnify the insurance carriers for all losses and expenses
under the policies and to support the indemnity commitments with letters of
credit.
Environmental Impairment Liability coverage for IT's inactive treatment,
storage and disposal sites located in Northern California is provided
through the Company's captive insurance subsidiary, which has issued a
$32,000,000 policy which meets the current requirements of both federal and
state law. See Discontinued operations - Transportation, treatment and disposal
for information regarding certain legal and governmental proceedings affecting
the Company's treatment, storage and disposal sites.
Restructuring charge:
- --------------------
In connection with the realignment and streamlining of the Company's
organization which was initiated in the fourth quarter of fiscal year 1993,
the Company incurred a pre-tax restructuring charge of $8,378,000. The
restructuring charge included costs for the consolidation of facilities in
the United States through office combinations or shutdowns, related asset
writeoffs, severance payments to employees, and the disposition of most of
the Company's European operations through either closure or sale. At March
31, 1995, most of the costs included in the restructuring charge had been
paid. However, $1,500,000 of the charge ($1,800,000 at March 31, 1994)
remained to be paid, principally related to certain long-term lease
obligations for facilities no longer used by the Company.
54
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Governmental regulation:
- -----------------------
The Company is subject to extensive regulation by applicable federal,
state and local agencies. All facets of the Company's business are
conducted in the context of a rapidly changing statutory, regulatory and
governmental enforcement framework and a highly visible political environment.
The Company's operations must satisfy stringent laws and regulations applicable
to performance. Future changes in regulations may have an adverse effect on
the Company's business.
Preferred stock:
- ---------------
In a September 1993 public offering, the Company issued 2,400,000
depositary shares, each representing a 1/100th interest in a share of the
Company's 7% Cumulative Convertible Exchangeable Preferred Stock (Preferred
Stock). The depositary shares entitle the holder to all proportional rights
and preferences of the Preferred Stock, including dividend, liquidation,
conversion, redemption and voting rights and preferences. The net proceeds
from the issuance were $57,130,000.
The Preferred Stock ranks as to dividends and liquidation, prior to the
Company's common stock and Series A Junior Participating Cumulative
Preferred Stock, if issued. (See Stockholder Rights Plan.) The dividend per
annum and liquidation preference for each share of Preferred Stock are $175 and
$2,500, respectively, and for each depositary share are $1.75 and $25,
respectively. Dividends on the Preferred Stock and depositary shares are
cumulative and payable quarterly.
The Preferred Stock is convertible at the option of the holder into shares
of the Company's common stock at a conversion price of $5.84 per share,
subject to adjustment under certain circumstances. On any dividend payment
date on or after September 30, 1996, the Preferred Stock is exchangeable at
the option of the Company, in whole but not in part, for 7% Convertible Sub-
ordinated Debentures Due 2008 in a principal amount equal to $2,500 per
share of Preferred Stock (equivalent to $25 per depositary share). The
Preferred Stock may be redeemed at any time on or after September 30, 1996, at
the option of the Company, in whole or in part, initially at a price of
$2,622.50 per share of Preferred Stock (equivalent to $26.225 per depositary
share) and thereafter at prices declining to $2,500 per share of Preferred Stock
(equivalent to $25 per depositary share) on or after September 30, 2003.
Additionally, the Preferred Stock has a special conversion right that
becomes effective in the event of certain significant transactions affecting
ownership or control of the Company. In such situations, the special
conversion right would, for a limited period, reduce the then prevailing
conversion price to the market value of the common stock, except that the
conversion right will not be reduced below $3.17 per share. Generally and
with certain exceptions, the special conversion right becomes effective if
(1) a person or group acquires at least 50% of the Company's common stock,
(2) if the Company sells all or substantially all of its assets or (3) if
the Company participates in a merger or consolidation in which the Company is
not the surviving company or the holders of the Company's common stock
immediately prior to such merger or consolidation do not hold, directly or
indirectly, at least a majority of the common stock of the merger after such
a transaction. The form of consideration issued (cash, securities or other
property) upon the exercise of the special conversion right by a holder of
Preferred Stock depends upon, among other things, the type of transaction
that gives rise to the special conversion right.
The Preferred Stock is non-voting, except that holders are entitled to
vote as a separate class to elect two directors if the equivalent of six or
more quarterly dividends (whether consecutive or not) on the Preferred Stock
is in arrears. Such voting rights will continue until such time as the
dividend arrearage on the Preferred Stock has been paid in full.
55
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock incentive plans:
- ---------------------
The Company has a 1991 Stock Incentive Plan (1991 Plan) which provides for
the issuance of the Company's common stock or any other security or benefit
with a value derived from the value of its common stock. Options are
granted at exercise prices equal to or greater than the quoted market price at
the date of the grant. At March 31, 1995, the maximum number of shares of the
Company's common stock that may be issued pursuant to awards that have not
yet been granted under the 1991 Plan is 574,390. At April 1 of each fiscal
year, the maximum number of shares available for award under the 1991 Plan
will be increased by an amount which represents 2% of the number of shares
of the Company's common stock which are issued and outstanding at that date.
Beginning in fiscal year 1994, options were granted under the 1991 Plan,
which expires in fiscal year 1996.
The Company also had a 1983 Stock Incentive Plan (1983 Plan) which
provided for the granting of incentive and non-qualified stock options and
stock appreciation rights and the issuance of restricted common stock.
Options granted under the 1983 Plan and outstanding at March 31, 1995 will
expire at various dates through July 3, 2003. No stock appreciation rights
were granted under the 1983 Plan. No shares are available for grant under
the 1983 Plan, which expired in September 1993.
Changes in the number of shares represented by outstanding options under
the 1991 Plan and the 1983 Plan during the fiscal years ended March 31,
1995, 1994 and 1993 are summarized as follows:
Year ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
Outstanding at beginning
of year 3,187,019 2,787,152 2,640,578
Options granted
(1995, $2.50 - $3.625 per share;
1994, $3.125 - $5.875 per share;
1993, $4.875 - $7.00 per share) 1,453,605 1,007,200 797,500
Options exercised
(1995, $2.875 per share;
1994, $2.75 - $4.625 per share;
1993, $3.00 - $5.50 per share) (10,060) (170,583) (239,539)
Options expired and forfeited (1,388,061) (436,750) (411,387)
--------- --------- ---------
Outstanding at end of year (1995,
$2.50 - $8.188 per share) 3,242,503 3,187,019 2,787,152
========= ========= =========
Vested options 1,392,422 1,484,947 1,390,574
========= ========= =========
Stockholder Rights Plan:
- -----------------------
On December 14, 1989, the Company adopted a Stockholder Rights Plan (the
Rights Plan), pursuant to which the Company distributed one stock purchase
right (a Right) with respect to each share of common stock outstanding on
the December 26, 1989 record date. The Rights Plan provides that in the event
that any person becomes the beneficial owner of 20% or more of the
outstanding shares of common stock (a 20% Stockholder) or commences a tender
offer or exchange offer, the consummation of which would cause such person to
become a 20% Stockholder, each Right will entitle the holder (other than a 20%
Stockholder) to purchase, at any time on or after the tenth business day
56
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
following the date of such event, at the then-current exercise price
(initially $35), one two-thousand-five-hundredth of a share of Series A
Junior Participating Cumulative Preferred Stock, par value $100, of the
Company, which one two-thousand-five-hundredth of a share is designed to
have a value approximately equal to the value of one share of common stock. In
the event that any person becomes a 20% Stockholder, each previously
unexercised Right will entitle the holder (other than the 20%
to purchase, at any time on or after the tenth business day following the date
of such event, shares of common stock having a market value equal to two
times the then-current exercise price. In the event that, at any time on or
after the date that a person becomes a 20% Stockholder, the Company is
merged into another corporation or 50% or more of the Company's assets are sold,
then each previously unexercised Right will entitle the holder (other than
the 20% Stockholder) to purchase, at any time on or after such date, shares
of common stock of the acquiring corporation having a market value equal to
two times the exercise price. In connection with the Rights Plan, the
Company has designated 40,000 shares of its authorized preferred stock as
Series A Junior Participating Cumulative Preferred Stock. The Rights do not
have voting rights and are not entitled to dividends.
The Rights may be redeemed by the Company at a price of $.01 per Right at
any time until they become exercisable to purchase common stock of the
Company or another corporation. The Company may redeem the Rights only with
the concurrence of a majority (but not less than three) of the independent
directors.
The Rights Plan, as adopted, provided that the Rights expired on December
14, 1999. On April 6, 1995, the Board of Directors approved an amendment
to the Rights Plan which was subsequently executed, providing that the Rights
shall expire on September 7, 1995.
Shareholder class action lawsuit:
- --------------------------------
In fiscal year 1994, 1,872,759 shares of common stock valued at $6,350,000
were issued in settlement of a class action lawsuit alleging certain
securities law violations emanating from a 1987 offering of common stock. A
charge of $7,300,000 was taken to other expense in the consolidated
statement of operations in fiscal year 1993 to provide for this settlement and
related expenses.
Major customers:
- ---------------
A total of 63%, 53% and 45% of the Company's revenues during fiscal years
1995, 1994 and 1993, respectively, were from federal governmental agencies,
primarily the U.S. Department of Defense (DOD) and the U.S. Department of
Energy (DOE). In fiscal years 1995, 1994 and 1993, the DOD provided 47%,
33% and 19%, respectively, of the Company's revenues. The DOE provided 12%, 15%
and 16% of the Company's revenues during fiscal years 1995, 1994 and 1993,
respectively.
Employee benefit plans:
- ----------------------
The Company has a defined contribution, contributory pension and profit
sharing plan (the Plan), covering all employees with one year of continuous
service. The Company funds current costs as accrued, and there are no
unfunded vested benefits. The Plan requires a minimum annual Company
contribution of 4% and allows a maximum contribution of up to 8% of
participants' eligible compensation up to $150,000, $235,840 and $228,860
for fiscal years 1995, 1994 and 1993, respectively. In fiscal year 1995, 5% of
participants' eligible compensation was contributed to the Plan. In each of
fiscal years 1993 and 1994, 4% of participants' eligible compensation was
contributed to the Plan.
Pension and profit sharing expense was $4,081,000, $3,987,000 and
$3,580,000 for fiscal years 1995, 1994 and 1993, respectively.
The Company presently provides certain health care benefits for retirees
who are over age 60 and have completed a specified number of years of
service. In fiscal year 1995, the Company contributed approximately $20,000
57
<PAGE>
toward these benefits. Statement of Financial Accounting Standards No. 106
(SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other
Than Pensions," which became effective for the Company in fiscal year 1994,
requires accrual, during the years that the employee renders the necessary
service, of the expected cost of providing these benefits to an employee and
the employee's covered dependents. Under SFAS No. 106, the Company is
recognizing its Accumulated Postretirement Benefit Obligation (APBO or
Transition Obligation) of $733,000 on a delayed basis as a component of net
periodic postretirement benefit cost and will amortize this cost over 20
years. Annual total expense for postretirement benefits under SFAS No. 106
including amortization of the APBO in fiscal year 1995 was $220,000.
Quarterly results of operations (In thousands, except per share data)
- --------------------------------------------------------------------
(unaudited):
- -----------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
1995:
Revenues....................... $108,568 $102,509 $102,403 $110,492
Gross margin................... 15,918 16,428 16,689 12,881
Income (loss) from
continuing operations........ (6,286) 2,891 2,681 (2,966)
Loss from discontinued
operations................... - - - (10,603)
Net income (loss) applicable
to common stock.............. (7,336) 1,841 1,631 (14,619)
Net income (loss) per share:
Continuing operations
(net of preferred stock
dividends).................. $ (.21) $ .05 $ .05 $ (.11)
Discontinued operations...... - - - (.30)
------- ------ ------ ------
$ (.21) $ .05 $ .05 $ (.41)
======= ====== ====== =======
1994:
Revenues...................... $102,549 $100,665 $ 92,524 $97,065
Gross margin.................. 17,249 16,319 13,380 11,239
Income (loss) from continuing
operations.................. 1,962 1,692 726 (5,486)
Net income (loss) applicable
to common stock............. 1,962 1,657 (324) (6,536)
Income (loss) from continuing
operations per share
(net of preferred stock
dividends) $ .06 $ .05 $ (.01) $ (.19)
====== ====== ===== ======
Beginning with the second quarter of fiscal year 1994, net income (loss)
applicable to common stock represents net income (loss) after preferred
dividends on the Company's 7% Cumulative Convertible Exchangeable Preferred
Stock. (See Preferred stock.)
In the fourth quarter of fiscal year 1995, the Company accrued a
$2,700,000 ($.08 per share) after tax provision for anticipated costs
related to certain class action shareholder litigation. In addition, the
results of continuing operations were impacted by an approximate $3,800,000
($.10 per share) after tax charge to provide for anticipated costs related to
certain other major litigation. (See Commitments and contingencies.)
In the first quarter of fiscal year 1995, the Company recorded an
approximate $8,000,000 ($.23 per share) after tax charge for integration
related to the formation of Quanterra. (See Quanterra).
In the fourth quarter of fiscal year 1994, the Company recorded a
$3,000,000 ($.09 per share ) after tax provision related to the actuarially
determined value of contractual retirement benefits to be provided to its
former Chairman and Chief Executive Officer. (See Summary of significant
accounting policies - Accrued contractual retirement benefits.) In
addition, the Company wrote off its investment in a planned treatment facility
in the U.K. in the amount of $1,600,000 ($.05 per share) after tax in the fourth
quarter of fiscal year 1994.
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were none.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section entitled "Election of Directors" in the registrant's
Definitive Proxy Statement to be filed with the Securities and Exchange
Commission for the Annual Meeting of Stockholders scheduled for September 7,
1995 (the Proxy Statement) is incorporated herein by reference. See also
"Executive Officers of the Company" in Part I of this report for certain
information concerning the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Beneficial Ownership of Shares" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Certain Transactions" in the Proxy Statement is
incorporated herein by reference.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
Separate Financial Statements of Subsidiaries not Consolidated and Fifty
Percent Owned Persons
Quanterra Inc. Financial Statements - December 31, 1994 and June 28, 1994
Exhibits
- --------
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit No. Description
---------- -----------
2 Omitted - Inapplicable.
3(i) Certificate of Incorporation of the registrant as amended
by Amendment to Certificate of Incorporation filed
September 17, 1987, with Delaware Secretary of State.(2)
3(ii) Bylaws of the registrant as amended through
June 2, 1994.(11)
4(i) 1. Rights Agreement dated as of December 14, 1989 by and
between International Technology Corporation and Bank
of America National Trust and Savings Association, as
Rights Agent.(9)
2. Amendment No. 1 to Rights Agreement.(9)
3. Amendment dated as of April 6, 1995 to Rights
Agreement.(3)
4. Certificate of Designations of Series A Junior
Participating Cumulative Preferred Stock, $100 par
value.(8)
5. Certificate of Amendment of Certificate of Designations
of Series A Junior Participating Cumulative Preferred
Stock, $100 par value.(9)
6. Certificate of Designations with respect to the
registrant's 7% Cumulative Convertible Exchangeable
Preferred Stock, $100 par value.(9)
4(ii) 1. Indenture dated as of June 15, 1986 between
International Technology Corporation and
Continental Illinois National Bank and Trust Company
of Chicago relating to the Company's 9 3/8%
Senior Notes due 1996.(1)
2. Indenture for the registrant's 7% Convertible
Subordinated Debentures Due 2008.(9)
9 Omitted - Inapplicable.
10(ii) 1. Secured Loan Agreement dated as of April 20, 1990
among the registrant, IT Corporation and Household
Commercial of California, Inc.(5)
2. First Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b. as
assignee of Household Commercial of California, Inc.
dated as of June 16, 1992.(9)
60
<PAGE>
Exhibit No. Description
----------- -----------
3. Second Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b.
as assignee of Household Commercial of California,
Inc. dated as of June 28, 1993.(9)
4. Third Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b. as
assignee of Household Commercial of California, Inc.
dated as of November 11, 1993.(11)
5. Fourth Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b. as
assignee of Household Commercial of California, Inc.
dated as of February 11, 1994.(11)
6. Fifth Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b. as
as assignee of Household Commercial of California,
Inc. dated as of March 31, 1994.(11)
7. Sixth Amendment to Secured Loan Agreement among the
registrant, IT Corporation, Household Bank, f.s.b. as
assignee of Household Commercial of California, Inc.
dated as of June 28, 1994.(11)
8. Syndicated Credit Agreement dated as of August 27,
1991 among the registrant, IT Corporation and Bank of
America National Trust and Savings Association, as
agent for the bank group.(7)
9. First Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank of America
National Trust and Savings Association and certain
other signatory banks, dated as of June 19, 1992.(9)
10. Second Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank of America
National Trust and Savings Association and certain
other signatory banks, dated as of June 28, 1993.(9)
11. Third Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank of America
National Trust and Savings Association and certain
other signatory banks, dated as of
March 24, 1994.(11)
12. Fourth Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank of America
National Trust and Savings Association and certain
other signatory banks, dated as of June 24, 1994.
(11)
13. Fifth Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank Savings
Association and certain other signatory banks,
dated as of September 30, 1994.
14. Sixth Amendment to Credit Agreement and Waiver among
the registrant, IT Corporation, Bank of America
Savings Association and certain other signatory
banks, dated as of May 15, 1995.
15. Asset Transfer Agreement among MetPath Inc., the
registrant and IT Corporation dated as of May 2,
1994.(11)
16. Securities Acquisition Agreement between the
registrant and MetPath Inc. dated as of May 2, 1994.
(11)
61
<PAGE>
Exhibit No. Description
---------- -----------
17. Shareholders' Agreement between the registrant, IT
Corporation, Quanterra Incorporated and MetPath Inc.
dated as of June 28, 1994.
18. Equity Investors' Undertaking, dated June 28, 1994,
from MetPath, Inc., the Company and IT Corporation
in favor of Quanterra Incorporated, Citibank, N.A.,
Citicorp USA, Inc. and others.
19. Portions of Amendment and Waiver, dated June 27,
1995, amending Section 2(a) of the Equity
Investors's Undertaking, dated June 28, 1994, by and
among Corning Life Sciences, Inc. (formerly MetPath,
Inc.), the Company and IT Corporation, Quanterra
Incorporated, Citibank, N.A., Citicorp USA, Inc., and
others.
10(iii) 1. Non-Employee Directors' Retirement Plan, as amended
and restated June 2, 1994.(10)
2. Description of the Special Turn-a-Round Plan (Fiscal
Year 1995 Management Incentive Plan) of the
registrant.(10)(11)
3. 1983 Stock Incentive Plan, as amended.(8)(10)
4. Retirement Plan of IT, 1993 Restatement.(10)
5. Form of Severance Benefit Agreement between the
registrant and certain officers of the registrant.
(5)(10)
6. 1991 Stock Incentive Plan.(6)(10)
7. Agreement dated July 14, 1992 between Robert B. Sheh
and the registrant.(8)(10)
8. Agreement dated November 4, 1993 between Larry M.
Hart and the registrant.(10)(11)
9. Agreements dated November 5, 1993 between E. Brian
Smith and the registrant.(10)(11)
10. Retirement Agreement dated March 3, 1994 between
Murray H. Hutchison and the registrant.(10)(11)
11. First Amendment dated January 6, 1995 to the
Retirement Agreement dated March 3, 1994 between
Murray H. Hutchison and the registrant.(10)(12)
11 1. Computation of Per Share Earnings for the three years
ended March 31, 1995.
12 Omitted - Inapplicable.
13 Omitted - Inapplicable.
16 Omitted - Inapplicable.
18 Omitted - Inapplicable.
21 1. List of the registrant's subsidiaries.
22 Omitted - Inapplicable.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Omitted - Inapplicable.
62
<PAGE>
Exhibit No. Description
---------- ------------
27 1. Financial Data Schedule for the year ended March 31,
1995.
2. Financial Data Schedule for the quarter ended
March 31, 1995.
28 Omitted - Inapplicable.
99 Omitted - Inapplicable.
__________
(1) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Registration Statement on Form S-l
(No. 33-6310) and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Annual Report on Form 10-K for the
year ended March 31, 1988 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Form 8-K dated May 2, 1995 and
incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Annual Report on Form 10-K for the
year ended March 31, 1989 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Amended Annual Report on Form 10-K
for the year ended March 31, 1990 and incorporated herein by
reference.
(6) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Registration Statement on Form S-8
(No. 33-52974) and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as
an Exhibit to registrant's Form 8-K dated September 4, 1991 and
incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Annual Report on Form 10-K for the
year ended March 31, 1993 and incorporated herein by reference.
(9) Previously filed with the Securities and Exchange Commission as
an Exhibit to registrant's Registration Statement on Form S-3
(No. 33-65988) and incorporated herein by reference.
(10) Filed as a management compensation plan or arrangement per Item
14(a)(3) of the Securities Exchange Act.
(11) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Annual Report on Form 10-K for the
year ended March 31, 1994 and incorporated herein by reference.
(12) Previously filed with the Securities and Exchange Commission as
an Exhibit to the registrant's Quanterly Report on Form 10-Q for
the quarter ended December 31, 1994 and incorporated herein by
reference.
Reports on Form 8-K
- -------------------
No Current Reports on Form 8-K were filed during the quarter ended March 31,
1995.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Torrance,
California on the 29th day of June 1995.
INTERNATIONAL TECHNOLOGY
CORPORATION
By /s/ ROBERT B. SHEH
--------------
Robert B. Sheh
President and Chief
Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ E. MARTIN GIBSON
- ------------------------
E. Martin Gibson Chairman of the Board of June 29, 1995
Directors
/s/ ROBERT B. SHEH
- ------------------------ June 29, 1995
Robert B. Sheh Director, President and
Chief Executive Officer
/s/ DONALD S. BURNS
- ------------------------
Donald S. Burns Director June 29, 1995
/s/ RALPH S. CUNNINGHAM
- ------------------------
Ralph S. Cunningham Director June 29, 1995
/s/ JOHN H. HUTCHISON Director June 29, 1995
- ------------------------
John H. Hutchison
/s/ MURRAY H. HUTCHISON
- ------------------------
Murray H. Hutchison Director June 29, 1995
<PAGE>
/s/ W. SCOTT MARTIN
- ------------------------
W. Scott Martin Director June 29, 1995
/s/ JAMES C. MCGILL
- ------------------------
James C. McGill Director June 29, 1995
/s/ JACK O. VANCE
- ------------------------
Jack O. Vance Director June 29, 1995
/s/ ANTHONY J. DELUCA
- -----------------------
Anthony J. DeLuca Senior Vice President June 29, 1995
and Chief Financial Officer
(Principal Financial Officer)
/s/ PHILIP H. OCKELMANN June 29, 1995
- -------------------------
Philip H. Ockelmann Vice President, Treasurer
and Controller
(Principal Accounting
Officer)
<PAGE>
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Schedule II -- Valuation and qualifying accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
beginning charged written at end
of period to income off Other (1) of period
--------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995:
Allowance for doubtful
accounts............ $ 3,183 $ 1,501 $(1,281) $ (296) $ 3,107
Valuation allowance for
deferred tax asset... $13,519 $ (869)(2) $ - $ - $12,650
Year ended March 31, 1994:
Allowance for doubtful
accounts............ $ 3,011 $ 846 $ (674) $ - $ 3,183
Valuation allowance for
deferred tax asset.. $10,119 $ 3,400 $ - $ - $13,519
Year ended March 31, 1993:
Allowance for doubtful
accounts............ $ 4,114 $ 1,307 $(2,410) $ - $ 3,011
Valuation allowance for
deferred tax asset.. $ 7,700 $ 2,419 $ - $ - $10,119
</TABLE>
(1) Represents allowance for doubtful accounts at June 28, 1994 for
receivables transferred to Quanterra, an environmental analytical services
company which is jointly owned by IT and an affiliate of
Corning Incorporated. (See Notes to Consolidated Financial Statements -
Quanterra.)
(2) Represents benefit for income taxes.
<PAGE>
Exhibit 11.1
INTERNATIONAL TECHNOLOGY CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
Year ended March 31,
------------------------------
1995 1994 1993
---- ---- ----
Primary earnings per share:
Loss from continuing operations......... $ (3,680) $ (1,106) $ (2,082)
Discontinued operations
(net of income taxes):
Loss from disposition:
Pollution control manufacturing...... - - (3,809)
Transportation, treatment and
disposal .......................... (10,603) - (6,800)
------- ------- -------
Loss before cumulative effect of
change in accounting for income taxes.. (14,283) (1,106) (12,691)
Cumulative effect of change in accounting
for income taxes....................... - - 13,000
------- ------- -------
Net income (loss)........................ (14,283) (1,106) 309
Less preferred stock dividends........... (4,200) (2,135) -
------- ------- -------
Net income (loss) applicable to
common stock................................ $(18,483) $ (3,241) $ 309
======= ======= =======
Average number of common shares
outstanding............................ 35,474 33,484 33,058
Average common equivalent shares from stock
options computed on the treasury stock
method using average market prices...... 83 24 180
Average number of common shares to
be issued.............................. - 1,254 292
------- ------- -------
Shares used in computation.................... 35,557 34,762 33,530
======= ======= =======
Net income (loss) per share:
Continuing operations (net of
preferred stock dividends)............ $ (.22) $ (.09) $ (.06)
Discontinued operations:
From disposition...................... (.30) - (.32)
------ ------- ------
(.52) (.09) (.38)
Cumulative effect of change in accounting
for income taxes........................ - - .39
------ ------- ------
Net income (loss) per share................... $ (.52) $ (.09) $ .01
====== ======= ======
- -----------------------
Fully diluted earnings per share result in less than 3% dilution and therefore
are not presented.
<PAGE>
Exhibit 21.1
INTERNATIONAL TECHNOLOGY CORPORATION
LIST OF SUBSIDIARY COMPANIES
ISOBAR, Inc.
IT Corporation
IT Environmental Programs, Inc.
IT Environmental Services, Inc.
IT Hanford, Inc.
IT Italia, s.r.l.
IT Tulsa Holdings, Inc. (formerly IT-McGill Pollution Control Systems, Inc.)
International Technology Corporation of Delaware
International Technology Europe PLC
McKittrick Mud Company, Inc.
Princeton Aqua Science
Underground Resource Management, Inc.
Universal Professional Insurance Company
IT Corporacion de Mexico, S.A. de C.V.
IT Corporation Limited (formerly IT-McGill Limited)
IT Europe Pollution Control Engineering, Ltd. (formerly IT-McGill Pollution
Control Systems, Ltd.)
IT International Holdings, Inc.
IT International Technology Espana, S.A.
IT International Technology Deutschland GmbH
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8; No. 2-95647 and No. 33-11486) and in the related Prospectuses
pertaining to the International Technology Corporation 1983 Stock Incentive
Plan, in the Registration Statement (Form S-3; No. 33-24040) of
International Technology Corporation and in the related Prospectus, and in the
Registration Statement (Form S-8; No. 33-52974) and in the related Prospectus
pertaining to the International Technology Corporation 1991 Stock Option Plan of
our report dated May 17, 1995 with respect to the consolidated financial
statements and schedule of International Technology Corporation included in
this Annual Report (Form 10-K) for the year ended March 31, 1995.
ERNST & YOUNG LLP
Los Angeles, California
June 29, 1995
<PAGE>
Financial Statements
Quanterra, Inc.
December 31, 1994 and June 28, 1994
with Report of Independent Auditors
<PAGE>
<PAGE>
Quanterra, Inc.
Financial Statements
December 31, 1994 and June 28, 1994
Contents
Report of Independent Auditors............................1
Audited Financial Statements
Balance Sheets............................................2
Statement of Operations.... ..............................4
Statement of Shareholders' Equity.........................5
Statement of Cash Flows...................................6
Notes to Financial Statements.............................7
<PAGE> <PAGE>
Report of Independent Auditors
The Board of Directors
Quanterra, Inc.
We have audited the accompanying balance sheets of Quanterra, Inc. as of
December 31, 1994 and June 28, 1994, and the related statements of
operations, shareholders equity and cash flows for the six months ended
December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quanterra, Inc. at
December 31, 1994 and June 28, 1994, and the results of its operations
and its cash flows for the six months ended December 31, 1994 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 28, 1995, except for Note 4, as to
which the date is June 28, 1995
1
PAGE
<PAGE>
Quanterra, Inc.
Balance Sheets
(in thousands, except share data)
December 31, June 28,
1994 1994
----------- --------
Assets
Current assets:
Cash and cash equivalents $ 6,612 $ 1,420
Accounts receivable and unbilled revenues:
Accounts receivable, net of allowance for
uncollectible accounts of $1,679 and
$1,572 at December 31, 1994 and
June 28, 1994, respectively 37,625 28,939
Unbilled revenues 4,423 4,796
------- -------
42,048 33,735
Prepaid expenses and other assets 1,266 2,273
Deferred income taxes 7,926 2,889
------- -------
Total current assets 57,852 40,317
Deferred income taxes 974 -
Property and equipment - at cost, less
accumulated depreciation and amortization
of $56,454 and $57,519 at December 31, 1994
and June 28, 1994, respectively 59,428 61,654
Intangible assets:
Goodwill 8,853 9,238
Other 645 645
Less accumulated amortization (1,985) (1,710)
------- -------
7,513 8,173
Other assets:
Deferred financing costs, less accumulated
amortization of $99 at December 31, 1994 893 793
Property held for sale 850 850
Other noncurrent 1,216 1,174
------- -------
2,959 2,817
------- -------
Total assets $128,726 $112,961
======= =======
2
<PAGE>
December 31, June 28,
1994 1994
----------- --------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 11,335 $ 3,746
Accounts payable to related parties 3,413 1,390
Accrued payroll and other accrued expenses 5,645 6,407
Accrued integration costs 13,264 2,329
Current portion of long-term debt 3,750 -
Current portion of capital lease obligations 47 270
------- ------
Total current liabilities 37,454 14,142
Long-term debt, net of current portion 41,350 36,100
Capital lease obligations, net of current
portion 706 728
Deferred income taxes - 1,267
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A shares, $.01 par value:
Authorized shares - 1,500
Issued and outstanding shares - 1,056 - -
Class B shares, $.01 par value:
Authorized shares - 1,500
Issued and outstanding shares - 1,056 - -
Additional paid-in capital 60,724 60,724
Accumulated deficit (11,508) -
------- -------
Total shareholders equity 49,216 60,724
------- -------
Total liabilities and shareholders equity $128,726 $112,961
======= =======
See accompanying notes.
3
<PAGE>
<PAGE>
Quanterra, Inc.
Statement of Operations
(in thousands)
For the six months ended December 31, 1994
Net revenues $ 66,758
Cost of sales 49,815
-------
Gross profit 16,943
Selling, general and administrative 13,422
Integration costs 20,878
-------
Loss from operations (17,357)
Interest expense 1,429
-------
Loss before income tax benefit (18,786)
Income tax benefit 7,278
-------
Net loss $(11,508)
=======
See accompanying notes.
4
PAGE
<PAGE>
Quanterra, Inc.
Statement of Shareholders Equity
(in thousands, except share data)
For the six months ended December 31, 1994
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 28, 1994 1,056 $ - 1,056 $ - $60,724 $ - $60,724
Net loss - - - - - (11,508) (11,508)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,056 $ - 1,056 $ - $60,724 $(11,508) $49,216
=====================================================================================================================
</TABLE>
See accompanying notes.
5
PAGE
<PAGE>
Quanterra, Inc.
Statement of Cash Flows
(in thousands)
For the six months ended December 31, 1994
Operating activities
- --------------------
Net loss $(11,508)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,954
Write-off of property and equipment against
integration costs 2,883
Write-off of goodwill 366
Changes in operating assets and liabilities:
Deferred income taxes (7,278)
Accounts receivable (8,686)
Unbilled revenues 373
Prepaid expenses and other assets 1,007
Deferred financing costs (199)
Other assets (42)
Accounts payable 7,589
Accounts payable to related parties 2,023
Accrued payroll and other accrued expenses (762)
Integration costs accrual 10,935
-------
Net cash provided by operating activities 1,655
Investing activities
- --------------------
Purchase of property and equipment (5,218)
-------
Net cash used in investing activities (5,218)
Financing activities
- --------------------
Principal payments under capital lease
obligations (245)
Borrowings on long-term debt 9,000
-------
Net cash provided by financing activities 8,755
-------
Net increase in cash and cash equivalents 5,192
Cash and cash equivalents at beginning of period 1,420
-------
Cash and cash equivalents at end of period $ 6,612
=======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 805
See accompanying notes.
6
PAGE
<PAGE>
Quanterra, Inc.
Notes to Financial Statements
December 31, 1994
1. Significant Accounting Policies
-------------------------------
Quanterra, Inc. (the Company) was formed under the laws of the state of
Delaware on June 28, 1994, upon the combination of Enseco Incorporated
(Enseco), a division of MetPath, Inc. (MetPath), itself a subsidiary
of Corning Inc., and International Technology Analytical Services
(ITAS), a division of International Technology Corporation (ITC).
Metpath and ITC each own 50% of the voting stock. Quanterra provides
environmental analytical services, consisting primarily of laboratory
tests, to a variety of customers in the business of environmental testing
and cleanup.
Basis of Accounting
-------------------
The assets and liabilities contributed by Enseco and ITC were recorded at
historical cost as reflected on the accounts of the respective entities
prior to formation of the Company.
Revenue Recognition
-------------------
The Company recognizes income on the accrual basis. As professional
services are performed, revenues relating thereto are accrued. On a
current basis, provision for losses is made for any costs and expenses in
excess of billable revenues.
Unbilled revenues represent amounts earned but not yet billable under the
terms of the agreements with customers.
Credit Risk
-----------
Credit is extended based on an evaluation of the customer's financial
condition, and collateral is generally not required. The Company's
customers consist primarily of companies in the environmental consulting
industry, agencies of the United States government and oil and gas
companies, representing 65%, 8% and 11% of the total accounts receivable
balance at December 31, 1994, respectively. The customers are located
throughout the United States.
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Company considers cash
and cash equivalents with a maturity of three months or less to be cash.
7
<PAGE> <PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
-------------------------------
Accounting Period
-----------------
The Company s year end is the 52- or 53-week period ending on the Sunday
closest to December 31. The period reported upon as the six-month period
ended December 31, 1994 effectively ended on January 1, 1995.
Property and Equipment
----------------------
For financial reporting purposes, depreciation and amortization are
provided using the straight-line method over the following estimated
useful lives:
Buildings and improvements 18 to 30 years
Leasehold improvements 15 to 28 years
Furniture and fixtures 5 to 10 years
Machinery and equipment 7 to 8 years
Vehicles and other 3 to 5 years
Intangible Assets
-----------------
The Company's intangible assets consist of goodwill, resulting from cost in
excess of net assets of acquired businesses, and other intangible assets,
arising principally from acquisitions. Goodwill and other intangible assets
are amortized on a straight-line basis over 20 and 8 years, respectively.
Income Taxes
------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ( SFAS
No. 109 ), which requires that the Company account for income taxes using the
liability method. Under SFAS No. 109, deferred income taxes are provided for
temporary differences in recognizing certain income and expense items for
financial reporting and tax reporting purposes.
Reclassifications
-----------------
Certain reclassifications of June 28, 1994 amounts have been made to conform
with the December 31, 1994 presentation.
8
<PAGE> <PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
2. Property and Equipment
----------------------
A summary of property and equipment follows (in thousands):
December 31, June 28,
1994 1994
------------ --------
At cost:
Land $ 1,968 $ 1,968
Buildings and improvements 32,490 32,437
Machinery and equipment 60,963 62,562
Machinery and equipment under capital leases 1,727 1,727
Furniture and fixtures 2,943 4,018
Leasehold improvements 4,898 8,068
Vehicles and other 411 418
Construction in progress 10,482 7,975
------- -------
115,882 119,173
Less accumulated amortization (56,454) (57,519)
------- --------
$ 59,428 $ 61,654
======= =======
3. Income Taxes
Benefit for federal and state income taxes for the six months ended December
31, 1994 is as follows (in thousands):
Deferred:
Federal $6,126
State 1,152
-----
$7,278
=====
The Company's effective tax rate differs from the federal statutory rate of
34 percent as a result of state taxes and the nondeductibility of certain
expenses.
9
<PAGE> <PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
3. Income Taxes (continued)
------------
Significant components of the Company s deferred tax assets and liabilities
as of December 31, 1994 and June 28, 1994 are as follows (in thousands):
December 31, June 28,
1994 1994
----------- --------
Deferred tax assets:
Accrued integration costs $ 6,341 $ 2,084
Net operating loss carryforwards 1,783 -
Accrued vacation and payroll expenses 2,380 1,708
Allowance for uncollectible accounts receivable 636 623
Other 385 70
------- ------
Total deferred tax assets $ 11,525 $ 4,485
======= ======
Deferred tax liabilities:
Accelerated depreciation $ 2,241 $ 2,473
Software development costs 384 390
------- ------
Total deferred tax liabilities $ 2,625 $ 2,863
======= ======
At December 31, 1994, the Company has net operating loss carryforwards of
$4,845,000 which are available to offset future taxable income. These
carryforwards,which are expected to be fully utilized, expire in the year
2009.
4. Long-Term Debt
--------------
On June 28, 1994, the Company signed a Credit Agreement with a financial
institution allowing the Company to obtain credit in the aggregate principal
amount of up to $60,000,000, in the forms of a term advance, working capital
advances and letters of credit. At December 31, 1994, the outstanding balance
on the loan was $45,100,000, which represented a term advance of $30,000,000
that cannot be borrowed again once repaid and a working capital advance of
$15,100,000. The Company must repay outstanding balances under the term
advance through quarterly payments of $1,875,000 beginning in September 1995.
Mandatory prepayments and working capital advance commitment reductions may be
required at the end of each calendar year based on cash flows in excess of a
projection agreed upon by the Company and the financial institution. All
outstanding amounts become due on the termination date of the agreement, June
28, 1999.
10
PAGE
<PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
4. Long-Term Debt (continued)
--------------
Working capital advances constitute a revolving credit agreement whereby
advances are made to the Company based on eligible receivables, as defined,
through June 28, 1999, not to exceed $30,000,000. At December 31, 1994,
$15,100,000 has been excluded from current liabilities because the Company
intends that at least that amount would remain outstanding under this
agreement for an uninterrupted period extending beyond one year from December
31, 1994.
Interest is payable quarterly and is calculated as either:
1. The higher of the following rates plus 0% to .75% depending on the
performance level of the Company based on certain ratios:
- the financial institution's base rate;
- a formula based on a three-week moving average of rates for
three-month certificates of deposit, the daily percentages specified
during such three-week period by the Federal Reserve System for
determining the maximum reserve requirement, and the average during
such three-week period of rates estimated for determining the amount
payable to the Federal Deposit Insurance Corporation for insuring
deposits of the financial institution;
- 1/2 of 1% above the Federal Funds rate; or
2. The rate obtained by dividing the rate at which deposits of similar
amount and time period are offered by a financial institution in London,
United Kingdom by a percentage equal to 100% minus the reserve percentage
issued by the Federal Reserve System for determining the maximum reserve
requirement for financial institutions in New York City with respect to
liabilities or assets, plus .75% to 1.75% depending on the performance
level of the Company based on certain ratios.
The effective interest rate at December 31, 1994 was 6.724%.
Substantially all assets of the Company are pledged as collateral on the
loan. Additionally, the financial institution has the right to require the
shareholders of the Company to make capital contributions to the Company if
the Company violates certain financial covenants. On a quarterly basis, the
Company must pay a commitment fee of 3/8 of 1% per annum on unused credit
facilities. At December 31, 1994, the Company
11
<PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
4. Long-Term Debt (continued)
--------------
had available unused credit facilities of $14,900,000 for purposes of
working capital advances and letters of credit.
The Company is required to meet various financial and nonfinancial covenants
under the credit agreement, including a maximum leverage ratio which decreases
periodically over the term of the agreement and a minimum net worth, minimum
cash flow and minimum interest coverage ratio, each of which increase
periodically over the term of the agreement.
Subsequent to year end, the Company amended its Credit Agreement whereby its
shareholders made capital contributions totaling $5 million which were
applied to outstanding term advance principal repayment installments in direct
order of maturity. Among the items amended were the elimination of the maximum
leverage and minimum cash flow ratios, the modification of the minimum net
worth and minimum interest coverage ratios and the payment of an amendment fee
equal to 1/8 of one percent of the aggregate commitment. The amendment is
effective through March 31, 1996, when all conditions and covenants revert
back to the original terms of the Credit Agreement.
Based on the outstanding loan balance at December 31, 1994, aggregate
maturities of long-term debt are as follows (in thousands):
1995 $ 3,750
1996 7,500
1997 7,500
1998 7,500
1999 18,850
------
$45,100
======
12
<PAGE> <PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
5. Lease Commitments
-----------------
The Company occupies premises under leases expiring at various dates through
2004, and leases equipment under noncancelable operating and capital leases
expiring at various dates through 2004. Future minimum payments, by year and
in the aggregate, under the capital leases and noncancelable operating leases
with initial or remaining terms of one year or more consisted of the following
at December 31, 1994 (in thousands):
Capital Operating
Leases Leases
-------- ---------
1995 $ 201 $ 6,112
1996 160 4,593
1997 165 3,200
1998 170 2,069
1999 175 1,564
Thereafter 950 3,048
------- -------
Total minimum lease payments 1,821 $20,586
=======
Less amounts representing interest 1,068
------
Present value of net minimum lease
payments $ 753
======
The Company leases certain facilities and equipment from related parties
with annual operating lease payments of approximately $522,000 terminating in
1999, which are included in the above operating lease commitment schedule.
The Company incurred lease expense of approximately $4,068,000 in 1994. In
addition, the Company leases certain property to related parties (see Note 8).
6. Shareholders' Equity
--------------------
On June 28, 1994, the Company entered into a Shareholders' Agreement with
its shareholders, MetPath and ITC, which defined the terms of the organization
of the Company, of its financing and of the sales and transfers of its shares.
As required by the agreement, the Company issued 1,056 shares of Class A
Voting Common Stock, par value $.01, to MetPath and 1,056 shares of Class B
Voting Common Stock, par value $.01, to ITC in consideration for the transfer
of net assets of Enseco and ITAS, respectively. The two classes of common
stock have equal voting rights.
13
PAGE
<PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
6. Shareholders' Equity (continued)
--------------------
Under the same agreement, the Company is obligated to issue to MetPath and
ITC one additional share of common stock for each $11,261 or portion thereof
that MetPath or ITC may contribute to the Company up to a maximum of 444
shares each. The shareholders are prohibited from pledging, encumbering,
selling or otherwise transferring any shares of the Company during the
three-year period ending June 28, 1997. The Shareholders' Agreement will
remain in effect until liquidation or dissolution of the Company or until such
time that MetPath and ITC in the aggregate own less than 40% of the
outstanding common stock of the Company.
Dividends may be declared and paid to shareholders in cash, property or
stock of the Company. No dividends may be declared or paid on Class B common
stock until an aggregate amount of cash dividends has been declared and paid
on the Class A common stock equal to $4,000,000. Additionally, to the extent
that a total of $4,000,000 of cash dividends has not been paid to holders of
Class A common stock by June 28, 1997, interest must first be paid to the
Class A common shareholders on the difference between $4,000,000 and the
amount paid as of June 28, 1997, before dividends may be declared or paid on
Class B common stock.
7. Integration Costs
-----------------
In July 1994, the Company recorded an integration cost of $20,878,000 in
order to effectively and efficiently consolidate the two merging companies,
Enseco and ITAS. Included in the charges are the expected costs of employee
separations, facility consolidations, asset retirements, relocations and
related costs.
During 1994 the Company charged $9,431,000 to the integration accrual, which
included employee termination costs and costs related to the closing of plant
locations. Other operations were consolidated where appropriate. The Company
anticipates remaining consolidation steps to be completed in 1995.
8. Related Party Transactions
--------------------------
The Company utilizes certain services provided by its shareholders, Metpath,
a subsidiary of Corning, Inc. ("Corning and subsidiary") and ITC. Certain
services include, but are not limited to utilization of shareholders'
employees, use of nationwide phone contracts and reimbursement of health and
retirement plan payments made by the shareholders on behalf of the Company.
Amounts outstanding and included in related party accounts payable to Corning
and subsidiary were $2,384,000 and $1,390,000 at December 31,
14
<PAGE>
Quanterra, Inc.
Notes to Financial Statements (continued)
8. Related Party Transactions (continued)
--------------------------
1994 and June 28, 1994, respectively. Amounts outstanding and included in
related party accounts payable to ITC were $1,029,000 at December 31, 1994.
In addition, the Company provides certain environmental analytical services
for ITC. The Company recognized revenues of $4,545,000 for the six months
ended December 31, 1994 from ITC. Amounts outstanding from ITC and included in
accounts receivable at December 31, 1994 were $4,852,473.
During 1994 the Company entered into an agreement whereby it will lease its
Somerset, New Jersey facility to ITC. The lease will commence in April 1995
and will terminate in March 2005. ITC will make monthly rental payments of
$23,667 through February 2000 and $31,667 thereafter through March 2005.
MetPath and ITC agreed to provide certain administrative and support
services to the Company in return for full compensation by the Company.
9. Litigation and Contingencies
----------------------------
The Company from time to time is subject to routine litigation incidental to
its business. The Company believes that the results of any pending legal
proceedings will not have a material adverse effect on the financial condition
of the Company.
15
<PAGE>
Exhibit 10(ii).13
-----------------
FIFTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth
Amendment") is made and dated as of September 30, 1994, among
INTERNATIONAL TECHNOLOGY CORPORATION, a Delaware corporation (the
"Company"), IT CORPORATION, a California corporation ("IT
Corporation" or the "Borrower"), each of the banks listed on the
signature pages hereto (each a "Bank" and collectively the
"Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION in its capacity as Agent for the Banks (the "Agent"),
and amends the Credit Agreement dated as of August 27, 1991 among
Borrower, Company, the Banks and the Agent, as amended by the
First Amendment to Credit Agreement and Waiver dated as of June
19, 1992, the Second Amendment to Credit Agreement and Waiver
dated as of July 6, 1993, the Third Amendment to Credit Agreement
dated as of March 22, 1994 and the Fourth Amendment to Credit
Agreement dated as of June 24, 1994(as so amended, the
"Agreement").
RECITALS
--------
A. The Borrower desires to amend certain provisions
of the Agreement to extend the maturity date and other financial
covenants hereunder.
B. The Banks and Agent are willing to amend the
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
1. Terms. All capitalized terms used herein shall
have the same meanings as in the Agreement unless otherwise
defined herein. All references to the Agreement shall mean the
Agreement as hereby amended.
2. Amendments to Agreement. The parties hereto hereby
agree to amend the Agreement as follows:
2.1 The definition of "Availability Period" in Section
1.1 of the Agreement is hereby amended and restated in its
entirety as follows:
"'Availability Period' means the period commencing on
the date of this Agreement and ending on December 31,
1995 or, if such day is not a Banking Day, on the
immediately succeeding Banking Day provided, however,
1
<PAGE>
that if (a) the Company delivers to the Agent not
later than April 30, 1995 a written request for an
extension of the Availability Period, and (b)
such request is agreed to by all of the Banks in
writing prior to June 30, 1995, the Availability
Period shall instead end on September 30, 1996 or, if
such day is not a Banking Day on the immediately
preceding Banking Day."
2.2 Section 6.5 of the agreement is hereby amended and
restated in its entirety as follows:
"6.5 Leverage Ratio. As measured on and as of
the last day of each fiscal quarter of the Company, the
Company will have a Leverage Ratio no higher than 1.50 to
1.00 at any time."
3. Representations and Warranties. Borrower and
Company jointly and severally represent and warrant to Banks and
Agent:
3.1 Authorization. The execution, delivery and
performance of this Fifth Amendment by Borrower and Company have
been duly authorized by all necessary corporate action by
Borrower and Company and the Fifth Amendment has been duly
executed and delivered by Borrower and Company.
3.2 Binding Obligation. This Fifth Amendment is a
legal, valid and binding agreement of Borrower and Company,
enforceable against Borrower and Company in accordance with its
terms, except to the extent enforceability thereof may be limited
by applicable law relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by the application of
general principles of equity.
3.3 No Legal Obstacle to Agreement. Neither the
execution of this Fifth Amendment, the making by Borrower of any
borrowings under the Agreement, nor the performance of the
Agreement by Borrower and Company has constituted or resulted in
or will constitute or result in a breach of the provisions of any
Material Agreement, or the violation of any law, judgment,
decree or governmental order, rule or regulation applicable to
Borrower or Company, or result in the creation under any Material
Agreement (other than the Agreement) of any security interest,
lien, charge, or encumbrance upon any of the assets of Borrower
or Company. No approval or authorization of any governmental
authority is required to be obtained by the Company or the
Borrower to permit the execution, delivery or performance by
Borrower or Company of this Fifth Amendment, the Agreement, or
2
<PAGE>
the transactions contemplated hereby or thereby, or the making of
any borrowing by Borrower under the Agreement.
3.4 Incorporation of Certain Representations. The
representations and warranties set forth in Section 5 of the
Agreement are true and correct in all respects on and as of the
date hereof as though made on and as of the date hereof, after
giving effect to the effectiveness of this Fifth Amendment.
3.5 Default. No Event of Default under the Agreement
has occurred and is continuing.
4. Conditions, Effectiveness. This Fifth Amendment
shall be effective as of September 30, 1994, subject to the
compliance by Borrower and Company as of the date hereof with its
agreements herein contained, and to the delivery of the following
to Agent in form and substance satisfactory to Agent:
4.1 Corporate Resolution. A copy of a resolution or
resolutions passed by the Board of Directors of Borrower and
Company, certified by the Secretary or an Assistant Secretary of
Borrower and Company as being in full force and effect on the
date of this Fifth Amendment, authorizing the amendments to the
Agreement herein provided for and the execution, delivery and
performance of this Fifth Amendment and any note or other
instrument or agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by
the Secretary or an Assistant Secretary of Borrower and Company
and dated the date of this Fifth Amendment, as to the incumbency
of the person or persons authorized to execute and deliver this
Fifth Amendment and any instrument or agreement required
hereunder on behalf of Borrower and Company.
4.3 Other Evidence. Such other evidence with respect
to Borrower or Company or any other person as the Agent or any
Bank may reasonably request to establish the consummation of
the transactions contemplated hereby, the taking of all corporate
action in connection with this Fifth Amendment and the Agreement
and the compliance with the conditions set forth herein.
5. Miscellaneous.
-------------
5.1 Effectiveness of the Agreement. Except as hereby
amended, the Agreement shall remain in full force and effect.
5.2 No Waiver. This Fifth Amendment is specific in
time and in intent and does not constitute, nor should it be
construed as, a waiver of any other right, power or privilege
under the Agreement, or under any agreement, contract, indenture,
3
<PAGE>
document or instrument mentioned in the Agreement; nor does it
preclude any exercise thereof or the exercise of any other
right, power or privilege, nor shall any future waiver of any
right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned
in the Agreement, constitute a waiver of any other default of the
same or of any other term or provision.
5.3 Counterparts. This Fifth Amendment may be
executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and
the same instrument. This Fifth Amendment shall not become
effective until Company, Borrower, the Banks, the Agent and the
Guarantors shall have signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to the
Agent.
5.4 Jurisdiction. This Fifth Amendment, and any
instrument or agreement required hereunder, shall be governed by
and construed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement by their duly authorized officers as of the day
and year first above written.
INTERNATIONAL TECHNOLOGY
CORPORATION
By /s/ PHILIP H. OCKELMANN
-----------------------
Name: Philip H. Ockelmann
Title: Treasurer
IT CORPORATION
By /S/ PHILIP H. OCKELMANN
-----------------------
Name: Philip H. Ockelmann
Title: Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By /s/ KAY WARREN
--------------
Kay Warren
Vice President
4
PAGE
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
a Bank
By /s/ ROBERT W. TROUTMAN
-----------------------
Robert W. Troutman
Vice President
THE FIRST NATIONAL BANK OF BOSTON,
By /s/ ANN E. HOWARD
------------------
Title Managing Director
5
<PAGE>
<PAGE>
CONSENT BY GUARANTORS
The undersigned Guarantors hereby consent to the foregoing Fifth
Amendment to Credit Agreement and hereby reaffirm their
respective General Continuing General Guaranties, which continue
in full force and effect on and as of the date hereof.
Date: September 30,1994
INTERNATIONAL TECHNOLOGY CORPORATION
IT ENVIRONMENTAL PROGRAMS, INC.
IT ENVIRONMENTAL SERVICES, INC.
IT-TULSA HOLDINGS INC., formerly known as
IT MCGILL POLLUTION CONTROL SYSTEMS, INC.
PRINCETON AQUA SCIENCE
MCKITTRICK MUD COMPANY, INC.
UNDERGROUND RESOURCE MANAGEMENT, INC.
UNIVERSAL PROFESSIONAL INSURANCE
COMPANY, INC.
By: /s/ ANTHONY J. DELUCA
---------------------
Title: CFO, Treasurer
By: /S/ PHILIP H. OCKELMANN
-----------------------
Title: Treasurer
6
<PAGE>
Exhibit 10(ii). 14
------------------
SIXTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Sixth Amendment") is
made and dated as of May 15, 1995, among INTERNATIONAL TECHNOLOGY
CORPORATION, a Delaware corporation (the "Company"), IT CORPORATION, a
California corporation ("IT Corporation" or the "Borrower"), each of the banks
listed on the signature pages hereto (each a "Bank" and collectively the
"Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION in its
capacity as Agent for the Banks (the "Agent"), and amends the Credit Agreement
dated as of August 27, 1991 among Borrower, Company, the Banks and the Agent, as
amended by the First Amendment to Credit Agreement and Waiver dated as of June
19, 1992, the Second Amendment to Credit Agreement and Waiver dated as of July
6, 1993, the Third Amendment to Credit Agreement dated as of March 22, 1994, and
the Fourth Amendment to Credit Agreement dated as of June 24, 1994 and the Fifth
Amendment to Credit Agreement dated as of September 30, 1994 (as so amended, the
"Agreement").
RECITALS
--------------
A. The Borrower desires to amend certain financial covenants of
the Agreement and to extend the maturity date thereunder.
B. The Banks and Agent are willing to amend the Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All capitalized terms used herein shall have the same
meanings as in the Agreement unless otherwise defined herein. All references to
the Agreement shall mean the Agreement as hereby amended.
2. Amendments to Agreement. The parties hereto hereby agree to
amend the Agreement as follows:
2.1 The definition of "Advance Commitments" in Section 1.1 of the
Agreement is hereby amended and restated in its entirety as follows:
'Advance Commitments' means the commitments of the Banks to
make Advances described in Section 2.1 hereof and, with respect to any Bank,
is in the amount of such Bank's Pro Rata Share of $45,000,000, as such amount
may be reduced pursuant to Section 2.22 hereof."
1
<PAGE>
2.2 The definition of "Availability Period" in Section 1.1 of the
Agreement is hereby amended and restated in its entirety as follows:
"`Availability Period' means the period commencing on the date
of this Agreement and ending on July 31, 1996 or, if such day is not a Banking
Day, on the immediately succeeding Banking Day."
2.3 The definition of "Guarantors" in Section 1.1 of the Agreement
is hereby amended and restated in its entirety as follows:
"`Guarantors' means the Company, IT Environmental Services,
Inc., a Connecticut corporation, IT-Tulsa Holdings, Inc., formerly known as IT
McGill Pollution Control Systems, Inc., an Oklahoma corporation, and Universal
Professional Insurance Company, Inc., a Vermont corporation."
2.4 The definition of "Permitted Indebtedness" in Section 1.1 of
the Agreement is hereby amended by deleting the word "or" at the end of clause
(m), by deleting the period at the end of clause (n) and inserting "; or" in
substitution therefor, and by inserting a new clause (o) as follows:
"(o) Indebtedness incurred in connection with the final
proviso of Section 7.1."
2.5 New definitions are hereby added to Section 1.1 of the
Agreement to read as follows:
"`Corning/IT Venture'" means Quanterra Inc.
"`Motco Settlement' means a final settlement and receipt of
monies by the Company or the Borrower from IT Corporation v. Motco Site Trust
Fund and Monsanto Company, U.S. District Court for the Northern District of
Texas, Houston Division Civil Action No. H-91-3532, as described in the
company's annual report to shareholders involving the Borrower and the Motco
Trust and relating to the cleanup of a superfund site in La Marque, Texas."
"`Outstanding Advance Amount' means the outstanding principal
amount of all Advances."
2.6 Section 2.12 of the Agreement is hereby amended by changing the
heading of such Section to read "Commitment and Usage Fees" and by adding a
Section 2.12(c) to read as follows:
"(c) From and including the date hereof to and excluding the
last day of the Availability Period, or any earlier date of termination of the
Total Aggregate Commitments, if the average daily Outstanding Advance Amount
exceeds $25,000,000 during any calendar quarter, the Company agrees to pay the
Agent a usage fee in an amount equal to the percentage per annum designated
below on the average daily Outstanding Advance Amount for such quarter, payable
quarterly in arrears, to be shared ratably among the Banks in accordance with
their Pro Rata Shares:
2
<PAGE>
Adjusted Debt Service Applicable
Coverage Ratio Percentage
---------------------- ------------
less than or equal
to .80 .500%
greater than .80 but
less than or equal
to 1.00 .375%
greater than 1.00 but
less than or equal to
1.10 .225%
greater than 1.10 .000%
Such usage fee for any calendar quarter shall be payable on the
first Business Day following the end of that quarter, commencing on July 3,
1995. Any such fee not paid within such period shall bear interest at the
default rate set forth in Section 2.3(b) above from the date due until paid
in full."
2.7 A Section 2.22 is hereby added to the Agreement to read as
follows:
"2.22 Special Reduction of Advance Commitments and Outstanding
Advance Amounts. Effective upon the effective date of the Motco
Settlement, the Advance Commitments shall be reduced, Pro Rata among the Banks,
in an aggregate amount equal to fifty percent (50%) of the Net Cash Proceeds of
the Motco Settlement, provided that such reductions in the Advance Commitments
resulting from the Motco Settlement shall not reduce the aggregate amount of the
Advance Commitments to an amount less than $25,000,000. Upon the receipt by the
Company and/or the Borrower of Net Cash Proceeds resulting in a reduction in the
Advance Commitments pursuant to this Section 2.22, the Borrower shall prepay the
Outstanding Advance Amount by the amount, if any, by which the Outstanding
Advance Amount then exceeds the Advance Commitment. Any such prepayment shall
be applied first to the immediate repayment of Reference Rate Advances, and then
to the repayment of Offshore Rate Advances at the end of the current interest
period during which such proceeds are received. For purposes of this Section
2.22, Net Cash Proceeds shall mean total cash received by the Company and/or the
Borrower pursuant to the Motco Settlementless any related taxes or expenses not
previously recorded in the Company's books and records."
2.8 Section 6.4 of the Agreement is hereby amended and restated in
its entirety as follows:
"6.4 Tangible Net Worth. As measured on and as of the last
day of each fiscal quarter of the Company, beginning with the quarter ended
March 31, 1995, the Company will have on a consolidated basis Tangible Net
Worth at
3
<PAGE>
least equal to the sum of (a) $130,000,000, plus (b) 100% of the Net Proceeds
received by the Company from any public or private offering of any class of
equity securities, excluding, for this calculation only, any equity issued or
offered in connection with the Corning/IT Venture, plus (c) 50% of net income
earned after March 31, 1995 (without deduction for losses), on a quarterly
basis."
2.9 Section 6.5 of the Agreement is hereby amended by and restated
in its entirety as follows:
"6.5 Leverage Ratio. As measured on and as of the last day of
each fiscal quarter of the Company, the Company will have a Leverage Ratio no
higher 1.80 to 1.00."
2.10 Subsection "a" of Section 6.6 of the Agreement shall be amended
by adding the following language after the word "taxes" in subsection "i"
thereof:
"(excluding an amount not exceeding $12,000,000 in reserves for
pending litigation and an amount not exceeding $17,000,000 in increased reserves
from the reserves at December 31, 1994, for site closure, discontinued
operations and potentially responsible party ('PRP') liabilities)"
2.11 Subsection "a" of Section 6.7 of the Agreement shall be amended
by adding the following language after the parenthesis after the word "taxes" in
subsection "i" thereof:
"excluding an amount not exceeding $12,000,000 in reserves for
pending litigation and an amount not exceeding $17,000,000 in increased reserves
from the reserves at December 31, 1994, for site closure, discontinued
operations and potentially responsible party ('PRP') liabilities and" 2.12
Sections 6.2 and 6.3 of the Agreement are hereby amended by adding the following
sentence at the end of each such Section:
"The current portion of Indebtedness under this Agreement for the
calendar quarter ending September 30, 1995 only shall be excluded from
calculations relating to compliance with this Section."
2.13 Section 7.1 of the Agreement is hereby amended by adding the
following additional proviso at the end of such Section:
"and, provided further, that the Company may incur indebtedness in
connection with the prepayment of Senior Notes provided that: (i) such
indebtedness has a principal amount at least equal to the outstanding principal
amount of the Senior Notes to be prepaid at the time such indebtedness is
incurred, (ii) none of such indebtedness shall provide for payments of principal
at stated maturity prior to December 31, 2000, except for mandatory prepayments
thereof in an aggregate amount equal to 50% of the Net Cash Proceeds of the
Motco Settlement, and (iii) such indebtedness shall not have financial covenants
similar to those contained in Sections 6.1 through and including Section 6.7 of
this Agreement which are more restrictive than those contained in this
Agreement."
2.14 Section 7.3 of the Agreement is hereby amended by adding the
following additional proviso at the end of such Section:
"and, provided further, that the Company may prepay the Senior Notes
by (i) the incurrence of indebtedness permitted by the final proviso of
Section 7.1, (ii) with proceeds from an equity issuance or (iii) from the Motco
Settlement provided that any reductions in the Advance Outstanding Amounts
required by Section 2.22 shall have first been satisfied."
4
<PAGE>
2.15 Section 7.4 of the Agreement shall be amended by adding the
following proviso at the end of such Section:
"provided that the Borrower may from time to time purchase or redeem
shares of its common stock in the open market or in negotiated transactions for
the purpose of issuing shares within 90 days for directors' retainer fees and/or
senior management bonus awards."
2.16 Section 8.14 of the Agreement is hereby amended and restated in
its entirety as follows:
"8.14 Material Adverse Change. Any material adverse change
occurs in (a) the consolidated financial condition or results of operations of
the Company or (b) the ability of the Company or the Borrower to perform its
obligations hereunder or under any instrument or agreement required hereunder;or
more than $5,000,000 (excluding site closure costs for fiscal 1995) is charged
to consolidated earnings after the date hereof in connection with site closure
costs."
3. Representations and Warranties. Borrower and Company
jointly and severally represent and warrant to Banks and Agent:
3.1 Authorization. The execution, delivery and performance of this
Sixth Amendment by Borrower and Company have been duly authorized by all
necessary corporate action by Borrower and Company and the Sixth Amendment has
been duly executed and delivered by Borrower and Company.
3.2 Binding Obligation. This Sixth Amendment is a legal, valid and
binding agreement of Borrower and Company, enforceable against Borrower and
Company in accordance with its terms, except to the extent enforceability
thereof may be limited by applicable law relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
limiting creditors' rights generally or by the application of general
principles of equity.
3.3 No Legal Obstacle to Agreement. Neither the execution of this
Sixth Amendment, the making by Borrower of any borrowings under the Agreement,
nor the performance of the Agreement by Borrower and Company has constituted or
resulted in or will constitute or result in a breach of the provisions of any
5
<PAGE>
Material Agreement, or the violation of any law, judgment, decree or
governmental order, rule or regulation applicable to Borrower or Company, or
result in the creation under any Material Agreement (other than the Agreement)
of any security interest, lien, charge, or encumbrance upon any of the assets of
Borrower or Company. No approval or authorization of any governmental authority
is required to be obtained by the Company or the Borrower to permit the
execution, delivery or performance by Borrower or Company of this Sixth
Amendment, the Agreement, or the transactions contemplated hereby or thereby,
or the making of any borrowing by Borrower under the Agreement.
3.4 Incorporation of Certain Representations. The representations
and warranties set forth in Section 5 of the Agreement are true and correct in
all respects on and as of the date hereof as though made on and as of the date
hereof, after giving effect to the effectiveness of this Sixth Amendment.
3.5 Default. No Event of Default under the Agreement has occurred
and is continuing.
3.6 Certain Matters Regarding Released Guarantors. None of IT
Environmental Programs, Inc., Princeton Aqua Science, McKittrick Mud Company,
Inc. and Underground Resource Management Inc. (collectively, the "Released
Guarantors") individually has assets having a fair market value of more than
$500,000 and contributes more than 1% of the consolidated revenues of the
Company. The Borrower and the Company further agree and covenant that such
Released Guarantors will not have, during the term of this Agreement, assets
or revenues in excess of the foregoing.
4. Conditions, Effectiveness. This Sixth Amendment shall be
effective as of March 31, 1995, subject to the compliance by Borrower and
Company as of the date hereof with its agreements herein contained, and to the
delivery of the following to Agent in form and substance satisfactory to Agent:
4.1 Corporate Resolution. A copy of a resolution or resolutions
passed by the Board of Directors of Borrower and Company, certified by the
Secretary or an Assistant Secretary of Borrower and Company as being in full
force and effect on the date of this Sixth Amendment, authorizing the amendments
to the Agreement herein provided for and the execution, delivery and
performance of this Sixth Amendment and any note or other instrument or
agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by the Secretary
or an Assistant Secretary of Borrower and Company and dated the date of this
Sixth Amendment, as to the incumbency of the person or persons authorized to
execute and deliver this Sixth Amendment and any instrument or agreement
required hereunder on behalf of Borrower and Company.
4.3 Amendment Fee. Payment by the Borrower to the Agent of an
amendment fee in the amount of one eighth of one percent (1/8 of 1%) of the
Aggregate Commitment to be shared Pro Rata among the Banks.
4.4 Other Evidence. Such other evidence with respect to Borrower
or Company or any other person as the Agent or any Bank may reasonably request
6
<PAGE>
to establish the consummation of the transactions contemplated hereby, the
taking of all corporate action in connection with this Sixth Amendment and the
Agreement and the compliance with the conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Agreement. Except as hereby amended, the
Agreement shall remain in full force and effect.
5.2 No Waiver. This Sixth Amendment is specific in time and in
intent and does not constitute, nor should it be construed as, a waiver of any
other right, power or privilege under the Agreement, or under any agreement,
contract, indenture, document or instrument mentioned in the Agreement; nor does
it preclude any exercise thereof or the exercise of any other right, power or
privilege, nor shall any future waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture, document or instrument
mentioned in the Agreement, constitute a waiver of any other default of the same
or of any other term or provision.
5.3 Counterparts. This Sixth Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This Sixth Amendment shall
not become effective until Company, Borrower, the Banks, the Agent and the
Guarantors shall have signed a copy hereof, whether the same or counterparts,
and the same shall have been delivered to the Agent.
5.4 Jurisdiction. This Sixth Amendment, and any instrument or
agreement required hereunder, shall be governed by and construed under the laws
of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized officers as of the day and year first above written.
INTERNATIONAL TECHNOLOGY
CORPORATION
By /s/ PHILIP H. OCKELMANN
Name: Philip H. Ockelmann
Title: VP/Treasurer
IT CORPORATION
By /s/ PHILIP H. OCKELMANN
Name: Philip H. Ockelmann
Title: VP/Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By /s/ KAY WARREN
Kay Warren
Vice President
7
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
a Bank
By /s/ ROBERT W. TROUTMAN
Robert W. Troutman
Managing Director
THE FIRST NATIONAL BANK OF BOSTON
By /s/ ANN E. HOWARD
Name: Ann E. Howard
Title: Managing Director
8
PAGE
<PAGE>
CONSENT BY GUARANTORS
The undersigned Guarantors hereby consent to the foregoing Sixth Amendment to
Credit Agreement dated as of May 17, 1995 and hereby reaffirm, ratify and
confirm each of their respective General Continuing General Guaranties, which
continue in full force and effect on and as of the date hereof, after giving
effect to such Sixth Amendment.
Date: May 17,1995
INTERNATIONAL TECHNOLOGY CORPORATION
IT ENVIRONMENTAL SERVICES, INC.
IT-TULSA HOLDINGS INC., formerly known as
IT MCGILL POLLUTION CONTROL SYSTEMS, INC.
UNIVERSAL PROFESSIONAL INSURANCE
COMPANY, INC.
By: /s/ ANTHONY J. DELUCA
Applicable Titles: Sr. VP - CFO - Treasurer
By: /s/ PHILIP H. OCKELMANN
Applicable Titles: VP - Treasurer
9
<PAGE>
Exhibit 10(ii).17
-----------------
SHAREHOLDERS' AGREEMENT
-----------------------
AGREEMENT, dated as of June ___, 1994, among MetPath Inc., a
Delaware corporation formerly known as Corning Lab Services Inc.
("MetPath"), International Technology Corporation, a Delaware
corporation ("ITX"), and IT Corporation, a California
corporation ("IT") ("ITX and IT being collectively referred to as
"ITC") a nd Quanterra Incorporated, a Delaware corporation
("Newco").
WHEREAS MetPath, through its Enseco Division (the "Enseco
Division") and IT, through its IT Analytical Services Division
(the "IT Division"), are each engaged in the United States in the
business of providing environmental testing services involving
quantitative and qualitative analysis of chemicals and other
pollutants and directly related services (the foregoing business
being referred to in this Agreement as the "Analytical Services
Business");
WHEREAS simultaneously with the execution of this Agreement,
MetPath has transferred to Newco its entire Enseco Division, and
as consideration therefor MetPath has received from Newco 1,056
shares of Class A Common Stock, par value $.01 per share of
Newco, and IT has transferred to Newco its entire IT Division and
as consideration therefor IT has received from Newco 1,056 shares
of Class B Common Stock, par value $.01 per share, of Newco,
which shares constitute in the aggregate all of the capital stock
of Newco outstanding as of the date of this Agreement.
WHEREAS each of MetPath and ITC has agreed that during the
term of this Agreement and, subject to certain conditions,
following the term of this Agreement, it and its Affiliates will
conduct the Analytical Services Business exclusively through
Newco and its Affiliates.
NOW, THEREFORE, in consideration of the mutual promises and
convenants hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
ARTICLE I - DEFINITIONS
-----------
As used in this Agreement, the following terms shall have
the following meanings:
1.01. Affiliates. The terms "Affiliate" of an Investor
shall mean a corporation any other business entity or a trust, in
whatever country organized, which directly or indirectly
controls, is controlled by or is under common control with such
Investor, where such control is exercised through majority
ownership of outstanding stock, including without limitation the
ultimate corporate parent of each entity, it being understood
that the Company and its Affiliates shall not be deemed to be an
Affiliate of, or to have as an Affiliate, any of the Investors or
any of their respective Affiliates.
1.02. Company. The term "the Company" shall mean
Quanterra Incorporated, a Delaware corporation.
1.03. Corning. The term "Corning" shall mean Corning
Incorporated, a New York corporation, and its successors.
1.04. Corning Directors. The term "Corning Directors"
shall have the meaning set forth in Section 2.01.
1.05. Field of Activity. The "Field of Activity" of the
Company shall mean the Analytical Services Business which is
further defined for purposes of this Section 1.05 as including
industrial hygiene testing (i.e., testing related to the
monitoring of work environments, primarily for the purposes of
satisfying occupational health and safety laws for substances
that are potentially harmful to persons). The Company may pursue
its business worldwide, and may expand into additional related
services, such as (without limitation) the sale and servicing of
monitoring equipment, data verification, the collection of
samples in appropriate markets and bioassay. The Field of
Activity does not include (i) the ownership or operation of
facilities for the development of treatment and disposal
techniques and technologies that address, treat, solve, or are
intended for the remediation of, on-going waste streams, on- or
off-site contamination or waste minimization, including bench and
pilot and bench scale studies ("Technology
Development/Treatability Laboratories") or (ii) the engineering
or contracting businesses generally (including, without
limitation, any activity requiring a contractor's, underground
tank removal, asbestos removal, or professional engineering
license). MetPath acknowledges and agrees that IT's Technology
Development/Treatability Laboratory businesses include standard
analytical laboratory equipment and processes which are used in
support of technology development and treatability study work
done for both internal-IT and external clients, and IT is not
prohibited from pursuing such businesses/work following the
Closing.
1.06. Group. The term "Group" shall mean ITX and its
direct and indirect majority owned subsidiaries, including
without limitation IT (the "ITC Group") on the one hand and
Corning and its direct and indirect majority owned subsidiaries,
including without limitation, MetPath (the "Corning Group") on
the other hand. Notwithstanding the foregoing, in the event that
at any time Corning ceases to own directly or indirectly a
majority of MetPath's outstanding capital stock, then, to the
extent not prohibited by the terms of the Equity Investors'
Undertaking (as hereinafter defined) from and after such date the
"Corning Group" shall mean MetPath and its direct and indirect
majority-owned subsidiaries.
1.07. Investor. The term "Investor" shall mean IT or
MetPath.
1.08. ITC Directors. The term "ITC Directors" shall
have the meaning set forth in Section 2.01.
1.09. Shareholder. The term "Shareholder" shall mean a
holder of record of shares of the Company.
ARTICLE II - MANAGEMENT
----------
2.01. Board of Directors. The business of the Company
shall be managed by a Board of Directors consisting initially of
five members, two of whom shall be persons nominated by IT (the
"ITC Directors") and two of whom shall be persons nominated by
MetPath (the "Corning Directors"). The initial ITC Directors
shall be Robert Sheh and James Mahoney and the initial Corning
Directors shall be Martin Gibson and Robert Ecklin. ITC hereby
agrees to vote any shares of the Company held by it for the
election of the Corning Directors, and MetPath hereby agrees to
vote any shares of the Company held by them for the election of
the ITC Directors. Each of ITC and MetPath hereby agrees to vote
any shares of the Company held by it to elect, as a Director of
the Company, the person who from time to time is serving as the
President of the Company. IT and ITX further agree that they
will cause all Shareholders which are members of the ITC Group,
and MetPath further agrees that it will cause all Shareholders
which are members of the Corning Group, to comply with the
provisions of this Section 2.01. The foregoing agreements to
vote for the election of ITC Directors, Corning Directors and the
President shall also govern with respect to the removal of such
directors and to the filling of any vacancies among such
directors whenever and for whatever reason occurring. In the
event that the total authorized number of members of the Board of
Directors is changed, the ITC Directors as a group and the
Corning Directors as a group shall each comprise half (exclusive
of the person who is the President and a Director of the Company)
of such total authorized number. Notwithstanding the foregoing,
in the event that, as a result of the transactions contemplated
by Section 4.01 hereof, members of either Group own in excess of
58.69% of the outstanding shares of the Company continuously for
a period of at least nine months, then on and after the date
nine calendar months after the date that members of such Group
first owned, and thereafter only during such period as members of
such Group do own, in excess of 58.69% of the outstanding shares
of the Company (treated as a single class), the number of
directors nominated by such Group shall be increased to four (and
the total number of Directors shall be increased to seven) so
that the Group that holds in excess of 58.69% of the outstanding
shares of the Company could nominate and elect in total four of
the seven directors of the Company.
ARTICLE III - OPERATIONAL PROVISIONS
----------------------
3.01. Action Requiring Approval of the Board. Without
limiting the provisions of the By-laws of the Company with
respect to approval by the Board of Directors, the Investors
agree that the Company shall not enter into any business outside
the Field of Activity without the approval of the Board of
Directors.
3.02. Accounting and Controls. The Investors acting
through the Board of Directors shall hold the management of the
Company accountable to conduct the business of the Company at all
times in accordance with the highest standards of business ethics
and in accordance with applicable laws and regulations and to
maintain the Company's accounts in accordance with generally
accepted United States accounting principles and, specifically,
to:
(a) make and keep books, records and accounts
which, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets
of the Company; and
(b) devise and maintain a system of internal
accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in
accordance with general or specific authorizations,
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with
generally accepted United States accounting principles
or any other criteria applicable to such statements and
to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with general or
specific authorizations, and (iv) the recorded
accountability for assets is compared with existing
assets at reasonable intervals and appropriate actions
is taken with respect to any differences.
Each Investor and its auditors shall have full access to all
such books, records and accounts of the Company.
3.03. Fiscal Year. The Company shall keep its books and
accounts on the basis of a calendar year, unless the Board of
Directors of the Company shall determine otherwise.
3.04. Financial and Business Information. The Investors
acting through the Board of Directors shall hold the management
of the Company accountable to:
(a) present annual capital, operating and
strategic plans and budgets (and material modifications
thereof) and investment policies to the Board of
Directors for approval;
(b) make available to all members of the Board of
Directors(and, where appropriate, the Investors) on a
regular and timely basis all such information and
employees of the Company as may be required to permit
the Directors and/or the Investors, as the case may
be, to make informed judgments with respect to such
plans and budgets and all other matters of interest to
them;
(c) provide to the Investors regular and timely
periodic financial statements showing profit and loss,
cash flow, assets and liabilities and including
appropriate comparisons to budgets, analyses and
forecasts; and
(d) provide to the Investors on a regular and
timely basis copies of the minutes of all meetings of
the Board of Directors of the Company and any committees
thereof.
3.05. Independent Enterprise. The Company shall at all
times be conducted as an independent enterprise for the profit of
all Shareholders, and all commercial transactions between the
Company and an Investor or an Affiliate of an Investor shall be
conducted on an arm's-length basis and the Company shall not
grant to any Investor or any of its Affiliates terms or
conditions more favorable than would be accorded non-related
third-party customers or suppliers, except as the Board of
Directors of the Company may otherwise determine prior to such
transaction. Although it is understood that MetPath and ITX will
provide certain staff services for a period of time immediately
following the commencement of the Company's operations, it is
intended that all major corporate functions, including, without
limitation, finance, accounting, purchasing, research and
development, and sales will be fully developed and staffed by the
employees of the Company.
ARTICLE IV - FINANCING
---------
4.01. Borrowing by the Company. The Investors
contemplate that the Company may from time to time borrow money
from financial institutions for working capital and to finance
major capital investments and growth and expansion plans and
agree that any such capital requirements should be financed out
of the working capital of the Company and the Company's
internally generated cash flows, and that any borrowings should
be made without the guarantee or other undertaking of any of the
Investors. Simultaneously with the execution of this Agreement,
the Company, the banks named therein, Citibank, N.A. and Citicorp
USA have entered into a Credit Agreement dated as of June 28,
1994 (such agreement, as amended from time to time, being the
"Credit Agreement") and MetPath and ITC have entered into an
Equity Investors' Undertaking with Citibank, N.A..
Notwithstanding the joint and several obligations of ITC and
MetPath under Section 2 of the Equity Investors' Undertaking, the
Corning Group and the ITC Group hereby agree, solely as between
themselves, that each Group shall, except to the extent that ITC
is prohibited from doing such under its debt instruments,
contribute 50% of the amount required to be contributed at any
time under Section 2 of the Equity Investors' Undertaking. The
Board of Directors of the Company has approved the issuance, and
each of the Investors shall be entitled to receive from the
Company, a stock certificate representing 1 share of Common Stock
(Class A Common Stock in the case of the Corning Group and Class
B Common Stock in the case of the ITC Group) for each $11,261 or
portion thereof that such Investor (a) is required to (and does)
contribute under the Equity Investors' Undertaking or (b)
otherwise contributes to the Company as a condition to the
lenders under the Credit Agreement waiving any Default or Event
of Default under the Credit Agreement (as such terms are defined
in the Credit Agreement), subject to a maximum of 444 shares each
in the aggregate (it being intended that each Group shall
contribute 50% of such amounts except to the extent that the ITC
Group is prohibited from doing so under its debt instruments).
Notwithstanding the foregoing, in the event that one Group
contributes funds to the Company as contemplated by the preceding
sentence and the other Group does not contribute all or any
portion of its 50% share of the amount required (whether by
reason of not having the consent of its bank lenders to do so or
otherwise), the members of the other Group may contribute all or
a portion of the funds that the defaulting Group did not
contribute and shall be entitled to purchase the additional
shares that the defaulting Group was otherwise entitled to
purchase. If and to the extent that at any time within the 36
months after such purchase the members of the defaulting Group
are not prohibited by the terms of their bank credit agreement
from contributing capital to the Company the defaulting Group
shall be required to purchase all such shares (i.e., the Class A
Common Stock purchased by the IT Group or the Class B Common
Stock purchased by the Corning Group) as promptly as practicable
but in no event later than ten business days thereafter. The
purchase price shall be paid in cash in an amount equal to
greater of (x) the purchase price paid to the Company for such
shares by the non-defaulting Group, plus simple interest on such
amount at the rate of ten percent per annum from the date of the
purchase by the non-defaulting Group to (but not including) the
date of the re-purchase by the defaulting Group and (y) the
amount determined by multiplying (i) the purchase price paid to
the Company for such shares by the non-defaulting Group, by (ii)
a percentage equal to the sum of (A) 100% plus (B) the percentage
increase (if any) in pro forma shareholder's equity per share of
Newco's common stock, as reflected in the most recent financial
statements delivered under the Credit Agreement from the end of
the fiscal quarter immediately preceding the date that the shares
were purchased by the non-defaulting Group to the end of the
fiscal quarter immediately preceding the closing of the purchase
by the defaulting Group under this sentence. Pro forma
stockholders equity per share means per share stockholders equity
of the Company determined in accordance with generally accepted
accounting principles except that (x) there shall be excluded
from stockholders equity the effect of (i) any capital
contributions or distributions paid after the date hereof and
(ii) any stock dividends, stock splits or similar transactions
occurring after the date thereof and (y) any shares issued after
the date hereof shall not be deemed to be outstanding. Nothing
contained in the preceding sentence shall be deemed to limit the
remedies of the non-defaulting Group with respect to the breach
by the defaulting Group under the Equity Investors Undertaking.
IT agrees to use its best efforts (as defined in the Asset
Transfer Agreement) (x) to obtain a waiver from Bank of America
NT&SA ("Bank of America") and all of its other lenders (to the
extent required) permitting IT to make a contribution of up to $5
million if and to the extent required by the terms of the Equity
Investors' Undertaking and (y) not to enter into any financing or
similar agreement or amend its existing credit agreement with
Bank of America that imposes restrictions on investments in the
Company more restrictive than under its current agreement with
Bank of America (i.e. a pro forma adjusted debt service coverage
ratio of 1.0 to 1.0.)
ARTICLE V - EFFECTIVENESS OF AGREEMENT
--------------------------
5.01. Transfer of Business. This Agreement shall become
effective on and as of the closing date under the Asset Transfer
Agreement dated as of May 2, 1994, among MetPath, IT, ITX and the
Company.
ARTICLE VI - SALE OF TRANSFER OF SHARES
--------------------------
6.01. No Sale or Transfer for Three Years. No
Shareholder which is a member of either the ITC Group or the
Corning Group shall pledge, encumber, sell or otherwise transfer
any shares of the Company during the period of three years
beginning on the date of this Agreement; provided, however, that
any Shareholder may at any time pledge or otherwise encumber any
such shares without the prior written consent of the Board of
Directors of the Company in connection with any bona fide
financing, provided that prior written notice is given to the
other Shareholders and the financing party and any transferee
agrees to be bound by the terms of this Agreement including
without limitation Article VI. Notwithstanding the foregoing, in
connection with the Credit Agreement, each Shareholder has agreed
with Citibank, N.A. under the Equity Investors Undertaking not to
pledge any shares of the Company, and to the extent prohibited
by the terms of such facility, as it may be amended from time to
time, no Shareholder shall pledge, encumber or transfer such
shares or permit any Change of Control (as defined in the Credit
Agreement) to occur.
6.02. Desire to Sell. If after three years from the
date hereof, any Shareholder in one Group shall desire to sell
all or a part of its shares of the Company, such Shareholder
shall first provide the Shareholders in the other Group with
written notice of its desire to sell, including a description of
the number of shares to be offered, their proposed price and the
financial terms on which they will be offered. The Shareholders
in the other Group shall have 60 days after receipt of such
notice to exercise (acting as a group), by mailing to such
selling Shareholder a written notice thereof, a right of first
refusal or option to purchase such shares at a price and upon
financial terms offered by the selling Shareholder. If the
Shareholders in the other Group exercise such right of first
refusal or option to purchase, they shall have an additional
period of 60 days after such exercise within which to tender
payment for such shares in accordance with such terms. Any
shares so purchased may be allocated among the Shareholders in
the purchasing Group as they may agree. If the Shareholders in
the other Group do not exercise such right of first refusal or
option to purchase, the selling Shareholder shall have a 90-day
period in which to sell the shares at a price and upon financial
terms no less favorable to the selling Shareholder than those
specified in the selling Shareholder's notice to the Shareholders
in the other Group. No more than two notices may be given by
members of any one Group under this Section 6.02 in any twelve
month period. This Section 6.02 shall be binding on any assignee
of any Shareholder, including without limitation, any person who
may foreclose on any shares of the Company pledged in compliance
with Section 6.01.
6.03. Permitted Transfers. The provisions of Sections
6.01 and 6.02 notwithstanding, a Shareholder may transfer any
shares of the Company held by it to any other member of the same
Group; provided, however, that the transferee shall have agreed
to be bound jointly with the transferring Shareholder by all of
the terms and conditions of this Agreement and the Equity
Investors' Undertaking. Each such transferee shall execute the
form of Undertaking Supplement set forth in Exhibit A to the
Equity Investors' Undertaking or such other document as shall be
acceptable to the lenders under the Credit Agreement. ITX and
MetPath each shall not permit any Shareholder (including without
limitation IT) to cease to be a member of its Group without first
transferring ownership of the shares of the Company held by such
Shareholder to a corporation or other entity which shall remain a
member of such Group.
6.04. Recording of Transfers. The Company shall not
record the transfer of shares of its capital stock by any
Shareholder in violation of this Article VI, and shall affix a
legend on any stock certificate representing shares subject to
this Article VI giving notice of this Article.
6.05. Fundamental Issues. (a) Board of Directors
Resolution. Following the date which is three years from the
date of this Agreement, either MetPath or IT through their
respective representatives on the Board of Directors may, by
written notice to the other Investors and other Directors,
declare that, in its (or their) good faith judgment, an
unresolved disagreement exists on an issue or matter which is
fundamental to the management or policies of the Company. The
Board of Directors shall use its best efforts to resolve such
disagreement within the three-month period following the giving
of such notice.
(b) Shareholder Resolution. If the Board of Directors
fails to resolve the disagreement identified in such notice
within such three-month period, then the matter shall be referred
to MetPath and ITX for resolution. Such companies shall use
their best efforts to resolve such disagreement, including by
consultation among them at the highest levels of management.
(c) Valuation. If MetPath and ITX are unable to
resolve such disagreement within a further two-month period, then
within one month thereafter the Board of Directors shall appoint
a U.S.-based investment banking firm of internationally
recognized standing (the "investment banking firm") to determine
the fair market value of the Company taken as a whole. If the
Board of Directors is unable to agree on the appointment of the
investment banking firm, such appointment shall be made pursuant
to the Rules of the American Arbitration Association. Such
determination of fair market value shall be made within three
months following the appointment of the investment banking firm.
Promptly upon the determination by the investment banking firm of
such fair market value, the Board of Directors shall give notice
thereof by telecopy, confirmed in writing, to each Shareholder.
Such notice shall set forth the aggregate fair market value of
the Company, the total number of outstanding shares of the
Company, the fair market value per share and the aggregate number
of shares held by each Group.
(d) Willingness to Purchase. Within one month
following the giving of the notice referred to in paragraph (c)
of this Section 6.05, MetPath and ITX shall each inform the
investment banking firm whether it or members of its Group are
willing to purchase the shares held by members of the other Group
at a price equal to the fair market value per share set forth in
the notice referred to in such paragraph (c). Failure to send
such notice within such one-month period shall be conclusive
evidence that a party declines to purchase the shares at the
price specified by the investment banking firm. Within three
business days after the investment banking firm has received
responses from MetPath and ITX (or the time for such response
has passed), it shall inform each of them of the response, if
any, received from the other. If both Groups are willing to
purchase at the price set forth in the notice referred to in
paragraph (c), then the investment banking firm, within three
business days, shall send a further notice stating that the
purchase price shall be increased by 5% of the price set forth in
the first notice. Within three business days after such further
notice, each of MetPath and ITX shall inform the investment
banking firm by telecopy whether it or members of its Group are
willing to purchase at such increased purchase price. The
procedure set forth in the preceding three sentences shall be
repeated until only one Group is willing to purchase at the
purchase price set forth in the latest notice from the investment
banking firm. When only one Group is willing to purchase at the
purchase price stated in the original or any further notice from
the investment banking firm, such Group (the "purchasing Group")
shall purchase, and the other Group shall sell, on a date agreed
between MetPath and ITX (which shall be not later than 60 days
from the date on which the purchasing Group receives a telecopy
from the investment banking firm informing it that the other
Group has declined to purchase), all of the shares of the Company
held by members of the other Group. On such date, the members of
the purchasing Group shall make payment of the purchase price
stated in the applicable notice, and the members of the other
Group shall convey good and marketable title to such shares, free
and clear of all liens and encumbrances.
(e) Sale to Third Party. If neither Group is willing
to purchase the shares held by the other Group at the price set
forth in the notice referred to in paragraph (c), or in any
further notice referred to in paragraph (d), of this Section
6.03, then the Board of Directors shall engage the investment
banking firm to find a buyer or buyers for all the shares of the
Company held by members of both Groups, which may include (if the
investment banking firm so recommends) an underwritten public
offering of shares of the Company. Members of either Group shall
be free to make offers for all the shares of the other Group in a
manner consistent with the bidding or other procedures
established by the investment banking firm. Unless otherwise
agreed between the two Groups, any buyer shall be required to
purchase such shares for cash. Each of MetPath and ITC will, and
will cause other members of its Group, to execute such agreements
and take such actions as may be reasonably required or desirable
to consummate a sale of the Company in accordance with this
paragraph (e) including without limitation execution of a
non-competition agreement comparable to the provisions of Section
8.01 and/or causing its affiliated directors to execute a
registration statement for the public offering of the Company's
shares.
(f) Dissolution. MetPath and ITX agree that, if the
investment banking firm has been engaged pursuant to paragraph
(e) of this Section 6.05 but prior to the date which is nine
months from the date of the giving of the notice referred to in
paragraph (c) of this Section 6.05 no buyer has entered into a
definitive agreement (which may include a definitive underwriting
agreement) for the purchase of all the shares of the Company held
by both Groups, then the Board of Directors shall adopt a
resolution providing for the dissolution of the Company and each
of MetPath and ITX shall vote or cause to be voted all shares of
the Company held by members of its Group in favor of a resolution
of shareholders approving such dissolution. Upon the adoption of
such shareholders' resolution, the Board of Directors shall carry
out all procedures required by law to complete the dissolution of
the Company and the distribution of its assets.
ARTICLE VII - REFERRAL AND SERVICING OF BUSINESS
----------------------------------
7.01. Use of Company's Services. During the term of
this Agreement, IT shall use all reasonable efforts, consistent
with its past practice, and will use reasonable efforts to cause
its Affiliates and its and their respective customers, to utilize
the services of laboratories owned and operated by the Company,
including, whenever possible, by referring clients and others to
the Company's laboratories and by providing for the use of the
Company's laboratories in its contracts with its clients.
7.02. Servicing by the Company. The Company shall
likewise use all reasonable efforts to maintain sufficient
capacity to process all samples originating from IT and its
customers, and to actually process such samples, on bases at
least as favorable as those the Company offers to similar
clients. In furtherance of the foregoing, the Company agrees to
use all reasonable efforts to offer to IT and its clients prices,
turnaround times, and other terms and conditions at least as
favorable as those offered to similar clients. The Company also
agrees to maintain such quality assurance/quality control and
similar programs as IT shall reasonably request in connection
with IT's efforts to utilize and refer business to, the Company's
laboratories.
ARTICLE VIII - NON-COMPETITION
---------------
8.01. During the term of this Agreement and, if either
Group purchases the shares owned by the other Group pursuant to
Section 6.02 or Section 6.05 of this Agreement, for a period of
five years following the termination of this Agreement, MetPath
and ITX will not, and will cause other members of its Group not
to, own, manage, operate or control, or participate in the
ownership, management, operation or control of, or have any
ownership interest in, any business that owns or operates fixed
or mobile laboratories within the Field of Activity (excluding,
however, industrial hygiene testing), provided, however, that
nothing contained in this Section 8.01 shall prohibit any person
from owning less than one percent (1%) of any class of securities
of a company in the Field of Activity which securities are listed
on a national securities exchange or publicly traded in the
over-the-counter market. The parties understand that IT has
several business divisions that are engaged in environmental
management services (including pollution control engineering) and
construction and remediation and, which businesses will not be
deemed to violate the provisions of this Section 8.01 as long as
they do not violate the terms of this Agreement. Notwithstanding
the foregoing, (a) MetPath's Affiliate, DeYor/CPF (or its
successor), may continue to be engaged in the business of
providing environmental testing services provided that, excluding
revenues from industrial hygiene testing (as defined in Section
1.05), the revenues of DeYor/CPF (or its successor) from
environmental testing services do not exceed $2 million in any
calendar year; (b) any member of either Group may operate a
business within the Field of Activity that is acquired (whether
for stock, assets or otherwise) after May 1, 1994 provided that
(1) the revenues of such business from environmental testing
services during the twelve months immediately preceding the date
of acquisition are less than 15% of the revenues of the acquired
business or assets from all other businesses during such period
and (2) the revenues of such business from environmental testing
services after the date of acquisition do not exceed in any
calendar year the amount of such revenues during the twelve
months preceding the date of acquisition, increased at the simple
rate of 5% per annum from the date of acquisition, (c) ITC and
its Affiliates may operate at major remediation project sites
laboratories for the processing of samples taken from such
project site in support of remediation or related services being
provided at such site by ITC or its Affiliates and (d) members of
the Corning Group may own or operate facilities for environmental
product or compound safety testing including, without limitation,
(1) environmental testing studies for the (a) the state, federal,
international or foreign registration and registration of
pesticides, (b) environmental assessment of pharmaceutical
compounds and animal health products and (c) the pre-manufacture
and pre-marketing notification testing of new chemicals as
required by applicable laws, rules and registration and (2)
pesticide water monitoring studies. The parties further agree
that ITC and its Affiliates and MetPath and its Affiliates may
service outside the Field of Activity persons who are customers
of the Company. If any of the provisions of this Section 8.01 is
held to be unenforceable because of the scope, duration or area
of its applicability, the court making such determination shall
have the power to modify such scope, duration or area or all of
them, and such provision shall then be applicable in such
modified form.
ARTICLE IX - TERM
----
9.01. Term. This Agreement shall remain in full force
and effect until (i) the liquidation or dissolution of the
Company or (ii) the members of either Group taken together cease
to own voting securities of the Company having in the aggregate
at least 40% of the voting power of all voting securities of the
Company. Notwithstanding the immediately preceding sentence, the
members of either Group, so long as they continue to own at least
40% in aggregate of the shares of Common Stock, shall continue to
have the right to enforce the provisions of Articles VI and VIII
with respect to members of the other Group.
Any provisions of this Agreement which constitutes an
agreement governed by Section 218(c) of the Delaware General
Corporation Law (or any statutory provision which is a successor
thereto) shall be effective for a period of ten years from the
date hereof (or such longer period as may be permitted by any
such successor statutory provision); provided that any time
within two years prior to the end of such ten-year (or longer)
period, the parties may extend the duration of such provision for
as many additional periods, each of ten years duration (or such
longer permitted period), as they may then agree. MetPath and
ITC hereby agree that if by the date six months prior to the
expiration of any such period applicable to the provisions of
Section 2.01 of this Agreement such period has not been extended
for a further ten years, then each of MetPath and ITC shall vote
or cause to be voted all shares of the Company held by it or
members of its Group in favor of an amendment to the Certificate
of Incorporation of the Company providing for (i) the
classification of the Board of Directors of the Company into two
classes of equal numbers, (ii) the reclassification of the voting
shares of the Company into two classes, one comprising the shares
originally held by member of the ITC Group ("ITC Shares") and one
comprising the shares originally held by members of the Corning
Group ("Corning Shares") and (iii) the election of one class of
directors by the holders of the ITC Shares and the election of
the other class of directors by the Corning Shares. The parties
also hereby agree that, if by the date twenty-one months prior to
the expiration of any such period applicable to the provisions of
Section 6.05(f) such period has not been so extended, then such
failure to so extend shall constitute an unresolved disagreement
to which the provisions of Section 6.05 shall apply.
ARTICLE X - MISCELLANEOUS
-------------
10.01. Assignment on Written Consent. This Agreement
shall be binding upon and inure to the benefit of the Investors
and their respective successors and assigns. Except as provided
in Section 6.03, this Agreement may not be assigned in whole or
in part by an Investor except with the prior written consent of
the other Investors; provided, however, this Agreement may be
assigned as a result of a merger, consolidation, share exchange
or liquidation of a Shareholder in which the Shareholder is not
the survivor, provided that the surviving or successor entity and
each entity that controls the surviving or successor entity
agrees in writing with the remaining Shareholder to be bound by
the provisions of this Agreement. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any person other
than the parties to this Agreement and their respective
successors and assigns, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of
any third person to any party to this Agreement.
10.02. Amendment or Modification. This Agreement may
not be modified or amended except by a writing duly signed by the
authorized representatives of the parties hereto.
10.03. Severability. In the event any one or more of
the provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect, the validity, legality
and/or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
10.04. No Waiver. No failure or delay on the part of
any party in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy hereunder. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
10.05. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York without regard to principles of conflicts of
laws, except that matters concerning the organization and
internal corporate affairs of the Company shall be governed by
the laws of the State of Delaware. Jurisdiction and venue for
litigation of any dispute, controversy or claim arising out of or
in connection with this Agreement shall be only in a United
States federal court or a New York state court having subject
matter jurisdiction located in New York, New York. The parties
hereby expressly submit to the personal jurisdiction of the
foregoing courts located in New York, New York, and waive any
objection or defense based on personal jurisdiction or venue that
might otherwise be asserted to proceedings in such courts.
10.06. Attorney's Fees. If any action or other
proceeding is brought for the enforcement of this Agreement or
because of any alleged dispute, default or misrepresentation in
connection with any of its provisions, the successful or
prevailing party shall be entitled to recover reasonable
attorney's fees and other costs incurred in the actions or
proceeding, in addition to any other relief to which it may be
entitled. In addition, any award of damages as a result of
breach of this Agreement or any of its provisions shall include
an award of prejudgment interest from the date of the breach at
the Prime Rate. If any action or other proceeding is brought to
enforce a judgment rendered in connection with this Agreement,
the judgment creditor shall be entitled to recover reasonable
attorney's fees and other costs incurred, and such costs shall be
recoverable as a separate item. This provision shall be
severable from all other provisions of this Agreement, shall
survive any judgment, and shall not be deemed merged into the
judgment.
10.07. Notices. All notices and communications
hereunder given by any party to any other party shall be in
writing (including by telecopy) and shall be deemed to have been
duly given when received if delivered in person or by mail,
first-class, postage and certified mail prepaid, and when sent,
if sent by telecopy, addressed to the respective parties hereto
as follows:
If to MetPath: MetPath Inc.
One Malcolm Avenue
Teterboro, NJ 07608
Attention: General Counsel
Telecopy: 201-393-5289
If to ITC: IT Corporation
c/o International Technology Corporation
23456 Hawthorne Boulevard
Torrance, CA 90505
Attention: General Counsel
Telecopy: 310-791-4770
If to NEWCO: 5251 DTC Parkway
Suite 415
Englewood, Colorado 80111
Attention: President
Telecopy: 303-796-2002
or to such other address as a party may have specified by written
notice to the other parties.
10.08. Headings. Article and Section headings in this
Agreement are included for convenience of reference only and
shall not constitute a part of this Agreement for any other
purpose.
10.09. Execution in Counterparts. This Agreement may be
executed by the parties hereto in any number of counterparts,
each of which when so executed and delivered shall be deemed to
be an original but all of which when taken together shall
constitute but one and the same instrument.
10.10. Arbitration. All disputes or differences arising
out of or related in any way to this Agreement (other than those
falling within the provisions of Section 6.05(a), which shall be
resolved as provided in Sections 6.05(b) through (f), inclusive)
shall be submitted to the decision of three (3) arbitrators, one
to be chosen by each party, and the third to be chosen by the two
previously selected arbitrators. If either of the parties fails
to appoint an arbitrator within one (1) month after receipt of a
demand to arbitrate, such arbitrator shall at the request of
either party be appointed by application to the courts of New
York having competent jurisdiction therefor.
The arbitration proceedings shall take place in New
York. The applicant shall submit its case within one (1) month
after the appointment of the arbitration panel, and the
respondent shall submit his reply within one (1) month after
receipt of a claim. The arbitrators shall apply the rules of
evidence and law applicable in courts sitting in New York.
The arbitration panel shall be empowered to award
provisional (i.e., injunctive) relief upon proper application,
but a party shall be entitled, pending the appointment of all
such arbitrators and the covening of such arbitration, to seek
such relief from any court otherwise having competent
jurisdiction of such matter.
The arbitration panel shall render a written, reasoned
decision on each issue before it, in which decision it shall also
state how each arbitrator voted. Any decision by the arbitration
panel shall be binding upon the parties and may be entered as a
final judgment in any court having jurisdiction. The cost of any
arbitration proceeding shall be borne by the parties as the
arbitrator shall determine if the parties have not otherwise
agreed.
This Section shall survive the termination of this
Agreement.
10.11. Specific Enforcement. Notwithstanding any other
provision of this Agreement, it is understood and agreed that
damages and any other remedies at law may be inadequate in the
case of any breach by any party hereto of any of the provisions
hereof, and each party hereto agrees that the other parties shall
be entitled to equitable relief and the remedy of specific
performance with respect to any breach or attempted breach of any
of the provisions hereof.
10.12. Entire Document. This Agreement embodies the
entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the
parties. <PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
METPATH INC.
By_____________________________
IT CORPORATION
By______________________________
INTERNATIONAL TECHNOLOGY
CORPORATION
By______________________________
QUANTERRA INCORPORATED
By______________________________
Exhibit 10(ii).18
-----------------
EQUITY INVESTORS' UNDERTAKING
EQUITY INVESTORS' UNDERTAKING dated June 28, 1994 from METPATH INC.
(formerly known as Corning Lab Services Inc.), a Delaware corporation
("MetPath"), INTERNATIONAL TECHNOLOGY CORPORATION, a Delaware corporation
("ITX"), and IT CORPORATION, a California corporation ("IT" and, together with
ITX, being, collectively, "ITC"; and ITC, together with MetPath and any
Additional Equity Investors (as defined in Section 13(c)), being,
collectively, the "Equity Investors") in favor of QUANTERRA INCORPORATED, a
Delaware corporation (the "Borrower"), and in favor of the lenders (the
"Lenders") parties to the Credit Agreement (as hereinafter defined), Citibank,
N.A., as initial issuer of the Letters of Credit referred to in the Credit
Agreement, and Citicorp USA, Inc., as agent (together with any successor agent
appointed pursuant to Article VII of the Credit Agreement, the "Agent") for
the Lenders and the Issuing Banks under the Credit Agreement.
PRELIMINARY STATEMENTS:
(1) The Lenders, the Issuing Banks and the Agent have entered into the
Credit Agreement dated as of June 28, 1994 (as amended, supplemented or
otherwise modified hereafter from time to time, the "Credit Agreement") with
the Borrower. Capitalized terms not otherwise defined herein shall have the
same meanings as specified in the Credit Agreement.
(2) It is a condition precedent to the making of Advances by the Lenders
under the Credit Agreement and the issuance of Letters of Credit by the
Issuing Banks under the Credit Agreement that each of the Equity Investors
shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Advances under the Credit Agreement and the Issuing Banks
to issue Letters of Credit under the Credit Agreement, each of the Equity
Investors hereby agrees as follows:
SECTION 1. No Liens, Etc. So long as any Advance shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender or any Issuing
Bank shall have any Commitment under the Credit Agreement, each of the Equity
Investors will not:
(a) create, incur, assume or suffer to exist any Lien on or
with respect to any of the Borrower's Common Stock, whether now owned or
otherwise held or hereafter acquired, or sign or file under the Uniform
Commercial Code of any jurisdiction a financing statement that names such
Equity Investor as debtor and includes any of the Borrower's Common Stock
as collateral, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, except for Liens
created under the Loan Documents; or
(b) enter into or suffer to exist any agreement prohibiting or
conditioning the creation or assumption of any Lien upon any of the
Borrower's Common Stock, except for any such agreement with the Agent,
the Lenders and the Issuing Banks.
SECTION 2. Capital Contributions. (a) Each of the Equity
Investors hereby unconditionally and jointly and severally agrees to pay to
the Borrower from time to time, in cash in U.S. dollars, sufficient funds to
cause the Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries to
be not less than 1.0:1 for each Rolling Period (on a pro forma basis after
giving effect to such payment) occurring prior to the Termination Date;
provided, however, that, notwithstanding the foregoing, (i) MetPath and its
Permitted Transferees (collectively, the "MetPath Group") shall not be
required to make any such payment to the extent the amount of such payment,
together with the amount of all other payments made by the Investor Groups (as
hereinafter defined) under this Section 2(a) since the date of this Agreement,
would exceed an aggregate amount of $10,000,000 and (ii) ITC and its Permitted
Transferees (collectively, the "ITC Group" and, together with the MetPath
Group, being, collectively, the "Investor Groups") shall not be required to
make any such payment to the extent the amount of such payment, either
(A) together with the amount of all other payments made by the ITC Group under
this Section 2(a) since the date of this Agreement, would exceed an aggregate
amount of $5,000,000 or (B) together with the amount of all other payments
made by the Investor Groups under this Section 2(a) since the date of this
Agreement, would exceed an aggregate amount of $10,000,000; and provided
further, however, that ITC shall not be required to make any payment under
this Section 2(a) at any time if, and to the extent that, the making of such
payment is prohibited by the terms of any loan or credit agreement to which IT
or ITX is a party. Any payment of funds to the Borrower in accordance with
the immediately preceding sentence shall be solely in consideration for the
purchase by such Equity Investor of additional shares of the Borrower's Common
Stock or other additional contributions to the owner's equity of the Borrower.
(b) If (i) any Equity Investor shall at any time and from
time to time fail to perform or comply with any of the obligations contained
in Section 2(a) that are to be performed or observed by it and (ii) the Agent,
for itself and on behalf of the Lenders and the Issuing Banks, shall not have
received the payment of all or any part of the principal of or interest on any
Advance or any other amounts owing under or in respect of the Loan Documents,
in each case when the same becomes due and payable (whether by scheduled
maturity, required repayment, acceleration or otherwise), then in each such
case:
(A) it shall be conclusively assumed without necessity of
proof that such failure by such Equity Investor was the sole and direct
cause of the Agent's failure to receive such payment when due,
irrespective of any other contributing or intervening cause whatsoever;
(B) such Equity Investor agrees that it will be
unconditionally liable to the Agent, for itself and on behalf of the
Lenders and the Issuing Banks, for liquidated damages (for loss of a
bargain and not as a penalty) for the amount of such payment not
received by the Agent when so due and payable, up to the limitation of
liability of the MetPath Group and the ITC Group, respectively, set
forth in Section 2(a), as well as for all costs and expenses (including,
without limitation, reasonable fees and expenses of counsel), if any,
incurred by the Agent, the Lenders or the Issuing Banks in enforcing
this Agreement;
(C) such Equity Investor further irrevocably waives, to
the full extent permitted by applicable law, any right or defense such
Equity Investor may have to cause the Agent, the Lenders or the Issuing
Banks (or any one of them) to prove the cause or amount of such damages
or to mitigate such damages; and
(D) because such Equity Investor has agreed to liquidated
damages in the amount specified above, the Agent, the Lenders or the
Issuing Banks shall not be entitled to any damages in excess of such
amount with respect to such payment.
(c) Notwithstanding anything in this Agreement to the
contrary, during any period in which the Agent, for itself and/or on behalf of
the Lenders and the Issuing Banks, shall not have received the payment of all
or any part of the principal of or interest on any Advances or any other
amounts owing under or in respect of any Loan Document, in each cases when the
same becomes due and payable (whether by scheduled maturity, required
repayment, acceleration or otherwise), such Equity Investor shall make payment
of all funds under this Agreement directly to the Agent at its address at 399
Park Avenue, New York, New York 10043, Account No. 36852248 (or such other
account as the Agent may specify to the Equity Investors from time to time)
(the "Agent's Account") for itself and/or for the ratable benefit of the
Lenders and the Issuing Banks. All payments that are received by the Borrower
contrary to the provisions of this Section 2(c) shall be received in trust for
the benefit of the Agent, the Lenders and the Issuing Banks, shall be
segregated from other funds of the Borrower and shall be forthwith paid over
to the Agent in the same form as so received (with any necessary endorsement
or assignment).
SECTION 3. Indemnification, Etc. Each of the Equity Investors
hereby unconditionally agrees:
(a) to pay, upon written demand therefor by or on behalf
of the Borrower, the amount of any and all Environmental Costs (as
hereinafter defined) incurred by the Borrower or any of its Subsidiaries
and related to, or arising in connection with, any property transferred
to the Borrower by such Equity Investor (or by any Initial Equity
Investor or any other Equity Investor that is or was a member of the
Investor Group of such Equity Investor (each, an "Original Investor"))
in the Contribution and to reimburse the Borrower and each of its
Subsidiaries for any payments made by the Borrower or such Subsidiary in
respect of any Environmental Costs related to any such property; and
(b) to indemnify and hold harmless the Agent, each
Lender and each Issuing Bank and each of their affiliates and each of
their respective officers, directors, employees, agents and advisors
(each, an "Indemnified Party") from, and hold each of them harmless
against, (i) any and all Environmental Costs related to any property
transferred to the Borrower by such Equity Investor (or by any Original
Investor of such Equity Investor) in the Contribution and (ii) any and
all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) arising out
of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), in each case except to the extent such
Environmental Cost, claim, damage, loss, liability or expense is found
in a final, nonappealable judgment by a court of competent jurisdiction
to have resulted from such Indemnified Party's gross negligence or
willful misconduct.
For purposes of this Agreement, the term "Environmental Costs" means, with
respect to each Equity Investor, any and all claims, liabilities, obligations,
losses, deficiencies, damages, costs and expenses (including, without
limitation, fees and disbursements of counsel) of every kind, nature and
description that may be payable by virtue of, or be based upon, or arise out
of, or result from any obligation or liability of such Equity Investor (or of
any Original Investor of such Equity Investor) not included in the Assumed
Obligations or any material Encumbrance (as defined in the Asset Transfer
Agreement) on any owned Transferred Division of such Equity Investor (or of
any Original Investor of such Equity Investor) or any claim made, or action or
proceeding brought, for actions taken or omitted to be taken by such Equity
Investor (or by any Original Investor of such Equity Investor) in connection
with or arising out of the conduct of the Analytical Services Business of such
Equity Investor (or of any Original Investor of such Equity Investor) or the
ownership by such Equity Investor (or by any Original Investor of such Equity
Investor) of its Transferred Division on or prior to the date of the initial
Borrowing under the Credit Agreement, including, without limitation, any
violation or alleged violation of, or liability incurred under, any
Environmental Law in connection with the Analytical Services Business of such
Equity Investor (or of any Original Investor of such Equity Investor) based on
(i) a condition existing prior to the date of the initial Borrowing under the
Credit Agreement, (ii) the acts or omissions of such Equity Investor (or of
any Original Investor of such Equity Investor), or its agents or contractors
or Affiliates, prior to the date of the initial Borrowing under the Credit
Agreement or (iii) the leasing, occupancy or ownership by such Equity Investor
(or by any Original Investor of such Equity Investor) of its properties prior
to the date of the initial Borrowing under the Credit Agreement.
SECTION 4. Taxes, Etc. (a) Each Equity Investor jointly and
severally agrees to pay any present or future Other Taxes (including, without
limitation, interest and penalties) that arise from any payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or any transaction contemplated hereby.
(b) Each Equity Investor jointly and severally agrees to
indemnify the Agent, each Lender and each Issuing Bank for the full amount of
Other Taxes (including, without limitation, any Other Taxes imposed by any
jurisdiction on amounts payable under this Section 4) incurred under Section
4(a) and paid by the Agent, such Lender or such Issuing Bank, as the case may
be, and any liability (including penalties, additions to tax, interest and
expenses (including, without limitation, reasonable fees and disbursements of
counsel)) arising therefrom or with respect thereto. This indemnification
shall be made within 30 days from the date the Agent, such Lender or such
Issuing Bank, as the case may be, makes written demand therefor.
SECTION 5. Obligations Absolute. Each Equity Investor agrees to
perform its obligations under this Agreement strictly in accordance with the
terms hereof, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the terms of any
other Loan Document or the rights of the Agent, any Lender or any Issuing Bank
with respect thereto. The Obligations of each Equity Investor under this
Agreement are independent of the other Loan Documents, and a separate action
or actions may be brought and prosecuted against such Equity Investor to
enforce this Agreement, irrespective of whether any action is brought against
the Borrower or any other Equity Investor or whether the Borrower or any other
Equity Investor is joined in any such action or actions. The Obligations of
each Equity Investor under this Agreement shall be absolute and unconditional
irrespective of, and such Equity Investor hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any and all of
the following:
(a) any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations under any Loan
Document, or any other amendment or waiver of or any consent to
departure from any Loan Document, including, without limitation, any
increase in the Commitments thereunder or in the obligations of the
Borrower under the Loan Documents resulting from the extension of
additional credit to the Borrower or any of its Subsidiaries or
otherwise;
(c) any taking, exchange, release or nonperfection of any
Collateral, or any taking, release, amendment or waiver of or consent to
departure from any guaranty, for all or any of the Loan Documents or the
Obligations arising thereunder;
(d) any manner of application of Collateral, or proceeds
thereof, to all or any of the Obligations evidenced or purported to be
evidenced by any of the Loan Documents, or any manner of sale or other
disposition of any Collateral for all or any of the Obligations
evidenced or purported to be evidenced by any of the Loan Documents, or
any other property and/or assets of the Borrower or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries; or
(f) any other circumstance (including, without limitation, any
statute of limitations or any existence of or reliance on any
representation by the Borrower, the Agent, any Lender or any Issuing
Bank) that might otherwise constitute a defense available to, or a
discharge of, the Borrower or any guarantor or surety.
This Agreement shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Notes or of any other amounts
payable under or in respect of the Loan Documents (including, without
limitation, any amount payable under this Agreement) is rescinded or must
otherwise be returned by the Agent, any Lender or any Issuing Bank upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made.
SECTION 6. Waivers. (a) Each Equity Investor hereby
irrevocably waives promptness, diligence, notice of acceptance and any other
notice with respect to this Agreement or any of the other Loan Documents and
any requirement that the Agent, any Lender or any Issuing Bank protect,
secure, perfect or insure any Lien or any property and/or assets subject
thereto or exhaust any right or take any action against the Borrower or any
other Person or any Collateral.
(b) Each Equity Investor hereby irrevocably waives any duty on
the part of the Agent, any Lender or any Issuing Bank to disclose to such
Equity Investor any matter, fact or thing relating to the business, operation
or condition of the Borrower or its property and/or assets now or hereafter
known by the Agent, such Lender or such Issuing Bank.
(c) Each Equity Investor hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or
any other Loan Document, the transactions contemplated hereby or thereby, or
the actions of the Agent, any Lender or any Issuing Bank in the negotiation,
administration, performance or enforcement hereof or thereof.
(d) Each Equity Investor hereby irrevocably waives any claim or
other right that it may now or hereafter acquire against the Borrower or any
insider guarantor that arises from the existence, payment, performance or
enforcement of such Equity Investor's Obligations under this Agreement or any
other Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Agent, any Lender or any Issuing
Bank against the Borrower or any Collateral or, except for any right of
contribution, against such insider guarantor, whether or not such claim,
remedy or right arises in equity or under contract, statute or common law,
including, without limitation, the right to take or receive from the Borrower
or such insider guarantor, directly or indirectly, in cash or other property
or by setoff or in any other manner, payment or security on account of such
claim, remedy or right. If any amount shall be paid to any Equity Investor in
violation of the immediately preceding sentence at any time prior to the later
of (i) the cash payment in full of the Notes and all other amounts payable
under or in respect of the Loan Documents (including, without limitation, all
amounts payable under this Agreement) and (ii) the Termination Date, such
amount shall be held in trust for the benefit of the Agent, the Lenders and
the Issuing Banks and shall forthwith be paid to the Agent to be credited and
applied to the Obligations owing under or in respect of the Loan Documents,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held by the Agent as Collateral for any Obligations owing
under or in respect of the Loan Documents or thereafter arising. Each Equity
Investor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Loan Documents and that the
waivers set forth in this Section 6(d) are knowingly made in contemplation of
such benefits.
SECTION 7. Separate Undertakings. (a) Each Equity Investor
that owns any shares of Class A Common Stock (including, without limitation,
MetPath) hereby unconditionally and irrevocably agrees that if, at any time
prior to the Termination Date, such Equity Investor
(i) ceases to be a Permitted Transferee of such shares, or
(ii) enters into a contract or other arrangement that, upon
consummation thereof, will give any Person or two more Persons acting in
concert other than Corning the power to exercise, directly or
indirectly, a controlling influence on the management or policies of
such Equity Investor,
then such Equity Investor will immediately sell or otherwise transfer all of
the shares of Borrower's Common Stock owned by it at such time to one or more
Permitted Transferees of Class A Common Stock on such terms and conditions as
could not reasonably be expected to adversely affect the interest or rights of
the Borrower or the value of the interest or rights of the Agent, any Lender
or any Issuing Bank in any manner.
(b) Corning agrees to guaranty the punctual payment when due of
all Obligations of each Equity Investor that is a member of the MetPath Group
under Section 2(a) of this Agreement, on the terms and subject to the
conditions set forth in the guaranty (the "Corning Guaranty"), in
substantially the form of Exhibit B hereto, from Corning in favor of the
Agent, the Lenders and the Issuing Banks.
(c) Without limiting the generality of the foregoing provisions
of this Agreement, each Equity Investor hereby irrevocably waives, to the
fullest extent permitted by applicable law and for the benefit of, and as a
separate undertaking with, the Agent, for its benefit and for the ratable
benefit of the Lenders and the Issuing Banks, any defense to the performance
of this Agreement that may be available to such Equity Investor as a
consequence of this Agreement being rejected or otherwise not assumed by the
Borrower or any trustee or other similar official for the Borrower or for any
substantial part of the property and assets of the Borrower, or as a
consequence of this Agreement being otherwise terminated or modified, in any
proceeding seeking to adjudicate the Borrower a bankrupt or insolvent, or
seeking liquidation, winding up, adjustment, reorganization, arrangement,
protection, relief or composition of the Borrower or the debts of the Borrower
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, whether such rejection, nonassumption, termination or modification is
by reason of this Agreement being held to be an executory contract or by
reason of any other circumstance. If this Agreement shall be so rejected or
otherwise not assumed, or so terminated or modified, each Equity Investor
agrees for the benefit of, and as a separate undertaking with, the Agent, for
its benefit and for the ratable benefit of the Lenders and the Issuing Banks,
that it will be absolutely and unconditionally liable to pay to the Agent an
amount equal to each payment that otherwise would be payable by such Equity
Investor under or in connection with this Agreement if this Agreement were not
so rejected or otherwise not assumed, or were otherwise not so terminated or
modified, such amount payable to the Agent at the Agent's Account or otherwise
in accordance with the instructions of the Agent, as and when such payment
otherwise would be payable hereunder and such amount to be applied in
accordance with the instructions of the Agent.
SECTION 8. Representations and Warranties. Each of the Equity
Investors hereby represents and warrants as follows:
(a) Such Equity Investor (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation, (ii) is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which it owns or
leases property or in which the conduct of its business requires it to
so qualify or be licensed, except where the failure to so qualify or be
licensed could not reasonably be expected to have a Material Adverse
Effect, and (iii) has all requisite corporate power and authority to own
or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted.
(b) The execution, delivery and performance by such Equity
Investor of this Agreement, and the consummation of the Transaction and
the other transactions contemplated hereby and thereby, are within such
Equity Investor's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene such Equity
Investor's charter or bylaws, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934, as amended, and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without
limitation, Regulation X, G or T of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award binding on or affecting such Equity Investor, any
of its Subsidiaries or any of their properties, (iii) conflict with or
result in the breach of, or constitute a default under, any contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting such Equity Investor, any of its
Subsidiaries or any of their properties, except for any conflict, breach
or default resulting solely from the nonassignability of certain
agreements of the Initial Equity Investors that have been or will be
transferred to the Borrower in the Contribution, which conflict, breach
and/or default could not reasonably be expected, either individually or
together with all other such conflicts, breaches and/or defaults, to
have a Material Adverse Effect, or (iv) result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of such Equity Investor or any of its Subsidiaries, except
for the Liens created under this Agreement. Neither such Equity
Investor nor any of its Subsidiaries is in violation of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award or in breach of any contract, loan agreement, indenture, mortgage,
deed of trust, lease or other instrument referred to in the immediately
preceding sentence, the violation or breach of which could reasonably be
expected to have a Material Adverse Effect.
(c) No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party that has not been obtained or made and does not remain
in full force and effect is required for (i) the due execution,
delivery, recordation, filing or performance by such Equity Investor of
this Agreement, or for the consummation of the Transaction or the other
transactions contemplated hereby and thereby, or (ii) the grant by such
Equity Investor of the Lien granted by it under this Agreement.
(d) This Agreement has been duly executed and delivered by such
Equity Investor. This Agreement is the legal, valid and binding
obligation of such Equity Investor, enforceable against such Equity
Investor in accordance with its terms.
(e) Such Equity Investor is the legal and beneficial owner of
the percentage and class of all of the issued and outstanding shares of
Borrower's Common Stock, and/or of all warrants, rights or options to
acquire shares of Borrower's Common Stock, indicated on Schedule I
hereto, free and clear of any Lien other than any Lien created under the
Loan Documents.
(f) There is no action, suit, investigation, litigation or
proceeding affecting such Equity Investor, any of its Subsidiaries or
any of their properties (including any Environmental Action) pending or
threatened before any court, governmental agency or arbitrator that (i)
could reasonably be expected to have a Material Adverse Effect (other
than the Disclosed Litigation) or (ii) purports to affect the legality,
validity or enforceability of this Agreement, the Transaction or the
consummation of the other transactions contemplated hereby or thereby,
and there has been no adverse change in the status, or financial effect
on such Equity Investor or any of its Subsidiaries, of the Disclosed
Litigation from that described on Schedule 3.01(e) to the Credit
Agreement.
SECTION 9. Notice and Defense of Claims. (a) Each Equity
Investor shall, or shall cause the Borrower or the appropriate Subsidiary of
the Borrower to, give prompt notice to the Agent of the following:
(i) receipt or delivery of any material
correspondence or written demand, demand letter, notice of noncompliance
or violation, order, complaint, notice of liability or potential
liability, assessment, consent order, consent agreement, claim or request
for information issued pursuant to or in connection with any
Environmental Law, any Environmental Permit or any Hazardous Materials
and relating to the Borrower or any of its Subsidiaries;
(ii) the institution of any claim, suit, action
(governmental,quasi-governmental or otherwise), investigation or
proceeding (administrative, regulatory or judicial), whether formal or
informal(each, an "Action"), arising from or in connection with any
Environmental Laws with regard to the condition, ownership, occupancy,
use, operation, occupancy, maintenance or transferability of any
property of the Borrower or any of its Subsidiaries on or prior to the
date of this Agreement; and
(iii) the discovery or detection of Hazardous Materials on
any property of the Borrower or any of its Subsidiaries (other than as
reflected on Schedule 4.01(y) to the Credit Agreement), whether
discovered or detected by such Equity Investor or communicated to such
Equity Investor by any other Person.
(b) If, upon receipt of a notice set forth in Section
9(a) above,the Agent reasonably determines that any compliance, enforcement,
cleanup, removal, response, remedial or other actions are necessary or
desirable to protect the interest or rights of the Borrower with respect to
such property or the value of the interest or rights of the Agent, any Lender
or any Issuing Bank in any manner, the Agent shall deliver written notice
thereof to the Equity Investors. Upon receipt of a notice from the Agent
referred to in the immediately preceding sentence, each of the Equity
Investors agrees to undertake and complete, or cause the Borrower or its
Subsidiaries to undertake and complete, an environmental site assessment
report pursuant to Section 5.01(g) of the Credit Agreement and, if such
actions relate to any matters that were existing on or prior to the date of
this Agreement on any property transferred to the Borrower by such Equity
Investor (or by any Original Investor of such Equity Investor) in the
Contribution, to conduct, at its own expense, any enforcement, cleanup,
compliance, removal, response, remedial or other action necessary or desirable
to protect the interest or rights of the Borrower with respect to such
property or the value of the interest or rights of the Agent, any Lender or
any Issuing Bank in any manner, as the case may be, except where the failure
to undertake any such cleanup, compliance, removal, response, remedial or
other action could not be reasonably expected, either individually or in the
aggregate, to have a Material Adverse Effect and would not be reasonably
likely to subject the Borrower or any of its Subsidiaries to any civil or
criminal penalties (other than nonmaterial fines) or the Agent, any Lender or
any Issuing Bank to any civil or criminal penalties.
(c) The Agent agrees to give written notice to each
Equity Investor of any claim asserted against the Agent, the Lenders or the
Issuing Banks (or any one of them) that is reasonably likely to give rise to a
claim against such Equity Investor under this Agreement.
SECTION 10. Consent to Assignment by the Borrower. Each of the
Equity Investors hereby acknowledges notice of, and consents to the terms and
provisions of, the assignment pursuant to the provisions of the Security
Agreement by the Borrower of all of its rights under this Agreement and hereby
agrees with the Agent that:
(a) Upon the occurrence and during the continuance of an
Event of Default, such Equity Investor will make all payments to be made
by it to the Borrower under Sections 2(a), 3(a) and 12 to the Agent in
accordance with the instructions of the Agent;
(b) All payments referred to in Section 10(a) shall be
made by such Equity Investor irrespective of, and without deduction for,
any counterclaim, defense, recoupment or setoff and shall be final, and
such Equity Investor will not seek to recover from the Agent, any Lender
or any Issuing Bank for any reason any such payment once made; and
(c) The Agent shall be entitled to exercise any and all
rights and remedies of the Borrower under this Agreement in accordance
with the terms of the Security Agreement, and such Equity Investor shall
comply in all respects with such exercise.
SECTION 11. Survival of Obligations. The agreements and obligations of
such Equity Investor contained in Sections 3, 4, 9 and 12 shall survive the
payment in full of all principal, interest and other amounts payable under or
in respect of the Loan Documents.
SECTION 12. Expenses. Each Equity Investor jointly and severally agrees to
pay to the Borrower and the Agent, respectively, upon demand, the amount of
any and all reasonable expenses (including, without limitation, the reasonable
fees and expenses of their respective counsel and of any experts and agents)
that the Borrower or the Agent may incur in connection with (a) the exercise
or enforcement of any of the rights of the Borrower or of the Agent, any
Lender or any Issuing Bank hereunder or (b) the failure by any Equity Investor
to perform or observe any of the provisions hereof; provided, however, that
nothing in this Section 12 shall expand or modify the rights of the Borrower
under the Asset Transfer Agreement.
SECTION 13. Amendments; Waivers; Etc. (a) No amendment or waiver of any
provision of this Agreement, and no consent to any departure by any Equity
Investor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Borrower, the Agent and the Required Lenders, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that no
amendment, waiver or consent shall, unless in writing and signed by all of the
Lenders and all of the Issuing Banks, (i) limit the liability of any Equity
Investor hereunder, (ii) postpone any date fixed for payment hereunder, (iii)
release any of the Equity Investors from any of its Obligations hereunder,
(iv) change the number of Lenders and/or Issuing Banks required to take action
hereunder or (v) amend this Section 13.
(b) No failure on the part of the Agent, any Lender or any Issuing Bank to
exercise, and no delay in exercising, any right, power or privilege hereunder
shall operate as a waiver thereof or consent thereto; nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
(c) Upon the execution and delivery by any Person of an undertaking
supplement in substantially the form of Exhibit A hereto (each, an
"Undertaking Supplement"), (i) such Person shall be referred to as an
"Additional Equity Investor" and shall be and become an Equity Investor, and
each reference in this Agreement to "Equity Investor" shall also mean and be a
reference to such Additional Equity Investor and (ii) the supplement attached
to each Undertaking Supplement shall be incorporated into and become a part of
and supplement Schedule I hereto, and the Agent may attach such supplement to
such Schedule I, and each reference to such Schedule I shall mean and be a
reference to such Schedule I, as supplemented pursuant hereto.
SECTION 14. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic
or telex communication) and mailed, telecopied, telegraphed, telexed or
delivered, (a) if to the Borrower, addressed to it at 5251 DTC Parkway, Suite
415, Englewood, Colorado 80111 (Telecopier No. (303) 796-2002), Attention:
President; (b) if to the Agent, any Lender or any Issuing Bank, addressed to
it at its address set forth in Section 8.02 of the Credit Agreement; and (c)
if to any Equity Investor, addressed to it at the address set forth below its
name on the signature pages hereof (or, in the case of any Additional Equity
Investor, at the address set forth below its name on the signature page of its
Undertaking Supplement), or as to any party at such other address as shall be
designated by such party in a notice to each other party complying as to
delivery with the terms of this Section 14. All such notices and other
communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when deposited in the mails, transmitted by telecopier, delivered to
the telegraph company or confirmed by telex answerback, respectively,
addressed as aforesaid.
SECTION 15. Continuing Agreement; Assignments Under the Credit
Agreement. This Agreement is a continuing agreement and shall (a) remain in
full force and effect until the later of (i) the cash payment in full of the
Notes and all other amounts payable under or in respect of the Loan Documents
(including, without limitation, all amounts payable under this Agreement) and
(ii) the Termination Date, (b) be binding upon each Equity Investor, its
successors and assigns and (c) inure to the benefit of, and be enforceable by,
the Borrower, the Agent, the Lenders, the Issuing Banks and their respective
successors, transferees and assigns. The dissolution of any Equity Investor
shall not affect this Agreement or any of such Equity Investor's obligations
hereunder. Without limiting the generality of the foregoing clause (c), any
Lender and/or any Issuing Bank may assign or otherwise transfer all or any
portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitment or Commitments, the
Advances owing to it and any Note or Notes held by it) to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, in each case as
provided in Section 8.07 of the Credit Agreement.
SECTION 16. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 17. Severability. The provisions of this Agreement are
severable, and if any term or provision shall be held illegal, invalid or
unenforceable in whole or in part in any jurisdiction, then such illegality,
invalidity or unenforceability shall affect only such term or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect such
term or provision in any other jurisdiction, or any other term or provision of
this Agreement in any jurisdiction.
SECTION 18. Governing Law; Submission to Jurisdiction, Etc. (a)
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
(b) Each of the Equity Investors hereby irrevocably submits itself and
its properties to the jurisdiction of any New York state court or any federal
court of the United States sitting in New York County, State of New York, and
any appellate court of any of the foregoing, for any action or proceeding
arising out of or relating to this Agreement or any other Loan Document to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, and each such Equity Investor hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York state court or, to
the extent permitted by applicable law, in any such United States federal
court. Each of the Equity Investors hereby irrevocably waives, to the
fullest extent it may effectively do so, any objection or defense to venue in
the State of New York and to any such jurisdiction as an inconvenient forum
for the maintenance of any such action or proceeding. Nothing herein shall
affect the rights of the Agent, any Lender or any Issuing Bank to commence or
participate in any action, suit or proceeding or otherwise to proceed against
any of the Equity Investors in any other jurisdiction.
(c) Each of the Equity Investors irrevocably consents to the service of
any and all process in any such action, suit or proceeding by the mailing of
copies of such process to such Equity Investor at the address set forth below
its name on the signature pages hereof (or, in the case of any Additional
Equity Investor, at the address set forth below its name on the signature
pages of its Undertaking Supplement), or by any other method permitted by law.
Each of the Equity Investors agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law.
(d) To the extent that any of the Equity Investors has or hereafter may
acquire immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment
in aid of execution, execution or otherwise) with respect to itself or its
property, such Equity Investor hereby irrevocably waives such immunity in
respect of its Obligations under this Agreement and any other Loan Document to
which it is a party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
METPATH INC.
By _________________________________
Title:
Address:
INTERNATIONAL TECHNOLOGY
CORPORATION
By ___________________________________
Title
Address:
IT CORPORATION
By __________________________________
Title
Address:
Agreed to and accepted as of
the date first above written:
QUANTERRA INCORPORATED
By __________________________
Title:
CITICORP USA, INC., as Agent
for itself and on behalf of the
Lenders and the Issuing Banks
By ___________________________
Title:
<PAGE>
SCHEDULE I TO THE EQUITY INVESTORS' UNDERTAKING
BORROWER'S COMMON STOCK
Number of
Form of Shares, or of Warrants, Percentage of Issued
Equity Class of Ownership Rights or Options to And Outstanding
Investor Stock Interest Acquire Shares Shares of Issuer
- ------------------------------------------------------------------------------
MetPath Inc. A Common 1,056 50%
Stock
IT B Common 1,056 50%
Corporation Stock
<PAGE>
SCHEDULE I TO THE EQUITY INVESTORS' UNDERTAKING
BORROWER'S COMMON STOCK
Number of
Form of Shares, or of Warrants, Percentage of Issued
Equity Class of Ownership Rights or Options to And Outstanding
Investor Stock Interest* Acquire Shares Shares of Issuer
- ------------------------------------------------------------------------------
MetPath Inc. A Common 1,056 50%
Stock
IT B Common 1,056 50%
Corporation Stock
__________________
* "Form of Ownership Interest" means shares of the Borrower's Common Stock
legally and beneficially owned, or warrants, rights or options to acquire
shares of Borrower's Common Stock, by such Person.
<PAGE>
EXHIBIT A TO THE EQUITY INVESTORS' UNDERTAKING
FORM OF UNDERTAKING SUPPLEMENT
_________, 19___
Citicorp USA, Inc., as Agent
399 Park Avenue
8th Floor
New York, New York 10043
Attention: Relationship Officer
Equity Investors' Undertaking dated
June 28, 1994 made by the Equity Investors named
therein in favor of Quanterra Incorporated and in favor
of the Lenders parties to the Credit Agreement
referred to therein, Citibank, N.A., as initial
issuer of the Letters of Credit referred to in the
Credit Agreement, and Citicorp USA, Inc., as Agent
Ladies and Gentlemen:
Reference is made to the above-captioned Equity Investors'
Undertaking (as amended, supplemented or otherwise modified hereafter from
time to time, the "Equity Investors Undertaking"). Capitalized terms not
otherwise defined herein have the same meanings as specified in the Equity
Investors' Undertaking.
The undersigned hereby agrees, as of the date first above written,
to become an Equity Investor under the Equity Investors' Undertaking as if it
were an original party thereto and agrees that each reference in the Equity
Investors' Undertaking to an "Equity Investor" shall also mean and be a
reference to the undersigned. In doing so, the undersigned hereby further
agrees to undertake all of the Obligations of the Equity Investors set forth
in the Equity Investors' Undertaking.
The undersigned has attached a supplement to Schedule I to the
Equity Investors' Undertaking, and the undersigned hereby certifies that such
supplement has been prepared by the undersigned in substantially the form of
Schedule I to the Equity Investors' Undertaking and is accurate and complete
as of the date first above written.
The undersigned hereby makes each representation and warranty set
forth in Section 8 of the Equity Investors' Undertaking as to itself to the
same extent as each other Equity Investor and hereby agrees to be bound as an
Equity Investor by all of the terms and provisions of the Equity Investors'
Undertaking to the same extent as all other Equity Investors.
This letter shall be governed by, and construed in accordance
with, the laws of the State of New York.
Very truly yours,
[NAME OF ADDITIONAL EQUITY
INVESTOR]
By: _______________________________________
Name:
Title:
Address:
<PAGE>
EXHIBIT B TO THE EQUITY INVESTORS' UNDERTAKING
FORM OF CORNING GUARANTY
<PAGE>
EXHIBIT E TO THE
CREDIT AGREEMENT
FORM OF EQUITY INVESTORS' UNDERTAKING
Dated June 28, 1994
from
THE EQUITY INVESTORS NAMED HEREIN
in favor of
QUANTERRA INCORPORATED
and in favor of
THE LENDERS PARTIES TO THE CREDIT
AGREEMENT REFERRED TO HEREIN,
CITIBANK, N.A.,
as Initial Issuing Bank,
and
CITICORP USA, INC.,
as Agent
<PAGE>
TABLE OF CONTENTS
Page
1. No Liens, Etc 1
2. Capital Contributions 2
3. Indemnification, Etc. 3
4. Taxes, Etc. 5
5. Obligations Absolute 5
6. Waivers 6
7. Separate Undertakings 7
8. Representations and Warranties 8
9. Notice and Defense of Claims 10
10. Consent to Assignment by the Borrower 11
11. Survival of Obligations 12
12. Expenses 12
13. Amendments; Waivers; Etc. 12
14. Notices, Etc. 13
15. Continuing Agreement; Assignments Under the
Credit Agreement 13
16. Execution in Counterparts 13
17. Severability 14
18. Governing Law; Submission to Jurisdiction, Etc. 14
<PAGE>
SCHEDULE
Schedule I - Borrower's Common Stock
EXHIBITS
Exhibit A - Form of Undertaking Supplement
Exhibit B - Form of Corning Guaranty
<PAGE>
EXHIBIT E CONFORMED AS
SEPARATELY EXECUTED
EQUITY INVESTORS' UNDERTAKING
Dated June 28, 1994
from
THE EQUITY INVESTORS NAMED HEREIN
in favor of
QUANTERRA INCORPORATED
and in favor of
THE LENDERS PARTIES TO THE CREDIT
AGREEMENT REFERRED TO HEREIN,
CITIBANK, N.A.,
as Initial Issuing Bank,
and
CITICORP USA, INC.,
as Agent
Exhibit 10(ii).19
-----------------
AMENDMENT AND WAIVER
Dated as of June 27, 1995
SECTION 2. Amendments to Equity Investors' Undertaking. The
Equity Investors' Undertaking is, effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 5 hereof,
hereby amended by deleting subsection (a) of Section 2 thereof in its entirety
and replacing it with the following new subsection (a):
(a) If on or after December 31, 1995, the Interest Coverage
Ratio of the Borrower and its Subsidiaries is less than 2.0:1,
the Equity Investors hereby unconditionally and jointly and
severally agree to pay to the Borrower $10,000,000 in cash in
U.S. dollars; provided, however, that, notwithstanding the
foregoing, (i) MetPath and its Permitted
Transferees(collectively, the "MetPath Group") shall not be
required to make any such payment to the extent the amount of
such payment, together with the amount of all other payments
made by the Investor Groups (as hereinafter defined)
under this Section 2(a) since the date of this Agreement, would
exceed an aggregate amount of $10,000,000 and (ii) ITC and its
Permitted Transferees (collectively, the "ITC Group" and,
together with the MetPath Group, being, collectively, the
"Investor Groups") shall not be required to make any such
payment to the extent the amount of such payment, either (A)
together with the amount of all other payments made by the ITC
Group under this Section 2(a) and under Section 4.01 of the
Shareholders Agreement since the date of this Agreement, would
exceed an aggregate amount of $5,000,000 or (B) together with
the amount of all other payments made by the Investor Groups
under this Section 2(a) since the date of this Agreement, would
exceed an aggregate amount of $10,000,000; and provided
further, however, that ITC shall not be required to make any
payment under this Section 2(a) at any time if, and to the
extent that, the making of such payment (1) would exceed the
amount required to cause the Fixed Charge Coverage Ratio of the
Borrower and its Subsidiaries to be not less than 1.0:1 for any
Rolling Period (on a pro forma basis after giving effect to such
payment) occurring prior to the Termination Date or (2) is
prohibited by the terms of any loan or credit agreement
to which IT or ITX is a party. Any payment of funds to the
Borrower in accordance with the immediately preceding sentence
shall be (x) solely in consideration for the purchase by such
Equity Investor of additional shares of the Borrower's Common
Stock or other additional contributions to the owner's equity of
the Borrower and (y) applied by the Borrower to prepay
outstanding Term Advances under the Credit Agreement, such
prepayment to be applied to the principal repayment installments
thereof in direct order of maturity.
SECTION 3. Payment and Application of Cash Contribution. The
Cash Contribution shall, when made by MetPath or its Permitted Transferee, be
understood for all purposes to have been made under Section 2(a) of the Equity
Investors' Undertaking, as amended by this Amendment and Waiver, and MetPath
or such Permitted Transferee shall be entitled to all of the rights and
benefits of an Equity Investor thereunder with respect to each other party
thereto to the extent of such Cash Contribution. The Cash Contribution shall
be applied to prepay outstanding Term Advances under the Credit Agreement,
such prepayment to be applied to the principal repayment installments thereof
in direct order of maturity.
EXHIBIT 10(iii).1
-----------------
NON-EMPLOYEE DIRECTORS 7/94
RETIREMENT PLAN
- ----------------------------------------------------------------------------
Adopted May 18, 1989
Amended and Restated May 16, 1991
Amended and Restated July 1, 1993
Amended and Restated August 5, 1993
Amended and Restated June 2, 1994
Benefit Amount: The benefit amount is equal to the greater of:
a. the Board retainer and Board and committee fees
for the normal meeting schedule paid by the
Company during the 12-month period immediately
prior to the date of a Director's retirement from
the Board; or
b. the sum of the annual Board retainer fee; the
full Board meeting fees for the normal meeting
schedule; the fees for memberships on two Board
committees; and the fee for serving as Chairman
of one additional Board committee.
Benefit Period: The benefit amount is paid annually for five years
except as noted below. No adjustments in the benefit
amount will be made during the benefit period.
Eligibility: All non-employee Directors become eligible to
participate in the Plan when they (i) have completed
five years of Board service and have reached the Board's
retirement age of 70, or (ii) have completed ten years
service on the Board with retirement payments to begin
at age sixty-five or the date of retirement if the
Director is between age 65 and 73 when he retires.
Present Directors who are grandfathered for life may
elect to retire at the conclusion of the Annual meeting
next following the date they reach age 72.
Former employees of the Company become eligible to
participate in the Plan once they have completed five
years of service as a non-employee Director.
Grandfathered Directors (those who have served on the
Board since December 4, 1984) who have over five years
of service and who are over the normal retirement age of
73, must retire at the conclusion of the Annual Meeting
following the second anniversary of the adoption of the
Plan in order to receive the retirement benefit.
1
<PAGE>
Grandfathered Directors who are below the normal retirement age of 73 when the
Plan is adopted may elect to remain on the Board but must retire at the
conclusion of Annual Meeting following the date they reach age 75 if they wish
to receive the retirement benefits.
Exception: On recommendation of the Nominating Committee, the Board
may provide that Directors continue to serve out the
term of office to which they were elected or stand for
election for a new term of office, beyond the annual
stockholders meeting following the age of normal
retirement, on a year-to-year basis, with the retirement
benefit in such event to be equal to the benefit to
which the Director would have been entitled in the year
he would normally have retired or the benefit to which
he would have been entitled in his final year of service
on the Board, whichever is greater.
Survivor or Death In the event of death prior to retirement from the
Benefit: Board, the eligible Director's designated beneficiary will
receive a lump sum payment of the amount that would
otherwise have been payable to the Director. In the event
of death after retirement from the Board, but during the
benefit period, the Director's designated beneficiary
would receive a lump sum payment of the amount remaining
to be paid to the Director at the time of his death.
Disability: In the event of a Director's disability, the five-year
service requirement, as well as the age requirement, are
waived and payments will be made in the normal manner.
Change of Control: In the event of a change of control, the service
requirement, as well as the retirement age requirement,
are waived and retirement is assumed for all Directors
who do not elect to remain on the Board. Payment is in
the form of a lump sum. A change of control is defined
as any one of the following events:
1. The Company is sold or liquidated.
2. In certain mergers, consolidations, or
reorganizations wherein the Company is not the
surviving corporation or the Company's shares are
converted into cash or property, or securities
issued by another corporation.
2
<PAGE>
3. Substantially all of the Company's property or
more than 35 percent of its voting stock is
acquired by any person or entity.
4. Directors nominated for election by the Company's
Board of Directors cease to constitute a majority
of the Company's Directors.
3
<PAGE>
CONTENTS
ARTICLE I GENERAL 1
1.1 Plan Name 1
1.2 Plan Purpose 1
ARTICLE II DEFINITIONS 2
2.1 Accounts 2
2.2 Affiliated Company 3
2.3 Annuity Starting Date 3
2.4 Beneficiary 3
2.5 Board of Directors 3
2.6 Break in Service 3
2.7 Code 4
2.8 Committee or Administrative Committee 4
2.9 Company 4
2.10 Company Contributions 4
2.11 Compensation 5
2.12 Compensation Deferrals 7
2.13 Computation Period 7
2.14 Disability 8
2.15 Distributable Benefit 8
2.16 Early Retirement 8
2.17 Early Retirement Date 8
2.18 Effective Date 8
2.19 Election Period 8
2.20 Eligible Employee 9
2.21 Employee 9
2.22 Employment Commencement Date 9
2.23 ERISA 10
2.24 Fiscal Year 10
2.25 Highly Compensated Employee 10
2.26 Hour of Service 12
2.27 Investment Fund 13
2.28 Investment Manager 13
2.29 Leased Employee 14
2.30 Leave of-Absence 14
2.31 Reserved 14
2.32 Normal Retirement 14
2.33 Normal Retirement Date 14
2.34 Participant 14
2.35 Participation Commencement Date 14
2.36 Participating Company 14
2.37 Plan 14
2.38 Plan Administrator 15
2.39 Plan Year 15
2.40 Predecessor Plan Documents 15
2.41 Prior Plan 15
2.42 Qualified Election 15
2.43 Qualified Joint and Survivor Annuity 16
2.44 Qualified Preretirement Survivor Annuity 16
2.45 Severance 16
2.46 Severance Date 16
2.47 Spouse (Surviving Spouse) 16
2.48 Trust 16
2.49 Trust Agreement 17
2.50 Trustee 17
2.51 Trust Fund 17
2.52 Valuation Date 17
2.53 Vested Interest 17
2.54 Year of Service 17
ARTICLE III ELIGIBILITY AND PARTICIPATION 19
3.1 Eligibility to Participate 19
3.2 Date of Commencement of Participation 19
3.3 Reemployment 19
ARTICLE IV TRUST FUND 20
4.1 Trust Fund and Trust Agreement 20
4.2 Fund 20
4.3 Company, Committee and Trustee Not Responsible
for Adequacy of Trust Fund 20
ARTICLE V EMPLOYEE CONTRIBUTIONS 21
5.1 Employee Compensation Deferrals 21
5.2 Amount Subject to Election 21
5.3 Limitation on Compensation Deferrals of Highly
Compensated Employees 21
5.4 Provisions for Disposition of Excess
Compensation Deferrals by Highly Compensated
Employees 23
5.5 Provisions for Return of Annual Compensation
Deferrals in Excess of the Deferral Limitation 25
5.6 Termination of, Change in Rate of, or
Resumption of Deferrals 26
5.7 Character of Amounts Contributed to the
Deferral Fund 26
5.8 Discontinuance of Compensation Deferrals 26
5.9 Payroll Deduction 26
5.10 Deposit in Trust 26
5.11 Personal Contributions 26
5.12 Participant Transfer Contributions 26
5.13 Participant Rollover Contributions 26
5.14 Special Effective Dates 27
ARTICLE VI COMPANY CONTRIBUTIONS 28
6.1 General 28
6.2 Irrevocability 28
6.3 Company, Committee and Trustee Not Responsible
for Adequacy of Trust Fund 28
6.4 Profits 29
ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS 30
7.1 General 30
7.2 Allocation of Company Fixed Contributions 30
7.3 Allocation of Discretionary Company
Contributions 31
7.4 No Discriminatory Allocations 31
7.5 Investment of Accounts 31
7.6 No Guarantee 32
7.7 Treatment of Accounts Upon Termination of
Employment 32
7.8 Accounting Procedures 32
7.9 Valuation of Accounts 32
7.10 Loans 33
ARTICLE VIII VESTING OF ACCOUNTS 34
8.1 No Vesting Rights Except as Herein Specified 34
8.2 Vesting Of Company Fixed Contribution Accounts
and Discretionary Company Contribution
Accounts 34
8.3 Vesting in Compensation Deferral Accounts,
Rollover Accounts and Transfer Accounts 35
ARTICLE IX DISTRIBUTION OF PLAN BENEFITS 36
9.1 Distribution Upon Normal Retirement 36
9.2 Distribution Upon Disability 36
9.3 Distribution Upon Death Prior to Termination
of Employment 36
9.4 Distribution Upon Death After Termination of
Employment 37
9.5 Termination of Employment Prior to Normal
Retirement Date 37
9.6 Form of Distribution of Benefits 38
9.7 Minimum Amounts to be Distributed 38
9.8 Mandatory Cash Out Rules and Consent
Requirement 39
9.9 Optional Form of Distribution 40
9.10 Qualified Preretirement Survivor Annuity 41
9.11 Designation of Beneficiary 41
9.12 Facility of Payment 42
9.13 Additional Documents 43
9.14 In-Service Withdrawals 43
9.15 Distribution Restriction 45
9.16 Election for Direct Rollover to Eligible
Retirement Plan 45
ARTICLE X OPERATION AND ADMINISTRATION OF THE PLAN 47
10.1 Plan Administration 47
10.2 Committee Powers 47
10.3 Investment Manager 48
10.4 Periodic Review 48
10.5 Committee Procedure 49
10.6 Compensation of Committee 49
10.7 Resignation and Removal of Members 49
10.8 Appointment of Successors 49
10.9 Records 50
10.10 Reliance Upon Documents and Opinions 50
10.11 Requirement of Proof 50
10.12 Reliance on Committee Memorandum 50
10.13 Multiple Fiduciary Capacity 51
10.14 Limitation on Liability 51
10.15 Indemnification 51
10.16 Bonding 51
10.17 Prohibition Against Certain Actions 51
10.18 Plan Expenses 52
ARTICLE XI MERGER OF COMPANY; MERGER OF PLAN 53
11.1 Effect of Reorganization of Transfer of
Assets. 53
11.2 Merger Restriction 53
ARTICLE XII PLAN TERMINATION AND DISCONTINUANCE OF
CONTRIBUTIONS 54
12.1 Plan Termination 54
12.2 Discontinuance of Contributions 54
12.3 Rights of Participants 55
12.4 Trustee's Duties on Termination 55
12.5 Partial Termination 55
12.6 Failure to Contribute 55
ARTICLE XIII APPLICATION FOR BENEFITS 56
13.1 Application for Benefits 56
13.2 Action on Application 56
13.3 Appeals 56
ARTICLE XIV LIMITATIONS ON CONTRIBUTIONS 58
14.1 General Rule 58
14.2 Annual Additions 58
14.3 Other Defined Contribution Plans 58
14.4 Combined Plan Limitation (Defined Benefit Plan 58
14.5 Adjustments for Excess Annual Additions 59
14.6 Disposition of Excess Company Contribution
Amounts 60
ARTICLE XV RESTRICTION ON ALIENATION 61
15.1 General Restrictions Against Alienation 61
15.2 Nonconforminq Distributions Under Court Order 61
ARTICLE XVI PLAN AMENDMENTS 63
16.1 Amendments 63
16.2 Retroactive Amendments 63
ARTICLE XVII TOP-HEAVY PLAN RULES 64
17.1 Applicability 64
17.2 Definitions 64
17.3 Top-Heavy Status 65
17.4 Minimum Contributions 66
17.5 Maximum Annual Addition 67
17.6 Non-Eligible Employees 68
ARTICLE XVIII MISCELLANEOUS 69
18.1 No Enlargement of Employee Rights 69
18.2 Mailing of Payments; Lapsed Benefits 69
18.3 Addresses 70
18.4 Notices and Communications 70
18.5 Reporting and Disclosure 70
18.6 Governing Law 70
18.7 Interpretation 70
18.8 Withholding for Taxes 71
18.9 Limitation on Company; Committee and Trustee
Liability 71
18.10 Successors and Assigns 71
18.11 Counterparts 71
18.12 Annuity Purchase 71
ARTICLE XIX SPECIAL PROVISIONS REGARDING ACCOUNTS TRANSFERRED FROM
THE 401(k) PROFIT SHARING PLAN OF PEI ASSOCIATES, INC. 72
19.1 In General 72
19.2 Definitions 72
19.3 Transfer of Accounts 72
19.4 Effective Date 72
19.5 PEI Transfer Accounts 73
19.6 Special Distribution and Withdrawal Provisions 73
19.7 Investment of PEI Transfer Accounts 73
19.8 Vesting of PEI Transfer Accounts 74
ARTICLE XX SPECIAL PROVISIONS FOR JOINT VENTURE EMPLOYERS. 75
20.1 Definitions 75
20.2 Transfer to Joint Venture Employer 75
20.3 Participating Joint Venture Employer 75
<PAGE>
THE IT CORPORATION
RETIREMENT PLAN
1993 RESTATEMENT
ARTICLE I
GENERAL
1.1 Plan Name. The IT Corporation Retirement Plan (comprised of the IT
Profit Sharing Plan and the IT Pension Plan) was merged effective April 1,
1985. This merged plan was designated as the IT Corporation Retirement
Plan ("Plan") and was amended and completely restated in 1985 and in 1989.
This document further amends the Plan and completely restates it in order
to accomplish the following:
(a) To bring the Plan documentation into compliance with the
applicable provisions of the Tax Reform Act of 1986, the Tax and
Miscellaneous Revenue Act of 1988 and certain other revisions of
and/or developments in applicable federal pension law so as to assure
the continued qualification of the Plan as a tax exempt, qualified plan
pursuant to the provisions of Code Section 401(a);
(b) To implement certain other Plan design modifications
intended to facilitate and improve the efficient administration of the
Plan; and
(c) To incorporate the provisions of certain amendments that
have been made to the Plan since the last restatement.
Except as otherwise expressly provided herein, this 1993 Restatement of the
Plan shall be effective as of January 1, 1989. Notwithstanding the title of
this restated Plan document, the Plan shall continue to be known as "The IT
Corporation Retirement Plan."
1.2 Plan Purpose. This Plan is intended to qualify under Code Section
401(a) and, with respect to the portion hereof intended to qualify as a
qualified cash or deferred arrangement, to satisfy the requirements of Code
Section 401(k). The Plan is further intended to constitute a plan within the
meaning of Section 404(c) of ERISA. As such, the fiduciaries of the Plan may
be relieved of responsibility for investment decisions made by Participants
with respect to amounts in their Accounts.
ARTICLE II
DEFINITIONS
2.1 Accounts. "Accounts" or "Participant's Accounts" mean the
following Plan accounts maintained by the Committee for each Participant
as required by Article VII:
(a) "Compensation Deferral Account" shall mean the account
established and maintained for each Participant under Article VII for
purposes of holding and accounting for Compensation Deferrals held in
the Trust Fund which have been made pursuant to salary reduction
agreements entered into by Participants in accordance with the
provisions of Article V.
(b) "Company Fixed Contribution Account" shall mean the account
established and maintained for each Participant under Article VII for
purposes of holding and accounting for amounts held in the Trust Fund
which are attributable to Company Contributions made in accordance with
Section 6.1(c) and which shall become vested and nonforfeitable in
accordance with Article VIII.
(c) "Discretionary Company Contribution Account" shall mean the
account established and maintained for each Participant under Article
VII for purposes of holding and accounting for amounts held in the
Trust Fund which are attributable to Company Contributions on behalf
of the Participant in accordance with Section 6.1(d) and which shall
become vested and nonforfeitable in accordance with Article VIII.
(d) "Transfer Account" shall mean, on and after June 4, 1992,
the account established and maintained for a Participant under and as
described in Article VII and Section 5.12 for purposes of holding and
accounting for amounts held in the Trust Fund which are attributable
to amounts transferred (in a plan-to-plan transfer) from another plan
qualified under Code Section 401, provided that the Committee has
determined that the continued qualification of this Plan would not be
affected adversely by such transfer. Notwithstanding the foregoing,
for periods prior to June 4, 1992, "Transfer Account" shall mean both
amounts transferred from another qualified plan as described above and
rollover amounts attributable to amounts qualified for rollover
treatment under Code Section 402(a)(5).
(e) "Rollover Account" shall mean, for periods on and after
June 4, 1992, the account established and maintained for each
Participant under and as described in Article VII and Section 5.13 for
purposes of holding and accounting for amounts held in the Trust Fund
which are attributable to amounts which have been transferred to the
Trust Fund under Code Section 402(a)(5), or, after December 31, 1992,
under Code Section 402(c), provided that the Committee has determined
that the continued qualification of this Plan would not be affected
adversely by such transfer.
2.2 Affiliated Company. "Affiliated Company" shall mean:
(a) Any corporation that is included in a controlled group of
corporations, within the meaning of Section 414(b) of the Code, that
includes the Company, and
(b) Any trade or business that is under common control with the
Company within the meaning of Section 414(c) of the Code, and
(c) Any member of an affiliated service group, within the
meaning of Section 414(m) of the Code, that includes the Company, and
(d) Any other entity or organization which is required to be
aggregated with the Company under Section 414(o) of the Code.
(e) For purposes of Article XIV, the status of an entity as an
Affiliated Company shall be determined by reference to the percentage
tests set forth in Code Section 415(h).
2.3 Annuity Starting Date. "Annuity Starting Date" shall mean the first
day of the first period for which an amount is paid as an annuity or in any
other form.
2.4 Beneficiary. "Beneficiary" or "Beneficiaries" means the person or
persons last designated by a Participant as set forth in Section 9.11 or, if
there is no designated Beneficiary or surviving Beneficiary, the person or
persons designated in Section 9.11 to receive the interest of a deceased
Participant in such event.
2.5 Board of Directors. "Board of Directors" shall mean the Board of
Directors (or its delegate) of IT Corporation as it may from time to time be
constituted.
2.6 Break in Service. "Break in Service" shall mean a Computation Period
during which an individual completes fewer than 501 Hours of Service. A
Break in Service shall be sustained, or be deemed to occur, on the last day
of such Computation Period. Solely for purposes of determining whether an
individual sustains a Break in Service, the following special rules set forth
in Paragraphs (a) through (d) shall apply:
(a) The succeeding provisions of this Section 2.6 shall apply
with respect to an Employee who is absent from work for any period --
(i) By reason of the pregnancy of the Employee,
(ii) By reason of the birth of a child of the Employee,
(iii) By reason of the placement of a child with the
Employee in connection with the adoption of the child by the
Employee, or
(iv) For purposes of caring for the child for a period
beginning immediately following the birth or placement.
(b) The number of Hours of Service to which an Employee
described in Paragraph (a) above shall be credited with shall be --
(i) The number which otherwise would normally have
been credited to the Employee but for the absence, or
(ii) If the Committee determines that the number
described in Clause (i) above is not capable of being determined,
eight (8) Hours of Service per day of such absence, provided that the total
number of hours treated as Hours of Service under this Paragraph (b) shall not
exceed five hundred one (501) and that these Hours of Service shall be taken
into account solely for purposes of determining whether or not the Employee has
incurred a Break in Service.
(c) The Hours described in Paragraph (b) above shall be
credited to the Computation Period --
(i) In which the absence from work begins, if the
Employee would be prevented from incurring a Break in Service in that
Computation Period solely because the period of absence is
treated as Hours of Service under the provisions of Paragraph (b)
above, or
(ii) In any other case, in the immediately following
Computation Period.
(d) Paragraphs (a) through (c) above shall not apply unless the
Employee provides such timely information as the Committee may
reasonably require to establish that --
(i) The absence is for reasons described in Paragraph
(a),
and
(ii) The number of days for which there was such an
absence.
2.7 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended. Where the context so requires a reference to a particular Code
Section, the reference shall also refer to any successor provision of the
Code to such Code Section.
2.8 Committee or Administrative Committee. "Committee" or
"Administrative Committee" shall mean the Committee described in Article X
hereof.
2.9 Company. "Company" shall mean IT Corporation, a California
corporation, or any successor thereof, if its successor shall adopt this
Plan. In addition, unless the context indicates otherwise, as used in this
Plan the term Company shall also mean and include any Affiliated Company (or
similar entity) that has been granted permission by the Board of Directors
to participate in this Plan. This permission shall be granted under and upon
such conditions as the Board of Directors deems appropriate.
2.10 Company Contributions. "Company Contributions" shall mean all
amounts paid by the Company pursuant to Paragraphs (b), (c) and (d) of
Section 6.1 into the Trust Fund established and maintained under the
provisions of this Plan for the purpose of providing benefits for
Participants and their Beneficiaries. Unless expressly stated otherwise in
this Plan, Company Contributions shall not include Compensation Deferrals.
2.11 Compensation.
(a) "Compensation" shall mean base salary or base wages paid
by the Company during a Plan Year by reason of services performed by
an Employee, subject, however, to the following special rules and to
the provisions of Section 2.11(b) and (c):
(i) Fringe benefits (other than periodic payments of
vacation and sick pay), and contributions by the Company to and
benefits under any employee benefit plan shall not be taken into
account in determining Compensation; provided that, effective
January 1, 1994, lump sum payments of vacation and sick pay shall
be included in Compensation for purposes of Compensation
Deferrals under Article V hereof; provided further, that
effective January 1, 1993 lump sum payments of vacation and sick
pay shall be included in Compensation for purposes of other
Company contributions.
(ii) Amounts deducted pursuant to authorization by an
Employee or pursuant to requirements of law (including amounts
of salary or wages deferred in accordance with the provisions of
Section 5.1 and which qualify for treatment under Code Section
401(k)) shall be included in "Compensation" except as
specifically provided to the contrary elsewhere in this Plan;
(iii) Amounts paid or payable by reason of services
performed during any period in which an Employee is not a
Participant under this Plan shall not be taken into account in
determining Compensation;
(iv) Amounts not included in the Employee's gross
income for his current taxable year pursuant to deferred compensation
plans shall not be taken into account in determining
Compensation; however, such amounts (other than amounts under
stock options) shall be included in the Participant's
Compensation in the year in which those amounts are taxable to
the Participant under an unfunded nonqualified plan arrangement;
(v) Amounts included in any Employee's gross income
with respect to life insurance as provided by Code Section 79 shall
not be taken into account in determining Compensation;
(vi) Amounts paid to Employees as "bonuses," incentive
pay, severance pay, and stock options shall not be taken into account
in determining Compensation;
(vii) Except to the extent determined by resolution of
the Board of Directors, amounts paid to Employees as "commissions"
shall not be taken into account in determining Compensation;
(viii) Amounts paid to Employees as overtime pay shall
not be taken into consideration for purposes of determining the
amount of Company Contribution under Section 6.1(c). However,
overtime pay shall be taken into consideration for purposes of
determining the amount of a Participant's Compensation Deferrals
under Section 5.2.
(b) For purposes of Article XIV (relating to certain
limitations on annual additions to or benefits from qualified plans)
and Article XVII of this Plan, and subject to the applicable
limitations of Subsection (d) below, the term "Compensation" shall mean
(i) To the extent required under Treas. Reg.
Section 1.415-2(d)(2), all of the following:
(A) The Employee's wages, salaries, and fees for
professional services and other amounts includible in the
Employee's gross income during the Plan Year (without
regard to whether or not an amount is received in cash),
which amounts are received for personal services actually
rendered in the course of employment with the Company
(including, but not limited to commissions paid
salespersons, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits, reimbursements, and expense
allowances under a nonaccountable plan (as described in
Treas. Reg. Section 1.61-2(c)).
(B) In the case of an Employee who is an Employee
within the meaning of Code Section 401(c)(1) and the
regulations thereunder, the Employee's earned income (as
described in Code Section 401(c)(2) and the regulations
thereunder).
(C) Amounts described in Code Sections 104(a)(3),
105(a), and 105(h), but only to the extent that these
amounts are includible in the gross income of the Employee.
(D) Amounts paid or reimbursed by the Company for
moving expenses incurred by an Employee, but only to the
extent that at the time of the payment it is reasonable to
believe that these amounts are not deductible by the
Employee under Code Section 217.
(E) The value of a non-qualified stock option
granted to an Employee by the Company, but only to the
extent that the value of the option is includible in the
gross income of the Employee for the taxable year in which
granted.
(F) The amount includible in the gross income of
an Employee upon making the election described in Code
Section 83(b).
(ii) To the extent required by Treas. Reg.
Section 1.415-2(d)(3), none of the following:
(A) Company contributions to a plan of deferred
compensation which are not includible in the Employee's
gross income for the taxable year in which contributed, or
Company contributions under a simplified employee pension
plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation;
(B) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial risk
of forfeiture;
(C) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock
option; and
(D) Other amounts which received special tax
benefits, or contributions made by the Company (whether or
not under a salary reduction agreement) towards the
purchase of an annuity described in Code Section 403(b)
(whether or not the amounts are actually excludable from
the gross income of the Employee).
For Limitation Years beginning after December 31, 1991, for
purposes of applying the limitations of Article XIV Compensation
for a Limitation Year is the Compensation actually paid or
includible in gross income during such Limitation Year.
(c) "Compensation" of any Employee taken into account under the
Plan for any Plan Year shall not exceed $200,000, as that amount is
adjusted by the Secretary of the Treasury at the same time and in the
same manner as under Section 415(d) of the Code, except that the dollar
increase in effect on January 1 of any calendar year is effective for
Plan Years beginning in such calendar year and the first adjustment to
the $200,000 limitation is effected on January 1, 1990. In determining
the Compensation of an Employee for purposes of this limitation, the
rules of Section 414(q)(6) of the Code shall apply, except in applying
such rules, the term "family" shall include only the Spouse of the
Employee and any lineal descendants of the Employee who have not
attained age 19 before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded,
then, the limitation shall be prorated among the affected individuals
in proportion to each such individual's Compensation as determined
under this Subsection prior to the application of this limitation.
Effective January 1, 1994, the foregoing limitation shall be $150,000
per year and shall be adjusted each year thereafter by the Secretary
of the Treasury.
2.12 Compensation Deferrals. "Compensation Deferrals" shall mean those
amounts which represent the deferrals made by a Participant to the Plan
pursuant to an election made in accordance with the provisions of Article V.
2.13 Computation Period. "Computation Period" shall mean the consecutive
twelve-month period used for determining whether the Employee is to be
credited with a Break in Service or a Year of Service.
(a) An Employee's "Eligibility Computation Period" shall be
used for purposes of determining eligibility to participate in the
Plan. An Employee's initial Eligibility Computation Period shall be
the 12-consecutive month period beginning on the date the Employee
first performs an Hour of Service for the Company, and any succeeding
Eligibility Computation Period shall be the 12-consecutive month
periods commencing with the first Plan Year which commences prior to
the first anniversary of the Employee's Employment Commencement Date
regardless of whether the Employee is entitled to be credited with
1,000 Hours of Service during the initial Eligibility Computation
Period. An Employee who is credited with 1,000 Hours of Service in
both the initial Eligibility Computation Period and the first Plan Year
which commences prior to the first anniversary of the Employee's
Employment Commencement Date shall be credited with two Years of
Service for purposes of eligibility to participate.
(b) An Employee's "Vesting Computation Period" which shall be
used for purposes of determining vesting in accordance with Article
VIII and allocations in accordance with Article VII, shall be the Plan
Year.
2.14 Disability. A Participant shall be deemed to have incurred a
Disability when (a) he is entitled to receive Social Security disability
benefits and (b) on the basis of proof satisfactory to the Administrative
Committee, the Administrative Committee determines that as a result of any
physical or mental condition he is totally prevented from engaging in his
regular occupation or employment for wage or profit (except such employment
as is found by the Administrative Committee to be for purposes of
rehabilitation) and the condition will, in the opinion of the physician or
physicians, clinic or hospital who make the examination or examinations
provided herein, be permanent, total and continuous for the remainder of his
life. A Participant shall not be deemed to have incurred a Disability for
purposes of this Section if, on the basis of proof satisfactory to it, the
Administrative Committee determines that his Disability arose from any
intentionally self-inflicted injury or injury resulting from participation
in any criminal undertaking, (or disease resulting therefrom). A Participant
who incurs a Disability shall be required to submit to a medical examination
and to such reexamination as the Administrative Committee shall deem
necessary in order to make a determination concerning his mental or physical
condition.
2.15 Distributable Benefit. "Distributable Benefit" shall mean the Vested
Interest of a Participant in this Plan which is determined and distributable
in accordance with the provisions of Article IX to the Participant upon
termination of the Participant's employment or as otherwise provided herein.
2.16 Early Retirement. "Early Retirement" shall mean a Participant's
termination of employment on or after having attained the Plan's Early
Retirement Date.
2.17 Early Retirement Date. "Early Retirement Date" shall mean the first
day on which the sum of a Participant's age and Years of Service is equal to
70.
2.18 Effective Date. "Effective Date" shall mean January 1, 1989, which
shall be the Effective Date of this restated Plan document (except as
otherwise provided herein). Notwithstanding the foregoing, for periods prior
to said Effective Date, Plan matters shall be subject to the provisions of
the Predecessor Plan Documents as in effect from time to time prior to such
date (except as otherwise provided herein).
2.19 Election Period.
(a) With respect to a Qualified Preretirement Survivor Annuity,
"Election Period" shall mean the period which begins on the first day
of the Plan Year in which the Participant attains age thirty-five (35)
and ends on the date of the Participant's death. In the case of a
Participant who has separated from service, the period under this
subparagraph with respect to benefits accrued before the date of
separation shall begin not later than the date of such separation.
(b) With respect to a Qualified Joint and Survivor Annuity,
"Election Period" shall mean the 90-day period ending on the Annuity
Starting Date.
2.20 Eligible Employee. "Eligible Employee" shall mean any individual who
is employed by the Company except: (a) any Employee who is covered by a
collective bargaining agreement to which the Company is a party if there is
evidence that retirement benefits were the subject of good faith bargaining
between the Company and the collective bargaining representative, unless the
collective bargaining agreement provides for coverage under this Plan; (b)
any Employee who is employed in any job classification or Company division
which by action of the Board of Directors is excluded from coverage under
this Plan; (c) any hourly employee who is employed on a Project Hourly Basis
in accordance with the Company's payroll procedure; and (d) any Leased
Employee. Notwithstanding the foregoing, for purposes of applying the
provisions of Article V, "Eligible Employee" shall have the meaning set forth
in Section 5.3(b)(iii).
2.21 Employee.
(a) "Employee" shall mean each person currently employed in any
capacity by the Company (including a person deemed to be employed by
the Company pursuant to Code Section 414(n)), any portion of whose
income is subject to withholding of income tax and/or for whom Social
Security contributions are made by the Company.
(b) Although Eligible Employees are the only class of Employees
eligible to participate in this Plan, the term "Employee" is used to
refer to persons employed in a non-Eligible Employee capacity as well
as Eligible Employee category. Thus, those provisions of this Plan
that are not limited to Eligible Employees, such as those relating to
Hours of Service, apply to both Eligible and non-Eligible Employees.
2.22 Employment Commencement Date. "Employment Commencement Date" shall
mean the date on which an Employee first performs an Hour of Service in any
capacity for the Company with respect to which the Employee is compensated
or is entitled to compensation by the Company, except as provided below.
(a) In the case of an Employee of a Participating Company newly
affiliated with the Company, such Employee's Employment Commencement
Date shall be determined in accordance with the applicable joinder
schedule appended to this Plan.
(b) In the case of any Employee other than an Employee
described in (a) above, such Employee shall not, for purposes of
determining his Employment Commencement Date, be deemed to have
commenced employment with the Company prior to the date on which such
entity became affiliated with the Company; except that in the case of
business entities that became Affiliated Companies or divisions or
operating units of the Company (whether through stock or assets
transactions), the Company may, in its sole discretion, establish a
prior date as of which such entity is deemed to have become an
Affiliated Company or division or operating unit of the Company or an
Affiliated Company for purposes of establishing the Employment
Commencement Dates of employees of such entity. In establishing such
a deemed retroactive affiliation date, the Company may prescribe and
apply such rules as it deems necessary or appropriate in a
non-discriminatory manner (whether such rules are applied by the Company
to all or only a portion of such employees).
(c) In the case of an Employee who incurs a Severance and is
reemployed by the Company after he incurs a Break in Service, such
Employee's Employment Commencement Date following such Severance and
Break in Service shall be the first day after such Severance upon which
the requirements of this Section 2.22 are satisfied.
2.23 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
2.24 Fiscal Year. "Fiscal Year" shall mean the fiscal year of the Company
which is currently the twelve (12) month period ending March 31.
2.25 Highly Compensated Employee.
(a) "Highly Compensated Employee" shall mean any Employee who
(i) was a Five Percent Owner during the Determination
Year or the Look Back Year;
(ii) received Compensation from the Company in excess
of $75,000 during the Look Back Year;
(iii) received Compensation from the Company in excess
of $50,000 during the Look Back Year and was in the "top-paid group"
of Employees for such Look Back Year;
(iv) was at any time an officer during the Look Back
Year and received Compensation greater than 50% of the amount in
effect under Section 415(b)(1)(A) of the Code for the calendar
year in which such Look Back Year began; or
(v) was an Employee described in subparagraph (ii),
(iii), or (iv) above (when such subparagraphs are modified to
substitute the Determination Year for the Look Back Year) and was a
member of the group consisting of the 100 Employees paid the greatest
Compensation during the Determination Year.
(b) Determination of a Highly Compensated Employee shall be in
accordance with the following definitions and special rules:
(i) "Determination Year" means the Plan Year for which
the determination of Highly Compensated Employee is being made.
(ii) "Look Back Year" is the calendar year ending with
or within the Determination Year.
(iii) An Employee shall be treated as a Five Percent
Owner for any Determination Year or Look Back Year if at any time
during such Year such Employee was a Five Percent Owner (as
defined in Section 17.2).
(iv) An Employee is in the "top-paid group" of
Employees for any Determination Year or Look Back Year if such
Employee is in the group consisting of the top 20% of the Employees
when ranked on the basis of Compensation paid during such Year.
(v) For purposes of this Section, no more than 50
Employees (or, if lesser, the greater of three Employees or 10%
of the Employees) shall be treated as officers. To the extent
required by Code Section 414(q), if for any Determination Year
or Look Back Year no officer of the Company is described in this
Section, then the highest paid officer of the Company for such
year shall be treated as described in this Section.
(vi) If any individual is a "family member" with
respect to a Five Percent Owner or of a Highly Compensated Employee
in the group consisting of the ten Highly Compensated Employees paid
the greatest Compensation during the Determination Year or Look
Back Year, then
(A) such individual shall not be considered a
separate Employee, and
(B) any Compensation paid to such individual (and
any applicable contribution or benefit on behalf of such
individual) shall be treated as if it were paid to (or on
behalf of) the Five Percent Owner or Highly Compensated
Employee.
For purposes of this subparagraph (vi), the term "family member"
means, with respect to any Employee, such Employee's Spouse and
lineal ascendants or descendants and the spouses of such lineal
ascendants or descendants.
(vii) For purposes of this Section the term
"Compensation" means Compensation as defined in Code Section
415(c)(3), as set forth in Section 14.7 of the Plan, without regard
to the limitations of Code Section 401(a)(17); provided, however, the
determination under this subparagraph (vii) shall be made without
regard to Code Sections 125, 402(a)(8), and 401(h)(1)(B), and in
the case of Company contributions made pursuant to a salary
reduction agreement, without regard to Code Section 403(b).
(viii) For purposes of determining the number of
Employees in the "top-paid" group under this Section, the following
Employees shall be excluded:
(A) Employees who have not completed six months of
service,
(B) Employees who normally work less than 17-1/2
hours per week,
(C) Employees who normally work not more than six
months during any Plan Year, and
(D) Employees who have not attained age 21,
(E) Except to the extent provided in Treasury
Regulations, Employees who are included in a unit of
employees covered by an agreement which the Secretary of
Labor finds to be a collective bargaining agreement between
Employee representatives and the Company, and
(F) Employees who are nonresident aliens and who
receive no earned income (within the meaning of Section
911(d)(2) from the Company which constitutes income from
sources within the United States (within the meaning of
Section 861(a)(3)).
The Company may elect to apply Subparagraphs (A) through (D)
above by substituting a shorter period of service, smaller number
of hours or months, or lower age for the period of service,
number of hours or months, or (as the case may be) than as
specified in such Subparagraphs.
(ix) A former Employee shall be treated as a Highly
Compensated Employee if
(A) such Employee was a Highly Compensated Employee
when such Employee incurred a Severance, or
(B) such Employee was a Highly Compensated
Employee at any time after attaining age 55.
(x) Code Sections 414(b), (c), (m), and (o) shall be
applied before the application of this Section. Also, the term
"Employee" shall include "leased employees," within the meaning
of Code Section 414(n), unless such leased employee is covered
under a "safe harbor' plan of the leasing organization and not
covered under a qualified plan of the Company.
(c) Notwithstanding the foregoing, for administrative
convenience, the Committee may establish rules and procedures for
purposes of identifying Highly Compensated Employees, which rules and
procedures may result in a Covered Employee being deemed to be a Highly
Compensated Employee for purposes of the limitations of Article V,
whether or not such Covered Employee is an individual described in Code
Section 414(q).
2.26 Hour of Service.
(a) "Hour of Service" of an Employee shall mean the following:
(i) Each hour for which the Employee is paid by the
Company or entitled to payment for the performance of services
as an Employee.
(ii) Each hour in or attributable to a period of time
during which the Employee performs no duties (irrespective of
whether he has terminated his Employment) due to a vacation,
holiday, illness, incapacity (including pregnancy or disability
and including accumulated or accrued payments in respect of
vacation or illness), layoff, jury duty, military duty or a Leave
of Absence, but excluding lump sum severance payments, for which
he is paid or entitled to payment, whether direct or indirect.
However, no such hours shall be credited to an Employee if such
Employee is directly or indirectly paid or entitled to payment
for such hours and if such payment or entitlement is made or due
under a plan maintained solely for the purpose of complying with
applicable workmen's compensation, unemployment compensation or
disability insurance laws or is a payment which solely reimburses
the Employee for medical or medically related expenses incurred
by him.
(iii) Notwithstanding the foregoing, no more than 501
Hours
of Service shall be credited to an Employee under Subparagraph
(i) or (ii) above on account of any single continuous period of
time during which no duties are performed.
(iv) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed
to by the Company, provided that such Employee has not previously
been credited with an Hour of Service with respect to such hour
under paragraphs (i) or (ii) above.
(b) Hours of Service under paragraphs (a)(ii) and (a)(iii)
shall be calculated in accordance with Department of Labor Regulation
29 C.F.R. Section 2530.200b-2(b). Hours of Service shall be credited to
the appropriate computation period according to the Department of Labor
Regulation Section 2530.200b-2(c). However, an Employee will not be
considered as being entitled to payment until the date when the Company
would normally make payment to the Employee for such Hour of Service.
(c) In lieu of any other method of crediting Hours of Service,
in the case of an Employee for whom records of hours worked are not
required by applicable law to be kept, forty-five Hours of Service
shall be deemed earned for each week for which one or more Hours of
Service would be credited pursuant to the preceding provisions of this
Section 2.26.
(d) Hours of Service of an Employee of a business entity newly
affiliated with the Company credited for the period (if any) commencing
upon that individual's deemed Employment Commencement Date determined
in accordance with Section 2.22 and ending upon the actual date the
individual becomes an Employee shall be determined in accordance with
the provisions of this Section 2.26, applied with reference to the
newly affiliated entity rather than the Company, and in the case of a
Participating Company, in accordance with the applicable joinder
schedule appended to this Plan.
(e) Plan Participants will receive credit for up to 501 Hours
of Service for all purposes hereunder during the unpaid portion of an
approved family or medical leave of absence.
2.27 Investment Fund. "Investment Fund" shall mean any investment
alternative made available by the Committee for selection by Participants as
provided in Section 7.5.
2.28 Investment Manager. "Investment Manager" means the one or more
Investment Managers, if any, that are appointed pursuant to Section 10.3.
2.29 Leased Employee. "Leased Employee" means any Employee who is
designated as such by the Company.
2.30 Leave of Absence. "Leave of Absence" shall mean a period of unpaid
temporary absence approved in writing by the Company. For purposes of this
Plan, the term Leave of Absence shall include military duty and layoff,
subject to the following conditions:
(a) The Employee shall return to the employment of the Company
immediately after the expiration of such Leave of Absence, provided
that in the case of a military duty, the Employee shall return to the
employment of the Company within one hundred and twenty (120) days, or
such longer period as may be prescribed by applicable law, after first
becoming eligible for discharge from military service, and;
(b) The Employee shall return to the employment of the Company
for at least thirty (30) days after a Leave of Absence;
(c) Notwithstanding any provisions to the contrary, if an
Employee fails to satisfy the conditions of Section 2.30(a) and
2.30(b), the Employee shall be deemed to have been terminated as of the
date of commencement of such Leave of Absence; provided that the
Employee's failure to satisfy Sections 2.30(a) and 2.30(b) is not due
to the Employee's death, Disability or Normal Retirement.
2.31 RESERVED
2.32 Normal Retirement. "Normal Retirement" shall mean a Participant's
termination of employment on or after attaining the Plan's Normal Retirement
Date.
2.33 Normal Retirement Date. "Normal Retirement Date" shall be the first
day of the month coinciding with or next following the Participant's sixty-
fifth birthday.
2.34 Participant. "Participant" shall mean any person for whom an account
is maintained under the Plan and whose Account, representing such person's
interest in the Trust Fund, has not been distributed or otherwise disposed
of in accordance with applicable law.
2.35 Participation Commencement Date. "Participation Commencement Date"
shall mean the January 1 or July 1 coinciding with or immediately following
the date an Eligible Employee satisfies the eligibility requirements under
Section 3.1. In the case of an Eligible Employee of a newly affiliated
Participating Company or a business entity acquired by a Participating
Company, "Participation Commencement Date" shall mean such date as determined
in accordance with the applicable joinder schedule appended to this Plan.
2.36 Participating Company. "Participating Company" shall mean IT
Corporation and each Affiliated Company included within the term "Company,"
provided that contributions are being made hereunder for the Employees of
such Participating Company.
2.37 Plan. "Plan" shall mean The IT Corporation Retirement Plan herein set
forth, and as it may be amended from time to time.
2.38 Plan Administrator. "Plan Administrator" shall mean the administrator
of the Plan, within the meaning of Section 3(16)(A) of ERISA. The Plan
Administrator shall be IT Corporation, a California corporation.
2.39 Plan Year. "Plan Year" shall mean the period from January 1 through
December 31.
2.40 Predecessor Plan Documents. "Predecessor Plan Documents" shall mean
the one or more Plan documents in effect from time to time prior to
January 1, 1989, and which established the terms of the Plan prior to such
date (except to the extent that provisions of this restated Plan document are
expressly stated to be effective prior to such date).
2.41 Prior Plan. "Prior Plan" shall mean a qualified plan under Code
Section 401(a) which with the consent of the Board of Directors is merged
into and with or consolidated with this Plan, or the assets or liabilities
of which are transferred to this Plan and whose participants become
Participants in this Plan in accordance with a joinder schedule appended to
this Plan.
2.42 Qualified Election. "Qualified Election" shall mean a Participant's
waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement
Survivor Annuity, which election acknowledges the effect of such election and
is made during the applicable Election Period in accordance with the
requirements of this Section 2.42 and in the manner and form prescribed by
the Committee.
(a) To the extent required under Section 417 of the Code, no
election by a Participant shall be deemed to be a Qualified Election
unless the Spouse, if any, of the Participant consents in writing to
(i) the designation of any Beneficiary in addition to or other than the
Spouse, and (ii) the specified optional form of benefit elected by the
Participant (including remaining benefits that the Beneficiary may
receive). The consent of the Spouse shall acknowledge the effect of
such consent and shall be witnessed by a Plan representative or notary
public.
(b) Notwithstanding this consent requirement, if the
Participant warrants to the Committee that such written consent may not
be obtained because there is no Spouse or the Spouse cannot be located
or for any other reason the Committee determines to be consistent with
Code Section 417, a waiver without spousal consent will be deemed a
Qualified Election.
(c) A Qualified Election under this provision will be valid
only with respect to the Spouse who consented to the Qualified
Election, or in the event of a deemed Qualified Election, with respect
to the designated Spouse (e.g., that Spouse who cannot be located).
(d) Additionally, a revocation of a prior waiver may be made
by a Participant without the consent of the Spouse at any time before
the commencement of benefits, but any subsequent waiver shall again be
subject to the foregoing rules. The number of revocations and
subsequent waivers shall not be limited during any applicable Election
Period. The consent of a Spouse to a Qualified Election shall be
irrevocable.
2.43 Qualified Joint and Survivor Annuity. "Qualified Joint and Survivor
Annuity" shall mean a non-transferable annuity contract purchased from a life
insurance company which shall provide an annuity for the life of the
Participant with a survivor annuity for the life of the Spouse that provides
periodic payments, each of which is not less than 50 percent and not more
than 100 percent of the amount of the periodic payment under the annuity
which is payable during the joint lives of the Participant and the Spouse.
2.44 Qualified Preretirement Survivor Annuity. "Qualified Preretirement
Survivor Annuity" shall mean the purchase of a non-transferable annuity
contract purchased from a life insurance company with the Participant's
account balance for the life of the Surviving Spouse in the event a
Participant dies before benefits have commenced under the Plan.
2.45 Severance. "Severance" shall mean the termination of an Employee's
employment, in any capacity, with the Company or its Affiliated Companies,
by reason of such Employee's death, resignation, disability, dismissal or
otherwise. An Employee who is on Leave of Absence shall not be deemed to
have incurred a Severance during the period in which he is on Leave of
Absence. For the purpose of determining whether an Employee has incurred a
Severance, the following rules shall apply:
(a) An Employee shall not be deemed to have incurred a
Severance (i) because of his absence from employment with the Company
by reason of any paid vacation or holiday period or (ii) by reason of
any Leave of Absence or layoff not in excess of one year.
(b) For the purposes of this Plan, an Employee shall be deemed
to have incurred a Severance on the earlier of (i) that date on which
he dies, resigns, is discharged, or otherwise terminates his employment
with the Company and its Affiliated Companies; or (ii) the date on
which he is scheduled to return to work after the termination of an
approved Leave of Absence, if he does not in fact return to work on or
before said date and provided that his failure to return to work is not
due to the Employee's death, Disability or Normal Retirement.
(c) Except as may be permitted under Code Section 401(k)(2)(B),
an Employee shall not be deemed to have incurred a Severance solely by
reason of a sale of the unit or other business reorganization involving
the unit or Affiliated Company then employing him if his position or
duties are not materially affected.
2.46 Severance Date. "Severance Date" shall mean the day on which such
Employee is deemed to have incurred a Severance, determined in accordance
with the provisions of Section 2.45.
2.47 Spouse (Surviving Spouse). "Spouse" shall mean the spouse or
surviving spouse of the Participant, provided that a former spouse will be
treated as the Spouse or Surviving Spouse only for the purposes of a qualified
domestic relations order as described in Section 414(p) of the Code and for the
purpose of a Qualified Election under Section 2.42 of the Plan.
2.48 Trust. "Trust" shall mean the trust established pursuant to the Trust
Agreement.
2.49 Trust Agreement. "Trust Agreement" shall mean the one or more trust
agreements entered into by the Company in accordance with the provisions of
Article IV for the purpose of holding contributions and earnings under this
Plan.
2.50 Trustee. "Trustee" shall mean Fidelity Management Trust Company or
any successor or other corporation acting as a trustee of the Trust.
Notwithstanding the general effective date provisions of Section 2.18, the
provisions of this Section 2.50 shall be effective as of July 11, 1989.
2.51 Trust Fund. "Trust Fund" shall mean the Fund established under the
Trust Agreement by contributions made by the Company and Participants
pursuant to the Plan and from which any distributions under the plan are to
be made.
2.52 Valuation Date. "Valuation Date" shall mean every business day the
New York Stock Exchange is open. Notwithstanding the general effective date
provisions of Section 2.18, the provisions of this Section 2.52 shall be
effective as of July 11, 1989.
2.53 Vested Interest. "Vested Interest" shall mean the interest of a
Participant in the Trust Fund which has become vested and nonforfeitable
pursuant to the provisions of Article VIII of this Plan.
2.54 Year of Service. "Year of Service" shall mean with respect to any
Employee, each Year of Service determined in accordance with the following
rules:
(a) In the case of a Participant who was a participant in the
Plan as of December 31, 1988, Years of Service for purposes of
determining eligibility under Article III, vesting under Article VIII
and allocation under Article VII shall be determined in accordance with
the terms of the Predecessor Plan Documents, as in effect as of such
date.
(b) On and after January 1, 1989, each Employee shall be
credited with one Year of Service for each Computation Period during
which the Employee completes 1,000 or more Hours of Service for the
Company.
(c) In the case of a Participant who has no Vested Interest and
who sustains one or more Breaks in Service, Years of Service prior to
the first such Break shall be disregarded if the number of consecutive
Breaks in Service equals or exceeds the greater of (i) five (5), or
(ii) the number of Years of Service (computed taking this Paragraph (c)
into account) prior to the first such Break or if such Years of Service
would be disregarded under the terms of the Predecessor Plan Documents.
(d) The following provisions of this Paragraph (d) shall be
substituted in lieu of the foregoing service crediting provisions, but
such substitution shall be effective only for purposes of determining
vesting under Article VIII and allocations under Article VII for PEI
Employees. For the period before the beginning of any vesting
computation period under the PEI Plan which ends on or before December
31, 1989, each PEI Employee shall be credited with Years of Service
under this Plan equal to the number of years of service credited to him
under the PEI Plan as of the end of such vesting computation period
under the PEI Plan ending on or before December 31, 1989. In the case
of a PEI Employee who is credited with 1,000 Hours of Service in both
the vesting computation period under the PEI Plan in which falls
January 1, 1990 and the Vesting Computation Period under this Plan
which commences January 1, 1990, such PEI Employee shall be credited
with two Years of Service. For the period after December 31, 1990,
each PEI Employee shall be credited with one Year of Service for each
Vesting Computation Period during which such PEI Employee completes
1,000 or more Hours of Service for the Company. For purposes of this
Paragraph (d), the term "PEI Employee" shall mean any Employee of PEI
Associates, Inc. and the term "PEI Plan" shall mean the "401(k)
Profit-Sharing Plan of PEI Associates, Inc."
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility to Participate.
(a) Every Eligible Employee who is eligible to participate in
the Plan on December 31, 1988 (according to the terms of the
Predecessor Plan Documents in effect before January 1, 1989) shall be
eligible to continue to participate in accordance with the terms of
this restated Plan document.
(b) Each PEI Employee who is a participant in the PEI Plan as
of December 31, 1989 shall be eligible to participate in this Plan as
of January 1, 1990.
(c) Each Eligible Employee who is not eligible to participate
in the Plan as of January 1, 1990 pursuant to the provisions of
Paragraphs (a) or (b) above shall become eligible to participate in
this Plan on the date he completes one (1) Year of Service provided he
has completed his Eligibility Computation Period as defined in Section
2.13(a) and shall commence participation pursuant to the provisions in
Section 3.2. For purposes of this Paragraph (c) for the period before
January 1, 1990, any PEI Employee shall be credited with Hours of
Service under this Plan determined in accordance with the provisions
of this Plan.
(d) If an Eligible Employee ceases to be an Eligible Employee
he shall again become eligible to participate in the Plan on the later
of (i) the date he again becomes an Eligible Employee, or (ii) the date
he satisfies the requirements set forth in Paragraph (c).
(e) Notwithstanding the preceding rules of this Section 3.1,
the actual date upon which an Employee will commence participation will
be determined pursuant to the rules of Section 3.2.
3.2 Date of Commencement of Participation. Each Eligible Employee shall
automatically become a Participant on his Participation Commencement Date;
provided, however, each PEI Employee who is a participant in the PEI Plan as
of December 31, 1989 shall commence participation in this Plan as of
January 1, 1990. Notwithstanding the preceding provisions of this Section
3.2, an Eligible Employee shall not commence or continue participation unless
he has supplied the Committee with such information and authorization as the
Committee reasonably may require.
3.3 Reemployment. In the case of an Employee who incurs a Severance after
he has satisfied the requirements for eligibility as set forth in Section
3.1, such Employee shall become a Participant as of his Employment
Commencement Date following such Severance, provided he is an Eligible
Employee as of such date.<PAGE>
ARTICLE IV
TRUST FUND
4.1 Trust Fund and Trust Agreement. To carry out the purposes of
this Plan, the Administrative Committee shall establish a Trust Fund (or
continue the Trust Fund previously maintained under the Predecessor Plan
Documents), pursuant to one or more Trust Agreements with one or more
Trustees. The Board of Directors shall appoint the Trustees and may
remove them from time to time and appoint successor Trustees. Any Trustee
or Trustees (and any successor Trustees) selected by the Board of
Directors shall be a bank or trust company qualified under the laws of the
United States or of any state to operate thereunder as a trustee. Any
Trust Agreement may permit the Trustee or Trustees to manage and operate
the Trust Fund and to receive, hold, invest and disburse contributions,
interest and other income as may be necessary to carry out the Plan. The
Board of Directors may modify the Trust Agreement from time to time to
accomplish the purposes of this Plan.
4.2 Fund. The Trust Fund is authorized to invest in assets as the
Committee or the Investment Manager (if applicable) may direct. The Committee,
in its discretion, may permit Participants to direct the investment of the
assets in their Accounts in the Trust Fund in one or more of the Investment
Fund alternatives which the Committee may from time to time make available.
4.3 Company, Committee and Trustee Not Responsible for Adequacy of Trust
Fund. All Plan distributions will be paid only from the Trust assets, and
neither the Company, the Committee nor the Trustee shall have any duty or
liability to furnish the Trust with any funds, securities or other assets except
as expressly provided in the Plan. Except as required under the Plan or
Trust or under Part 4 of Title I of ERISA, the Company shall not be
responsible for any decision, act or omission of the Trustee or the
Committee, and shall not be responsible for the application of any moneys,
securities, investments or other property paid or delivered to the
Trustee.<PAGE>
ARTICLE V
EMPLOYEE CONTRIBUTIONS
5.1 Employee Compensation Deferrals. In accordance
with rules which the Committee shall prescribe from time to time, each
Participant shall be given an opportunity to elect to defer the receipt of
a portion of his or her Compensation and to have the deferred amount
contributed directly by the Company to the Plan pursuant to the provisions
of Article VI. A deferral election by a Participant shall remain in
effect from year to year (notwithstanding salary or wage rate changes)
until changed by the Participant.
5.2 Amount Subject to Election.
(a) The amount of an individual's Compensation that may be
deferred subject to the election provided in
Section 5.1 shall be a whole percentage of the individual's
Compensation. Notwithstanding the foregoing, no Participant shall
be permitted to make Compensation Deferrals to the Plan during any
calendar year in excess of $7,000, or such larger amount as may be
determined by the Secretary of the Treasury pursuant to Code Section
402(g)(2) ("Deferral Limitation"), or which exceed the limitations
set forth in Section 5.3. In the event a Participant's Compensa-
tion Deferrals under this Plan, or the total amount of his
elective deferrals, within the meaning of Code Section 402(g)(3),
under all plans of the Company, exceed the Deferral Limitation for
any reason, such excess elective deferrals, and any income allocable
thereto, shall be returned to the Participant in accordance with
Section 5.5.
(b) The Committee may prescribe such rules as it deems
necessary or appropriate regarding the maximum amount that a
Participant may elect to defer and the timing of such an election.
These rules may prescribe a maximum percentage of Compensation that may
be deferred, or may provide that the maximum percentage of Compensation
that a Participant may defer will be a lower percentage of his
Compensation above a certain dollar amount of Compensation than the
maximum deferral percentage below that dollar amount of Compensation.
These rules shall apply to all individuals eligible to make the
election described in Section 5.1, except to the extent that the
Committee prescribes special or more stringent rules applicable only
to Highly Compensated Employees such that the limitations of Section
5.3(a) are satisfied.
5.3 Limitation on Compensation Deferrals of Highly Compensated Employees.
With respect to each Plan Year, a Participant's Compensation Deferrals under
the Plan for the Plan Year shall not exceed the limitations on contributions
on behalf of Highly Compensated Employees under Section 401(k) of the Code,
as provided in this Section. In the event that Compensation Deferrals under
this Plan on behalf of Highly Compensated Employees for any Plan Year exceed
the limitations of this Section for any reason, such excess contributions and
any income allocable thereto shall be returned to the Participant as provided
in Section 5.4.
(a) The Compensation Deferrals by a Participant for a Plan Year
shall satisfy the Average Deferral Percentage test set forth in
(i) below, or the alternative Average Deferral Percentage test set
forth in (ii) below:
(i) The "Actual Deferral Percentage" for Eligible
Employees who are Highly Compensated Employees shall not
be more than the "Actual Deferral Percentage" of all other
Eligible Employees multiplied by 1.25, or
(ii) The excess of the "Actual Deferral Percentage"
for Eligible Employees who are Highly Compensated Employees
over the "Actual Deferral Percentage" for all other
Eligible Employees shall not be more than two percentage
points, and the "Actual Deferral Percentage" for Highly
Compensated Employees shall not be more than the "Actual
Deferral Percentage" of all other Eligible Employees
multiplied by 2.00.
(b) For the purposes of the limitations of this Section, the
following definitions shall apply:
(i) "Actual Deferral Percentage" means, with respect
to Eligible Employees who are Highly Compensated Employees and all
other Eligible Employees for a Plan Year, the average of the
Deferral Percentage calculated separately for each Eligible
Employee in such group.
(ii) "Deferral Percentage" means for any Eligible Employee,
the ratio of the amount of Compensation Deferral Plan allocated
to the Eligible Employee for such Plan Year to
Employee's "Compensation" for such Plan Year. An Eligible
Employee's Compensation Deferrals may be taken into account for
purposes of determining his Deferral Percentage for a particular
Plan Year only if such Compensation Deferrals are allocated to
the Eligible Employee as of a date within that Plan Year. For
purposes of this rule, an Eligible Employee's Compensation
Deferrals shall be considered allocated as of a date within a
Plan Year only if (A) the allocation is not contingent upon the
Eligible Employee's participation in the Plan or performance of
services on any date subsequent to that date, and (B) the Pre-Tax
Contribution is actually paid to the Trust no later than the end
of the twelve month period immediately following the Plan Year
to which the contribution relates. In accordance with
regulations issued by the Secretary of the Treasury, Company
contributions on behalf of an Active Participant that satisfy the
requirements of Code Section 401(k)(3)(C)(ii) may also be taken
into account for the purpose of determining the Deferral
Percentage of such Active Participant.
(iii) "Eligible Employee" includes any Employee directly
or indirectly eligible to make Compensation Deferrals at any time
during the Plan Year, as prescribed by the Secretary of the
Treasury in regulations under Code Section 401(k).
(iv) "Compensation" means Compensation determined by
the Administration Committee in accordance with the requirements of
Section 414(s) of the Code, including, to the extent elected by
the Administration Committee, amounts deducted from an Employee's
wages or salary that are excludable from income under
Sections 125 and 402(a)(8) of the Code.
(c) In the event that as of the last day of a Plan Year this
Plan satisfies the requirements of Section 401(a)(4) or 410(b) of the
Code only if aggregated with one or more other plans which include
arrangements under Code Section 401(k), then this Section shall be
applied by determining the Actual Deferral Percentages of Eligible
Employees as if all such plans were a single plan, in accordance with
regulations prescribed by the Secretary of the Treasury under
Section 401(k) of the Code.
(d) For the purposes of this Section, the Deferral Percentage
for any Highly Compensated Employee who is a participant under two or
more Code Section 401(k) arrangements of the Company shall be
determined by taking into account the Highly Compensated Employee's
Compensation under each such arrangement and contributions under each
such arrangement which qualify for treatment under Code Section 401(k),
in accordance with regulations prescribed by the Secretary of the
Treasury under Section 401(k) of the Code.
(e) If an Eligible Employee (who is also a Highly Compensated
Employee) is subject to the family aggregation rules in Section 2.25,
the combined Deferral Percentage for the family group (which is treated
as one Highly Compensated Employee) shall be the Actual Deferral
Percentage determined by combining the Compensation Deferrals, amounts
treated as Compensation Deferrals under Code Section 401(k)(3)(D)(ii),
and Compensation of all eligible family members.
(f) For purposes of this Section, the amount of Compensation
Deferrals by a Participant who is a Highly Compensated Employee for a
Plan Year shall be reduced by any Compensation Deferrals in excess of
the Deferral Limitation which have been distributed to the Participant
under Section 5.5, in accordance with regulations prescribed by the
Secretary of the Treasury under Section 401(k) of the Code.
(g) The determination of the Deferral Percentage of any
Participant shall be made after applying the provisions of Section 14.5
relating to certain limits on Annual Additions under Section 415 of the
Code.
(h) The determination and treatment of Compensation Deferrals
and the Actual Deferral Percentage of any Participant shall satisfy
such other requirements as may be prescribed by the Secretary of the
Treasury.
(i) The Administration Committee shall keep or cause to have
kept such records as are necessary to demonstrate that the Plan
satisfies the requirements of Code Section 401(k) and the regulations
thereunder, in accordance with regulations prescribed by the Secretary
of the Treasury.
5.4 Provisions for Disposition of Excess Compensation Deferrals by Highly
Compensated Employees.
(a) The Administration Committee shall determine, as soon as
is reasonably possible following the close of each Plan Year, if the
Actual Deferral Percentage test is satisfied for the Plan Year. If,
pursuant to the determination by the Administration Committee, any or
all of a Highly Compensated Employee's Compensation Deferrals must be
reduced to enable the Plan to satisfy the Actual Deferral Percentage
test, then any excess Compensation Deferrals by a Highly Compensated
Employee, and any income allocable thereto shall, if administratively
feasible, be distributed to the Participant not later than two and
one-half (2-1/2) months following the close of the Plan Year in which
such excess Compensation Deferrals were made, but in any event no later
than the close of the first Plan Year following the Plan Year in which
such excess Compensation Deferrals were made (after withholding any
applicable income taxes due on such amounts).
(b) The Administration Committee shall determine the amount of
any excess Compensation Deferrals by Highly Compensated Employees for
a Plan Year by application of the leveling method set forth in Treasury
Regulation Section 1.401(k)-1(f)(2) under which the Deferral Percentage
of the Highly Compensated Employee who has the highest such percentage
for such Plan Year is reduced to the extent required (i) to enable the
Plan to satisfy the Actual Deferral Percentage test, or (ii) to cause
such Highly Compensated Employee's Deferral Percentage to equal the
Deferral Percentage of the Highly Compensated Employee with the next
highest Deferral Percentage. This process shall be repeated until the
Plan satisfies the Actual Deferral Percentage test. For each Highly
Compensated Employee, the amount of excess Compensation Deferrals shall
be equal to the total Compensation Deferrals (plus any amounts treated
as Compensation Deferrals) made or deemed to be made by such Highly
Compensated Employee (determined prior to the application of the
foregoing provisions of this Subsection (b)) minus the amount
determined by multiplying the Highly Compensated Employee's Deferral
Percentage (determined after application of the foregoing provisions
of this Subsection (b)) by his Compensation.
(c) The determination and correction of excess Compensation
Deferrals of a Highly Compensated Employee whose Actual Deferral
Percentage is determined under the family aggregation rules in
Section 5.3 shall be accomplished by reducing the Actual Deferral
Percentage as required under Subsections (a) and (b) above and
allocating the excess Compensation Deferrals for the family unit in
proportion to the Compensation Deferrals of each family member that are
combined to determine the Actual Deferral Percentage.
(d) For purposes of satisfying the Actual Deferral Percentage
test, income allocable to a Participant's excess Compensation
Deferrals, as determined under (b) above, shall be determined in
accordance with any reasonable method used by the Plan for allocating
income to Participant Accounts, provided such method does not
discriminate in favor of Highly Compensated Employees and is
consistently applied to all Participants for all corrective
distributions under the Plan for a Plan Year.
(e) The Administration Committee shall not be liable to any
Participant (or his Beneficiary, if applicable) for any losses caused
by misestimating the amount of any Compensation Deferrals in excess of
the limitations of this Article V and any income allocable to such
excess.
(f) To the extent required by regulations under Section 401(k)
or 415 of the Code, any excess Compensation Deferrals with respect to
a Highly Compensated Employee shall be treated as Annual Additions
under Article XIV for the Plan Year for which the excess Compensation
Deferrals were made, notwithstanding the distribution of such excess
in accordance with the provisions of this Section.
5.5 Provisions for Return of Annual Compensation Deferrals in Excess of the
Deferral Limitation. In the event Participant's elective deferrals, within
the meaning of Code Section 402(g)(3), for any calendar year exceed the
Deferral Limitation, such excess elective deferrals shall be returned to the
Participant as provided in this Section 5.5.
(a) In the event that due to error or otherwise, a
Participant's Compensation Deferrals under this Plan for any calendar
year exceed the Deferral Limitation for such calendar year (without
regard to elective deferrals under any other plan), the Administration
Committee shall notify the Plan of the amount of the excess
Compensation Deferrals, and such excess Compensation Deferrals,
together with income allocable thereto, shall be distributed to the
Participant on or before the first April 15 following the close of the
calendar year in which such excess Compensation Deferrals were made.
(b) If in any calendar year, a Participant makes Compensation
Deferrals under this Plan and additional elective deferrals, within the
meaning of Code Section 402(g)(3), under any other plan maintained by
the Company, and the total amount of the Participant's elective
deferrals under this Plan and all such other plans exceed the Deferral
Limitation, the Company shall notify the affected plans, and corrective
distributions of the excess elective deferrals, and any income
allocable thereto, shall be made from one or more such plans, to the
extent determined by the Company. All corrective distributions of
excess elective deferrals shall be made on or before the first April
15 following the close of the calendar year in which the excess
elective deferrals were made.
(c) Income on Compensation Deferrals in excess of the Deferral
Limitation shall be calculated in accordance with 5.4(d), except that
if the Plan Year is not the calendar year, calculations of allocable
income shall be made with reference to income allocable for the
calendar year rather than the Plan Year, and based upon the
Participant's account balance as of the last day of the calendar year.
(d) The Administration Committee shall not be liable to any
Participant (or his Beneficiary, if applicable) for any losses caused
by misestimating the amount of any Compensation Deferrals in excess of
the limitations of this Article V and any income allocable to such
excess.
(e) In the event a Participant's Compensation Deferrals for any
calendar year exceed the Deferral Limitation solely by reason of the
Participant's elective deferrals under a plan maintained by an
unrelated employer, such excess Compensation Deferrals shall not be
returned to the Participant, but shall be held in the Participant's
Compensation Deferrals Account until distribution can be made in
accordance with the provisions of this Plan.
(f) To the extent required by regulations under Section 402(g)
or 415 of the Code, Compensation Deferrals with respect to a
Participant in excess of the Deferral Limitation shall be treated as
Annual Additions under Article XIV for the Plan Year for which the
excess Contributions were made, unless such excess is distributed to
the Participant in accordance with the provisions of this Section.
5.6 Termination of, Change in Rate of, or Resumption of Deferrals.
(a) In accordance with rules which the Committee may prescribe,
a Participant may at any time submit a request to the Committee to
terminate, alter the rate of, or resume his deferrals made pursuant to
this Article V.
(b) A request for termination, alteration or resumption of
deferrals shall be in form satisfactory to the Committee.
5.7 Character of Amounts Contributed to the Deferral Fund. Amounts
deferred pursuant to the election described above in Section 5.1 (and which
qualify for treatment under Code Section 401(k) and are contributed to the
Trust Fund pursuant to Article VI) shall be treated, for federal and state
income tax purposes, as Company Contributions, and are provided for in
Section 6.1(a).
5.8 Discontinuance of Compensation Deferrals. A Participant may, upon such
prior written notice as the Committee may by rule require for administrative
feasibility, elect to discontinue his Compensation Deferrals.
5.9 Payroll Deduction. A Participant's Compensation Deferrals shall be
deducted each payroll period from his Compensation.
5.10 Deposit in Trust. Participant Compensation Deferrals in accordance
with this Article V shall be transmitted to the Trustee on the earliest date
by which such amounts can reasonably be transmitted, but in no event later
than ninety days after the date such amounts would have been payable to
Participants had they elected to receive cash. A Participant's Compensation
Deferrals shall be held by the Trustee in the Participant's Compensation
Deferral Account.
5.11 Personal Contributions. Other than Compensation Deferrals under
Section 5.1 and any transfer or rollover contributions under Section 5.12,
Section 5.13 or Section 5.14, a Participant shall not be required or
permitted to make any contributions to the Plan.
5.12 Participant Transfer Contributions. Effective as of a Participant's
Participation Commencement Date, or such later date as may be determined by
the Committee, the account, if any, of such Participant then held in trust
under another plan that satisfies the requirements of Code Section 401(a) may
be transferred to this Plan (in a plan-to-plan transfer) and credited to the
Participant's Transfer Account in accordance with rules which the Committee
shall prescribe from time to time. Any amounts so transferred, which may be
in cash or in kind, shall not be subject to distribution to the Participant
except as expressly provided under this Plan. Notwithstanding the foregoing,
for periods prior to June 4, 1992, amounts qualified for rollover treatment
under Code Section 402(a)(5) shall be treated in the same manner as
transferred amounts described above.
5.13 Participant Rollover Contributions. The provisions of this Section
5.13 shall be effective on and after January 1, 1993. Effective as of an
Eligible Employee's Employment Commencement Date, or such later date as may
be determined by the Committee, amounts qualified for rollover treatment
under Section 402(c) of the Code may be transferred to this Plan and credited
to a newly created Rollover Account established for such Eligible Employee
in accordance with rules which the Committee shall prescribe from time to
time. An Eligible Employee who is otherwise not yet eligible for
participation in the Plan, but who has a Rollover Account pursuant to the
provisions of this Section 5.13 shall be a Participant in the Plan, but
solely for purposes of the provisions of this Section 5.13. Such an Eligible
Employee shall not be eligible to make Compensation Deferrals to the Plan,
nor shall such an Eligible Employee be eligible for allocations of Company
Contributions, until such Eligible Employee has satisfied the participation
requirements set forth in Article III and has begun participation in the Plan
pursuant to the provisions of Section 3.2. Any amounts transferred to this
Plan under Code Section 402(c) shall not be subject to distribution to the
Participant except as expressly provided under this Plan. For periods
beginning on June 4, 1992 and ending on June 30, 1993, amounts qualified for
rollover treatment under Code Section 402(a)(5) may be transferred to the
Plan and credited to the Participant's Rollover Account in accordance with
rules which the Committee shall prescribe from time to time.
5.14 Special Effective Dates. Notwithstanding the general effective date
provisions of Section 2.18, the provisions of Sections 5.2(a), 5.3, 5.4 and
5.5 shall be effective as of the first Plan Year beginning after December 31,
1987.<PAGE>
ARTICLE VI
COMPANY CONTRIBUTIONS
6.1 General. Subject to the requirements and restrictions of this Article
VI and Article XIV, and subject also to the amendment or termination of the Plan
or the suspension or discontinuance of contributions as provided herein, the
Company shall contribute to the Plan the following amounts:
(a) An amount to be allocated to each Participant's Compensation
Deferral Account which is the amount of Compensation deferred by the
Participant pursuant toSection 5.1 which qualifies for tax-deferral
treatment under Code Section 401(k);
(b) An amount necessary to restore previous forfeitures which
are to be reinstated if other forfeitures available for that purpose
are insufficient;
(c) Four percent (4%) of that Compensation (of all Eligible
Participants eligible for an allocation pursuant to the provisions of
Section 7.2(a) of the Plan for the Plan Year) with respect to which
such allocation is to be made, reduced by any forfeitures applied to
reduce Company Contributions in accordance with Section 9.5(f), which
amount is to be allocated to Eligible Participants' Company Fixed
Contribution Accounts; and
(d) An amount to be determined in the sole discretion of the
Board of Directors of the Company, to be allocated to Eligible
Participants' Discretionary Company Contribution Accounts.
The contribution contemplated by Paragraph (d) is discretionary and no
provision of this Plan shall be interpreted or applied to require a
contribution for any year to be made under Paragraph (d), whether or not such
contribution may have been made for a prior year.
6.2 Irrevocability. The Company shall have no right or title to, nor
interest in, the contributions made to the Trust Fund, and no part of the
Trust Fund shall revert to the Company except that on and after the Effective
Date funds may be returned to the Company as follows:
(a) In the case of a Company contribution which is made by a
mistake of fact, that contribution may be returned to the Company
within one (1) year after it is made.
(b) All contributions to the Trust Fund are conditioned on
deductibility under Code Section 404. In the event a deduction is
disallowed for any such contribution such contribution may be returned
to the Company within one (1) year after the disallowance.
6.3 Company, Committee and Trustee Not Responsible for Adequacy of Trust
Fund. The Company, Committee and Trustee shall not be liable or responsible
for the adequacy of the Trust Fund to meet and discharge any or all payments
and liabilities hereunder. All Plan benefits will be paid only from the
Trust assets, and neither the Company, the Committee nor the Trustee shall
have any duty or liability to furnish the Trust with any funds, securities
or other assets except as expressly provided in the Plan. Except as required
under the Plan or Trust or under Part 4 of Title I of ERISA, the Company
shall not be responsible for any decision, act or omission of the Trustee,
the Committee, or the Investment Manager (if applicable), and shall not be
responsible for the application of any moneys, securities, investments or
other property paid or delivered to the Trustee.
6.4 Profits. Contributions authorized by Section 6.1 shall be made without
regard to current or accumulated net profits.
<PAGE>
ARTICLE VII
PARTICIPANT ACCOUNTS AND ALLOCATIONS
7.1 General.
(a) In order to account for the allocated interest of each
Participant in the Trust Fund, there shall be established and maintained
for each Participant the applicable accounts described in Section 2.1,
which shall be held in one or more of the Investment Funds as provided in
this Article VII.
(b) All gains, losses, dividends and other property
acquisitions and/or transfers that occur with respect to the Trust Fund
shall be held, charged, credited, debited or otherwise accounted for
under said Fund on an unallocated basis until allocated to
Participants' Accounts as of the applicable Valuation Date as provided
under this Plan or otherwise used or applied in accordance with the
provisions of this Plan.
7.2 Allocation of Company Fixed Contributions.
(a) The provisions of this Section 7.2(a) shall be effective
for periods prior to June 15, 1990. Company Contributions made under
Section 6.1(c), together with any forfeitures applied toward reduction
of Company Contributions under the provisions of Section 9.5(f), for
any Plan Year shall be allocated as of the last day of such year to the
Company Fixed Contribution Account of each Eligible Participant (as
defined below) in the ratio of each such Participant's Compensation to
the aggregate of all Eligible Participants' Compensation, except as
otherwise provided below. "Eligible Participant" for any Plan Year
shall mean any Participant who is employed by the Company on the last
day of the Plan Year except for any Participant who is not then
employed by the Company because of any of the following events
occurring during such Plan Year: (i) Death; (ii) Disability; (iii)
Normal or Early Retirement; and (iv) Transfer to an Affiliated Company
not participating in the Plan. Notwithstanding the foregoing, a
Participant who is an Eligible Participant by reason of (iv) above,
shall be entitled to an allocation of Company Contributions under
Section 6.1(c) based only on his Compensation as an Eligible Employee,
if any, paid by the Company during the Plan Year.
(b) The provisions of this Section 7.2(b) shall be effective
on and after June 15, 1990. Company Contributions made under Section
6.1(c), together with forfeitures applied under the provisions of
Section 9.5(f), for any Plan Year shall be allocated as of the last day
of such year to the Company Fixed Contribution Account of each Eligible
Participant (as defined below) in the ratio of each such Participant's
Compensation to the aggregate of all Eligible Participants'
Compensation, except as otherwise provided below. "Eligible
Participant" for any Plan Year shall mean any Participant who is
employed by the Company on the last day of the Plan Year and who has
accrued at least 1,000 Hours of Service during such Plan Year, except
for any Participant who is not then employed by the Company or who has
not accrued at least 1,000 Hours of Service because of any of the
following events occurring during such Plan Year: (i) Death; (ii)
Disability; (iii) Normal or Early Retirement; (iv) Transfer to an
Affiliated Company not participating in the Plan; and (v) Transfer of
a Qualified Employee to a Joint Venture Employer that is not a
Participating Joint Venture Employer (as such terms are defined in
Article XX). Notwithstanding the foregoing, a Participant who is an
Eligible Participant by reason of (iv) or (v) above, shall be entitled
to an allocation of Company Contributions under Section 6.1(c) based
only on his Compensation as an Eligible Employee, if any, paid by the
Company during the Plan Year.
7.3 Allocation of Discretionary Company Contributions. Discretionary
Company Contributions under Section 6.1(d) for any Plan Year shall be
allocated as of the last day in such year to the Discretionary Company
Contribution Accounts of each Eligible Participant (as defined in Section 7.2
above) in the following manner:
(a) Seventy-five percent (75%) of the Discretionary Company
Contributions shall be allocated to the Discretionary Company
Contribution Accounts of each Eligible Participant in the ratio that
such Participant's Compensation bears to the aggregate Compensation of
all Eligible Participants, except as otherwise provided in (c) below.
(b) The balance of the Discretionary Company Contributions for
any Plan Year shall be allocated as of the last day in such year to the
Discretionary Company Contribution Accounts of each Eligible
Participant in the ratio that such Participant's Years of Service as
an Eligible Employee bears to the aggregate Years of Service as
Eligible Employees of all Eligible Participants, except as otherwise
provided in (c) below.
(c) A Participant who is an Eligible Participant by reason of
Section 7.2(b) above, shall be entitled to an allocation of
Discretionary Company Contributions under (a) above based only on his
Compensation as an Eligible Employee, if any, paid by the Company
during the Plan Year. Notwithstanding any other provision of this
Plan, no allocation to any Participant's Discretionary Company
Contribution Account shall be made under this Section 7.3 for any Plan
Year, if as of the last day of such Plan Year such Participant was not
then employed by the Company for reasons other than Death, Disability,
Normal or Early Retirement, or transfer to an Affiliated Company not
participating in the Plan.
7.4 No Discriminatory Allocations. Notwithstanding any other provision in
this Plan to the contrary (including the specific provisions regarding
allocations set forth in Section 7.2 and 7.3 (the "Allocation Provisions"),
no allocation shall be made under the Plan which does not satisfy the
nondiscrimination requirements of Code Section 401(a)(4), and any other
allocation specifically called for in the Allocation Provisions of this Plan
shall be applied in a manner which is consistent with such requirements as
determined by the Committee.
7.5 Investment of Accounts. All Company contributions to the Trust Fund
shall be invested as provided in this Section 7.5. The Committee may
establish a choice of investment alternatives for Participant Accounts from
which each Participant may select in determining the manner in which his
Account will be invested. Each such investment alternative shall be known
as an Investment Fund.
(a) If such Investment Funds are established, each Participant
may elect to invest the assets of his accounts in the Trust Fund in
such Investment Funds at such time, in such manner, and subject to such
restrictions as the Committee shall specify.
(b) In accordance with rules which the Committee may adopt from
time to time the Investment Funds and each Participant's interest in
the Investment Funds may be valued at different times, reflecting,
among other factors, the different nature of the Investment Funds.
(c) The Committee, in its discretion, may permit Participants
to transfer amounts from one investment alternative to one or more
other investment alternatives. An election to transfer such amounts
shall be made only at such time, in such manner, and subject to such
restrictions as the Committee may specify. The Committee may, but need
not, provide that future contributions to the Trust Fund may be
invested in a different investment alternative than amounts already
accumulated in the Participant's Account.
(d) The Committee shall prescribe rules relating to the
investment of the assets in the Trust Fund in the case of a Participant
who fails to make an effective election, for any reason whatsoever, as
to how all or any portion of his interest therein shall be invested.
Except as otherwise provided by law, neither the Company nor the
Committee nor the Trustee shall be liable for any loss resulting from
the investment of a Participant's Account in accordance with directions
given by a Participant regarding the investment of such Participant's
Account.
7.6 No Guarantee. The Company, the Committee, and Trustee do not in any
manner or to any extent whatsoever warrant, guarantee or represent that the
value of a Participant's Account shall at any time equal or exceed the amount
previously contributed thereto.
7.7 Treatment of Accounts Upon Termination of Employment. Upon a
Participant's termination of employment, pending distribution of the
Participant's Distributable Benefit pursuant to the provisions of Article IX
below, the Participant's Plan Accounts shall continue to be maintained and
accounted for in accordance with all applicable provisions of this Plan.
7.8 Accounting Procedures. The Committee and the Trustee shall establish
accounting procedures for the purpose of making the allocations, valuations
and adjustments to Participants' Accounts provided for in this Article VII.
From time to time the Committee and Trustee may modify such accounting
procedures for the purpose of achieving equitable, nondiscriminatory, and
administratively feasible allocations among the Accounts of Participants in
accordance with the general concepts of the Plan and the provisions of this
Article VII.
7.9 Valuation of Accounts. For purposes of this Plan, the value of a
Participant's Account shall be determined in accordance with rules prescribed
by the Committee. In the case of a distribution, the value of a
Participant's Account under the Plan shall be determined by reference to the
Valuation Date coinciding with or immediately following the date on which the
Trustee completes the processing of a directive for payment received from the
Committee; provided, however, that if such processing is completed by the
Trustee after 4:00 p.m. Eastern Standard Time, such processing shall be
deemed to have been completed by the Trustee on the following Valuation Date.
7.10 Loans. No loans shall be permitted under this Plan.
ARTICLE VIII
VESTING OF ACCOUNTS
8.1 No Vesting Rights Except as Herein Specified. No Participant shall
have any Vested Interest in or Vested Right to, or any right of payment
of, any assets in the Trust Fund, except as provided in this Plan.
Neither the making of any allocations nor the crediting of amounts to any
Account of a Participant shall vest in any Participant any right, title,
or interest in or to any assets of the Trust Fund.
8.2 Vesting Of Company Fixed Contribution Accounts and Discretionary
Company Contribution Accounts. The Vested Interest of each Participant in
his Company Fixed Contribution Account and Discretionary Company
Contribution Account shall be determined on the basis of the Participant's
Years of Service, in accordance with the following schedule.
Number of Years of Service
Vesting Percentage
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
Notwithstanding the foregoing, the determination of a Participant's Vested
Interest in his Company Fixed Contribution Account and Discretionary Company
Contribution Account shall be subject to the following rules:
(a) A Participant shall become fully vested in his Company
Fixed Contribution Account and Discretionary Company Contribution
Account upon the occurrence of any of the following events, if such
Participant is then still an Employee:
(i) Attainment of his sixty-fifth birthday;
(ii) Attainment of Early Retirement Date;
(iii) Death; or
(iv) Severance due to a Disability.
(b) In the case of a Participant who has incurred five (5)
consecutive Breaks in Service, his Years of Service, if any, after such
Breaks in Service shall not be taken into account for purposes of
determining said Participant's Vested Interest in Company Contributions
allocated to his Company Fixed Contribution Account and Discretionary
Contribution Account before such Breaks in Service.
(c) At the discretion of the Committee, and solely to the
extent required to satisfy one of the tests described in Section 5.3(a)
for a Plan Year, a Participant shall be one hundred percent (100%)
vested in all or a portion of the Company Contributions allocated to
his Company Fixed Contribution Account and Discretionary Contribution
Account for such Plan Year.
8.3 Vesting in Compensation Deferral Accounts, Rollover Accounts and
Transfer Accounts. A Participant shall always be one hundred percent (100%)
vested in his Compensation Deferral Account, if any, and his Transfer Account
and Rollover Account, if any, in this Plan.
ARTICLE IX
DISTRIBUTION OF PLAN BENEFITS
9.1 Distribution Upon Normal Retirement.
(a) A Participant may retire from the employment of the Company
on his Normal Retirement Date. If the Participant continues in the
service of the Company beyond his Normal Retirement Date, he shall
continue to participate in the Plan in the same manner as Participants
who have not reached their Normal Retirement Dates. At the subsequent
termination of the Participant's employment on his late retirement
date, his Distributable Benefit shall be based upon the value of his
Accounts as of the Valuation Date coinciding with or immediately
following the date on which the Trustee completes the processing of a
directive for payment received from the Committee; provided, however,
that if such processing is completed by the Trustee after 4:00 p.m.
Eastern Standard Time, such processing shall be deemed to have been
completed by the Trustee on the following Valuation Date. After a
Participant has reached his Normal Retirement Date, any termination of
the Participant's employment (other than by reason of death or
Disability) shall be deemed a retirement. Notwithstanding the general
effective date provisions of Section 2.18, the provisions of this
Paragraph (a) shall be effective as of
July 1, 1989.
(b) Upon Normal Retirement a Participant shall be entitled to
a distribution of his Distributable Benefit in the Trust Fund. Such
distribution shall be made or commence to be made as soon as
practicable but in no event shall distributions commence later than the
date which is sixty (60) days after the close of the later of (i) the
Plan Year in which the Participant attains age sixty-five (65), or (ii)
the Plan Year in which occurs the tenth anniversary of the year in
which the Participant commenced participation in the Plan, or (iii) the
Plan Year in which the Participant terminates his employment with the
Company or an Affiliated Company.
9.2 Distribution Upon Disability. Upon finding that a Participant has
incurred a Disability while still employed by the Company, the Committee
shall establish a date of such Disability. As of such date, the
Participant's Accounts shall be 100% vested by reason of the Participant's
Disability and shall be distributed in accordance with Section 9.1(b). The
Participant's Distributable Benefit shall be determined by reference to the
value of the Participant's Accounts as of the Valuation Date coinciding with
or immediately following the date on which the Trustee completes the
processing of a directive for payment received from the Committee; provided,
however, that if such processing is completed by the Trustee after 4:00 p.m.
Eastern Standard Time, such processing shall be deemed to have been completed
by the Trustee on the following Valuation Date. Notwithstanding the general
effective date provisions of Section 2.18, the provisions of this section 9.2
shall be effective as of July 1, 1989.
9.3 Distribution Upon Death Prior to Termination of Employment. Upon the
death of a Participant during his employment with the Company, the Committee
shall, subject to the succeeding provisions in this Article IX, direct the
Trustee to make a distribution of the Participant's Distributable Benefit in
the Trust Fund to the Beneficiary designated by the deceased Participant and
in the form designated by the deceased Participant in accordance with this
Article IX. In the event that at the date of Participant's death, the
Participant does not have a valid Qualified Election and a valid designation
of Beneficiary in effect, then Participant's accounts shall be distributed
in accordance with Paragraph (a) of Section 9.10.
9.4 Distribution Upon Death After Termination of Employment. Upon the
death of a former Participant after his retirement or other termination of
employment, but prior to the distribution of his entire Distributable Benefit
in the Trust Fund to which he is entitled, the Participant's entire interest
will be distributed no later than five (5) years after the Participant's
death except to the extent that an election is made to receive distributions
in accordance with (a) or (b) below:
(a) if any portion of the Participant's interest is payable to
a Beneficiary, distributions may be made in substantially equal
installments over the life or life expectancy of the designated
Beneficiary commencing no later than 1 year after the Participant's
death;
(b) if the Beneficiary is the Participant's Surviving Spouse,
the date distributions are required to begin in accordance with (a)
above shall not be later than the date on which the Participant would
have attained age 70-1/2, and, if the Spouse dies before payments
begin, subsequent distributions shall be made as if the Spouse had been
the Participant.
(c) For purposes of (b) above, any amount paid to a child of
the Participant will be treated as if it had been paid to the Surviving
Spouse if the amount becomes payable to the Surviving Spouse when the
child reaches the age of majority.
9.5 Termination of Employment Prior to Normal Retirement Date.
(a) Subject to the provisions of Paragraph (b) below and
Sections 9.6 and 9.8 below, if a Participant's employment for the
Company and all Affiliated Companies terminates prior to attainment of
age 65, his Distributable Benefit in the Trust Fund shall be paid in
a form provided in Section 9.6 or 9.9. In no event shall such
distribution be later than sixty (60) days after the close of the Plan
Year in which occurs the later of (i) the Participant's termination of
employment with the Company and all Affiliated Companies, or (ii) the
Participant's sixty-fifth (65th) birthday.
(b) If the Participant, and his Spouse if he is married, makes
a written election as provided in Section 9.8(c), payment of his
Distributable Benefit in the Trust Fund pursuant to this Section 9.5
may be made on an earlier date than that provided for in Section
9.5(a).
(c) If the Participant receives a distribution pursuant to
Section 9.5(b) and is not one hundred percent (100%) vested in his
Company Fixed Contribution Account and Discretionary Company
Contribution Account in accordance with the provisions of Section 8.2,
the portion of such Accounts not vested as of the date of his
termination shall be forfeited as of the earlier of the date his Vested
Interest in the Plan is distributed to him or the date he incurs five
consecutive Breaks in Service. If the Participant has earned no Vested
Interest in his Accounts, he shall be deemed to have received a
distribution of all of his Accounts on his Severance Date, and all
amounts in his Accounts shall be forfeited as of such date.
(d) Subject to the provisions of Paragraph (e) below, any
Participant who receives a distribution of his entire Vested Interest
under the Plan pursuant to an election as provided in Paragraph (b)
above, and who is subsequently re-employed by the Company before
incurring five consecutive one-year Breaks in Service, may elect to be
fully restored in any amounts forfeited pursuant to the provisions of
Paragraph (c) by repaying to the Plan the full amount (without
interest) previously distributed to him from such Accounts.
(e) Any repayment pursuant to the provisions of Paragraph (d)
above must be made on or before five years after the first day the
Participant is subsequently employed by the Company.
(f) Amounts that have been forfeited pursuant to the provisions
of Paragraph 9.5(c) above shall be credited to a forfeiture account and
first used to pay administrative expenses in accordance with the
provisions of Section 10.18, and then applied to restore previously
forfeited amounts which are to be reinstated or to reduce Company
Contributions made pursuant to the provisions of Section 6.1(c) for the
Plan Year in which such forfeitures were effected.
(g) For purposes of the distribution rules set forth in this
Article IX, a Qualified Employee of a Joint Venture Employer (as such
terms are defined in Article XX) shall be deemed to be in continuing
employment with the Company. Accordingly, no distribution to such a
Qualified Employee shall be made until such Qualified Employee has
terminated employment with the Joint Venture Employer.
9.6 Form of Distribution of Benefits.
(a) Unless an optional form of benefits is elected pursuant to
a Qualified Election within the Election Period defined in Section
2.19, (i) distribution of the Vested Interest of a Participant who has
a Spouse will be paid in the form of a Qualified Joint and Survivor
Annuity, and (ii) distribution of the Vested Interest of a Participant
who does not have a Spouse will be paid in the form of a Single Life
Annuity. For purposes of this Section 9.6, a "Single Life Annuity"
shall mean a non-transferable annuity contract purchased from a life
insurance company which shall provide an annuity for the life of the
Participant.
(b) To the extent and in the manner required under applicable
regulations, within a reasonable period of time before the
Participant's Annuity Starting Date (and consistent with the
regulations under Section 417(a)(3)(A) of the Code), each Participant
shall receive a written explanation of (i) the terms and conditions of
the Qualified Joint and Survivor annuity and the Single Life Annuity,
(ii) the Participant's right to make, and the effect of, a Qualified
Election under Paragraph (a) above, (iii) the rights of the
Participant's Spouse under Code Section 417(a)(2), and (iv) the right
to make, and the effect of, a revocation of a Qualified Election under
Paragraph (a) above.
9.7 Minimum Amounts to be Distributed.
(a) Notwithstanding any other provision of this Plan,
distribution of a Participant's benefit under the Plan shall be made
no later than the Participant's Required Beginning Date, or, if such
distribution is to be made over the life of such Participant or over
the lives of such Participant and a Beneficiary (or over a period not
extending beyond the life expectancy of such Participant and
Beneficiary) then such distribution shall commence no later than the
Participant's Required Beginning Date. Required Beginning Date shall
mean:
(i) For the period prior to January 1, 1989, April 1
of the calendar year following the later of the calendar year in
which the Participant (A) attains age 70-1/2, or (B) retires;
provided, however, the foregoing clause (B) shall not apply with
respect to a Participant who is a Five Percent Owner (as defined
in Section 416(i) of the Code) at any time during the five Plan
Year period ending in the calendar year in which the Participant
attains age 70-1/2. If the Participant becomes a Five Percent
Owner during any Plan Year subsequent to the five Plan Year
period referenced above, the Required Beginning Date under this
Subparagraph (i) shall be April 1 of the calendar year following
the calendar year in which such subsequent Plan Year ends.
(ii) For the period after December 31, 1988, April 1 of
the calendar year following the calendar year in which the
Participant attains age 70-1/2; provided, however, if the
Participant attains age 70-1/2 before January 1, 1988 and the
Participant was not a Five Percent Owner (as defined in Section
416(i) of the Code) at any time during the Plan Year ending with
or within the calendar year in which such Participant attains age
66-1/2 or any subsequent Plan Year, then this Subparagraph (ii)
shall not apply and the Required Beginning Date shall be
determined under Subparagraph (i) above.
The provisions of this Paragraph (a) shall be construed in accordance
with the requirements of the regulations issued under Code Section
401(a)(9).
(b) If the Participant's benefit is to be distributed in a form
other than a lump sum, then such distribution shall be made in
accordance with the applicable regulations over the life of the
Participant or over the lives of such Participant and his designated
Beneficiary (or over a period not extending beyond the life expectancy
of such Participant or the life expectancy of such Participant and his
designated Beneficiary). If the Participant's benefit is to be
distributed in installments, then the amount to be distributed each
year must be at least an amount equal to the quotient obtained by
dividing the Participant's entire interest by the life expectancy of
the Participant or joint and last survivor expectancy of the
Participant and designated Beneficiary. Life expectancy and joint and
last survivor expectancy are computed by the use of the return
multiples contained in Section 1.72-9 of the Income Tax Regulations.
For purposes of this computation, a Participant's life expectancy may
be recalculated no more frequently than annually; however, the life
expectancy of a non-Spouse beneficiary may not be recalculated.
(c) All distributions under this Plan shall be made in
accordance with the minimum distribution incidental benefit
requirements of Code Section 401(a)(9)(G) and in accordance with all
regulations issued under Code Section 401(a)(9).
9.8 Mandatory Cash Out Rules and Consent Requirement.
(a) Effective as of January 30, 1986, distribution of a
Participant's benefit under the Plan, if the present value of such
benefit does not exceed thirty-five hundred dollars ($3,500), shall be
made in cash in accordance with the method or methods of payment (set
forth in Section 9.9) designated by such Participant. An amount
distributable to an alternate payee (under Article XV hereof) which is
equal to or greater than $3,500 shall be distributed in accordance with
the terms of a qualified domestic relations order (within the meaning
of Code Section 414(p)).
(b) Effective for Plan Years beginning on or after January 1,
1990, notwithstanding any other provision of this Article IX, if the
present value of the Participant's distribution does not exceed thirty-
five hundred dollars ($3,500), the distribution shall be paid in a lump
sum. However, no such lump sum shall be paid after distribution
commences, unless the Participant and his Spouse (or where the
Participant had died, the Surviving Spouse) consent in writing to such
distribution. Similarly, if an amount distributable to an alternate
payee (under Article XV hereof) is less than $3,500, such amount shall
be distributed as soon as practicable following (i) 60 days after
benefits are payable or (ii) receipt of a valid qualified domestic
relations order (within the meaning of Code Section 414(p)), whichever
is later.
(c) If the value of a Participant's Distributable Benefit
exceeds thirty-five hundred dollars ($3,500), no distribution of any
portion of that benefit may be made without the written consent of the
Participant (and his Spouse, if the Participant is married) prior to
the date he attains Normal Retirement Age. Consent of the Spouse to
earlier distribution must be made in the presence of a Plan
representative or a notary public.
(d) Death benefits payable to a Beneficiary receiving lump sum
benefits shall be distributed no later than six months following the
Participant's death.
9.9 Optional Form of Distribution. Distributions shall be made by the
Trustee only in accordance with the directions of the Committee. The
Committee shall have the authority to direct the distribution of the benefits
provided for in this Plan in accordance with the terms and conditions of this
Plan. The Committee shall, subject to the limitations set forth in Sections
9.6 and 9.8 and the requirements of Section 9.16 hereof, direct that
distribution of the Participant's Vested Interest in his account balance to
any Participant or his Beneficiary shall be made in cash in accordance with
the method or methods of payment designated by such Participant or
Beneficiary provided that any such method is one of the following:
(a) In a lump sum.
(b) In substantially equal installments, payable at least
annually, over a period of years as determined by the Committee in
accordance with Section 9.7.
(c) In the form of a non-transferable annuity contract
providing for a monthly income for a certain period; provided, however,
that the minimum amount payable under such contract shall not be less
than the amount determined under Section 9.7.
(d) In the form of a non-transferable single life annuity
contract providing for monthly payments for the life of the annuitant.
9.10 Qualified Preretirement Survivor Annuity.
(a) If a Participant dies before benefits have commenced and
on the date of Participant's death, there is in effect no valid
Qualified Election and no valid election of an optional form of
distribution described in Section 9.9, then the Participant's
Distributable Benefit shall be applied toward the purchase of a
Qualified Preretirement Survivor Annuity for the life of the Surviving
Spouse. Notwithstanding the foregoing, the Surviving Spouse may elect
an optional form of benefit as provided in Section 9.9. Benefits under
the Qualified Preretirement Survivor Annuity or other form of benefit
selected by the Surviving spouse shall be distributable to the
Surviving Spouse within a reasonable time after the Participant's
death, unless the Surviving Spouse elects to postpone payment; however,
payment must begin not later than the date on which the Participant
would have attained age 70-1/2.
(b) The Plan Administrator shall provide each Employee with a
written explanation of the Qualified Preretirement Survivor Annuity in
such terms and in such manner as would be comparable to the explanation
provided for meeting the requirements of Section 9.6(b). The
explanation shall be given to the Participant within the "applicable
period," which shall mean whichever of the following ends latest:
(i) the period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the Plan
Year in which the Participant attains age 35; (ii) a reasonable period
after becoming a Participant; (iii) a reasonable period after the
survivor benefit applicable to a Participant is no longer subsidized
as defined in Code Section 417(a)(4); (iv) a reasonable period after
the survivor benefit provisions of Code Section 401(a)(11) become
applicable with respect to a Participant; or (v) a reasonable period
after separation of service in the case of a Participant who incurs a
severance prior to attaining age 35. Notwithstanding the above, (i) in
the case of a Participant who separates from service prior to attaining
age 32, such applicable period shall be within one year after the date
of separation; or (ii) in the case of an Employee who becomes a
Participant after attaining age 32, such applicable period shall be no
later than the end of the three-year period beginning with the first
day of the Plan Year in which the Employee becomes a Participant. The
provisions of this Paragraph (b) shall be interpreted and carried out
in a manner that is consistent with the regulations issued under Code
Section 417(a)(3)(B).
9.11 Designation of Beneficiary.
(a) Subject to the limitations of Section 9.10 of the Plan,
each Participant shall have the right to designate a Beneficiary or
Beneficiaries (which may include one or more trusts) to receive his
Distributable Benefit under the Plan upon his death. If the
Participant designates a non-Spouse Beneficiary and has a Spouse on the
date of his death, then whether or not there is a Qualified Election
on the date of the Participant's death, no effect shall be given to the
Beneficiary Designation unless such Spouse has consented or thereafter
consents to such designation in the manner and form required for a
Qualified Election. A Participant shall have the right to change from
time to time any such designation subject to the provisions of the
preceding sentence and subject to the requirements of Section 2.42 of
the Plan and such revised designation shall be effective as of the date
of receipt thereof by the Committee of a properly executed form as
prescribed by the Committee, for a Qualified Election or deemed
Qualified Election.
(b) If a deceased Participant who is survived by a Spouse has
failed to designate a Beneficiary, or if the Committee shall be unable
to locate a Designated Beneficiary after reasonable efforts have been
made, or if for any reason the designation shall be legally
ineffective, or if the Beneficiary shall have predeceased the
Participant without effectively designating a successor beneficiary,
any distribution required to be made under the provisions of this Plan
shall be in accordance with Section 9.10.
(c) If a deceased Participant who does not have a surviving
Spouse on the date of his death shall have failed to designate a
Beneficiary, or if the Committee shall be unable to locate a designated
Beneficiary after reasonable efforts have been made, or if for any
reason designation shall be legally ineffective, or if the Beneficiary
shall have predeceased the Participant without effectively designating
a successor Beneficiary, any distribution required to be made under the
provisions of this Plan shall commence within one year after the
Participant's death to the person or persons included in the highest
priority category among the following, in the order of priority:
(i) The Participant's surviving children, including
adopted children;
(ii) The Participant's surviving parents; or
(iii) The Participant's estate.
The determination by the Committee as to which persons, if any
qualify within the foregoing categories shall be final and conclusive
upon all persons. Notwithstanding the preceding provisions of this
Paragraph (c), distribution made pursuant to this Paragraph (c) shall
be made to the Participant's estate if the Committee so determines in
its discretion.
(d) In the event that the deceased Participant was not a
resident of California at the date of his death, the Committee, in its
discretion, may require the establishment of ancillary administration
in California. In the event that a Participant shall predecease his
Beneficiary and on the subsequent death of the Beneficiary a remaining
distribution is payable under the applicable provisions of this Plan,
the distribution shall be payable in the same order of priority
categories as set forth above but determined with respect to the
Beneficiary, subject to the same provisions concerning non-California
residency, the unavailability of an estate representative and/or the
absence of administration of the Beneficiary's estate as are applicable
on the death of the Participant.
9.12 Facility of Payment. If any payee under the Plan is a minor or if the
Committee reasonably believes that any payee is legally incapable of giving
a valid receipt and discharge for any payment due him, the Committee may have
the payment, or any part thereof, made to the person (or persons or
institution) whom it reasonably believes is caring for or supporting the
payee, unless it has received due notice of claim therefor from a duly
appointed guardian or committee of the payee. Any payment shall be a payment
from the Accounts of the payee and shall, to the extent thereof, be a
complete discharge of any liability under the Plan to the payee.
9.13 Additional Documents.
(a) The Committee or Trustee, or both may require the execution
and delivery of such documents, papers and receipts as the Committee
or Trustee may determine necessary or appropriate in order to establish
the fact of death of the deceased Participant and of the right and
identity of any Beneficiary or other person or persons claiming any
benefits under this Article IX.
(b) The Committee or the Trustee, or both, may, as a condition
precedent to the payment of death benefits hereunder, require an
inheritance tax release and/or such security as the Committee or
Trustee, or both, may deem appropriate as protection against possible
liability for state or federal death taxes attributable to any death
benefits.
9.14 In Service Withdrawals. The provisions of this Section 9.14 shall be
effective on and after September 10, 1992. For periods prior to that date,
in-service withdrawals under the Plan shall be administered as provided in
the Second Amendment or the Third Amendment to the 1989 Restatement of the
Plan, whichever is applicable to the time period in which the withdrawal is
made.
To the extent permissible under the provisions of this Section, a
Participant may make a withdrawal of amounts held in his Compensation
Deferral Account (excluding any earnings on amounts in such account) and
Rollover Account upon incurring a Hardship as determined by the Committee in
accordance with rules of uniform application which the Committee may from
time to time prescribe.
(a) Unless otherwise provided in this Section, no Participant
may make a withdrawal prior to a determination by the Committee that
such Participant has a Hardship (as defined in Paragraph (b) below)
need and such withdrawal is necessary on account of such Hardship need
as provided in this Section 9.14. Any determination of Hardship shall
be in accordance with regulations promulgated under Section 401(k) of
the Code.
(b) "Hardship" shall mean a need created by an immediate and
heavy financial need of the Participant, which need cannot be met by
other sources reasonably available to the Participant, or the
Participant's Spouse, children or dependents; for
(i) expenses for medical care described in Section
213(d) of the Code previously incurred by the Participant, the
Participant's Spouse, children, or dependents, or necessary for
such persons to obtain medical care described in Code Section
213(d);
(ii) costs directly related to the purchase(excluding
mortgage payments) of a principal residence for the Participant;
(iii) payment of tuition and related educational fees for
the next twelve (12) months of post-secondary education for the
Participant, or the Participant's Spouse, children or dependents;
or
(iv) payments necessary to prevent the eviction of the
Participant from, or a foreclosure on the mortgage of, the
Participant's principal residence.
In addition to the above, a Hardship need may include any amounts
necessary to pay any federal, state, or local income taxes or penalties
anticipated to result from a Hardship distribution.
(c) The existence of a Participant's Hardship and the amount
required to meet the need created by the Hardship shall be determined
by the Committee on the basis of facts and circumstances, and in
accordance with the rules of uniform application which the Committee
may from time to time prescribe. A distribution shall not be treated
as necessary to satisfy a Hardship need of a participant to the extent
the amount of distribution in excess of the amount required to relieve
the Hardship need or to the extent that the Hardship need may be
satisfied from other resources reasonably available to the Participant.
A distribution generally may be treated as necessary on account of a
Hardship need of a participant if the Committee reasonably relies on
the Participant's written representations to the Committee, unless the
Committee has actual knowledge to the contrary, that the Hardship need
cannot be relieved:
(i) through reimbursement or compensation by insurance
or
otherwise;
(ii) by reasonable liquidation of assets, if such
liquidation would not itself cause an immediate and heavy
financial need;
(iii) by the cessation of the Participant's contributions
to the Plan; or
(iv) by other distributions or non-taxable loans from
plans
of the Company or any other employer, or by borrowing from
commercial sources on reasonable commercial terms.
For purposes of determining a Hardship need, a participant's resources
shall be deemed to include those assets of his Spouse and minor
children that are reasonably available to the Participant.
(d) A Participant may request a withdrawal by submitting a
written request for such withdrawal in a form satisfactory to the
Committee, together with any supporting documentation which the
Committee in its sole discretion may require. The minimum amount that
may be withdrawn pursuant to the provisions of this Section 9.14 is
$1,000.00. Withdrawals under this Section may be made no more
frequently than once per calendar quarter. The maximum amount subject
to any withdrawal under this Section shall be determined as of the
Valuation Date coinciding with or immediately preceding the Committee's
determination authorizing the withdrawal.
(e) Withdrawals made pursuant to the provisions of this Section
9.14 shall be made first from the Participant's Rollover Account, if
any, and second from his Compensation Deferral Account.
9.15 Distribution Restriction. Notwithstanding any other provision of this
Plan, a Participant's benefit under this Plan shall not be distributable
earlier than the earliest of the following events: (a) separation from
service; (b) death; (c) Disability; or (d) Hardship (as defined in Section
9.14). For purposes of this Section 9.15, the term "separation from service"
shall have the meaning given such term in Section 401(k)(2)(B) (i)(I) of the
Code.
9.16 Election for Direct Rollover to Eligible Retirement Plan. The
provisions of this Section 9.16 shall apply to distributions made on and
after January 1, 1993. To the extent required by Code Section 401(a)(31),
a Participant or alternate payee whose Distributable Benefit becomes payable
in an "eligible rollover distribution," as defined in (a)(i) below, shall be
entitled to elect a direct rollover of all or a portion of the taxable
portion of his Distributable Benefit to an "eligible retirement plan," as
defined in (a)(ii) below.
(a) For purposes of this Section,
(i) an "eligible rollover distribution" shall mean any
distribution of all or any portion of a Participant's
Distributable Benefit, except that an eligible rollover
distribution shall not include: any distribution that is one of
a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy)
of the Participant or the joint lives (or joint life
expectancies) of the Participant and the Participant's designated
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Code Section 401(a)(9); and the portion of any distribution that
is not includible in gross income (determined without regard to
the exclusion for net unrealized appreciation with respect to
employer securities; and
(ii) an "eligible retirement plan" shall mean any plan
described in Code Section 402(c)(8)(B), the terms of which permit
the acceptance of a direct rollover from a qualified plan. For
an alternate payee who is a former spouse, an eligible retirement
plan shall mean an individual retirement arrangement described
in Code Section 408.
(b) A Participant's direct rollover election under this Section
shall be made in accordance with rules and procedures established by
the Committee and shall specify the percentage or dollar amount to be
rolled over, the name and address of the eligible retirement plan
selected by the Participant and such additional information as the
Committee deems necessary or appropriate in order to implement the
Participant's direct rollover election. It shall be the Participant's
responsibility to confirm that the eligible retirement plan designated
in the direct rollover election will accept the eligible rollover
distribution. The Committee shall be entitled to effect the direct
rollover based on its reasonable reliance on information provided by
the Participant, and shall not be required to independently verify such
information, unless it is clearly unreasonable to do so.
(c) At least 30 days but not more than 90 days prior to the
date a Participant's Distributable Benefit becomes payable from the
Plan, the Participant shall be given written notice of any right he may
have to elect a direct rollover of all or a portion of a eligible
rollover distribution; provided, however, a Participant who attained
his Normal Retirement Date or whose Distributable Benefit does not
exceed $3,500 may waive the 30 day notice requirement by making an
affirmative election to make or not to make a direct rollover.
(d) If a Participant fails to file a properly completed direct
rollover election with the Committee within a reasonable time after
such notice is given, or if the Committee is unable to effect the
rollover within a reasonable time after the election is filed with the
Committee due the failure of the Participant to take such actions as
may be required by the eligible retirement plan before it will accept
the rollover, the Participant's Distributable Benefit shall be paid to
him in accordance with the applicable provisions of this Article IX,
after withholding applicable income taxes.
(e) To the extent required by Code Section 401(a)(31), if all
or a portion of a Participant's Distributable Benefit is payable to his
surviving Spouse in an eligible rollover distribution, or to a former
Spouse in accordance with a "qualified domestic relations order," such
surviving Spouse or former Spouse shall be entitled to elect a direct
rollover of all or a portion of such distribution in accordance with
the provisions of this Section.
ARTICLE X
OPERATION AND ADMINISTRATION OF THE PLAN
10.1 Plan Administration.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in a committee ("Committee")
as provided in this Article X.
(b) The members of the Committee (the number of which shall be
determined by the Board of Directors) shall be appointed by the Board
of Directors and shall hold office until resignation, death or removal
by the Board of Directors. Members of the Committee may, but need not
be, appointed by appropriate designation of a Committee heretofore
constituted pursuant to the provisions of another employee benefit plan
maintained by the Company.
(c) For purposes of ERISA Section 402(a), the members of the
Committee shall be the Named Fiduciaries of this Plan.
(d) Notwithstanding the foregoing, a Trustee with whom Plan
assets have been placed in trust or an Investment manager appointed
pursuant to Section 10.3 may be granted exclusive authority and
discretion to manage and control all or any portion of the assets of
the Plan.
10.2 Committee Powers. The Committee shall have all powers necessary to
supervise the administration of the Plan and control its operations. In
addition to any powers and authority conferred on the Committee elsewhere in
the Plan or by law, the Committee shall have, by way of illustration but not
by way of limitation, the following powers and authority:
(a) To allocate fiduciary responsibilities (other than trustee
responsibilities) among the Named Fiduciaries and to designate one or
more other persons to carry out fiduciary responsibilities (other than
trustee responsibilities). However, no allocation or delegation under
this Section 10.2(a) shall be effective until the person or persons to
whom the responsibilities have been allocated or delegated agree to
assume the responsibilities. The term 'trustee responsibilities' as
used herein shall have the meaning set forth in Section 405(c) of
ERISA. The preceding provisions of this Section 10.2(a) shall not
limit the authority of the Committee to appoint one or more Investment
Managers in accordance with Section 10.3.
(b) To designate agents to carry out responsibilities relating
to the Plan other than fiduciary responsibilities.
(c) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying
out the provisions of this Plan, including one or more persons to
render advice with regard to any responsibility any Named Fiduciary or
any other fiduciary may have under the Plan.
(d) To establish rules and regulations from time to time for
the conduct of the Committee's business and the administration and
effectuation of this Plan.
(e) To administer, interpret, construe and apply this Plan and
to decide all questions which may arise or which may be raised under
this Plan by any Employee, Participant, former Participant, Beneficiary
or other person whatsoever, including but not limited to all questions
relating to eligibility to participate in the Plan, the amount of
service of any Participant, and the amount of benefits to which any
Participant or his Beneficiary may be entitled.
(f) To determine the manner in which the assets of this Plan,
or any part thereof, shall be disbursed.
(g) To direct the Trustee, in writing, from time to time, to
invest and reinvest the Trust Fund, or any part thereof, or to
purchase, exchange or lease any property, real or personal, which the
Committee may designate. This shall include the right to direct the
investment of all or any part of the Trust in any one security or any
one type of securities permitted hereunder. Among the securities which
the Committee may direct the Trustee to purchase are employer
securities" as defined in Code Section 409A(l) or any successor statute
thereto.
(h) To perform or cause to be performed such further acts as
it may deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of authority
conferred upon it by this Plan shall be conclusive and binding upon the
Participants and their beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute. However, all discretionary powers
shall be exercised in a uniform and nondiscriminatory manner.
10.3 Investment Manager.
(a) The Committee, by action reflected in the minutes thereof,
may appoint one or more Investment Managers,, as defined in Section
3(38) of ERISA, to manage all or a portion of the assets of the Plan.
(b) An Investment Manager shall discharge its duties in
accordance with applicable law and in particular in accordance with
Section 404(a)(1) of ERISA.
(c) An Investment Manager, when appointed, shall have full
power to manage the assets of the Plan for which it has responsibility,
and neither the Company nor the Committee shall thereafter have any
responsibility for the management of those assets.
10.4 Periodic Review.
(a) At periodic intervals, not less frequently than annually,
the Committee shall review the long-run and short-run financial needs
of the Plan and shall determine a funding policy for the Plan
consistent with the objectives of the Plan and the minimum funding
standards of ERISA, if applicable. In determining the funding policy
the Committee shall take into account, at a minimum, not only the long-
term investment objectives of the Trust Fund consistent with the
prudent management of the assets thereof, but also the short-run needs
of the Plan to pay benefits.
(b) All actions taken by the Committee with respect to the
funding policy of the Plan, including the reasons therefor, shall be
fully reflected in the minutes of the Committee.
10.5 Committee Procedure.
(a) A majority of the members of the Committee as constituted
at any time shall constitute a quorum, and any action by a majority of
the members present at any meeting, or authorized by a majority of the
members in writing without a meeting, shall constitute the action of
the Committee.
(b) The Committee may designate certain of its members as
authorized to execute any document or documents on behalf of the
Committee, in which event the Committee shall notify the Trustee of
this action and the name or names of the designated members. The
Trustee, Company, Participants, Beneficiaries, and any other party
dealing with the Committee may accept and rely upon any document
executed by the designated members as representing action by the
Committee until the Committee shall file with the Trustee a written
revocation of the authorization of the designated members.
10.6 Compensation of Committee.
(a) Members of the Committee shall serve without compensation
unless the Board of Directors shall otherwise determine. However, in
no event shall any member of the Committee who is an Employee receive
compensation from the Plan for his services as a member of the
Committee.
(b) All members shall be reimbursed for any necessary or
appropriate expenditures incurred in the discharge of duties as members
of the Committee.
(c) The compensation or fees, as the case may be, of all
officers, agents, counsel, the Trustee, or other persons retained or
employed by the Committee shall be fixed by the Committee.
10.7 Resignation and Removal of Members. Any member of the Committee may
resign at any time by giving written notice to the other members and to the
Board of Directors effective as therein stated. Any member of the Committee
may, at any time, be removed by the Board of Directors.
10.8 Appointment of Successors.
(a) Upon the death, resignation, or removal of any Committee
member, the Board of Directors may appoint a successor.
(b) Notice of appointment of a successor member shall be given
by the Secretary of the Company in writing to the Trustee and to the
members of the Committee.
(c) Upon termination, for any reason, of a Committee member's
status as a member of the Committee, the member's status as a Named
Fiduciary shall concurrently be terminated, and upon the appointment
of a successor Committee member the successor shall assume the status
of a Named Fiduciary as provided in Section 10.1.
10.9 Records.
(a) The Committee shall keep a record of all its proceedings
and shall keep, or cause to be kept, all such books, accounts, records
or other data as may be necessary or advisable in its judgment for the
administration of the Plan and to properly reflect the affairs thereof.
(b) However, nothing in this Section 10.9 shall require the
Committee or any member thereof to perform any act which, pursuant to
law or the provisions of this Plan, is the responsibility of the Plan
Administrator, nor shall this Section relieve the Plan Administrator
from such responsibility.
10.10 Reliance Upon Documents and Opinions.
(a) The members of the Committee, the Board of Directors, the
Company and any person delegated under the provisions hereof to carry
out any fiduciary responsibilities under the Plan ("delegated
fiduciary") shall be entitled to rely upon any tables, valuations,
computations, estimates, certificates and reports furnished by any
consultant, or firm or corporation which employs one or more
consultants, upon any opinions furnished by legal counsel, and upon any
reports furnished by the Trustee. The members of the Committee, the
Board of Directors, the Company and any delegated fiduciary shall be
fully protected and shall not be liable in any manner whatsoever for
anything done or action taken or suffered in reliance upon any such
consultant or firm or corporation which employs one or more
consultants, Trustee, or counsel.
(b) Any and all such things done or actions taken or suffered
by the Committee, the Board of Directors, the Company and any delegated
fiduciary shall be conclusive and binding on all Employees,
Participants, Beneficiaries, and any other persons whomsoever, except
as otherwise provided by law.
(c) The Committee and any delegated fiduciary may, but are not
required to, rely upon all records of the Company with respect to any
matter or thing whatsoever, and may likewise treat those records as
conclusive with respect to all Employees, Participants, Beneficiaries,
and any other persons whomsoever, except as otherwise provided by law.
10.11 Requirement of Proof. The Committee or the Company may require
satisfactory proof of any matter under this Plan from or with respect to any
Employee, Participant, or Beneficiary, and no person shall acquire any rights
or be entitled to receive any benefits under this Plan until the required
proof shall be furnished.
10.12 Reliance on Committee Memorandum. Any person dealing with the
Committee may rely on and shall be fully protected in relying on a
certificate or memorandum in writing signed by any Committee member or other
person so authorized, or by the majority of the members of the Committee, as
constituted as of the date of the certificate or memorandum, as evidence of
any action taken or resolution adopted by the Committee.
10.13 Multiple Fiduciary Capacity. Any person or group of persons may serve
in more than one fiduciary capacity with respect to the Plan.
10.14 Limitation on Liability.
(a) Except as provided in Part 4 of Title I of ERISA, no person
shall be subject to any liability with respect to his duties under the
Plan unless he acts fraudulently or in bad faith.
(b) No person shall be liable for any breach of fiduciary
responsibility resulting from the act or omission of any other
fiduciary or any person to whom fiduciary responsibilities have been
allocated or delegated, except as provided in Part 4 of Title I of
ERISA.
(c) No action or responsibility shall be deemed to be a
fiduciary action or responsibility except to the extent required by
ERISA.
10.15 Indemnification.
(a) To the extent permitted by law, the Company shall indemnify
each member of the Board of Directors and the Committee, and any other
Employee of the Company with duties under the Plan, against expenses
(including any amount paid in settlement) reasonably incurred by him
in connection with any claims against him by reason of his conduct in
the performance of his duties under the Plan, except in relation to
matters as to which he acted fraudulently or in bad faith in the
performance of such duties. The preceding right of indemnification
shall pass to the estate of such a person.
(b) The preceding right of indemnification shall be in addition
to any other right to which the Board member or Committee member or
other person may be entitled as a matter of law or otherwise.
10.16 Bonding.
(a) Except as is prescribed by the Board of Directors, as
provided in Section 412 of ERISA, or as may be required under any other
applicable law, no bond or other security shall be required by any
member of the Committee, or any other fiduciary under this Plan.
(b) Notwithstanding the foregoing, for purposes of satisfying
its indemnity obligations under Section 10.15, the Company may (but
need not) purchase and pay premiums for one or more policies of
insurance. However, this insurance shall not release the Company of
its liability under the indemnification provisions.
10.17 Prohibition Against Certain Actions.
(a) To the extent prohibited by law, in administering this Plan
the Committee shall not discriminate in favor of any class of Employees
and particularly it shall not discriminate in favor of Highly
Compensated Employees, or Employees who are officers or shareholders
of the Company.
(b) The Committee shall not cause the Plan to engage in any
transaction that constitutes a nonexempt prohibited transaction under
Section 4975(c) of the Code or Section 406(a) of ERISA.
(c) All individuals who are fiduciaries with respect to the
Plan (as defined in Section 3(21) of ERISA) shall discharge their
fiduciary duties in accordance with applicable law, and in particular,
in accordance with the standards of conduct contained in Section 404
of ERISA.
10.18 Plan Expenses.
(a) (i) The provisions of this Section 10.18(a)(i)
shall
apply for periods prior to July 1, 1993. All expenses incurred
in the establishment, administration and operation of the Plan,
including but not limited to any fees paid to an Investment
Manager and any expenses incurred by the members of the Committee
in exercising their duties, may be charged to the Company but
shall be paid by the Trust Fund and allocated to Participant's
Accounts as determined by the Committee, if not paid by the
Company.
(ii) The provisions of this Section 10.18(a)(ii)
shall apply for periods beginning on and after July 1, 1993. All
expenses incurred in the establishment, administration and
operation of the Plan, including but not limited to recordkeeping
and trustee's fees, any fees paid to an Investment Manager and
any expenses incurred by the members of the Committee in
exercising their duties, may be charged to the Company. If such
fees and expenses are not paid by the Company, then to the extent
permitted under applicable law, such fees and expenses shall be
paid by the Trust Fund from the forfeiture account in accordance
with the provisions of Section 9.5(f) until such account is
exhausted and then they shall be allocated to Participants'
Accounts as determined by the Committee, except if such amounts
are paid by the Company.
(b) Notwithstanding the foregoing, the cost of interest and
normal brokerage charges which are included in the cost of securities
purchased by the Trust Fund (or charged to proceeds in the case of
sales) or other charges relating to specific assets of the Plan shall
be charged and allocated in a fair and equitable manner to the Accounts
to which the securities (or other assets) are allocated, except if such
amounts are paid by the Company.
ARTICLE XI
MERGER OF COMPANY; MERGER OF PLAN
11.1 Effect of Reorganization of Transfer of Assets. In the event of a
consolidation, merger, sale, liquidation, or other transfer of the operating
assets of the Company to any other company, the ultimate successor or successors
to the business of the Company shall automatically be deemed to have elected to
continue this Plan in full force and effect, in the same manner as if the Plan
had been adopted by resolution of its board of directors, unless the
successor(s), by resolution of its board of directors shall elect not to
so continue this Plan in effect, in which case the Plan shall
automatically be deemed terminated as of the applicable effective date set
forth in the board resolution.
11.2 Merger Restriction. Notwithstanding any other provision in this
Article,this Plan shall not in whole or in part merge or consolidate with, or
transfer its assets or liabilities to any other plan unless each affected
Participant in this Plan would receive a benefit immediately
after the merger, consolidation, or transfer (if the Plan then terminated)
which is equal to or greater than the benefit he would have been entitled
to receive immediately before the merger, consolidation, or transfer (if
the Plan had then terminated).<PAGE>
ARTICLE XII
PLAN TERMINATION AND
DISCONTINUANCE OF CONTRIBUTIONS
12.1 Plan Termination.
(a) (i) Subject to the following provisions of this Section
12.1, the Company may terminate the Plan and the Trust Agreements at
any time by an instrument in writing executed in the name of the
Company by an officer or officers duly authorized to execute such an
instrument, and delivered to the Trustee.
(ii) The Plan and Trust Agreements may terminate if the
Company merges into any other corporation; provided that the Company
ceases as an entity as a result of the merger and provided that the
Plan is terminated pursuant to the rules of Section 11.1.
(b) Upon and after the effective date of the termination, the
Company shall not make any further contributions under the Plan and no
contributions need be made by the Company applicable to the Plan Year
in which the termination occurs, except as may otherwise be required
by law.
(c) The rights of all affected Participants to benefits accrued
to the date of termination of the Plan, to the extent funded as of the
date of termination, shall automatically become fully vested as of that
date.
12.2 Discontinuance of Contributions.
(a) In the event the Company decides it is impossible or
inadvisable for business reasons to continue to make Company
contributions under the Plan, the Company by resolution of its Board
of Directors may discontinue contributions to the Plan. Upon and after
the effective date of this discontinuance, the Company shall not make
any further Company contributions under the Plan and no Company
contributions need be made by the Company with respect to the Plan Year
in which the discontinuance occurs, except as may otherwise be required
by law.
(b) The discontinuance of Company contributions on the part of
the Company shall not terminate the Plan as to the funds and assets
then held by the Trustee, or operate to accelerate any payments of
distributions to or for the benefit of Participants or Beneficiaries,
and the Trustee shall continue to administer the Trust Fund in
accordance with the provisions of the Plan until all of the obligations
under the Plan shall have been discharged and satisfied.
(c) However, if this discontinuance of Company contributions
shall cause the Plan to lose its status as a qualified plan under Code
Section 401(a), the Plan shall be terminated in accordance with the
provisions of this Article XII.
(d) On and after the effective date of a discontinuance of
Company contributions, the rights of all affected Participants to
benefits accrued to that date, to the extent funded as of that date,
shall automatically become fully vested as of that date.
12.3 Rights of Participants. In the event of the termination of the Plan,
for any cause whatsoever, all assets of the Plan, after payment of expenses,
shall be used for the exclusive benefit of Participants and their
Beneficiaries and no part thereof shall be returned to the Company except as
provided in Section 6.2 of this Plan.
12.4 Trustee's Duties on Termination.
(a) On or before the effective date of termination of this Plan
the Trustee shall proceed as soon as possible, but in any event within
six months from the effective date, to reduce all of the assets of the
Trust Fund to cash and/or common stock and other securities in such
proportions as the Committee shall determine (after approval by the
Internal Revenue Service, if necessary or desirable, with respect to
any portion of the assets of the Trust Fund held in common stock or
securities of the Company).
(b) After first deducting the estimated expenses for
liquidation and distribution chargeable to the Trust Fund, and after
setting aside a reasonable reserve for expenses and liabilities
(absolute or contingent) of the Trust, the Committee shall make
required allocations of items of income and expense to the Accounts.
(c) Following these allocations, the Trustee shall promptly,
after receipt of appropriate instructions from the Committee,
distribute in accordance with Section 9.5 to each former Participant
a benefit equal to the amount credited to his Accounts as of the date
of completion of the liquidation.
(d) The Trustee and the Committee shall continue to function
as such for such period of time as may be necessary for the winding up
of this Plan and for the making of distributions in accordance with the
provisions of this Plan.
12.5 Partial Termination.
(a) In the event of a partial termination of the Plan within
the meaning of Code Section 411(d)(3), the interests of affected
Participants in the Trust Fund, as of the date of the partial
termination, shall become fully vested as of that date.
(b) That portion of the assets of the Plan affected by the
partial termination shall be used exclusively for the benefit of the
affected Participants and their Beneficiaries, and no part thereof
shall otherwise be applied except as provided in Section 6.2.
(c) With respect to Plan assets and Participants affected by
a partial termination, the Committee and the Trustee shall follow the
same procedures and take the same actions prescribed in this Article
XII in the case of a total termination of the Plan.
12.6 Failure to Contribute. The failure of the Company to contribute to
the Trust in any year, if contributions are not required under the Plan for
that year, shall not constitute a complete discontinuance of contributions to
the Plan.
ARTICLE XIII
APPLICATION FOR BENEFITS
13.1 Application for Benefits. The Committee may require any person claiming
benefits under the Plan to submit an application therefor, together with such
documents and information as the Committee may require. In the case of any
person suffering from a disability which prevents the claimant from making
personal application for benefits, the Committee may, in its discretion, permit
another person acting on his behalf to submit the application.13.2 Action on
Application.
(a) Within ninety days following receipt of an application and
all necessary documents and information, the Committee's authorized
delegate reviewing the claim shall furnish the claimant with written
notice of the decision rendered with respect to the application.
(b) In the case of a denial of the claimant's application the
written notice shall set forth:
(i) The specific reasons for the denial, with reference
to the Plan provisions upon which the denial is based;
(ii) A description of any additional information or
material necessary for perfection of the application (together
with an explanation why the material or information is
necessary); and
(iii) An explanation of the Plan's claim review
procedure.
(c) A claimant who wishes to contest the denial of his
application for benefits or to contest the amount of benefits payable
to him shall follow the procedures for an appeal of benefits as set
forth in Section 13.3 below, and shall exhaust such administrative
procedures prior to seeking any other form of relief.
13.3 Appeals.
(a) (i) A claimant who does not agree with the decision
rendered with respect to his application may appeal the decision to the
Committee.
(ii) The appeal shall be made, in writing, within sixty-five days
after the date of notice of the decision with respect to the
application.
(iii) If the application has neither been approved nor
denied within the ninety-day period provided in Section 13.2 above,
then the appeal shall be made within sixty-five days after the
expiration of the ninety-day period.
(b) The claimant may request that his application be given full
and fair review by the Committee. The claimant may review all
pertinent documents and submit issues and comments in writing in
connection with the appeal.
(c) The decision of the Committee shall be made promptly, and
not later than sixty days after the Committee's receipt of a request
for review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered as soon as
possible, but not later than one hundred twenty days after receipt of
a request for review.
(d) The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner
calculated to be understood by the claimant with specific reference to
the pertinent Plan provisions upon which the decision is based.
ARTICLE XIV
LIMITATIONS ON CONTRIBUTIONS
14.1 General Rule.
(a) Notwithstanding anything to the contrary contained in this
Plan the total Annual Additions under this Plan to a Participant's Plan
Accounts for any Plan Year shall not exceed the lesser of:
(i) Thirty Thousand Dollars ($30,000) (or if greater,
one-fourth (1/4) of the defined benefit dollar limitation set
forth in Section 415(b) of the Code as in effect for the
Limitation Year); or
(ii) Twenty-five percent of the Participant's total
Compensation from the Company and any Affiliated Companies for
the year, excluding amounts otherwise treated as Annual Additions
under Section 14.2(a)(iii).
(b) For purposes of this Article XIV, the Company has elected
a "Limitation Year" corresponding to the Plan Year.\
14.2 Annual Additions.
(a) For purposes of Section 14.1, the term "Annual Additions"
shall mean, for any Plan Year, the sum of (i) the amount credited to
the Participant's Accounts from Company contributions for such Plan
Year; (ii) any Employee contributions for the Plan Year; and (iii) any
amounts described in Sections 415(l)(1) or 419(A)(d)(2) of the Code.
The term "Employee Contributions," for purposes of the preceding
sentence, shall mean amounts considered contributed by the Employee and
which do not qualify for tax deferral treatment under Section 401(k)
of the Code.
(b) Notwithstanding anything to the contrary in this Section,
the Annual Addition for any Limitation Year beginning before January 1,
1987 shall not be recomputed to treat all Employee contributions as
Annual Additions.
14.3 Other Defined Contribution Plans. If the Company is contributing to
any other defined contribution plan (as defined in Section 415(i) of the
Code) for its Employees, some or all of whom may be Participants in this
Plan, then contributions to the other plan shall be aggregated with
contributions under this Plan for the purposes of applying the limitations
of Section 14.1.
14.4 Combined Plan Limitation (Defined Benefit Plan). In the event a
Participant hereunder also is a participant in any qualified defined benefit
plan (within the meaning of Section 415(k) of the Code) of the Company, then
the benefit payable under such defined benefit plan, or any of them, shall
be reduced for so long and to the extent necessary to provide that the sum
of the "defined benefit fraction" and the "defined contribution fraction" for
any Plan Year, as defined below, shall not exceed 1.0.
(a) "Defined Benefit Fraction" shall be a fraction, the
numerator of which is the projected benefit of a Participant under all
qualified defined benefit plans adopted by the Company expressed as
either an annual straight life annuity or a qualified joint and
survivor annuity providing the maximum permissible survivor benefit
(determined as of the close of the Plan Year), and the denominator of
which is the lesser of (i) the maximum dollar amount otherwise
allowable for such Plan Year under applicable law times 1.25 or
(ii) the percentage of compensation limit for such Plan Year times 1.4.
(b) "Defined Contribution Fraction" shall be a fraction, the
numerator of which is the sum of the annual addition of the
Participant's account under this Plan and any other defined
contribution plans adopted by the Company for each Plan Year, and the
denominator of which is the lesser for each such Plan Year of
(i) maximum Annual Addition which could have been made under this Plan
and any other defined contribution plans adopted by the Company for
such Plan Year and for each prior Plan Year of service with the Company
times 1.25 or (ii) the amount determined under the percentage of
compensation limit for such Plan Year times 1.4.
14.5 Adjustments for Excess Annual Additions. In general, Annual
Additions for any Plan Year under this Plan and any other defined contribution
plan (as defined in Code Section 414(i)) or defined benefit plan (as defined
in Code Section 414(j)) maintained by the Company will be determined so as to
avoid Annual Additions in excess of the limitations set forth in Sections 14.1
through 14.4. However, if as a result of a reasonable error in estimating
the amount of the Annual Additions to a Participant's Accounts under this
Plan, such Annual Additions (after giving effect to the maximum permissible
adjustments under the other plans) exceed the applicable limitations
described in Sections 14.1 through 14.4, such excess Annual Additions shall
be corrected as follows:
(a) If the Participant made any voluntary after-tax
contributions to any other defined contribution plan that is maintained
by the Company, which after-tax contributions were not matched by
matching contributions, within the meaning of Code Section 401(m), such
after-tax contributions shall be returned to the Participant to the
extent of any excess Annual Additions.
(b) If excess Annual Additions remain after the application of
the above rule, if the Participant made any Pre-Tax Contributions to
this or any other defined contribution plan that is maintained by the
Company, which Pre-Tax Contributions were not matched by matching
contributions, within the meaning of Code Section 401(m), such Pre-Tax
Contributions shall be returned to the Participant to the extent of any
excess Annual Additions.
(c) If excess Annual Additions remain after the application of
the above rule, if the Participant made any after-tax contributions to
any other defined contribution plan that is maintained by the Company,
which after-tax contributions were matched by matching contributions,
within the meaning of Code Section 401(m), any such after-tax
contributions shall be returned to the Participant and any matching
contributions attributable thereto shall be reduced to the extent
necessary to eliminate any remaining excess Annual Additions.
(d) If excess Annual Additions remain after the application of
the above rule, if the Participant made any Pre-Tax Contributions to
this or any other defined contribution plan that is maintained by the
Company, which Pre-Tax Contributions were matched by matching
contributions, within the meaning of Code Section 401(m), any such
Pre-Tax Contributions shall be returned to the Participant and any
matching contributions attributable thereto shall be reduced to the
extent necessary to eliminate any remaining excess Annual Additions.
(e) If excess Annual Additions remain after the application of
the above rule, any other Company contributions shall be reduced to the
extent necessary to eliminate any remaining excess Annual Additions.
14.6 Disposition of Excess Company Contribution Amounts. Any excess Annual
Additions attributable to Company contributions on behalf of a Participant
for any Plan Year, other than Pre-Tax Contributions returned to the
Participant in accordance with Section 14.5, shall be held unallocated in a
suspense account for the Plan Year and applied to reduce the Company
contributions for the succeeding Plan Year, or Years, if necessary. No
investment gains or losses shall be allocated to a suspense account
established for this purpose.<PAGE>
ARTICLE XV
RESTRICTION ON ALIENATION
15.1 General Restrictions Against Alienation.
(a) The interest of any Participant or Beneficiary in the
income benefits, payments, claims or rights hereunder, or in the Trust
Fund, shall not in any event be subject to sale, assignment,
hypothecation, or transfer. Each Participant and beneficiary is
prohibited from anticipating, encumbering, assigning, or in any manner
alienating his or her interest under the Trust Fund, and is without
power to do so, except as may otherwise be provided for in the Trust
Agreement. The interest of any Participant or Beneficiary shall not
be liable or subject to his debts, liabilities, or obligations, now
contracted, or which may be subsequently contracted. The interest of
any Participant or Beneficiary shall be free from all claims,
liabilities, bankruptcy proceedings, or other legal process now or
hereafter incurred or arising; and the interest or any part thereof
shall not be subject to any judgment rendered against the Participant
or Beneficiary.
(b) In the event any person attempts to take any action
contrary to this Article XV, that action shall be void and the Company,
the Committee, the Trustees and all Participants and their
Beneficiaries may disregard that action and are not in any manner bound
thereby, and they, and each of them separately, shall suffer no
liability for any disregard of that action, and shall be reimbursed on
demand out of the Trust Fund (chargeable to the relevant Account) for
the amount of any loss, cost or expense incurred as a result of
disregarding or of acting in disregard of that action.
(c) The preceding provisions of this Section 15.1 shall be
interpreted and applied by the Committee in accordance with the
requirements of Code Section 401(a)(13) as construed and interpreted
by authoritative judicial and administrative rulings and regulations.
15.2 Nonconforminq Distributions Under Court Order.
(a) In the event that a court with jurisdiction over the Plan
and the Trust Fund shall issue an order or render a judgment requiring
that all or part of a Participant's interest under the Plan and in the
Trust Fund be paid to a spouse, former spouse and/or children of the
Participant by reason of or in connection with the marital dissolution
and/or marital separation of the Participant and the spouse, and/or
some other similar proceeding involving marital rights and property
interests, then notwithstanding the provisions of Section 15.1 the
Committee may, in its absolute discretion, direct the applicable
Trustee to comply with that court order or judgment and distribute
assets of the Trust Fund in accordance therewith.
(b) The Committee's decision with respect to compliance with
any such court order or judgment shall be made in its absolute
discretion and shall be binding upon the Trustee and all Participants
and their Beneficiaries, provided, however, that the Committee in the
exercise of its discretion shall not make payments in accordance with
the terms of an order which is not a qualified domestic relations order
or which the Committee determines would jeopardize the continued
qualification of the Plan and Trust under Section 401 of the Code.
Nothing in this Plan shall prevent the Committee from honoring a
domestic relations order as a qualified domestic relations order solely
because it requires payment to an alternate payee prior to the date the
Participant attains age fifty (50).
(c) Neither the Plan, the Company, the Committee nor the
Trustee shall be liable in any manner to any person, including any
Participant or Beneficiary, for complying with any such court order or
judgment.
(d) Nothing in this Section 15.2 shall be interpreted as
placing upon the Company, the Committee or any Trustee any duty or
obligation to comply with any such court order or judgment. The
Committee may, if in its absolute discretion it deems it to be in the
best interests of the Plan and the Participants, determine that any
such court order or judgment shall be resisted by means of judicial
appeal or other available judicial remedy, and in that event the
Trustee shall act in accordance with the Committee's directions.
(e) The Committee shall adopt procedures and provide
notifications to a Participant and alternate payees in connection with
a "qualified domestic relations order' to the extent required under
Code Section 414(p).<PAGE>
ARTICLE XVI
PLAN AMENDMENTS
16.1 Amendments. The Board of Directors may at any time, and from time to
time, amend the Plan by an instrument in writing executed
in the name of the Company by an officer or officers duly authorized to
execute such instrument, and delivered to the applicable Trustee.
However, no amendment shall be made at any time, the effect of which would
be:
(a) To cause any assets of the Trust Fund to be used for or
diverted to purposes other than providing benefits to the Participants
and their beneficiaries, and defraying reasonable expenses of
administering the Plan, except as provided in Section 6.2;
(b) To have any retroactive effect so as to deprive any
Participant or Beneficiary of any accrued benefit to which he would be
entitled under this Plan if his employment were terminated immediately
before the amendment, to the extent so doing would contravene Code
Section 411(d)(6);
(c) To eliminate or reduce a subsidy or early retirement
benefit or an optional form of benefit to the extent so doing would
contravene Code Section 411(d)(6); or
(d) To increase the responsibilities or liabilities of a
Trustee or an Investment Manager without his written consent.
16.2 Retroactive Amendments. Notwithstanding any provisions of this
Article XVI to the contrary, the Plan may be amended prospectively or
retroactively (as provided in Section 401(b) of the Code) to make the Plan
conform to any provision of ERISA, any Code provisions dealing with tax-
qualified employees' trusts, or any regulation under either.
ARTICLE XVII
TOP-HEAVY PLAN RULES
17.1 Applicability.
(a) Notwithstanding any provision in this Plan to the contrary,
the provisions of this Article XVII shall apply in the case of any Plan
Year in which the Plan is determined to be a Top-Heavy Plan under the
rules of Section 17.3.
(b) Except as is expressly provided to the contrary, the rules
of this Article XVII shall be applied after the application of the
Affiliated Company rules of Code Section 414.
17.2 Definitions.
(a) For purposes of this Article XVII, the term "Key Employee"
shall mean any Employee or former Employee who, at any time during the
Plan Year or any of the four (4) preceding Plan Years, is or was --
(i) An officer of the Company having an annual
compensation greater than fifty percent (50%) of the amount in
effect under Code Section 415(b)(1)(A) for this Plan Year.
However, no more than fifty (50) Employees (or, if lesser, the
greater of three (3) or ten percent (10%) of the Employees) shall
be treated as officers;
(ii) One of the ten (10) employees having annual
compensation from the Company of more than the limitation in
effect under Code Section 415(c)(1)(A) and owning (or considered
as owning within the meaning of Code Section 318) the largest
interests in the Company. For this purpose, if two (2) Employees
have the same interest in the Company, the employee having
greater annual compensation from the Company shall be treated as
having a larger interest;
(iii) A Five Percent Owner of the Company; or
(iv) A One Percent Owner of the Company having an annual
compensation from the Company of more than one hundred fifty
thousand dollars ($150,000).
(b) For purposes of this Section, the term "Five Percent Owner"
means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Company or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Company. The rules of Subsections (b), (c), and (m) of Code
Section 414 shall not apply for purposes of applying these ownership
rules. Thus, this ownership test shall be applied separately with
respect to every Affiliated Company.
(c) For purposes of this Section, the term "One Percent Owner"
means any person who would be described in Subsection (b) if "one
percent (1%)" were substituted for "five percent (5%)" each place where
it appears therein.
(d) For purposes of this Section, the rules of Code
Section 318(a)(2)(C) shall be applied by substituting "five
percent (5%)" for "fifty percent (50%)."
(e) For purposes of this Article XVII, the term "Non-Key
Employee" shall mean any Employee who is not a Key Employee.
(f) For purposes of this Article XVII, the terms "Key Employee"
and "Non-Key Employee" include their Beneficiaries.
17.3 Top-Heavy Status.
(a) The term "Top-Heavy Plan" means, with respect to any Plan
Year --
(i) Any defined benefit plan if, as of the
Determination Date, the present value of the cumulative accrued
benefits under the Plan for Key Employees exceeds sixty percent
(60%) of the present value of the cumulative accrued benefits under
the plan for all Employees, and
(ii) Any defined contribution plan if, as of the
Determination Date, the aggregate of the account balances of Key
Employees under the Plan exceeds sixty percent (60%) of the
present value of the aggregate of the account balances of all
Employees under the plan.
For purposes of this Subsection (a), the term "Determination Date"
means, with respect to any Plan Year, the last day of the preceding
Plan Year. In the case of the first Plan Year of any plan, the term
"Determination Date" shall mean the last day of that Plan Year.
The present value of account balances under a defined
contribution plan shall be determined as of the most recent valuation
date. The present value of accrued benefits under a defined benefit
plan shall be determined as of the same valuation date as used for
computing plan costs for minimum funding. The present value of the
cumulative accrued benefits of a Non-Key Employee shall be determined
under either:
(i) the method, if any, that uniformly applies for
accrual purposes under all plans maintained by affiliated companies,
within the meaning of Code Sections 414(b), (c), (m) or (o); or
(ii) if there is no such method, as if such benefit
accrued not more rapidly than the lowest accrual rate permitted
under the fractional accrual rate of Section 411(b)(1)(C) of the
Code.
(b) Each plan maintained by the Company required to be included
in an Aggregation Group shall be treated as a Top-Heavy Plan if the
Aggregation Group is a Top-Heavy Group. If the Aggregation Group is
not a Top-Heavy Group no plan in such group shall be a Top-Heavy Plan.
(i) The term "Aggregation Group" means --
(A) Each Plan of the Company in which a Key
Employee is a Participant, and
(B) Each other plan of the Company which enables
any plan described in Subparagraph (A) to meet the
requirements of Code Sections 401(a)(4) or 410.
Also, any plan not required to be included in an Aggregation
Group under the preceding rules may be treated as being part of
such group if the group would continue to meet the requirements
of Code Sections 401(a)(4) and 410 with the plan being taken into
account.
(ii) The term "Top-Heavy Group" means any Aggregation
Group if the sum (as of the Determination Date) of --
(A) The present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans
included in the group, and
(B) The aggregate of the account balances of Key
Employees under all defined contribution plans included in
the group exceeds sixty percent (60%) of a similar sum
determined for all Employees.
(iii) For purposes of determining --
(A) The present value of the cumulative accrued
benefit of any Employee, or
(B) The amount of the account balance of any
Employee,
such present value or amount shall be increased by the aggregate
distributions made with respect to the Employee under the plan
during the five (5) year period ending on the Determination Date.
The preceding rule shall also apply to distributions under a
terminated plan which, if it had not been terminated, would have
been required to be included in an Aggregation Group. Also, any
rollover contribution or similar transfer initiated by the
Employee and made after December 31, 1983 to a plan shall not be
taken into account with respect to the transferee plan for
purposes of determining whether such plan is a Top-Heavy Plan (or
whether any Aggregation Group which includes such plan is a
Top-Heavy Group).
(c) If any individual is a Non-Key Employee with respect to any
plan for any Plan Year, but the individual was a Key Employee with
respect to the plan for any prior Plan Year, any accrued benefit for
the individual (and the account balance of the individual) shall not
be taken into account for purposes of this Section 17.3.
(d) If any individual has not performed any services for the
Company at any time during the five (5) year period ending on the
Determination Date, any accrued benefit for such individual (and the
account balance of the individual) shall not be taken into account for
purposes of this Section 17.3.
17.4 Minimum Contributions. For each Plan Year in which the Plan is
Top-Heavy, the minimum contributions for that year shall be determined in
accordance with the rules of this Section 17.4.
(a) Except as provided below, the minimum contribution
(excluding amounts deferred under a cash or deferred arrangement under
Section 401(k) of the Code and any employer contributions taken into
account under Section 401(k)(3) or 401(m)(3) of the Code) for each
Non-Key Employee who has not separated from service as of the last day
of the Plan Year shall be not less than three percent (3%) of his
Compensation, regardless of whether the Non-Key Employee has less than
1,000 Hours of Service during such Plan Year or elected to make Pre-Tax
Contributions to the Plan for such year.
(b) Subject to the following rules of this Subsection (b), the
percentage set forth in Subsection (a) above shall not be required to
exceed the percentage at which contributions (including amounts
deferred under a cash or deferred arrangement under Section 401(k) of
the Code and any employer contributions taken into account under
Section 401(k)(3) or 401(m)(3) of the Code) are made (or are required
to be made) under the Plan for the year for the Key Employee for whom
the percentage is the highest for the year. This determination shall
be made by dividing the contributions for each Key Employee by so much
of his total compensation for the year as does not exceed two hundred
thousand dollars ($200,000), as adjusted in accordance with Code
Section 401(a)(17). For purposes of this Subsection (b), all defined
contribution plans required to be included in an Aggregation Group
shall be treated as one plan. However, the rules of this
Subsection (b) shall not apply to any plan required to be included in
an Aggregation Group if the plan enables a defined benefit plan to meet
the requirements of Code Sections 401(a)(4) or 410.
(c) The requirements of this Section 17.4 must be satisfied
without taking into account contributions under chapter 2 or 21 of the
Code, title II of the Social Security Act, or any other Federal or
State law.
(d) In the event a Participant is covered by both a defined
contribution and a defined benefit plan maintained by the Company, both
of which are determined to be Top Heavy Plans, the defined benefit
minimum, offset by the benefits provided under the defined contribution
plan, shall be provided under the defined benefit plan.
(e) In no instance may the Plan take into account an Employee's
compensation in excess of the first two hundred thousand dollars
($200,000) (or such greater amount as may be permitted pursuant to
Section 401(a)(17) of the Code). For purposes of this Section 17.4,
an Employee's Compensation shall be as defined in Section 2.11(b) for
purposes of this Article XVII.
17.5 Maximum Annual Addition.
(a) Except as set forth below, in the case of any Top-Heavy
Plan the rules of Code Section 415(e)(2)(B) and (3)(B) shall be applied
by substituting "1.0" for "1.25."
(b) The rule set forth in Subsection (a) above shall not apply
if the requirements of both Paragraphs (i) and (ii), below, are
satisfied.
(i) The requirements of this Paragraph (i) are
satisfied if the rules of Section 17.4(a) above would be satisfied
after substituting "four percent (4%)" for "three percent (3%)" where
it appears therein with respect to participants covered only
under a defined contribution plan.
(ii) The requirements of this Paragraph (ii) are
satisfied if the Plan would not be a Top-Heavy Plan if "ninety
percent (90%)" were substituted for "sixty percent (60%)" each place
it appears in Section 17.3(a).
(c) The rules of Subsection (a) shall not apply with respect
to any Employee as long as there are no --
(i) Company Contributions, forfeitures, or voluntary
nondeductible contributions allocated to the Employee under a
defined contribution plan maintained by the Company, or
(ii) Accruals by the Employee under a defined benefit
plan maintained by the Company.
17.6 Non-Eligible Employees. The rules of this Article XVII shall not
apply to any Employee included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective bargaining agreement
between employee representatives and one or more employers if there is
evidence that retirement benefits were the subject of good faith bargaining
between such employee representatives and the employer or employers.
ARTICLE XVIII
MISCELLANEOUS
18.1 No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the part
of the Company and shall not be deemed to constitute a contract between
the Company and any Employee, or to be consideration for, or an
inducement to, or a condition of, the employment of any Employee.
(b) Nothing contained in this Plan or the Trust shall be deemed
to give any Employee the right to be retained in the employ of the
Company or to interfere with the right of the Company to discharge or
retire any Employee at any time.
(c) No Employee, nor any other person, shall have any right to
or interest in any portion of the Trust Fund other than as specifically
provided in this Plan.
18.2 Mailing of Payments; Lapsed Benefits.
(a) All payments under the Plan shall be delivered in person
or mailed to the last address of the Participant (or, in the case of
the death of the Participant, to the last address of any other person
entitled to such payments under the terms of the Plan) furnished
pursuant to Section 18.3 below.
(b) In the event that a benefit is payable under this Plan to
a Participant or any other person and after reasonable efforts such
person cannot be located for the purpose of paying the benefit for a
period of seven (7) consecutive years, the person conclusively shall
be presumed dead and upon the termination of such seven (7) year period
the benefit shall be forfeited and as soon thereafter as practicable
shall be allocated, on a per capita basis, among the Company Accounts
of all Participants for whom such Accounts are maintained on the date
of such allocation. If, however, such person appears thereafter and
makes a claim for benefits demonstrating entitlement, his benefit shall
be restored in the manner described in Section 9.5(e) hereof.
(c) For purposes of this Section 18.2, the term "Beneficiary"
shall include any person entitled under Section 9.11 to receive the
interest of a deceased Participant or deceased designated Beneficiary.
It is the intention of this provision that the benefit will be
distributed to an eligible beneficiary in a lower priority category
under Section 9.11 if no eligible Beneficiary in a higher priority
category can be located by the Committee after reasonable efforts have
been made.
(d) The Accounts of a Participant shall continue to be
maintained until the amounts in the Accounts are paid to the
Participant or his Beneficiary. Notwithstanding the foregoing, in the
event that the Plan is terminated, the following rules shall apply:
(i) All Participants (including Participants who have
not previously claimed their benefits under the Plan) shall be
notified of their right to receive a distribution of their
interests in the Plan;
(ii) All Participants shall be given a reasonable
length of time, which shall be specified in the notice, in which to
claim their benefits;
(iii) All Participants (and their Beneficiaries) who do
not claim their benefits within the designated time period shall be
presumed to be dead. The Accounts of such Participants shall be
forfeited at such time. These forfeitures shall be disposed of
according to rules prescribed by the Committee, which rules shall
be consistent with applicable law.
(iv) The Committee shall prescribe such rules as it may
deem necessary or appropriate with respect to the notice and
forfeiture rules stated above.
(e) Should it be determined that the preceding rules relating
to forfeiture of benefits upon Plan termination are inconsistent with
any of the provisions of the Code and/or ERISA, these provisions shall
become inoperative without the need for a Plan amendment and the
Committee shall prescribe rules that are consistent with the applicable
provisions of the Code and/or ERISA.
18.3 Addresses. Each Participant shall be responsible for furnishing the
Committee with his correct current address and the correct current name and
address of his Beneficiary or Beneficiaries.
18.4 Notices and Communications.
(a) All applications, notices, designations, elections, and
other communications from Participants shall be in writing, on forms
prescribed by the Committee and shall be mailed or delivered to the
office designated by the Committee, and shall be deemed to have been
given when received by that office.
(b) Each notice, report, remittance, statement and other
communication directed to a Participant or Beneficiary shall be in
writing and may be delivered in person or by mail. An item shall be
deemed to have been delivered and received by the Participant when it
is deposited in the United States Mail with postage prepaid, addressed
to the Participant or Beneficiary at his last address of record with
the Committee.
18.5 Reporting and Disclosure. The Plan Administrator shall be responsible
for the reporting and disclosure of information required to be reported or
disclosed by the Plan Administrator pursuant to ERISA or any other applicable
law.
18.6 Governing Law. All legal questions pertaining to the Plan shall be
determined in accordance with the provisions of ERISA and the laws of the
State of California. All contributions made hereunder shall be deemed to
have been made in California.
18.7 Interpretation.
(a) Article and Section headings are for convenient reference
only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any
Article or Section. Unless the context clearly indicates otherwise,
masculine gender shall include the feminine, and the singular shall
include the plural and the plural the singular.
(b) The provisions of this Plan shall in all cases be
interpreted in a manner that is consistent with this Plan satisfying
the requirements (of Code Section 401(k) and related statutes) for
qualification as a Qualified Cash or Deferred Arrangement.
18.8 Withholding for Taxes. Any payments out of the Trust Fund may be
subject to withholding for taxes as may be required by any applicable federal
or state law.
18.9 Limitation on Company; Committee and Trustee Liability. Any benefits
payable under this Plan shall be paid or provided for solely from the Trust
Fund and neither the Company, the Committee nor the Trustee assume any
responsibility for the sufficiency of the assets of the Trust to provide the
benefits payable hereunder.
18.10 Successors and Assigns. This Plan and the Trust established hereunder
shall inure to the benefit of, and be binding upon, the parties hereto and
their successors and assigns.
18.11 Counterparts. This Plan document may be executed in any number of
identical counterparts, each of which shall be deemed a complete original in
itself and may be introduced in evidence or used for any other purpose
without the production of any other counterparts.
18.11 Annuity Purchase. The Committee may purchase any annuity required
under this Plan from any insurance company licensed to do business. The
Committee shall be under no duty to determine whether such annuity either
offers the most favorable benefits or the maximum security for the annuitant.
ARTICLE XIX
SPECIAL PROVISIONS REGARDING ACCOUNTS TRANSFERRED
FROM THE 401(k) PROFIT SHARING PLAN OF
PEI ASSOCIATES, INC.
19.1 In General. The following special provisions in this
Article XIX shall be effective as of June 20, 1992, and shall apply
under the Plan to any Eligible Employee with an account under the
401(k) Profit Sharing Plan of PEI Associates, Inc. (the "PEI Plan")
as of the Transfer Date (as defined in Section 19.2 below).
19.2 Definitions. The following definitions shall apply for
purposes of this Article XIX:
(a) "PEI Inactive Participant"
shall mean a PEI Transfer Participant who is not eligible for
participation in this Plan except by reason of the fact that such
individual is a PEI Transfer Participant.
(b) "PEI Plan" shall mean the 401(k) Profit Sharing Plan of PEI
Associates, Inc.
(c) "PEI Transfer Account" shall mean an account established
and maintained pursuant to the provisions of Section 19.5.
(d) "PEI Transfer Participant" shall mean any participant in
the PEI Plan whose accounts under such plan will be transferred to this
Plan pursuant to the provisions of Section 19.3.
(e) "Transfer Date" shall mean the date upon which the actual
transfer of accounts occurs pursuant to the provisions of Section 19.3.
19.3 Transfer of Accounts. The value of the accounts of each participant
in the PEI Plan shall be determined as of a date fixed in accordance with
applicable law. The balance in such accounts shall be transferred to the
Trust Fund of this Plan as of that date, shall constitute a balance in the
accounts of such participant as specified in Section 19.5 below, and shall
thereafter be subject to all provisions of this Plan relating to accounts
under this Plan, including provisions in this Article XIX. A PEI Transfer
Participant who is not otherwise eligible for participation in this Plan on
the Transfer Date shall be a Participant in this Plan (a "PEI Inactive
Participant"), but solely for purposes of the provisions of this Article XIX.
Such a PEI Inactive Participant shall not be eligible to make Compensation
Deferrals to the Plan, nor shall such a PEI Inactive Participant be eligible
for allocations of Company Contributions until such PEI Inactive Participant
has satisfied the participation requirements set forth in Article III and has
begun participation in the Plan pursuant to the provisions of Section 3.2.
19.4 Effective Date. The provisions of this Article XIX shall be effective
as of the Transfer Date unless otherwise provided herein.
19.5 PEI Transfer Accounts. The following Accounts shall be established
and maintained under this Plan in order to account for the allocated interest
of each PEI Transfer Participant transferred from the PEI Plan to the Trust
Fund under this Plan:
(a) "Transferred Employer Contributions Account" shall mean the
account established and maintained for each PEI Transfer Participant
for purposes of holding and accounting for (i) assets transferred to
this Plan attributable to amounts in the "Matching Contributions
Account" of such Participant under the PEI Plan which represent amounts
contributed by PEI Associates, Inc. as qualified matching contributions
pursuant to Code Section 401(m), (ii) assets transferred to this Plan
attributable to amounts in the "Employer Profit Sharing Contributions
Account" of such Participant under the PEI Plan which represent amounts
contributed by PEI Associates, Inc. to the PEI Plan and allocated to
participants in the PEI Plan on the basis of their relative
compensation levels, and (iii) assets transferred to this Plan
attributable to amounts in the "Employer Stock Account" of such
Participant under the PEI Plan. A PEI Transfer Participant's
Transferred Employer Profit Sharing Contributions Account shall be
subject to the same provisions under this Plan as such Participant's
Discretionary Company Contribution Account, except as provided in
Section 19.6 below.
(b) "Transferred Pre-Tax Contributions Account" shall mean the
account established and maintained for each PEI Transfer Participant
for purposes of holding and accounting for assets transferred to this
Plan attributable to amounts in the "Pre-Tax Contributions Account" of
such Participant under the PEI Plan which represent amounts contributed
pursuant to such Participant's deferral election under Code Section
401(k). A PEI Transfer Participant's Transferred Pre-Tax Contributions
Account shall be subject to the same provisions under this Plan as such
Participant's Compensation Deferral Account, except as provided in
Section 19.6 below.
(c) "PEI Transfer Accounts" shall mean all of the accounts
established and maintained pursuant to Section 19.5(a) and (b) above.
19.6 Special Distribution and Withdrawal Provisions. Distribution of
amounts allocated to a PEI Transfer Participant's PEI Transfer Accounts shall
be made upon such Participant's retirement, death, disability, or other
separation from service in accordance with the terms and conditions of the
Plan including but not limited to Hardship withdrawals under Section 9.14
hereof; provided, however, distribution of such amounts may also be made at
such times and in such form and manner as would have been permitted in
accordance with the terms and conditions of the PEI Plan exclusive of those
PEI Plan provisions (the "Employer Stock Provisions") relating to a
participant's rights concerning his Employer Stock Account under the PEI
Plan. The relevant provisions of the PEI Plan (exclusive of the Employer
Stock Provisions) that would have governed the form, time, and manner of
benefit distributions are attached to the Plan as Schedule A.
19.7 Investment of PEI Transfer Accounts. All assets transferred to this
Plan from the PEI Plan attributable to amounts held in a PEI Transfer
Participant's accounts under the PEI Plan shall be held in trust and invested
as provided in this Section 19.7. The PEI Transfer Accounts of PEI Inactive
Participants shall be invested in an Investment Fund selected by the
Committee as of the Transfer Date and shall remain so invested until such
Participant directs otherwise in accordance with Section 7.5 of this Plan.
The PEI Transfer Accounts of each PEI Transfer Participant who is not a PEI
Inactive Participant shall be invested as of the Transfer Date in accordance
with the investment directions previously given by such Participant with
respect to such Participant's future contributions pursuant to the provisions
of Section 7.5 and shall remain so invested until such Participant directs
otherwise in accordance with Section 7.5.
19.8 Vesting of PEI Transfer Accounts. A PEI Transfer Participant shall at
all times have a 100% nonforfeitable right to the value of assets held in his
PEI Transfer Accounts.<PAGE>
ARTICLE XX
SPECIAL PROVISIONS FOR JOINT VENTURE EMPLOYERS
20.1 Definitions. For purposes of this Article XX, the following terms shall
have the meanings set forth herein:
(a) "Joint Venture Employer" shall mean any employer with
respect to which the Company has invested as a joint venture partner,
and which has been designated as a Joint Venture Employer by the Board
of Directors of the Company, but only for such period as approved by
the Board of Directors.
(b) "Qualified Employee" shall mean any employee of a Joint
Venture Employer who has transferred from employment with the Company
and is a Participant in this Plan as of the date of his transfer.
20.2 Transfer to Joint Venture Employer. A Participant who transfers from
employment with the Company to employment with a Joint Venture Employer and
thereby becomes a Qualified Employee shall be credited with one Year of
Service under this Plan for each Vesting Computation Period during which he
completes 1,000 Hours of Service for the Joint Venture Employer.
20.3 Participating Joint Venture Employer.
(a) For periods approved by the Board of Directors of the
Company and by the management of a Joint Venture Employer, such Joint
Venture Employer may be designated as a Participating Joint Venture
Employer. For purposes of this Section 20.3, "Participating Joint
Venture Employer" shall mean a Joint Venture Employer that is not
affiliated with the Company but whose Qualified Employees may
participate in the Plan. The Plan shall be a multiple employer plan
for periods during which there is any Participating Joint Venture
Employer.
(b) Compensation Deferrals may be made by Qualified Employees
of a Participating Joint Venture Employer as provided in Article V, and
Company Contributions shall be made on behalf of such Qualified
Employees as provided in Article VI. Except as expressly provided
otherwise herein, all terms and conditions of the Plan shall apply to
Qualified Employees of a Participating Joint Venture Employer.
Qualified Employees of a Participating Joint Venture Employer shall be
treated for all purposes under the Plan as if they were employed by the
Company.
(c) The following terms, which are used throughout the Plan,
shall have the meanings set forth in Article II except that the words
"or Joint Venture Employer" shall be added after the word "Company"
when such terms are applied to Qualified Employees of a Participating
Joint Venture Employer:
(i) Company Contributions, as defined in Section 2.10;
(ii) Compensation, as defined in Section 2.11;
(iii) Employee, as defined in Section 2.21;
(iv) Highly Compensated Employee, as defined in Section
2.25;
(v) Hour of Service, as defined in Section 2.26;
(vi) Leave of Absence, as defined in Section 2.30;
(vii) Severance Date, as defined in Section 2.46;
(viii) Trust Fund, as defined in Section 2.51; and
(xiv) Year of Service, as defined in Section 2.54.
(d) Notwithstanding any other provision hereof, the Plan shall
be disaggregated into components covering the Company and each Joint
Venture Employer or Participating Joint Venture Employer as required
by applicable Internal Revenue Service rules and regulations for
purposes of determining compliance with such rules and regulations.
IN WITNESS WHEREOF, in order to record the adoption of this Plan, IT
Corporation has caused this instrument to be executed by its duly authorized
officers this ______day of 199__, effective, however, as of January 1, 1989
except as otherwise expressly provided herein.
IT CORPORATION
By:_________________________________
By:_________________________________
LT932210.015
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
This schedule contains summary financial information extracted from
International Technology Corporation's Consolidated Balance Sheet as of March
31, 1995, Consolidated Statement of Operations for the fiscal year ended March
31, 1995 and related Notes to Consolidated Financial Statements, all of which
were filed with the SEC on June 29, 1995 on Form 10-K for the fiscal year ended
March 31, 1995 (commission file number 1-9037) AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> MAR-31-1995
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 164673
<PP&E> 152127
<DEPRECIATION> 82324
<TOTAL-ASSETS> 362152
<CURRENT-LIABILITIES> 90835
<BONDS> 80189
<COMMON> 35737
0
2400
<OTHER-SE> 107784
<TOTAL-LIABILITY-AND-EQUITY> 362152
<SALES> 0
<TOTAL-REVENUES> 110492
<CGS> 0
<TOTAL-COSTS> 108826
<OTHER-EXPENSES> 3800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2011
<INCOME-PRETAX> (4145)
<INCOME-TAX> (1179)
<INCOME-CONTINUING> (2966)
<DISCONTINUED> (10603)
<EXTRAORDINARY> 0
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<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
International Technology Corporation's Consolidated Balance Sheet as of March
31, 1995, Consolidated Statement of Operations for the fiscal year ended March
31, 1995 and related Notes to Consolidated Financial Statements, all of which
were filed with the SEC on June 29, 1995 on Form 10-K for the fiscal year ended
March 31, 1995 (commission file number 1-9037) AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 6547
<SECURITIES> 0
<RECEIVABLES> 137896
<ALLOWANCES> 0
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<CURRENT-ASSETS> 164673
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<TOTAL-ASSETS> 362152
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<BONDS> 80189
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<OTHER-SE> 107784
<TOTAL-LIABILITY-AND-EQUITY> 362152
<SALES> 0
<TOTAL-REVENUES> 423972
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<TOTAL-COSTS> 414359
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7110
<INCOME-PRETAX> (1297)
<INCOME-TAX> 2383
<INCOME-CONTINUING> (3680)
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</TABLE>
