SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarter ended December 29, 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 ........
At January 31, 1996 the registrant had issued and outstanding an
aggregate of 35,733,245 shares of its common stock.
1
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED DECEMBER 29, 1995
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of December 29, 1995 (unaudited) and
March 31, 1995. 3
Condensed Consolidated Statements of Operations
for the Fiscal Quarter and Three Fiscal Quarters
ended December 29, 1995 and December 31, 1994
(unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the Three Fiscal Quarters ended December 29,
1995 and December 31, 1994 (unaudited). 5
Notes to Condensed Consolidated Financial
Statements (unaudited). 6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. 9-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 19
Item 6. Exhibits and Reports on Form 8-K. 20
Signature. 21
2
<PAGE>
PART I
Item 1. Financial Statements.
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, March 31,
1995 1995
----------- --------
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 24,127 $ 6,547
Receivables, net 140,031 137,896
Prepaid expenses and other current assets 4,091 5,630
Deferred income taxes 14,416 14,600
------- -------
Total current assets 182,665 164,673
------- -------
Property, plant and equipment, at cost:
Land and land improvements 1,766 1,766
Buildings and leasehold improvements 10,970 9,561
Machinery and equipment 143,502 143,181
------- -------
156,238 154,508
Less accumulated depreciation and amortization 98,385 82,324
------- -------
Net property, plant and equipment 57,853 72,184
------- -------
Investment in Quanterra 12,500 36,316
Other assets 34,910 47,274
Long-term assets of discontinued operations 41,705 41,705
------- -------
Total assets $329,633 $362,152
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,104 $ 28,823
Accrued liabilities 35,025 42,660
Billings in excess of revenues 3,286 3,977
Short-term debt, including current portion of
long-term debt 162 1,154
Net current liabilities of discontinued operations 19,646 14,221
------- -------
Total current liabilities 93,223 90,835
------- -------
Long-term debt 65,052 80,189
Long-term accrued liabilities of discontinued
operations 25,278 39,480
Other long-term accrued liabilities 5,531 5,727
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; 35,764,001 shares issued at
December 29, 1995, and 35,737,313 shares issued
and outstanding at March 31, 1995 35,764 35,737
Additional paid-in capital 169,890 172,137
Treasury stock, at cost (4,768 shares at
December 29, 1995) (15) -
Deficit (67,490) (64,353)
------- -------
Total stockholders' equity 140,549 145,921
------- -------
Total liabilities and stockholders' equity $329,633 $362,152
======= =======
See accompanying notes.
3
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal quarter ended Three fiscal quarters ended
-------------------------- ---------------------------
December 29, December 31, December 29, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $104,912 $102,403 $311,463 $313,480
Cost and expenses:
Cost of revenues 90,261 85,714 264,694 264,445
Selling, general and
administrative expenses 9,022 10,140 29,061 32,012
------- ------- ------- -------
Operating income 5,629 6,549 17,708 17,023
Equity in net loss of Quanterra,
including loss on
recapitalization in 1995 and
integration charge in 1994 (24,595) (319) (26,416) (9,076)
Other income - - 1,090 -
Interest, net (1,529) (1,996) (5,172) (5,099)
------- ------- ------- -------
Income (loss) before income taxes (20,495) 4,234 (12,790) 2,848
(Provision) benefit for
income taxes 15,808 (1,553) 12,803 (3,562)
------- ------- ------- -------
Net income (loss) (4,687) 2,681 13 (714)
Less preferred stock dividends (1,050) (1,050) (3,150) (3,150)
------- ------- ------- -------
Net income (loss) applicable to
common stock $ (5,737) $ 1,631 $ (3,137) $ (3,864)
======= ======= ======= =======
Net income (loss) per share $ (.16) $ .05 $ (.09) $ (.11)
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three fiscal quarters ended
---------------------------
December 29, December 31,
1995 1994
------------- ------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 13 $ (714)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Equity in net loss of Quanterra 26,416 9,076
Gain from Motco settlement (9,090) -
Writedown of equipment 8,000 -
Depreciation and amortization 10,433 12,894
Deferred income taxes (13,981) 3,311
Changes in assets and liabilities, net
of effects from acquisitions and
dispositions of businesses:
Increase in receivables, net (2,135) (29,045)
Decrease in prepaid expenses and other
current assets 1,539 290
Increase in accounts payable 6,281 5,779
(Decrease) increase in accrued liabilities (10,045) 3,387
(Decrease) increase in billings in excess
of revenues (691) 1,011
Decrease in other long-term accrued
liabilities (196) (166)
------- -------
Net cash provided by operating activities 16,544 5,823
------- -------
Cash flows from investing activities:
Proceeds from Motco settlement 41,100 -
Capital expenditures (3,822) (7,922)
Investment in Quanterra (2,500) (1,208)
Other, net (1,374) 927
Investment activities of transportation,
treatment and disposal discontinued
operations (8,777) (8,256)
------- -------
Net cash provided by (used for) investing
activities 24,627 (16,459)
------- -------
Cash flows from financing activities:
Repayments of long-term borrowings (110,629) (33,593)
Long-term borrowings 90,023 41,802
Dividends paid on preferred stock (3,150) (3,150)
Repurchases of common stock (740) -
Issuances of common stock 905 6
------- -------
Net cash (used for) provided by financing
activities (23,591) 5,065
------- -------
Net increase (decrease) in cash and cash
equivalents 17,580 (5,571)
Cash and cash equivalents at beginning of period 6,547 10,646
------- -------
Cash and cash equivalents at end of period $ 24,127 $ 5,075
======= =======
See accompanying notes.
5
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein
have been prepared by International Technology Corporation (Company or
IT), without audit, and include all adjustments of a normal, recurring
nature which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the fiscal quarter and
three fiscal quarters ended December 29, 1995, pursuant to the rules of
the Securities and Exchange Commission. The Company has changed its
fiscal year to include four thirteen-week fiscal quarters with the
fourth quarter ending on the last Friday in March. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations
although the Company believes that the disclosures in such financial
statements are adequate to make the information presented not
misleading. Certain reclassifications have been made to prior period
amounts to conform to the current period's presentation.
These condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995. The results of operations for the fiscal
periods ended December 29, 1995 are not necessarily indicative of the
results for the full fiscal year.
2. On August 7, 1995, the Company received $41,100,000 of cash from
Monsanto Company in settlement of the Motco Trust litigation. Such
settlement proceeds were used principally to pay down all outstanding
borrowings against the Company's bank line of credit. In the second
quarter of fiscal year 1996, the Company reported in other income a
pre-tax gain of $1,090,000, which represented the settlement proceeds,
net of the previously recorded $31,200,000 claim amount, $8,000,000 of
costs related to certain equipment specially constructed for the Motco
project which has been idle since ceasing work on the project, and legal
and other expenses.
3. On October 25, 1995, the Company completed the refinancing of its
$50,000,000 of 9 3/8% senior notes due July 1, 1996 and its bank
revolving line of credit with a combined $125,000,000 financing which
includes $65,000,000 of 8.67% senior secured notes with a group of major
insurance companies and a $60,000,000 syndicated bank revolving credit
facility. The financing package, which is subject to a borrowing base,
is secured by the accounts receivable and certain fixed assets of the
Company. The senior secured notes have an eight-year final maturity
with no principal payments until the sixth year, and the new bank line
has a term of five years. The 9 3/8% senior notes were redeemed on
November 24, 1995.
4. On January 19, 1996, the Company and Corning Incorporated (Corning)
completed an agreement to recapitalize Quanterra Incorporated
(Quanterra), an environmental laboratory company previously 50/50 owned
by IT and Corning. The recapitalization resulted in a change in
Quanterra's ownership to 19% by IT and 81% by Corning.
The recapitalization included a $25,000,000 infusion of new equity in
Quanterra, of which $2,500,000 was contributed by IT. In addition, IT
sold a common stock interest in Quanterra to Corning in consideration of
the exchange of 333,000 shares of IT common stock and warrants to
purchase 2,000,000 shares of IT common stock, previously issued to
Corning in connection with the formation of Quanterra. Also, Corning
and IT committed to contribute additional capital to Quanterra to fund
future working capital requirements on a pro-rata ownership basis up to
$13,000,000. The Company's portion of this commitment is $2,500,000.
The transaction was effective January 1, 1996 and was recorded by IT in
its third fiscal quarter ended December 29, 1995. The Company reported
a pre-tax charge of $24,595,000 related to the recapitalization of
Quanterra. Prior to the recapitalization, IT's investment in Quanterra
was accounted for under the equity method. Effective with the current
fourth fiscal quarter, the Company's investment in Quanterra will be
accounted for on the cost basis.
6
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. For the three fiscal quarters ended December 29, 1995, the Company
had an effective income tax rate of 100%. The related income tax
benefit on the $12,790,000 loss before income taxes for the current
three fiscal quarters includes a $7,500,000 tax credit reflected in the
third quarter resulting from the adjustment of IT's deferred tax
valuation allowance based on the Company's reassessment of its ability
to generate a sufficient level of future earnings to realize a
substantial portion of IT's related deferred tax asset. If the above
tax credit had not been reflected in the third quarter, the Company's
effective income tax rate would have been 41%, which exceeds the 34%
federal statutory rate primarily due to state income taxes and
nondeductible expenses.
In the corresponding nine-month period of the prior fiscal year, in
which the Company reported income before income taxes of $2,848,000, the
Company recorded a $3,562,000 income tax provision principally due to
the partial nondeductibility of the integration charge recorded by the
Company in the first quarter of fiscal year 1995.
6. Net income (loss) per common share is computed by dividing net
income (loss) applicable to common stock by the weighted average number
of outstanding common shares and common share equivalents during each
period as follows:
Average common and common
Fiscal quarter ended equivalent shares outstanding
-------------------- -----------------------------
December 29, 1995 36,044,396
December 31, 1994 35,759,437
Average common and common
Three fiscal quarters ended equivalent shares outstanding
--------------------------- -----------------------------
December 29, 1995 35,931,903
December 31, 1994 35,552,109
Common stock equivalents relate to dilutive stock options using the
treasury stock method. For all periods presented, the computation of
net income (loss) per share, assuming conversion into common shares of
the Company's Preferred Stock, is antidilutive.
7. In December 1987, the Company's Board of Directors adopted a
strategic restructuring program which included a formal plan to divest
the transportation, treatment and disposal operations through sale of
some facilities and closure of certain other facilities. As of December
29, 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 plan of 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 write off of
the $30,400,000 contingent purchase price from the earlier sale of
certain assets. 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 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 potentially responsible party (PRP). At December 29,
1995, the Company's condensed consolidated balance sheet included
accrued liabilities of $44,924,000 to complete the closure and related
post-closure of its inactive disposal sites and related matters.
7
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions and
estimates. Management believes 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.
8. Litigation to which IT is a party is discussed in Item 3, Legal
Proceedings, in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995. Current developments are discussed in Part
II of this filing.
9. Unbilled receivables of $22,626,000 at December 29, 1995
($20,869,000 at March 31, 1995) are included in accounts receivable.
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, negotiation of change orders or completion of the
project.
Included in unbilled receivables at December 29, and March 31, 1995 are
approximately $8,000,000 of claims related to the Helen Kramer project,
which is subject to a governmental investigation.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.
INTERNATIONAL TECHNOLOGY CORPORATION
FOR QUARTER ENDED DECEMBER 29, 1995
RESULTS OF 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.
Prior to the June 1994 formation of Quanterra (see Equity in Net Loss of
Quanterra), the Company was organized into three business areas,
Environmental Services, Construction and Remediation, and Analytical
Services. Subsequent to June 1994, the Company 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.
Revenues
- --------
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 area revenue historically was derived
from the Company's other operations, additional revenue now is being
recorded in those operations related to analytical services subcontracts
performed by Quanterra for IT, similar to other third party
subcontracts. After excluding prior year Analytical Services revenues
other than those provided to the Company's other operations, revenues
for the first three quarters of fiscal year 1996 were approximately 2.1%
higher than the amount reported for the corresponding period of the
prior fiscal year. Revenues for the current third fiscal quarter were
2.5% above the related level from the prior year. These increases are
principally due to an increased level of subcontract costs on project
work.
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 Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) and Resource Conservation and
Recovery Act (RCRA) projects. 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. 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.
The following table shows, for the third fiscal quarters and the three
fiscal quarters ended December 29, 1995 and December 31, 1994, 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:
9
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Fiscal quarter ended Three fiscal quarters ended
--------------------------- ---------------------------
December 29, December 31, December 29, December 31,
Source 1995 1994 1995 1994
- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal government:
U.S. Department of Defense (DOD) . . . . 47% 45% 51% 44%
U.S. Department of Energy (DOE). . . . . 10 11 10 12
Other federal agencies . . . . . . . . . 4 5 4 4
--- --- --- ---
61 61 65 60
State and local governments . . . . . . . . . 6 6 4 10
--- --- --- ---
Total . . . . . . . . . . . . . . . . . . . . 67% 67% 69% 70%
=== === === ===
</TABLE>
Revenues from the DOD increased primarily due to work performed on tasks
issued under the Company's major indefinite delivery order programs,
several of which were awarded in the prior year. The Company expects to
continue to derive a substantial portion of its revenues from these
contracts, which are primarily related to remedial action type of work.
Late in the quarter ended December 29, 1995, the Company began to
experience certain delays in receiving tasks under these contracts,
which the Company believes is due to budgeting uncertainties at the DOD
resulting from the ongoing federal budget dispute and the partial
government shutdown. The Company currently cannot predict how long or
to what extent such work will be delayed.
For the nine-month period, revenues from state and local government
contracts declined primarily due to the wind-up late in fiscal year 1995
of the Sikes Disposal Pits contract, performed for the Texas Natural
Resources Conservation Commission.
Commercial work has increased slightly over the past three quarters due
to the start-up of a major thermal treatment project which was awarded
in 1992 but which had been subject to permitting delays. Excluding this
contract, commercial work has declined due to reductions in awards by
commercial clients, who, the Company believes, to some degree are
delaying such awards until final Congressional action is taken on the
reauthorization of CERCLA. Funding authority under CERCLA lapsed on
December 31, 1995 and it is uncertain when reauthorization will occur or
what the details of the legislation, including retroactive liability,
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 include.
Uncertainty regarding possible Congressional rollbacks of environmental
regulation and enforcement have led commercial clients to delay projects
as well, although there are recent indications of a reduction in the
likelihood of significant rollbacks.
The Company cannot predict the impact of continuing delays in the
reauthorization of CERCLA, or of the many legislative and regulatory
changes proposed since the November 1994 elections. Delays in the
reauthorization of CERCLA may continue to adversely impact the
environmental industry. Failure of Congress to reauthorize CERCLA,
and/or substantial changes in or repeal of other environmental laws may
significantly affect the Company and the environmental industry. 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.
A significant portion (approximately 11% in fiscal year 1996 to date) of
IT's revenues continue to be derived from large, complex thermal
remediation contracts utilizing the Company's Hybrid Thermal Treatment
System (HTTS) incineration technology. Incineration as an allowable
remedy under CERCLA continues to come under legislative and regulatory
pressures. The U.S. Environmental Protection Agency (USEPA) has adopted
a strategy of favoring waste minimization over combustion/incineration
10
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
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. If alternative uses, such as foreign installations,
were not found or were uneconomical, there could be a negative effect to
the Company due to impairment of HTTS assets as well as lost project
opportunities. The Company's backlog of contracts which utilize HTTS
equipment was approximately $30,000,000 at December 29, 1995. The
Company is actively pursuing other contract opportunities which utilize
the HTTS equipment. At December 29, 1995, IT's HTTS equipment had a
net book value of approximately $17,000,000. In the quarter ended
September 29, 1995, the Company reduced the net book value by
$8,000,000 of costs related to equipment specially constructed for the
Motco project which has been idle since ceasing work on the project (see
Note 2 to Condensed Consolidated Financial Statements).
The Company's total contract backlog at December 29, 1995 was
approximately $1,070,000,000 of which approximately $662,000,000 is
future project work the Company estimates it will receive (based on
historical experience) under existing governmental indefinite delivery
programs which provide for a general undefined scope of work. Revenues
from backlog and indefinite delivery order contracts are expected to be
earned over the next one to five years. Backlog declined by
approximately $64,000,000 during the third fiscal quarter due to a
significant amount of work being performed on existing contracts.
Continued funding of existing backlog could be negatively impacted in
the future due to reductions in current and future federal government
environmental restoration budgets.
The ongoing federal budget dispute and regulatory uncertainties discussed
above, combined with severe weather conditions which have occurred in
January and February 1996, are putting increased pressure on the
Company's business which could result in a decline in fourth fiscal quarter
earnings compared to recent quarterly trends.
Gross Margin
- ------------
Gross margin percentage for the third quarter of fiscal year 1996
declined to 14.0% of revenues from 16.3% of revenues for the
corresponding period of the prior fiscal year. In the current quarter,
gross margin was adversely impacted by the combination of lower pricing
due to competitive industry conditions and a shift in revenue mix toward
lower margin subcontracted work.
For the first three quarters of fiscal year 1996, gross margin of 15.0%
of revenues declined from 16.2% of revenues (excluding Analytical
Services) in the corresponding period of the prior fiscal year,
generally for the same reasons noted above related to the third quarter.
Selling, General and Administrative Expenses
- --------------------------------------------
For the quarter and three quarters ended December 29, 1995, selling,
general and administrative expenses represented 8.6% of revenues and
9.3% of revenues, respectively. This level compares favorably to the
related 9.9% and 10.2% of revenues reported for the corresponding
periods of the prior fiscal year as a result of continued management
attention to expenses.
Equity in Net Loss of Quanterra
- -------------------------------
In June 1994, the Company and an affiliate of Corning combined the two
companies' environmental analytical services businesses into a newly
formed 50/50 jointly-owned company (Quanterra). An integration plan was
implemented in the early stages of Quanterra's operations. The plan
included consolidation and closure of redundant lab facilities and
11
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
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.
On January 19, 1996, the Company and Corning completed an agreement to
recapitalize Quanterra (see Note 4 to Condensed Consolidated Financial
Statements). The recapitalization transaction which was recorded by IT
in the third fiscal quarter ended December 29, 1995, resulted in a
change in Quanterra's ownership to 19% by IT and 81% by Corning. The
Company reported a pre-tax charge of $24,595,000 related to the
recapitalization of Quanterra. Prior to the recapitalization, IT's
investment in Quanterra was accounted for under the equity method.
Effective with the current fourth fiscal quarter, the Company's
investment in Quanterra will be accounted for on the cost basis.
In the quarter ended June 30, 1994, prior to the formation of Quanterra,
the Company's Analytical Services business experienced an operating loss
of approximately $850,000.
Interest, Net
- -------------
For the third quarter and first three quarters of fiscal year 1996, net
interest expense represented 1.5% of revenues and 1.7% of revenues,
respectively, compared to the 1.9% and 1.6% of revenues reported in the
third quarter and first three quarters of fiscal year 1995. The lower
third quarter interest expense level compared to a year ago is due to
the paydown of bank borrowings which occurred in August 1995 utilizing
the proceeds from the Motco settlement (see Note 2 to Condensed
Consolidated Financial Statements). The bank paydown from the Motco
proceeds will reduce interest expense on an ongoing basis.
Income Taxes
- -----------
For the three fiscal quarters ended December 29, 1995, the Company had
an effective income tax rate of 100%. The related income tax benefit on
the $12,790,000 loss before income taxes for the current three fiscal
quarters includes a $7,500,000 tax credit reflected in the third quarter
resulting from the adjustment of IT's deferred tax valuation allowance
based on the Company's reassessment of its ability to generate a
sufficient level of future earnings to realize a substantial portion of
IT's related deferred tax asset. If the above tax credit had not been
reflected in the third quarter, the Company's effective income tax rate
would have been 41%, which exceeds the 34% federal statutory rate
primarily due to state income taxes and nondeductible expenses.
In the corresponding nine-month period of the prior fiscal year, in
which the Company reported income before income taxes of $2,848,000, the
Company recorded a $3,562,000 income tax provision principally due to
the partial nondeductibility of the integration charge recorded by the
Company in the first quarter of fiscal year 1995.
12
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital of $89,442,000 at December 29, 1995 increased by
$15,604,000 or 21.1% from $73,838,000 at March 31, 1995. The current
ratio at December 29, 1995 increased to 1.96:1 from 1.81:1 at March 31,
1995.
On August 7, 1995, the Company received $41,100,000 of cash from
Monsanto Company in settlement of the Motco Trust litigation. Such
settlement proceeds were used principally to pay down all outstanding
borrowings against the Company's bank line of credit.
Cash provided by operating activities for the first three quarters of
fiscal year 1996 totaled $16,544,000, compared to $5,823,000 provided by
operating activities in the corresponding nine-month period of the prior
fiscal year. During the current period, the increase in cash provided
by operating activities is principally due to lower receivables growth
compared to the prior year because of lower revenue growth. Capital
expenditures of $3,822,000 for the current three fiscal quarters were
$4,100,000 lower than the $7,922,000 amount reported for the
corresponding period of the prior fiscal year principally due to the
cessation of spending in the Analytical Services area after the
formation of Quanterra and to the completion of a major company-wide
information systems project which was in process in the prior fiscal
year.
With regard to the Company's transportation, treatment and disposal
discontinued operations, 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. During the
first three quarters of the current fiscal year, the Company spent
$8,777,000 relating to closure plans and construction costs for the
sites compared to $8,256,000 in the corresponding period of the prior
fiscal year. At December 29, 1995, the Company's condensed consolidated
balance sheet included accrued liabilities of $44,924,000 to complete
the closure and post-closure of its inactive Northern California
disposal sites and related matters.
Closure and post-closure plans for the Panoche facility were revised to
incorporate regulatory agency comments in March 1991. In December 1991,
the California Supreme Court issued a decision upholding the County of
Solano's (County) authority to issue an order (the County Order)
requiring the Company to submit for agency consideration a closure plan
providing for the excavation and relocation on-site of wastes and soils
from peripheral waste areas at the facility (the Buffer Zone Areas).
During fiscal year 1993, the Company was required to submit, and did
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. An Environmental Impact
Report (EIR), required by California law to be completed prior to plan
approval, currently is being prepared by the California Environmental
Protection Agency, Department of Toxic Substances Control (DTSC). DTSC
recently completed an Administrative Draft EIR on the plan. As
reflected in the Administrative Draft EIR, the EIR will address the 1991
closure plan and the plan submitted in 1993 to address the County Order,
as well as other alternative plans, including alternative plans that
would require varying amounts of excavation and relocation on-site of
wastes and soil in the Buffer Zone Areas. The additional study of the
plan submitted to address the County Order and of the other alternatives
has resulted in delays to closure plan approval. While difficult to
predict and therefore subject to change, the Company presently expects
final determination on the closure and post-closure plans in fiscal year
1997. The Company is targeting completion of the closure for fiscal
year 2000, but completion will depend on the closure plan approved and
therefore the date for completion is uncertain at this time. The delays
in the closure plan review and approval process 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 closure
costs substantially, which would have a material adverse affect on the
consolidated financial condition of the Company.
On November 17, 1995, the DTSC approved the final closure plan and
post-closure plan for the Vine Hill Complex facility. The approved
final closure plan, which is substantially consistent with the plan
submitted by IT, provides for solidification and capping of waste
sludges and installation of underground barriers and ground water
control systems. Substantial remediation has already been completed
over the past several years based upon interim approvals by DTSC, and
the approved final closure plan will be completed in fiscal year 1998.
13
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
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 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 such financial assurance equal to
its estimate for closure costs at November 14, 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
$12,300,000, letters of credit totaling approximately $10,200,000 and a
trust fund containing approximately $10,600,000, and has purchased
annuities which will ultimately mature over the next 30 years to pay for
its estimates of post-closure costs.
IT's inactive disposal sites are subject to the RCRA and other federal
laws including the Toxic Substances Control Act, the Clean Water Act,
the Clean Air Act and the regulations of the Occupational Safety and
Health Act. The provisions of 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, and will meet statutory
requirements upon completion of the recently approved final closure
plan. 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 December 29, 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
14
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
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.
In June 1986, USEPA notified a number of entities, including the
Company, that they were PRPs under CERCLA with respect to the Operating
Industries, Inc. (OII) Superfund site in Monterey Park, California and,
as such, faced joint and several liability for the costs 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 (in the form
of partial consent decrees) addressing cost reimbursement demands and
performing certain interim remedial measures (IRMs). The Company did
not join the Steering Committee or enter these settlements. 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
incurred in the prior settlements or risk enforcement actions by the
USEPA.
In October 1995, the Company and the USEPA agreed to a settlement of the
Company's liability for response costs incurred by the USEPA pursuant to
the first three partial consent decrees entered into in connection with
OII site. The settlement with USEPA will be entered in the form of a
consent decree (the Fifth Partial Consent Decree) filed in the U.S.
District Court. The settlement is subject to a public notice and
comment period, as well as subsequent federal court approval. If the
settlement is approved, the Company will pay to the USEPA approximately
$5,400,000 in two installments within one year, which amounts had been
previously reserved by the Company. While resolving the Company's
liability for response costs incurred by the USEPA pursuant to the first
three partial consent decrees, the settlement does not include any costs
for future or final OII remedies. The USEPA is expected to announce a
final remedy for the site within approximately a year and, although
future response costs are undetermined, they are expected to be
substantial.
The Steering Committee continues to contend the Company is liable to it
for a share of the response costs its members have paid. 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, California, No. CV 94-2861 WMB (GHKx)). The action
seeks (1) recovery from the Company of a portion, allegedly attributable
to the Company, of certain of plaintiffs' costs incurred at OII pursuant
to the first two settlements (the Steering Committee had previously
quantified its claim against the Company for these response costs at
$2,700,000) and (2) a declaration from the court as to the Company's
share of future costs associated with the IRMs addressed in these prior
settlements. On May 16, 1995, a second lawsuit was filed against the
Company (National Railroad Passenger Corporation v. ACF United,
U.S.D.C., Central District, California, Case No. CV 95-2050 LGB (RMBx))
by the Steering Committee, which seeks from the Company unspecified
amounts for cost recovery, contribution and declaratory relief for
response costs incurred by Steering Committee members pursuant to the
third settlement. These two lawsuits have been consolidated with
three other cost recovery and contribution actions and are now scheduled
for trial on July 25, 1996. The Company is defending itself vigorously
in the consolidated action.
The Steering Committee had also indicated to the Company that it opposed
USEPA's settlement with the Company and would take all action it could
to prevent the Fifth Partial Consent Decree from being entered. As a
part of the settlement and if the settlement is approved, the Company
will receive from the USEPA contribution protection and a covenant not
to sue as to the matters addressed in the Fifth Partial Consent Decree.
The settlement does not itself result in dismissal of the pending
15
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
lawsuits against the Company by the Steering Committee (i.e., the
consolidated actions referenced above), but the Company believes that,
if the settlement is approved, the contribution protection included in
the settlement should protect it from such lawsuits and should result in
their ultimate dismissal. The Company is presently in negotiations with
the Steering Committee and the USEPA to resolve the Steering Committee's
objections to the Fifth Partial Consent Decree and the Company's
settlement with the USEPA. As a part of any settlement with the
Steering Committee, the Company could be required to pay additional sums
both as to prior consent decrees and any final remedy. In addition, the
Company is pursuing certain other PRPs for cost recovery and
contribution to attempt to recover a portion of the sums which it will
pay pursuant to the Fifth Partial Consent Decree. The Company also 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.
Disapproval of the settlement and the inability of the Company to
otherwise effect a satisfactory resolution with the USEPA and/or the
Steering Committee of the claims addressed in the Fifth Partial Consent
Decree, or the inability of the Company to effect a satisfactory
resolution with the USEPA and/or the Steering Committee of claims with
respect to future costs for site remediation and long-term monitoring
and maintenance, could have a material adverse effect on the
consolidated financial condition of the Company.
With respect to the GBF Pittsburg Superfund site, near Antioch,
California, in November 1995, the DTSC, by letter, purported to require
the PRP group of which the Company is a member (the PRP group) to submit
a draft Remedial Action Plan (RAP) so as to prefer (and subsequently to
select to perform) a remedial alternative not supported by the PRP
group. The PRP group disputed that it had any obligation to submit a
draft RAP as purportedly required by DTSC and in January 1996 submitted
a draft RAP discussing a number of remedial alternatives. Pending the
issuance of the final RAP, the PRP group is evaluating its
administrative and other remedies. Failure of the PRP group to resolve
this matter satisfactorily could substantially increase the cost of
remediating the site.
The Company, as a major provider of hazardous waste transportation,
treatment and disposal operations in California prior to the December
1987 strategic restructuring program, has been named a PRP at other
sites. 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 such sites. Additionally, the Company 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 operations.
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions and
estimates, including those discussed above. 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.
At December 29, 1995, a deferred tax asset in the amount of $33,156,000
(net of a valuation allowance of $4,939,000) is included in the
Company's condensed consolidated balance sheet. The asset represents
the tax benefit of future tax deductions and net operating loss (NOL),
alternative minimum and investment tax carryforwards anticipated, and
will be realized as the Company generates taxable income over the next
several years. During the second fiscal quarter ended September 29,
1995, the settlement of the Motco Trust lawsuit (see Note 2 to Condensed
Consolidated Financial Statements) generated substantial amounts of
current taxable income resulting in the utilization of NOL
carryforwards, at which time the Company reduced its valuation allowance
by $3,238,000. Furthermore, for the third fiscal quarter ended December
29, 1995, the Company participated in the recapitalization of Quanterra
at which time it recognized deferred tax assets, primarily long-term
capital losses, and increased its valuation allowance by $2,957,000 due
to the relative uncertainty that such capital losses will be fully
utilized. The above valuation allowance adjustments have been included
16
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
in the computation of the estimated annual effective tax rate for the
fiscal year ending March 29, 1996. Additionally, for the third fiscal
quarter ended December 29, 1995, the Company reported a tax credit of
$7,500,000 resulting from the reduction of IT's deferred tax valuation
allowance based on IT's reassessment of its ability to generate a
sufficient level of future earnings to realize a substantial portion of
IT's related deferred tax asset. The Company evaluates the adequacy of
the valuation allowance and the realizability of the deferred tax asset
on an ongoing basis.
The Company's agreements with Corning relating to Quanterra contain
certain provisions which have affected and, in the future, could affect
liquidity. IT was required by these agreements to contribute $2,500,000
to Quanterra in October 1995 and an additional $2,500,000 to Quanterra
on January 19, 1996 in connection with the recapitalization of Quanterra
(see Note 4 to Condensed Consolidated Financial Statements). The
Company is committed to contribute up to an additional $2,500,000 to
Quanterra and has the option to contribute more in order to maintain a
19% interest. At December 29, 1995, after an evaluation of the value of
IT's remaining investment in Quanterra and recognition of a pre-tax
charge of $24,595,000 related to the recapitalization transaction, the
Company's condensed consolidated balance sheet included an investment in
Quanterra of $12,500,000 which is now carried as a cost-basis
investment. Due to the operating losses which Quanterra has been
incurring and the requirement to contribute additional capital to
Quanterra, the Company will continue to evaluate the ultimate
recoverability of its investment in Quanterra. If the Company
determines that its investment in Quanterra is not fully recoverable, a
writedown of that investment could be required.
On October 25, 1995, the Company completed the refinancing of its
$50,000,000 of 9 3/8% senior notes due July 1, 1996 and its bank
revolving line of credit with a combined $125,000,000 financing which
includes $65,000,000 of 8.67% senior secured notes with a group of major
insurance companies and a $60,000,000 syndicated bank revolving credit
facility. The financing package, which is subject to a borrowing base,
is secured by the accounts receivable and certain fixed assets of the
Company. The senior secured notes have an eight-year final maturity
with no principal payments until the sixth year, and the new bank line
has a term of five years.
As a result of the consummation of this refinancing arrangement, the
Company's $50,000,000 of 9 3/8% senior notes due July 1, 1996, were
redeemed on November 24, 1995.
Interest on borrowings under the Company's new revolving line of credit
is at the bank's prime rate plus 0.5%, or in the case of Eurodollar
borrowings, at the interbank offered rate plus 1.5%. The Company is
subject to a 0.5% per annum charge on the unused portion of the
commitment. The Company's new credit facilities contain various
financial ratio and net worth covenants. In addition, the facilities
contain certain other restrictive covenants, including prohibitions on
the payment of cash dividends on common stock (and, if the Company is in
default under the facilities, on the preferred stock), and on the
repurchase of stock other than to fund IT's compensation plans,
limitations on capital expenditures, the incurrence of other debt and
the purchase or sale of assets and a negative pledge on substantially
all of the Company's assets not pledged to the facilities.
In aggregate, at December 29, 1995, letters of credit totaling
approximately $33,000,000 related to the Company's insurance program,
financial assurance requirements and bonding requirements were
outstanding against the Company's $60,000,000 bank line of credit. The
Company had no outstanding cash advances under the line at December 29,
1995. At that date, the Company's borrowing base under the line of
credit allowed for additional letters of credit or borrowings of up to
$19,000,000. Together with invested cash of approximately $18,000,000,
this produced approximately $37,000,000 of total liquidity at December
29, 1995.
The Company continues to have significant cash requirements, including
working capital, capital expenditures, expenditures for the closure of
its inactive disposal sites, dividend obligations on the depositary
shares and contingent liabilities. The Company's cash and availability
under its bank line are presently sufficient to meet the foreseeable
requirements.
17
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
On February 6, 1996, the Company announced that it had retained an
investment banking firm and a consultant to advise it on ways to
actively participate in the current environmental management industry
consolidation, with the ultimate goal of maximizing shareholder value.
This effort is directed toward responding to the challenges facing the
environmental industry and seeking to reposition IT to create a platform
which provides competitive advantage in its existing businesses and
facilitates the exploitation of new and existing markets. The Company's
chairman and its president and CEO will jointly and actively lead
this effort and all opportunities will be aggressively explored,
including mergers, acquisitions and strategic alliances.
18
<PAGE>
PART II
INTERNATIONAL TECHNOLOGY CORPORATION
Item 1. Legal Proceedings.
The following matters and other litigation to which the Company is a
party are more fully discussed in Item 3, Legal Proceedings, in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1995. See also Management's Discussion and Analysis of Results of
Operations and Financial Condition - Financial Condition for current
developments related to the Operating Industries, Inc. and GBF Pittsburg
Superfund site matters.
Class Action Lawsuit
- --------------------
The trial in this action, which was scheduled for February 27, 1996, has
been continued until May 21, 1996. The Company has filed a motion for
summary judgment, which the plaintiffs have opposed. The matter is
pending before the trial judge. Nonbinding mediation has not, to date,
resulted in a settlement.
Central Garden
- --------------
The nonbinding mediation scheduled in this matter for mid-December 1995
has not, to date, resulted in a settlement. Trial is currently set for
May 1996.
19
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. These exhibits are numbered in accordance with
the Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
---------- -----------------------------------------
10(ii) 1. Amended and Restated Shareholders'
Agreement between Corning Incorporated,
the registrant, IT Corporation and
Quanterra Incorporated, dated January 1,
1996.
2. Form of Amended and Restated Equity
Investors' Undertaking, dated January 19,
1996, from the Equity Investors in favor
of Quanterra Incorporated, Citibank, N.A.,
and Citicorp USA, Inc.
3. Agreement, dated January 19, 1996,
related to the ownership of IT
Corporation, Corning Clinical Laboratories
Inc., and Corning Incorporated in
Quanterra Incorporated.
27 1. Financial Data Schedule for the
quarter ended December 29, 1995.
(b) Reports on Form 8-K.
Current report on Form 8-K, dated November 6, 1995,
reporting under Item 5, "Other Events," related to a
press release, dated October 25, 1995, announcing
completion of the Company's $125,000,000 refinancing.
20
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
SIGNATURE
Pursuant to the requirements 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.
INTERNATIONAL TECHNOLOGY CORPORATION
(Registrant)
ANTHONY J. DELUCA February 12, 1996
- -------------------------------------- -----------------
Anthony J. DeLuca
Senior Vice President, Chief Financial Officer
and Duly Authorized Officer
21
<PAGE>
EXHIBIT 10(ii) 1.
----------------
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
--------------------------------------------
AGREEMENT, dated as of January 1, 1996, among Corning Incorporated,
a New York corporation ("Corning"), International Technology
Corporation, a Delaware corporation ("ITX"), IT Corporation, a
California corporation ("IT") ("ITX and IT being collectively referred
to as "ITC") and Quanterra Incorporated, a Delaware corporation (the
"Company").
WHEREAS, pursuant to an Asset Transfer Agreement dated as of May 2,
1994, among MetPath Inc., a subsidiary of Corning now known as Corning
Clinical Laboratories Inc. ("MetPath"), ITX and IT, as amended as of
June 25, 1994, on June 28, 1994, MetPath transferred to the Company its
entire Enseco Division and IT transferred to the Company its entire
Analytical Services Division.
WHEREAS, as a result of certain transactions being effected as of
the date hereof, as of the date hereof, Corning owns 4,860 shares of the
Company's Class A Common, or 81% of the outstanding capital stock of the
Company, and IT owns 1,140 shares of the Company's Class B Common Stock,
or 19% of the outstanding capital stock of the Company, in each case
treating the Class A Common Stock and Class B Common Stock as one class.
WHEREAS each of Corning 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 the Company and its Affiliates.
NOW, THEREFORE, in consideration of the mutual promises and
covenants 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,
1
<PAGE>
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. Analytical Services Business. The term "Analytical
Services
Business" shall mean the business of providing environmental testing
services involving quantitative and qualitative analysis of chemicals
and other pollutants and directly related services, including providing
environmental management services that are incidental to any
environmental testing services that are provided to a client.
1.03. Environmental Business. The term "Environmental
Business shall mean the environmental management business, including
environmental consulting, engineering, construction and remediation
services, conducted by ITC as of the date of this Agreement .
1.04. Exchange Price. The term "Exchange Price" shall
have the meaning set forth in Section 5.01.
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). Corning 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 ITC is not prohibited from pursuing such businesses/work.
1.06. Group. The term "Group" shall mean ITX and its
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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, Corning Clinical Laboratories Inc. (the "Corning Group") on
the other hand.
1.07. Investor. The term "Investor" shall mean IT or
Corning or any permitted assignee of IT or Corning under Section 6.03.
1.08. ITC Director. The term "ITC Director" shall have
the meaning set forth in Section 2.01.
1.09. Preferred Stock. The term "Preferred Stock" shall
mean Cumulative Preferred Stock of the Company having the rights set
forth in Exhibit A hereto.
1.10. Shareholder. The term "Shareholder" shall mean a
holder of record of shares of common or preferred stock of the Company.
ARTICLE II - MANAGEMENT
----------
2.01. Board of Directors. As of the date of this
Agreement, the Board of Directors of the Company consists of five
members, one of whom (i.e., Anthony DeLuca) has been nominated by IT and
four members (i.e., David Duke, Robert Ecklin, James Flaws and James
Kaiser) have been nominated by Corning. As long as ITC beneficially owns
not less than 10% of the outstanding common stock of the Company and has
not defaulted with respect to its obligations under Section 4.01,
Corning agrees to vote any shares of the Company held by it to elect, as
a Director of the Company, a person (or, if there are nine or more
directors of the Company, two persons) nominated from time to time by
ITC (each being a "ITC Director"). Corning 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 a ITC Director shall also govern with respect
to the removal of such director and to the filling of any vacancies
among directors whenever and for whatever reason occurring, so that
Corning agrees, subject to the conditions set forth in the second
sentence of this Section 2.01, at the request of ITC, to remove the
existing ITC Director(s) and to elect a new designee of ITC to serve as
the ITC Director(s).
2.02 Super-Majority Vote; Waiver of Appraisal Rights.
Each Investor agrees that, provided that no Investor shall have
defaulted with respect to its obligations under Section 4.01, the
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approval of the Shareholders holding at least 90% of the outstanding
shares of common stock of the Company, considered as one class, shall be
required for any transaction effected prior to January 1, 1997 that
involves (a) a merger or consolidation of the Company (other than a
merger permitted to be made under Delaware General Corporation Law
without the vote of the stockholders of the Company) or (b) a sale,
lease or exchange of all or substantially all of the assets of the
Company, or (c) a dissolution of the Company. Each Investor further
agrees that no transaction described in clause (a), (b) or (c) of the
preceding sentence may be effected during 1997 unless (a) the Company
has received an opinion from an investing banking firm of nationally
recognized standing to the effect that the consideration to be received
by the Shareholders in connection with the transaction is fair, from a
financial point of view, to all Shareholders or (b) during calendar 1996
the Company has incurred an operating margin loss (presented on a basis
consistent with calendar 1995) equal to or greater than its operating
margin loss during calendar 1995. Each Investor hereby waives any
rights that it may have under Section 262 of the Delaware General
Corporation Law.
2.03 Amendment of Certificate of Incorporation and Bylaws.
The Investors agree that, to the extent and only to the extent required
by the Delaware General Corporation Law, the Class B Common Stock shall
be entitled to vote as a separate class with respect to any amendment of
the certificate of incorporation of the Company. CCL agrees that, as
long as ITC beneficially owns not less than 10% of the outstanding
common stock of the Company and has not defaulted with respect to its
obligations under Section 4.01, the Corning Group shall not approve any
amendment of the bylaws of the Company that would have the effect of
increasing the percentage of common stock of the Company entitled to
call a special meeting of the stockholders of the Company.
ARTICLE III - OPERATIONAL PROVISIONS
----------------------
3.01. Environmental Business. The Investors agree that the
Company shall not, directly or indirectly through any subsidiaries,
conduct any Environmental Business. Nothing contained in this Section
3.01 shall prohibit or otherwise restrict (a) the Company from
conducting any business that is within the Field of Activity or that is
outside the Environmental Business; or (b) the Company from conducting
a business within the Environmental Business that is acquired (whether
for stock, assets or otherwise) after January 1, 1996 provided that (1)
the revenues of such business from the Environmental Business (other
than within the Field of Activity) during the twelve months immediately
preceding the date of acquisition are less than 25% of the revenues of
the acquired business during such period and (2) the revenues of such
business from the Environmental Business (other than the Field of
Activity) after the date of acquisition do not exceed in any calendar
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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; or (c) Corning or any Affiliates of Corning
other than the Company and the Company's subsidiaries from conducting
any Environmental Business.
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;
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(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. 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 unrelated third-party customers or suppliers. 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 - ADDITIONAL CAPITAL
------------------
4.01 Mandatory Contributions. To the extent that the
Board of Directors determines that the Company requires working capital
in addition to any borrowing facility with third parties, each of the
Investors agrees from time to time to contribute to the Company, upon
not less than fifteen business days notice, such funds as shall be
required in proportion to the respective ownership of the Company's
Common Stock then held by such Investor or its assignee. In no event
shall Corning be required to contribute more than $10,658,000 under this
Section 4.01 or shall ITC be required to contribute more than $2,500,000
under this Section 4.01. The Board of Directors 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 $3,333.33 required
to be contributed under this Section 4.01 (or, if less, the per share
book value reflected in the most recent balance sheet of the Company
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that has been prepared as of the date of the contribution). No
contributions shall be required to be made under this Section 4.01 with
respect to any Preferred Stock held by any Investor.
4.02 Additional Contributions. In the event that the
Board of Directors determines that the Company requires additional
equity capital in excess of the aggregate amount of $13,158,000 required
under Section 4.01, the Board of Directors shall determine the terms
upon which additional contributions are to be sought. The proposed
offering price shall be the then fair market value of the equity
securities proposed to be issued as reasonably determined by the Board
of Directors. Each Investor shall have the pre-emptive right, upon such
terms and conditions as is established by the Board of Directors, to
purchase up to its pro rata share of any capital stock proposed to be
issued by the Company, except that any common stock issued to the
Corning Group shall be Class A Common Stock and any common stock issued
to the IT Group shall be Class B Common Stock. For this purpose, pro
rata shall mean the Investor's proportionate share of the outstanding
Common Stock of the Company then owned by the Investor provided,
however, that in the event that any preferred stock of the Company has
been issued and is proposed to be issued in the offering, pro rata shall
mean the Investor's proportionate share of the outstanding preferred
stock of the Company then owned by the Investor. No Investor shall have
any pre-emptive right to purchase any Common Stock of the Company by
reason of any Preferred Stock held by the Investor. An Investor's
right to purchase capital stock under this Section 4.02 shall be
forfeited if the Investor does not pay the proposed offering price in
cash, and execute such other documents as the Board of Directors shall
reasonably require, at such time as shall be designated by the Board of
Directors, but in no event on less than thirty business days notice.
ARTICLE V - EXCHANGE OF CLASS B COMMON STOCK
--------------------------------
5.01 Valuation Procedure. At any time on or after the second
anniversary of the date of this Agreement and not later than the seventh
anniversary of the date of this Agreement, Corning shall have the right
to appoint an investment banking firm to determine the fair market value
of the Company taken as a whole. At any time on or after the date six
months prior to the seventh anniversary of the date of this Agreement
(but in no event later than the seventh anniversary of the date of this
Agreement), provided that Corning has not previously elected to exchange
the Class B Common Stock under Section 5.03, IT shall have the right to
appoint an investment banking firm to determine the fair market value of
the Company taken as a whole. Any 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
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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. Such valuation shall be become effective for
purposes of Sections 5.03 and 5.04 unless either Shareholder objects to
the valuation in writing not less than five business days after
receiving the notice. In the event any or both Investors objects to the
valuation, the objecting Investor(s) shall have the right to appoint an
additional investment banking firm to determine the fair market value of
the Company taken as a whole. Promptly upon the determination by any
additional investment banking firm(s) of the fair market value of the
Company, the Board of Director shall give notice thereof by telecopy
confirmed in writing to each Shareholder. Such notice shall set forth
the average of the fair market values of the Company determined by the
investment banking firm and each additional investment banking firm and,
based on such averages, shall set forth the fair market value per share
of Common Stock. Such average valuation shall become effective for
purposes of Sections 5.03 and 5.04 unless either Investor objects to
the average valuation not less than five business days after receiving
the notice. Notwithstanding the foregoing, a party shall not have the
right to object to any average valuation (or to seek the appointment of
an additional investment banking firm) if an additional investment
banking firm has previously been appointed under this Section 5.01 at
its request, so that a maximum of three investment banking firms
(including the initial investment banking firm) can be appointed at any
one time under this Section 5.01. In the event that an Investor objects
(and is permitted under the preceding sentence to object) to the average
valuation, the objecting Investor shall appoint an additional investment
banking firm to determine the fair market value of the Company taken as
a whole. Promptly upon the determination by such additional investment
banking firm of the fair market value of the Company, the Board of
Directors shall give notice thereof by telecopy confirmed in writing to
each Shareholder. Such notice shall set forth the average of the fair
market values of the Company determined by the investment banking firm
and each additional investment banking firm and, based on such averages,
shall set forth the fair market value per share of Common Stock. Such
average valuation shall become effective for purposes of Sections 5.03
and 5.04, regardless of whether any Shareholder objects thereto. The
"Exchange Price" shall mean the fair market value of each share of
common stock of the Company as determined under this Section 5.01. Each
share of Class B Common Stock shall have the same value as each share of
Class A Common Stock.
5.02 Investment Banking Firm. Each investment banking
firm appointed under Section 5.01 shall be a U.S. investment banking
firm of nationally recognized standing. The identity of each investment
banking firm shall be subject to the approval of the non-appointing
Investor, which approval shall not be unreasonably withheld or delayed.
If the Investors are 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. The fees and expenses of
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any investment banking firm shall be paid by the Investor requesting the
appointment of such investment banking firm. The Company shall provide
such assistance as is reasonably requested by any investment banking
firm appointed under this Agreement, including without limitation by
providing historical financial statements and projections.
5.03 Exchange of Class B Common Stock. By notice delivered at
any time (but in no event prior to July 1, 1998) within the period
ending one month after the determination of the Exchange Price under
Section 5.01, the Company shall have the right to exchange all (and not
less than all) of the outstanding Class B Common Stock for Preferred
Stock on a share for share basis. In such event, the Company shall
amend its certificate of incorporation as provided in Exhibit A hereto
and the initial Liquidation Valuation of the Preferred Stock (before
giving effect to any increase by reason of any unpaid and accrued
dividends) shall be the Exchange Price. The closing shall be held at
the principal executive office of the Company upon such business day as
is set forth in the notice, which shall be not less than five business
days and not more than ten business days after the notice is given. At
the closing the holder of the Class B Common Stock shall surrender all
outstanding stock certificates representing Class B Common Stock issued
to such holder, a stock power to the Company executed by the record
holder and such other documents as the Company shall reasonably request
and the Company shall deliver to the holder a stock certificate for the
number of shares of Preferred Stock to which such holder is entitled,
registered in the name of such holder. All such shares of Preferred
Stock shall be held for investment and not with a view to distribution
of such shares. Notwithstanding the foregoing, at any closing
occurring on and after the fifth anniversary of this Agreement, the
Company shall have the option to deliver to the holder, in lieu of
Preferred Stock, cash in an amount equal to the aggregate Exchange Price
of the Class B Common Stock being sold by such holder. The valuation
procedure under Section 5.01 may be re-invoked by Corning if it does not
timely elect to exchange the Class B Common Stock under this Section
5.03 after the Exchange Price has been determined provided that in such
event, notwithstanding the provisions of Section 5.02, Corning shall be
responsible for the fees and expenses of all the investment banking
firms. ITC waives any rights it may have to assert that any exchange
effected pursuant to this Section 5.03 may involve a breach of fiduciary
duty owing by the Company or Corning to ITC as a minority investor.
5.04 Sale of Class B Common Stock. By notice delivered
at any time (but in no event prior to the seventh anniversary of this
Agreement) within the period ending one month after the determination
of the Exchange Price under Section 5.01 (or, if later, the seventh
anniversary of this Agreement), IT shall have the right to sell to the
Company all (and not less than all) of the outstanding Class B Common
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Stock for cash equal to the aggregate Exchange Price of all the Class B
Common Stock held by the ITC Group. The closing shall be held at the
principal executive office of the Company upon such business day as is
set forth in the notice, which shall be not less than five business days
and not more than ten business days after the notice is given (or, if
later, the seventh anniversary of the date of this Agreement). At the
closing the holder of the Class B Common Stock shall surrender all
outstanding stock certificates representing Class B Common Stock issued
to such holder, a stock power to the Company executed by the record
holder and such other documents as the Company shall reasonably request
and the Company shall deliver to the holder in cash the Exchange Price
for each share of Class B Common Stock surrendered by such holder.
ARTICLE VI - SALE OR TRANSFER OF SHARES
--------------------------
6.01. No Sale or Transfer for Two 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 two years beginning on the date of this Agreement.
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 two years from the date
hereof, any Shareholder in one Group shall desire to sell all or a part
of its shares of capital stock of the Company (whether Common Stock,
Preferred Stock or otherwise), 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
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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 Corning
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 Legends. Each Investor agrees to cause all stock
certificates representing shares of capital stock of the Company shall
bear the following legend: "The shares represented by this stock
certificate are subject to restrictions on transfer and voting and to a
put and call, all as set forth in the Amended and Restated Shareholders'
Agreement dated as of January 1, 1996 among Corning Incorporated,
International Technology Corporation, IT Corporation and Quanterra
Incorporated."
ARTICLE VII - REFERRAL AND SERVICING OF BUSINESS
----------------------------------
7.01. Use of Company's Services. During the term of this
Agreement and for a period of one year following the termination of
this Agreement, ITX shall use all reasonable efforts, consistent with
its past practice, and government procurement regulations, 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. During the term of this
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Agreement and for a period of one year following the termination of this
Agreement, the Company shall likewise use all reasonable efforts to
maintain sufficient capacity to process all samples originating from ITC
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 ITC shall reasonably
request in connection with ITC's efforts to utilize and refer business
to, the Company's laboratories.
7.03 Payment for Services. ITC agrees to pay the Company, no
later than sixty days after the date of an invoice, for all
environmental testing services ordered by or on behalf of ITC and
performed by the Company. Nothing contained in this Section 7.03 shall
prejudice any right ITC may have not to pay for any services that have
not been satisfactorily performed.
7.04 Sharing of Knowledge. During the term of this Agreement
and for a period of one year following the termination of this
Agreement, ITC shall share with the Company and Corning such knowledge
of ITC of the environmental industry as the Company or Corning may
request from time to time, provided however, that nothing contained in
this Section 7.04 shall require ITC to share any knowledge as would
violate law or any agreement to which ITC shall be a party or to share
any pricing information in any area in which ITC may be in competition
with the Company or Corning or is otherwise, in the opinion of ITC's
counsel, inappropriate.
ARTICLE VIII - NON-COMPETITION
---------------
8.01. Non-Competition. During the term of this Agreement
and for a period of five years following the termination of this
Agreement, Corning 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
the environmental management business (including environmental
consulting, engineering (including pollution control engineering),
construction and remediation services), which business and services will
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not be deemed to violate the provisions of this Section 8.01 as long as
they do not fall within the Field of Activity. Notwithstanding the
foregoing, (a) Corning'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 Corning 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)
such time as one of the Investors no longer owns any equity securities
of the Company, whether Class A Common Stock, Class B Common Stock or
Preferred Stock. Notwithstanding the immediately preceding sentence,
(a) the provisions of Article V shall survive the termination of this
Agreement and (b) the members of either Group, so long as they continue
to own at least 10% in aggregate of the shares of Common Stock or all of
the outstanding Preferred Stock, or the assignee of either Group or the
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purchaser of substantially all of the assets of the Company shall
continue to have the right, provided that they have not defaulted with
respect to their obligations under Section 4.01, to enforce the
provisions of Articles VII and VIII with respect to the Company and the
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.
ARTICLE X - MISCELLANEOUS
-------------
10.01. Assignment on Written Consent. This Agreement shall
be binding upon and inure to the benefit of the Company, 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
14
<PAGE>
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 interest rate
announced from time to time by Citibank, N.A. as its base 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 Corning: Corning Incorporated
MP-HQ-E2-21
Corning, NY 14831
Attention: Secretary
Telecopy: 607-974-6135
15
<PAGE>
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 the Company: 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 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.
16
<PAGE>
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
convening 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, together with the
letter agreement dated January 19, 1996 among Corning, Corning Clinical
Laboratories Inc., IT, ITX and the Company, 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, including without
limitation, the Shareholders' Agreement dated as of June 28, 1994 among
MetPath, ITX, IT and the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first above written.
CORNING INCORPORATED
By_____________________________
17
<PAGE>
IT CORPORATION
By______________________________
INTERNATIONAL TECHNOLOGY
CORPORATION
By______________________________
QUANTERRA INCORPORATED
By______________________________
18
<PAGE>
EXHIBIT 10(ii) 2.
-----------------
EXHIBIT E TO THE AMENDED
AND RESTATED CREDIT
AGREEMENT
====================================================================
FORM OF AMENDED AND RESTATED EQUITY INVESTORS' UNDERTAKING
Dated January 19, 1996
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
SECTION 1. No Liens, Etc . . . . . . . . . . . . . . . . . 1
SECTION 2. Indemnification, Etc. . . . . . . . . . . . . . 2
SECTION 3. Taxes, Etc. . . . . . . . . . . . . . . . . . . 3
SECTION 4. Obligations Absolute. . . . . . . . . . . . . . 3
SECTION 5. Waivers and Acknowledgments . . . . . . . . . . 4
SECTION 6. Separate Undertakings . . . . . . . . . . . . . 5
SECTION 7. Representations and Warranties. . . . . . . . . 6
SECTION 8. Notice and Defense of Claims. . . . . . . . . . 8
SECTION 9. Consent to Assignment by the Borrower . . . . . 9
SECTION 10. Survival of Obligations . . . . . . . . . . . . 9
SECTION 11. Expenses. . . . . . . . . . . . . . . . . . . . 9
SECTION 12. Amendments; Waivers; Etc. . . . . . . . . . . . 10
SECTION 13. Notices, Etc. . . . . . . . . . . . . . . . . . 10
SECTION 14. Continuing Agreement; Assignments
Under the Credit Agreement. . . . . . . . . . . 10
SECTION 15. Execution in Counterparts . . . . . . . . . . . 11
SECTION 16. Severability. . . . . . . . . . . . . . . . . . 11
SECTION 17. Governing Law; Submission to Jurisdiction, Etc. 11
SCHEDULE
Schedule I - Borrower's Common Stock
EXHIBITS
Exhibit A - Form of Undertaking Supplement
<PAGE>
EXECUTION COPY
====================================================================
AMENDED AND RESTATED EQUITY INVESTORS' UNDERTAKING
Dated January 19, 1996
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>
AMENDED AND RESTATED EQUITY INVESTORS' UNDERTAKING
AMENDED AND RESTATED EQUITY INVESTORS' UNDERTAKING dated
January 19, 1996 from CORNING CLINICAL LABORATORIES INC. (formerly known
as MetPath Inc.), a Delaware corporation ("MetPath"), CORNING
INCORPORATED, a New York corporation and the indirect owner of all the
issued and outstanding shares of capital stock of MetPath ("Corning" and
together with MetPath and their Permitted Transferees, the "MetPath
Group"), INTERNATIONAL TECHNOLOGY CORPORATION, a Delaware corporation
("ITX"), and IT CORPORATION, a California corporation ("IT" and,
together with ITX, "ITC"; and ITC, together with its Permitted
Transferees, the "ITC Group") 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 the Initial Issuing Bank (as defined in the Credit
Agreement) under 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. ITC, MetPath, Corning and any Additional
Equity Investors (as defined in Section 12(c)) are hereinafter
collectively referred to as the "Equity Investors", and the MetPath
Group and the ITC Group are hereinafter collectively referred to as the
"Investor Groups".
PRELIMINARY STATEMENTS
(1) The Lenders, the Issuing Banks and the Agent have entered
into the Amended and Restated Credit Agreement dated as of January 16,
1996 (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 shares of the Borrower's Common Stock, whether now
owned or otherwise held or hereafter acquired or otherwise held, or sign
or file or suffer to exist under the Uniform Commercial Code (or any
similar legislation) of any jurisdiction a financing statement that
names such Equity Investor as debtor and includes any shares of the
Borrower's Common Stock as collateral, or sign or suffer to exist any
security agreement authorizing any secured party thereunder to file such
financing statement, except for Liens created under the Loan Documents;
or
<PAGE>
2
(b) enter into or suffer to exist any agreement prohibiting
or conditioning the creation or assumption of any Lien upon any shares
of the Borrower's Common Stock, except for any such agreement with the
Agent, the Lenders and the Issuing Banks.
SECTION 2. Indemnification, Etc. Each of the Equity
Investors (other than Corning) 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 Initial Contribution (as hereinafter defined) 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 Initial 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.
(c) that, 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 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 Section 2 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 its benefit 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 property and assets or 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).
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 (each as defined in the Asset Transfer Agreement) on any
<PAGE>
3
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 (as defined in the Asset Transfer Agreement) 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 Original 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 Original 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
Original 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 Original Credit Agreement. Furthermore, for purposes of this
Agreement, (A) the term "Initial Contribution" means the "Contribution"
as defined in the Preliminary Statements to the Original Credit
Agreement and (B) the term "Transferred Division" has the meaning
specified in Section 1.01 of the Original Credit Agreement.
SECTION 3. 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, and for the full amount of taxes imposed by any
jurisdiction on amounts payable under this Section 3, imposed on or 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) 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 4. 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 Obligations of the Loan Parties under the other Loan Documents,
and a separate action or actions may be brought and prosecuted against
each 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, unconditional and irrevocable
irrespective of, and each 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 of the Borrower
under any Loan Document, or any other amendment or waiver of or any
<PAGE>
4
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 of the Borrower 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 of the Borrower 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;
(f) any failure of the Agent, any Lender or any Issuing Bank
to disclose to any Loan Party any information relating to the financial
condition, operations, properties or prospects of any other Loan Party
now or hereafter known to Agent, Lender or Issuing Bank; or
(g) 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 or by any other Person upon the insolvency, bankruptcy
or reorganization of the Borrower or otherwise, all as though such
payment had not been made.
SECTION 5. Waivers and Acknowledgments. (a) Each Equity
Investor hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance and any other notice with respect to
this Agreement or any of the other Loan Documents and the Obligations
thereunder, 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 unconditionally and
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 to its property and/or assets now or hereafter known by the Agent,
such Lender or such Issuing Bank.
(c) Each Equity Investor hereby unconditionally and
irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising
<PAGE>
5
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 of the Equity Investors hereby unconditionally
waives any right to revoke this Agreement, and acknowledges that this
Agreement is continuing in nature and applies to all of the Obligations
of such Equity Investors under or in respect of this Agreement, whether
existing now or in the future.
(e) Each Equity Investor hereby unconditionally and
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 latest 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), (ii) the
expiration, termination or cancellation of all Letters of Credit and
(iii) 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.
(f) 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
Section 4 and in this Section 5 are knowingly made in contemplation of
such benefits.
SECTION 6. 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 the 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 have a
Material Adverse Effect or 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.
<PAGE>
6
(b) 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 7. 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, either individually or in the aggregate, 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 (A) 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 or regulation (including, without limitation,
Regulation X, G or T of the Board of Governors of the Federal Reserve
System) or (B) order, writ, judgment, injunction, decree, determination
or award;
<PAGE>
7
(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; or
(iv) except for the Liens created under this Agreement
and the other Loan Documents, 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.
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, either individually or in the aggregate, 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 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,
except as have been obtained or made and are in full force and effect.
(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, except to the extent that the
enforceability thereof may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now
or hereafter in effect relating to or affecting creditors' rights
generally.
(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 all Liens other than any Lien created under
the Loan Documents.
(f) There is no action, suit, investigation, litigation or
proceeding affecting such Equity Investor or any of its Subsidiaries, or
any of their respective properties (including any Environmental Action),
pending or threatened in any court or by or before any governmental
agency or arbitrator that (i) either individually or in the aggregate,
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(d) to the Credit
Agreement.
<PAGE>
8
SECTION 8. 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 Law with regard to the condition, ownership, occupancy,
use, operation, maintenance or transferability of any property or assets
transferred to the Borrower or any of its Subsidiaries by such Equity
Investor or any of its Subsidiaries or Affiliates on or prior to the
date of the Original Credit 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(w) 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 8(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 (other than Corning) 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 the Original
Agreement on any property transferred to the Borrower by such Equity
Investor (or by any Original Investor of such Equity Investor) in the
Initial 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 9. Consent to Assignment by the Borrower. Each
Equity Investor hereby acknowledges notice of, and consents to the terms
and provisions of, the assignment by the Borrower of all of its rights
<PAGE>
9
under this Agreement pursuant to the provisions of the Security
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 and 11 to the Agent in accordance
with the instructions of the Agent;
(b) All payments referred to in Section 9(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 10. Survival of Obligations. The agreements and
obligations of such Equity Investor contained in Sections 2, 3, 8 and 11
shall survive the payment in full of all principal, interest and other
amounts payable under or in respect of the Loan Documents.
SECTION 11. 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 11 shall expand or modify the rights of the Borrower under
the Asset Transfer Agreement.
SECTION 12. 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) reduce or 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 or the percentage of Commitments that shall be required to
take action hereunder or (v) amend this Section 12.
(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 each case 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 or in
<PAGE>
10
any other Loan Document to an "Additional Equity Investor" or a "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 13. 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. 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 14. Continuing Agreement; Assignments Under the
Credit Agreement. This Agreement is a continuing agreement and shall
(a) remain in full force and effect until the latest 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), (ii) the expiration, termination
or cancellation of all Letters of Credit and (iii) 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 clause (c) of the
immediately preceding sentence, 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, the Advances owing to it and any
Note 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 15. 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 16. 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 17. 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.
<PAGE>
11
(b) Each of the Equity Investors hereby irrevocably and
unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York state court or any federal
court of the United States of America sitting in New York City, and any
appellate court from any thereof, for any action or proceeding arising
out of or relating to this Agreement or any of the other Loan Documents
to which it is a party, or for recognition or enforcement of any
judgment, 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 law, in such federal court. Each of the
parties hereto 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. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this
Agreement or any of the other Loan Documents in the courts of any
jurisdiction.
(c) Each of the Equity Investors hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which
it is a party in any New York State or federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
<PAGE>
12
(d) 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.
(e) 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.
CORNING CLINICAL LABORATORIES
By_____________________________
Name:
Title:
Address:
CORNING INCORPORATED
By_____________________________
Name:
Title:
Address:
INTERNATIONAL TECHNOLOGY
CORPORATION
By_____________________________
Name:
Title:
Address:
<PAGE>
13
IT CORPORATION
By_____________________________
Name:
Title:
Address:
Agreed to and accepted as of
the date first above written:
QUANTERRA INCORPORATED
By ___________________________
Name:
Title:
CITICORP USA, INC., as Agent
for itself and on behalf of the
Lenders and the Issuing Banks
By ___________________________
Name:
Title:
<PAGE>
SCHEDULE I TO THE
AMENDED AND RESTATED EQUITY INVESTORS' UNDERTAKING
BORROWER'S COMMON STOCK
<TABLE>
<CAPTION>
Number of
Form of Shares, or of Warrants
Percentage of Issued and
Ownership Rights or Options to
Outstanding Shares of
Equity Investor Class of Stock Interest* Acquire Shares
Issuer
- --------------- -------------- --------- ----------------------
- -------------------------
<S> <C> <C> <C>
<C>
Corning
Incorporated A Common 4,860
81%
Stock
IT Corporation B Common 1,140
19%
Stock
</TABLE>
__________________
* "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
AMENDED AND RESTATED 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
Amended and Restated
Equity Investors' Undertaking dated
January 19, 1996 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 the Initial
Issuing Bank thereunder, and Citicorp USA, Inc., as Agent thereunder
- --------------------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the above-captioned Amended and Restated
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 or in any other Loan
Document to an "Additional Equity Investor" or 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, as
of the date first above written, 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.
The undersigned hereby makes each representation and warranty
set forth in Section 7 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 Undertaking Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
2
The undersigned hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction
of any New York state court or any federal court of the United States of
America sitting in New York City, New York, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to
this Undertaking Supplement or any of the other Loan Documents to which
it is a party, or for recognition or enforcement of any judgment, and
the undersigned 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 fullest extent
permitted by law, in such federal court. The undersigned hereby 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. Nothing in this
Undertaking Supplement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this
Undertaking Supplement or to any of the other Loan Documents to which it
is a party in the courts of any jurisdiction.
The undersigned irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any action, suit
or proceeding arising out of or relating to this Undertaking Supplement
or to any of the other Loan Documents to which it is a party in any New
York state or any federal court. The undersigned hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in
any such court.
The undersigned 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 the undersigned at the address set forth below
its name on the signature pages hereof , or by any other method
permitted by law.
To the extent that the undersigned 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, it hereby irrevocably waives such
immunity in respect of its Obligations under this Undertaking Supplement
and any other Loan Document to which it is a party.
The undersigned 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 any of the
Loan Documents, the transactions contemplated thereby or the actions of
any Agent or any other Secured Party in the negotiation, administration,
performance or enforcement thereof.
Very truly yours,
[NAME OF ADDITIONAL EQUITY
INVESTOR]
By: _________________________________
Name:
Title:
Address:
<PAGE>
EXHIBIT 10(ii) 3.
-----------------
January 19, 1996
International Technology Corporation
and
IT Corporation
23456 Hawthorne Boulevard
Torrance, CA 90505
Attention: Anthony J. DeLuca
Quanterra Incorporated
5251 DTC Parkway
Suite 415
Englewood, CO 80111
Attention: William McCowan
Dear Sir:
This letter will confirm certain agreements related to the
ownership of IT Corporation ("IT"), Corning Clinical Laboratories Inc.
(formerly known as MetPath Inc. ("MetPath")), and Corning Incorporated
("Corning") in Quanterra Incorporated ("the Company"). Immediately
prior to the execution of this Agreement, the Company had authorized
1,500 shares of Class A Common Stock, of which 1278 shares were
outstanding, with 1056 shares held of record by MetPath, and 222 shares
held by Corning, which indirectly owns all of the outstanding capital
stock of MetPath; and 1,500 shares of Class B Common Stock, of which
1278 shares were outstanding, all of which were held by IT.
1. Simultaneously with the execution of this Agreement, each of IT
and Corning has contributed to the Company $2.5 million in cash,
representing the final amount due under Section 2 of the Equity
Investors' Undertaking dated June 28, 1994, as amended as of June 28,
1995 (the "Equity Investors' Undertaking"), among MetPath, ITX , IT,
the Company and Citicorp USA Inc., as Agent for itself and on behalf of
the Lenders and the Issuing Banks under the Credit Agreement dated as of
June 28, 1994 (the "Credit Agreement"), among the Company, the Lenders,
the Issuing Bank and Citicorp USA Inc., as amended as of June 28, 1995.
In consideration therefor, the Company has issued to Corning a stock
certificate (no. 3) representing 222 shares of Class A Common Stock and
has issued to IT a stock certificate (no. 3) representing 222 shares of
Class B Common Stock.
<PAGE>
2. Simultaneously with the execution of this Agreement, the
Company has amended its certificate of incorporation as set forth in
Exhibit A hereto and its bylaws as set forth in Exhibit B hereto. By
execution of this Agreement, IT, MetPath and Corning hereby approve the
amendment of the certificate of incorporation and bylaws as set forth in
Exhibits A and B, respectively. The unanimous written consent of the
Board of Directors and the shareholders approving the amendment of the
certificate of incorporation and bylaws of the Company as contemplated
by this paragraph 2 and the other transactions contemplated by this
Agreement is set forth in Exhibit C hereto. As a result of the
amendment of the certificate of incorporation contemplated by this
paragraph 2, the Company has authorized 9,000 shares of Class A Common
Stock and 3,000 shares of Class B Common Stock.
3. Simultaneously with the execution of this Agreement, Corning
has contributed to the Company $20 million in cash. In consideration
therefor, the Company has issued to Corning a stock certificate (no. 4)
representing 3,000 shares of Class A Common Stock.
4. Simultaneously with the execution of this Agreement, with the
$25 million in cash proceeds received pursuant to this Agreement, the
Company has repaid $25 million in Term Notes under the Credit Agreement
and the Credit Agreement has been amended and restated. As a result,
the Company has repaid in full all Term Notes issued under the Credit
Agreement.
5. Simultaneously with the execution of this Agreement, MetPath
has delivered to IT (a) a certificate (NYU 4441) representing 333,000
shares of Common Stock of ITX registered in the name of MetPath, (b) a
warrant (No. 1) registered in the name of MetPath entitling the holder,
subject to certain anti-dilution adjustments, to purchase 2,000,000
shares of Common Stock of ITX for $5 per share on or prior to June 27,
1999, and (c) a stock power executed by MetPath transferring the
certificate and warrant referred to in this sentence to IT. MetPath
represents that it has good title to said certificate and warrant, free
and clear of all claims, liens, charges and encumbrances of any nature
whatsoever. In consideration therefor, IT has transferred to MetPath
360 shares of Class B Common Stock of the Company. The parties agree
that the shares being sold by IT include the 138 of the 222 shares of
Class B Common Stock being purchased as of the date hereof by IT
(represented by certificate number 3) and the 222 shares of Class B
Common Stock purchased by IT in October, 1995 from Corning (represented
by certificate number 2). IT has delivered to MetPath the two
certificates referred to in the preceding sentence together with a stock
power executed by IT transferring to MetPath 360 shares represented by
such certificates. IT represents that it has good title to said
certificates, free and clear of all claims, liens, charges and
encumbrances of any kind whatsoever.
6. Simultaneously with the execution of this Agreement, MetPath has
<PAGE>
delivered to the Company the Company stock certificates and stock powers
referred to in paragraph 5, together with a stock power executed by
MetPath transferring the 360 shares of Class B Common Stock to Corning
and a stock power executed by Corning transferring the 360 shares of
Class B Common Stock to the Company. In consideration therefor, the
Company has delivered to Corning a stock certificate (no. 5)
representing 360 shares of Class A Common Stock of the Company
registered in the name of Corning. Simultaneously with the execution of
this Agreement, MetPath has delivered to the Company a stock certificate
(no. 1 ) representing 1,056 shares of Class A Common Stock of the
Company, together with a stock power executed by MetPath transferring
the certificate to Corning and the Company has delivered to Corning a
certificate (no. 6) for such 1,056 shares of Class A Common Stock
registered in the name of Corning.
7. As a result of the stock issuances and transfers provided in
the preceding paragraph, as of the date hereof, after giving effect to
such stock issuances and transfers, Corning owns 4,860 shares of Class A
Common Stock, or 81% of the outstanding common stock of the Company, and
ITX owns 1,140 shares of Class B Common Stock, or 19% of the outstanding
common stock of the Company, in each case treating the Class A Common
Stock and Class B Common Stock as one class.
8. By execution of this Agreement, the parties agree that the
Securities Acquisition Agreement dated as of May 2, 1994 between IT and
MetPath is hereby terminated.
9. Simultaneously with the execution of this Agreement, Corning,
ITX, IT and the Company have executed an amended and restated
Shareholders' Agreement as set forth in Exhibit D hereto and Robert Sheh
and James Mahoney have resigned as directors of the Company.
10. Simultaneously with the execution of this Agreement, Corning
and the Company have executed a Tax Sharing Agreement as set forth in
Exhibit E hereto.
11. Except as expressly set forth in this Agreement, nothing
contained in this Agreement shall be deemed to amend the Asset Transfer
Agreement dated as of May 2, 1994 among MetPath, ITX and IT, as amended
as of June 25, 1994 (the "Asset Transfer Agreement"), or the other
documents delivered at the closing thereunder, or to relieve any party
thereto to any obligation set forth in the Asset Transfer Agreement or
such other documents, including without limitation, Sections 12(b) and
12(c) of the Asset Transfer Agreement.
12. Each of Corning and IT represents, to each other and the
Company, that it is acquiring the shares of Common Stock being issued to
it pursuant to this Agreement for investment purposes only and not with
a present view toward the sale or distribution of such shares. The
<PAGE>
Company represents to Corning and IT that, except as contemplated by
this Agreement, (a) no shares of capital stock of the Company have been
issued and there are not outstanding options, contracts, calls,
commitments or demands of any character relating to any shares of
capital stock of the Company and (b) the shares of Common Stock of the
Company issued pursuant to this Agreement are validly issued, fully paid
and nonassessable.
13. Section 18 of the Asset Transfer Agreement is incorporated
herein by reference.
14. The parties agree that for tax and accounting purposes the
transactions provided for by this letter agreement shall be deemed to
have occurred at 12:01 A.M. on January 1, 1996.
Please indicate your agreement with the above by executing a copy
of this letter agreement where indicated below.
<PAGE>
Very truly yours,
CORNING INCORPORATED
By___________________________
James Flaws
Assistant Treasurer
Agreed:
INTERNATIONAL TECHNOLOGY CORPORATION
By__________________________
Anthony DeLuca
Senior Vice President
IT CORPORATION
By__________________________
Anthony DeLuca
Senior Vice President
CORNING CLINICAL LABORATORIES INC.
By__________________________
James Flaws
Treasurer
QUANTERRA INCORPORATED
By__________________________
William McCowan
Vice President
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the Company's
Condensed Consolidated Balance Sheet as of December 29, 1995, and its Condensed
Consolidated Statement of Operations for the Third Fiscal Quarter Ended December
29, 1995, which were filed with the SEC on February 12, 1996 on Form 10-Q for
the quarter ended December 29, 1995 (commission file number 1-9037) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-29-1995
<CASH> 24,127
<SECURITIES> 0
<RECEIVABLES> 140,031
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 182,665
<PP&E> 156,238
<DEPRECIATION> 98,385
<TOTAL-ASSETS> 329,633
<CURRENT-LIABILITIES> 93,223
<BONDS> 65,052
<COMMON> 35,764
0
2,400
<OTHER-SE> 102,385
<TOTAL-LIABILITY-AND-EQUITY> 329,633
<SALES> 0
<TOTAL-REVENUES> 104,912
<CGS> 0
<TOTAL-COSTS> 99,283
<OTHER-EXPENSES> 24,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,529
<INCOME-PRETAX> (20,495)
<INCOME-TAX> (15,808)
<INCOME-CONTINUING> (4,687)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,687)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> 0
</TABLE>
