SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 1996
OR
__ TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number 1-9037
International Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 33-0001212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23456 Hawthorne Boulevard, Torrance, California 90505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 378-9933
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
------------------- ------------------------------
Common Stock, $1.00 Par Value New York Stock Exchange; Pacific
Stock Exchange
Preferred Stock Depositary Shares New York Stock Exchange; Pacific
Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ...X.... No ........
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at June 14, 1996, was approximately
$102,190,000 (based upon the closing sale price of its common stock on the
New York Stock Exchange as reported by The Wall Street Journal on such
date.)
At June 14, 1996 the registrant had issued and outstanding an aggregate of
36,602,401 shares of its common stock, including 61,726 shares held in
treasury.
Documents Incorporated by Reference
Certain information included in the registrant's definitive proxy statement
to be filed with the Securities and Exchange Commission for the Annual
Meeting of Stockholders of the registrant to be held on September 5, 1996
is incorporated by reference into Part III hereof.
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 29, 1996
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . . 2
General. . . . . . . . . . . . . . . . . . . . . . . . . 2
Background . . . . . . . . . . . . . . . . . . . . . . . 3
Operations . . . . . . . . . . . . . . . . . . . . . . . 3
General. . . . . . . . . . . . . . . . . . . . . . . . 3
Consulting, Engineering and Design . . . . . . . . . . 4
Remediation. . . . . . . . . . . . . . . . . . . . . . 4
International. . . . . . . . . . . . . . . . . . . . . 5
Customers. . . . . . . . . . . . . . . . . . . . . . . 5
Competition. . . . . . . . . . . . . . . . . . . . . . 6
Technology Development . . . . . . . . . . . . . . . . 7
Quanterra. . . . . . . . . . . . . . . . . . . . . . . 7
Regulations. . . . . . . . . . . . . . . . . . . . . . 8
Environmental Contractor Risks . . . . . . . . . . . . 10
Insurance and Risk Management . . . . . . . . . . . . 11
Discontinued Operations. . . . . . . . . . . . . . . . . 11
Employees. . . . . . . . . . . . . . . . . . . . . . . . 12
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . 12
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 12
4 Submission of Matters to a Vote of Shareholders. . . . . . 12
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4A Executive Officers of the Company. . . . . . . . . . . . . 12
PART II
5 Market for the Registrant's Common Stock and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . 14
6 Selected Financial Data . . . . . . . . . . . . . . . . . . 15
7 Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . 15
8 Financial Statements and Supplementary Data . . . . . . . . 23
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 47
PART III
10 Directors and Executive Officers of the Registrant. . . . . 47
11 Executive Compensation. . . . . . . . . . . . . . . . . . . 47
12 Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 47
13 Certain Relationships and Related Transactions. . . . . . . 47
PART IV
14 Exhibits, Financial Statement Schedule and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 48
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PART I
ITEM 1. BUSINESS.
GENERAL
International Technology Corporation, a Delaware corporation (the
Company or IT), provides a wide range of environmental management services
and technologies including the assessment, decontamination, and remediation
of situations involving hazardous materials and pollution prevention and
minimization. The Company was incorporated in 1983; the earliest
antecedent of the Company commenced operations in California in 1926.
The Company's services are provided to a broad array of governmental
and commercial entities predominantly in the U.S. market. Additionally,
the Company pursues selected international business opportunities on a
project-specific basis. The Company's business strategy is to provide its
environmental services on a full-service basis, particularly by focusing
on its capabilities to manage complex environmental issues from the initial
assessment of the level and extent of contamination through the design,
engineering and execution of a solution which minimizes the client's total
cost. In recent years, the Company has worked on several hundred Superfund
sites for various governmental and commercial clients. The success of the
Company in developing its capabilities is demonstrated by IT's designation
by Engineering News-Record as the largest hazardous waste design firm for
each of the last seven years.
Demand for the Company's services is heavily influenced by the level
of enforcement of environmental laws and regulations, funding levels for
government projects and spending patterns of commercial clients. Over the
last several years, spending by commercial clients has slowed primarily due
to reduced implementation and enforcement activities by governmental
regulatory agencies and an uncertain regulatory climate. The operations
of the Company are performed subject to a comprehensive federal, state, and
local environmental regulatory structure which is currently the subject of
proposals for significant change. (See Business - Operations -
Regulations.) This regulatory structure is a primary driver of business
opportunities for the Company. The lapse of the Superfund (see Business
- - Operations - Regulations - Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA)) and uncertainty concerning
the form of any future reauthorization of the Superfund and potential
changes in other regulations have dampened demand for the Company's
services.
In recent years, the Company's revenues have been derived primarily
from its business with federal, state and local governmental clients.
Revenues attributable to contracts with governmental agencies accounted for
69%, 71% and 63% of total revenues in fiscal years 1996, 1995 and 1994,
respectively. In the last three years, IT's business with the U.S.
Department of Defense (DOD) has increased significantly, growing to 51% of
revenues in fiscal year 1996. (See Business - Operations - Customers -
Federal, State and Local Governmental Clients.) The Company expects that
revenues attributable to federal, state and local governmental agency
contracts, particularly those with the DOD, will continue to represent a
substantial percentage of total revenues in the near term. Efforts to
constrain the federal budget deficit have reduced the level of spending on
environmental restoration by the DOD, the U.S. Department of Energy (DOE)
and other federal governmental agencies. Additionally, the delay in the
authorization of the 1996 federal budget has reduced the Company's fiscal
year 1996 revenues due to the failure of the DOD to fund the Company's
delivery order contracts as previously expected. This situation will
continue to impact the Company for at least the early part of fiscal year
1997. (See Management's Discussion and Analysis of Results of Operations
and Financial Condition - Results of Operations - Continuing Operations -
Revenues.)
During fiscal year 1996, the Company concluded several key events
which strengthened the Company's financial condition, including the
$41,100,000 settlement of the Motco litigation (see Management's Discussion
and Analysis of Results of Operations and Financial Condition - Results of
Operations - Continuing Operations - Other Income (Expense)), the
$125,000,000 refinancing of IT's senior notes and revolving bank credit
(see Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources), the
recapitalization of the Company's minority-owned lab company, Quanterra
(see Business - Operations - Quanterra) and continued progress toward
closure of IT's two remaining inactive disposal facilities, including
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receipt of final approvals of the closure plans for the Company's Vine Hill
Complex facility (see Notes to Consolidated Financial Statements -
Discontinued operations).
BACKGROUND
Hazardous materials management and remediation, as well as air and
water pollution control, are widely acknowledged as significant national
priorities. As of May 1996, the U.S. Environmental Protection Agency
(USEPA) had designated approximately 1,600 sites as Superfund locations
with significant concentrations of hazardous materials, although only
approximately 25% of these sites have been remediated. In addition, there
are a large number of small commercial and governmental sites that will
require cleanup. The assessment, decontamination and remediation of
hazardous sites are governed by complex environmental and occupational
safety and health regulations administered by numerous federal, state and
local agencies.
Many of the Company's clients, both governmental and commercial,
continue to require a full-service solution, in which a single supplier or
team manages the entire process from identification and assessment through
remediation. Successful remediation of hazardous sites requires a
multidisciplinary approach, since such sites typically involve a variety
of waste which affects air, soil and/or water. Depending on the
circumstances, the required skills may include analytical chemistry, risk
assessment, computer modeling, ambient air monitoring, process and design
engineering, and construction/remediation. The application of these
disciplines to solve client problems requires substantial operational
knowledge, and the Company believes that it is well-positioned to solve
client problems in a practical, cost-effective manner because of the
combination of its technical capabilities and experience. Additionally,
the Company's technical expertise and operational experience are sought by
other firms for project-specific teaming and joint venture relationships,
thereby allowing the Company access to an increased number of large scale
governmental and commercial programs.
Over the past several years, the environmental management and
hazardous waste remediation industry has been characterized by an
increasing number of well-capitalized competitors, reduced government
enforcement of environmental regulations and regulatory uncertainty. This
has resulted in reduced commercial spending on environmental cleanup and
intense pricing competition for hazardous waste cleanup projects. Lower
demand in the private sector during the 1990's has been offset to some
extent by new major project opportunities in the public sector, primarily
major cleanup projects at DOD and DOE installations, which require a broad
range of project management and field execution skills, limiting the number
of potential bidders. As a result of the changes impacting the industry,
consolidation has occurred through downsizing and mergers. The Company's
strategy is to be a strong competitor for the major project opportunities
offered by the DOD and DOE, to continue to actively serve the commercial
market, and, to the extent it is able, to participate in the ongoing
consolidation in the industry. In February 1996, the Company retained an
investment banker to advise it on ways to actively participate in the
current environmental management industry consolidation including possible
mergers, acquisitions and strategic and financial alliances. This review
is ongoing. (See Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Capital Resources.)
OPERATIONS
General
- -------
The major part of IT's business is the management of complex hazardous
waste remediation projects involving the assessment, planning and execution
of the decontamination and restoration of property, plant and equipment
that have been contaminated by hazardous substances. These projects
include the cleanup of land disposal sites where hazardous or toxic
substances have been disposed and pose a threat to the surrounding
environment; rivers, streams and groundwater contaminated by chemical
substances and buildings, production facilities and storage sites
contaminated with hazardous chemical and/or radioactive materials. These
projects require considerable strategic environmental management, technical
engineering and analytical effort to determine the substances involved, the
extent of the contamination, the appropriate alternatives for containing
or removing the contamination, and the selection of the technologies for
treatment, including transportable treatment equipment, to perform the
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cleanup of the site as well as strong project management and construction
and remediation skills to execute the ultimate remediation projects in the
field. The Company is involved in all areas of the United States and
performs selected projects internationally in the assessment or cleanup
phases of site remedial action projects.
Additionally, the Company performs a variety of consulting services
for clients to help them comply with environmental and/or health and safety
regulations. The Company also provides assistance to these clients in
developing corporate policies and procedures in areas such as pollution
prevention and waste minimization that integrate environmental regulations
into their business decisions.
The Company has been strategically broadening its capability to
address the trend toward economically-driven environmental solutions. The
Company has established and is proposing additional client partnering
alliances that provide for IT to share in cost savings resulting from
innovative cost reduction solutions. IT's capabilities to ensure the
assessment phase properly characterizes the environmental conditions to
provide a practical, cost-effective solution were significantly
strengthened by the acquisition of Gradient Corporation in March 1996.
Gradient is a Cambridge, Massachusetts-based firm providing environmental
consulting services with specialties in human health risk assessment,
proper waste classification, Superfund site cleanup negotiations and air
quality primarily for commercial clients. Additionally, in May 1996, the
Company invested in LandBank, Inc., a firm pursuing the Brownfields
remediation market, a market involving economically-driven cleanup of
impaired properties for future real estate development. As well as being
an investor in LandBank, IT will be LandBank's contractor, both for site
assessment and remediation activities.
The Company's operations are managed under a structure consisting of
three regions comprising Regional Operations and national Project
Operations. The two complement each other as Regional Operations provides
full-service capabilities locally and Project Operations manages large
projects with construction requirements. Project management, technical,
sales and support functions are present in the regions and are coordinated
by a national functional leader. The Company currently operates 43
offices, including project offices, located across the United States.
Consulting, Engineering and Design
- ----------------------------------
The Company's clients may have need for consulting, engineering and
design services with respect to contamination of air, water or soil.
Federal legislation such as the Clean Air Act and Safe Drinking Water Act
provide environmental regulations which require compliance by the Company's
clients. Environmental problems generally require multidisciplinary
capabilities. Each region is staffed by professionals with expertise in
a variety of disciplines and the operating experience required to provide
clients with full-service, cost-effective environmental solutions. The
full-service strategy supports the Company's marketing efforts toward
developing partnering arrangements with clients in which IT is the primary
supplier of all client environmental management services.
The Company provides a wide range of consulting, engineering and
design services including remedial design, environmental permitting,
facility siting and design, strategic environmental management,
environmental compliance/auditing, risk assessment/management,
environmental assessment/characterization, consulting engineering,
pollution prevention, waste minimization, permitting assistance, and
equipment design, installation, and start-up services.
The Company has expanded its air quality business in response to its
clients' needs. The Company provides services related to pollution
prevention engineering, control technology specification, permit
preparation, emergency release management, emission sampling and
monitoring, leak detection in industrial facilities and overall air quality
management.
Remediation
- -----------
The Company provides full-service capabilities for major projects,
primarily in the areas of DOD and DOE delivery order program management,
remedial construction, mobile treatment, and decontamination/
decommissioning capabilities. In the area of remedial construction, IT
offers diverse services, such as excavation and isolation, installation of
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subsurface recovery systems, thermal treatment solutions, bioremediation
approaches, chemical treatment, soil washing, fixation or stabilization,
facility or site closures, solidification, landfill cell construction, and
slurry wall and cap installation. IT also offers other remedial services
such as chemical packaging services, underground storage tank (UST) or
aboveground storage tank (AST) management and emergency response.
On large scale remediation projects, IT uses various capabilities to
assess, design, and implement environmental solutions, and design treatment
systems. A solution to certain hazardous waste remediation projects is to
locate treatment equipment on site. IT's transportable proprietary Hybrid
Thermal Treatment System (HTTS) was designed by the Company to thermally
treat large quantities of hazardous waste on-site. The HTTS technology has
found principal applications on large scale remediation projects and is
suitable for use at integrated hazardous waste treatment facilities. From
the introduction of HTTS technology in 1987 through fiscal year 1996, the
Company has processed approximately one million tons of contaminated
materials at various projects, representing more materials than those
processed through incineration at hazardous waste sites by all other
companies using on-site, rather than fixed-base, treatments in the
aggregate. (See Business - Operations - Regulations - Resource
Conservation and Recovery Act of 1976 (RCRA).) Currently, IT is utilizing
an HTTS unit for the thermal treatment of hazardous materials from the
Southern Shipbuilders Superfund site in Slidell, Louisiana, and another
HTTS unit at the Superfund site in Times Beach, Missouri.
International
- -------------
The Company currently is pursuing selected international opportunities
on a project-specific basis with a focus on the Far East, Mexico and
Canada. In the Far East, the Company is working on projects in Taiwan,
South Korea and Thailand, including a project utilizing its thermal
process engineering and construction expertise in South Korea. In Mexico,
the Company has entered into a joint venture agreement with a major Mexican
engineering and construction firm. In Canada, the Company has a joint
venture with a Canadian engineering company to perform a large, multi-year
remediation project in Sydney, Nova Scotia. The Company is in the process
of evaluating a joint venture opportunity in Taiwan.
Customers
- ---------
The Company's services are provided to a broad range of federal, state
and local governmental and commercial clients in the U.S. market. Over the
last several fiscal years, the Company experienced a significant shift in
revenues from the commercial sector to the governmental sector, although
that trend flattened in fiscal year 1996.
Federal, State and Local Governmental Clients
---------------------------------------------
Due to its technical expertise, project management experience and
full-service capabilities, the Company has successfully bid on and executed
contracts with federal and other governmental agencies for the performance
of various CERCLA and RCRA activities. (See Business - Operations -
Regulations.) The Company's governmental contracts are often multi-year,
indefinite delivery order programs (IDOs). These programs provide spending
budget estimates for which the client expects to define the scope by
working closely with IT's program management and technical staff. As
projects are defined, the work is awarded to the Company on a sole source
basis. Government contracts are typically subject to annual funding
limitations and public sector budgeting constraints. Some of these
contracts provide a maximum contractual amount of services that may be
performed by the Company with the specific services authorized from time
to time by the government agency through a series of task orders under the
master contract. The Company may be asked to perform services for the full
amount of an IDO or for amounts greater or less than the full amount. IDOs
generated approximately 39% of the Company's revenues in fiscal year 1996.
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 the prime contractor, the Company serves as a
subcontractor to other prime contractors on some federal government
programs. As has become typical in the industry, the Company has entered
into joint venture or teaming arrangements with competitors when bidding
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on certain of the largest, most complex contracts, to provide the breadth
of technical expertise and, at times, bonding capacity required for the
project.
The following table shows, for the last three years, the Company's
revenues attributable to federal, state and local governmental contracts
as a percentage of the Company's consolidated revenues, including
analytical services through June 1994:
Year ended
--------------------------------
March 29, March 31,
------------------
Source 1996 1995 1994
- ------- -------- ------- ------
Federal government:
DOD. . . . . . . . . . . . . . . . . 51% 47% 33%
DOE. . . . . . . . . . . . . . . . . 11 12 15
Other federal agencies . . . . . . . 3 4 5
--- --- ---
65 63 53
State and local governments. . . . . . . 4 8 10
--- --- ---
Total. . . . . . . . . . . . . . . . . . 69% 71% 63%
=== === ===
Commercial Clients
------------------
The Company serves numerous commercial clients including chemical,
petroleum and other manufacturing firms, utilities, and real estate and
transportation service companies. A substantial portion of the Company's
commercial work represents new contracts awarded by existing clients. No
single commercial client accounted for 10% or more of the Company's
consolidated revenues in fiscal years 1996, 1995 or 1994. There is a
growing trend in the Company's work for commercial clients toward strategic
environmental management services and economically-driven solutions to
environmental issues (see Business - Operations - General).
Competition
- -----------
The environmental management industry is very competitive and requires
professional personnel with technical and project management skills. The
Company believes that the principal competitive factors in all areas of its
business are operational experience, technical proficiency, breadth of
services offered, local presence and, often most importantly, price.
The Company faces competition from a diverse array of small and large
organizations including national or regional environmental management
firms; national, regional and local architectural, engineering and
construction firms; environmental management divisions or subsidiaries of
international engineering, construction and systems companies; and
hazardous waste generators which have developed in-house capabilities
similar to those of the Company. Major competitors in consulting,
engineering and design include Bechtel, CH2M Hill, Dames and Moore, Earth
Technology, ERM Group, Fluor, Jacobs Engineering, and Roy F. Weston. Major
competitors in remediation include Bechtel, Fluor, Foster Wheeler,
Groundwater Technology, Jacobs Engineering, Morrison-Knudsen, OHM, Sevenson
and Smith Environmental.
Increased competition, combined with changes in client procurement
procedures, has resulted in market trends over the past several years
toward lower contract margins, a client preference for fixed-price or
unit-price contracts and unfavorable changes in contract terms and
conditions in areas such as indemnification of the client by the Company
of liabilities for damage or injury to third parties and property and for
environmental fines and penalties. Additionally, certain of the Company's
competitors benefit from certain economies of scale and have better access
to bonding and insurance markets at a lower cost. The entry of large
systems contractors and international construction and engineering firms
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into the environmental management industry has materially increased the
level of competition for major federal governmental contracts and programs,
which have been the primary source of the Company's revenue over the past
several years. Over the past several years, there has been consolidation
in the industry as certain of the larger corporations have acquired smaller
firms which, although reducing the number of industry competitors to some
degree, has increased the number of stronger competitors.
Technology Development
- ----------------------
IT emphasizes the innovative application of existing technologies and
methods and technology development, principally through client projects.
The Company's technology development program is primarily directed toward
the evaluation and implementation of technologies developed outside the
Company which present commercialization opportunities for IT. Additionally,
the Company continues to defend and expand its patent position in thermal
incineration technology, bioremediation and various soil cleaning
processes.
Through the Company's technology development program, IT has continued
to advance the development and implementation of its bioremediation
programs. Clean closure of sites has been accomplished using naturally
occurring organisms in the patented Biofast system and recent patents for
vapor phase nutrient delivery have demonstrated the ability to expand the
range of applicability to nutrient deficient soils. IT has also
successfully implemented the use of solar power for operation of a
biosparging system and wind power for operation of 24 bioventing systems
in the remote reaches of Alaska. IT, in conjunction with the USEPA
Emerging Technologies Program, has successfully completed the pilot-scale
demonstration of a combined chemical and biological process for the
treatment of Polycyclic Aromatic Hydrocarbon (PAH) contaminated soils. The
Company continues to enhance the applicability of a licensed method to
identify and treat a specific class of toxic substances inherent in
wastewater discharges from the oil industry. In addition, IT was
re-awarded the contract for operation of the USEPA Test & Evaluation
Facility in Cincinnati, Ohio. This USEPA facility, which is also available
for private party sponsored technology evaluations, provides treatability
testing and process development services on contaminated wastewaters,
sludges, and soils.
The Company is also increasing its development and commercialization
of environmental information management technology. Through the use of its
proprietary IT Environmental Management System (ITEMS) and related systems,
the Company has become a leading user of advanced data base management
technology to serve its clients' needs. The Company uses various
information management capabilities developed by many vendors, in addition
to its proprietary systems, in implementing environmental information
management systems for its clients.
Quanterra
- ---------
In June 1994, the Company and an affiliate of Corning Incorporated
combined the two companies' environmental analytical services businesses
into a newly formed 50%/50% jointly-owned company, Quanterra. Subsequently,
in January 1996, Quanterra was recapitalized, with IT retaining a 19%
ownership interest. (See Notes to Consolidated Financial Statements -
Quanterra). Since its formation, Quanterra has had the highest revenues
of any environmental analytical services laboratory company in the United
States. Quanterra operates with a board of directors which has a
representative from IT and provides services primarily to third parties,
as well as to the Company. During fiscal year 1996, approximately 17% of
Quanterra's revenues were derived from services provided to the Company.
The Company has agreed to use reasonable efforts to use Quanterra's
services in its projects, and Quanterra has agreed to provide services to
the Company on terms at least as favorable as those offered by Quanterra
to third parties.
Quanterra provides qualitative and quantitative analytical chemistry
services to governmental and commercial clients. Quanterra operates 13
analytical laboratories located across the U.S., along with a number of
mobile field laboratories. These labs provide routine and specialty
chemical analyses of organic, inorganic, and biological constituents in
chemical and radiochemical mixed wastes, air, water and soil; and
non-routine analyses of dioxin, pesticides and polychlorinated biphenyl
compounds (PCBs). Quanterra provides specialized analyses of radioactive
and radiochemical mixed wastes including bioassay, immunoassay, and
environmental radiochemistry. The majority of Quanterra's revenues result
from analytical work performed for federal, state and local governmental
agencies or commercial clients, both directly and as a subcontractor to IT
and other environmental management firms.
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Quanterra competes with a few national, several regional and many
single-location analytical services firms; analytical services divisions
or subsidiaries of national or regional environmental management companies;
and laboratory operations associated with universities or other nonprofit
or governmental agencies. Due to the fragmented nature and over-capacity
situation of this market, pricing for analytical services is highly
competitive.
Regulations
- -----------
The Company and its clients are subject to extensive and rapidly
evolving environmental laws and regulations which affect the demand for
many of the services offered by the Company (see Business - Operations -
Environmental Contractor Risks) and create certain significant risks for
the Company in providing its services and at its inactive disposal sites
in Northern California. (See Notes to Consolidated Financial Statements
- - Discontinued operations.)
Recently, a number of significant changes to existing environmental
legislation have been proposed. Some of the proposed changes are a part
of legislation commonly referred to as the Republican Party's "Contract
With America." Most of that legislation has passed the U.S. House of
Representatives but has been stalled in the U.S. Senate. Pending proposals
would overhaul the government regulatory process, requiring regulatory risk
assessments and cost-benefit analyses, and reducing requirements for
reporting to the government. The impact of these proposed changes upon the
Company's business cannot yet be predicted. The Company believes that it
generally has benefitted from increased environmental regulations affecting
business, and from more stringent enforcement of those regulations. The
currently contemplated changes in regulations could decrease the demand for
certain of the Company's services, as customers anticipate and adjust to
the new regulations. However, the proposed legislation could also result
in increased demand for certain of the Company's services if regulatory
changes decrease the cost of remediation projects or result in more funds
being spent for actual remediation. The ultimate impact of the proposed
changes will depend upon a number of factors, including the overall
strength of the U.S. economy and customers' views on the cost-effectiveness
of remedies available under the changed regulations.
The principal environmental legislation affecting the Company and its
clients is described below:
National Environmental Policy Act of 1969 (NEPA). Under NEPA, all
federal agencies must consider ecological factors when dealing with
activities that may have an impact on the environment. Among other things,
NEPA was the first federal legislation to establish guidelines and
requirements for environmental baseline studies, impact assessments and
mitigation studies for a variety of major industrial and governmental
projects, including development and construction of power plants and
transmission lines, pipelines, highways, landfills, mines, reservoirs and
residential and commercial developments.
Resource Conservation and Recovery Act of 1976 (RCRA). RCRA regulates
the treatment, storage and disposal of hazardous and solid wastes. The
1984 Hazardous and Solid Waste Amendments to RCRA (HSWA) expanded RCRA's
scope by providing for the listing of additional wastes as hazardous and
lowering the quantity threshold of wastes subject to regulation. HSWA also
imposed restrictions on land disposal of certain wastes, prescribed more
stringent management standards for hazardous waste disposal sites, set
standards for UST management and provided for corrective action procedures.
Under RCRA, liability and stringent management standards are imposed on a
person who is an RCRA permit holder, namely a generator or transporter of
hazardous waste or an owner or operator of a waste treatment, storage or
disposal facility.
RCRA's standards for waste disposal and treatment facilities apply to
hazardous waste incinerators. Changes in these standards have impacted the
market for the Company's mobile, on-site incineration services using the
HTTS technology. In 1994, the USEPA issued a new policy which, while
affirming incineration as an allowable remedy under CERCLA, called for
additional procedures and studies to be conducted before incineration may
be selected as a remedy, or which may result in the deselection of
incineration as a remedy, at a Superfund site. Additionally, the USEPA
finalized its policy of favoring waste minimization over
combustion/incineration and of increasing regulatory burdens upon
combustion and incineration facilities, whether fixed-based or on-site.
Furthermore, incineration as a remediation remedy continues to be the
subject of considerable public opposition and controversy. The heightened
8
<PAGE>
scrutiny and higher cost of, and public opposition to, incineration as a
treatment solution may lead to delays and added costs in permitting the
Company's HTTS units for use on certain projects, or may also cause the
USEPA and/or private parties to prefer other remedies in Superfund
remediations. Such actions may have an adverse impact on the Company's
business. (See Management's Discussion and Analysis of Results of
Operations and Financial Condition - Results of Operations - Continuing
Operations - Revenues.)
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (CERCLA). CERCLA addresses cleanup of sites at which there has
been or may be a release of hazardous substances into the environment.
CERCLA assigns liability for costs of cleanup and damage to natural
resources to any person who, currently or at the time of disposal of a
hazardous substance, owned or operated any facility at which hazardous
substances were released; to any person who by agreement or otherwise
arranged for disposal or treatment, or arranged with a transporter for
transport of hazardous substances owned or possessed by such person for
disposal or treatment by others; and to any person who accepted hazardous
substances for transport to disposal or treatment facilities or sites from
which there is a release or threatened release of hazardous substances.
CERCLA authorizes the federal government either to clean up these sites
itself or to order persons responsible for the situation to do so. CERCLA
created the Superfund to be used by the federal government to pay for the
cleanup efforts. Where the federal government expends money for remedial
activities, it must seek reimbursement from the potentially responsible
parties (PRPs). CERCLA generally imposes strict, joint and several
retroactive liability upon such parties. CERCLA was amended in 1986 by the
Superfund Amendments and Reauthorization Act (SARA), which authorized
increased federal expenditures and imposed more stringent cleanup standards
and accelerated timetables. SARA also contained provisions which expanded
the enforcement powers of the USEPA.
CERCLA was scheduled to be reauthorized in 1994, but has not, to-date,
been reauthorized, as the interested parties and Congress have been unable
to come to agreement on the proposed legislation. CERCLA's authorization
to expend funds originally expired in September 1994, but Congress
appropriated operating funds for the previous and current governmental
fiscal years. CERCLA's taxing authority, from which appropriations are
made, expired in December 1995. Failure of Congress to reauthorize CERCLA,
or substantial changes in or continuing uncertainty concerning the details
of the legislation, cleanup standards, and remedy selection, may result in
additional project delays and/or the failure of clients to initiate or
proceed with projects. There is no clarity at this time as to when CERCLA
may be reauthorized or what changes would be included in such
reauthorization.
A number of changes to CERCLA have been proposed as a part of the
reauthorizing legislation. Amendments to repeal CERCLA's retroactive
liability aspect have been introduced. It has also been proposed that
CERCLA's preference for permanent treatment remedies such as incineration
be changed to favor confinement and containment remedies. The current
standards for acceptable cleanups have also been the subject of proposals
for change.
The USEPA relies upon its application of retroactive liability to
force private parties to clean up their contaminated sites. A recent
federal district court decision in Alabama ruled that CERCLA does not
impose retroactive liability for any pre-1980 hazardous substance disposal
and that, where site contamination has no effect on interstate commerce,
the government has no authority to address the site under CERCLA.
Significantly, this is the first federal court decision declaring any
portion of CERCLA unconstitutional. While the direct impact of this
decision is limited to a portion of Alabama, it may lead to less
cooperation of PRPs with the USEPA and result in delays by clients to
proceed with cleanup.
Clean Air Act and 1990 Amendments. The Clean Air Act requires
compliance with ambient air quality standards and empowers the USEPA to
establish and enforce limits on the emission of various pollutants from
specific types of facilities. The Clean Air Act Amendments of 1990
modified the Clean Air Act in a number of significant areas. Among other
changes, they established emissions allowances for sulfur and nitrogen
oxides, established strict requirements applicable to emissions of air
toxics, established a national permit program for all major sources of
pollutants, established requirements for management of accidental releases
of toxic air pollutants, and created significant new penalties, both civil
and criminal, for violations of the Clean Air Act.
9
<PAGE>
Other Federal and State Environmental Laws. The Company's services
are also utilized by its clients in complying with, and the Company's
operations are subject to regulation under, among others, the following
federal laws: the Toxic Substances Control Act, the Clean Water Act, the
Safe Drinking Water Act, the Occupational Safety and Health Act and the
Hazardous Materials Transportation Act. In addition, many states have
passed Superfund-type legislation and other regulations and policies to
cover more detailed aspects of hazardous materials management. This
legislation addresses such topics as air pollution control, UST and AST
management, water quality, solid waste, hazardous waste, surface
impoundments, site cleanup and wastewater discharge. In addition, many
states that passed Superfund-type legislation and other environmental
regulations are now reviewing those laws and regulations because of their
alleged adverse impact upon business and competitiveness.
Environmental Contractor Risks
- ------------------------------
Although the Company believes that it generally benefits from
increased environmental regulations affecting business, and from
enforcement of those regulations, increased regulation, enforcement and
private litigation also create significant risks for the Company. These
risks include potentially large civil and criminal liabilities from
violations of environmental laws and regulations and liabilities to
customers and to third parties for damages arising from performing services
for clients. The Company's failure to observe such laws and/or the terms
and conditions of licenses and permits it holds could adversely impact the
Company's ability to carry on one or more of its businesses as presently
constituted.
Liabilities Arising out of Environmental Laws and Regulations
-------------------------------------------------------------
All facets of the Company's business are conducted in the context of
an extensive and rapidly changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation
by a number of federal and other agencies. There have also been efforts
by litigants to expand the reach of CERCLA and RCRA to make contractor
firms responsible for cleanup costs through claims that environmental
contractors are owners or operators of hazardous waste facilities or that
they arranged for treatment, transportation or disposal of hazardous
substances. While two decided CERCLA cases have shielded cleanup
contractors from strict liability, no clear direction has emerged from the
cases decided to-date.
Potential Liabilities Involving Customers and Third Parties
-------------------------------------------------------------
In performing services for its customers, the Company could
potentially be liable for breach of contract, personal injury, property
damage, negligence and other causes of action. The damages available to
a customer, should it prevail in its claims, are potentially large and
could include consequential damages.
Many of those contracting for environmental management services,
particularly those involving large scale remediations, seek to shift to
contractors the risk of completing the project in the event the
contamination is either more extensive or difficult to resolve than
originally anticipated. In the competitive market in which environmental
management services are offered, customer pressure has increased
significantly for contractors to accept greater risk of performance,
liability for damage or injury to third parties or property, and liability
for fines and penalties. The Company has from time to time been involved
in claims and litigation involving disputes over such issues. (See Notes
to Consolidated Financial Statements - Commitments and contingencies and
- - Motco litigation settlement.)
Environmental management contractors, in connection with work
performed for customers, also potentially face liabilities to third parties
from various claims including claims for property damage or personal injury
stemming from a release of toxic substances or otherwise which could arise
long after completion of the project.
Over the past several years, the USEPA and other federal agencies have
constricted significantly the circumstances under which they will indemnify
their contractors against liabilities incurred in connection with CERCLA
projects and continue their attempts to renegotiate previously agreed
indemnities. While Congress is again considering broadening the
availability of indemnification, there is no assurance that Congress will
change federal government indemnification policies.
10
<PAGE>
Government Contracting Risk
---------------------------
As a major provider of services to governmental agencies, the Company
also faces the risks associated with government contracting, which include
substantial civil and criminal fines and penalties. Government contracting
requirements are complex, highly technical and subject to varying
interpretations. As a result of its government contracting business, the
Company has been, is, and expects in the future to be, the subject of
audits and investigations by governmental agencies. (See Notes to
Consolidated Financial Statements - Commitments and contingencies - Helen
Kramer contract.) In addition to the potential damage to the Company's
business reputation, the failure to comply with the terms of one or more
of its government contracts could also result in the Company's suspension
or debarment from future government contract projects for a significant
period of time.
Insurance and Risk Management
- -----------------------------
The Company has adopted a range of insurance and risk management
programs designed to reduce potential liabilities, including insurance
policies, programs to seek indemnity where possible in its contracts, other
contract administration procedures, and employee health, safety, training,
and environmental monitoring programs. In addition, as a result of the
substantial increase over the past several years in the percentage of the
Company's revenues derived from work for governmental agencies, the Company
has developed a company-wide government contracts compliance program. The
Company cannot assure the adequacy of the program and compliance failure
could have a material adverse effect on the Company's business.
The Company's insurance program includes $70,000,000 per fiscal year
of excess liability policies, insuring claims in excess of a $5,000,000
retention level for each of commercial general liability, product liability
and automotive liability. With respect to the $5,000,000 retention level
for each of such coverages, the Company's captive insurance company (the
Captive) generally is obligated to indemnify the Company's insurance
carriers against liabilities and costs of defense, subject to certain
limitations. Letters of credit are provided to support the indemnity
commitment; at present, the aggregate amount of such letters of credit is
approximately $11,000,000. From a risk management perspective, the policies
reinsured by the Captive are, in effect, a self-insurance layer.
The Company also has other insurance policies with various retentions
or deductibles for the management of its risk including but not limited to
all risk property coverage, workers' compensation, employer's liability,
employment practices liability, consultants' environmental liability
(including errors and omissions) and directors' and officers' liability
insurance coverage.
Although the Company believes its program to be appropriate for the
management of its risk, its insurance policies may not fully cover risks
arising from the Company's operations. The exclusion of certain pollution
and other liabilities, such as punitive damages, from some insurance
policies, or losses in excess of the coverage, may cause all or a portion
of one or more losses not to be covered by such insurance.
DISCONTINUED OPERATIONS
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. These operations
included the handling and transportation of clients' wastes and their
treatment and/or disposal at Company or third party-owned facilities. In
June 1989, the Company completed the sale of IT's active treatment and
disposal operations in Imperial Valley and at Bakersfield, California, as
well as its transportation business. The Company's four inactive
treatment, storage and disposal facilities located in Northern California
were not included in this transaction. Substantial progress has been made
to date toward the closure of these facilities, with two of these
facilities closed and the others in the process of closure.
There are substantial financial implications related to the
discontinued operations. For further information regarding the Company's
discontinued operations, see Notes to Consolidated Financial Statements -
11
<PAGE>
Discontinued operations and Management's Discussion and Analysis of Results
of Operations and Financial Condition - Liquidity and Capital Resources.
EMPLOYEES
At March 29, 1996, the Company employed 2,451 regular employees. Of
these employees, 274 were in sales, corporate office and group
administration and the remainder were in operations. The Company's
professional and technical employees engage in disciplines which include
chemical and civil engineering, geology, hydrology/hydrogeology and
computer/data processing. Over 450 of the Company's employees hold
advanced degrees.
At March 29, 1996, none of the Company's employees were represented
by labor unions under collective bargaining agreements. The Company
employs union labor from time to time on a project-specific basis. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES.
IT owns or leases property in 26 states and the United Kingdom.
Excluding its discontinued operations, the Company owns approximately 50
acres and leases approximately 770,000 square feet of property for various
uses, including regional and project offices, technology and process
development laboratories, equipment yards and a corporate office.
Management considers the facilities adequate for the present and
anticipated activities of the Company.
Additionally, the Company owns approximately 3,900 acres related to
its discontinued operations, principally in Northern California and
Louisiana, of which approximately 500 acres have been used for hazardous
waste disposal facilities and approximately 2,200 are adjacent to those
facilities, but were never used for waste disposal.
ITEM 3. LEGAL PROCEEDINGS.
Continuing Operations Legal Proceedings
- ---------------------------------------
See Notes to Consolidated Financial Statements - Commitments and
contingencies - Contingencies for information regarding the legal
proceedings related to the continuing operations of the Company .
Discontinued Operations Legal Proceedings
- -----------------------------------------
See Notes to Consolidated Financial Statements - Discontinued
operations for information regarding the legal proceedings that relate to
the transportation, treatment and disposal discontinued operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
There were no matters submitted to a vote of the Company's common
shareholders during the fourth quarter of fiscal year 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information as of June 24, 1996 regarding
the Company's executive officers and the positions they hold with the
Company. The officers are appointed annually by the Board of Directors to
serve at the discretion of the Board.
12
<PAGE>
First
elected as
Term as director or
director officer of
Name Age Position expires the Company
---- --- -------- -------- -----------
Robert B. Sheh 56 President and Chief 1997 1992
Executive Officer
Franklin E. Coffman 54 Senior Vice President, ---- 1984
Government and
Commercial Program
Development
Anthony J. DeLuca 49 Senior Vice President ---- 1990
and Chief Financial
Officer
James R. Mahoney 57 Senior Vice President, ---- 1991
Technical Operations
and Corporate
Development
Raymond J. Pompe 62 Senior Vice President, ---- 1988
Project Operations
Eric Schwartz 49 Senior Vice President, ---- 1992
Law and
Administration,
General Counsel
and Secretary
Michael F. Knapp 50 Vice President, ---- 1996
Regional Operations
Mr. Sheh joined the Company in July 1992 as President and Chief
Executive Officer and a Director. Prior to joining the Company, Mr. Sheh
was President of the Ralph M. Parsons Company, a subsidiary of the Parsons
Corporation, since 1989. Mr. Sheh had a broad range of management
responsibilities during his 21 years with Parsons, including international
operations, corporate business development and management of major
divisional operations. Parsons is a major international engineering and
construction company, which serves the energy, natural resource,
environmental and defense industries. Mr. Sheh serves on the Board of
Directors of Davidson & Associates, Inc.
Mr. Coffman joined the Company in October 1984 as Vice President,
Government Programs and was named Senior Vice President, Government and
Commercial Program Development, in March 1995. Prior to joining the
Company, Mr. Coffman served in various capacities for DOE including Deputy
Assistant Secretary of Waste Management, Director of the Office of Advanced
Nuclear Systems and Projects, and Director of the Division of Fusion
Development and Technology. Previously, he was employed in the Atomic
Energy Commission as Chief, Energy Research Development Agency, Fusion
Systems and Applications - Applications Studies Branch, Washington, D.C.
and as a health physicist.
Mr. DeLuca joined the Company in April 1990 as Senior Vice President and
Chief Financial Officer. Prior to then, he was with the public accounting
firm Ernst & Young LLP for 20 years, including the last 8 years as a
partner in the firm.
Mr. Mahoney, who joined the Company in January 1991 as Senior Vice
President and Director of Technology was named Senior Vice President,
Corporate Development and Sales in April 1992, and Senior Vice President,
Technical Operations and Corporate Development in March 1995. Prior to
joining the Company, Mr. Mahoney was Director of the National Acid
Precipitation Assessment Program, a U.S. government research and assessment
program, from 1988 to 1991. From 1984 to 1987, Mr. Mahoney served in
various environmental managerial capacities with Bechtel Group,
Incorporated, a major construction firm.
Mr. Pompe joined the Company in 1988 as Vice President, Construction and
Remediation and was named Senior Vice President, Project Operations, in
March 1995. Prior to joining the Company, Mr. Pompe was employed by Dravo
13
<PAGE>
Corporation, a major construction firm, from 1956 to 1988 in various
executive capacities, most recently as Senior Vice President responsible
for construction projects.
Mr. Schwartz joined the Company in October 1992 as Senior Vice
President, General Counsel and Secretary. Prior to joining the Company,
Mr. Schwartz served in various capacities for Tosco Corporation, an energy
company, from 1978 to 1992, including that of Executive Vice President,
Finance, Administration and General Counsel, a member of its Board of
Directors and a consultant. From 1972 to 1978, Mr. Schwartz was associated
with the law firm of Cleary, Gottlieb, Steen & Hamilton.
Mr. Knapp joined the Company in July 1994 as Director, Project
Management and was named Vice President, Regional Operations in March 1996.
Prior to joining the Company, Mr. Knapp was employed by the Ralph M.
Parsons Company for 15 years in various capacities including Vice President
of Engineering, and most recently as Managing Director of the Ralph M.
Parsons United Kingdom subsidiary. He has over 25 years experience in the
engineering and environmental management industries.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange
(NYSE) and Pacific Stock Exchange under the symbol ITX. The following
table sets forth the high and low sale prices of the common stock, as
reported by the NYSE for the periods indicated.
Quarter ended High Low
------------- ---- ---
June 30, 1994 . . . . . . . . . . . . $ 3 1/4 $ 2
September 30, 1994. . . . . . . . . . 3 7/8 2 3/8
December 31, 1994 . . . . . . . . . . 4 1/2 2 3/4
March 31, 1995. . . . . . . . . . . . 3 1/4 2 1/4
June 30, 1995 . . . . . . . . . . . . 3 3/8 2 3/8
September 29, 1995. . . . . . . . . . 3 7/8 2 3/4
December 29, 1995 . . . . . . . . . . 3 3/8 2 1/4
March 29, 1996. . . . . . . . . . . . 2 3/4 2
On June 14, 1996, the closing sale price of the common stock on the NYSE
as reported by The Wall Street Journal was $2.875 per share. On that date
there were 2,141 stockholders of record.
The Company has not paid a cash dividend on its common stock for the
three years ended March 29, 1996. The Company has no present intention to
pay cash dividends on its common stock for the foreseeable future in order
to retain all earnings for investment in the Company's business. IT's
credit agreements prohibit cash dividends on common stock.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth income statement information for the
Company's continuing operations and other financial information for each
of the five years in the period ended March 29, 1996.
<TABLE>
<CAPTION>
Year ended
--------------------------------------------------
March 29, March 31,
--------------------------------------
1996 1995 1994 1993 1992
--------- ---- ---- ---- ----
(In thousands, except per share data)
INCOME STATEMENT INFORMATION
<S> <C> <C> <C> <C> <C>
Revenues $400,042 $423,972 $392,803 $410,539 $420,453
Income (loss) from
continuing operations
(net of preferred
stock dividends) (3,654) (7,880) (3,241) (2,082) 8,895
Income (loss) per share
from continuing
operations (.10) (.22) (.09) (.06) .27
Weighted average shares 35,927 35,557 34,762 33,530 33,425
OTHER FINANCIAL INFORMATION
Working capital $ 89,174 $ 73,838 $ 63,522 $ 60,281 $ 71,730
Total assets 315,314 362,152 359,203 369,178 382,317
Long-term debt 65,611 80,189 68,625 115,811 136,413
Long-term accrued
liabilities 30,223 45,207 38,993 52,470 56,500
Stockholders' equity 140,865 145,921 160,548 106,178 98,531
No cash dividends were paid on common shares for any period.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Overview
- --------
The Company operates in one industry segment and provides a broad range
of environmental management services to clients principally in the United
States. The Company's principal strategy is to market its services on a
full-service basis. The Company's operations are managed under a
structure consisting of three regions comprising Regional Operations and
national Project Operations. The two complement each other as Regional
Operations provides full-service capabilities locally and Project
Operations manages large projects with construction requirements. Project
management, technical, sales and support functions are present in each of
the regions and are coordinated by a national functional leader.
Accordingly, IT offers all of its services to all clients.
The Company has changed its fiscal year in 1996 to consist of four
thirteen-week fiscal quarters with the fourth quarter ending on the last
Friday of March.
15
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Revenues
- --------
Revenues for fiscal year 1996 declined by 5.6% compared to an increase
of 7.9% in fiscal year 1995. Effective with the inception of operations
for Quanterra in the second quarter of fiscal year 1995, the Company
ceased recording any analytical services revenue. However, since a
portion of analytical services revenue historically was derived from the
Company's other operations, additional revenue is now being recorded
related to analytical services subcontracts performed by Quanterra for IT,
similar to other third party subcontracts. After excluding fiscal year
1996 and 1995 analytical services revenues other than those provided to
the Company's other operations, revenues for the Company declined 3.8% for
fiscal year 1996 and increased 16.6% for fiscal year 1995.
During the fourth quarter of fiscal year 1996, the Company experienced
a 19.8% decrease in revenues to $88,579,000 from $110,492,000 in the
fourth quarter of fiscal year 1995, primarily due to the slowdown of
awards of federal governmental contract delivery orders caused by the
delayed authorization of the federal government budget. Additionally,
current fourth quarter revenues were adversely impacted by unusually
severe weather in much of the United States, which held up field work on
several projects. This fourth quarter decline was the primary cause of
the fiscal year 1996 revenue decline since revenues (excluding analytical
services for fiscal year 1995) were up 2.1% through the first three
quarters of the year compared to the prior year. In fiscal year 1995, the
higher revenue level was due primarily to an increased number of
remediation contracts under federal governmental programs.
A substantial percentage of the Company's revenues during the three
years ended March 29, 1996 was earned through executing governmental
contracts for various federal, state and local agencies. Revenues from
governmental contracts accounted for 69% of the Company's revenues in
fiscal year 1996, compared to 71% and 63% in fiscal years 1995 and 1994,
respectively. See the table in Business - Operations - Customers -
Federal, State and Local Governmental Clients for an analysis of the
Company's revenues attributable to federal, state and local governmental
contracts. Federal governmental revenues are derived principally from
work performed for the DOD and, to a lesser extent, the DOE. An expected
transition by the DOE over the next several years to emphasize remediation
over studies is expected to be positive for the Company based on the
Company's favorable experience in winning and executing similar work for
the DOD as well as the Company's experience with DOE related to its past
performance of DOE studies. In the near term, the Company expects that
the percentage of total revenues from the execution of federal, state and
local governmental contracts will continue to be substantial.
After lengthy delays, the U.S. Congress has enacted legislation
providing current fiscal year environmental cleanup budgets for DOD, DOE
and USEPA's Superfund which resulted in reductions of 12%, 7% and 10%,
respectively, from prior year levels. For the upcoming fiscal year, the
Clinton Administration has proposed budgets for each program that maintain
this year's funding level. Congress is considering a substantial increase
in USEPA's Superfund cleanup budget, contingent upon reauthorization of
CERCLA this year, and a 5% increase in DOE's cleanup budget. Failure of
the Congress to increase future environmental restoration funds may
adversely affect future government contracting opportunities and funding
of the Company's contracted backlog.
Commercial work has increased slightly in fiscal year 1996, reflecting
management efforts to reduce the Company's reliance on governmental
contracts. The Company believes this increase would have been greater if
commercial clients were not delaying certain work 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,
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. 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
16
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
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 U.S. economy and customers' views on the cost effectiveness
of remedies available under the changed regulations.
Approximately 11% of IT's revenues in both fiscal years 1996 and 1995
were derived from large, complex thermal remediation contracts utilizing
the Company's HTTS thermal treatment technology. Incineration as an
allowable remedy under CERCLA continues to come under legislative and
regulatory pressures. If policies were implemented or regulations were
changed such that the Company was unable to permit and use thermal
treatment 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 $23,000,000 at March 29, 1996. The Company is
actively pursuing other contract opportunities which utilize the HTTS
equipment. At March 29, 1996, IT's HTTS equipment had a net book value
of approximately $16,000,000. 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 Other Income (Expense)).
The Company's total funded and unfunded backlog at March 29, 1996 was
approximately $975,000,000 ($1,176,000,000 at March 31, 1995) including
approximately $230,000,000 of contracted backlog scheduled to be completed
during fiscal year 1997 and between $50,000,000 and $75,000,000 of
additional project work expected to be defined and performed in fiscal
year 1997 under existing governmental IDO contracts. Backlog revenues are
expected to be earned primarily over the next one to five years, with a
substantial portion of the backlog consisting of governmental contracts,
many of which are subject to annual funding and definition of project
scope. The backlog amounts at March 29, 1996 and March 31, 1995 include
$598,000,000 and $760,000,000, respectively, of future work the Company
estimates it will receive (based on historical experience) under existing
IDO programs. In accordance with industry practices, substantially all of
the Company's contracts are subject to cancellation, delay or modification
by the customer. Backlog at March 29, 1996 does not include a
$325,000,000 award to IT in May 1996 of the Savannah Total Environmental
Restoration Contract IDO program by the U.S. Army Corps of Engineers.
The Company's backlog at any given time is subject to changes in scope
of services required by the contracts leading to increases or decreases in
backlog amounts. The increased volume of contracts performed subject to
such scope changes has also increased the number of contract claims
requiring negotiations with clients in the ordinary course of business.
(See Notes to Consolidated Financial Statements - Summary of significant
accounting policies - Contract accounting and accounts receivable.)
The federal budget authorization delay and regulatory uncertainties
discussed above are putting increased pressure on the Company's business.
Although funding trends under DOD contracts have recently improved and the
Company has been awarded several new, large contracts in April and May
1996, it expects to report a net loss after preferred stock dividends of
between $1,800,000 and $2,700,000, or $0.05 and $0.07 per share, for the
first fiscal quarter ending June 28, 1996 on revenues of approximately
$80,000,000. Based on recent trends, revenues are expected to
progressively increase from first quarter levels during the remainder of
fiscal year 1997.
Gross Margin
- ------------
Gross margins were 14.5%, 14.6% and 14.8% of revenues in fiscal years
1996, 1995 and 1994, respectively. Excluding a $5,300,000 provision for
major litigation in fiscal year 1995 (see Notes to Consolidated Financial
Statements - Commitments and contingencies - Central Garden), gross margin
would have declined from 15.9% of revenues in fiscal year 1995 to 14.5% in
fiscal year 1996, primarily because of the combination of the declining
level of revenues, lower pricing due to competitive industry conditions
and a shift in revenue mix toward lower margin subcontracted work. After
17
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
adjustment for the litigation provision, gross margin increased to 15.9%
of revenues in fiscal year 1995 from 14.8% in fiscal year 1994 due to the
favorable impact of higher staff utilization and productivity gains
experienced in fiscal year 1995 and the negative impact on fiscal year
1994 gross margin of the analytical services business, which experienced
a gross margin percentage of 10.1% of revenues due to weak customer demand
and decreased utilization of laboratory capacity.
The Company's ability to maintain its gross margins is heavily
dependent on increasing utilization of professional staff, properly
executing projects, and successfully bidding new contracts at adequate
margin levels. In the fourth quarter of fiscal year 1996, the Company
experienced a decline in gross margin percentage to 12.9% of revenues due
to the significant decrease in revenues discussed above. Gross margin
percentage has been and in the upcoming quarters is expected to continue
to be impacted by reduced revenues since certain overhead cost elements
are fixed in the short term. Additionally, since the cost of HTTS
equipment is generally recovered over three or more projects, gross
margins are also dependent on winning new contracts utilizing existing
HTTS equipment upon the completion of previous projects; otherwise,
depreciation on HTTS equipment idle for significant periods of time will
negatively affect gross margin.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses were 9.5%, 10.0% and 12.4%
of revenues in fiscal years 1996, 1995 and 1994, respectively. Selling,
general and administrative expenses of $38,125,000 in fiscal year 1996
were $4,351,000 or 10.2% lower than the fiscal year 1995 level due to cost
containment measures resulting from continued management attention to
expenses. Fiscal year 1995 selling, general and administrative expenses
of $42,476,000 represented a decrease of $6,168,000 from the prior year
level, due to a special charge of $4,500,000 in fiscal year 1994 related
to the contractual retirement benefits to be provided to the Company's
former Chairman of the Board (who was also Chief Executive Officer from
1975 through 1992) and because certain expenses were eliminated or
transferred from the Company upon the formation of Quanterra in June 1994.
Excluding the $4,500,000 charge, selling, general and administrative
expenses would have been $44,144,000 or 11.2% of revenues in fiscal year
1994.
Quanterra
- ---------
In June 1994, the Company and an affiliate of Corning Incorporated
combined the two companies' environmental analytical services businesses
into a 50%/50% jointly-owned company (Quanterra), which was recapitalized
effective December 29, 1995, with IT retaining a 19% ownership interest.
(See Liquidity and Capital Resources and Notes to Consolidated Financial
Statements - Quanterra.) IT's 50% investment in Quanterra was accounted
for under the equity method through December 29, 1995, and the remaining
19% investment is now accounted for under the cost method. In the nine
months ended March 31, 1995, the initial period of Quanterra's operations,
the Company reported equity in net loss of Quanterra of $9,827,000
(including a $9,264,000 charge for integration) and, in the six months
ended September 29, 1995, the Company reported equity in net loss of
Quanterra of $1,821,000. In the quarter ended December 29, 1995, the
Company reported equity in net loss of Quanterra of $24,595,000,
principally related to the recapitalization of Quanterra noted above.
Other Income (Expense)
- ----------------------
In fiscal year 1996, the Company reported in other income a pre-tax
gain of $1,090,000, related to the settlement of certain litigation
concerning the Motco project. (See Notes to Consolidated Financial
Statements - Motco litigation settlement.) This gain represented the
settlement proceeds of $41,100,000 in cash, net of the previously recorded
$31,200,000 claim amount, $8,000,000 of costs related to certain equipment
specifically constructed for the Motco project which has been idle since
ceasing work on the project, and legal and other expenses.
18
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
In fiscal year 1995, the Company recorded a charge of $3,800,000 to
provide for potential settlement and defense costs related to certain
class action shareholder litigation. (See Notes to Consolidated Financial
Statements - Commitments and contingencies - Class action lawsuit.)
In April 1994, the Company was notified that planning permission was
denied for an integrated treatment facility located in Salt End, North
Humberside, England. The Company wrote off its investment in the
facility, reporting a $2,500,000 non-cash charge to continuing operations
in fiscal year 1994.
Interest, Net
- -------------
Net interest expense was 1.6%, 1.7% and 2.1% of revenues in fiscal
years 1996, 1995 and 1994, respectively. The following table shows net
interest expense for the three fiscal years ended March 29, 1996.
Year ended
---------------------------------
March 29, March 31,
------------------
1996 1995 1994
-------- ---- ----
(In thousands)
Interest incurred . . . . . . $ 7,014 $ 8,065 $ 9,326
Capitalized interest. . . . . - (484) (893)
Interest income . . . . . . . (569) (471) (160)
----- ----- -----
Interest, net . . . . . . . $ 6,445 $ 7,110 $ 8,273
===== ===== =====
In fiscal year 1996, the decline in interest incurred is due
principally to lower levels of outstanding debt during the second half of
the fiscal year. This resulted from debt paid down out of the $41,100,000
proceeds of the Motco settlement. (See Notes to Consolidated Financial
Statements - Motco litigation settlement.) This decline in debt was
partially offset by the refinancing the Company's senior notes in October
1995 through a $65,000,000 private placement, which exceeded the
$50,000,000 of debt being refinanced. These excess proceeds were invested
in cash equivalents which generated interest income over the remainder of
the year. There was no capitalized interest in fiscal year 1996 due to
the completion of the Company's major company-wide management information
systems project in fiscal year 1995, on which interest had been
capitalized.
For fiscal year 1995, the decline in interest incurred is due
principally to debt repayments which occurred in mid-fiscal year 1994 out
of the proceeds of an offering of depositary shares. The net proceeds of
$57,130,000 received by the Company from the public offering (see Notes to
Consolidated Financial Statements - Preferred stock) were utilized to
repay $30,000,000 of outstanding cash advances at September 30, 1993 under
the Company's revolving credit facility and to repay $25,000,000 of the
Company's senior notes. (See Notes to Consolidated Financial Statements
- - Long-term debt). Capitalized interest for fiscal year 1995 declined
$409,000 or 45.8% from the level of the prior fiscal year due to the
cessation of capitalized interest on the Company's major company-wide
management information systems project, which was substantially completed
during the fiscal year. Additionally, the Company received a combined
$278,000 of interest income resulting from a settlement of a lawsuit and
an income tax refund during fiscal year 1995.
Income Taxes
- ------------
For fiscal year 1996, in which the Company reported a loss from
continuing operations before income taxes of $11,744,000, the Company
recorded an income tax benefit of $12,290,000 which included a $7,781,000
tax benefit resulting from the adjustment of IT's deferred tax asset
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 valuation
allowance adjustment had not been reflected, the Company's effective
income tax benefit rate would have been 41%, which exceeds the 34% federal
statutory rate primarily due to state income tax benefits. (See Notes to
Consolidated Financial Statements - Income taxes.)
19
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
For fiscal year 1995, in which the Company reported a loss from
continuing operations before income taxes of $1,297,000, the Company
recorded a $2,383,000 income tax provision from continuing operations due
to the nondeductibility of certain expenses, including a significant
portion of the charge for integration related to the formation of
Quanterra. (See Notes to Consolidated Financial Statements - Quanterra.)
In fiscal year 1994, the Company recorded an income tax benefit of
$124,000. This amount differs from the $418,000 benefit which would be
implied at a 34% federal statutory rate primarily due to the partial
nondeductibility of certain expenses and a provision for state taxes.
The Company's future tax rate is subject to the full realization of its
deferred tax asset of $32,476,000 (net of a valuation allowance of
$4,869,000). (See Notes to Consolidated Financial Statements - Income
taxes.) Realization of the tax asset is expected by management to occur
principally as closure expenditures related to the Company's inactive
disposal sites over the next several years are deductible in the years the
expenditures are made and upon the ultimate tax disposition of the
Company's interest in Quanterra, but is subject to the Company having a
sufficient level of taxable income and taxable capital gains.
Loss from Continuing Operations
- -------------------------------
The Company recorded losses from continuing operations of $3,654,000,
$7,880,000 and $3,241,000 for fiscal years 1996, 1995 and 1994,
respectively. As discussed above, operating income for each of the years
was more than offset by the equity in net loss of Quanterra and certain
special charges. (See Gross Margin, Quanterra, and Other Income
(Expense).)
DISCONTINUED OPERATIONS
In fiscal year 1995, the Company increased its provision for loss on
disposition of its discontinued transportation, treatment and disposal
business by $10,603,000 (net of income tax benefit of $6,397,000). This
increased provision primarily related to delays in the regulatory approval
process at the Company's inactive disposal facilities located in Northern
California, an additional accrual for estimated costs related to certain
waste disposal sites where IT has been named as a PRP, increased closure
construction costs due to plan revisions and to additional costs
experienced due to the unusually heavy rainfall experienced in Northern
California in January through March 1995.
For further information regarding the Company's discontinued
operations, see Notes to Consolidated Financial Statements - Discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $15,336,000 or 20.8%, to $89,174,000 at
March 29, 1996 from $73,838,000 at March 31, 1995. The current ratio at
March 29, 1996 was 2.13:1 which compares to 1.81:1 at March 31, 1995.
Cash provided by operating activities for fiscal year 1996 totaled
$25,885,000, a $12,310,000 increase from the $13,575,000 of cash provided
by operating activities in the prior fiscal year. Capital expenditures
were $4,696,000, $10,533,000 and $14,745,000 for fiscal years 1996, 1995
and 1994, respectively. During fiscal year 1996, capital expenditures
declined from the prior year level because of the completion of the
Company's major company-wide management information systems project during
fiscal year 1995. During fiscal year 1995, capital expenditures were
reduced from the fiscal year 1994 level due principally to the elimination
of all capital requirements for the analytical services business as a
result of the formation of Quanterra. Additionally, depreciation has
declined due to the Quanterra transaction. Management believes capital
expenditures in fiscal year 1997 will increase slightly from those of
fiscal year 1996, excluding any business acquisitions or strategic
investments which might be made by the Company. (See below and Business
20
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- - Operations - General.) The Company does not expect to pay significant
cash income taxes over the next several years due to its net operating loss
carryforwards. (See Notes to Consolidated Financial Statements - Income
taxes and Results of Operations - Continuing Operations - Income Taxes.)
Long-term debt decreased to $65,611,000 at March 29, 1996 from
$80,189,000 at March 31, 1995 principally due to the pay down of all
outstanding borrowings under the Company's bank line of credit with the
proceeds from the settlement of the Motco Trust litigation. (See Notes to
Consolidated Financial Statements - Motco litigation settlement.) The
Company's ratio of debt (including current portion) to equity was 0.47:1,
0.56:1 and 0.46:1 at March 29, 1996, and March 31, 1995 and 1994,
respectively.
With regard to the transportation, treatment and disposal discontinued
operations, a number of items could potentially affect the liquidity and
capital resources of the Company, including changes in closure and
post-closure costs, realization of excess and residual land values,
demonstration of financial assurance and resolution of other regulatory
and legal contingencies. (See Notes to Consolidated Financial Statements
- - Discontinued operations.)
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 in January 1996
in connection with the recapitalization of Quanterra. The Company, as
part of the recapitalization, is committed to contribute (as required for
working capital purposes) up to an additional $2,500,000 to Quanterra (of
which $475,000 was paid in March 1996 and another $475,000 was paid in
April 1996) and has the option to make additional contributions to
maintain its 19% interest. (See Notes to Consolidated Financial
Statements - Quanterra.)
On October 25, 1995, the Company completed the refinancing of its
$50,000,000 principal amount 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 principal amount of 9 3/8% senior notes due July 1,
1996, were redeemed on November 24, 1995.
In aggregate, at March 29, 1996, letters of credit totaling
approximately $30,000,000 related to the Company's insurance program,
financial assurance 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 March 29, 1996. As of that date, the
Company's borrowing base under its combined financing package allowed for
additional letters of credit or borrowings under the line of credit of up
to $6,000,000. Together with invested cash of approximately $21,000,000,
this produced approximately $27,000,000 of total liquidity at March 29,
1996.
As a result of expected losses in the first quarter of fiscal year
1997, subsequent to March 29, 1996, the Company obtained a waiver
through August 1996 of certain covenants which allows it to maintain
compliance with its lending arrangements as of the end of the first
quarter of fiscal year 1997. In connection with this waiver,
the Company has agreed to restrict the usage of its credit line to
letters of credit during the period of the waiver. Additional modifications
to the lending arrangement will be required subsequent to the expiration
of the waiver. In the event such modifications are not obtained, there would
be a material adverse effect on the consolidated financial condition of the
Company.
21
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has total bonding capacity of $135,000,000 at present, of
which approximately $80,000,000 is currently being utilized. The
Company's bonding lines generally require 10% collateral in the form of
letters of credit.
The Company continues to have significant cash requirements, including
working capital, capital expenditures, expenditures for the closure of its
inactive disposal facilities and PRP matters (which are expected to
increase from recent levels over the next several years), dividend
obligations on the depositary shares and contingent liabilities. The
recent decline in the Company's business combined with these significant
cash requirements is expected to substantially reduce the Company's
present combined cash position and availability under its bank line;
however, subject to the progressive recovery of the Company's business
during fiscal year 1997, the Company's liquidity position is expected to
be sufficient to meet the foreseeable requirements.
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 ongoing 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 chief executive officer are
jointly and actively leading this effort and all opportunities have been
and are being aggressively explored, including possible mergers,
acquisitions and strategic and financial alliances. There can be no
assurance, however, that any transaction will occur or what the timing of
any such transaction may be.
FORWARD LOOKING STATEMENTS
When used in the preceding discussion, the words "expects,"
"anticipates" and similar expressions are intended to identify, and
nonhistorical statements are, forward looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual
results to differ materially from those expressed in any of the forward
looking statements. Such risks and uncertainties include, but are not
limited to, additional delays in federal budget authorization and in the
funding of federal government contracts, ongoing regulatory uncertainties
which affect both governmental and commercial clients, industrywide market
factors, liabilities and regulatory developments related to the Company's
discontinued operations and financial and liquidity trends.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE FOR THE THREE YEARS IN THE PERIOD ENDED MARCH 29, 1996
Consolidated Financial Statements. Page
- --------------------------------- -----
Report of Ernst & Young LLP, Independent Auditors. . . . . . 24
Consolidated Balance Sheets ----- March 29, 1996 and
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Operations ----- Three Years
Ended March 29, 1996. . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Stockholders' Equity ----- Three
Years Ended March 29, 1996. . . . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows ----- Three Years Ended
March 29, 1996. . . . . . . . . . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements. . . . . . . . . . 29
Financial Statement Schedule.
- ----------------------------
II. Valuation and qualifying accounts. . . . . . . . . . . . S-1
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information called
for is shown in the consolidated financial statements or notes thereto.
23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
International Technology Corporation
We have audited the accompanying consolidated financial statements and
financial statement schedule of International Technology Corporation
listed in the index at Item 8. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and schedule
referred to above present fairly, in all material respects, the
consolidated financial position of International Technology Corporation at
March 29, 1996 and March 31, 1995 and the consolidated results of
operations and cash flows for each of the three years in the period ended
March 29, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
May 15, 1996
24
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 29, March 31,
1996 1995
-------- --------
ASSETS (In thousands)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 24,493 $ 6,547
Accounts receivable, less allowance for doubtful
accounts of $2,943,000 in 1996 and
$3,107,000 in 1995 . . . . . . . . . . . . . . 126,832 137,896
Prepaid expenses and other current assets. . . . 4,315 5,630
Deferred income taxes. . . . . . . . . . . . . . 12,149 14,600
------- -------
Total current assets . . . . . . . . . . . . . 167,789 164,673
Property, plant and equipment, at cost:
Land and land improvements . . . . . . . . . . . 1,783 1,766
Buildings and leasehold improvements . . . . . . 10,961 9,561
Machinery and equipment. . . . . . . . . . . . . 144,218 143,181
------- -------
156,962 154,508
Less accumulated depreciation and amortization. 101,201 82,324
------- -------
Net property, plant and equipment. . . . . . 55,761 72,184
Cost in excess of net assets of acquired businesses 8,770 7,728
Investment in Quanterra. . . . . . . . . . . . . . 12,975 36,316
Other assets . . . . . . . . . . . . . . . . . . . 7,987 34,971
Deferred income taxes. . . . . . . . . . . . . . . 20,327 4,575
Long-term assets of discontinued operations. . . . 41,705 41,705
------- -------
Total assets . . . . . . . . . . . . . . . . . . $315,314 $362,152
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . $ 27,091 $ 28,823
Accrued wages and related liabilities . . . . . . 16,363 20,175
Billings in excess of revenues. . . . . . . . . . 2,044 3,977
Other accrued liabilities . . . . . . . . . . . . 15,794 22,485
Short-term debt, including current portion of
long-term debt. . . . . . . . . . . . . . . . . 97 1,154
Net current liabilities of discontinued operations 17,226 14,221
------- -------
Total current liabilities . . . . . . . . . . . 78,615 90,835
Long-term debt . . . . . . . . . . . . . . . . . . 65,611 80,189
Long-term accrued liabilities of discontinued
operations . . . . . . . . . . . . . . . . . . . 24,771 39,480
Other long-term accrued liabilities. . . . . . . . 5,452 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; 36,598,207 and 35,737,313
shares issued and outstanding, respectively. . . 36,598 35,737
Treasury stock at cost, 27,811 shares. . . . . . . (84) -
Additional paid-in capital . . . . . . . . . . . . 169,958 172,137
Deficit. . . . . . . . . . . . . . . . . . . . . . (68,007) (64,353)
------- -------
Total stockholders' equity . . . . . . . . . . . 140,865 145,921
------- -------
Total liabilities and stockholders' equity . . . . $315,314 $362,152
======= =======
See accompanying notes to consolidated financial statements.
25
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year ended
---------------------------------
March 29, March 31,
-----------------
1996 1995 1994
---- ---- ----
Revenues . . . . . . . . . . . $400,042 $423,972 $392,803
Cost and expenses:
Cost of revenues. . . . . . . 341,890 362,056 334,616
Selling, general and
administrative expenses . . 38,125 42,476 48,644
------- ------- -------
Operating income . . . . . . . 20,027 19,440 9,543
Equity in net loss of Quanterra,
including loss on recapital-
ization in 1996 and integration
charge in 1995 . . . . . . . (26,416) (9,827) -
Other income (expense) . . . . 1,090 (3,800) (2,500)
Interest, net. . . . . . . . . (6,445) (7,110) (8,273)
------- ------- -------
Loss from continuing operations
before income taxes. . . . . (11,744) (1,297) (1,230)
Benefit (provision) for income
taxes. . . . . . . . . . . . 12,290 (2,383) 124
------- ------- -------
Income (loss) from continuing
operations . . . . . . . . . 546 (3,680) (1,106)
Discontinued operations (net
of income taxes):
Loss from disposition. . . . - (10,603) -
------- ------- -------
Net income (loss). . . . . . . 546 (14,283) (1,106)
Less preferred stock dividends (4,200) (4,200) (2,135)
------- ------- -------
Net loss applicable to
common stock . . . . . . . . $ (3,654) $(18,483) $ (3,241)
======= ======= =======
Net loss per share:
Continuing operations (net of
preferred stock dividends). $ (.10) $ (.22) $ (.09)
Discontinued operations:
From disposition . . . . . - (.30) -
------- ------- -------
$ (.10) $ (.52) $ (.09)
======= ======= =======
See accompanying notes to consolidated financial statements.
26
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended March 29, 1996
(In thousands)
<TABLE>
<CAPTION>
Additional Common
Preferred Common Treasury paid-in stock to
stock stock stock capital be issued Deficit Totals
--------- ------ -------- --------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
<C>
Balance at March 31, 1993. . . $ - $ 33,240 $ - $109,217 $ 6,350 $(42,629) $106,178
Net proceeds from public
offering of depositary
shares. . . . . . . . . . . 2,400 - - 54,730 - - 57,130
Issuances of common stock . . - 1,961 - 4,870 (6,350) - 481
Dividends paid on preferred
stock. . . . . . . . . . . . - - - - - (2,135) (2,135)
Net loss. . . . . . . . . . . - - - - - (1,106) (1,106)
------- ------- ------- ------- ------- -------- -------
Balance at March 31, 1994. . . 2,400 35,201 - 168,817 - (45,870) 160,548
Issuances of common stock . . - 203 - 353 - - 556
Issuance of warrant and
common stock related to
the formation of Quanterra. - 333 - 2,967 - - 3,300
Dividends paid on preferred
stock . . . . . . . . . . . - - - - - (4,200) (4,200)
Net loss. . . . . . . . . . . - - - - - (14,283) (14,283)
------- ------- ------- ------- ------- -------- -------
Balance at March 31, 1995. . . 2,400 35,737 - 172,137 - (64,353) 145,921
Repurchase of common stock. . - - (740) - - - (740)
Restricted stock awards . . . - 835 656 (595) - - 896
Retirement of warrant and
common stock resulting
from the recapitalization
of Quanterra. . . . . . . . - (333) - (2,067) - - (2,400)
Issuances of common stock . . - 359 - 483 - - 842
Dividends paid on preferred
stock . . . . . . . . . . . - - - - - (4,200) (4,200)
Net income. . . . . . . . . . - - - - - 546 546
------- ------- ------- ------- ------- ------- -------
Balance at March 29, 1996. . . $ 2,400 $ 36,598 $ (84) $169,958 $ - $(68,007) $140,865
======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended
---------------------------------
March 29, March 31,
-----------------
1996 1995 1994
-------- ---- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . $ 546 $ (14,283) $ (1,106)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Net loss from disposition of
discontinued operations . . . - 10,603 -
Depreciation and amortization . 14,502 19,150 22,372
Deferred income taxes . . . . . (13,744) (4,385) (654)
Equity in net loss of Quanterra,
including loss on recapitali-
zation in 1996 and integration
charge in 1995. . . . . . . . 26,416 9,827 -
(Gain from) provision for
settlement of lawsuits. . . . (9,090) 9,100 -
Writeoff of costs incurred in
U.K. investments. . . . . . . - - 2,500
Writedown of equipment. . . . . 8,000 - -
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions of businesses:
Decrease (increase) in
receivables . . . . . . . . . 12,904 (21,149) 2,914
Decrease (increase) in prepaid
expenses and other current
assets. . . . . . . . . . . . 1,416 486 (2,475)
(Decrease) increase in accounts
payable. . . . . . . . . . . (2,204) 2,681 (10,732)
(Decrease) increase in accrued wages
and related liabilities. . . (3,987) 1,636 (1,501)
(Decrease) increase in billings in
excess of revenues . . . . . (1,986) (5,338) 6,786
(Decrease) increase in other
accrued liabilities. . . . . (6,613) 5,966 (3,374)
(Decrease) increase in other
long-term accrued liabilities (275) (719) 3,268
------- ------- -------
Net cash provided by operating
activities . . . . . . . . . . . 25,885 13,575 17,998
Cash flows from investing activities:
Proceeds from Motco settlement. . . 41,100 - -
Capital expenditures. . . . . . . . (4,696) (10,533) (14,745)
Investment in Quanterra . . . . . . (5,475) (1,208) -
Acquisition of business, net of
cash acquired . . . . . . . . . . (2,223) - -
Other, net. . . . . . . . . . . . . (655) 1,198 2,050
Investment activities of
transportation, treatment and
disposal discontinued operations. (11,704) (11,324) (12,179)
------- ------- -------
Net cash provided by (used for)
investing activities. . . . . . . 16,347 (21,867) (24,874)
Cash flows from financing activities:
Repayments of long-term borrowings (110,751) (55,965) (89,648)
Long-term borrowings. . . . . . . . 89,598 63,802 43,035
Net proceeds from public offering
of depositary shares. . . . . . . - - 57,130
Dividends paid on preferred stock . (4,200) (4,200) (2,135)
Issuances of common stock . . . . . 1,807 556 481
Repurchase of common stock. . . . . (740) - -
------- ------- -------
Net cash (used for) provided by
financing activities . . . . . . . (24,286) 4,193 8,863
------- ------- -------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . 17,946 (4,099) 1,987
Cash and cash equivalents at
beginning of year. . . . . . . . . 6,547 10,646 8,659
------- ------- -------
Cash and cash equivalents at
end of year. . . . . . . . . . . . $ 24,493 $ 6,547 $ 10,646
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of significant accounting policies:
Basis of presentation and principles of consolidation
-----------------------------------------------------
The consolidated financial statements include International Technology
Corporation (IT or the Company) and its wholly owned subsidiaries. The
Company also includes its proportionate interest in joint ventures which
were entered into for the purpose of executing large remediation projects
and in which the Company does not have in excess of 50% of voting control.
Intercompany transactions are eliminated. Certain reclassifications have
been made to prior years' consolidated financial statements in order to
conform to the current year presentation.
The Company has changed its fiscal year in 1996 to consist of four
thirteen-week fiscal quarters with the fourth quarter ending on the last
Friday of March.
Estimates used in the preparation of the consolidated financial
---------------------------------------------------------------
statements
----------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and the accompanying notes. Actual results
inevitably will differ from those estimates and such differences may be
material to the consolidated financial statements.
Cash equivalents
----------------
Cash equivalents include highly liquid investments with an original
maturity of three months or less.
Contract accounting and accounts receivable
-------------------------------------------
The Company primarily derives its revenues from providing environmental
management services in the United States, principally to federal, state
and local governmental entities, large industrial companies, utilities and
waste generators. Services are performed under time-and-material,
cost-reimbursement, fixed-price and unit-bid contracts.
Revenues from time-and-material and cost-reimbursement contracts are
recognized as costs are incurred. Estimated fees on such contracts and
revenues on fixed-price and certain unit-bid contracts are recognized
under the percentage-of-completion method determined based on the ratio of
costs incurred to estimated total costs. Anticipated losses on contracts
are recorded as identified. Certain contracts include provisions for
revenue adjustments to reflect scope changes and other matters, including
claims, which require negotiations with clients in the ordinary course of
business, leading to some estimates of claim amounts being included in
revenues. When such amounts are finalized, any changes from the estimates
are reflected in earnings.
Unbilled receivables typically represent amounts earned under the
Company's contracts but not yet billable according to the contract terms,
which usually consider the passage of time, achievement of certain
milestones or completion of the project. Unbilled receivables, included
in accounts receivable, were $20,945,000 and $20,869,000 at March 29, 1996
and March 31, 1995, respectively. Generally, unbilled receivables are
expected to be billed and collected in the subsequent fiscal year.
Included in unbilled receivables at March 29, 1996 is approximately
$8,500,000 of claims related to the Helen Kramer project which is subject
to a governmental investigation. (See Commitments and contingencies.)
Billings in excess of revenues represent amounts billed in accordance
with contract terms, which are in excess of the amounts includable in
revenue.
29
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At March 29, 1996, accounts receivable are primarily concentrated in
federal, state and local governmental entities and in commercial clients
in which the Company does not believe there is any undue credit risk.
Property, plant and equipment
-----------------------------
The cost of property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the individual
assets, except for the Hybrid Thermal Treatment System (HTTS)
transportable incineration units, which are generally depreciated on the
basis of operating days.
Interest
--------
Interest incurred on qualified capital expenditures is capitalized and
included in the cost of such constructed assets. Interest incurred was
$7,014,000, $8,065,000 and $9,326,000 for fiscal years 1996, 1995 and
1994, respectively. No interest was capitalized in fiscal year 1996.
Total interest capitalized was $484,000 and $893,000 for fiscal years 1995
and 1994, respectively.
Interest income is principally earned on the Company's investments in
cash equivalents and was $569,000, $471,000 and $160,000 in fiscal years
1996, 1995 and 1994, respectively. In fiscal year 1995, the Company
received a combined $278,000 of interest income resulting from a
settlement of a lawsuit and an income tax refund.
Intangible assets
-----------------
Cost in excess of net assets of acquired businesses is amortized over
20 years on a straight-line basis. At March 29, 1996 and March 31, 1995,
accumulated amortization is $7,305,000 and $6,584,000, respectively.
Other intangibles, arising principally from acquisitions, are amortized on
a straight-line basis over periods not exceeding 20 years. The Company
regularly reviews the individual components of its intangible assets and
recognizes, on a current basis, any diminution in value.
Per share information
---------------------
Per share information is based on the weighted average number of
outstanding common shares and common share equivalents during each period
which aggregated 35,927,309 in 1996, 35,557,309 in 1995 and 34,762,280 in
1994. Common share equivalents include dilutive stock options and, in
1994, common shares to be issued in connection with the settlement of a
class action stockholders' lawsuit. For each fiscal year presented, the
computation of net income per share, assuming the conversion into common
shares of the Company's 7% Cumulative Convertible Exchangeable Preferred
Stock, is antidilutive. (See Preferred stock.)
Fair value of financial instruments
-----------------------------------
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates its fair value.
Investment in Quanterra: The Company has a 19% ownership interest in
Quanterra (see Quanterra), in which the remaining 81% interest is held by
Corning Incorporated. The determination of fair value of the Company's
investment in this untraded, closely held entity is not practicable.
30
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long and short-term debt: A reasonable estimate of the fair value for
the 8.67% senior secured notes was based upon a discounted cash flow
analysis. The fair value of the 9 3/8% senior notes is based upon the
quoted market price. The carrying amount of other debt, including
borrowings under the Company's revolving credit facility, approximates its
fair value.
The carrying amounts and estimated fair values of the Company's
financial instruments are:
<TABLE>
<CAPTION>
March 29, 1996 March 31, 1995
----------------------- ------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 24,493 $ 24,493 $ 6,547 $ 6,547
Investment in Quanterra 12,975 Not Not Not
practicable applicable applicable
to determine
Long and short-term debt:
8.67% senior secured notes 65,000 64,759 - -
9 3/8% senior notes - - 50,000 48,875
11.63% secured loan - - 883 883
Revolving credit facility - - 30,000 30,000
Other 708 708 460 460
</TABLE>
Accrued contractual retirement benefits
---------------------------------------
In fiscal year 1994, the Company recorded a $4,500,000 charge to
selling, general and administrative expenses related to the actuarially
determined present value of contractual retirement benefits to be provided
to its former Chairman of the Board (who was also Chief Executive Officer
from 1975 through 1992) who retired from that position effective April 1,
1994. Terms of the agreement provide for payments by the Company of
approximately $300,000 per year for the duration of the former executive's
lifetime.
Consolidated statements of cash flows supplemental disclosures:
Supplemental cash flow information is:
<TABLE>
<CAPTION>
Year ended
---------------------------------
March 29, March 31,
-----------------
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest paid, net of amounts
capitalized $ 7,184 $ 7,230 $ 8,767
Interest received 293 317 107
Income taxes paid 1,860 782 1,241
Income tax refunds received 2 989 1,783
Acquisition liabilities assumed 1,155 - -
</TABLE>
Quanterra:
In June 1994, the Company and an affiliate of Corning Incorporated
(Corning) combined the two companies' environmental analytical services
businesses into a newly formed 50%/50% jointly-owned company (Quanterra).
In connection with the formation, the Company contributed the $38,766,000
31
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
net assets of its analytical business into Quanterra. Additionally, IT
incurred cash costs of $1,208,000, issued to Corning 333,000 shares of IT
common stock and a five-year warrant to purchase 2,000,000 shares of IT
common stock at $5.00 per share which were valued in the aggregate at
$3,300,000, and agreed to indemnify Quanterra and Corning from certain
liabilities arising prior to the closing of the transaction. Upon the
closing of the formation of Quanterra, an integration plan was implemented
to eliminate redundant laboratory facilities and duplicative overhead and
systems. IT's portion of the charge for integration was $9,264,000,
including $2,869,000 incurred directly by IT.
On January 19, 1996, the Company and Corning completed an agreement to
recapitalize Quanterra which 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 stock and warrants to purchase 2,000,000 shares of IT common stock,
previously issued to Corning in connection with the formation of
Quanterra. These shares and warrants were subsequently retired by IT. IT
also received a put option allowing it to sell its shares to Quanterra at
market value in the year 2003. The Company reported a pre-tax charge of
$24,595,000 related to the recapitalization transaction. As a result of
the recapitalization, IT's investment in Quanterra, which was previously
accounted for under the equity method, is currently accounted for on the
cost basis. At March 29, 1996, the Company's investment in Quanterra was
$12,975,000. The Company will monitor the value of its investment in
Quanterra on an ongoing basis and will recognize any impairment in value
should it occur.
Summarized income statement data for Quanterra for fiscal years 1996
and 1995 (nine months) is the following: revenues - $94,135,000 in 1996
and $92,448,000 in 1995; operating loss - $14,424,000 in 1996 and
$18,921,000 in 1995; and net loss - $11,278,000 in 1996 and $12,879,000 in
1995. Quanterra's revenues from IT were $15,700,000 and $12,000,000 in
fiscal years 1996 and 1995 (nine months), respectively.
Discontinued operations:
Overview
--------
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. In connection with
the divestiture, from December 1987 through March 31, 1994, the Company
cumulatively recorded a provision for loss on disposition of
transportation, treatment and disposal discontinued operations (including
the initial provision and two subsequent adjustments) in the amount of
$149,589,000, net of income tax benefit of $26,482,000. The adjustments
principally related to a writeoff of the contingent purchase price from
the earlier sale of certain assets, increased closure costs principally
due to delays in the regulatory approval process, and costs related to
certain waste disposal sites where IT has been named a potentially
responsible party (PRP). At March 31, 1995, the Company recorded a
further increase in the provision for loss on disposition of $10,603,000,
net of income tax benefit of $6,397,000, primarily for increased closure
costs resulting from additional delays in the regulatory approval process
and costs related to certain waste disposal sites where IT has been named
as a PRP. The Company has incurred costs of $11,704,000 in 1996,
$11,324,000 in 1995 and $12,179,000 in 1994 relating to the closure plans
and construction and PRP matters. The Company expects to incur
significant costs over the next several years. At March 29, 1996, the
Company's consolidated balance sheet included accrued liabilities of
approximately $42,000,000 to complete the closure and post-closure of its
disposal facilities and the PRP matters.
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions and
estimates, including those discussed below. The adequacy of the provision
for loss has been currently reevaluated in light of the developments since
the adoption of the divestiture plan, and management believes that the
provision as adjusted is reasonable; however, the ultimate effect of the
divestiture on the consolidated financial condition of the Company is
dependent upon future events, the outcome of which cannot be determined at
32
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Northern California facilities
------------------------------
The Company has formally, permanently closed its Montezuma Hills and
Benson Ridge facilities and is pursuing closure of its inactive Panoche
and Vine Hill Complex facilities. On November 17, 1995, the California
EPA, Department of Toxic Substances Control (DTSC) approved the final
closure plan and post-closure plan for the Vine Hill Complex facility.
The approved final closure plan provides for solidification and capping
of waste sludges and installation of underground barriers and groundwater
control systems. Substantial remediation has already been completed over
the past several years based upon interim approvals by DTSC, and the final
closure is scheduled to be completed in fiscal year 1998.
Closure and post-closure plans for the Panoche facility are being
reviewed for approval by the DTSC. DTSC is preparing a Draft
Environmental Impact Report (DEIR) and Draft Closure Plan for public
comment. The DEIR evaluates the Company's proposed closure plan as well
as several alternative plans. The alternative plans involve excavation and
on-site relocation of substantial quantities of waste materials in
addition to landfill capping and groundwater controls which are common to
all alternatives. If selected, the alternative plans would extend the
closure construction schedule and increase the cost of closure. The DEIR
and Draft Closure Plan are subject to a 60-day public comment period after
which the DTSC will approve a final closure plan and certify the final
EIR. The Company expects the plan and all necessary permits to be
approved during fiscal year 1997. Closure construction for the Company's
proposed plan is scheduled to be completed within three years of approval
of the plan. Although not anticipated, if DTSC were to approve an
alternative plan or fail to timely approve any plan, the Company's cost to
close the site would increase, which could have a material adverse impact
on the consolidated financial condition of the Company.
Closure construction was completed for the Montezuma Hills and Benson
Ridge facilities 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 facilities for at
least 30 years. Operation of the facilities 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 facilities in the future or to pay penalties for
alleged noncompliance with regulatory permit conditions.
Regulations of the DTSC and the United States Environmental Protection
Agency (USEPA) require that owners and operators of hazardous waste
treatment, storage and disposal facilities provide financial assurance for
closure and post-closure costs of those facilities. The Company has
provided such financial assurance equal to its estimate for closure costs
at March 1, 1996, 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 $11,200,000, and has
purchased annuities which will ultimately mature over the next 30 years to
pay for its estimates of post-closure costs.
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 DTSC, USEPA, the California State Water Resources
Control Board, the California Air Resources Board, Regional Water Quality
Control Boards (RWQCBs), Air Quality Management Districts, various other
state authorities and certain applicable local 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
33
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the closure plan approval process. Certain revisions to the closure
procedures could also result in impairment of the residual land values
attributed to certain of the sites.
The carrying value of the long-term assets of transportation, treatment
and disposal discontinued operations of $41,705,000 at March 29, 1996 is
principally comprised of residual land at the inactive disposal facilities
(a substantial component of which is adjacent to those facilities and was
never used for waste disposal) 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. The Company has an agreement with a real estate developer to
develop some of this property as part of a larger development in the local
area involving a group of developers. The entitlement process has been
delayed pending approval of the Company's closure plan for its adjacent
disposal facility 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.
Operating Industries, Inc. Superfund Site
-----------------------------------------
In June 1986, USEPA notified a number of entities, including the
Company, that they were PRPs under the Comprehensive Environmental
Response, Compensation and Liability Act (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 cost to
investigate and clean up this site. Subsequently, USEPA alleged that the
Company had generated approximately 2% by volume of the hazardous wastes
disposed of at the site and that the Company's share of certain past costs
totaled not less than $8,500,000. Between October 1994 and May 1995, the
Company was served with summons and complaints in two lawsuits (National
Railroad Passenger Corporation, et al. v. Harshaw Filtrol, U.S.D.C.,
Central District, California, Case No. CV 94-2861 WMB (GHKx) and National
Railroad Passenger Corporation v. ACF United, U.S.D.C., Central District,
California, Case No. CV 95-2050 LGB (RMBx)) brought by members of a group
of PRPs ( the Steering Committee), which sought from the Company at least
$2,700,000 for costs incurred by Steering Committee members pursuant to
the first three settlements (partial consent decrees) negotiated between
the USEPA and the Steering Committee. (The Company has not been named as
a defendant in any of the several personal injury and property damage
lawsuits brought by area residents.)
In October 1995, the Company and the USEPA agreed to a settlement of
the Company's alleged liability for response costs incurred by the USEPA
pursuant to the first three partial consent decrees entered into in
connection with the OII site. In March 1996, the settlement with USEPA,
in the form of a consent decree (the Fifth Partial Consent Decree), was
lodged in the U.S. District Court. The settlement is subject to federal
court approval which is expected in July 1996. If the settlement is
approved, the Company will pay to the USEPA approximately $5,400,000 in
four installments within one year, which amounts had been previously
accrued by the Company, and 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. While resolving the
Company's alleged 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 has
released a feasibility study and proposed the final remedy for the site.
Selection of the final remedy is subject to public notice and comment.
Response costs for the final remedy are estimated by USEPA to range from
$96,000,000 to $115,000,000 for the USEPA's preferred alternative to
$234,000,000 for the most expensive alternative.
34
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 1996, the Company and the Steering Committee reached a
settlement of the Harshaw Filtrol and the ACF United lawsuits, pursuant to
which the Company will pay $250,000 in settlement of the Steering
Committee's claims. The Company and the Steering Committee also agreed,
as a part of the settlement, to cooperate and share on a pro-rata basis
certain response and other defense costs with respect to certain
groundwater cleanup actions which may be a part of the final remedy for
the site. The Company and the Steering Committee have not agreed to share
all costs related to the final remedy at the site, inasmuch as the
Steering Committee claims that pursuant to earlier consent decrees it is
excused from paying for or performing certain actions which may be
required as a part of any final remedy and for which the Company and other
persons who settled with USEPA pursuant to the Fifth Partial Consent
Decree may be liable. The Company does not agree with these claims. The
Company's agreement with the Steering Committee to cooperate and share
costs with respect to certain groundwater cleanup actions may be
terminated voluntarily by either party, including in the event of a
dispute as to the parties' respective obligations to pay for or perform
the final remedy for the site.
Should the settlement with the USEPA be disapproved, or the costs of
the final remedy be greater than expected, or should the Company be forced
to assume a disproportionate share of the costs of the final remedy
(whether because of differences in the protections obtained by the
Steering Committee and the Company under the various consent decrees, or
otherwise), the cost to the Company of concluding this matter could
materially increase.
GBF Pittsburg Site
------------------
In September 1987, the Company was served with a Remedial Action Order
(RAO) issued by the DTSC, concerning the GBF Pittsburg landfill site near
Antioch, California, a site which had been proposed by the USEPA to be
added to the National Priorities List under CERCLA. IT and 17 other firms
and individuals were characterized as responsible parties in the RAO and
directed to undertake investigation and potential remediation of the site
which consists of two contiguous parcels. From 1968 through 1974, a
predecessor to IT Corporation operated a portion of one parcel as a liquid
hazardous waste site. The activity ceased in 1974, and the disposal
facility was closed pursuant to a closure plan approved by the appropriate
RWQCB. Both of the parcels were then operated by other parties as a
municipal and industrial waste site (overlying the former liquid hazardous
waste site) and, until 1991, continued to accept municipal waste. Water
quality samples from monitoring wells in the vicinity of the site were
analyzed by the property owner in August 1986 and indicated the presence
of volatile organics and heavy metals along the periphery of the site.
Additional PRPs, consisting primarily of known waste generators, were
subsequently served with an amended RAO by the DTSC. IT and other PRPs
(the PRP group) are participating to further investigate the nature and
extent of any subsurface contamination beneath the site and beyond its
borders. The PRP group has submitted Remedial Investigation and
Feasibility Study (RI/FS) reports to the DTSC. The studies indicate that
groundwater quality impact is not affecting drinking water supplies and is
not attributable solely to the portion of the site previously operated by
IT's predecessor.
In July 1993, the Company, along with the other PRPs at the site, was
issued a revised RAO and Imminent and Substantial Endangerment Order that,
although it appears primarily to restate previous RAOs, also directs all
previously named PRPs to undertake specific additional tasks including the
closure of the municipal landfill.
In November 1995, the DTSC, by letter, required the PRP group to submit
for public comment and DTSC approval a draft Remedial Action Plan (RAP)
describing a remedial alternative not supported by the PRP group. The PRP
group disputed the timing and content of the draft RAP as required by DTSC
as not justified by the RI/FS process, but in January 1996 submitted a
draft RAP discussing a number of remedial alternatives. In its November
1995 letter, the DTSC estimated that the costs of the remedial
alternatives to range from approximately $4,100,000 for the PRP group's
preferred alternative to between $18,300,000 to $32,600,000 for DTSC's
favored alternative depending upon whether certain options for discharge
of produced waters were available. The options range from continued
limited site monitoring to actively pumping and treating groundwater from
both the alleged source points of contamination and the allegedly
contaminated groundwater plume emanating from the site. The DTSC has
35
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
advised the PRP group that it has reviewed the group's data and arguments,
and nevertheless intends to complete and release for public review and
comment by the second quarter of fiscal year 1997 a draft RAP selecting
DTSC's preferred alternative. The PRP group is evaluating its potential
remedies with respect to the DTSC's action.
As a part of the draft RAP that the PRP group submitted in January
1996, the group asserted that other PRPs at the site (principally, the
current and past owner/operators of the site) were responsible for
approximately 85% of the site's remediation costs, and that the PRP group
was responsible for no more than approximately 15% of such costs. The
current owner/operators recently submitted to DTSC their own proposal in
which they claim that the Company and other members of the PRP group are
responsible for at least 89% of the site's remediation costs and that they
are responsible for only a small percentage of the site's remediation
costs, and have demanded indemnity from the Company pursuant to the lease
agreement under which IT Corporation's predecessor operated the site. The
DTSC has not adopted either allocation. The Company has paid
approximately 50% of the PRP group's costs to-date on an interim basis.
The PRP group is initiating litigation against the current owner/operators
of the site and other non-cooperating PRPs to cause them to bear their
proportionate share of site remedial costs. The current owner/operators
of the site have not cooperated with the PRP group in its efforts to study
and characterize the site, except for limited cooperation which was
offered shortly after the September 1987 RAO. The current owner/operators
are expected to vigorously defend the PRP group's litigation, and the
outcome of the litigation cannot be determined at this time.
Failure of the PRP group to effect a satisfactory resolution with
respect to the choice of appropriate remedial alternatives or to obtain an
appropriate contribution towards site remedial costs from the current
owner/operators of the site and other non-cooperating PRPs, could
substantially increase the cost to the Company of remediating the site,
which would have a material adverse effect on the Company's consolidated
financial condition.
Environmental Protection Corporation Site
-----------------------------------------
In March 1995, IT was notified by the DTSC that it was among 13
companies identified as potentially responsible for costs associated with
investigation and cleanup of the Environmental Protection Corporation
(EPC) site known as the Eastside Facility near Bakersfield, California.
The DTSC notice letter states that IT is believed to have arranged for
disposal of hazardous substances at the Eastside Facility during the
period between 1972 and 1985 when it was permitted and operated as a land
treatment facility.
IT transported various waste streams both generated by IT and on behalf
of its customers to the Eastside Facility at various times during that
facility's operations and it was a minority shareholder in EPC for a
period of its operations. In its March 1995 letter the DTSC directed IT
and the other parties which were notified to form a group and to respond
to a proposed administrative order directing them to characterize the
facility and undertake any appropriate remedial action to deal with any
releases or threatened releases identified. In January 1996, the PRP
group (of which the Company is a member) and the DTSC entered into an
agreement for the performance of a RI/FS for the site, as well as for cost
sharing for the RI/FS among the group and the DTSC. IT is cooperating
with other group members to perform the work outlined in the agreement.
Because of the early stage of the matter, IT has no estimate of its
potential costs associated with the remediation of the Eastside Facility.
Other Site Cleanup Actions
--------------------------
The Company, as a major provider of hazardous waste transportation,
treatment and disposal operations in California prior to the December 1987
adoption of its strategic restructuring program, has been named a PRP at
a number of other sites and may from time to time be so named at
additional sites and may also face damage claims by third parties for
alleged releases or discharges of contaminants or pollutants arising out
of its transportation, treatment and disposal discontinued operations.
The Company has either denied responsibility and/or is participating with
others named by the USEPA and/or the DTSC in conducting investigations as
to the nature and extent of contamination at the sites. Based on the
36
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company's experience in resolving claims against it at a number of sites
and upon current information, in the opinion of management, with advice of
counsel, claims with respect to sites not described above at which the
Company has been notified of its alleged status as a PRP will not
individually or in the aggregate result in a material adverse effect on
the consolidated financial condition of the Company.
The Company has initiated against a number of its past insurers claims
for recovery of certain damages and costs with respect to both its
Northern California sites and certain PRP matters. The carriers dispute
their allegations to the Company and the Company expects them to continue
to contest the claims. The Company has included in its provision for loss
on disposition of discontinued operations (as adjusted) an amount that, in
the opinion of management, with advice of counsel, represents a probable
recovery with respect to those claims.
Long-term debt:
Long-term debt consists of the following:
March 29, March 31,
1996 1995
-------- --------
(In thousands)
8.67% senior secured notes,
due 2001 - 2003. . . . . . . . . . $ 65,000 $ -
9 3/8% senior notes, due 1996 . . . - 50,000
Revolving credit facility . . . . . - 30,000
Other . . . . . . . . . . . . . . . 708 1,343
------- -------
65,708 81,343
Less current portion . . . . . . . 97 1,154
------- -------
$ 65,611 $ 80,189
======= =======
Aggregate amounts of long-term debt maturing in the five years
following March 29, 1996 are $97,000, $218,000, $203,000, $190,000 and
none, respectively.
On October 25, 1995, the Company completed the refinancing of its
$50,000,000 principal amount 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 bank line has a term of five years.
As a result of the consummation of this refinancing arrangement, the
Company's $50,000,000 principal amount of 9 3/8% senior notes due July 1,
1996, were redeemed on November 24, 1995.
Interest on borrowings under the Company's 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. The Company is in compliance with its
covenants as of March 29, 1996.
37
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a result of expected losses in the first quarter of fiscal year
1997, subsequent to March 29, 1996, the Company obtained a waiver through
August 1996 of certain covenants which allows it to maintain compliance
with its lending arrangements as of the end of the first quarter of
fiscal year 1997. In connection with this waiver, the Company has
agreed to restrict the usage of its credit line to letters of credit
during the period of the waiver. Additional modifications to the
lending arrangement will be required subsequent to the expiration of the
waiver. In the event such modifications are not obtained, there would
be a material adverse effect on the consolidated financial condition of the
Company.
In aggregate, at March 29, 1996, letters of credit totaling
approximately $30,000,000 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 March 29, 1996. As of that
date, the Company's borrowing base under its combined financing
arrangement allowed for additional letters of credit or borrowings under
the line of credit of up to $6,000,000.
Income taxes:
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended
---------------------------------
March 29, March 31,
-----------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,098 $ - $ (104)
State 346 371 422
------- ------- -------
1,444 371 318
------- ------- -------
Deferred:
Federal (11,942) (1,828) (442)
State (1,792) (2,557) -
------- ------- -------
(13,734) (4,385) (442)
------- ------- -------
Total benefit $(12,290) $(4,014) $ (124)
======= ======= =======
</TABLE>
The benefit for income taxes is included in the statements of
operations as follows:
<TABLE>
<CAPTION>
Year ended
--------------------------------
March 29, March 31,
----------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Continuing operations $(12,290) $ 2,383 $ (124)
Discontinued operations - (6,397) -
------- ------- -------
Total benefit $(12,290) $ (4,014) $ (124)
======= ======= =======
</TABLE>
38
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the provision (benefit) for income taxes on
continuing operations computed by applying the federal statutory rate of
34% to the loss from continuing operations before income taxes and the
reported provision (benefit) for income taxes of continuing operations is
as follows:
<TABLE>
<CAPTION>
Year ended
---------------------------------
March 29, March 31,
-----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax benefit computed at
statutory federal income
tax rate $ (3,993) $ (441) $ (418)
State income taxes, net of
federal tax benefit, if any (954) 424 422
Equity in income (loss) of
foreign subsidiaries - 57 (374)
Amortization of cost in
excess of net assets
of acquired businesses 199 200 212
Equity in net loss of Quanterra (2,366) 2,366 -
Research credit - (212) -
Federal deferred tax asset
valuation allowance adjustment (5,539) - -
Other (principally nondeductible
items) 363 (11) 34
------- ------- -------
Total provision (benefit) $(12,290) $ 2,383 $ (124)
======= ======= =======
</TABLE>
At March 29, 1996, the Company had net operating loss (NOL)
carryforwards of approximately $20,992,000 for tax reporting purposes
expiring primarily in 2007 through 2010. The Company also has tax credit
carryforwards of approximately $2,350,000 which expire in various years
through 2008 and alternative minimum tax credit carryforwards of
approximately $3,246,000 with no expiration.
39
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At March 29, 1996 and March 31, 1995, the Company had deferred tax
assets and liabilities as follows:
<TABLE>
<CAPTION>
March 29, March 31,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Closure accruals - discontinued operations $ 24,854 $ 28,211
NOL carryforwards 9,109 20,145
Tax basis in excess of book basis in Quanterra 11,145 -
Alternative minimum tax credit carryforwards 3,246 1,809
Investment and other tax credit carryforwards 2,350 2,708
Other accrued liabilities 7,581 10,082
Other, net 2,042 3,658
------- -------
Gross deferred tax asset 60,327 66,613
Valuation allowance for deferred tax asset (4,869) (12,650)
------- -------
Total deferred tax asset 55,458 53,963
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (6,047) (14,381)
Asset basis difference - discontinued operations (11,997) (11,997)
Other, net (4,938) (8,410)
------- -------
Total deferred tax liabilities (22,982) (34,788)
------- -------
Net deferred tax asset $ 32,476 $ 19,175
======= =======
Net current asset $ 12,149 $ 14,600
Net noncurrent asset 20,327 4,575
------- -------
Net deferred tax asset $ 32,476 $ 19,175
======= =======
</TABLE>
During the year ended March 29, 1996, the Company decreased its
deferred tax asset valuation allowance from $12,650,000 to $4,869,000.
The cumulative impact of the resolution in fiscal year 1996 of a number of
uncertainties has led to a reassessment of the Company's ability to
generate a sufficient level of future earnings to realize a substantial
portion of its related deferred tax asset, resulting in the release of
valuation allowance. Matters resolved in fiscal year 1996 included:
(1) the $41,100,000 settlement of the Motco Trust lawsuit related to a
major contract performed by the Company, which resulted in a substantial
tax gain (see Motco litigation settlement), (2) the $125,000,000
refinancing of the Company's senior notes and revolving credit line at
efficient rates on a long-term basis thereby mitigating the potential
impact of higher future interest expenses (see Long-term debt), (3) the
final approval from California state regulators for the closure plan
related to the Vine Hill Complex facility, resolving certain of the
uncertainties regarding the ultimate costs for closure of the facility
(see Discontinued operations), (4) the settlement of past costs related to
the OII disposal facility PRP action (see Discontinued operations), (5)
the recapitalization of Quanterra (see Quanterra), and (6) the settlement
of the majority of the lawsuits related to the Central Garden litigation
(see Commitments and contingencies - Contingencies - Central Garden).
Management expects that its future taxable income and the use of
tax-planning strategies will more likely than not allow the Company to
fully realize its deferred tax asset. The Company evaluates the adequacy
of the valuation allowance and the realizability of the deferred
tax asset on an ongoing basis.
During the year ended March 31, 1995, the Company decreased the
deferred tax asset valuation allowance to $12,650,000, principally to
offset an adjustment made to reduce the gross deferred tax asset to
recognize the federal benefit of net operating losses for state purposes.
During the year ended March 31, 1994, the Company increased the deferred
40
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
tax asset valuation allowance to $13,519,000, principally due to the
recognition of additional state deferred tax assets, primarily
state NOL carryforwards, and the relative uncertainty that such state
benefits will be fully utilized.
Commitments and contingencies:
Lease commitments
-----------------
The Company's operating lease obligations are principally for
buildings and equipment. Generally, the Company is responsible for
property taxes and insurance on its leased property. At March 29, 1996,
future minimum rental commitments under noncancelable operating leases
with terms longer than one year aggregate $32,291,000 and require payments
in the five succeeding years and thereafter of $8,365,000, $7,432,000,
$5,462,000, $3,833,000, $3,175,000, and $4,024,000, respectively.
Rental expense related to continuing operations was $11,037,000,
$11,550,000 and $14,912,000 for fiscal years 1996, 1995 and 1994,
respectively.
Contingencies
-------------
Class action lawsuit
--------------------
Mancino et al. v. International Technology Corporation, et al.,
(U.S.D.C., Central District, California, Case No. 89 - 7244 RMT) is a
class action lawsuit filed in federal court in December 1989, on behalf of
stockholders of the Company alleging violations of the federal Securities
Exchange Act of 1934 in connection with the purchase of shares of the
Company's common stock by members of the purported class between January
1986 and April 1987. The Company has recently reached an
agreement-in-principle to settle the plaintiff's claims. The settlement
is subject to completion of documentation as well as to approval by the
court after notice to the class. The Company recorded a provision of
$3,800,000 in fiscal year 1995 for potential settlement and defense costs,
which is sufficient to cover the Company's obligation under the settlement
which has been negotiated.
After consultation with outside counsel and in consideration of the
availability of insurance coverage and the Company's settlement provision,
management believes the ultimate outcome of the Mancino action will not
have a material adverse effect on the consolidated financial condition of
the Company.
Central Garden
--------------
In July 1992, the Company responded to an emergency call to clean up
a chemical spill at a finished product warehouse facility leased by
Central Garden & Pet Supply Company (Central) in Baton Rouge, Louisiana.
While cleanup was under way, a fire began which damaged the warehouse
facility. In addition to the owner of the facility, Central and two other
lessees of the finished product warehouse facility (an electrical supply
company and a pharmaceutical company) incurred significant property damage
and substantial loss of inventory. A total of nine lawsuits arising from
the fire were filed against the Company including action brought by
residents of a nearby apartment complex alleging personal injuries caused
by the release of hazardous materials into the atmosphere as a result of
the fire (Gravois et al. v. IT Corporation, et al., U.S.D.C., Central
District, Louisiana, Case No. 92-649). In August 1993, Gravois was
remanded to state court (19th Judicial District, Parish of East Baton
Rouge, Louisiana, #383,887).
The parties to all the lawsuits alleged, among other things, that
the Company was the cause of the fire in failing to exercise proper care
in the cleanup of the spill, and was responsible for the property damage,
loss of contents, loss of profits and other economic injury, and expenses
incurred in the cleanup. The Company in pleadings denied responsibility
41
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for the fire, raised certain claims and defenses, and further asserted
that Central was not entitled to a set-off for monies due the Company for
services rendered to Central of approximately $1,700,000 which amounts are
included in accounts receivable in the Company's consolidated balance
sheets at March 29, 1996 and March 31, 1995. The allegations in the other
lawsuits arising out of the fire substantially duplicated those of the
Gravois case and each other. See, e.g., 19th Judicial District Court,
Parish of East Baton Rouge, Louisiana, #390,241, 19th Judicial District
Court, Parish of East Baton Rouge, Louisiana, #393,056.
Pursuant to a Case Management Order applicable to all of the filed
cases, in March 1995, the parties claimed a total of $23,000,000 from all
of the defendants (including the claims by the personal injury plaintiffs
in the Gravois and two other related actions of approximately $2,400,000),
but not including claims for punitive damages in unspecified amounts.
In March and April 1996, the Company and its insurer settled or
reached settlements-in-principle regarding six of the nine lawsuits
against the Company brought by those claiming principally property damage.
The settlements-in-principle are subject to completion of documentation
and approval by the court. As a part of the settlements-in-principle, the
Company expects to be paid at least $1,500,000 of the $1,700,000 account
receivable due from Central.
The Company has not yet been able to reach settlements of the claims
asserted in the Gravois action and in the two other related cases by
nearby apartment dwellers and others who claim personal injuries, damages
to their residences, related personal property damage, and punitive
damages. While the Company is pursuing settlement of these matters, the
Company is defending them vigorously and believes that it has meritorious
challenges to some of the damages claimed and meritorious claims for
contribution against others. Trial of the cases has not been set.
The Company's insurance carrier defended the actions which have been
settled-in-principle and is defending the three remaining actions subject
to a reservation of its rights to contest coverage at a later date. The
Company may face reimbursement claims by its carrier, based on assertions
that the Company's policies do not cover damages resulting from the fire
because of allegations that such damages are excluded pollution
liabilities or punitive damages.
In fiscal year 1995, the Company recorded a $5,300,000 charge,
covering both defense and potential settlement costs, to provide for its
self-insured retention under its general liability insurance coverage for
the Central Garden matter. Based on discovery to-date, should any of the
settlements-in-principle not be completed or should any of the nine cases
proceed to trial, there is a risk that the Company will be found liable
for at least some damages. If the Company is held liable for damages,
there is the further risk that the Company could be held liable for
punitive damages. Should any of the settlements-in-principle not be
completed, or should any of the nine cases proceed to trial and result in
a significant award of damages against the Company, or should the Company
be required to pay significant amounts in settlement of any of the cases,
any of which are not substantially covered by the Company's insurance
policies, additional litigation costs would be recorded related to the
matter.
Helen Kramer contract
---------------------
In May 1993, the Company received an administrative subpoena from
the Office of the Inspector General (OIG) of the USEPA seeking documents
relating to certain of the Company's claims which were submitted to the
U.S. Army Corps of Engineers with regard to the Helen Kramer remediation
contract, a completed project which the Company performed in joint
venture. Since August 1992, the Defense Contract Audit Agency (DCAA) has
been conducting an audit of certain claims submitted by the joint venture.
The Company has been informed that there is a federal civil and criminal
investigation into the claims. Government investigators interviewed
employees of the joint venture, the Company's joint venture partner, and
the Company. In May 1995, the OIG issued the Company, its joint venture
partner and the joint venture a subpoena for various project documents, to
which the Company has responded.
42
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 1993, a shareholder of the Company alleged that the acts
giving rise to the Helen Kramer investigation constituted, among other
things, a waste of the Company's assets and demanded that the Company
institute an action against those responsible for the alleged wrongdoing.
The Audit Committee (Committee) of the Board of Directors investigated the
allegations of the OIG. The Committee, acting with the assistance of
outside counsel and experts, determined that there was no evidence of
intentional wrongdoing or negligence by the Company or any employee. The
Board approved the report of the Committee and advised counsel to the
shareholder of its conclusions in September 1994. The Company has not
received any further communication from the shareholder or her counsel.
Other
-----
The Company is subject to other claims and lawsuits in the ordinary
course of its business. In the opinion of management, all such other
pending claims are either adequately covered by insurance or, if not
insured, will not individually or in the aggregate result in a material
adverse effect on the consolidated financial condition of the Company.
The Company maintains a liability insurance program which includes
commercial general liability, product liability, automotive liability,
employer's liability, workers' compensation, all risk property coverage,
consultants' environmental liability (including errors and omissions),
employment practices liability and directors' and officers' liability
insurance coverage. A portion of the Company's commercial general
liability, product liability, automotive liability and workers'
compensation insurance is provided through arrangements which require the
Company to indemnify the insurance carriers for all losses and expenses
under the policies and to support the indemnity commitments with letters
of credit.
Environmental Impairment Liability coverage for IT's inactive
treatment, storage and disposal facilities located in Northern California
is provided through the Company's captive insurance subsidiary, which has
issued a $32,000,000 policy which meets the current requirements of both
federal and state law. See Discontinued operations for information
regarding certain legal and governmental proceedings affecting the
Company's treatment, storage and disposal facilities.
Motco litigation settlement:
Noncurrent other assets at March 31, 1995 included a claim amount of
$31,200,000 representing direct costs incurred in excess of those
recovered to that date under the Motco Site Trust Fund contract.
On December 4, 1991, the Company announced the suspension of work at
the Motco project, the cleanup of a Superfund site in Texas and the filing
of a $56,000,000 breach of contract lawsuit against the Motco Trust, the
PRP group that agreed to finance remediation of the site, and Monsanto
Company, the leader of the PRP group. In May 1995, a federal court judge
issued a judgment in favor of IT in the amount of approximately
$66,000,000, including attorneys' fees and interest.
In August 1995, the Company settled the litigation and received
$41,100,000 of cash from the Motco Trust. 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.
Governmental regulation:
The Company is subject to extensive regulation by applicable
federal, state and local agencies. All facets of the Company's business
are conducted in the context of a rapidly changing statutory, regulatory
and governmental enforcement framework and a highly visible political
environment. The Company's operations must satisfy stringent laws and
regulations applicable to performance. Future changes in regulations may
have an adverse effect on the Company's business.
43
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred stock:
In a September 1993 public offering, the Company issued 2,400,000
depositary shares, each representing a 1/100th interest in a share of the
Company's 7% Cumulative Convertible Exchangeable Preferred Stock
(Preferred Stock). The depositary shares entitle the holder to all
proportional rights and preferences of the Preferred Stock, including
dividend, liquidation, conversion, redemption and voting rights and
preferences. The net proceeds from the issuance were $57,130,000.
The Preferred Stock ranks, as to dividends and liquidation, prior to
the Company's common stock. The dividend per annum and liquidation
preference for each share of Preferred Stock are $175 and $2,500,
respectively, and for each depositary share are $1.75 and $25,
respectively. Dividends on the Preferred Stock and depositary shares are
cumulative and payable quarterly.
The Preferred Stock is convertible at the option of the holder into
shares of the Company's common stock at a conversion price of $5.84 per
share, subject to adjustment under certain circumstances. On any dividend
payment date on or after September 30, 1996, the Preferred Stock is
exchangeable at the option of the Company, in whole but not in part, for
7% Convertible Subordinated Debentures Due 2008 in a principal amount
equal to $2,500 per share of Preferred Stock (equivalent to $25 per
depositary share). The Preferred Stock may be redeemed at any time on or
after September 30, 1996, at the option of the Company, in whole or in
part, initially at a price of $2,622.50 per share of Preferred Stock
(equivalent to $26.225 per depositary share) and thereafter at prices
declining to $2,500 per share of Preferred Stock (equivalent to $25 per
depositary share) on or after September 30, 2003.
Additionally, the Preferred Stock has a special conversion right
that becomes effective in the event of certain significant transactions
affecting ownership or control of the Company. In such situations, the
special conversion right would, for a limited period, reduce the then
prevailing conversion price to the greater of the market value of the
common stock or $3.17 per share. Generally and with certain exceptions,
the special conversion right becomes effective if (1) a person or group
acquires at least 50% of the Company's common stock, (2) the Company sells
all or substantially all of its assets or (3) the Company participates in
a merger or consolidation in which the Company is not the surviving
company or the holders of the Company's common stock immediately prior to
such merger or consolidation do not hold, directly or indirectly, at least
a majority of the common stock of the merger after such a transaction
unless the consideration for the transaction received by the holders of
the Company's stock is listed stock of a publicly-held company. The form
of consideration issued (cash, securities or other property) upon the
exercise of the special conversion right by a holder of Preferred Stock
depends upon, among other things, the type of transaction that gives rise
to the special conversion right.
The Preferred Stock is non-voting, except that holders are entitled
to vote as a separate class to elect two directors if the equivalent of
six or more quarterly dividends (whether consecutive or not) on the
Preferred Stock are in arrears. Such voting rights will continue until
such time as the dividend arrearage on the Preferred Stock has been paid
in full.
Stock incentive plans:
The Company's 1991 Stock Incentive Plan (1991 Plan) and 1983 Stock
Incentive Plan (1983 Plan) provided for the granting of incentive and
non-qualified stock options and the issuance of the Company's common stock
or any other security or benefit with a value derived from the value of
its common stock. No shares are available for grant under these plans as
such authority to grant as to the 1991 Plan expired in March 1996 and as
to the 1983 Plan expired in September 1993. Options granted under the
plans and outstanding at March 29, 1996 will expire at various dates
through March 7, 2006.
Changes in the number of shares represented by outstanding options
under the 1991 Plan and the 1983 Plan during the fiscal years ended March
29, 1996 and March 31, 1995 and 1994 are summarized as follows:
44
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Year ended
---------------------------------
March 29, March 31,
-------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning
of year 3,242,503 3,187,019 2,787,152
Options granted
(1996, $2.625 - $3.25 per share;
1995, $2.50 - $3.625 per share;
1994, $3.125 - $5.875 per share) 140,000 1,453,605 1,007,200
Options exercised
(1996, $2.875 per share;
1995, $2.875 per share;
1994, $2.75 - $4.625 per share) (2,299) (10,060) (170,583)
Options expired and forfeited (246,939) (1,388,061) (436,750)
-------- --------- ---------
Outstanding at end of year (1996,
$2.50 - $8.125 per share) 3,133,265 3,242,503 3,187,019
========= ========= =========
Vested options 2,240,635 1,392,422 1,484,947
========= ========= =========
</TABLE>
Additionally, under the 1991 Plan, the Company awarded shares of
nonvested restricted stock to officers and key employees which amounted to
1,064,152 in 1996 and 200,000 in 1995. Vesting of awards is dependent
upon continued employment and, in the case of certain performance-related
awards, the sustained level of a target market price for the Company's
common stock that exceeds the related market price on the date of grant.
On March 29, 1996, the total number of shares of restricted stock
outstanding was 1,241,109. The cost of restricted stock awards is
generally expensed over the vesting period, which ranges from two to five
years, and amounted to $568,000 in fiscal year 1996.
Major customers:
A total of 65%, 63% and 53% of the Company's revenues during fiscal
years 1996, 1995 and 1994, respectively, were from federal governmental
agencies, primarily the U.S. Department of Defense (DOD) and the U.S.
Department of Energy (DOE). In fiscal years 1996, 1995 and 1994, the DOD
provided 51%, 47% and 33%, respectively, of the Company's revenues. The
DOE provided 11%, 12% and 15% of the Company's revenues during fiscal
years 1996, 1995 and 1994, respectively.
Employee benefit plans:
The Company has a defined contribution, contributory pension and
profit sharing plan (the Plan), covering all employees with one year of
continuous service. The Company funds current costs as accrued, and there
are no unfunded vested benefits. Through June 30, 1995, the Plan required
a minimum annual contribution of 4% of participants' eligible
compensation; thereafter, the required minimum annual contribution is 3%
of participants' eligible compensation. Additionally, beginning July 1,
1995, the Company contributes up to 2% of participants' eligible
compensation by matching 50% of each participant's contribution (up to 4%
of eligible compensation) to the Company's voluntary 401(k) savings plan.
The Plan currently allows a maximum contribution of up to 8% of
participants' eligible compensation up to $150,000 annually. The
Company's contributions, as a percentage of participants' eligible
compensation, were 4.33%, 5% and 4% for fiscal years 1996, 1995 and 1994,
respectively.
45
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension and profit sharing expense was $3,601,000, $4,081,000 and
$3,987,000 for fiscal years 1996, 1995 and 1994, respectively.
The Company presently provides certain health care benefits for
retirees who are over age 60 and have completed a specified number of
years of service. In fiscal year 1996, the Company did not make any net
cash payments toward these benefits. Commencing in fiscal year 1994, the
Company accrues the expected cost of providing these benefits to an
employee and the employee's covered dependents during the years that the
employee renders the necessary service and is recognizing its Accumulated
Postretirement Benefit Obligation (APBO) of $733,000 on a delayed basis
(over 20 years) as a component of net periodic postretirement benefit
cost. Annual total expense for postretirement benefits including
amortization of the APBO in fiscal year 1996 was $200,000.
Quarterly results of operations (In thousands, except per share data)
(unaudited):
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996:
Revenues . . . . . . . . . . . $100,292 $106,259 $104,912 $ 88,579
Gross margin . . . . . . . . . 16,944 15,174 14,651 11,383
Income (loss) from continuing operations . . 2,345 2,355 (4,687) 533
Net income (loss) applicable to common stock 1,295 1,305 (5,737) (517)
Net income (loss) per share . $ .04 $ .04 $ (.16) $ (.01)
======= ======= ======= =======
1995:
Revenues . . . . . . . . . . . $108,568 $102,509 $102,403 $110,492
Gross margin . . . . . . . . . 15,918 16,428 16,689 12,881
Income (loss) from continuing operations . . (6,286) 2,891 2,681 (2,966)
Loss from discontinued operations. . - - - (10,603)
Net income (loss) applicable to common stock (7,336) 1,841 1,631 (14,619)
Net income (loss) per share:
Continuing operations (net of preferred stock
dividends) . . . . . . . . . $ (.21) $ .05 $ .05 $ (.11)
Discontinued operations . . . - - - (.30)
------ ------ ------- -------
$ (.21) $ .05 $ .05 $ (.41)
====== ====== ======= =======
</TABLE>
In the third quarter of fiscal year 1996, the Company reported a
$14,600,000 ($.41 per share) after tax loss related to the
recapitalization of Quanterra (see Quanterra) and a $7,500,000 ($.21 per
share) deferred tax asset valuation allowance adjustment. (See Income
taxes.)
In the fourth quarter of fiscal year 1995, the Company accrued a
$6,500,000 ($.18 per share) after tax provision for anticipated costs
related to certain class action shareholder and other major litigation.
(See Commitments and contingencies - Contingencies.)
In the first quarter of fiscal year 1995, the Company recorded an
approximate $8,000,000 ($.23 per share) after tax charge for integration
related to the formation of Quanterra. (See Quanterra).
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were none.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section entitled "Election of Directors" in the registrant's
Definitive Proxy Statement to be filed with the Securities and Exchange
Commission for the Annual Meeting of Stockholders scheduled for September
5, 1996 (the Proxy Statement) is incorporated herein by reference. See
also "Executive Officers of the Company" in Part I of this report for
certain information concerning the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" in the Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Beneficial Ownership of Shares" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Certain Transactions" in the Proxy Statement
is incorporated herein by reference.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
Exhibits
These Exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit No. Description
- --------- ------------------------------------------------------------
2 Omitted - Inapplicable.
3(i) Certificate of Incorporation of the registrant as amended by
Amendment to Certificate of Incorporation filed September
17, 1987, with Delaware Secretary of State.(2)
3(ii) Bylaws of the registrant as amended through June 14, 1996.
4(i) 1. Rights Agreement dated as of December 14, 1989 by and
between International Technology Corporation and Bank of
America National Trust and Savings Association, as Rights
Agent.(8)
2. Amendment No. 1 to Rights Agreement.(8)
3. Amendment dated as of April 6, 1995 to Rights
Agreement.(3)
4. Certificate of Designations of Series A Junior
Participating Cumulative Preferred Stock, $100 par
value.(7)
5. Certificate of Amendment of Certificate of Designations
of Series A Junior Participating Cumulative
Preferred Stock, $100 par value.(8)
6. Certificate of Designations with respect to the
registrant's 7% Cumulative Convertible Exchangeable
Preferred Stock, $100 par value.(8)
4(ii) 1. Indenture dated as of June 15, 1986 between International
Technology Corporation and Continental Illinois National
Bank and Trust Company of Chicago relating to the
Company's 9 3/8% Senior Notes due 1996.(1)
2. Indenture for the registrant's 7% Convertible
Subordinated Debentures Due 2008.(8)
9 Omitted - Inapplicable.
10(ii) 1. Asset Transfer Agreement among MetPath Inc., the
registrant and IT Corporation dated as of May 2,
1994.(10)
2. Securities Acquisition Agreement between the registrant
and MetPath Inc. dated as of May 2, 1994.(10) (Terminated
as of January 19, 1996)
48
<PAGE>
Exhibit No. Description
- --------- ------------------------------------------------------------
3. Shareholders' Agreement between the registrant, IT
Corporation, Quanterra Incorporated and MetPath Inc.
dated as of June 28, 1994.(13)
4. Equity Investors' Undertaking, dated June 28, 1994, from
MetPath, Inc., the Company and IT Corporation in favor of
Quanterra Incorporated, Citibank, N.A., Citicorp USA,
Inc. and others.(13)
5. Portions of Amendment and Waiver, dated June 27, 1995,
amending Section 2(a) of the Equity Investors's
Undertaking, dated June 28, 1994, by and among Corning
Life Sciences, Inc. (formerly MetPath Inc.), the Company
and IT Corporation, Quanterra Incorporated, Citibank,
N.A., Citicorp USA, Inc., and others.(13)
6. Credit Agreement among IT Corporation, the Several
Lenders from Time to Time Parties Hereto and
Chemical Bank, as Administrative Agent, dated as of
October 24, 1995.(14)
7. Note Purchase Agreement dated as of October 24, 1995 for
IT Corporation 8.67% Guaranteed Senior Secured Notes due
October 30, 2003.(14)
8. Master Collateral and Intercreditor Agreement dated as of
October 24, 1995 among Certain Participating Creditors of
IT Corporation and Chemical Bank, as Collateral
Agent.(14)
9. Amendment No. 1 dated as of January 5, 1996 to the Credit
Agreement dated as of October 24, 1995 among IT
Corporation, the Lenders party thereto, and Chemical
Bank, as Administrative Agent.
10. Amendment No. 1 dated as of January 5, 1996 to the
several Note Purchase Agreements, each dated as of
October 24, 1995 between IT Corporation and the
respective Purchasers party thereto.
11. Amended and Restated Shareholders' Agreement between
Corning Incorporated, the registrant, IT Corporation and
Quanterra Incorporated, dated January 1, 1996.(15)
12. 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.(15)
13. Agreement, dated January 19, 1996, related to the
ownership of IT Corporation, Corning Clinical
Laboratories Inc., and Corning Incorporated in Quanterra
Incorporated.(15)
14. Stock Purchase and Sales Agreement dated as of February
21, 1996 by and among IT Corporation, International
Technology Corporation and the shareholders of Gradient
Corporation, a Massachusetts corporation.
10(iii) 1. Non-Employee Directors' Retirement Plan, as amended and
restated June 2, 1994.(9)(13)
2. Description of the Special Turn-a-Round Plan (Fiscal Year
1995 Management Incentive Plan) of the registrant.(9)(10)
3. 1983 Stock Incentive Plan, as amended.(7)(9)
4. Retirement Plan of IT, 1993 Restatement.(9)(13)
5. Form of Severance Benefit Agreement between the
registrant and certain officers of the registrant.(9)
6. 1991 Stock Incentive Plan.(5)(9)
7. Agreement dated July 14, 1992 between Robert B. Sheh and
the registrant.(7)(9)
49
<PAGE>
Exhibit No. Description
- --------- ------------------------------------------------------------
8. Agreement dated November 4, 1993 between Larry M. Hart
and the registrant.(9)(10)
9. Retirement Agreement dated March 3, 1994 between Murray
H. Hutchison and the registrant.(9)(10)
10. Amendment Number One to IT Corporation Retirement Plan,
dated as of July 1, 1995.(9)(12)
11. Amendment Number Two to IT Corporation Retirement Plan,
dated as of October 1, 1995.(9)(12)
12. First Amendment dated January 6, 1995 to the Retirement
Agreement dated March 3, 1994 between Murray H.
Hutchison and the registrant.(9)(11)
13. Executive Stock Purchase Interest Reimbursement Plan,
approved September 6, 1995.(9)
14. Executive/Directors Deferred Compensation Plan,
effective January 1, 1996.(9)
15. Executive Restoration Plan, effective July 1, 1995.(9)
16. Non-Employee Directors Stock Plan - Retainer Fees,
effective October 1, 1995.(9)
11 1. Computation of Per Share Earnings for the three years
ended March 29, 1996.
12 Omitted - Inapplicable.
13 Omitted - Inapplicable.
16 Omitted - Inapplicable.
18 Omitted - Inapplicable.
21 1. List of the registrant's subsidiaries.
22 Omitted - Inapplicable.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Omitted - Inapplicable.
27 1. Financial Data Schedule for the year ended March 29,
1996.
2. Financial Data Schedule for the quarter ended March 29,
1996.
28 Omitted - Inapplicable.
99 Omitted - Inapplicable.
__________
(1) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Registration
Statement on Form S-l (No. 33-6310) and incorporated herein
by reference.
(2) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Annual
Report on Form 10-K for the year ended March 31, 1988 (No.
1-9037) and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Form 8-K
dated May 2, 1995 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Annual
Report on Form 10-K for the year ended March 31, 1989 and
incorporated herein by reference.
50
<PAGE>
(5) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Registration
Statement on Form S-8 (No. 33-52974) and incorporated
herein by reference.
(6) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Form 8-K
dated September 4, 1991 and incorporated herein by
reference.
(7) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Annual
Report on Form 10-K for the year ended March 31, 1993 and
incorporated herein by reference.
(8) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Registration
Statement on Form S-3 (No. 33-65988) and incorporated
herein by reference.
(9) Filed as a management compensation plan or arrangement per
Item 14(a)(3) of the Securities Exchange Act.
(10) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Annual
Report on Form 10-K for the year ended March 31, 1994 and
incorporated herein by reference.
(11) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1994
and incorporated herein by reference.
(12) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Form S-8
dated January 31, 1996 and incorporated herein by
reference.
(13) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Annual
Report on Form 10-K for the year ended March 31, 1995 and
incorporated herein by reference.
(14) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 29,
1995.
(15) Previously filed with the Securities and Exchange
Commission as an Exhibit to the registrant's Quarterly
Report on Form 10-Q for the quarter ended December 29,
1995.
Reports on Form 8-K
Current Report on Form 8-K dated February 2, 1996, reporting under Item 5,
"Other Events," related to the filing of a Form S-8 Registration Statement
for the IT Corporation Retirement Plan.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Torrance, California on the 27th day of June 1996.
INTERNATIONAL TECHNOLOGY
CORPORATION
By ROBERT B. SHEH
---------------------
Robert B. Sheh
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
E. MARTIN GIBSON
- ---------------------
E. Martin Gibson Chairman of the Board of June 27, 1996
Directors
ROBERT B. SHEH
- ---------------------
Robert B. Sheh Director, President and June 27, 1996
Chief Executive Officer
DONALD S. BURNS
- ---------------------
Donald S. Burns Director June 27, 1996
KIRBY L. CRAMER
- ---------------------
Kirby L. Cramer Director June 27, 1996
RALPH S. CUNNINGHAM
- ---------------------
Ralph S. Cunningham Director June 27, 1996
W. SCOTT MARTIN
- ---------------------
W. Scott Martin Director June 27, 1996
<PAGE>
JAMES C. MCGILL
- ---------------------
James C. McGill Director June 27, 1996
HENRY E. RIGGS
- ---------------------
Henry E. Riggs Director June 27, 1996
JACK O. VANCE
- ---------------------
Jack O. Vance Director June 27, 1996
ANTHONY J. DELUCA
- ---------------------
Anthony J. DeLuca Senior Vice President June 27, 1996
and Chief Financial Officer
(Principal Financial
Officer)
PHILIP H. OCKELMANN
- ---------------------
Philip H. Ockelmann Vice President, Treasurer June 27, 1996
(Principal Accounting
Officer)
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Schedule II -- Valuation and qualifying accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
beginning charged written at end
of period to income off Other of period
--------- ---------- --------- ----- ---------
<S> <C> <C> <C> <C>
<C>
Year ended March 29, 1996:
Allowance for doubtful
accounts. . . . . . . . $ 3,107 $ 614 $ (842) $ 64 (1) $ 2,943
Valuation allowance for
deferred tax asset. . . $ 12,650 $ (7,781) (2) $ - $ - $ 4,869
Year ended March 31, 1995:
Allowance for doubtful
accounts. . . . . . . . $ 3,183 $ 1,501 $ (1,281) $ (296) (3) $ 3,107
Valuation allowance for
deferred tax asset. . . $ 13,519 $ (869) (2) $ - $ - $ 12,650
Year ended March 31, 1994:
Allowance for doubtful
accounts. . . . . . . . $ 3,011 $ 846 $ (674) $ - $ 3,183
Valuation allowance for
deferred tax asset. . . $ 10,119 $ 3,400 $ - $ - $ 13,519
</TABLE>
- ---------------------
(1) Represents allowance for doubtful accounts at March 1, 1996 for
receivables acquired in the purchase of Gradient Corporation.
(2) Represents benefit for income taxes.
(3) Represents allowance for doubtful accounts at June 28, 1994 for
receivables transferred to Quanterra, an environmental analytical
services company which is jointly owned by IT and an affiliate of
Corning Incorporated. (See Notes to Consolidated Financial
Statements - Quanterra.)
S-1
<PAGE>
Exhibit 11.1
INTERNATIONAL TECHNOLOGY CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
-----------------------------------
March 29, March 31,
----------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Primary earnings per share:
Income (loss) from continuing
operations . . . . . . . . . . $ 546 $ (3,680) $ (1,106)
Discontinued operations (net of
income taxes):
Loss from disposition. . . . . - (10,603) -
-------- --------- --------
Net income (loss). . . . . . . . 546 (14,283) (1,106)
Less preferred stock dividends . (4,200) (4,200) (2,135)
-------- --------- --------
Net loss applicable to common stock $ (3,654) $ (18,483) $ (3,241)
======== ========= ========
Average number of common shares
outstanding. . . . . . . . . . 35,882 35,474 33,484
Average common equivalent shares
from stock options computed on
the treasury stock method using
average market prices . . . . . 45 83 24
Average number of common shares
to be issued. . . . . . . . . . - - 1,254
-------- --------- --------
Shares used in computation. . . . . 35,927 35,557 34,762
======== ========= ========
Net loss per share:
Continuing operations (net of
preferred stock dividends). . . . $ (.10) $ (.22) $ (.09)
Discontinued operations:
From disposition. . . . . . . . . - (.30) -
-------- --------- --------
Net loss per share . . . . . . . . . $ (.10) $ (.52) $ (.09)
======== ========= ========
</TABLE>
- ---------------------
Fully diluted earnings per share result in less than 3% dilution and
therefore are not presented.
Exhibit 21.1
INTERNATIONAL TECHNOLOGY CORPORATION
LIST OF SUBSIDIARY COMPANIES
Gradient Corporation
IT Corporation
IT Environmental Programs, Inc.
IT Environmental Services, Inc.
IT Hanford, Inc.
IT Tulsa Holdings, Inc. (formerly IT-McGill Pollution Control
Systems, Inc.)
International Technology Europe PLC
Universal Professional Insurance Company
IT Brownfields Services Corporation
IT Corporation de Mexico, S.A. de C.V.
IT Corporation of North Carolina
IT Corporation Limited (formerly IT-McGill Limited)
IT Europe Pollution Control Engineering, Ltd. (formerly IT-McGill
Pollution Control Systems, Ltd.)
IT International Holdings, Inc.
IT Investment Holdings, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8; No. 2-95647 and No. 33-11486) and in the related
Prospectuses pertaining to the International Technology Corporation 1983
Stock Incentive Plan, in the Registration Statement (Form S-8; No. 33-52974)
and in the related Prospectus pertaining to the International Technology
Corporation 1991 Stock Option Plan, in the Registration Statement (Form S-8;
No. 33-60861) relating to the shares of restricted stock to be issued under the
Special Turnaround Plan, in the Registration Statement (Form S-8; No. 33-60881)
relating to the additional shares under the 1991 Stock Incentive Plan, and in
the Registration Statement (Form S-8; No. 333-00651) relating to the shares
issued under the IT Corporation Retirement Plan, of our report dated May 15,
1996, with respect to the consolidated financial statements and schedule of
International Technology Corporation included in this Annual Report (Form 10-K)
for the year ended March 29, 1996.
ERNST & YOUNG LLP
Los Angeles, California
June 25, 1996
<PAGE>
Exhibit No. 3(ii)
-----------------
AMENDED AND RESTATED
BYLAWS OF
INTERNATIONAL TECHNOLOGY CORPORATION
(a Delaware corporation)
as of June 14, 1996
ARTICLE I
Offices
Section 1.01 Registered Office. The registered office of INTERNA-
TIONAL TECHNOLOGY CORPORATION (hereinafter called the "Corporation") in the
State of Delaware shall be at No. 100 West Tenth Street, City of Wilming
ton, County of New Castle, and the name of the registered agent in charge
thereof shall be The Corporation Trust Company.
Section 1.02 Principal Office. The principal office for the
transaction of the business of the Corporation shall be at 336 West Anaheim
Street, Wilmington, California 90744. The Board of Directors (hereinafter
called the "Board") is hereby granted full power and authority to change
said principal office from one location to another.
Section 1.03 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State
of Delaware, as the Board may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 2.01 Annual Meetings. Annual meetings of the stockholders
of the Corporation for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings
may be held at such time, date and place as the Board shall determine by
resolution.
Section 2.02 Special Meetings. Special meetings of the stockholders
may be called at any time by the Board, the Chairman of the Board or the
1
<PAGE>
President. Special meetings of stockholders may not be called by any other
person or persons. Written notice of a special meeting shall be given as
provided in Section 2.04 of these Bylaws.
Section 2.03 Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as
may from time to time be designated by the person or persons calling the
respective meeting and specified in the respective notices or waivers of
notice thereof.
Section 2.04 Notice of Meetings. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder of record entitled to vote at
such meeting by delivering a typewritten or printed notice thereof to him
personally, or by depositing such notice in the United States mail, in a
postage prepaid envelope, directed to him at his post office address
furnished by him to the Secretary of the Corporation for such purpose or,
if he shall not have furnished to the Secretary his address for such
purpose, then at his post office address last known to the Secretary, or
by transmitting a notice thereof to him at such address by telegraph,
cable, or wireless. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the stockholders shall be
required. Every notice of a meeting of the stockholders shall state the
place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to
any stockholder who shall have waived such notice and such notice shall be
deemed waived by any stockholder who shall attend such meeting in person
or by proxy, except as a stockholder who shall attend such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and
2
<PAGEl>
place thereof are announced at the meeting at which the adjournment is
taken.
Section 2.05 Quorum. Except in the case of any meeting of or the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting
of the stockholders of the Corporation or any adjournment thereof. In the
absence of a quorum at any meeting or any adjournment thereof, a majority
in voting interest of the stockholders present in person or by proxy and
entitled to vote thereat or, in the absence therefrom of all the stockhold-
ers, any officer entitled to preside at or to act as a secretary of, such
meeting may adjourn such meeting from time to time. At any such adjourned
meeting at which a quorum is present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 2.06 Voting.
(A) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of
the stock of the Corporation having voting rights on the matter in question
and which shall have been held by him and registered in his name on the
books of the Corporation:
(i) on the date fixed pursuant to Section 6.06 of these
Bylaws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting, or,
(ii) if no such record date shall have been so fixed, then (a)
at the close of business on the day next preceding the day on which notice
of the meeting shall be given or (b) if notice of the meeting shall be
waived, at the close of business on the day next preceding the day on which
the meeting shall be held.
3
<PAGE>
(B) Shares of its own stock belonging to the Corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the Corporation in
a fiduciary capacity shall be entitled to vote such stock. Persons whose
stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the Corporation he shall have expressly empowered
the pledges to vote thereon, in which case only the pledgee, or his proxy,
may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether fiducia-
ries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons
have the same fiduciary relationship, shall be voted in accordance with the
provisions of the General Corporation Law of the State of Delaware.
(C) Any such voting rights may be exercised by the
stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the secretary of the meeting;
provided, however, that no proxy shall be voted or acted upon after three
years from its date unless said proxy shall provide for a longer period.
The attendance at any meeting of a stockholder who may theretofore have
given a proxy shall not have the effect of revoking the same unless he
shall in writing so notify the secretary of the meeting prior to the voting
of the proxy. At any meeting of the stockholders all matters, except as
otherwise provided in the Certificate of Incorporation, in these Bylaws or
by law, shall be decided by the vote of a majority in voting interest of
the stockholders present in person or by proxy and entitled to vote thereat
and thereon, a quorum being present. The vote at any meeting to the
stockholders on any question need not be by ballot, except as otherwise
provided in the Certificate of Incorporation or unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed
4
<PAGE>
by the stockholder voting, or by his proxy, if there be such proxy, and it
shall state the number of shares voted.
Section 2.07 List of Stockholders. The Secretaryof the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockhold-
er, for any purpose germane to the meeting, during ordinary business hours,
for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present.
Section 2.08 Inspectors. The Chairman of the Board shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of the inspector with strict impartiality
and according to the best of his ability. The inspectors shall (i)
ascertain the number of shares outstanding in the voting power of each,
(ii) determine the shares represented at a meeting and the validity of
proxies and ballots, (iii) count all votes and ballots, (iv) determine and
retain for a reasonable period of a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
account of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of
the duty of the inspectors. The inspectors need not be stockholders of the
Corporation, and any officer of the Corporation may be an inspector with
respect to any vote other than a vote for or against a proposal in which
such officer shall have a material interest.
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SECTION 2.09 Advance Notice of Stockholder Proposals. At any meeting
of the stockholders, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the Board or
(ii) by any stockholder of the Corporation who complies with the notice
procedures set forth in this Section 2.09. For business to be properly
brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of
the Corporation at the principal executive offices of the Corporation,
which written notice must be received by the Secretary of the Corporation
not less than 60 days in advance of such meeting or, if later, the
fifteenth day following the first public disclosure of the date of such
meeting (by mailing of notice of the meeting or otherwise). A stock-
holder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (1) a brief description
of the business desired to be brought before the meeting and the reasons
for conducting such business at the meeting, (2) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (3) the class, series and number of shares of the Corporation
that are beneficially owned by the stockholder, and (4) any material
interest of the stockholder in such business. In addition, the stockholder
making such proposal shall promptly provide any other information
reasonably requested by the Corporation. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any meeting of
the stockholders except in accordance with the procedures set forth in this
Section 2.09. The Chairman of any such meeting shall direct that any
business not properly brought before the meeting shall not be considered.
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SECTION 2.10 Stockholder Action by Written Consent.
(A) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board,
and which date shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board. Any stockholder
of record seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the Secretary,
request the Board to fix a record date. The Board shall promptly, but in
all events within 10 days after the date upon which such request is
received, adopt a resolution fixing the record date. If no record date has
been fixed by the Board within 10 days of the date upon which such request
is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior
action by the Board is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded,
addressed to the attention of the Secretary. Delivery shall be by hand or
by certified or registered mail, return receipt requested. If no record
date has been fixed by the Board and prior action by the Board is required
by applicable law, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board adopts the resolution
taking such prior action.
(B) In the event of the delivery to the Corporation of a written
consent or consents purporting to authorize or take corporate action and/or
revocations related to any such consents (each such written consent and any
revocation thereof is referred to in this Section 2.10(B) as a "Consent"),
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the Secretary of the Corporation shall provide for the safekeeping of such
Consents and shall, as soon as practicable after receipt thereof, conduct
such reasonable investigation as he deems necessary or appropriate for the
purpose of ascertaining the validity of such Consents and all matters
incident thereto, including, without limitation, whether the holders of
shares having the requisite voting power to authorize or take the action
specified in the Consents have given consent; provided, however, that the
Chairman of the Board, in his discretion, may designate an inspector to act
with respect to such Consents and such inspector shall discharge the
functions of the Secretary of the Corporation under this Section 2.10(B).
If after such investigation the Secretary or the inspector (as the case may
be) shall determine that any action purportedly taken by such Consents has
been validly taken, that fact shall be certified on the records of the
Corporation kept for the purpose of recording the proceedings of meetings
of the stockholders and the Consents shall be filed with such records. In
conducting the investigation required by this Section 2.10(B), the
Secretary or the inspector (as the case may be) may, at the expense of the
Corporation, retain to assist them special legal counsel and any other
necessary or appropriate professional advisors, and such other personnel
as they may deem necessary or appropriate.
ARTICLE III
Board of Directors
Section 3.01 General Powers. The property, business and affairs of
the Corporation shall be managed by the Board.
Section 3.02 Number. In accordance with paragraph SIXTH of the
Certificate of Incorporation of this Corporation, the number of Directors
of the Corporation is fixed at nine.
Section 3.03 Election of Directors. The directors shall be elected
annually by the stockholders of the Corporation and the persons receiving
the greatest number of votes, up to the number of directors to be elected,
shall be the persons then elected. The election of directors is subject
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to any provisions contained in the Certificate of Incorporation relating
thereto, including any provisions for a classified board and for cumulative
voting. Nominations for the election of directors may be made by the Board
or a Committee thereof or by any stockholder entitled to vote in the
election of directors; provided, however, that a stockholder may nominate
a person for election as a director at a meeting only if written notice of
such stockholder's intent to make such nomination has been given by such
stockholder to, and received by, the Secretary of the Corporation at the
principal executive offices of the Corporation not later than 60 days in
advance of such meeting or, if later, the fifteenth day following the first
public disclosure of the date of such meeting (by mailing of notice or
otherwise). Each such notice shall set forth: (i) the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (ii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting and
nominate the person or persons specified in the notice; (iii) a description
of all arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (iv) such other information regarding each nominee proposed
by such stockholder as would be required to be included in a proxy
statement filed pursuant to the rules and regulations of the Securities and
Exchange Commission had the nominee been nominated, or intended to be
nominated, by the Board; and (v) the consent of each nominee to serve as
a director of the Corporation if so elected. In addition, the stockholder
making such nomination shall promptly provide any other information
reasonably requested by the Corporation. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 3.03. The Chairman of any
meeting of stockholders shall direct that any nomination not made in
accordance with these procedures be disregarded.
Section 3.04 Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the
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Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein, or, if the time be not specified, it shall take
effect immediately upon its receipt; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective.
Section 3.05 Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of
directors, or any other cause, may be filled by vote of the majority of the
remaining directors, although less than a quorum. Each director so chosen
to fill a vacancy shall hold office until his successor shall have been
elected and shall qualify or until he shall resign or shall have been
removed.
Section 3.06 Place of Meeting, Etc. The Board may hold any of it
meetings at such place or places within or without the State of Delaware
as the Board may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice
or a waiver of notice of any such meeting. Directors may participate in
any regular or special meeting of the Board by means of conference
telephone or similar communications equipment pursuant to which all persons
participating in the meeting of the Board can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 3.07 First Meeting. The Board shall meet as soon as
practicable after each annual election of directors and notice of such
first meeting shall not be required.
Section 3.08. Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting shall be
held at the same hour and place on the next succeeding business day not a
legal holiday. Except as provided by law, notice of regular meetings need
not be given.
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Section 3.09 Special Meetings. Special meetings of the Board may be
called at any time by the Board, the Chairman of the Board or the
President, to be held at the principal office of the Corporation, or at
such other place or places, within or without the State of Delaware, as the
person or persons calling the meeting may designate. Notice of all special
meetings of the Board shall be mailed to each director, addressed to him
at his residence or usual place of business, at least four (4) days before
the day on which the meeting is to be held, or shall be sent to him at such
place by telegram or given personally, on the second day, or sooner, before
the day on which the meeting is to be held. Such notice may be waived by
any director and any meeting shall be a legal meeting without notice having
been given if all the directors shall be present thereat or if those not
present shall, either before or after the meeting, sign a written waiver
of notice of, or a consent to, such meeting or shall after the meeting sign
the approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or be made a part of
the minutes of the meeting.
Section 3.10 Quorum and Manner of Acting. Except as otherwise
provided in these Bylaws or bylaw, the presence of a majority of the total
number of directors then in office as directors shall be required to
constitute a quorum for the transaction of business at any meeting of the
Board, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present.
In the absence of a quorum, a majority of directors present at any meeting
may adjourn the same from time to time until a quorum shall be present.
Notice of any adjourned meeting need not be given. The directors shall act
only as a Board, and the individual directors shall have no power as such.
Section 3.11 Action by Consent. Any action required or permitted to
be taken at any meeting of the Board of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of
the Board or of such committee, as the case may be, and such written
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consent is filed the minutes of proceedings of the Board or committee.
Section 3.12 Compensation. No stated salary need be paid directors,
as such, for their services, but, by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board or an annual directors' fee may be
paid; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 3.13 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation.
Any such committee, to the extent provided in the resolution of the Board,
shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have any power or authority in
reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of the dissolution or amending the Bylaws of
the Corporation; and unless the resolution of the Board expressly so
provides, no such committee shall have the power or authority to declare
a dividend or to authorize the issuance of stock. Any such committee shall
keep written minutes of its meetings and report the same to the Board at
the next regular meeting of the Board.
Section 3.14 Officers of the Board. The Board shall have a Chairman
of the Board and may, at the discretion of the Board, have a Vice Chairman.
The Chairman of the Board and the Vice Chairman shall be appointed from
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time to time by the Board and shall have such powers and duties as shall
be designated by the Board.
Section 3.15 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders, the Board and the Executive
Committee of the Board at which he is present.
He shall have the power to call special meetings of the Board, to
determine the order of business and the procedure for meetings of the
stockholders and meetings of the Board, and to appoint, subject to approval
of the Board, the members and chairpersons of the various committees
designated by the Board. The Chairman of the Board shall be a member ex
officio of all committees designated by the Board, other than those on
which he serves as a voting member, except that, so long as the Chairman
of the Board is designated by the Board the Chief Executive Officer of the
Corporation, he shall not be a member of either the Audit Committee or of
the Compensation Committee of the Board; provided, however, that a Chairman
of the Board who is also the Chief Executive Officer may attend meetings
of the Compensation Committee to provide information and respond to
inquiries, but without any vote on any matter considered by the Committee.
In the event the Chairman of the Board is designated by the Board as the
Chief Executive Officer of the Corporation, he shall have, subject to the
direction of the Board, general and active supervision and management over
the business, operations and affairs of the Corporation and over its
several officers, agents and employees. The Chairman of the Board shall
exercise and perform such other powers and duties as may from time to time
be assigned by the Board.
Although the Chairman of the Board shall not be an employee or officer
of the Corporation, the position of Chairman shall be subject to the
provisions of Article IV hereof, including Sections 4.02 (Election), 4.04
(Removal and Resignation), 4.05 (Vacancies) and 4.11 (Compensation) as
though the Chairman of the Board were an officer of the Corporation.
ARTICLE IV
Officers
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Section 4.01 Number. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 4.03 of this Article IV. One
person may hold two or more offices, except that the Secretary may not also
hold the office of President.
Section 4.02 Election. The officers of the Corporation, except such
officers as may be appointed in accordance with Section 4.03 or 4.05, shall
be chosen annually by the Board, and each shall hold office until his
successor shall have been duly chosen and shall qualify or until his
resignation, removal or other disqualification for service.
Section 4.03 Subordinate Officers, Etc. The Board may appoint such
other officers as the business of the Corporation may require, each of whom
shall have such authority and perform such duties as are provided in these
Bylaws or as the Board may from time to time specify, and shall hold office
until he shall resign or shall be removed or otherwise disqualified to
serve. Section 4.04 Removal and Resignation. Any officer may be removed,
either with or without cause, by a majority of the directors at the time
in office, at any regular or special meeting of the Board, or except in the
case of an office chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
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Section 4.05 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled in
the manner prescribed in these Bylaws for regular appointments to such
office.
Section 4.06 Chairman of the Board. The Chairman of the Board shall
not be an employee or officer of the Corporation, unless he is designated
by the Board as the Chief Executive Officer of the Corporation. The duties
of the Chairman are set forth in Section 3.15 above.
Section 4.07 President.
(A) In the event the Chairman of the Board is designated by the
Board as the Chief Executive Officer of the Corporation, the President
shall be the Chief Operating Officer of the Corporation, and subject to the
direction of the Board and the Chairman of the Board and Chief Executive
Officer, shall have general responsibility for the operation, administra
tion and direction of the business of the Corporation and its several
offices, agents and employees, and shall see that all resolutions and
orders of the Board and of the Chairman of the Board and Chief Executive
Officer are carried into effect.
(B) In the event the Chairman of the Board is not designated by
the Board as the Chief Executive Officer of the Corporation, the President
shall have, subject to the direction of the Board, general and active
supervision and management over the business, operations and affairs of the
Corporation and over its several officers, agents and employees. The
President shall exercise and perform such other powers and duties as may
from time to time be assigned by the Board.
Section 4.08 Vice Presidents. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the President.
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Section 4.09 Secretary. The Secretary shall, if present, record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed, in one or
more books provided for that purpose. The Secretary shall see that all
notices are duly given in accordance with these Bylaws and as required by
law. The Secretary shall be custodian of the seal of the Corporation and
shall affix and attest the seal to all documents to be executed on behalf
of the Corporation under its seal. In general, the Secretary shall perform
all the duties incident to the office of Secretary and such other duties
as may from time to time be assigned by the Board.
Section 4.10 Treasurer. The Treasurer is the chief financial officer
of the Corporation and shall keep and maintain, or cause to be kept and
maintained adequate and correct accounts of the properties and business
transactions of the Corporation.
Section 4.11 Compensation. The compensation of the officers, agents
or employees of the Corporation shall be fixed from time to time by the
Board. The Board may delegate to any officer of the Corporation or any
committee of the Board the power to fix the compensation of any officer,
agent or employee of the Corporation. No officer shall be prevented from
receiving such compensation by reason of the fact that such officer is also
a director of the Corporation.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
Section 5.01 Execution of Contracts. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name
of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 5.02 Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by
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such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board. Each such officer, assistant, agent
or attorney shall give such bond, if any, as the Board may require.
Section 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the
Board may select, or as may be selected by any officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation to whom such power shall have been delegated by the Board. For
the purpose of deposit and for the purpose of collection for the account
of the Corporation, the President, any Vice President or the Treasurer (or
any other officer or officers, assistant or assistants, agent or agents,
or attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
Section 5.04 General and Special Bank Accounts. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the
Board may select or as may be selected by any officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation to whom such power shall have been delegated by the Board. The
Board may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as it may
deem expedient.
ARTICLE VI
Shares and Their Transfer
Section 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be
in such form as the Board shall prescribe, certifying the number and class
of shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which
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they shall be issued and shall be signed in the name of the Corporation by
the President or a Vice President, and by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of
the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate, shall have ceased to
be such officer, transfer agent or registrar before such certificate is
issued, such certificate may nevertheless be issued by the Corporation with
the same effect as though the person who signed such certificate, or whose
facsimile signature shall have been placed thereupon, were such officer,
transfer agent or registrar at the date of issue. A record shall be kept
of the respective names of the persons, firms or corporations owing the
stock represented by such certificates, the number and class of shares
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer
shall be cancelled, and no new certificate or certificates shall be issued
in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.05.
Section 6.02 Stock Purchase Plans. The Corporation may adopt and
carry out a stock purchase plan or agreement or stock option plan or
agreement providing for the issue and sale for such consideration as may
be fixed of its unissued shares, or of issued shares acquired or to be
acquired, to one or more of the employees or directors of the Corporation
or of a subsidiary or to a trustee on their behalf and for the payment of
such shares in installments or at one time, and may provide for aiding any
such persons in paying for such shares by compensation for services
rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold
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under the plan or agreement, the number of shares which may be subscribed
for, the method of payment therefor, the reservation of title until full
payment therefor, the effect of the termination of employment and option
or obligation on the part of the Corporation to repurchase the shares upon
termination of employment, restrictions upon transfer of the shares, the
time limits of and termination of the plan and any other matters, not in
violation of applicable law, as may be included in the plan as approved or
authorized by the Board or any committee of the Board.
Section 6.03 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary, or with a transfer
clerk or a transfer agent appointed as provided in Section 6.04, and upon
surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation. Whenever any
transfer of shares shall be made for collateral security, and not
absolutely, such fact shall be so expressed in the entry or transfer if,
when the certificate or certificates shall be presented to the Corporation
for transfer, both the transferor and the transferee request the Corpora
tion to do so.
Section 6.04 Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares
of the stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer clerks or one or more transfer
agents and one or more registrars, and may require all certificates for
stock to bear the signature or signatures of any of them.
Section 6.05 Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any certificate
of stock, another may be issued in its place upon proof of such loss,
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theft, destruction, or mutilation and upon the giving of a bond of
indemnDity to the Corporation in such form and in such sum as the Board may
direct; provided, however, that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to
do.
Section 6.06 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribu-
tion or allotment of any rights, or entitled to exercise any rights in
respect of any other change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date
of such meeting, nor more than 60 days prior to any other action. If in
any case involving the determination of stockholders for any purpose other
than notice of or voting at a meeting of stockholders, the Board shall not
fix such a record date, the record date for determining stockholders for
such purpose shall be the close of business on the day on which the Board
shall adopt the resolution relating thereto. A determination of stockhold-
ers entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board
may fix a new record date for the adjourned meeting.
ARTICLE VII
Indemnification
Section 7.01 Indemnification of Directors, Officers, Employees, and
Agents. The Corporation shall indemnify to the full extent authorized by
law any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including withoutlimita-
tion an action by or in the right of the Corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation or any predecessor of the Corporation, or is or was serving at
the request of the Corporation or any predecessor of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
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joint venture, trust or other enterprise, against expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that
he had reasonable cause to believe that his conduct was unlawful. The
right of indemnity provided herein shall not be exclusive, and the
Corporation may provide indemnification to any person, by agreement or
otherwise, on such terms and conditions as the Board of Directors may
approve. Any agreement for indemnification of any director, officer,
employee or other person may provide indemnification rights which are
broader or otherwise different from those set forth herein.
Section 7.02 Other Rights and Remedies. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
one seeking indemnification may be entitled under any Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
Section 7.03 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,\
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employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 7.04 Certain Definitions. For purposes of this Article, (1)
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify
its directors, officers and employees or agents, so that any person who is
or was a director, officer, employee or agent of such constituent
corporation or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation
if its separate existence had continued; (2) references to "other
enterprises" shall include employee benefit plans; (3) references to
"fines" shall include any excise taxes assessed on a person with respect
to an employee benefit plan; (4) references to "serving at the request of
the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services
by, such director, officer, employee or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and (5) a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.
ARTICLE VIII
Miscellaneous
Section 8.01 Seal. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation
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and words and figures showing that the Corporation was incorporated in the
State of Delaware and the year of incorporation.
Section 8.02 Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or bylaw, the
person entitled to said notice may waive such notice in writing, either
before or after the time stated therein, and such waiver shall be deemed
equivalent to notice.
Section 8.03 Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of April in each year.
Section 8.04 Amendments. These Bylaws, or any of them, may be
altered, amended or repealed, and new Bylaws may be made by the Board, by
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board. These Bylaws or any of them, except
Sections 3.02, 3.03 and this Section 8.04, may be altered, amended or
repealed and new Bylaws may be made by the vote of the holders of not less
than a majority of the outstanding shares of voting stock of the
Corporation at an annual meeting of stockholders, without previous notice,
or at any special meeting of stockholders, provided that such proposed
amendment, modification, repeal or adoption is given in the notice of
special meeting. Sections 3.02, 3.03 and this Section 8.04 may be altered,
amended or repealed by the vote of the holders of not less than two-thirds
of the total voting power of all outstanding shares of voting stock of the
Corporation, at an annual meeting of stockholders, without previous notice,
or at any special meeting of stockholders, provided that notice of such
proposed amendment, modification, repeal or adoption is given in the notice
of special meeting.
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Exhibit No. 10(ii)9
-------------------
EXECUTION COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT No. 1 dated as of January 5, 1996 (this "Amendment") to the
Credit Agreement dated as of October 24, 1995 (the "Credit Agreement")
among IT CORPORATION (the "Borrower"), the LENDERS party thereto, and
CHEMICAL BANK, as Administrative Agent.
WHEREAS, the parties hereto desire to amend the Credit Agreement to
permit the Borrower to make certain Restricted Payments and to adjust the
manner of computation of Consolidated Net Worth in connection therewith;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifical-
ly defined herein, each term used herein which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each
other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Credit Agreement shall from and
after the Amendment Effective Date (as defined in Section 9 hereof) refer
to the Credit Agreement as amended hereby.
SECTION 2. Amendment of Schedule I. (a) Schedule I to the Credit
Agreement is amended by restating the definition of the term "Consolidated
Net Worth" set forth therein to read in its entirety as follows:
"Consolidated Net Worth" shall mean, without duplication, the capital
stock and surplus accounts of the Parent and its Restricted Subsidiaries
appearing on a consolidated balance sheet of the Parent and its Restricted
Subsidiaries prepared in accordance with GAAP (but excluding (i) treasury
stock and capital stock subscribed but unissued and preferred stock of the
1
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EXECUTION COPY
Parent or any of its Subsidiaries redeemable prior to October 31, 2003,
(ii) the reduction of up to $2.4 million in such accounts resulting from
the transfer to the Borrower of shares of common stock, and warrants to
purchase common stock, of the Parent in exchange for shares of common
stock of Quanterra upon consummation of the Corning Transaction, and (iii)
an amount, not to exceed $3.1 million, equal to one-half of the reduction
in such accounts occurring in connection with consummation of the Corning
Transaction, such reduction being the net of (x) the capital loss realized
by the Borrower (net of tax benefits attributable to such capital loss),
upon such disposition of shares of common stock of Quanterra (such net
capital loss, for purposes only of this clause (x), to be in an amount not
in excess of $13.7 million), minus (y) the amount of the one-time gain
resulting from adjustment of the tax valuation allowance (such gain, for
purposes only of this clause (y), to be in an amount not in excess of $7.5
million) in the Borrower's fiscal quarter ended December 29, 1995),
provided that the investment in Quanterra represented in such accounts and
surplus shall be included only to the extent of (a) prior to consummation
of the Corning Transaction, such investment existing on the Closing Date
at all times valued at its book value plus the book value of up to
$10,000,000 of additional investments in Quanterra and (b) after-
consummation of the Corning Transaction, $12,500,000 plus the book value
of up to $5,000,000 of additional investments in Quanterra made
thereafter, minus Restricted Investments, and minus:
(i) the net book amount of all assets, after deducting any
reserves applicable thereto, which would be treated as intangible under
2
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EXECUTION COPY
GAAP, including, without limitation, such items as goodwill, trademarks,
trade names, service marks, brand names, copyrights, patents and licenses,
and rights with respect to the foregoing, unamortized debt discount and
expense (other than the capitalized expenses related to the Credit
Agreement and the Note Purchase Agreements, but not any amendments,
refinancings or waivers relating thereto), organizational expenses and the
excess of cost of purchased Subsidiaries over equity in the net assets
thereof at the date of acquisition;
(ii) any write-up in the book value of any asset on the
books of the Parent or any Restricted Subsidiary resulting from a
revaluation thereof subsequent to the Closing Date;
(iii) the amounts, if any, at which any shares of stock of
the Parent or any Restricted Subsidiary appear on the asset side of such
balance sheet; and
(iv) all deferred charges (other than deferred taxes and
prepaid expenses).
(b) Schedule I to the Credit Agreement is further amended by
inserting therein, in appropriate alphabetical order, a definition of the
terms "Corning" and "Corning Transaction", as follows:
"Corning" shall mean, collectively, Corning Incorporated and its
direct and indirect subsidiaries.
"Corning Transaction" shall mean the transfer by the Borrower to
Corning of up to 360 shares of common stock of Quanterra owned by the
Borrower in exchange for 333,000 shares of common stock, and a warrant to
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EXECUTION COPY
acquire 2,000,000 shares of common stock, of the Parent, and the substan
tially concurrent recapitalization of Quanterra.
SECTION 3. Amendment of Section 4 in Schedule III. Section
4 of Schedule III to the Credit Agreement is amended by restating clause
(b) therein to read in its entirety as follows:
(b) 50% of the cumulative Net Income (without reduction for loss
during any fiscal quarter) for all fiscal quarters ending after June 30,
1995, provided that (i) such Net Income shall be determined without giving
effect to (A) any net capital loss not in excess of $13.7 million realized
by the Borrower upon consummation of the Corning Transaction and (B) the
gain, up to $7.5 million, resulting from adjustment of the tax valuation
allowance in the Borrower's fiscal quarter ended December 29, 1995 and
(ii) any net loss incurred by Quanterra during such fiscal quarters shall
be deducted from Net Income up to an amount equal to the lesser of (x) $10
million in the aggregate or (y) the aggregate amount of capital contribu
tions made by the Parent or any Restricted Subsidiary to Quanterra after
the Closing Date,
SECTION 4. Amendment of Section 8 in Schedule III. Section
8 of Schedule III to the Credit Agreement is amended by (x) deleting the
word "or" at the end of subsection (d) thereof, (y) deleting the period at
the end of subsection (e) and inserting in place thereof a semi-colon and
the word "or", and (z) inserting at the end thereof a new subsection (f),
as follows:
(f) so long as no Default or Event of Default shall have
occurred and be continuing, on or before March 31, 1996, the Borrower may
consummate the Corning Transaction.
4
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EXECUTION COPY
SECTION 5. Delivery of Officer's Certificate. The Borrower
agrees that it will deliver to the Lenders, together with the financial
statements first required to be delivered to the Lenders after
consummation of the Corning Transaction, pursuant to Section 21(a) or (b)
of Schedule III, an Officer's Certificate in form and substance reasonably
satisfactory to Required Lenders, reflecting the calculation of
Consolidated Net Worth and the effect thereon of consummation of the
Corning Transaction and of the adjustment of the tax valuation allowance
in the Borrower's fiscal quarter ended December 29, 1995.
SECTION 6. Confirmation of Credit Agreement. Except as
modified or amended in this Amendment, all terms and conditions in the
Credit Agreement remain in full force and effect and are hereby ratified
and confirmed.
SECTION 7. Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the
same effect as if the signature thereto and hereto were upon the same
instrument.
SECTION 9. Effectiveness. The amendment of the Credit
Agreement provided for herein shall become effective on the date (the
"Amendment Effective Date") when the Administrative Agent shall have
received counterparts hereof signed by the Borrower and the Required
Lenders, and Required Noteholders under the Note Purchase Agreements shall
have executed amendments to Schedule I and III to the Note Purchase
Agreements that effect changes therein corresponding to the changes
effected hereby.
[SIGNATURE PAGE TO FOLLOW]
5
<PAGE>
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the date and
year first above written.
IT CORPORATION
By:
Title:
CHEMICAL BANK, as Administrative
Agent and as a Lender
By:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Title:
SOCIETE GENERALE
By:
Title:
6
<PAGE>
Exhibit 10(ii)10
----------------
EXECUTION COPY
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENTS
AMENDMENT No. 1 dated as of January 5, 1996 (this "Amendment") to the
several Note Purchase Agreements, each dated as of October 24, 1995 (the
"Note Purchase Agreements"), between IT CORPORATION (the "Company"), and
the respective Purchasers party thereto.
WHEREAS, the parties hereto desire to amend the Note Purchase
Agreements to permit the Company to make certain Restricted Payments and
to adjust the manner of computation of Consolidated Net Worth in
connection therewith;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is defined in the
respective Note Purchase Agreements has the meaning assigned to such term
therein. Each reference to "hereof", "hereunder", "herein" and "hereby"
and each other similar reference and each reference to "this Agreement"
and each other similar reference contained in the respective Note Purchase
Agreements shall from and after the Amendment Effective Date (as defined
in Section 9 hereof) refer to such Note Purchase Agreement as amended
hereby.
SECTION 2. Amendment of Schedule I. (a) Schedule I to the Note
Purchase Agreements is amended by restating the definition of the term
"Consolidated Net Worth" set forth therein to read in its entirety as
follows:
"Consolidated Net Worth" shall mean, without duplication, the capital
stock and surplus accounts of the Parent and its Restricted Subsidiaries
appearing on a consolidated balance sheet of the Parent and its Restricted
Subsidiaries prepared in accordance with GAAP (but excluding (i) treasury
stock and capital stock subscribed but unissued and preferred stock of the
1
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EXECUTION COPY
Parent or any of its Subsidiaries redeemable prior to October 31, 2003,
(ii) the reduction of up to $2.4 million in such accounts resulting from
the transfer to the Borrower of shares of common stock, and warrants to
purchase common stock, of the Parent in exchange for shares of common
stock of Quanterra upon consummation of the Corning Transaction, and (iii)
an amount, not to exceed $3.1 million, equal to one-half of the reduction
in such accounts occurring in connection with consummation of the Corning
Transaction, such reduction being the net of (x) the capital loss realized
by the Borrower (net of tax benefits attributable to such capital loss),
upon such disposition of shares of common stock of Quanterra (such net
capital loss, for purposes only of this clause (x), to be in an amount not
in excess of $13.7 million), minus (y) the amount of the one-time gain
resulting from adjustment of the tax valuation allowance (such gain, for
purposes only of this clause (y), to be in an amount not in excess of $7.5
million) in the Borrower's fiscal quarter ended December 29, 1995),
provided that the investment in Quanterra represented in such accounts and
surplus shall be included only to the extent of (a) prior to consummation
of the Corning Transaction, such investment existing on the Closing Date
at all times valued at its book value plus the book value of up to
$10,000,000 of additional investments in Quanterra and (b) afterconsumma
tion of the Corning Transaction, $12,500,000 plus the book value of up to
$5,000,000 of additional investments in Quanterra made thereafter, minus
Restricted Investments, and minus:
(i) the net book amount of all assets, after deducting any
reserves applicable thereto, which would be treated as intangible under
2
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EXECUTION COPY
GAAP, including, without limitation, such items as goodwill, trademarks,
trade names, service marks, brand names, copyrights, patents and licenses,
and rights with respect to the foregoing, unamortized debt discount and
expense (other than the capitalized expenses related to the Credit
Agreement and the Note Purchase Agreements, but not any amendments,
refinancings or waivers relating thereto), organizational expenses and the
excess of cost of purchased Subsidiaries over equity in the net assets
thereof at the date of acquisition;
(ii) any write-up in the book value of any asset on the
books of the Parent or any Restricted Subsidiary resulting from a
revaluation thereof subsequent to the Closing Date;
(iii) the amounts, if any, at which any shares of stock of
the Parent or any Restricted Subsidiary appear on the asset side of such
balance sheet; and
(iv) all deferred charges (other than deferred taxes and
prepaid expenses).
(b) Schedule I to the Note Purchase Agreements is further amended by
inserting therein, in appropriate alphabetical order, a definition of the
terms "Corning" and "Corning Transaction", as follows:
"Corning" shall mean, collectively, Corning Incorporated and its
direct and indirect subsidiaries.
"Corning Transaction" shall mean the transfer by the Borrower to
Corning of up to 360 shares of common stock of Quanterra owned by the
Borrower in exchange for 333,000 shares of common stock, and a warrant to
3
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EXECUTION COPY
acquire 2,000,000 shares of common stock, of the Parent, and the substan
tially concurrent recapitalization of Quanterra.
SECTION 3. Amendment of Section 4 in Schedule III. Section 4 of
Schedule III to the Note Purchase Agreements is amended by restating
clause (b) therein to read in its entirety as follows:
(b) 50% of the cumulative Net Income (without reduction for loss
during any fiscal quarter) for all fiscal quarters ending after June 30,
1995, provided that (i) such Net Income shall be determined without giving
effect to (A) any net capital loss not in excess of $13.7 million realized
by the Borrower upon consummation of the Corning Transaction and (B) the
gain, up to $7.5 million, resulting from adjustment of the tax valuation
allowance in the Borrower's fiscal quarter ended December 29, 1995 and
(ii) any net loss incurred by Quanterra during such fiscal quarters shall
be deducted from Net Income up to an amount equal to the lesser of (x)
$10 million in the aggregate or (y) the aggregate amount of capital
contributions made by the Parent or any Restricted Subsidiary to Quanterra
after the Closing Date,
SECTION 4. Amendment of Section 8 in Schedule III. Section 8 of
Schedule III to the Note Purchase Agreements is amended by (x) deleting
the word "or" at the end of subsection (d) thereof, (y) deleting the
period at the end of subsection (e) and inserting in place thereof a
semi-colon and the word "or", and (z) inserting at the end thereof a new
subsection (f), as follows:
(f) so long as no Default or Event of Default shall have occurred and
be continuing, on or before March 31, 1996, the Borrower may consummate
the Corning Transaction.
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EXECUTION COPY
SECTION 5. Delivery of Officer's Certificate. The Company agrees
that it will deliver to the Noteholders, together with the financial
statements first required to be delivered to the Noteholders after
consummation of the Corning Transaction, pursuant to Section 21(a) or (b)
of Schedule III, an Officer's Certificate in form and substance reasonably
satisfactory to Required Noteholders, reflecting the calculation of
Consolidated Net Worth and the effect thereon of consummation of the
Corning Transaction and of the adjustment of the tax valuation allowance
in the Borrower's fiscal quarter ended December 29, 1995.
SECTION 6. Confirmation of Note Purchase Agreements. Except as
modified or amended in this Amendment, all terms and conditions in each of
the Note Purchase Agreements remain in full force and effect and are
hereby ratified and confirmed.
SECTION 7. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signature thereto and hereto were upon the same instru-
ment.
SECTION 9. Effectiveness. The amendment of the respective
Note Purchase Agreements provided for herein shall become effective on the
date (the "Amendment Effective Date") when the counterparts hereof have
been signed by the Company and Required Noteholders, and Required Lenders
under the Credit Agreement shall have executed amendments to Schedule I
and III to the Credit Agreement that effect changes therein corresponding
to the changes effected hereby.
[SIGNATURE PAGE TO FOLLOW]
5
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EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the date and
year first above written.
IT CORPORATION
By:
Title:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
Title:
JOHN HANCOCK LIFE INSURANCE
COMPANY OF AMERICA
By:
Title:
ALLSTATE LIFE INSURANCE COMPANY
By:
Title:
By:
Title:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW
YORK
By:
Title:
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EXECUTION COPY
MONY LIFE INSURANCE COMPANY
OF AMERICA
By:
Title:
7
<PAGE>
Exhibit No.10(ii)14
-------------------
STOCK PURCHASE AND SALE AGREEMENT
AMONG
IT CORPORATION,
INTERNATIONAL TECHNOLOGY CORPORATION
AND
EACH OF THE STOCKHOLDERS OF
GRADIENT CORPORATION
February 21, 1996
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
This Stock Purchase and Sale Agreement (this "Agreement") is
made and entered into as of February 21, 1996 by and among IT Corporation,
a California corporation ("Buyer"), International Technology Corporation,
a Delaware corporation ("ITX") and each of the signatories hereto
designated a Seller at the foot of this Agreement (individually a "Seller"
and collectively "Sellers").
R E C I T A L S
- - - - - - - -
A. Sellers own all of the issued and outstanding capital stock (the
"Gradient Stock") of Gradient Corporation, a Massachusetts corporation
(the "Company").
B. Each Seller desires to sell that number of shares of the
Gradient Stock set forth in Schedule 2.1 to this Agreement, which,
adjusted as of the Closing to reflect the issuance of additional shares of
Gradient Stock to some or all of Sellers, shall constitute all the shares
of the Gradient Stock owned by such Seller, such that Sellers as a group
desire to sell, and Buyer desires to acquire, all of the outstanding
shares (the "Shares") of the Gradient Stock.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing and the
provisions set forth below, and subject to the terms and conditions set
forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated below:
"Accounts Receivable" shall have the meaning set forth in
Section 3.6(b).
"Affiliate" shall mean, in respect of any specified Person, any
other Person that, directly or indirectly, controls, is controlled by, or
is under common control with, such specified Person or if such specified
Person bears a familial relationship with such other Person.
"Agreement" shall have the meaning set forth in the Preamble.
"Anniversary" shall mean the First Anniversary, the Second
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Anniversary, or the Third Anniversary.
"Applicable Percentage" shall mean the percentage established in
each Financial Performance Table in Article III for each Earn-Out Payment,
and the actual amount of each Earn-Out Payment is calculated by multiply-
ing the Maximum Aggregate Amount of each Earn-Out Payment (as referenced
in Article III) by the Applicable Percentage.
"Balance Sheet" shall have the meaning set forth in Section
5.11(a).
"Bare Labor" shall mean direct labor not including fringe
benefits.
"Beck" shall mean Barbara Beck.
"Business Plan" shall have the meaning set forth in Section
7.8.
"Buyer" shall have the meaning set forth in the Preamble.
"Cause" shall be defined as dishonesty, fraud, gross incompe-
tence, willful misconduct, self-dealing, breach of fiduciary duty whether
or not involving personal profit, willful or intentional failure, neglect
or refusal to perform duties commensurate with such Person's existing
position, experience or salary, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), or
repeated non-prescription use of controlled substances or alcohol that
renders one unfit to serve.
"Claim" shall mean any and all claims, losses, damages,
liabilities, costs and expenses (including, without limitation, settlement
costs and any legal, accounting and other expenses for investigating or
defending any actions or threatened actions) reasonably incurred, and
"Claims" shall mean more than one Claim.
"Closing" shall have the meaning set forth in Section 9.1.
"Closing Date" shall mean March 1, 1996, or such other date on
or before such date as the parties shall agree.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall have the meaning set forth in Section 7.12.
"Common Stock" shall mean the common stock, $1.00 par value per
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share, registered or unregistered, of ITX.
"Company" shall have the meaning set forth in the Recitals.
"Confidential Information" shall mean any and all information,
including "know-how," data, reports, drawings, designs, inventions,
computer hardware, software and media, patterns, procedures, specifica-
tions, intellectual property and other technical, business, or financial
information, whether any of the foregoing is verbal, visual, written or in
tangible form, which relates to the business of Buyer, ITX or any of its
affiliates or Company and is not generally available to others or is
protected against unrestricted disclosure to third parties. Confidential
Information also includes all copies, information, inventions, improve-
ments, and the like, made, derived or developed from the Confidential
Information. Confidential Information shall not include any information
which (a) can be proved to be known to such Person before being obtained
or derived from Buyer, ITX or Company; (b) was or is conceived, created or
independently developed by such Person, (c) is now or hereafter becomes
available to the public other than as a consequence of a breach of
obligations under this Agreement by such Person, or (d) is disclosed to
other than such Person with, and in accordance with the terms of, prior
approval of Buyer or ITX.
"Direct Cost" shall mean Direct Labor plus project-related
purchases and/or rentals of labor from other than Buyer, and goods,
materials and equipment, except as provided in Sections 3.8(b), (c), and
(d).
"Direct Labor" shall mean direct labor charges (regardless of
whether the labor is purchased from Company or Buyer) including fringe
benefits. Fringe benefits shall be included when calculating Direct Labor
and shall be calculated on an interim basis at the rate of 39% of Bare
Labor, and such rate shall be adjusted and determined annually after the
close of each of Fiscal Year 1997, Fiscal Year 1998 and Fiscal Year 1999
pursuant to the provisions of Section 3.5(b) hereof, in accordance with
the actual fringe rate obtained by Company during each of such years.
"Direct Margin" shall mean the Revenue of the Company less
Direct Cost.
"Direct Margin Base" shall mean, with respect to Fiscal Year
1997, $3,650,000, as may be adjusted pursuant to Section 3.6 hereof, and
with respect to each of Fiscal Year 1998 and Fiscal Year 1999, shall mean
the Direct Margin Base, adjusted as follows: During each of Fiscal Year
1998 and Fiscal Year 1999, the Direct Margin Base shall be automatically
increased to the lesser of the amount of Direct Margin actually achieved
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during, or the Maximum Performance for, the immediately preceding Fiscal
Year, but in no event shall the Direct Margin Base be adjusted for any
Fiscal Year so as to be less than the Direct Margin Base applicable to
Fiscal Year 1997. By way of example only, if the Company achieves in
Fiscal Year 1997 Direct Margin equal to: 1) $4,000,000, the Direct Margin
Base applicable to Fiscal Year 1998 shall be $4,000,000; 2) $4,030,000,
the Direct Margin Base applicable to Fiscal Year 1998 shall be $4,015,000;
or 3) $3,600,000, the Direct Margin Base applicable to Fiscal Year 1998
shall be $3,650,000. Failure of the Company to earn during any Fiscal
Year Direct Margin equal to the Direct Margin Base applicable to Fiscal
Year 1997 has certain consequences, all as specified in Section 3.6(a)(2).
"Earn-Out Payments" shall mean the First Anniversary Earn-Out
Payment, the Second Anniversary Earn-Out Payment and the Third Anniversary
Earn-Out Payment, all as specified in Sections 3.2, 3.3, and 3.4 hereof.
"Enforceability Exceptions" shall mean limitations (i) pursuant
to applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights, including,
without limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers, and (ii) imposed by
general principles of equity.
"Environmental Protection Laws" shall mean all federal, state,
local and foreign laws, statutes, regulations having the force and effect
of law, permits, court decrees and decisions, judgments, injunctions and
written orders concerning (i) public health and safety relating to
exposure of humans to toxic or hazardous substances or (ii) pollution or
protection of the environment or natural resources, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. 9601 et seq.); the Hazardous
Materials Transportation Act (49 U.S.C. 1801 et seq.); the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. 6901 et seq.); the
Clean Water Act (33 U.S.C. 1251 et seq.); the Safe Drinking Water Act (14
U.S.C. 1401 et seq.); the Toxic Substances Control Act (15 U.S.C. 2601
et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. 136 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.); the
Emergency Planning and Community Right-to-Know Act (42 U.S.C.
11001-11005, 11021-11023, and 11041-11050); each as supplemented or
amended; provided, however, that such term shall not include any federal,
state, local or foreign statutes or regulations or case law governing
worker's compensation.
"EPA" shall mean the United States Environmental Protection
Agency, or any successor governmental agency.
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"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"Financial Performance Table" shall have the meaning set forth
in Section 3.2.
"Financials" shall have the meaning set forth in Section
5.11(a).
"First Anniversary" shall mean March 28, 1997, provided,
however, that if such Anniversary falls upon a date upon which the New
York Stock Exchange is closed for trading, the Anniversary date shall be
the next day upon which the New York Stock Exchange is open for trading.
"Fiscal Year 1997" shall mean the twelve month period ended
March 28, 1997. "Fiscal Year 1998" shall mean the twelve month period
ended March 27, 1998. "Fiscal Year 1999" shall mean the twelve month
period ended March 26, 1999. "Fiscal Year" shall mean any of such three
Fiscal Years.
"GAAP" shall mean generally accepted accounting principles as in
effect at the time in question.
"Gosselin" shall mean Jean Gosselin.
"Gradient Stock" shall have the meaning set forth in the
Recitals.
"Hopkins" shall mean Peg Hopkins.
"Indemnified Party" shall have the meaning set forth in Section
8.3.
"Indemnifying Party" shall have the meaning set forth in Section
8.3.
"Ineligible Participant" shall mean any Person who has-
voluntarily terminated his or her employment with Buyer or whose
employment with Buyer has been terminated for Cause. The parties agree
that no Person shall be deemed to be an Ineligible Participant due to
death, disability or involuntary termination other than for Cause.
"Initial Cash Payment" shall have the meaning set forth in
Section 2.2(a).
"Initial Stock Payment" shall have the meaning set forth in
Section 2.2(b).
"Intangible Personal Property" shall have the meaning set forth
in Section 5.15.
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"IRS" shall mean the Internal Revenue Service.
"ITX" shall have the meaning set forth in the Recitals.
"Key Employees", on a given date, shall mean the employees of
Buyer selected as Key Employees by the Committee on or for such date;
provided, however, that the Persons listed on Schedule 4.2 hereto shall be
deemed to be the Key Employees as of the Closing Date and provided that
such Key Employee remains a Key Employee on the relevant Anniversary. The
Committee may redesignate who shall be Key Employees and the amounts of
Earn-Out Payments and/or Retention Payments payable to Key Employees at
any time and from time to time, at the Committee's discretion.
"Key Personnel" shall mean Murphy, Shifrin, and Beck.
"Kiser" shall mean David Kiser.
"Lease" shall have the meaning set forth in Section 5.14(a).
"License" shall have the meaning set forth in Section 5.15.
"Limit of Liability" shall mean (and be calculated): (i) with
respect to each Seller, by multiplying $2,000,000 times such Seller's
Relative Equity Interest, plus interest on all Claims, at an annual rate
equal to the Prime Rate then in effect, from the date on which Sellers are
notified in writing of a Claim which has matured, until paid, and (ii)
with respect to each Principal Indemnitor, by multiplying $2,000,000 times
such Principal Indemnitor's Relative Equity Interest, plus interest on all
Claims, at an annual rate equal to the Prime Rate then in effect, from the
date on which Sellers are notified in writing of a Claim which has
matured, until paid.
"Material Contracts" shall have the meaning set forth in Section
5.18.
"Maximum Aggregate Amount" shall mean the maximum amount of an
Earn-Out Payment, which shall be payable as and to the extent provided in
Article III.
"Murphy" shall mean Brian Murphy.
"Outstanding Credit Facility" shall mean the Company's revolving
credit facility with State Street Bank & Trust Company ("State Street")
and the Company's indebtedness outstanding pursuant thereto.
"Payments" shall mean the Retention Payments, the Earn-Out
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Payments and the Purchase Payments.
"Person" shall mean any natural person or any corporation,
partnership, joint venture or other entity.
"Post-Closing Review" shall have the meaning set forth in
Section 7.3.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by Chemical Bank as its prime rate in effect
at its principal office in New York, New York.
"Principal Indemnitors" shall mean Murphy, Shifrin, Kiser,
Gosselin and Beck.
"Principal Indemnitor's (or Principal Indemnitors') Relative
Equity Interest" shall mean the percentage determined by dividing (i) the
number of Shares owned by a Seller (who is a Principal Indemnitor) as set
forth in Schedule 2.1 to this Agreement by (ii) the total number of Shares
owned at the Closing by all of the Sellers (who are Principal Indemni-
tors).
"Purchase Payments" shall mean, collectively, the Initial Cash
Payment, the Initial Stock Payment, and the other payments specified in
Article II.
"Purchase Price" shall mean the Purchase Payments and the
Earn-Out Payments.
"Real Property" shall have the meaning set forth in Section
5.14(a).
"Registration Statement" shall mean those certain Registration
Statements under the Securities Act of 1933, to be filed by ITX related to
the issuance of the Common Stock in payment of the Payments.
"Regulated Substance" shall mean any chemical or substance
subject to or regulated under any Environmental Protection Law including,
without limitation, any "pollutant or contaminant" or "hazardous
substance" as those terms are defined in CERCLA, any "hazardous waste" as
that term is defined in RCRA, and any other hazardous or toxic wastes,
substances, or materials, petroleum (including crude oil and refined and
unrefined fractions thereof), polychlorinated biphenyls ("PCBs"),
infectious waste, special waste, pesticides, fungicides, solvents,
herbicides, flammables, explosives, asbestos and asbestos-containing
material, and radioactive materials, whether injurious by themselves or in
combination with other materials.
"Related Party" shall mean the Affiliates of any Seller.
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"Representative" shall have the meaning set forth in Section
3.6(c)(i).
"Restricted Period" shall have the meaning set forth in Section
7.11.
"Retention Payments" shall mean the payments provided for in
Article IV hereof.
"Revenue" shall mean, with respect to the Company, gross revenue
earned in accordance with the Company's revenue recognition policies and
shall include, but not be limited to, the following:
(i) The marked-up value of all labor and non-labor costs
incurred on client projects hosted by the Company for each accounting
period, whether billed or unbilled;
(ii) The marked-up value of all labor expended by the Company on
the activities referred to in Section 3.8 during each accounting period;
(iii) Any write-off's, overruns, or write-in's recorded
during each accounting period;
(iv) Any new reserves for uncollectible accounts receivable or
collections of past accounts receivable reserves during each accounting
period; and
(v) All journal entries recorded during each accounting period,
including, but not limited to, any reserves, accruals, loss provisions,
etc.
"SEC" shall mean the Securities and Exchange Commission.
"Second Anniversary" shall mean March 27, 1998, provided,
however, that if such Anniversary falls upon a date upon which the New
York Stock Exchange is closed for trading, the Anniversary date shall be
the next day upon which the New York Stock Exchange is open for trading.
"Seller" or "Sellers" shall have the meaning set forth in the
Preamble.
"Seller's (or Sellers') Relative Equity Interest" shall mean the
percentage determined by dividing (i) the number of Shares owned by a
Seller as set forth in Schedule 2.1 to this Agreement by (ii) the number
of Shares issued and outstanding (without reference to treasury stock) at
the Closing.
"Shares" shall have the meaning set forth in the Recitals.
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"Shifrin" shall mean Neil Shifrin.
"Stock Price Formula" shall mean, with respect to any payment to
be made in shares of Common Stock, the monetary amount of such payment
divided by the average of the closing prices of the Common Stock as
reported in the Wall Street Journal on each day within five business days
preceding the date for calculation of such payment.
"Stock Retention Payments" shall mean the First Anniversary Key
Employee Stock Retention Payment, the Second Anniversary Key Employee
Stock Retention Payment and the Third Anniversary Key Employee Stock
Retention Payment.
"Stub Period" shall mean period of days between the Closing,
through and including March 31, 1996.
"Stub Period Base" shall mean the 91 day period from January 1,
1996, through and including March 31, 1996.
"Stub Period Target Direct Margin Amount" shall mean the Stub
Period Target Direct Margin Amount, established for the purposes of
Section 3.6(a) of this Agreement. The Stub Period Target Direct Margin
Amount shall be equal to the product of: (a) a fraction, the numerator of
which is the number of days in the Stub Period, and the denominator of
which is the number of days in the Stub Period Base, which is 91, and (b)
$912,500.
"Tax" or "Taxes" shall mean any and all taxes imposed or
required to be collected by any federal, state or local taxing authority
in the United States, or by any foreign taxing authority under any statute
or regulation, including, without limitation, all income, gross receipts,
sales, use, personal property, use and occupancy, business occupation,
mercantile, ad valorem, transfer, license, withholding, payroll, employ-
ment, excise, real estate, environmental, capital stock, franchise,
alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalties and other additions thereto.
"Third Anniversary" shall mean March 26, 1999, provided,
however, that if such Anniversary falls upon a date upon which the New
York Stock Exchange is closed for trading, the Anniversary date shall be
the next day upon which the New York Stock Exchange is open for trading.
"Transactions" shall mean, in respect of any party, all
transactions contemplated by this Agreement that involve, relate to or
affect such party.
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ARTICLE II
PURCHASE PAYMENTS
Section 2.1 Purchase and Sale of Shares. Each Seller hereby sells,
conveys, transfers, assigns and delivers to Buyer, and Buyer hereby
acquires, accepts and purchases from each Seller, the number of Shares
owned by such Seller as at the Closing, as set forth in Schedule 2.1 to
this Agreement. Sellers may update such schedule at the Closing to
reflect subsequent issuance of shares of Gradient Stock to Sellers from
the date of this Agreement through the Closing.
Section 2.2 Purchase Payments. In consideration of the sale of the
Shares, and subject to the terms and conditions hereof (including, Section
7.6 concerning Purchase Payments to Kiser and Gosselin) the Buyer shall
pay to the persons referenced in and otherwise in accordance with Section
2.3 hereof, in the following amounts (collectively, the "Purchase
Payments"):
(a) a payment in cash in the amount of $1,100,000 to be paid in same
day funds upon the Closing Date (the "Initial Cash Payment");
(b) a payment, upon the Closing, in the amount of $900,000 to be
paid in cash in same day funds or in shares of Common Stock, at Buyer's
discretion, with any such payment of Common Stock to be calculated in
accordance with the Stock Price Formula applied as of three (3) business
days before the Closing Date (the "Initial Stock Payment");
(c) three (3) payments, each in the amount of $66,667, to be paid in
cash in same day funds or in shares of Common Stock, at Buyer's discre-
tion, with one such payment to be made upon each of the First Anniversary,
Second Anniversary and Third Anniversary;
(d) three (3) payments in cash in same day funds, each in the amount
of $66,667, with one of such payments being made upon each of the First
Anniversary, Second Anniversary, and Third Anniversary;
(e) three (3) payments in cash in same day funds, each in the amount
of $100,000, with one of such payments being made upon each of the First
Anniversary, Second Anniversary, and Third Anniversary;
(f) three (3) payments, each in the amount of $100,000, to be paid
in cash in same day funds or in shares of Common Stock, at Buyer's
discretion, with one such payment to be made upon each of the First
Anniversary, Second Anniversary and Third Anniversary.
Section 2.3 Manner of Purchase Payments.
(a) Buyer shall make the Purchase Payments to the Sellers in
accordance with Sellers' Relative Equity Interests.
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(b) Buyer shall be obligated to pay the amounts specified in
Sections 2.2 (e) and (f) to all Sellers, notwithstanding that one or more
of such Sellers might be Ineligible Participant(s) on the applicable
Anniversary date relative to the payment of such amounts; but, Buyer shall
not be obligated to pay any of the amounts specified in Sections 2.2 (c)
or 2.2 (d) to any Seller who shall be an Ineligible Participant on the
applicable Anniversary date relative to the payment of such amounts. The
amounts payable to those Sellers who are not Ineligible Participants upon
such Anniversary date shall not be increased because of the fact that
another Seller may be an Ineligible Participant upon such date.
(c) The Stock Price Formula shall be applied (as of the applicable
Anniversary date) relative to any payments which Buyer may, in its
discretion, make in Common Stock in accordance with this Agreement.
(d) Kiser and Gosselin shall be paid for their Shares, in cash, at
the Closing in accordance with Section 7.6 of this Agreement. According-
ly, the amounts set forth in Sections 2.2(c) - 2.2(f), which are to be
paid to all Sellers (including Kiser and Gosselin) for their Shares in
accordance with Sellers' Relative Equity Interests, shall be appropriately
adjusted in order to reflect the payment at Closing to Kiser and Gosselin.
ARTICLE III
EARN-OUT PROVISIONS
Section 3.1 Earn-Out Installments. In addition to the amounts paid to
Sellers pursuant to Article II, Buyer shall pay, as specified in Section
3.5 through 3.13 hereof, to the Sellers, in consideration for the Shares,
and to the Key Employees, the Earn-Out Payments as and to the extent
described in this Article III, up to the corresponding Maximum Aggregate
Amount specified for each Earn-Out Payment. Each Earn-Out Payment (i.e.,
each of the First Anniversary Earn-Out Payments, the Second Anniversary
Earn-Out Payments, and the Third Anniversary Earn-Out Payments) shall
consist of a Maximum Aggregate Amount of $291,666.67 of which a maximum of
$216,666.67 is payable to the Sellers and a maximum of $75,000 is payable
to the Key Employees. The Buyer shall be obligated to pay any amount on
account of an Earn-Out Payment if and only if the Company achieves the
applicable Minimum Performance during the applicable Fiscal Year. The
amount of each Earn-Out Payment actually paid shall be equal to the
Maximum Aggregate Amount specified for such Earn-Out Payment (except as
such may be increased in accordance with Section 3.11), multiplied by the
Applicable Percentage (provided in the applicable Financial Performance
Table)
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relating to each such Earn-Out Payment. By way of example only, (1) if
the Company achieves a Direct Margin during Fiscal Year 1997 equal to 100%
of the Direct Margin Base, the Applicable Percentage is 0%, no amount
would be payable on account of the First Anniversary Payment; (2) if the
Company achieves a Direct Margin during Fiscal Year 1997 equal to 104% of
the Direct Margin Base, the Applicable Percentage is 40%, and the total
amount of the First Anniversary Earn-Out Payment payable would be
$116,666.67 ($116,666.67 = ((104-100)/10) x $291,666.67); and (3) if the
Company achieves a Direct Margin during Fiscal Year 1997 equal to 112% of
the Direct Margin Base, the Applicable Percentage is 100%, and the total
amount of the First Anniversary Earn-Out Payment payable would be
$291,666.67 ($291,666.67 = ((112-100)/10, but never in excess of 100%) x
$291,666.67). (Capitalized terms used in this Section 3.1 are defined as
used elsewhere in Article III.)
Section 3.2 First Anniversary Earn-Out Payments. A table showing the
required financial performance (a "Financial Performance Table") for the
First Anniversary Earn-Out Payments is as follows:
------------------------------------------------------------------------
Percentage of Direct Margin Percentage of the First
Base Earned by the Company Anniversary Earn-Out Payment
during Fiscal Year 1997 to be Paid by Buyer
(the "Applicable Percentage"
for the First Anniversary
Earn-Out Payment)
------------------------------------------------------------------------
100% (the "Minimum 0% (below 100%, the Applicable
Performance") Percentage is zero)
------------------------------------------------------------------------
between 100% and 110% The ratio (expressed as a
percentage) of
(percent in excess of 100
achieved): 10
------------------------------------------------------------------------
110% (the "Maximum 100%
Performance") or above
------------------------------------------------------------------------
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Section 3.3 Second Anniversary Earn-Out Payments. The Financial
Performance Table for the Second Anniversary Earn-Out Payments is as
follows:
----------------------------------------------------------------------
Percentage of Direct Margin Percentage of the Second
Base Earned by the Company Anniversary Earn-Out Payment
during Fiscal Year 1998 to be Paid by Buyer (the
"Applicable Percentage" for the
Second Anniversary Earn-Out
Payments)
----------------------------------------------------------------------
100% (the "Minimum 0% (below 100%, the Applicable
Performance") Percentage is zero)
----------------------------------------------------------------------
between 100% and 115% The ratio (expressed as a
percentage) of
(percent in excess of 100
achieved): 15
----------------------------------------------------------------------
115% (the "Maximum 100%
Performance") or above
----------------------------------------------------------------------
Section 3.4 Third Anniversary Earn-Out Payments. The Financial
Performance Table for the Third Anniversary Earn-Out Payments is as
follows:
----------------------------------------------------------------------
Percentage of Direct Margin Percentage of the Third
Base Earned by the Company Anniversary Earn-Out Payment
during Fiscal Year 1999 to be Paid by Buyer (the
"Applicable Percentage" for the
Third Anniversary Earn-Out
Payments)
----------------------------------------------------------------------
100% (the "Minimum 0% (below 100%, the Applicable
Performance") Percentage is zero)
----------------------------------------------------------------------
between 100% and 120% The ratio (expressed as a
percentage) of
(percent in excess of 100
achieved): 20
----------------------------------------------------------------------
120% (the "Maximum 100%
Performance") or above
----------------------------------------------------------------------
Section 3.5 Manner of Payment.
(a) All Earn-Out Payments payable to Sellers shall be payable pro
rata according to Sellers' Relative Equity Interests. All Earn-Out
Payments payable to Key Employees shall be payable to those Key Employees
(Key Employees as of the Closing are listed on Schedule 4.2) and in the
amounts determined by the Committee (subject to the limits thereon imposed
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in Sections 3.2, 3.3 and 3.4). One half of each Earn-Out Payment (e.g.,
the First Anniversary Earn-Out Payment, the Second Anniversary Earn-Out
Payment, and the Third Anniversary Earn-Out Payment) shall be payable in
cash and the other half shall be payable in cash or in Common Stock, at
Buyer's discretion. All payments to be made in shares of Common Stock
under Article III shall be made in accordance with the Stock Price Formula
applied as of the relevant Anniversary date. Earn-Out Payments shall be
calculated to the nearest dollar by "rounding down."
(b) Each Cash Earn-Out payment to be made pursuant to Article III
shall be made in next day funds by certified check and each Earn-Out
Payment shall be sent to each Key Employee in care of the Company, in the
case of the Key Employees, or to each Seller, as the case may be, in the
manner of a notice given pursuant to Section 10.2. Each Earn-Out Payment
shall be payable within ninety days of the end of the relevant fiscal year
of the Company. Buyer's determination of the amounts due to Sellers shall
be furnished to Sellers not later than sixty days following the close of
the relevant period.
Section 3.6 Transition; Adjustment to Direct Margin Base; Effect of
Reserves and Write-Downs of Accounts Receivable; Determinations of
Financial Performance Tests.
(a) (1) Should the Company achieve a Direct Margin during the Stub
Period less than the Stub Period Target Direct Margin Amount, the parties
agree that the Direct Margin Base for Fiscal Year 1997 shall be adjusted.
Such adjustment shall increase the Direct Margin Base for Fiscal Year 1997
on a dollar-for-dollar basis, for each dollar that the Direct Margin
achieved during the Stub Period is less than the Stub Period Target Direct
Margin Amount. The adjustment to the Direct Margin Base for Fiscal Year
1997, if any, shall be determined as a part of the Post-Closing Review.
(2) In no event shall any Person be entitled to any Earn-Out
Payment for any Fiscal Year should the Direct Margin for the applicable
Fiscal year be less than the Direct Margin Base applicable to Fiscal Year
1997.
(b) Promptly after the Closing, Buyer shall prepare and deliver to
Sellers a list of all Accounts Receivable outstanding on the Closing Date.
The collectability and any reserves or write-downs (whether newly or
subsequently) taken with respect to the Accounts Receivable (including
those outstanding on the Closing Date) shall be judged in accordance with
Buyer's standard practice therefor. Any of the Company's Accounts
Receivable outstanding as of the Closing Date which are reserved or
written-down subsequent to the Closing shall result in an adjustment to
the Company's Direct Margin during the fiscal year that such Accounts
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<PAGE>
Receivable are reserved or written down, for the purposes of calculating
the Earn-Out with respect to such fiscal year. Any such adjustment shall
have the effect of reducing, on a dollar-for-dollar basis, the Company's
Direct Margin during the fiscal year any such Accounts Receivable are
reserved or written-down, based upon the amounts of the Accounts
Receivable so reserved or written-down; provided, however, that should
Buyer be entitled to effect a reduction under either Section 3.6(a) or
(b), Buyer shall be entitled to effect such reduction only with respect to
either (but not both) of such Sections and provided that any subsequent
collection of any write-downs shall increase the Company's Direct Margin
in the period when collected. Notwithstanding anything to the contrary
contained in this Section 3.6, Buyer shall not be prevented from taking
further or subsequent reserves or write-downs and corresponding reductions
under Section 3.6(b) with respect to Accounts Receivable identified as
outstanding on the Closing Date, thereby reducing the Earn-Out for the
period when such further reserves or write-downs are taken, even if prior
reductions were effected under Section 3.6(a); provided, however, that
such further or subsequent reserves or write-downs shall relate solely to
Accounts Receivable (or portions of Accounts Receivable) that did not
previously result in reductions under Section 3.6(a).
(c) Except as expressly stated otherwise herein, all determinations
for purposes of this Article III shall be made in accordance with GAAP,
consistently applied in accordance with Buyer's accounting policies and
procedures then in effect and applied to all of Buyer's operations. In
addition, all determinations under this Article III shall be made in
accordance with the following provisions:
(i) A representative of the Sellers ("Representative"), shall
have the right to review all accounting records relevant to the making of
such determinations by Buyer. In the event that the Representative
disagrees with any determination made by Buyer, the Representative shall
deliver to Buyer, within 30 days after receipt of any such determination
from Buyer, a written statement specifying the amount of the additional
payment to which it believes Sellers or Key Employees are entitled, and
the nature and reasons for its disagreement with Buyer's determination.
If the Representative and the Company are unable to resolve any such
disagreement within 30 days after receipt by Buyer of the written
statement from the Representative, the matter shall be submitted to an
independent public accounting firm chosen by the Representative from a
list of three public accounting firms submitted to it by Buyer, all of
which shall be among the "Big Six" accounting firms and none of which
shall have been retained or engaged by Buyer at the time of or during the
six-month period prior to the date the list is submitted to the
Representative by Buyer. The accounting
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<PAGE>
firm shall follow such procedures as it deems appropriate for obtaining
the necessary information in considering the positions of the Representa-
tive and Buyer but shall not conduct an independent audit, and shall
render its determination on the matter, which shall be final, conclusive
and binding upon Buyer and all of Sellers.
(ii) Fees and expenses for the accounting firm (i) shall be paid
by the Sellers (who are not then Ineligible Participants) if Buyer's
determination is affirmed by the accounting firm, or (ii) shall be
apportioned among Buyer and Sellers (who are not then Ineligible Partici
pants) if the accounting firm determines that an additional amount is due
Sellers or Key Employees over and above the amount determined by Buyer;
such apportionment shall be made so that Buyer shall pay the percentage of
the fees and expenses equal to the percentage determined by dividing (A)
the additional amount to be paid by Buyer to Sellers or Key Employees by
(B) the additional amount asserted by the Representative, up to the full
amount thereof.
(iii) Any additional payment required pursuant to this
Section 3.6 shall be made to Sellers or Key Employees promptly with
interest from the date such payment was originally due at an annual rate
equal to the Prime Rate in effect as of such date.
(iv) Buyer agrees to provide Sellers with a monthly report of
the Company's Direct Margin, with all components identified, within 15
business days after the close of each monthly accounting period. Included
with this
report shall be a detailed breakdown of all labor and other costs
incurred, as reflected in the general ledger.
Section 3.7 Effect of Attrition on Earn-Out Payments. Buyer shall not
be obligated to pay to any Seller or Key Employee who is an Ineligible
Participant upon an applicable Anniversary any amount of any Earn-Out
Payment, but in the event any Seller or Key Employee is an Ineligible
Participant upon any Anniversary, the amount that would otherwise have
been paid to such Seller or Key Employee shall be redistributed ratably
among the remaining Sellers according to their Relative Equity Interests
and Key Employees as determined by the Committee.
Section 3.8 Provisions for Work Jointly Performed by Buyer and the
Company. For the purposes of calculating the Earn-Out Payments:
(a) Revenues from client work performed by Buyer's employees for any
projects hosted by Company will be included in Revenue.
(b) Revenue received for client work performed by Company for any
16
<PAGE>
projects hosted by profit centers of Buyer (other than the Company) will
be included in Revenue at a minimum multiplier of 3.0 times Bare Labor.
All costs except fringe incurred on such projects will be included in
Revenue at a multiplier of 1.0.
(c) Charges for work done for bid and proposal or other non-client
projects will be included in Revenue at a multiplier of 3.0 times Bare
Labor. All costs except fringe incurred on such projects will be
excluded when calculating both Revenue and Direct Cost.
(d) Charges for work done for business development projects will be
included in Revenue at a multiplier of 3.0 times Bare Labor. All costs
except fringe incurred on such projects will be excluded when calculating
both Revenue and Direct Cost.
(e) When performing the calculations provided in Sections 3.8(a)
through (d), in each case charges for labor and other expenses shall be
included when calculating Direct Cost, Direct Labor, and Direct Margin on
the same basis as any other Direct Cost, even though the work was
performed by Buyer's employees. To be included in Revenue, charges for
work falling within subsections (c) and (d) must be requested in writing,
or any oral request must be promptly confirmed in writing.
(f) In the event Buyer shall merge or combine the operations of the
Company with or into other operations of Buyer, or any other company
acquired by it, Buyer shall continue to keep accounting records sufficient
for the determinations required hereunder to be made as though such merger
or combination had not occurred.
Section 3.9 Fiduciary Obligation. Buyer and Sellers acknowledge and
agree that Buyer, in its management and budget decisions, including
without limitation in its approval of each Business Plan, has a fiduciary
obligation to act at all times in the best interests of its shareholders
and that such obligation could require it to make decisions that could
adversely affect Sellers' payments under this Article III.
Section 3.10 No Carry-Over for Earn-Out Payments. If the relevant
financial performance tests determined in Section 3.2, 3.3, and 3.4 are
not satisfied for a particular Fiscal Year, the Earn-Out Payments for that
Fiscal Year shall not be paid and Buyer shall have no further obligation
with respect to such Earn-Out Payments.
Section 3.11 Adjustment for Extraordinary Events. The Buyer shall have
the discretion to increase the amount of any Earn-Out Payment to reflect
extraordinary events (such as, without limitation, when efforts by the
Company assist the Buyer in winning a contract Buyer would not otherwise
17
<PAGE>
have won or Buyer wins a contract through the material participation of
Company employees in proposal efforts); provided, however, that the
Maximum Aggregate Amount of any Earn-Out Payment shall not be increased by
more than 20%, i.e., by more than $58,333.34 (20% of $291,666.67).
Section 3.13 Acceleration of Earn-Out Payments. All sums payable by
Buyer pursuant to this Article III shall become immediately due and
payable upon the occurrence of any one of the following events:
(a) the Company is sold to other than ITX or an Affiliate of ITX;
(b) Buyer terminates the operation of the Company for reasons other
than the breach hereof by one or more of the Sellers or material-
underperformance by the Company (and for purposes of this Section 3.13(b)
"material underperformance" shall mean a failure of the Company to earn at
least 50% of the amount of the Direct Margin Base applicable to such
Fiscal Year; or
(c) Buyer shall merge or combine Company's operations with its own
or an Affiliate's operations such that it is impossible to keep accounting
records sufficient for the determinations required hereunder to be made as
though such merger or combination had not occurred.
For purposes of determining the sums payable under this Section 3.13, it
shall be assumed that Company achieved 100% percent of the Earn-Out
Payments for any portion of the period remaining until the Third-
Anniversary.
ARTICLE IV
RETENTION PAYMENTS
Section 4.1 Retention Payments. In consideration for services to be
rendered by the Key Employees, Buyer shall, subject to all of the
provisions of this Article IV, pay the following amounts to the Key
Employees:
(a) a payment in cash in the maximum aggregate amount of $37,500 to
be paid by Buyer to the Key Employees in same day funds upon the First
Anniversary;
(b) a payment in cash in the maximum aggregate amount of $37,500 to
be paid by Buyer to the Key Employees in same day funds upon the Second
Anniversary;
(c) a payment in cash in the maximum aggregate amount of $37,500 to
be paid by Buyer to the Key Employees in same day funds upon the Third
Anniversary;
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(d) a payment in the amount of $37,500 to be paid by Buyer to Key
Employees upon the First Anniversary in cash in same day funds or in
shares of Common Stock, at Buyer's discretion;
(e) a payment in the amount of $37,500 to be paid by Buyer to Key
Employees upon the Second Anniversary in cash in same day funds or in
shares of Common Stock, at Buyer's discretion; and
(f) a payment in the amount of $37,500 to be paid by Buyer to Key
Employees upon the Third Anniversary in cash in same day funds or in
shares of Common Stock, at Buyer's discretion.
Section 4.2 Manner of Retention Payments. No Key Employee who is an
Ineligible Participant upon an applicable Anniversary shall be entitled to
any of the Retention Payment payable upon such Anniversary, but in the
event any Key Employee is an Ineligible Participant upon any Anniversary
Date, the amount that would otherwise have been paid to such Key Employee
shall be redistributed pro rata among the remaining Key Employees. The
amounts to be paid by Buyer to the individual Key Employees shall be
determined by the Committee after reference to Schedule 4.2.
Section 4.3 Retention Payments. All Retention Payments payable in
Common Stock shall be made in accordance with the Stock Price Formula
applied as of the relevant Anniversary.
Section 4.4 Exclusion of Murphy and Shifrin. Murphy and Shifrin shall
not be eligible to receive any amounts pursuant to the Retention Payments.
Section 4.5 Conditions to Receipt of Earn-Out Payments and/or Retention
Payments. Prior to any Key Employee's receipt of Earn-Out Payments or
Retention Payments, such employee shall be required, as a condition
precedent to receipt any such payments hereunder, to execute and deliver
an investment letter to Buyer substantially in the form of Schedule 9.4(d)
hereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
SELLERS
Each Seller hereby represents and warrants to Buyer that the-
representations and warranties in Sections 5.1, 5.2, and 5.3(b) and are
true and correct. Each of the Principal Indemnitors hereby represents and
warrants to Buyer that the representations and warranties in Sections
5.3(a), 5.4 - 5.30 are true and correct.
Section 5.1 Authorization. Such Seller has the capacity to enter into
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this Agreement and to perform its obligations under this Agreement and to
consummate the Transactions. This Agreement and all agreements or
instruments herein contemplated to be executed by such Seller are the
valid and binding agreements of such Seller, enforceable against him or
her in accordance with their respective terms.
Section 5.2 Ownership of Stock; Investment Intent. Such Seller is the
record owner of all of the Shares transferred to Buyer hereunder at the
Closing, free and clear of any liens, encumbrances, pledges, security
interests, restrictions, prior assignments and claims of any kind or
nature whatsoever. Upon consummation of the Transactions, Buyer shall be
the owner, beneficially and of record, of such Shares, free and clear of
any liens, encumbrances, pledges, security interests, restrictions, prior
assignments and claims of any kind or nature whatsoever, except as
otherwise created by this Agreement or by Buyer. Subject to Section 7.9,
such Seller is acquiring the Common Stock payable to him or her under this
Agreement for investment purposes for his or her own account and without
a view to distribution or resale thereof, and each Seller acknowledges
receipt of ITX's Annual Report on Form 10K for Fiscal Year ended March 31,
1995 and all subsequent quarterly reports on Form 10Q for all such
quarters through and including the fiscal quarter ended December 31, 1995,
and all Reports on Form 8K mentioned in any of such 10Q reports.
Section 5.3 Consents and Approvals.
(a) All consents, approvals and authorizations of, and declarations,
filings and registrations with, and payments of all taxes, fees, fines,
and penalties to, any governmental or regulatory authority (domestic or
foreign) or any other person (either governmental or private) required to
be obtained by the Company in connection with the execution and delivery
of this Agreement by the Sellers or the consummation of the Transactions
contemplated hereby have been obtained, made and satisfied.
(b) All consents, approvals and authorizations of, and declarations,
filings and registrations with, and payments of all taxes, fees, fines,
and penalties to, any governmental or regulatory authority (domestic or
foreign) or any other person (either governmental or private) required to
be obtained by such Seller in connection with the execution and delivery
by such Seller of this Agreement or the consummation of the Transactions
by such Seller have been obtained, made and satisfied.
Section 5.4 Brokerage Fees. Except with respect to a commission
payable by the Principal Indemnitors to David Kiser, the details of which
have been previously disclosed to Buyer, no Person is entitled to any
brokerage or finder's fee or other commission from the Sellers in respect
of this
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Agreement or the Transactions. The Principal Indemnitors agree to defend,
indemnify and hold harmless Buyer from and against all claims by David
Kiser or any other Person for any commission arising out of the transac-
tions contemplated hereby, and the limitations provided in Section 8.1
hereof shall not apply to such indemnification.
Section 5.5 Disclosure. The information provided by such Seller or the
Company in this Agreement and in any other writing furnished pursuant
hereto does not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements and facts contained herein or
therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter
delivered or made available by such Seller to the Company or Buyer
pursuant hereto were or will be complete and accurate records of such
documents in all material respects. There is no fact (other than matters
of a general economic or political nature which do not affect the Company
uniquely) known to the Company or such Seller which materially adversely
affects the assets, liabilities (whether absolute, accrued, contingent or
otherwise), condition (financial or otherwise), results of operations,
business, affairs, long-term prospects, or properties of the Company which
has not been set forth in this Agreement.
Section 5.6 Organization and Good Standing. The Company is a corpora
tion duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, and the Company is duly qualified or
authorized to do business in each jurisdiction in which it does or has
done business, or owns or has owned property, or where such qualification
or authorization is otherwise required by virtue of its presence or-
activities, except where the failure to be so qualified would not in the
aggregate have a material adverse effect on the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial
or otherwise), results of operations, business, affairs, or prospects,
properties or assets of the Company. Schedule 5.6 sets forth a complete
and correct list of all jurisdictions in which the Company does business
or is otherwise required to be qualified or authorized to transact
business or own property. The Company does not have any subsidiaries or
any other equity interest in any corporation, partnership or similar
entity. The capitalization of the Company is as set forth on Schedule
5.6.
Section 5.7 Licenses and Permits. The Company is, and at all times has
been, duly licensed, with all requisite permits and qualifications, as
required by applicable law for the purpose of conducting its business or
owning its properties or both, in each jurisdiction in which it does
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business or owns property or in which such license, permit or qualifica-
tion is otherwise required and where the failure to have such license,
permit or qualification would have a material adverse effect on the
assets, liabilities (whether absolute, accrued, contingent or otherwise),
condition (financial or otherwise), results of operations, business or
prospects of the Company. The Company is in compliance with all such
licenses, permits and qualifications. Schedule 5.7 sets forth a list of
all such licenses, permits and qualifications, and the expiration dates
thereof. There are no proceedings pending or, to the knowledge of the
Sellers, threatened, to revoke or terminate any such presently existing
license, permit or qualification, and the Sellers know of no reason why
any such license, permit or qualification would not be renewed in the
ordinary course.
Section 5.8 No Breach. Except with respect to contracts between
Company and its clients and leases of real estate which purport to
prohibit assignment such that a transfer of all or a substantial portion
of the Gradient Stock constitutes a prohibited assignment and/or require
consent for such a transfer, neither the execution and delivery of this
Agreement by any of the Sellers nor the consummation of the Transactions
by such Sellers will violate, result in a breach of any of the terms or
provisions of, constitute a default (or any event that, with the giving of
notice or the passage of time or both, would constitute a default) under,
result in the acceleration of any indebtedness under or performance
required by, result in any right of termination of, increase any amounts
payable under, decrease any amounts receivable under, change any other
rights pursuant to, or conflict with, the Certificate of Incorporation or
Bylaws of the Company, or any agreement, indenture or other instrument to
which the Company is a party or by which any of its properties are bound,
or any judgment, decree, order or award of any court, governmental body or
arbitrator (domestic or foreign) applicable to such Seller, except such
breaches, defaults, and the like that have been waived in writing before
the Closing, and except that with respect to leases of real estate, the
Seller shall deliver to Buyer the consents referenced in Section 9.4 (a)
hereof.
Section 5.9 Gradient Stock. As of the Closing:
All of the Shares will be duly and validly authorized and issued, and
fully paid and nonassessable, and issued in full compliance with all
applicable laws, rules, regulations and ordinances. The Shares constitute
all the issued and outstanding Gradient Stock and there exist no (i)
outstanding options, warrants or rights to purchase or subscribe for any
equity securities or other ownership interests of the Company, (ii)
outstanding options or rights to sell to the Company any equity securities
or other ownership interests of any other business entity, (iii) obliga-
tions of the Company, whether absolute or contingent, to issue any shares
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of equity securities or other ownership interests or to share or make any
payments based on its revenues, profits or net income, or (iv) indebted-
ness or securities directly or indirectly convertible into any equity
securities of the Company.
Section 5.10 Title to Property. Except for the liens created under the
Outstanding Credit Facility, which will be satisfied as a condition
precedent to the Closing, the Company has good and marketable title to all
of the assets and interests in assets specified in the Financials, whether
such assets are real, personal, mixed, tangible, or intangible, which
assets constitute all the assets and interests in assets that are used in
the business of the Company. All such assets are free and clear of
restrictions on or conditions to transfer or assignment, and free and
clear of mortgages, liens, pledges, charges, encumbrances, equities,
claims, easements, rights of way, covenants, conditions, or restrictions,
except for (1) those disclosed in Company's Financials, this Agreement, or
in Schedules to this Agreement; (2) the lien of current taxes not yet due
and payable; and (3) possible minor matters that, in the aggregate, are
not substantial in amount and do not materially detract from or interfere
with the present use of any of these assets or materially impair business
operations. All real property and tangible personal property of the
Company is in good operating condition and repair, ordinary wear and tear
excepted.
Section 5.11 Financial Statements. Schedule 5.11 contains the following
financial statements of the Company:
(a) The balance sheet at September 30, 1995 (the "Balance Sheet")
and statement of operations and retained earnings and statement of cash
flows for the 12 months then ended and notes thereto (collectively the
"Financials"), (i) have been prepared from the books and records of the
Company in accordance with GAAP consistently applied with prior periods
(except for the change in the method of revenue and cost recognition
previously approved by Buyer), (ii) are complete and correct and fairly
present in all material respects the financial condition and results of
operations of the Company as of the dates and for the periods indicated
thereon, (iii) contain and reflect adequate reserves for all liabilities
and obligations of any nature, whether absolute, contingent or otherwise,
and (iv) reflect all assets at the lower of their cost or net realizable
value.
(b) The Financials have been audited by the independent accounting
firm of Shapiro & Weiss, whose unqualified report thereon is part of
Schedule 5.11. The books of account of the Company have been maintained
in all material respects in accordance with sound business practices, and
there have been no transactions involving the Company that properly should
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have been set forth therein in accordance with generally accepted
accounting principles that have not been accurately so set forth.
Section 5.12 Maintenance of Net Worth; Absence of Certain Changes.
(a) The Company's net worth as of September 30, 1995 and at the
Closing shall not be less than $1,225,000; provided, however, should the
Post-Closing Review reveal that the Company's net worth has dropped below
such level, Buyer shall be entitled to deduct from the payments provided
in Sections 2.2(c) -(f) hereof (in that order) on a dollar-for-dollar
basis the amount by which the Company's net worth is less than such level
plus interest at the amount of such shortfall at the Prime Rate, from and
after the Closing. Net worth shall be determined in accordance with GAAP,
consistently applied (except for the changes in revenue and cost recogni
tion policies previously approved by Buyer).
(b) Except as approved in writing by Buyer and as disclosed on
Schedule 5.12, since September 30, 1995, there has not occurred:
(i) Any amendment or modification (other than insubstantial
amendments, modifications or suspensions of work in the ordinary course of
business) of any Material Contract (as defined below), or any termination
of any agreement that would have been a Material Contract were such
agreement in existence on the date hereof;
(ii) Except with respect to contracts between Company and its
clients in the ordinary course of business, any entering into of any
written or oral agreements, contracts, commitments or transactions that
extend beyond the first anniversary hereof or have obligations thereunder
in excess of $10,000 in the aggregate;
(iii) Any increase in the compensation (including, without
limitation, the rate of commissions) payable to, or any payment of a cash
bonus (excluding the payments pursuant to the Company's March 7, 1995
bonus program) to, any officer, director or employee of, or consultant to,
the Company;
(iv) Any transaction by the Company in excess of $10,000,
whether or not covered by the foregoing, not in the ordinary course of
business, including, without limitation, any purchase or sale of any
assets, or containing obligations extending beyond the Closing;
(v) Any material alteration in the manner of keeping the books,
accounts or records of the Company, or in the accounting practices therein
reflected; or
(vi) Any agreement to do any of the things described in the
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preceding subsections (b)(i)-(v) of this Section 5.12.
Section 5.13 Absence of Undisclosed Liabilities. At September 30, 1995,
there were no liabilities of the Company, whether absolute, accrued,
contingent or otherwise, and whether due or to become due, not reflected
on or reserved for in the Financials, except for obligations incurred in
the ordinary course of business and none of such obligations, either
individually or in the aggregate, are material to the business, condition,
or prospects of the Company.
Section 5.14 Real Property. Schedule 5.14(a) hereto sets forth a
complete and correct description of each parcel of real property (collec
tively, the "Real Property") owned by or leased to the Company or
otherwise used by the Company, which description consists of the proper
address for each location and an identification of each lease (a "Lease")
of real property under which the Company is either a lessee, sublessee,
lessor or sublessor. Except as set forth in Schedule 5.14(b):
(a) The Company does not own any Real Property;
(b) Each Lease is a valid and binding obligation of the Company, and
the Sellers do not have any knowledge that any of such Leases are not
valid and binding obligations of each of the other parties thereto;
(c) Neither the Company nor any other party to a Lease is in default
with respect to any material term or condition thereof, and no event has
occurred that, with the passage of time or the giving of notice or both,
would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encum-
brance upon any asset of the Company;
(d) All of the buildings, fixtures and other improvements located on
the Real Property are in good operating condition and repair, and the
Company's operations therein as presently conducted do not violate any
applicable code, zoning ordinance or other applicable law or regulation;
(e) The Company holds all certificates of occupancy, underwriters'
certificates relating to electrical work, zoning, building, housing,
safety, fire and health approvals or all other permits and licenses
required by applicable law to be held in its name relating to the
operation of the Real Property;
(f) No portion of the Real Property (i) has been used by Company in
any manner for the storage, disposal, treatment, processing, production,
refinement, generation or other handling of any Regulated Substance and
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there is no contamination, whether of soil, ground water, or otherwise, or
other condition caused by Company that violates any applicable-
Environmental Protection Law, or requires reporting to any governmental
authority; (ii) contains any surface or sub-surface conditions caused by
Company's operations that constitute, or that through the physical effects
of the passage of time may constitute, a public or private nuisance;
(g) To the best of such Seller's knowledge, no portion of the Real
Property has been designated, listed, or identified in any manner by the
EPA or under and pursuant to any Environmental Protection Law as a
hazardous waste or hazardous substance disposal or removal site, Superfund
or clean-up site or candidate for removal or closure pursuant to any
Environmental Protection Law.
Section 5.15 Intangible Personal Property.
(a) Schedule 5.15 sets forth (i) a complete and correct list of each
patent, patent application, registered copyright, copyright application,
trademark, trademark application (in any such case, whether registered or
to be registered in the United States of America or elsewhere), process,
invention, trade secret, trade name, computer program, formula and
customer list (collectively, the "Intangible Personal Property") of the
Company (a copy of the customer list has been previously delivered to
Buyer and need not be listed on Schedule 5.15), (ii) a complete and
correct list of all licenses or similar agreements or arrangements
("Licenses") to which the Company is a party either as licensee or
licensor for each such item of Intangible Personal Property and (iii) a
list of all non-disclosure or confidentiality agreements between Company
and its employees and management consultants (other than those disclosed
in Schedule 5.18). (Schedule 5.15 need not include any License, whether
as licensor or licensee, pursuant to which Company receives or pays less
than $5,000 per year in royalties, including for those for "off-the-shelf"
computer software purchased or licensed by Company.)
(b) Except as set forth on Schedule 5.15:
(i) There have been no actions or other judicial or adversary
proceedings involving the Company concerning any item of Intangible
Personal Property, and, to the knowledge of the Sellers, no such action or
proceeding is threatened;
(ii) To such Seller's knowledge, the Company has the right and
authority to use each item of Intangible Personal Property in connection
with the conduct of its businesses in the manner presently conducted and
such use does not conflict with, infringe upon or violate any patent,
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trademark or registration of any other person or entity;
(iii) There are no outstanding or, to the knowledge of the
Sellers, threatened disputes or disagreements with respect to any License;
and
(iv) To the knowledge of Sellers, the conduct by the Company of
its business does not conflict with the valid patents, trademarks,
licenses, trade secrets or trade names of others.
Section 5.16 Labor and Employment Agreements.
(a) Other than as disclosed in Schedule 5.18, Schedule 5.16 sets
forth a complete and correct list of the following:
(i) Each labor or employment agreement to which the Company is
a party or by which it is bound;
(ii) The name of each employee or agent or management consultant
to the Company who since October 1994 was or is being paid $50,000 or more
per year and the terms and components of such individual's compensation,
including cash and non-cash compensation (if other than Company-standard),
and any written agreements requiring any of the foregoing.
(b) The Company has complied in all material respects with all
applicable laws, rules and regulations (domestic and foreign) relating to
the employment of labor, including, without limitation, those related to
wages, hours, collective bargaining and the payment and withholding of
taxes and other sums as required by appropriate governmental authorities
and has withheld and paid to the appropriate authorities, or is holding
for payment not yet due to such authorities, all amounts required to be
withheld from such employees and is not liable for any arrears of wages,
taxes, penalties or other sums for failure to comply with any of the
foregoing.
(c) No unfair labor practice complaint is pending against the
Company before the National Labor Relations Board or any federal, state or
local agency (domestic or foreign), and, to the knowledge of the Sellers,
no labor strike, grievance or other labor trouble affecting the Company is
pending or threatened.
(d) Except as provided in Schedule 5.22, no material organization
effort, and no material representation, sex discrimination or age
discrimination allegation, claim, suit or proceeding, has been made or is
pending with respect to the employees of the Company and no such effort,
allegation, claim, suit or proceeding has been made, raised or brought
within the three-year period prior to the date of this Agreement.
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(e) No arbitration proceeding arising out of or under any collective
bargaining agreement is pending and, to the knowledge of the Sellers, no
basis for any such proceeding exists.
(f) Subject to the provisions of Section 7.8 (e) concerning the
carry over of accruals for vacation, all reasonably anticipated
obligations of the Company, whether arising by operation of law, contract,
past custom or otherwise, for unemployment compensation benefits, pension
benefits, advances, salaries, bonuses, deferred compensation, performance
compensation, vacation and holiday pay, sick leave and other forms of
compensation payable to the employees or agents of the Company in respect
of the services rendered by any of them on or prior to the date of the
Financials have been paid or adequate accruals therefor have been made in
the books and records of the Company and in the Financials. All such
obligations in respect of services rendered on or prior to the date hereof
have been paid as of the date hereof or adequate accruals therefor shall
have been made. All accrued obligations of the Company applicable to its
employees, whether arising by operation of law, contract, past custom or
otherwise, for payments to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social
security benefits or any other benefits for employees, with respect to
employment of said employees through the date of the Financials have been
paid or adequate accruals therefor have been made on the books and records
of the Company and in the Financials. All such obligations with respect
to employment of employees through the date hereof have been paid as of
the date hereof or adequate accruals therefor shall have been made.
Section 5.17 Employee Benefit Plans; ERISA.
(a) Schedule 5.17 hereto lists each (i) employee pension benefit
plan, within the meaning of Section 3(2) of ERISA, covered by Part 2 of
Title I of ERISA and excluding multiemployer plans within the meaning of
Section 3(37) of ERISA (a "Pension Plan") in which employees of the
Company participate, (ii) employee welfare benefit plan within the meaning
of Section 3(1) of ERISA (a "Welfare Plan") in which employees of the
Company participate and (iii) each profit sharing, group insurance, bonus,
deferred compensation, stock option, severance pay, insurance, pension or
retirement plan or written agreement relating to employment or fringe
benefits for employees, officers or directors of the Company (an "Employee
Benefit Plan"). There is no multiemployer plan within the meaning of
Section 3(37) of ERISA (a "Multiemployer Plan") to which the Company or
any current ERISA Affiliate (as defined below) currently has an obligation
to contribute.
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True and complete copies of all such Pension and Employee Benefit Plans,
including amendments thereto, and of any Welfare Plans requested by Buyer
have been delivered to Buyer. Except as disclosed on Schedule 5.17
hereto, with respect to any plan listed in such Schedule, no individual
shall accrue or receive additional benefits, service or accelerated rights
to payment of benefits (other than additional accruals under the normal
formula in effect prior to and without regard to the purchase of the
Shares) as a direct result of the Transactions contemplated by this
Agreement.
(b) Neither the Company nor any ERISA Affiliate has maintained a
Multiemployer Plan or an employee pension benefit plan subject to Title IV
of ERISA during the five full calendar years prior to the date hereof.
(c) None of the Pension, Welfare or Employee Benefit Plans so listed
on Schedule 5.17 has participated in, engaged in, or been a party to, any
prohibited transaction, as defined in ERISA or the Code, that could
materially and adversely affect the financial position of the Company and,
to the best knowledge of Sellers, no officer, director or employee of the
Company has committed a material breach or any of the responsibilities or
obligations imposed upon fiduciaries by Title I of ERISA.
(d) There are no claims, pending or overtly threatened, involving
any Pension, Welfare or Employee Benefit Plan listed on Schedule 5.17 by
a current or former employee (or beneficiary thereof) of the Company or a
current or former ERISA Affiliate that, individually or in the aggregate,
could materially and adversely affect the financial position of the
Company, nor is there any reasonable basis to anticipate any claims
involving any such plans that would likely be successfully maintained
against the Company and that, individually or in the aggregate, could
materially and adversely affect the financial position of the Company.
(e) There are no violations of any material reporting and disclosure
requirements with respect to any Pension, Employee Benefit and Welfare
Plans listed on Schedule 5.17 and no such plans have violated applicable
law, including but not limited to ERISA and the Code, that individually or
in the aggregate could materially adversely affect the financial position
of the Company.
(f) The Company has delivered or made available to Buyer a copy of
the most recently filed IRS Form 5500 for each Pension Plan and insured
Welfare Plan disclosed on Schedule 5.17.
(g) The Company has delivered or made available to Buyer a copy of
(i) in the case of each Pension Plan described on Schedule 5.17 intended
to qualify under Section 401(a) of the Code, the most recent Internal
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Revenue Service letter as to the qualification of such Plan under Section
401(a) of the Code and (ii) in the case of each Welfare Plan described in
Schedule 5.17, the most recent Internal Revenue Service letter as to the
qualification of such Plan under Section 501(c)(9) of the Code, if
applicable.
(h) For purposes of this Section 5.17, "ERISA Affiliate" shall mean
any company that, as of the relevant measuring date under ERISA, is a
member of a controlled group of corporations or trades or businesses (as
defined in Sections 414(b) and (c) of the Code) of which the Company is a
member.
(i) None of the Welfare Plans is funded through a trust or other
funding vehicle other than an insurance contract. The Company has
complied with the requirements of Title X of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"), relating to health care
continuation.
Section 5.18 Material Contracts and Relationships.
(a) Except for agreements specifically identified on other Schedules
hereto, Schedule 5.18(a) sets forth a complete and correct list of the
following (the "Material Contracts"):
(i) All customers of the Company (except that the customers of
the Company that are listed on the Company's "Sales by Client,
Year-to-Date" report as of September 30, 1995, a copy of which has been
provided to Buyer, need not be listed on Schedule 5.18(a)) and all written
agreements (or groups of agreements with one or more related entities)
between the Company and any customer in excess of $50,000 or subcontractor
in excess of $10,000 and all blanket purchase orders extending beyond six
months, other than (A) purchase orders solely on the Company's standard
terms and conditions, and (B) copies of customer and subcontractor
contracts and purchase orders, which have been previously provided to
Buyer;
(ii) All agreements that relate to the borrowing or lending by
the Company of any money or that create or continue any material claim,
lien, charge or encumbrance against, or right of any third party with
respect to, any material asset of the Company;
(iii) All agreements to which the Company is a party not in
the ordinary course of business;
(iv) All contracts or commitments relating to commission
arrangements with others (except for those disclosed in Section 5.4);
(v) All other agreements to which the Company is
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a party or by which it is bound and that involve $10,000 or more or that
extend for a period of one year or more; and
(vi) All other agreements to which the Company is a party or by
which it is bound and that are or may be material to the assets, liabili
ties (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of
the Company. As used in this Section 5.18, the word "agreement" includes
both oral and written contracts, leases, understandings, arrangements and
all other agreements.
(b) To the knowledge of Sellers, all of the Material Contracts are
in full force and effect, and, except as otherwise specified on the
schedules or exhibits to this Agreement (or as disclosed to Buyer in
writing), are not subject to any disputes. To the knowledge of Sellers,
there are no material liabilities of any party to any Material Contract
arising from any breach or default of any provision thereof and no event
has occurred that, with the passage of time or the giving of notice or
both, would constitute a breach or default by any party thereto.
(c) The Company has fulfilled all material obligations required
pursuant to each Material Contract to have been performed by the Company
prior to the date hereof, and the Sellers have no reason to believe that
the Company will not be able to fulfill, when due, all of its obligations
under the Material Contracts that remain to be performed after the date
hereof.
Section 5.19 Absence of Certain Business Practices.
Neither the Company nor any employee, agent or other person acting on
the Company's behalf, including, but not limited to, any Seller, has,
directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, competitor or governmental employee or
official (domestic or foreign) (i) that would subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding or (ii) that, if not given in the past, would have had a
material adverse effect on the assets, liabilities (whether absolute,
accrued, contingent or otherwise), condition (financial or otherwise),
results of operations or business of the Company.
Section 5.20 Transactions with Related Parties. Except as set forth on
Schedules 5.4 and 5.20, (i) there have been no transactions by the Company
with any Seller or Related Party since October 1994 requiring the payment
by the Company or such Seller or Related Party of $10,000 or more in
consideration, and (ii) there are no agreements or understandings now in
effect between the Company and any Seller or Related Party with respect to
any transactions referenced in subclause (i). In addition, none of the
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transactions with any Sellers or Related Parties that have occurred since
October 1994 has provided to the Company assets, income, financing or
business on a basis significantly more or less favorable than that
available from unaffiliated persons. Schedule 5.20 also (x) states, with
respect to the transaction referenced in subclause (i), the amounts due
from the Company to any Seller or Related Party and the amounts due from
any Seller or Related Party to the Company, and (y) describes the
transactions out of which such amounts due arose. No Seller or Related
Party has any interest in any supplier or customer of Company.
Section 5.21 Compliance with Laws and Environmental Matters.
(a) Except as set forth on Schedule 5.21(a), the operation,
conduct and ownership of the property or business of the Company are
being, and at all times have been, conducted, in all material respects, in
full compliance with all federal, state, local and other (domestic and
foreign) laws, rules, regulations and ordinances (including without
limitation, those relating to employment discrimination, occupational
safety, conservation or corrupt practices) and all judgments and orders of
any court, arbitrator or governmental authority applicable to it. The
Sellers are not aware of any proposed federal, state, local and other
(domestic or foreign) law, rule, regulation, ordinance, order, judgment,
decree, governmental taking, condemnation or other proceeding that would
be applicable to the business, operations or properties of the Company and
that could have a material adverse effect on the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial
or otherwise), results of operations, business or prospects of the
Company.
(b) Except as disclosed on Schedule 5.21(b), the Company has not
received at any time prior to the date hereof a summons, citation, notice,
directive, letter or other communication, written or oral, from the EPA or
any other federal, state, local or other governmental agency or-
instrumentality, authorized pursuant to an Environmental Protection Law,
concerning any intentional or unintentional action or omission (except any
pertaining to emissions of fugitive dust and other non-hazardous
particulates that are routinely corrected) by the Company constituting a
violation or potential violation of any Environmental Protection Law,
including, without limitation, violations relating to the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, dumping or
otherwise disposing of hazardous waste or hazardous substance into the
environment resulting in damage thereto or to the wildlife, biota and
other natural resources, and there exist no facts that would be the basis
for a finding of such a violation.
(c) Except as disclosed in Schedule 5.21(c), the Company has not
agreed to act, as an owner, operator, manager or person in charge of all
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or any portion of a facility or site, or arranged for the treatment,
transportation or disposal of, or owned or possessed, or chose the
disposal site for, any material with respect to which the Company has
provided services.
(d) Except as disclosed in Schedule 5.21(d), there have not been
issued in the name of the Company any permits to construct, own, operate,
or maintain any facility or site as to which the Company has provided
services.
Section 5.22 Litigation. Schedule 5.22 sets forth a complete and
correct list of all legal, administrative, arbitration or other
proceedings, or governmental investigations, to which the Company was a
party or was otherwise affected (or by which any of its properties were
affected), or was otherwise affected during the past five years. Except
as set forth on Schedule 5.22, (i) there is no legal, administrative,
arbitration or other proceeding, or any governmental investigation,
pending or, to the knowledge of the Sellers, threatened against or
otherwise affecting the Company, or any of its assets, that, if determined
against the Company, would have a material adverse effect on the assets,
liabilities (whether absolute, accrued, contingent or otherwise),
condition (financial or otherwise), results of operations, business or
prospects of the Company and there is no basis for any such proceeding or
investigation; (ii) no claim not already fully discharged that involves or
may involve $5,000 or more has been made against the Company; and (iii)
all potential losses and liabilities of the Company that may result from
the matters disclosed on Schedule 5.22 are fully covered by insurance
policies of the Company, which policies are in full force and effect on
and as of the date hereof, except for any applicable deductible amount
that does not exceed $50,000 with respect to any claim covered by the
Company's professional errors and omissions coverage, or $10,000 with
respect to any claim covered by the Company's commercial general liability
coverage (including deductibles and self-insured retentions under primary
and excess policies), for any one claim or action. The Company has given
in a timely manner to its insurers all notices required to be given under
its insurance policies with respect to all of the claims and actions
disclosed on Schedule 5.22 hereto, and no insurer has denied coverage of
any of such claims or actions or rejected any of the claims with respect
thereto.
Section 5.23 Taxes. Except as set forth on Schedule 5.23, the Company
has timely filed all Tax returns and reports required to have been filed
by it, and has paid all Taxes due to any taxing authority with respect to
all taxable periods ending on or prior to the date hereof, or otherwise
attributable to all periods prior to the date hereof. The accrual for
Taxes on the Balance Sheet is sufficient for the payment of all Taxes that
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were or are payable by the Company, and the Company is entitled to all tax
benefits (i.e., net operating losses) claimed in the full amount stated on
the Balance Sheet. The returns and reports filed are true and correct in
all material respects. The Company has not requested any extensions of
time within which to file returns and reports in respect of any Taxes; has
not waived any statute of limitations with respect to the assessment of
any Tax; and has not received notice that the IRS or any other taxing
authority has asserted against the Company any deficiency or claim for
additional Taxes in connection therewith.
Section 5.24 Insurance. Schedule 5.24 sets forth a complete and correct
list of all claims made by the Company on any liability or other insurance
policies during the past five years (other than workmen's compensation
claims). The Company has adequate liability and other insurance policies
insuring it against the risks of loss arising out of or related to its
assets and business. Without limitation, as to the tangible real and
personal property of the Company, such insurance is adequate to cover the
full replacement cost, less deductible amounts, of such tangible real and
personal property. Schedule 5.24(a) is a complete and correct list of all
insurance currently in place and accurately sets forth the coverages,
deductible amounts, carriers and expiration dates thereof. Schedule
5.24(b) is a complete and correct list of all insurance with respect to
which the policy period has expired, but for which certain of the coverage
years are still subject to audit or retrospective adjustment by the
carrier, and accurately sets forth such coverage years and the coverages,
deductible amounts, carriers and expiration dates thereof. There are no
outstanding requirements or recommendations by any insurance company that
issued any policy of insurance to the Company or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
governmental authority exercising similar functions that require or
recommend any changes in the conduct of the business of the Company or any
repairs or other work to be done on or with respect to any of the
Company's assets. Except as set forth on Schedule 5.24(c), no notice or
other communication has been received by the Company from any insurance
company within the three years preceding the date hereof canceling or
materially amending or materially increasing the annual or other premiums
payable under any of its insurance policies, and, to the knowledge of the
Sellers, no such cancellation, amendment or increase of premiums is
threatened.
Section 5.25 No Powers of Attorney or Suretyships. Except as set forth
on Schedule 5.25 and except for the limited power of attorney granted by
the Company in its Outstanding Credit Facility, (i) the Company has not
granted any general or special powers of attorney and (ii) the Company
does not have any obligation or liability (whether actual, contingent or
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otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemni-
tor, obligor on an asset or income maintenance agreement or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
Section 5.26 Banking Facilities. Schedule 5.26 sets forth a complete
and correct list of:
(a) Each bank, savings and loan or similar financial institution in
which the Company has an account or safety deposit box and the numbers of
such accounts or safety deposit boxes maintained thereat; and
(b) The names of all persons authorized to draw on each such account
or to have access to any such safety deposit box, together with a
description of the authority (and conditions thereto, if any) of each
person with respect thereto.
Section 5.27 Corporate Books. The corporate minute books of the Company
are complete, each of the minutes contained therein accurately reflect the
transactions that occurred at the meeting for which the minutes were
taken, the meetings of directors or stockholders referred to in the
minutes were duly called and held, and the signatures contained on all
documents in the minute books are the true signatures of the persons
purporting to have signed the same.
Section 5.28 Effect on Buyer's Financing. Each Seller understands that
the Company, at the Closing, will become a "Restricted Subsidiary" of
Buyer, as such term is defined in the following agreements (which,
together with the several guarantees, security agreements and other
documents and instruments delivered by Buyer and its affiliates pursuant
thereto are referred to collectively herein as the "Loan Documents"):
1) Credit Agreement among IT Corporation, the Several Lenders from
Time to Time parties Hereto and Chemical Bank as Administrative Agent,
dated as of October 24, 1995; and the
2) Note Purchase Agreement dated as of October 24, 1995 for IT
Corporation 8.67% Guaranteed Senior Secured Notes due October 30, 2003.
There is no reason why the Company, cannot, at the Closing, execute and
deliver the "Subsidiaries' Guarantee" in favor of the "Credit Providers"
and the "Subsidiaries' Security Agreement" in favor of "Collateral Agent",
as such terms are defined in the Loan Documents. The Closing of the
transactions contemplated in this Agreement will not, solely by reason of
the business, operations, or prospects of the Company alone, cause or
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otherwise give rise to any "Default" or "Event of Default" as defined in
the Loan Documents.
Section 5.29 Government Contractor Status. Company is presently not
debarred under the United States federal procurement regulations or
similar federal or state laws regulating procurement by such governmental
entity of such products or services, and, to the best of each Seller's
knowledge, there are no facts that would give rise to any such suspension
or debarment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and ITX hereby represent and warrant to Sellers that:
Section 6.1 Organization and Corporate Authority. Buyer and ITX are,
respectively, corporations duly organized, validly existing and in good
standing under the laws of the State of California and Delaware. Buyer
and ITX each has all requisite corporate power and authority to enter into
this Agreement and to consummate the Transactions. All necessary action,
corporate or otherwise, required to have been taken by or on behalf of
Buyer and ITX by applicable law, its charter documents or otherwise to
authorize (i) the approval, execution and delivery on behalf of Buyer and
ITX of this Agreement and (ii) the performance by Buyer and ITX of their
respective obligations under this Agreement and the consummation of the
Transactions has been taken. This Agreement and all agreements and
instruments herein contemplated to be executed by Buyer and/or are the
valid and binding agreements of Buyer or ITX, as the case may be,
enforceable against Buyer or ITX, as the case may be, in accordance with
their respective terms except for the Enforceability Exceptions. Neither
Buyer nor ITX is presently debarred under the United States federal
procurement regulations or similar federal or state laws regulating
procurement by such governmental entity of such products or services, and,
to the best of Buyer's and ITX's knowledge and except as disclosed in
ITX's Annual Report on Form 10-K for the year ended March 31, 1995, there
are no facts that would give rise to any such suspension or debarment.
Section 6.2 No Breach; Consents and Approvals. Neither the execution
and delivery of this Agreement nor the consummation of the Transactions
will violate, result in a breach of any of the terms or provisions of,
constitute a default (or any event that, with the giving of notice or the
passage of time or both, would constitute a default) under, result in the
acceleration of any indebtedness under or performance required by, result
in any right of termination of, increase any amounts payable under,
decrease any amounts receivable under, change any other rights pursuant
to, or conflict with, any agreement, indenture or other instrument to
which
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Buyer or ITX is a party or by which any of their respective property is
bound, their respective charter documents, or any judgment, decree, order
or award of any court, governmental body or arbitrator (domestic or
foreign) applicable to Buyer or ITX. All consents, approvals and
authorizations of, and declarations, filings and registrations with, any
governmental or regulatory authority (domestic or foreign) or any other
person (either governmental or private) required in connection with the
execution and delivery by Buyer or ITX of this Agreement or the consumma
tion of the Transactions have been obtained, made and satisfied, except
for any filings required to be made after the date hereof pursuant to the
Securities Exchange Act of 1934, as amended, and the regulations-
promulgated thereunder.
Section 6.3 Brokerage Fees. No Person is entitled to any brokerage or
finder's fee or other commission from Buyer or ITX in respect of this
Agreement or the Transactions.
Section 6.4 Investment Intent. Buyer is acquiring the Shares for
investment purposes for its own account and without a view to distribution
or resale thereof.
Section 6.5 Common Stock.
(1) Upon delivery to Sellers, all shares of Common Stock shall have
been duly authorized, validly issued and outstanding, and fully paid and
nonassessable;
(2) ITX has authorized a sufficient number of shares of Common Stock
such that ITX may fulfill its obligations to deliver Common Stock to
Sellers pursuant to the Transactions and this Agreement, assuming ITX
delivers Common Stock in every instance in which Buyer is required or may
elect to do so; and
(3) the offer, issuance, sale and delivery of the Common Stock to
Sellers in accordance with this Agreement does not require registration
under the Securities Act of 1993, or registration or filing under any
State securities act or laws.
ARTICLE VII
CERTAIN AGREEMENTS AND UNDERSTANDINGS
Section 7.1 Conduct of Business. Prior to the Closing Date, the
Company will conduct its business only in the ordinary course and will not
do, or permit to be done, anything which is represented and warranted not
to have occurred since September 30, 1995 in Section 5.12 hereof, except
as otherwise permitted by this Agreement or consented to by Buyer in
writing. Except as otherwise permitted by this Agreement or consented to
by Buyer in writing, prior to the Closing Date, the Company will not:
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(a) make any change in its Certificate of Incorporation or Bylaws as
in force and effect on the date hereof;
(b) issue any capital stock or options, warrants or other rights to
purchase any capital stock or any securities convertible or exchangeable
for shares of such stock or commit to do any of the foregoing;
(c) enter into any employment contract or agreement with any
existing or prospective director or executive officer of the Company;
(d) fail in any material respect to comply with any material laws,
ordinances, regulations or other governmental restrictions applicable to
the Company;
(e) merge or consolidate with, purchase substantially all or any
substantial part of the assets of, or otherwise acquire any business or
any proprietorship, firm, association, corporation or other business
organization or division thereof;
(f) make any change (except for changes in authorized signatories
arising out of personnel changes) in the banking or safety deposit box
arrangements of the Company;
(g) grant any powers of attorney (other than special powers of
attorney granted in the ordinary course of business with respect to tax or
customs matters);
(h) make any commitments for, capital expenditures exceeding $12,000
for any individual commitment or $30,000 for all such commitments taken in
the aggregate; or
(i) engage in or enter into any material transaction of any nature
not expressly permitted by this Section 7.1, except transactions in the
ordinary course of business of the Company.
Section 7.2 Preservation of Organization. The Company will use its
best efforts to preserve its business organization intact (including the
preservation of its properties wherever located, including, but not
limited to, any assets which are material to the business of the Company
as conducted presently or hereafter prior to the Closing Date); to
continue the operations of the Company at its present level; to maintain
in full force and effect the insurance policies disclosed in Schedule 5.24
(or policies providing substantially the same coverage, copies of which
will be made available to Buyer for their inspection); to keep available
to the Company the services of the present officers and employees of the
Company;
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and to preserve for the Company the goodwill of the suppliers, customers
and others having business relations with the Company.
Section 7.3 Interim and Closing Financial Statements of the Company.
Prior to the Closing Date, the Company will maintain its books and records
in accordance with generally accepted accounting principles and in the
usual, regular and ordinary manner and promptly advise Buyer in writing of
any material adverse change in the condition (financial or otherwise),
assets, liabilities, earnings or business of the Company. Within thirty
(30) days after the end of each calendar month after the date hereof until
the Closing Date, the Company will deliver to Buyer unaudited summaries of
consolidated earnings and unaudited consolidated balance sheets of the
Company for the period from September 30, 1995 through the end of such
calendar month and the comparative periods of 1994 and 1995, in each case
accompanied by a certificate of the Chairman and President of the Company.
The Company shall also prepare within 30 days after the Closing Date, for
any remaining period ending as of the Closing Date a balance sheet
similarly certified (the "Closing Balance Sheet"). The aforementioned
certificates shall state that (i) all such consolidated financial
statements fairly present the financial position and results of operations
of the Company, as at the date or for the periods indicated, in accordance
with generally accepted accounting principles consistently applied, except
as otherwise indicated in such statements, subject to year end audit
adjustments, (ii) except as noted, from September 30, 1995 through the end
of the relevant period there has been no material adverse change in the
condition (financial or otherwise), assets, liabilities, earnings or
business of the Company taken as a whole, (iii) in the case of the Closing
Balance Sheet, in addition that the Company has achieved the net worth
levels provided in Section 5.12(a), and (iv) notwithstanding anything in
this Agreement to the contrary, at the Closing there are no liabilities of
the Company, whether absolute, accrued, contingent or otherwise, and
whether due or to become due, not reflected on or reserved for in the
Closing Balance Sheet, except for obligations incurred in the ordinary
course of business and none of such obligations, either individually or in
the aggregate, are material to the business, condition, or prospects of
the
Company. The Buyer shall have 30 days to review and comment upon the
Closing Balance Sheet, and in the event of unresolved discrepancies, the
Buyer and Sellers shall endeavor to resolve such discrepancies within an
additional thirty (30) day period. In the event and to the extent of any
unresolved discrepancies then remaining after such 30 days, either the
Sellers or Buyer may arbitrate such dispute as provided in this Agreement.
(The preparation and review of the Closing Balance Sheet shall be referred
to as the "Post-Closing Review".)
Section 7.4 Reports, Taxes, etc. Between the date hereof and the
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Closing Date the Company will duly and timely file all reports or returns
required to be filed with federal, state, local and foreign authorities,
will promptly pay all federal, state, local and foreign taxes, assessments
and governmental charges levied or assessed upon it or any of its
properties (unless contesting such in good faith and adequate provision
has been made therefor), and will duly observe and conform to all lawful
requirements of any governmental authority relating to any of its
properties or to the operation and conduct of its business and all
covenants, terms and conditions upon or under which any of its properties
are held.
Section 7.5 Access Pending Closing. Between the date hereof and the
Closing Date, the Company shall give to authorized representatives of
Buyer full access, during normal business hours, in such manner as not to
unduly disrupt normal business activities, to any and all premises,
properties, contracts, commitments, books, records and affairs of the
Company, and will cause its officers to furnish any and all financial,
technical and operating data and other information pertaining to its
business as Buyer shall from time to time reasonably request. Buyer will
hold in confidence all information so obtained as and to the extent
provided in the Confidentiality Agreement dated as of April 13, 1995 by
and between Company and Buyer.
Section 7.6 Kiser and Gosselin Stock Treatment. The parties anticipate
that Kiser and Gosselin will assist in the transition period following the
Buyer's acquisition of the Gradient Stock. In this regard, the parties
contemplate that Kiser and/or Gosselin may be engaged by the Buyer and/or
the Company for a three (3) month period following the Closing (or such
greater or lesser period as the parties may agree in writing) and,
thereafter, on a monthly basis upon terms and conditions acceptable to the
parties. The parties acknowledge that these arrangements are not
anticipated to remain in effect for the duration of the period in which
the Sellers (other than Kiser and Gosselin) will be eligible to receive
the Earn-Out Payments and that Kiser and Gosselin will not have the
opportunity to influence the performance of the Company for the purposes
of particular Earn-Out Payments. Accordingly, not withstanding any other
provision in this Agreement to the contrary, Kiser and Gosselin shall be
paid for their shares of Gradient Stock, in cash, at the Closing. The
amount of such payments to Kiser and Gosselin shall be based upon the
aggregate of all payments due to Kiser and Gosselin pursuant to Articles
II and III hereof, upon the basis that: (i) Ninety (90%) of the Earn-Out
Payments are achieved, and that (ii) all payments which otherwise would be
paid in installments shall be discounted to present value (assuming a per
annum rate of interest equal to the lesser of the Prime Rate plus one-half
percent or the "Libor Rate" plus one and one-half percent, all as
calculated as of two business days prior to the Closing). Payment at the
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Closing of such sums shall satisfy in full Buyer's obligations to Kiser
and Gosselin under this Agreement.
Section 7.7 Sarasota Office. Buyer agrees to maintain an office in
Sarasota, Florida (the "Sarasota Office") as long as (i) Murphy shall
remain a full time employee of Buyer, (ii) the Sarasota Office does not
suffer two or more consecutive quarterly losses, and (iii) there shall not
occur during the first three fiscal years following the Closing, any
unjustified or unexplained failure of such office to perform at least
consistently with the levels attained by the Sarasota Office in fiscal
year 1995.
(a) If the Sarasota Office is closed pursuant to this Section 7.7,
Murphy shall have the right to relocate to another office of Buyer, which
office shall be mutually agreed upon by Murphy and the Committee. If Buyer
closes the Sarasota Office in contravention of this Section 7.7 and Murphy
does not relocate to another office of Buyer, Murphy shall be deemed, on
each date upon which Murphy would otherwise be eligible to receive a
portion of the Purchase Price, not to be an Ineligible Participant for
purposes of Article II hereof. Buyer may combine the Sarasota Office with
Buyer's Technical Operations, as may be agreed upon by the Committee. In
the event of such combination, the provisions of Article III will be
amended by mutual agreement of Murphy and the Committee to reflect the
effects of such combination.
Section 7.8 Corporate Transitional Matters.
(a) After the Closing and until the Third Anniversary, the Company's
Board of Directors shall consist of three members, two of which shall be
chosen by Buyer and one of which shall be chosen by Sellers, with such
representative changing each year on the Anniversary date). Except as
Sellers (who are not then Ineligible Participants) may otherwise agree in
writing, the following persons shall serve as Sellers' representative for
each of the Fiscal Years:
Fiscal year 1997: Kiser
Fiscal Year 1998: Murphy
Fiscal Year 1999: Shifrin
In the event that a representative of Seller is unable or unwilling to
serve on the Board of Directors during any Fiscal Year, or Seller's
then-current representative is no longer an employee of Company, a
replacement Sellers' Representative shall be chosen by Sellers (who are
not then Ineligible Participants), as evidenced by written agreement.
Such replacement shall be chosen within 15 days of the event giving rise
to the necessity of such replacement.
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(b) On or before the commencement of each of Fiscal Year 1997,
Fiscal Year 1998 and Fiscal Year 1999, a Business Plan relative to the
Company (a "Business Plan") shall be prepared and submitted by the Company
for approval by the Buyer (acting by and through the Buyer's
representative), specifying in reasonable detail (as may be requested by
Buyer), relative to the subject Fiscal Year: (i) a budget (including
capital spending), a pro forma profit and loss and cash flow statements
(including projected Revenue, earnings, and Earn-Out Payments), (ii) such
other matters relative to the day-to-day operation of the Company as
Sellers may reasonably include, (iii) organization charts for the Company
for such Fiscal Year, including confirmation of Sellers' representative on
the Company's Board of Directors, and (iv) Sellers' plans with respect to
the coordination of ongoing business and business development activities
after the Closing (and David Kiser's letter dated February 21, 1996
attached hereto as Schedule 7.8(b) shall constitute the Sellers' plans for
the period from the Closing through and including Fiscal Year 1997).
Subject to the provisions of Section 3.9 hereof, Buyer understands that a
primary purpose of each Business Plan will be maximization of Earn-Out
Payments.
(c) Provided that and so long as all of the same comply with state
and federal labor laws, Buyer agrees that the Company may continue its
existing policies concerning the use of flexible ("flex") time employ-
ment, part time employment, on-call employment, etc. (which shall include
working variable hours during weekly or other applicable periods, upon
supervisor approval, and provided that total monthly hours objectives are
otherwise met relative to each employee).
(d) Buyer agrees that Sellers will be eligible, based upon each such
Seller's experience, education and background, to participate in all-
medical, dental, life insurance, retirement, profit-sharing, bonus,
savings, stock option and disability plans now made available by Buyer to
its employees, or which may be made available in the future, subject to,
and on a basis consistent with, the terms, conditions and administration
of each such plan. Company shall be entitled to maintain its (i) existing
fringe benefit, including medical, plans, (each of which are listed on
Schedule 5.17 to this Agreement) for the remainder of calendar year 1996,
after which Buyer may direct that Company convert to Buyer's standard
plans; and (ii) existing salary levels during the period ending March 31,
1996, at which time Company shall fix its salaries for Fiscal Year 1997 at
levels competitive with and comparable to other companies in the environ
mental and related industries and shall convert to Buyer's then-standard
salary administration and bonus/incentive plans, both of which conversions
shall be in accordance with Company's Business Plan for Fiscal Year 1997.
(Sellers shall not be entitled to participate in Buyer's plans such that
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more than one benefit shall be payable to such Seller. For example, each
Seller shall be entitled to enroll in only one health insurance plan.)
With respect to underperformance by a Seller or Key Employee, the parties
agree that Company or Buyer may exercise all rights they respectively
would otherwise have, including adjustment of salary in appropriate cases,
notwithstanding any provision in this Agreement to the contrary.
(e) The Company shall be entitled until the Third Anniversary to
carry over accruals providing for vacations for individual employees in
excess of 40 hours, and by such date all such accruals shall be reduced
and otherwise conform to Buyer's policy with respect thereto. All
employees engaged by the Company as of the Closing Date shall, upon the
termination of their employment, be entitled to payment with respect to
their accrued vacation time as of the Closing Date, in accordance with the
Company's employment policies as in effect immediately prior to the
closing.
Section 7.9 Registration of Common Stock. ITX agrees to use its best
efforts to file an appropriate Registration Statement (the "Registration
Statement") on or prior to June 30, 1996, relating to the sale by the
Sellers of all of the shares of Common Stock to be received by such
Sellers under this Agreement (but in any event no less than the Common
Stock comprising the Initial Stock Payment). ITX shall use its best
efforts to cause such Registration Statement to be declared effective by
the SEC as soon as possible thereafter. If ITX is unable to register by
June 30, 1996 all of the Common Stock to be issued on each Anniversary,
ITX shall cause one or more Registration Statements to be filed and to
become effective prior to or contemporaneously with the issuance of all
such other Common Stock otherwise to be issued pursuant to Articles II,
III and IV hereof); provided, however, (a) ITX shall be entitled to
postpone, for up to 60 days, the filing of a Registration Statement, or
(b) if already effective, the Sellers will discontinue any offers or
sales, if, in ITX's reasonable business judgment such registration, offers
or sales would interfere with any material financing, acquisition,
corporate reorganization or other material corporate transaction or
development involving ITX and ITX promptly gives Sellers written notice of
such determination; provided, further, that in any such event, ITX shall
use its best efforts to minimize the length of the postponement or
discontinuance. With respect to the payments which may be made in Common
Stock on or with respect to each Anniversary, if ITX is unable to resolve
any such postponement or suspension within such 60 day period, ITX shall
promptly pay in cash those sums which ITX would otherwise be entitled to
pay in Common Stock. ITX shall maintain such Registration Statement(s)
current for so long as registration under the Securities Act of 1933 is
necessary to permit sales
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of the Common Stock by the Sellers but in no event longer than six (6)
months. "Best efforts" for purposes of the Section 7.9 shall not include
commencing litigation or expending money, other than amounts paid to
ITX's securities counsel in connection with the preparation of the
Registration Statements and similar documents. If the price per share of
the Common Stock shall have changed during the period of any such
postponement or discontinuance, the Stock Price Formula shall be applied
as of the last day of such postponement or discontinuance. Further,
promptly after the end of any such postponement or discontinuance, ITX
shall pay to each Seller interest on the amount of the payment to be made
in Common Stock, at the Prime Rate for the period of such postponement or
discontinuance.
Section 7.10 Intellectual Property Rights. Within thirty (30) days
after the Closing Date, the Company shall file amendments to all
registrations and applications for registration of all its patents,
trademarks, copyrights and other intellectual property registered in the
name of the Company as of the Closing Date for the purpose of listing ITX
as a co-owner of such intellectual property, and shall use its best
efforts to have such filings approved and/or completed by the relevant
governmental agency.
Section 7.11 Non-Solicitation and Confidentiality Agreements.
(a) During the period commencing on the Closing and extending until
the Third Anniversary (the "Restricted Period"), none of the Key Personnel
shall solicit (including by advertisement or announcement), raid, entice,
or induce any person, firm or corporation that currently is, during the
one (1) year period prior to the date hereof was, or at any time during
the Restricted Period shall be, a customer of Company or Buyer or ITX, to
become a customer of any other person, firm or corporation for products or
services the same as or competitive with, those products and services as
from time to time shall be provided by Company, Buyer or ITX, and none of
the Key Personnel shall approach any such person, firm or corporation for
such purpose or authorize the taking of such actions by any other person,
firm or corporation or assist or participate with any such person, firm or
corporation in taking such action.
(b) During the Restricted Period, none of the Key Personnel shall
solicit, raid, entice or induce any person that currently is or at any
time during such Restricted Period shall be, (or, in the case of
termination, is at the time of termination) an employee of Buyer, Company,
or ITX or any of its affiliates to become employed by any person, firm or
corporation, and none of the Key Personnel shall approach any such
employee for such purpose or authorize or participate in the taking of
such actions by any other person, firm or corporation.
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(c) 1. During the Restricted Period, and for a period of three (3)
years following the termination of such person's employment with Company,
Buyer or ITX, as the case may be, each Seller agrees that he or she shall:
a) not disclose the Confidential Information to any third party; b) keep
all Confidential Information confidential; c) use the Confidential
Information solely for the purpose of advancement of the businesses of
Buyer, ITX or the Company, as the case may be; and d) not "reverse
engineer" any of the Confidential Information. Each Seller acknowledges
that the Confidential Information is confidential and is the exclusive
property of Buyer, ITX or Company, as the case may be. Further, no right
or license, express or implied, in any of the Confidential Information is
granted to any Seller.
2. Upon termination of a Seller's employment with Buyer, ITX, or
the Company, as the case may be, such Seller will promptly return to
Company, Buyer or ITX all of the Confidential Information in his or her
possession, and each Seller will destroy all copies of any analyses,
compilations, studies or other documents prepared by such Person or for
such Person's use containing or reflecting any Confidential Information.
(d) Each Seller acknowledges that a breach of the covenants
contained in this Section 7.11 may cause irreparable damage to Buyer, the
exact amount of which will be difficult to ascertain, and that the
remedies at law for any such breach will be inadequate. Accordingly, each
Seller agrees that if he or she breaches any of the covenants contained in
this Section 7.11, in addition to any other remedy which may be available
at law or in equity, Buyer shall be entitled to specific performance and
injunctive relief. The parties further acknowledge that the provisions of
this Section 7.11 have been specifically negotiated by sophisticated
commercial parties with legal counsel and agree that all such provisions
are reasonable under the circumstances of the transactions contemplated by
this Agreement. In the event that the agreements in Sections 7.11(a) or
(b) shall be determined by the arbitrator, as provided in Section 10.15 to
be unenforceable by reason of its extending for too great a period of time
or over too great a geographical area or by reason of its being too
extensive in any other respect, they shall be interpreted to extend only
over the maximum period of time for which it may be enforceable and/or
over the maximum geographical area as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such arbitrator in such action. The
existence of any claim or cause of action which any Seller may have
against the Company, Buyer or ITX shall not constitute a defense or bar to
the enforcement of any of the provisions of this Section 7.11 against such
Person.
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(e) Sections 7.11(a) and (b) shall not apply to a Seller from and
after the earlier of the following:
(i) the date such Seller is terminated other than for Cause
from his or her employment with Gradient, Buyer or ITX, as the case may
be; or
(ii) upon Buyer's notification to such Seller that Buyer is
entitled to collect all sums such Seller may be entitled to under Article
III hereof. Buyer shall use its best reasonable efforts to quantify as
soon as practicable the amount it would be entitled to collect pursuant to
this subsection 7.11(e) and shall notify such Seller after it becomes
apparent that Buyer may be entitled to collect all sums such Seller would
be entitled to under Article III hereof.
(iii) such time as one or more of the following conditions exist
relative to the employment of a Seller: (A) such Seller is required to
perform duties and responsibilities that are not commensurate with such
Seller's existing position, experience or salary, provided that such
duties and responsibilities are not a temporary condition of such Seller's
employment, or (B) such Seller is required to relocate his or her usual
office. Notwithstanding the foregoing, if the circumstances resulting in
the occurrence of (A), above, are due to a pattern of under performance by
such Seller as an employee, then such Seller shall not be relieved from
his or her obligations under Sections 7.11(a) and (b), above.
Notwithstanding the foregoing, if the circumstances or events resulting in
the occurrence of (A) or (B), above, do not uniquely apply to or affect
such Seller, the Company, Buyer or ITX (such as certain types of projects
or work not being available to Buyer, or a change in the nature of the
environmental industry as a whole), then such Seller shall not be relieved
from his or her obligations under Sections 7.11(a) and (b), above.
Section 7.12 Committee.
(a) Buyer and Sellers shall each designate a Representative (a
"Representative" or the "Representatives") from time to time for the
purposes of forming a two (2) member Committee (the "Committee"), which
shall act in accordance with the various provisions and conditions of this
Agreement. An affirmative action or decision by the Committee shall
require the unanimous consent and agreement of the two Representatives.
As of the Closing, the Committee shall consist of Kiser, as Sellers'
Representative, and James R. Mahoney, as Buyer's Representative. The
Sellers, (who are not then Ineligible Participants) may, replace their-
Representative at any time, as evidenced by written agreement. The Buyer
may replace its representative at any time.
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(b) Each of the Sellers, hereby grants Sellers' Representative his
or her respective, irrevocable power of attorney (coupled with an
interest, but limited in duration and scope as noted in this sentence) to
act as each such Seller's attorney in fact (with full power of substitu-
tion), to act solely with respect to all matters assigned to the Committee
for action or decision hereunder. Buyer or ITX, hereby grants Buyer's
Representative its irrevocable power of attorney (coupled with an
interest, but limited in duration and scope as noted in this sentence) to
act as Buyer's attorney in fact (with full power of substitution), to act
solely with respect to all matters assigned to the Committee for action
or decision hereunder.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by Sellers; Limitation of Liability.
(a) The Principal Indemnitors shall, until the Third Anniversary,
jointly and severally, indemnify and hold harmless Buyer and the Company
and each of their Affiliates, directors, officers, employees, attorneys,
agents and representatives and Buyer's stockholders (collectively, the
"Affiliated Parties") in respect of any and all Claims, incurred by Buyer
or the Company or their respective Affiliated Parties, in connection with
each and all of the following:
(i) Any breach of any representation or warranty made by a
Principal Indemnitor in this Agreement or pursuant hereto;
(ii) Any misrepresentation contained in any written statement or
certificate furnished by a Principal Indemnitor pursuant to this Agreement
or in connection with the Transactions;
(iii) Any breach of any covenant, agreement or obligation of a
Principal Indemnitor or the Company contained in this Agreement or any
other instrument contemplated by this Agreement; and
(iv) Any liability or obligation (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) of the Company
that accrues, or arises from an event that occurs, prior to the Closing
Date and that is not disclosed in the Balance Sheet, the various schedules
and exhibits to this Agreement (or otherwise disclosed to Buyer in writing
prior to the Closing) other than contractual obligations (but not-
liabilities) incurred in the ordinary course of business.
(v) all Taxes (other than those accrued on the Balance Sheet,
the Sellers having represented the sufficiency of the accrual therefor, in
Section 5.23 hereof) of the Company for all taxable periods ending on or
before the Closing or otherwise attributable to the operations, transac-
tions, assets, or income of the Company or its predecessors prior to the
date hereof or otherwise attributable to consummation of the Transactions,
together with any expenses (including, without limitation, settlement
costs and any legal, accounting and other expenses) incurred in connection
with the collection or assessment of such Taxes.
(b) No claim, demand, suit or cause of action shall be brought
against any of the Principal Indemnitors under Section 8.1(a) with respect
to any single Claim unless such single claim exceeds $10,000. In
addition,
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no indemnification shall be sought under this Section 8.1(a) until the
aggregate amount of all such claims in excess of $10,000 exceeds $100,000;
provided, however, the maximum aggregate liability of all of the Principal
Indemnitors under Sections 8.1(a) shall not exceed the sum of $2,000,000.
(c) The Buyer understands that there are Sections in this Agreement
that provide for specific adjustments and reductions to payments otherwise
due to Sellers under this Agreement. For example, Sections 3.6(a) and
(b), and 5.12 provide for adjustments, or dollar-for-dollar reductions, to
payments otherwise due to Sellers. Buyer agrees and acknowledges that
Buyer shall not be entitled under Section 8.1(a) to seek indemnification
from the Principal Indemnitors with respect to any matter as to which
Buyer is specifically permitted under the various Sections of this
Agreement to adjust or reduce payments otherwise due to Sellers to the
extent that Buyer has recovered such sums through the adjustments or
reductions provided in such sections, but may seek indemnification to the
extent Buyer has not recovered the sums due through the adjustments or
reductions provided in such sections. Moreover, and not withstanding the
foregoing, the amounts of any actual recoveries by Buyer pursuant to any
such adjustments or reductions, and/or Section 8.1(e), below, shall
automatically constitute a downward adjustment, on a dollar-for-dollar
basis of the amount actually recovered, of the $2,000,000 maximum
liability of the Principal Indemnitors under Section 8.1(b), above, and in
calculating the amount of Buyer's recoveries, adjustments shall reduce
such maximum limit of liability only to the extent that such adjustment
produces a reduction in the amount payable to Sellers equivalent to an
actual reduction on a dollar for dollar basis of the amounts payable to
Sellers. By way of example only, if an upward adjustment in the Direct
Margin Base required to be achieved in a Fiscal Year would result in only
half of the recovery to Buyer as would a direct subtraction from the
amounts actually payable to Sellers under Article II or Article III, such
adjustment shall reduce the maximum limit of liability only in the amount
of the recovery actually produced to Buyer, i.e., only in one half of the
amount of the adjustment. Notwithstanding the foregoing, if Company's
performance during a Fiscal Year is such that Earn-Out Payments are
actually made, Buyer shall be obligated to look first to the reductions
provided in such sections, and corresponding reductions in the said
liability limit shall be effected, and only after taking such reductions
shall Buyer be entitled to seek indemnification to the extent its claim is
not satisfied through such reductions. But, if the Company's performance
is such that no Earn-Out Payments are made, and, consequently, such
reductions will not satisfy Buyer's claim, Buyer may proceed, including to
indemnification, as provided in Section 8.1(d), below.
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(d) Except as otherwise specifically provided in the various
Sections of this Agreement, Buyer and Company shall satisfy all Claims
under Section 8.1 (a) as follows: first, by deducting the amount of a
Claim from the sums any and all Principal Indemnitors shall be due
hereunder on a pro-rata basis in accordance with such Principal
Indemnitor's Relative Equity Interests in the following order: Earn-Out
Payments, Retention Payments (if any), and Purchase Payments; second, if
at any time during a Fiscal Year it appears that the amount sought by
Buyer or Company with respect to one or more Claims (together with all
sums deducted or deductible from payments otherwise due Sellers, such as
pursuant to Section 3.6(b) or Section 5.12(a)) exceeds or apparently will
exceed the amounts payable to a Seller in that fiscal year, Buyer or
Company may then (at any time and without having to wait until the end of
a Fiscal Year) proceed to recover such sums from the Principal Indemnitors
as provided in this Agreement (subject to the rights of the Sellers,
including the Principal Indemnitors, to dispute such sums by arbitration
as provided in this Agreement). (In the case of Earn-Out Payments, Buyer
may rely, in making the determination contemplated above, upon the amounts
therefor forecast to be payable during such fiscal year under the
applicable Business Plan.) Buyer and/or Company shall make all reasonable
efforts to collect the amount of a Claim from each Principal Indemnitor on
a pro-rata basis in accordance with each Principal Indemnitor's Relative
Equity Interests, but in the event such efforts are unsuccessful, Buyer or
Company may proceed against any one or more of the Principal Indemnitors,
jointly and severally, up to such Principal Indemnitor's Limit of
Liability; provided, however, that the indemnification obligations of the
Principal Indemnitors hereunder shall only be for amounts net of other
recoveries received from third parties by Buyer or the Company or their
respective Affiliated Parties in respect of claims or liabilities for
which such indemnification is sought, but Buyer, Company and such
Affiliated Parties shall have no obligation (except as provided in this
Section 8.1(d)) to pursue such other recoveries prior to pursuing recovery
from any one or more of the Sellers.
(e) In addition, each Seller shall, severally and not jointly,
defend, indemnify and hold harmless Buyer and Company from and against all
Claims arising out of or related to breach of the representations and
warranties contained in Sections 5.1, 5.2, and 5.3(b) hereof, and such
indemnification shall not be limited in any way by Section 8.1(a),(b) or
(d) or 10.1 hereof, but each Seller's liability under this Section 8.1(e)
shall be limited to such Seller's Limit of Liability.
(f) The Buyer and the Company shall be prohibited under this Section
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8.1, or otherwise, from seeking monetary damages and/or indemnification
from or by a Seller with respect to the breach or violation of the-
restrictions imposed under Section 7.11 of this Agreement by a person
other than such Seller; provided however, the Buyer and the Company shall
not be prohibited in any manner from enforcing the restrictions imposed
under Section 7.11 with respect to or from seeking indemnification from
any Seller who is in breach or violation thereof, and none of the
limitations on Buyer's indemnification rights contained in Sections
8.1(b), (c) and (d) shall apply with respect to such Seller's breach of
Section 7.11 hereof.
Section 8.2 Indemnification by Buyer; Limitation of Liability. Buyer
shall, until the Third Anniversary, indemnify and hold harmless each of
Sellers in respect of any and all Claims incurred by Sellers, in
connection with each and all of the following:
(a) Any breach of any representation or warranty made by Buyer in
this Agreement or pursuant hereto;
(b) Any breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other instrument contemplated by this
Agreement; and
(c) Any misrepresentation contained in any statement or certificate
furnished by Buyer pursuant to this Agreement or in connection with the
Transactions.
No claim, demand, suit or cause of action shall be brought against Buyer
under this Section 8.2 with respect to any single Claim unless such single
claim exceeds $10,000; provided, however, when the aggregate amount of
such Claims hereunder against Buyer exceeds $100,000, Sellers and their
respective Affiliated Parties shall be entitled to indemnification from
Buyer for all Claims hereunder to the extent the aggregate thereof is in
excess of $100,000; provided, however, that the indemnification obligation
of Buyer hereunder shall only be for amounts net of other recoveries
received by Sellers in respect of claims or liabilities for which such
indemnification is sought. Buyer's liability under this Agreement shall
be limited to an amount equal to the Limit of Liability of the Seller
making such Claim (up to a maximum of $2,000,000 in the cumulative
aggregate with respect to all claims and causes of action arising out of
or related to this Agreement). None of the above limitations shall apply
in the event any inaccuracy in any of the representations or warranties
herein made by Buyer is proven to have been made with the intent to
deceive or any breach of this Agreement by Buyer has been proven to be
willful.
Section 8.3 Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party entitled to indemnification (the
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"Indemnified Party") shall promptly notify the party obligated to provide
indemnification (the "Indemnifying Party") (and each of the Sellers, if
different) of the claim and, when known, the facts constituting the basis
for such claim; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of its
obligation hereunder to the extent such failure does not materially
prejudice the Indemnifying Party. In the event of any claim for-
indemnification hereunder resulting from or in connection with any claim
or legal proceedings by a third party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of
the liability arising therefrom.
Section 8.4 Defense of Claims. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party (or any of the Sellers, if different) use all
reasonable efforts to defend such claim or legal proceeding, and, at its
sole cost and expense and with counsel reasonably satisfactory to the
Indemnified Party may, upon written notice to the Indemnified Party,
assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to
indemnify the Indemnified Party with respect to all elements of such
claim. The Indemnified Party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at its own
expense; provided, however, that if there are one or more legal defenses
available to the Indemnified Party that conflict with those available to
the Indemnifying Party, or if the Indemnified Party fails to take
reasonable steps necessary to defend diligently the claim after receiving
notice from the Indemnified Party that it believes the Indemnifying Party
has failed to do so, the Indemnified Party may assume the defense of such
claim; provided, further, that the Indemnified Party may not settle such
claim without the prior written consent of the Indemnifying Party, which
consent may not be unreasonably withheld. If the Indemnified Party (or
any of the Sellers, if different) assumes the defense of the claim, such
Person(s) shall reimburse the Indemnified Party for the reasonable fees
and expenses of counsel retained by the Indemnified Party and such
Person(s) shall be entitled to participate in (but not control) the
defense of such claim, with its counsel and at its own expense. If the
Indemnifying Party (or any of the Sellers, if different) thereafter seeks
to question the manner in which the Indemnified Party defended such third
party claim or the amount or nature of any such settlement, such Person
shall have the burden to prove by a preponderance of the evidence that the
Indemnified Party did not defend or settle such third party claim in a
reasonably prudent manner. The parties hereto agree to render to each
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other such assistance as they may reasonably require of each other in
order to insure the proper and adequate defense of any such action, suit
or proceeding.
Section 8.5 Manner of Indemnification. All indemnification payments
hereunder shall be effected by payment of cash or delivery of a certified
or official bank check in the amount of the indemnification liability.
Section 8.6 Limitations on Indemnification.
Notwithstanding the provisions of Section 8.1, and 8.2 to the effect
that an Indemnifying Party's obligation under such section shall expire as
of the expiration of the Third Anniversary and shall be limited in amount,
such obligation shall (i) continue as to any matter as to which a Claim
is submitted in writing to the Indemnifying Party prior to such third
anniversary and identified as a Claim for indemnification pursuant to this
Agreement and (ii) be unlimited in amount and continue as to any-
Indemnifying Party (and only such Indemnifying Party) as is proven
responsible in a final adjudication pursuant to Section 10.15 hereof with
respect to any matter that is based upon an intent to deceive, or an
intentional, willful breach by such Indemnifying Party, until such time as
such Claims and matters are resolved.
ARTICLE IX
CLOSING, CONDITIONS AND DELIVERY OF CLOSING DOCUMENTS
Section 9.1 Closing; Condition to Obligations of Each Party.
(a) The purchase and sale of the Shares (the "Closing") shall occur
on the Closing Date in the Company's offices in Cambridge, Massachusetts,
or at such other place as the parties shall agree. The obligation of each
party to effect the transactions contemplated hereby shall be subject to
the fulfillment, at or prior to the Closing, of the condition that no
claim, action, suit, investigation or other proceeding shall be pending or
threatened before any court or governmental agency which presents a
substantial risk of the restraint or prohibition of the transactions
contemplated by this Agreement or the obtaining of material damages or
other relief in connection therewith. Failure of the Closing Date to
occur on or before March 1, 1996 shall be deemed to terminate this
Agreement without the necessity of further action by any party hereto.
(b) The obligations of each party under this Agreement are subject
to the satisfaction, at or before the Closing, of all the conditions set
out below in this Agreement including, without limitation, this Article
IX. The party in whose favor a condition runs may waive such condition in
writing in whole or in part without prior notice; provided, however, that
no such waiver of a condition shall constitute a waiver by such party of
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any of its other rights or remedies, at law or in equity, with respect to
any other condition in favor of such party. In addition, if prior to the
Closing one party discloses in writing to another party facts or
circumstances which would cause a condition to Closing in favor such party
not to be satisfied, and such party waives in writing such condition and
elects to proceed with the Closing, then such party shall be prohibited
from exercising any of its rights and remedies, at law or in equity, with
respect to the facts and circumstances so disclosed (but only to the
extent disclosed), including without limitation, seeking monetary damages,
indemnification, set-off or injunctive relief.
(c) Buyer agrees that it shall not be permitted to seek monetary
damages, indemnification, set-off, injunctive relief or any other remedy
at law or in equity against Sellers or the Principal Indemnitors with
respect to the specific facts, circumstances and matters concerning the
Company and the Company's business affairs and financial condition
disclosed by Sellers to Buyer in this Agreement (including, without
limitation, in the various schedules and exhibits to this Agreement);
provided, however, that nothing contained herein shall limit the Buyer's
right to pursue any remedy at law or in equity in the event that any such
disclosure is inaccurate or misleading in any material respect.
Section 9.2 Conditions to Obligations of Buyer. The obligations of
Buyer to effect the transactions contemplated hereby shall be, at the
option of Buyer, subject to the fulfillment, at or prior to the Closing
Date, of the following additional conditions:
Section 9.2.1 Representations and Warranties True. The representa
tions and warranties of the Sellers contained in this Agreement, the
Schedules hereto, or in any other document of the Sellers delivered
pursuant hereto, were true and correct in all material respect on the date
such representations and warranties were made, and at the Closing, each
Seller shall have delivered to Buyer a certificate to such effect signed
by such Seller.
Section 9.2.2 Sellers' Performance. Each of the obligations of each
Seller to be performed by him and each obligation of the Company to be
performed by it on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or before the Closing
Date, and at the Closing each Seller and the Company shall have delivered
to Buyer a certificate to such effect signed by such Seller or the
President and Chief Financial Officer of the Company, as the case may be.
Section 9.2.3 Opinion of Seller's Counsel. Buyer shall have been
furnished at the Closing with an opinion of Riemer & Braunstein, counsel
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to the Sellers, dated the Closing Date, addressed to and in form and
substance satisfactory to counsel for Buyer (subject to such assumptions,
limitations and general qualifications as may be customary or appropriate
given the nature of the Transactions), to the effect that:
(a) The Company is a corporation duly organized, validly existing
and in corporate good standing under the laws of The Commonwealth of
Massachusetts, and has full corporate power and authority to carry on the
business which it is now conducting and to own or lease and operate its
assets and properties;
(b) this Agreement constitutes the legal, valid and binding
obligation of each Seller, enforceable in accordance with its terms;
(c) the authorized, issued and outstanding capital stock of the
Company is as stated in Schedule 5.2 hereto; all the shares of issued and
outstanding capital stock of the Company have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable;
(d) to the knowledge of such counsel, the Company is not a party to
or bound by any outstanding option or agreement to sell, issue, buy or
otherwise dispose of or acquire any shares of capital stock or any debt
security of the Company;
(e) the consummation of the Transactions contemplated hereby will
not:
(1) violate, or conflict with, or result in a breach of any
provisions of any of the terms, conditions or provisions of the Articles
of Organization of the Company or the Bylaws of the Company; or
(2) to the knowledge of such counsel, violate any order, writ,
injunction, decree, statute, rule or regulation which has applicability to
the Company or any of its properties or assets;
(f) except as disclosed in the list and description contained in
Schedule 5.22 to the knowledge of such counsel: (i) there is no pending
claim, action, suit, investigation or proceeding of any kind in which the
Company has been served with process or otherwise received actual notice,
and (ii) there is no threat of any such claim, action, suit, investigation
or proceeding against, involving, affecting or relating to the Company or
against, involving, affecting or relating to any of its officers or
directors in connection with the respective businesses and affairs of the
Company; and
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(g) to the knowledge of such counsel, no consent or approval, which
has not been obtained, by any governmental authority is required in
connection with the consummation by the Sellers of the Transactions
contemplated by this Agreement.
As to any matter contained in such opinion which involves the laws of a
jurisdiction in which such counsel is not admitted to practice, such
counsel may rely upon the opinion of local counsel of established
reputation satisfactory to Buyer. Any opinion may expressly rely as to
matters of fact upon certificates furnished by Sellers, or appropriate
officers of the Company, or appropriate governmental officials.
Section 9.2.4 No Adverse Change. There shall not have occurred
between the date hereof and the Closing Date (i) any material adverse
changes in the consolidated results of operations, condition (financial or
otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise), business or prospects of the Company it being agreed by the
parties hereto that notice to the Company or Buyer from any of the Key
Personnel of their intention to not continue their respective employs with
the Company shall constitute a material adverse change in the business and
prospects of the Company; or (ii) any loss or threatened loss known to the
Company of one or more customers having aggregate billings in excess of
$100,000 during Fiscal Year 1995 arising out of the Company's misper-
formance or failure to perform services.
Section 9.2.5 Compliance with Law. There shall have been obtained
any and all permits, approvals and consents of all governmental bodies or
agencies which counsel for Buyer may reasonably deem necessary or
appropriate so that consummation of the Transactions contemplated by this
Agreement will be in compliance with applicable laws.
Section 9.2.6 Delivery of Corporate Records. Buyer shall have been
furnished at the Closing with all stock record and minute books of the
Company.
Section 9.2.7 Termination of Employment Agreements. Buyer shall
have been furnished with evidence satisfactory to Buyer that all
employment agreements and all severance agreements between the Company and
each of its employees shall have been terminated.
Section 9.2.8 Termination of Outstanding Credit Facility. Buyer
shall have been furnished with evidence satisfactory to Buyer that (i) the
Company shall have paid in full all indebtedness outstanding under the
Outstanding Credit Facility (which indebtedness Buyer agrees to pay on or
at the Closing), and (ii) the Outstanding Credit Facility and any liens on
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the property or assets of the Company created thereunder shall have been
terminated.
Section 9.2.9 Termination of Outstanding Gradient Stock Agreements
and Plans. Buyer shall have been furnished with evidence satisfactory to
Buyer with respect to the termination on or prior to the Closing Date of
each of the agreements and plans referenced in Schedule 9.2.9 hereto, and
there shall have been no options or awards granted under such plans
subsequent to September 1, 1995.
Section 9.2.10 Termination of Outstanding Employee Loans. Buyer shall
have been furnished with evidence satisfactory to Buyer that (i) all
employees who have been extended loans or credit have repaid in full all
indebtedness outstanding thereunder, and (ii) all liens on the property or
assets of the employees securing such loans or credit shall have been
terminated.
Section 9.3 Conditions to Obligations of the Sellers. The obligations
of the Sellers to effect the Transactions contemplated hereby shall be, at
the option of the Sellers, subject to the fulfillment, at or prior to the
Closing Date, of the following additional conditions:
Section 9.3.1 Representations and Warranties True. The representa
tions and warranties of Buyer contained in this Agreement or in any
document delivered by Buyer pursuant hereto were true and correct in all
material respects on the date such representations and warranties were
made (except as specifically waived by Sellers in writing), and at the
Closing Buyer shall have delivered to Sellers a certificate to such
effect.
Section 9.3.2 Performance of Covenants. Each of the obligations of
Buyer to be performed by them on or before the Closing Date pursuant to
the terms of this Agreement shall have been duly performed on or before
the Closing Date, and at the Closing Buyer shall have delivered to Sellers
a certificate to such effect.
Section 9.3.3 Authority. All actions required to be taken by, or on
the part of, Buyer to authorize the execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
hereby shall have been duly and validly taken by the Buyer's Board of
Directors.
Section 9.3.4 Opinion of Buyer's Counsel. Sellers shall have been
furnished with an opinion of Buyer's and ITX's Corporate Counsel dated the
Closing Date, in form and substance satisfactory to counsel for the
Sellers (subject to such assumptions, limitations and general
qualifications as may be customary or appropriate given the nature of the
Transactions), to the effect that:
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(a) Buyer and ITX are corporations duly organized, validly existing
and in corporate good standing under the laws of the States of California
and Delaware, respectively, and each has full corporate power and
authority to carry on the business which it is now conducting and to own
or lease and operate its assets and properties;
(b) Buyer and ITX each has full corporate power to carry out their
respective obligations provided for in this Agreement; all corporate
proceedings required to be taken by each such company to authorize it to
execute and deliver this Agreement, and to consummate the Transactions
contemplated hereby have been duly and validly taken; this Agreement has
been duly and validly authorized, executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer and ITX,
respectively, as and to the extent provided herein, enforceable in
accordance with its terms;
(c) neither the execution and delivery of this Agreement by Buyer or
ITX nor the consummation of the Transactions contemplated hereby nor
compliance by Buyer or ITX with any of the provisions hereof, will
violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or any event which, with notice or lapse of time or
both, would constitute a default) under, any of the terms, conditions or
provisions of their respective Certificates of Incorporation or Bylaws or,
to the knowledge of such counsel, any material note, bond, mortgage,
indenture, deed of trust, license, agreement or other instrument or
obligation to which either of them is a party or by which either of them
or any of their respective properties or assets may be bound or affected.
(d) and upon delivery to Sellers, all shares of Common Stock shall
have been duly authorized, validly issued and outstanding, and fully paid
and nonassessable;
(e) ITX has authorized a sufficient number of shares of Common Stock
such that ITX may fulfill its obligations to deliver Common Stock to
Sellers pursuant to the Transactions and this Agreement, assuming ITX
delivers Common Stock in every instance in which Buyer is required or may
elect to do so;
(f) the offer, issuance, sale and delivery of the Common Stock to
Sellers in accordance with this Agreement does not require registration
under the Securities Act of 1993, or registration or filing under any
State securities act or laws;
(g) to the knowledge of such counsel, no consent or approval, which
has not been obtained, by any governmental authority is required in
connection with the consummation by the Buyer or ITX of the Transactions
contemplated by this Agreement and the delivery to Sellers of shares of
the Common Stock; and
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(h) to the knowledge of such counsel: (i) there is no pending claim,
action, suit, investigation or proceeding of any kind in which Buyer or
ITX has been served with process or otherwise received actual notice, and
(ii) there is no threat of any such claim, action, suit, investigation or
proceeding against, involving, affecting or relating to Buyer or ITX, or
against, involving, affecting or relating to any of their respective
officers or directors in connection with the respective businesses and
affairs of Buyer or ITX, which would have a materially adverse effect on
the consummation of the Transactions and the matters set forth in this
Agreement.
As to any matter which involves the laws of a jurisdiction in which
the counsel rendering the opinion is not admitted to practice, such
counsel may rely upon the opinion of local counsel of established
reputation satisfactory to counsel to the Sellers. Any opinion may
expressly rely as to matters of fact upon certificates furnished by
appropriate officers of Buyer or appropriate governmental officials.
Section 9.4 Deliveries of Additional Documents. Contemporaneously
herewith, in addition to the documents described in Sections 9.2 and 9.3,
the following agreements are being executed and delivered by the
respective parties thereto:
(a) Consents of each of the landlords under the Leases, to the
extent required thereby;
(b) Stock certificates evidencing all of the Shares, duly endorsed
for transfer or accompanied by separate instruments for transfer, by each
Seller who is the record owner thereof;
(c) a Non-Solicitation and Confidentiality Agreement, in the form of
Schedule 9.4(c) hereto, duly executed by Hopkins;
(d) an investment letter, duly executed by each Seller, in the form
attached as Schedule 9.4(d) hereto; and
(e) resignations of each of the directors of the Company, other than
Kiser.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival of Representations and Warranties. Subject to
Sections 8.3, 8.4, and 8.6 the representations and warranties of the
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parties herein or in any instrument delivered pursuant hereto shall
survive until and including the Third Anniversary.
Section 10.2 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (with subsequent letter
confirmation by mail) or three days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, to the
parties, their successors in interest or their assignees at the following
addresses, or at such other addresses as the parties may designate by
written notice in the manner aforesaid:
If to Buyer: IT Corporation
----------- 23456 Hawthorne Boulevard
Torrance, California 90505
Telecopy: (310) 791-4770
Attention: General Counsel
If to any Seller: See Schedule 10.2 hereto
----------------
With a concurrent copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Telecopy: (617) 723-6831
Attention: Wayne S. Michals
Section 10.3 Assignability and Parties in Interest. This Agreement shall
not be assignable by any of the parties, except that Buyer may assign its
rights hereunder to, and have its obligations hereunder assumed by, a
wholly-owned subsidiary of Buyer; provided, however, that no such
assignment shall release Buyer from its obligations under this Agreement.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective permitted successors and assigns.
Section 10.4 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal law, and not the
law pertaining to conflicts or choice of law, of the State of California.
Section 10.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
Section 10.6 Complete Agreement. This Agreement, the Exhibits and
Schedules hereto and the documents delivered or to be delivered pursuant
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to this Agreement contain or will contain the entire agreement among the
parties with respect to the Transactions and shall supersede all previous
oral and written and all contemporaneous oral negotiations, commitments
and understandings.
Section 10.7 Modifications, Amendments and Waivers. This Agreement may be
modified, amended or otherwise supplemented by a writing signed by all of
the parties, acting individually or through their respective attorneys in
fact. Notwithstanding the foregoing, all matters concerning the Earn-Out
Payments may be modified, amended, or otherwise supplemented by a writing
signed by Buyer and all Sellers who are not at such time Ineligible
Participants. No waiver of any right or power hereunder shall be deemed
effective unless and until a writing waiving such right or power is
executed by the party or his or her attorney in fact waiving such right or
power.
Section 10.8 Due Diligence Investigation; Knowledge. All representations
and warranties contained herein that are made to the knowledge of a party
shall require that such party make reasonable investigation and inquiry
with respect thereto to ascertain the correctness and validity thereof.
Section 10.9 Expenses. Except as otherwise expressly provided elsewhere
in this Agreement, each party shall pay all fees and expenses incurred by
it in connection with the transactions contemplated by this Agreement.
Section 10.10 Limit on Interest. Notwithstanding anything in this
Agreement to the contrary, no party shall be obligated to pay interest at
a rate higher than the maximum rate permitted by applicable law. In the
event that an interest rate provided in this Agreement exceeds the maximum
rate permitted by applicable law, such interest rate shall be deemed to be
reduced to such maximum permissible rate.
Section 10.11 Equitable Remedies. In addition to legal remedies, in
recognition of the fact that remedies at law may not be sufficient, the
parties (and their permitted successors and assigns) shall be entitled to
equitable remedies for breaches or defaults hereunder, including, without
limitation, specific performance and injunction.
Section 10.12 Attorneys' Fees and Costs. Should any party institute
any action or proceeding in any court to enforce any provision of this
Agreement, the prevailing party shall be entitled to receive from the
losing party reasonable attorneys' fees and costs incurred in such action
or proceeding, whether or not such action or proceeding is prosecuted to
judgment.
Section 10.13 Further Assurances. Each party hereto shall execute and
deliver such further instruments and take such further actions as any
other
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party hereto may reasonably request in order to carry out the intent of
this Agreement and to consummate the Transactions.
Section 10.14 Contract Interpretation; Construction of Agreement.
(a) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpreta-
tion of this Agreement. Article, section, exhibit, schedule, preamble,
recital and party references are to this Agreement unless otherwise
stated.
(b) No party, nor its respective counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of
this Agreement, and all language in all parts of this Agreement shall be
construed in accordance with its fair meaning, and not strictly for or
against any party.
Section 10.15 Arbitration.
(a) All controversies or claims arising between the parties,
including without limitation, claims arising out of or relating to this
Agreement, the subject matter hereof, including the definition of Cause
and the use of such definition as contemplated herein, and the
arbitrability of any claim, shall be settled by arbitration as provided
below. The arbitration and all preliminary proceedings related thereto
shall be conducted in accordance with such rules as may be agreed upon by
the parties, or, failing agreement on such rules, in accordance with the
Rules for Commercial Arbitration of the American Arbitration Association
("AAA"), as amended from time to time and as modified by this Agreement.
The dispute shall be presented to a panel of three arbitrators sitting in
Boston, Massachusetts.
(b) The Representative and the Buyer shall each select one arbitra
tor. The two arbitrators selected shall jointly select a third arbitra
tor. The parties shall select the two arbitrators within fifteen (15)
days after demand for arbitration is made by a party, and the two
arbitrators shall jointly select the third within ten (10) days after the
later of their two respective selections. If the two arbitrators are
unable to jointly agree on a third arbitrator within that period, then
either party may request that the AAA select the third arbitrator. Each
arbitrator shall possess substantive legal experience in the principal
issues in dispute.
(c) Any discovery permitted shall be limited to information directly
relevant to the controversy in arbitration. In the event of discovery
disputes, the panel of arbitrators is directed to issue such orders as are
appropriate to limit discovery in accordance with the foregoing and as are
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reasonable in light of the issues in dispute, the amount in controversy,
and other relevant considerations. To the extent the parties are unable
to agree on the scope of discovery, the panel of arbitrators shall require
the party seeking discovery on an issue to present the legal and factual
basis for the claim and shall permit the party opposing discovery to
respond. The panel of arbitrators shall permit discovery on an issue only
if the panel of arbitrators concludes that there is a reasonable and good
faith basis in law and in fact for bringing such allegations and that the
discovery appears likely to present substantive evidence regarding that
claim. The panel of arbitrators may permit limited discovery to permit
investigation of some of the claims or to determine whether a claim has
sufficient basis in law or in fact to warrant further discovery, but shall
issue appropriate orders to restrict the scope of such discovery. The
federal or state rules of procedure and evidence shall not apply to the
arbitration proceedings, including without limitation the rules of
discovery. The panel of arbitrators shall consider claims of privilege,
work product and other restrictions on discovery as appear to be
warranted.
(d) The panel of arbitrators shall award the prevailing party its
attorneys' and experts' fees and disbursements incurred in resolving the
dispute (including those of in-house counsel and experts) and shall award
double costs and expenses or other sanctions to the extent the panel of
arbitrators finds any claim advanced in the proceedings to be frivolous or
without a good faith basis in fact and in law when such claim was first
presented for arbitration.
(e) The panel of arbitrators shall act by majority vote with respect
to any action it is required or permitted to take hereunder.
(f) Except as may otherwise be agreed in writing by the parties or
as ordered by the panel of arbitrators upon substantial justification
shown, the hearing for the dispute shall be held within ninety (90) days
of submission of the dispute to arbitration. The panel of arbitrators
shall render the final award within thirty (30) days following conclusion
of the hearing and any required post-hearing briefing or other proceedings
ordered by the panel of arbitrators. The panel of arbitrators shall state
the factual and legal basis for the award. The decision of the panel of
arbitrators shall be final and binding, except as provided in the Federal
Arbitration Act, 9 U.S.C. 1, et seq., and except for errors of law based
on the findings of fact. Final judgment may be entered upon such an award
in any court of competent jurisdiction, but entry of such judgment shall
not be required to make such award effective. The parties hereby irre-
vocably submit to the exclusive jurisdiction and venue of the state and
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federal courts located in Boston, Massachusetts. THE PARTIES EXPRESSLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
BUYER
- -----
IT CORPORATION, a California corporation
By: ________________________________________________________
Name: ________________________________________________________
Title: ________________________________________________________
ITX
INTERNATIONAL TECHNOLOGY CORPORATION, a Delaware corporation
By: ________________________________________________________
Date: ________________________________________________________
Title: ________________________________________________________
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SELLERS
_______________________________
Brian L. Murphy
_______________________________
Neil S. Shifrin
_______________________________
Barbara D. Beck
_______________________________
David B. Kiser
_______________________________
Jean P. Gosselin
_______________________________
Peter A. Valberg
_______________________________
A. Dallas Wait
65
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INDEX OF SCHEDULES
Schedule Description
2.1 Capitalization of the Company
4.2 Retention Payments to Key Employees
5.6 List of Jurisdictions
5.7 Jurisdiction Licenses & Permits
5.11 Financial Statements
5.12 Material Changes Since September 30, 1995
5.14 Real Property
5.15 Intangible Personal Property
5.15(a) List of Nondisclosure and Confidentiality
Agreements
5.16 Labor and Employment Agreements
5.17 Employee Benefits
5.18 Material Contracts
5.18(a) Subcontractors
5.20 Related Party Transactions
5.21(a)-(d) Compliance with Laws, Notices of Violation,
Owner/Operator Responsibility, Permits
5.22 Litigation
5.23 Taxes
5.24(a)-(c) Company's Insurance
5.25 Powers of Attorney
5.26 Banking Facilities
7.8(b) FY97 Business Development Plans
9.2.9 Outstanding Gradient Stock Agreements and
Plans
9.4(c) Non-Solicitation and Confidentiality
Agreement
9.4(d) Investment Letter
10.2 Sellers' Notice Addresses
<PAGE>
Exhibit 10(iii)5
----------------
SEVERANCE BENEFIT AGREEMENT
This SEVERANCE BENEFIT AGREEMENT (this "Agreement"), dated as of
April 2, 1996, is made and entered into by and between International
Technology Corporation, a Delaware corporation (the "Company"), and
[officer] (the "Executive").
The Company, on behalf of itself and its stockholders, desires to
continue to attract and retain well-qualified executives and key personnel
who are an integral part of the management of the Company, such as the
Executive, and to assure itself of continuity of management. The Company
recognizes that, as is the case with many publicly-held corporations, the
possibility of a change of control exists and that such possibility, and
the uncertainty which it may raise among management, may result in the
distraction or departure of management to the detriment of the Company and
its shareholders.
For these reasons, the Company desires to (i) protect the continued
employment of the Executive which would be at risk in the event of a
change in control and (ii) provide an incentive to the Executive, whose
knowledge, expertise and level of performance are critical to the current
and future success of the Company, to remain in the employ of the Company,
notwithstanding the uncertainty and job insecurity created by an actual or
threatened change in control.
This Agreement sets forth the specific severance compensation which
the Company agrees that it will pay to the Executive if the Executive's
employment with the Company terminates as provided herein.
NOW THEREFORE, in order to induce the Executive to remain in the
employ of the Company in consideration of the foregoing recitals and the
mutual covenants and agreements contained in this Agreement and for other
good and valuable consideration, the parties hereto agree as follows:
1. Definitions. Terms not otherwise defined in this Agreement shall
have the meanings set forth in this Section 1.
(a) Cash Compensation. "Cash Compensation" shall mean the sum
of (x) the higher of the Executive's annual base salary at (i) the time
the Notice of Termination provided for in Section 2(c) of this Agreement
is given or (ii) immediately prior to a Change in Control, and (y) an
amount equal to the highest aggregate Cash Bonus Earned by the Executive
under all cash bonus plans of the Company for any of the three fiscal
years immediately preceding the year in which the Date of Termination
occurs. "Cash Bonus Earned" shall mean all amounts actually earned for
performance in a specific fiscal year without regard to voluntary or
mandatory payment deferrals if so specified in the applicable bonus plan.
(b) Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the commission of a felony (other than driving while intoxicated or
while under the influence of alcohol or drugs), (ii) a willful dereliction
of duty or intentional and malicious conduct contrary to the best
interests of the Company or its business if such dereliction of duty or
misconduct is not corrected within thirty (30) days after written notice
thereof from the Company, or (iii) a refusal to perform reasonable
services customarily performed by the Executive (other than by reason of
a Disability) if such refusal is not corrected within thirty (30) days
after written notice thereof from the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Company's Board of
Directors at a meeting of the Board called and held for the purpose of
considering his termination for cause (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board). The resolution of the
Board shall contain a finding that in the good faith opinion of the Board
the Executive was guilty of the conduct set
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forth above and specifying the particulars thereof in detail. Notwith-
standing the foregoing, the Executive shall have the right to contest his
termination for Cause (for purposes of this Agreement) by arbitration in
accordance with the provisions of this Agreement as set forth in Section
5 herein.
(c) Change in Control. A "Change in Control" of the Company
shall be deemed to have occurred if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, of the assets of the Company, or (ii) the stockholders of the Company
approve a plan or proposal for the liquidation or dissolution of the Com
pany, or (iii) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall
become "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of thirty-five percent (35%) or more of the
Company's outstanding Common Stock or (iv) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the entire Board of Directors of the Company shall cease for
any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
(d) Effective Date. "Effective Date" shall mean the date on
which a Change in Control is effectuated.
(e) Good Reason. The Executive's termination of employment
with the Company shall be deemed for "Good Reason" if it occurs within six
(6) months of any of the following without the Executive's express written
consent:
(i) the assignment to the Executive by the Company of duties
inconsistent with, or a substantial alteration in the nature or status of,
Executive's responsibilities immediately prior to a Change in Control of
the Company other than any such alteration primarily attributable to the
fact that the Company's securities are no longer publicly traded;
(ii) a reduction by the Company in the Executive's Cash
Compensation (as defined in Section 1 (a) above) as in effect on the date
of a Change in Control of the Company or as in effect thereafter if such
Cash Compensation has been increased during the term of this Agreement;
(iii) any failure by the Company to continue in effect
without substantial change any compensation, incentive, welfare or benefit
plan or arrangement, as well as any plan or arrangement whereby the
Executive may acquire securities of the Company, in which the Executive is
participating at the time of a Change in Control of the Company (or any
other plans providing the Executive with substantially similar benefits)
(hereinafter referred to as "Benefit Plans"), or the taking of any action
by the Company which would adversely affect the Executive's participation
in or materially reduce the Executive's benefits under any such Benefit
Plan or deprive the Executive of any material fringe benefit enjoyed by
the Executive at the time of a Change in Control of the Company' unless an
equitable substitute arrangement (embodied in an ongoing substitute or
alternative Benefit Plan) has been made for the benefit of the Executive
with respect to the Benefit Plan in question. For purposes of the
foregoing, Benefit Plans shall include, but not be limited to, the 1983
Stock incentive Plan, the 1991 Stock Incentive Plan, the Company's
Retirement Plan, the Company's Bonus Plan, the Corporate Supplementary
Medical Plan, or any other plan or arrangement to receive and exercise
stock options or stock appreciation rights, supplemental pension plan,
insured medical reimbursement plan, automobile benefits, executive
financial planning, group life insurance plan, personal catastrophe
liability insurance, medical, dental, accident and disability plans;
2
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(iv) relocation to any place more than 100 miles from the office
regularly occupied by the Executive, except for required travel by the
Executive on the Company's business to an extent substantially consistent
with the Executive's business travel obligations at the time of a Change
in Control;
(v) any material breach by the Company of any provision of
this Agreement;
(vi) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(vii) any purported termination of the Executive's employment
by the Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 2(c) below, and for purposes of
this Agreement, no such purported termination shall be effective.
2. Termination Following Change in Control.
(a) Termination of Employment. If a Change in Control of the
Company as defined in Section 1(c) shall have occurred while the Executive
is still an employee of the Company, the Executive shall be entitled to
the compensation provided in Section 3 upon the subsequent termination of
the Executive's employment with the Company by the Company or by the
Executive, unless such termination is a result of (i) the Executive's
death; (ii) the Executive's Disability (as defined in Section 2(b) below);
(iii) the Executive's retirement in accordance with the Company's
retirement policies in effect prior to any Change in Control; (iv) the
Executive's termination by the Company for Cause (as defined in Section
1(b) above); or (v) the Executive's decision to terminate his employment
with the Company other than for Good Reason (as defined in Section 1(d)
above). No compensation shall be payable and no rights shall vest in the
Executive under this Agreement except as specifically set forth in this
Section 2(a).
(b) Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent
from his duties with the Company on a full-time basis for six (6) months
and within thirty (30) days after written notice of termination is
thereafter given by the Company the Executive shall not have returned to
the full-time performance of the Executive's duties, the Company may
terminate this Agreement for "Disability."
(c) Notice of Termination. Any purported termination of the
Executive's employment by the Company or the Executive hereunder shall be
communicated by a Notice of Termination to the other party as set forth
herein. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination
provisions in this Agreement relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated.
(d) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for Disability, thirty (30)
days after Notice of Termination is given to the Executive (provided that
the Executive shall not have returned to the performance of the
Executive's duties on a full-time basis during such thirty (30) day
period), (ii) if the Executive's employment is terminated by the Company
for any other reason, the date on which a Notice of Termination is given,
provided that if within thirty (30) days after any Notice of Termination
is given the Executive by the Company, the Executive notifies the Company
that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected), or (iii) if the
Agreement is terminated by the Executive, the date on which the Executive
delivers Notice of Termination to the Company.
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3. Severance Compensation upon Termination of Employment. If the
Executive's employment with the Company shall be terminated as provided in
Section 2(a), then the Company shall:
(i) subject to Sections 4 and 5, pay to the Executive as
severance pay in a lump sum, in cash, or the fifth day following the Date
of Termination, an amount equal to 2.99 times (the "multiple") the Execu
tive's Cash Compensation (the "Executive's Severance Cash Benefit").
(ii) arrange to provide the Executive for two years (or such
shorter period as Executive may elect) with disability, life, accident and
health insurance substantially similar to those insurance benefits which
Executive is receiving immediately prior to the Notice of Termination
(including coverage for dependents at the same per person cost as the
Executive is then paying). Benefits otherwise receivable by Executive
pursuant to this Section 3(ii) shall be reduced to the extent comparable
benefits are actually received by the Executive during such two (2) year
period following his termination (or such shorter period elected by the
Executive), and any such benefits actually received by Executive shall be
reported by him to the Company.
Notwithstanding the forgoing, in the event that the Executive does not
have three (3) full years remaining until such Executive's mandatory
retirement date under the Company's retirement policies, for the purposes
of subsection 3(i), the multiple shall be reduced to the number of years
and/or partial years (measured by months) remaining until said
Executive's retirement. In the event that the Executive does not have two
(2) full years remaining until such Executive's mandatory retirement date
under the Company's retirement policies, for the purposes of subsection
3(ii), the two (2) year period shall be reduced to the number of years
and/or partial years remaining until said Executive's retirement. For
example, if an Executive terminated his employment for Good Reason one
year and six months before mandatory retirement, the two (2) year period
would be reduced from 2 to 1.5 and the multiple would be reduced from 2.99
to 1.5. For purposes of this Agreement, the mandatory retirement age of
an Executive shall be 65.
4. Reduction in Benefits for "Parachute Payment." Notwithstanding
anything contained in this Agreement to the contrary, in the event that
the payments under Section 3 of this Agreement to the Executive, either
alone or together with other payments the Executive has a right to receive
from the Company, would not be deductible (in whole or in part) by the
Company as a result of such payments constituting a "parachute payment"
(as defined in Section 280G of the Internal Revenue Code, as amended (the
"Code")), such payments shall be reduced to the largest amount as will
result in no portion of the payments under Section 3 not being fully
deductible by the Company as the result of Section 280G of the Code. The
determination of any reduction in the payments under Section 3 pursuant to
the foregoing sentence shall be made exclusively by Ernst & Young, or
such other firm of independent public accounts as may be serving as the
Company's principal auditors immediately prior to the Effective Date (the
"Auditors") (whose fees and expenses shall be borne by the Company), and
such determination shall be conclusive and binding on the Company and the
Executive.
5. Reduction of Severance Cash Benefit in Certain Other-
Circumstances. Notwithstanding anything contained in this Agreement to
the contrary, in the event that on the Effective Date the Company's
Aggregate Severance Liability (as defined below) exceeds 5% of the
Company's Market Capitalization (as defined below), the Executive's
Severance Cash Benefit shall be reduced to the product of (a) 5% of the
Company's Market Capitalization and (b) a fraction (x) the numerator of
which shall be the Executive's Severance Cash Benefit As of the Effective
Date (as defined below) and (y) the denominator of which shall be the
Company's Aggregate Severance Liability.
"The Company's Aggregate Severance Liability," as used herein, shall
mean an amount (determined by the Auditors) equal to the aggregate of the
Severance Cash Benefits payable to all employees of the Company party to
written Severance Benefit Agreements on the Effective Date, calculated as
of the Effective Date instead of as of the Dates of Termination of such
employees and in each case reduced by the applicable "parachute payment"
reduction, if any, described in Section 4 hereof. "The Company's Market
4
<PAGE>
Capitalization," as used herein, shall mean the sum of: (i) the product
of (a) the total number of shares of common stock of the Company (the
"Common Stock") outstanding as of the Effective Date and (b) the last
reported sale price on the New York Stock Exchange of one share of Common
Stock on the Effective Date; plus (ii) the product of (a) the total number
of shares of preferred stock of the Company (the "Preferred Stock")
outstanding on the Effective Date and (b) the liquidation value of one
share of Preferred Stock; plus (iii) the aggregate amount of outstanding
indebtedness for borrowed money of the Company on the Effective Date; plus
(iv) the aggregate amount of short and long-term liabilities of the
discontinued operations of the Company as reflected on the Company's most
recently prepared quarterly balance sheet. "The Executive's Severance
Cash Benefit as of the Effective Date," as used herein, shall mean an
amount (determined by the Auditors) equal to the Executive's Severance
Cash Benefit calculated as of the Effective Date rather than as of the
Date of Termination, which calculation shall include the "parachute
payment" reduction, if any, which would be made pursuant to Section 4
hereof. The determination of any reduction in the Executive's Severance
Cash Benefits pursuant to this Section 5 shall be made exclusively by the
Auditors (whose fees and expenses shall be borne by the Company), and such
determination shall be conclusive and binding on the Company and the
Executive.
6. Mitigation of Damages. The Executive shall not be required to
mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for under this Agreement be reduced by any
compensation earned by the Executive as a result of employment by another
employer or by retirement benefit after the Date of Termination, or
otherwise, except to the extent provided in Section 3 above.
7. Effect of Agreement on Other Contractual Rights. The provisions
of this Agreement, and any payment provided for hereunder, shall not
reduce any amounts otherwise payable, or in any way diminish the
Executive's existing rights, or rights which would accrue solely as a
result of the passage of time, under any Benefit Plan, employment
agreement or other contract, plan or arrangement.
8. Term.
(a) This Agreement shall terminate, except to the extent that
any obligation of the Company hereunder remains unpaid as of such time,
upon the earliest of (i) two years from the date hereof if a Change in
Control has not occurred within such two-year period; (ii) upon the
termination of the Executive's employment with the Company based on death,
retirement, Disability (as defined in Section 2(b)) or Cause (as defined
in Section 1(b)) or by the Executive other than for Good Reason (as
defined in Section 1(e)); or (iii) three years from the Effective Date of
a Change in Control which was not approved by the Board of Directors or
two years from the Effective Date of a Change of Control which was
approved by the Board of Directors.
(b) Nothing in this Agreement shall confer upon the Executive
any right to continue in the employ of the Company prior to a Change in
Control in the Company or shall interfere with or restrict in any way the
rights of the Company, which are hereby expressly reserved, to discharge
the Executive at any time prior to the Effective Date of a Change in
Control of the Company for any reason whatsoever, with or without cause.
9. Successor to the Company.
(a) The Company will require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,-
expressly, absolutely and unconditionally to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had
taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such successor shall be a breach of this Agreement
and shall entitle the Executive to compensation from the Company in the
same amount and on the same terms as the Executive would be entitled
hereunder if such succession had not occurred, except that for purposes of
implementing the foregoing, the date of which any such succession becomes
effective shall be deemed the Date of Termination. As used in this
Agreement,
5
<PAGE>
"Company" shall mean the Company as defined above and any successor or
assign to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 9 or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) Heirs of the Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, dis-
tributees, devises and legatees. If the Executive should die while any
amounts are still payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or,
if there be no such designee to the Executive's estate.
10. Arbitration. Any and all disputes, controversies or claims
arising under or in connection with this Agreement, including without
limitation, fraud in the inducement of this Agreement, or the general
validity or enforceability of this Agreement, shall be governed by the
laws of the State of California, without giving effect to its conflict of
laws provisions and shall be submitted to binding arbitration before one
arbitrator of the American Arbitration Association conducted in Los
Angeles County under the laws of the State of California. All fees and
expenses of any arbitration, including the Executive's reasonable legal
fees and costs, are to be advanced by the Company. The award of the
arbitrator is to be final and enforceable in the courts of California.
All costs of enforcement are to be borne by the Company.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as
follows: if to the Company - International Technology Corporation, 23456
Hawthorne Boulevard, Torrance, California 90505, Attention: Secretary;
and if to the Executive at the address specified at the end of the
Agreement. Notice may also be given at such other address as either party
may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
12. Miscellaneous. No provisions of this Agreement may be amended,
modified, waived or discharged unless such amendment, modification,
waiver, or discharge is agreed to in writing signed by the Executive and
the Company. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied, with respect to the subject
matter hereof have been made by either party which are not set forth
expressly in this agreement.
13. Validity. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
15. Gender. In this Agreement (unless the contract requires
otherwise), use of any masculine term shall include the feminine.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
INTERNATIONAL TECHNOLOGY CORPORATION
By: ______________________________________
Name: Robert B. Sheh
------------------------------------
Title: President & CEO
-----------------------------------
EXECUTIVE:
_________________________________________
(Signature)
------------------------------------------
(Name)
23456 Hawthorne Boulevard
------------------------------------------
Torrance, California 90505
------------------------------------------
(Address for Notice)
7
<PAGE>
Exhibit 10(iii)13
-----------------
EXECUTIVE STOCK PURCHASE INTEREST 1/96
REIMBURSEMENT PLAN
- ----------------------------------------------------------------------
APPROVED BY COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS SEPTEMBER 6, 1995
PURPOSE
To reimburse executives for the interest expense actually incurred in
connection with borrowing funds to purchase Company stock on the open
market which will increase the executive's equity ownership in the Company
in line with the Company's Executive Stock Ownership Guidelines.
ELIGIBILITY
Participation is limited to executives at the level of Senior Vice
Presidents and above.
REIMBURSEMENTS
Request for reimbursements, which may be submitted at any time, will be
limited to $15,000 per year based on the submission of suitable documenta-
tion that confirms this expense has been incurred for the purpose stated
above.
LIMITATIONS
Reimbursements, authorized under this Plan, will only be approved during
the five year period following the date this Plan is approved.
Participants will not be reimbursed for interest expenses, or tax
liabilities, incurred in connection with exercising stock option grants or
lapse of restrictions on restricted stock.
TAXATION
Each reimbursement will be reported as taxable income, subject to tax
withholding as applicable. Participants will be responsible for all tax
liabilities related to this reimbursement, to the extent that this expense
cannot be treated as an authorized deduction.
1
<PAGE>
Exhibit No. 10(iii)14
--------------------
IT CORPORATION
DEFERRED COMPENSATION PLAN
Effective January 1, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
Selection, Enrollment, Eligibility . . . . . . . . . . . 6
2.1 Selection by Committee . . . . . . . . . . . . . 6
2.2 Enrollment Requirements. . . . . . . . . . . . . 6
2.3 Eligibility; Commencement of Participation . . . 6
ARTICLE 3
Deferral Commitments/Interest Crediting . . . . . . . . 7
3.1 Minimum Deferral . . . . . . . . . . . . . . . . 7
3.2 Maximum Deferral . . . . . . . . . . . . . . . . 7
3.3 Election to Defer; Effect of Election Form . . . 7
3.4 Withholding of Deferral Amounts . . . . . . . . 7
3.5 Interest Crediting Prior to Distribution . . . . 7
3.6 Interest Crediting for Installment
Distributions. . . . . . . . . . . . . . . . . . 8
3.7 FICA Taxes . . . . . . . . . . . . . . . . . . . 8
3.8 Vesting. . . . . . . . . . . . . . . . . . . . . 8
3.9 Disability Waiver. . . . . . . . . . . . . . . . 8
3.10 Statement. . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election . . . . . . . . . . . . . . . . . .10
4.1 Short-Term Payout. . . . . . . . . . . . . . . .10
4.2 Withdrawal Payout/Suspensions for
Unforeseeable Fin. Emergencies . . . . . . . . .10
4.3 Withdrawal Election. . . . . . . . . . . . . . .10
ARTICLE 5
Retirement and Termination Benefits . . . . . . . . . .11
5.1 Retirement Benefit . . . . . . . . . . . . . . .11
5.2 Termination Benefit. . . . . . . . . . . . . . .11
5.3 Death Prior to Completion of Benefits. . . . . .11
5.4 Disability . . . . . . . . . . . . . . . . . . .11
ARTICLE 6
Pre-Termination Survivor Benefit. . . . . . . . . . . .13
6.1 Pre-Termination Survivor Benefit . . . . . . . .13
6.2 Payment of Pre-Termination Survivor Benefits . .13
i
<PAGE>
ARTICLE 7
Beneficiary Designation . . . . . . . . . . . . . . . .14
7.1 Beneficiary . . . . . . . . . . . . . . . . . .14
7.2 Beneficiary Designation; Change; Spousal
Consent . . . . . . . . . . . . . . . . . . . .14
7.3 Acknowledgment. . . . . . . . . . . . . . . . .14
7.4 No Beneficiary Designation. . . . . . . . . . .14
7.5 Doubt as to Beneficiary . . . . . . . . . . . .14
7.6 Discharge of Obligations. . . . . . . . . . . .14
ARTICLE 8
Leave of Absence. . . . . . . . . . . . . . . . . . . .16
8.1 Paid Leave of Absence . . . . . . . . . . . . .16
8.2 Unpaid Leave of Absence . . . . . . . . . . . .16
ARTICLE 9
Termination, Amendment or Modification. . . . . . . . .17
9.1 Termination . . . . . . . . . . . . . . . . . .17
9.2 Amendment . . . . . . . . . . . . . . . . . . .17
9.3 Effect of Payment . . . . . . . . . . . . . . .17
ARTICLE 10
Administration. . . . . . . . . . . . . . . . . . . . .18
10.1 Committee Duties. . . . . . . . . . . . . . . .18
10.2 Agents. . . . . . . . . . . . . . . . . . . . .18
10.3 Binding Effect of Decisions . . . . . . . . . .18
10.4 Indemnity of Committee. . . . . . . . . . . . .18
10.5 Employer Information. . . . . . . . . . . . . .18
ARTICLE 11
Claims Procedures . . . . . . . . . . . . . . . . . . .19
11.1 Presentation of Claim . . . . . . . . . . . . .19
11.2 Notification of Decision. . . . . . . . . . . .19
11.3 Review of a Denied Claim. . . . . . . . . . . .19
11.4 Decision on Review. . . . . . . . . . . . . . .20
11.5 Legal Action. . . . . . . . . . . . . . . . . .20
ARTICLE 12
Trust . . . . . . . . . . . . . . . . . . . . . . . . .21
12.1 Establishment of Trust. . . . . . . . . . . . .21
12.2 Interrelationship of the Plan and the Trust . .21
ii
<PAGE>
ARTICLE 13
Miscellaneous . . . . . . . . . . . . . . . . . . . . .22
13.1 Unsecured General Creditor. . . . . . . . . . .22
13.2 Employer's Liability . . . . . . . . . . . . .22
13.3 Nonassignability . . . . . . . . . . . . . . .22
13.4 Coordination with Other Benefits. . . . . . . .22
13.5 Not a Contract of Employment. . . . . . . . . .22
13.6 Furnishing Information. . . . . . . . . . . . .23
13.7 Terms . . . . . . . . . . . . . . . . . . . . .23
13.8 Captions. . . . . . . . . . . . . . . . . . . .23
13.9 Governing Law . . . . . . . . . . . . . . . . .23
13.10 Notice. . . . . . . . . . . . . . . . . . . . .23
13.11 Successors. . . . . . . . . . . . . . . . . . .23
13.12 Spouse's Interest . . . . . . . . . . . . . . .23
13.13 Validity. . . . . . . . . . . . . . . . . . . .24
13.14 Incompetent . . . . . . . . . . . . . . . . . .24
13.15 Distribution in the Event of Taxation . . . . .24
13.16 Legal Fees to Enforce Rights After Change
in Control. . . . . . . . . . . . . . . . . . .24
13.17 Counterparts. . . . . . . . . . . . . . . . . .25
iii
<PAGE>
EXECUTIVE/DIRECTORS DEFERRED 10/95
COMPENSATION PLAN
===============================================
==================
THE FOLLOWING PLAN WAS
APPROVED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS JULY 6, 1995
IT CORPORATION
Deferred Compensation Plan
Effective January 1, 1996
Purpose
The purpose of this Plan is to provide specified benefits to
non-employee directors and a select group of management or highly
compensated employees who contribute materially to the continued growth,
development and future business success of IT CORPORATION, a Delaware
corporation, and its affiliates. The Plan constitutes an unfunded plan
that is not qualified under Code Section 401(a).
ARTICLE 1
Definitions
-----------
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, the sum
of (i) the Participant's Deferral Amount plus (ii) interest thereon
credited in accordance with the applicable interest crediting provisions
of the Plan, net of all distributions from such account. This account
shall be a bookkeeping entry only and shall be utilized solely as a device
for the measurement and determination of the amounts to be paid to or in
respect of a Participant pursuant to the Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base
Annual Salary, paid annually during a Plan Year, either in cash or stock,
to a Participant as an employee under any Employer's annual bonus and
incentive plans without regard to Code Section 401(a)(17).
1
<PAGE>
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary and Annual Bonus that a Participant elects to have and
is deferred, in accordance with Article 3, for any one Plan Year without
regard to Code Section 401(a)(17).
1.4 "Base Annual Salary" shall mean the annual compensation and commis-
sions (but excluding bonuses, overtime, incentive payments, non-monetary
awards, directors fees, and other fees) paid to a Participant for services
rendered to any Employer, before reduction for compensation deferred
pursuant to all qualified, non-qualified and Code Section 125 plans of any
Employer. Notwithstanding the foregoing, in the case of non-employee
directors, "Base Annual Salary" shall mean directors fees.
1.5 "Beneficiary" shall mean one or more persons, trusts, estates or
other entities, designated in accordance with Article 7, that are entitled
to receive benefits under the Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean with respect to an Employer the first
to occur of any of the following events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")), after the date
hereof becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act), directly or indirectly, of 50% or more of the
Employer's capital stock entitled to vote in the election of directors;
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the board of directors of the
Employer cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Employer's
shareholders of each new director was approved by a vote of at least
three-quarters of the directors then still in office who were directors at
the beginning of the period;
(c) Any consolidation or merger of the Employer, other than a
consolidation or merger of the Employer in which the holders of the common
stock of the Employer immediately prior to the consolidation or merger
hold
2
<PAGE>
more than 50% of the common stock of the surviving corporation immediately
after the consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) Substantially all of the assets of the Employer are sold or
otherwise transferred to parties that are not within a "controlled group
of corporations" (as defined in Section 1563 of the Code) in which the
Employer is a member.
1.9 "Claimant" shall have the meaning set forth in Section 11.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 "Committee" shall mean the administrative committee appointed to
manage and administer the Plan in accordance with its provisions pursuant
to Article 10.
1.12 "Company" shall mean IT Corporation, a Delaware corporation.
1.13 "Crediting Rate" shall mean, for a particular Plan Year, an interest
rate determined by the compensation committee of the Board, in its sole
and absolute discretion.
1.14 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.15 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's Employer's
long-term disability plan (or would qualify if he were a participant in
such a plan).
1.16 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.17 "Employer" shall mean the Company or any affiliate authorized by the
Board to participate in the Plan.
1.18 "Participant" shall mean any employee or non-employee director of an
Employer (I) who is selected to participate in the Plan, (ii) who elects
to participate in the Plan, (iii) who signs a Plan Agreement, an Election
Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement,
3
<PAGE>
Election Form and Beneficiary Designation Form are accepted by the
Committee, (v) who commences participation in the Plan, and (vi) whose
Plan Agreement has not terminated.
1.19 "Plan" shall mean the IT Corporation Deferred Compensation Plan,
which shall be evidenced by this instrument, as it may be constituted from
time to time.
1.20 "Plan Agreement" shall mean a written agreement, as may be amended
from time to time, which is entered into by and between one or more
Employers and a Participant. Each Plan Agreement executed by a
Participant shall provide for the entire benefit to which such Participant
is entitled under the Plan, and shall specify the Employer or Employers
liable for the Participant's benefits hereunder and the magnitude or
extent of such liability. The Plan Agreement bearing the latest date of
acceptance by the Committee shall govern such entitlement and each
Employer's liability. Upon the complete payment of a Participant's
Account Balance, each individual's Plan Agreement and his or her status as
a Participant shall terminate.
1.21 "Plan Year" shall, for the first Plan Year, begin on January 1, 1996
and end on December 31, 1996. For each Plan Year thereafter, the Plan
Year shall begin on January 1 of each year and continue through December
31.
1.22 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.23 "Retirement," "Retire," "Retires," or "Retired" shall mean (a) in the
case of a Participant that is an employee, severance from employment with
all Employers for any reason other than a leave of absence on or after the
attainment of (I) the date on which the sum of a Participant's age and
Years of Service is equal to seventy (70), or (ii) age sixty-five (65),
whichever is earlier; and (b) in the case of a Participant that is a
non-employee director, severance from service with all Employers for any
reason other than a leave of absence on or after the attainment of (I) age
70 with at least five Years of Service, or (ii) ten Years of Service (in
which case the Participant shall be deemed to Retire at age 65, or, if
later, his or her actual age at Retirement. If a Participant has been
both an employee and a nonemployee director, his or her Retirement shall
occur at the later of whichever of clauses (a) or (b) applies.
1.24 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.25 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.26 "Termination Benefit" shall mean the benefit set forth in Article 5.
4
<PAGE>
1.27 "Termination of Employment" shall mean the ceasing of employment or
service with all Employers, voluntarily or involuntarily, for any reason
other than Retirement, death or an authorized leave of absence.
1.28 "Trust" shall mean the one or more trusts established pursuant to
that certain trust agreement between the Employers and the trustee named
therein, as amended from time to time.
1.29 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant
that would result in severe financial hardship to the Participant
resulting from (i) a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other extraordinary
and unforeseeable circumstances arising as a result of events beyond the
control of the Participant, all as determined in the sole and absolute
discretion of the Committee.
1.30 "Years of Service" shall mean, with respect to a Participant, the
total number of such years recognized and taken into account under the IT
Corporation Retirement Plan, except that in the case of non-employee
directors, "Years of Service" shall mean the total number of years and
portions thereof served as a non-employee director.
5
<PAGE>
ARTICLE 2
Selection, Enrollment, Eligibility
----------------------------------
2.1 Selection by Committee. Participation in the Plan shall be limited
to non-employee directors and to employees of an Employer who are part of
a select group of management or highly compensated employees. Generally,
in the case of employees, such group shall be limited to employees
eligible to participate in the Company's bonus incentive plan and with a
Base Annual Salary of at least $100,000. From the foregoing, the
Committee shall select, in its sole and absolute discretion, employees to
participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each
selected person shall complete, execute and return to the Committee within
30 days of selection a Plan Agreement, an Election Form and a Beneficiary
Designation Form. In addition, the Committee shall establish from time to
time such other enrollment requirements as it determines in its sole and
absolute discretion are necessary.
2.3 Eligibility; Commencement of Participation. Provided a person
selected to participate herein has met all enrollment requirements set
forth herein and required by the Committee, including returning all
required documents to the Committee within 30 days of selection, that
person shall commence participation in the Plan upon the timely completion
of those requirements and the Committee's acceptance of all submitted
documents. If a person fails to meet all such requirements within the
required 30 day period, he or she shall not be eligible to participate in
the Plan until the first day of the Plan Year following the delivery to
and acceptance by the Committee of the required documents.
6
<PAGE>
ARTICLE 3
Deferral Commitments/Interest Crediting
---------------------------------------
3.1 Minimum Deferral.
(a) Minimum. For each Plan Year, a Participant may elect to defer
Base Annual Salary and/or Annual Bonus paid during such Plan Year in the
minimum amount of $2,000 in the aggregate. If no election is made, the
amount deferred shall be zero.
(b) Short Plan Year. If a Participant first becomes a Participant
after the first day of a Plan Year, or, in the case of the first Plan Year
of the Plan itself, the minimum deferral shall be an amount equal to the
minimum set forth above, multiplied by a fraction, the numerator of which
is the number of complete months remaining in the Plan Year and the
denominator of which is 12.
3.2 Maximum Deferral. For each Plan Year, a Participant may elect to
defer Base Annual Salary and/or Annual Bonus up to 100% of his or her Base
Annual Salary and Annual Bonus.
3.3 Election to Defer; Effect of Election Form. In connection with a
Participant's commencement of participation in the Plan, the Participant
shall make a deferral election by delivering to the Committee a completed
and signed Election Form, which election and form must be accepted by the
Committee for a valid election to exist. For each succeeding Plan Year,
a new Election Form must be delivered to the Committee, in accordance with
its rules and procedures, before the end of the Plan Year preceding the
Plan Year for which the election is made. If no Election Form is timely
delivered for a Plan Year, no Annual Deferral Amount shall be withheld for
that Plan Year.
3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual
Salary portion of the Annual Deferral Amount shall be withheld each
payroll period in equal amounts from the Participant's Base Annual Salary.
The Annual Bonus portion of the Annual Deferral Amount shall be withheld
at the time the Annual Bonus is or otherwise would be paid to the
Participant.
3.5 Interest Crediting Prior to Distribution. Prior to any distributions
of benefits under Articles 4, 5, or 6, interest at the Crediting Rate
shall be credited and compounded annually on a Participant's Account
Balance as of the date the portion of the Annual Deferral Amount was
actually withheld from the compensation the Participant would otherwise
receive. In the
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event of Retirement, death or a Termination of Employment prior to the end
of a Plan Year, the basis for that year's interest crediting will be a
fraction of the full year's interest, based on the number of full months
that the Participant was employed with the Employer during the Plan Year
prior to the occurrence of such event. If a distribution is made under
this Plan, for purposes of crediting interest, the Account Balance shall
be reduced as of the first day of the month in which the distribution is
made. a Participant shall receive credit for a full month of interest if
he or she was a Participant for at least 15 days of a particular month.
3.6 Interest Crediting for Installment Distributions. In the event a
benefit is paid in installments under Articles 5 or 6 interest shall be
credited and compounded on the undistributed portion of the Participant's
Account Balance commencing on the first day of the month in which the
Participant terminates employment, using a fixed interest rate that is
determined by averaging the Crediting Rates for the Plan Year in which
installment payments commence and the four (4) preceding Plan Years. If
a participant has completed fewer than five (5) full years of Plan
participation years, this average shall be determined using the Crediting
Rates for the Plan Years during which the Participant participated in the
Plan.
3.7 FICA Taxes. For each Plan Year, the Participant's Employer(s) shall
ratably withhold from that portion of the Participant's Base Annual Salary
and/or Annual Bonus that is not being deferred, the Participant's share,
if any, of FICA taxes on deferred amounts (or earnings thereon). If
necessary, the Committee shall reduce the Annual Deferral Amount in order
to comply with this Section.
3.8 Vesting. a Participant shall have at all times a fully vested and
nonforfeitable interest in his or her Account Balance.
3.9 Disability Waiver.
(a) Waiver of Deferral; Credit for Plan Year of Disability. a
Participant who is determined by the Committee to be suffering from a
Disability shall be excused from fulfilling that portion of the Annual
Deferral Amount commitment that would otherwise have been withheld from a
Participant's Base Annual Salary and/or Annual Bonus for the Plan Year
during which the Participant first suffers a Disability. During the
period of Disability, the Participant shall not be allowed to make any
additional deferral elections.
(b) Return to Work. If a Participant returns to employment or
service with an Employer after a Disability ceases, the Participant may
8
<PAGE>
elect to defer an Annual Deferral Amount for the Plan Year following his
or her return to employment and for every Plan Year thereafter while a
Participant in the Plan; provided such deferral elections are otherwise
allowed and an Election Form is delivered to and accepted by the Committee
for each such election in accordance with Section 3.3 above.
3.10 Statement. Each Employer shall provide no less frequently than
annually to each Participant a statement of the Participant's total
Account Balance including earnings credited thereto.
9
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ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
-------------------------------------------------------
Withdrawal Election
-------------------
4.1 Short-Term Payout. In connection with each election to defer an
Annual Deferral Amount, a Participant may elect to receive a future
"Short-Term Payout" from the Plan with respect to that Annual Deferral
Amount. The Short-Term Payout shall be a lump sum payment in an amount
that is equal to the Annual Deferral Amount plus interest credited at the
Crediting Rate on that amount. Subject to the other terms and conditions
of this Plan, each Short-Term payout elected shall be paid within 60 days
of the first day of the Plan Year that is 5 or more years after the first
day of the Plan Year in which the Annual Deferral Amount is actually
deferred.
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies. If the Participant experiences an Unforeseeable Financial
Emergency, the Participant may petition the Committee to (i) suspend any
deferrals required to be made by a Participant and/or (ii) receive a
partial or full payout from the Plan. The payout shall not exceed the
lesser of the Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the amount reasonably
needed to satisfy the Unforeseeable Financial Emergency. If, subject to
the sole and absolute discretion of the Committee, the petition for a
suspension and/or payout is approved, suspension shall take effect upon
the date of approval and any payout shall be made within 60 days of the
date of approval.
4.3 Withdrawal Election. a Participant may elect, at any time, to
withdraw all of his or her Account Balance, calculated as if such
Participant were receiving a Termination Benefit, less a withdrawal
penalty (the net amount shall be referred to as the "Withdrawal Amount").
No partial withdrawals of that balance shall be allowed. The Participant
shall make this election by giving the Committee advance written notice of
the election in a form determined from time to time by the Committee. The
withdrawal penalty shall be equal to 15% of the Participant's Account
Balance determined immediately prior to the date of his or her election.
Once the Withdrawal Amount is paid, the Participant's participation in the
Plan shall terminate and the Participant shall not be eligible to
participate in the Plan in the future.
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ARTICLE 5
Retirement and Termination Benefits
-----------------------------------
5.1 Retirement Benefit. a Participant who Retires shall receive, as a
Retirement Benefit, his or her Account Balance. a Participant, in
connection with his or her commencement of participation in the Plan,
shall elect on his or her initial Election Form to receive the Retirement
Benefit in a lump sum or in equal monthly payments over a period of 60,
120, or 180 months. The lump sum payment shall be made, or installment
payments shall commence, on the date at or after his or her Retirement
specified on the Election Form. The Participant may change these
elections to an allowable alternative payout format by submitting a new
Election Form to the Committee, provided that any such new Election Form
is submitted at least 3 years prior to the Participant's Retirement. The
Election Form most recently accepted by the Committee shall govern the
payout of the Retirement Benefit.
5.2 Termination Benefit. If a Participant experiences a Termination of
Employment prior to his or her Retirement, the Participant shall receive
a Termination Benefit, which shall be equal to the vested portion of the
Participant's Account Balance. Such Benefit shall be payable in either a
lump sum or in equal monthly payments over a period of 60, 120, or 180
months, as selected by the Participant, in connection with his or her
commencement of participation in the Plan, on the initial Election Form.
The lump sum payment shall be made, or installment payments shall
commence, on the date at or after his or her Termination of Employment
specified on the Election Form. The Participant may change these
elections to an allowable alternative payout format by submitting a new
Election Form to the Committee, provided that any such new Election Form
is submitted at least 3 years prior to the Participant's Termination of
Employment. The Election Form most recently accepted by the Committee
shall govern the payout of the Termination Benefit.
5.3 Death Prior to Completion of Benefits. If a Participant dies after
Retirement or Termination of Employment but before the applicable benefit
is paid in full, the Participant's unpaid benefits shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in a lump
sum, if requested by the beneficiary and allowed at the sole and absolute
discretion of the Committee. The lump sum payment will be the Partici-
pant's Account Balance at the time of his or her death.
5.4 Disability. a Participant suffering a Disability shall continue to
be considered employed or in service and shall be eligible for the
benefits
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provided for in Articles 4, 5, and 6 in accordance with the provisions of
those Articles, unless the Committee determines during such Disability, in
its sole and absolute discretion, that the Participant shall, for purposes
of the Plan, be deemed to have experienced a Termination of Employment.
12
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ARTICLE 6
Pre-Termination Survivor Benefit
--------------------------------
6.1 Pre-Termination Survivor Benefit. If a Participant dies before he or
she Retires or has a Termination of Employment, the Participant's-
Beneficiary shall receive a Pre-Termination Survivor Benefit equal to the
Participant's Account Balance.
6.2 Payment of Pre-Termination Survivor Benefits. The Pre-Termination
Survivor Benefit shall be paid in the payment period previously elected by
the Participant for the payment of the Termination Benefit, or, if the
Participant was eligible to Retire at the time of his or her death, the
Retirement Benefit. However, the Pre-Termination Survivor Benefit payment
may be made as a lump sum at the request of the Beneficiary and with the
consent of the Committee, in its sole and absolute discretion. The first
(or only payment, if made in lump sum) shall be made within 60 days of the
Committee's receiving proof of the Participant's death.
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<PAGE>
ARTICLE 7
Beneficiary Designation
-----------------------
7.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the beneficiary designation under any other
plan of an Employer in which the Participant participates.
7.2 Beneficiary Designation; Change; Spousal Consent. a Participant
shall designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. a Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms
of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Where required by law or by
the Committee, in its sole and absolute discretion, if the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
7.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged
in writing by the Committee or its designated agent.
7.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 7.1, 7.2 and 7.3 above, or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan shall be paid to the Participant's estate.
7.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its sole and absolute
discretion, to cause the Participant's Employer to withhold such payments
until this matter is resolved to the Committee's satisfaction.
7.6 Discharge of Obligations. The payment of benefits under the Plan to
a Beneficiary shall fully and completely discharge all Employers and the
14
<PAGE>
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
15
<PAGE>
ARTICLE 8
Leave of Absence
----------------
8.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence from
the employment or service of the Employer, the Participant shall continue
to be considered actively employed by, or in the service of, the Employer
and the Annual Deferral Amount shall continue to be withheld during such
paid leave of absence in accordance with Section 3.3.
8.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment or service of the Employer, the Participant shall be
excused from making deferrals until the earlier of the date the leave of
absence expires or the date the Participant returns to paid employment
status. Upon such expiration or return, deferrals shall resume for the
remaining portion of the Plan Year in which the expiration or return
occurs, based on the deferral election, if any, made for that Plan Year.
If no election was made for that Plan Year, no deferral shall be withheld.
16
<PAGE>
ARTICLE 9
Termination, Amendment or Modification
--------------------------------------
9.1 Termination. Any Employer reserves the right to terminate the Plan
at any time with respect to Participants employed by, or in the service
of, the Employer. Upon the termination of the Plan, a Participant's
Account Balance shall be paid out as though the Participant had
experienced a Termination of Employment on the date of Plan termination,
or, if Plan termination occurs after the date upon which the Participant
was eligible to Retire, the Participant had Retired on the date of Plan
termination, or, if Plan termination occurs after the Participant Retired
and commenced (but not completed) distribution hereunder, benefits shall
continue to the Participant pursuant to the terms hereof without regard to
the termination. Prior to a Change in Control, an Employer shall have the
right, in its sole and absolute discretion, and notwithstanding any
elections made by the Participant, to pay all such benefits in a lump sum.
9.2 Amendment. Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to that Employer; provided, however, that
no amendment or modification shall be effective to decrease a
Participant's Account Balance, calculated as though the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification, or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. In addition, no amendment or modification of the Plan shall
affect the right of any Participant or Beneficiary who was eligible to or
did Retire on or before the effective date of such amendment or
modification to receive benefits in the manner he or she elected.
9.3 Effect of Payment. The full payment of the applicable benefit under
Articles 4, 5, 6, or 9 of the Plan shall completely discharge all obliga
tions to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
17
<PAGE>
ARTICLE 10
Administration
--------------
10.1 Committee Duties. This Plan shall be administered by a Committee
which shall consist of individuals selected by the President and Chief
Executive Officer of the Company. Members of the Committee may be
Participants under this Plan. The Committee shall also have the
discretion and authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan and
decide or resolve any and all questions including interpretations of this
Plan, as may arise in connection with the Plan. Any Committee member must
recuse himself or herself on any matter of personal interest to such
member that comes before the Committee.
10.2 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel who
may be counsel to any Employer.
10.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
10.4 Indemnity of Committee. All Employers shall indemnify and hold
harmless the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to act
with respect to this Plan, except in the case of willful misconduct by the
Committee or any of its members.
10.5 Employer Information. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants,
the date and circumstances of the Retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
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<PAGE>
ARTICLE 11
Claims Procedures
-----------------
11.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a determina
tion with respect to the amounts distributable to such Claimant from the
Plan. If such a claim relates to the contents of a notice received by the
Claimant, the claim must be made within 60 days after such notice was
received by the Claimant. All other claims must be made within 180 days
of the date on which the event that caused the claim to arise occurred.
The claim must state with particularity the determination desired by the
Claimant.
11.2 Notification of Decision. The Committee shall consider a Claimant's
claim within 60 days of the making of the claim, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such notice
must set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or
any part of it;
(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why
such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth
in Section 11.3 below.
11.3 Review of a Denied Claim. Within 60 days after receiving a notice
from the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with
the Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure begins,
the Claimant (or the Claimant's duly authorized representative):
19
<PAGE>
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
11.4 Decision on Review. The Committee shall render its decision on
review promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
11.5 Legal Action. a Claimant's compliance with the foregoing provisions
of this Article 11 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
20
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ARTICLE 12
Trust
-----
12.1 Establishment of Trust. The Employers shall establish the Trust and
shall transfer over to the Trust such assets, if any, as the Committee
determines, from time to time and in its sole discretion, are appropriate.
12.2 Interrelationship of the Plan and the Trust. The provisions of the
Plan shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the rights
of the Participant and the creditors of the Employers to the assets-
transferred to the Trust. The Employers shall at all times remain liable
to carry out their obligations under the Plan. The Employers' obligations
under the Plan may be satisfied with Trust assets distributed pursuant to
the terms of the Trust.
21
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ARTICLE 13
Miscellaneous
-------------
13.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable right,
interest or claim in any property or assets of an Employer. Any and all
of an Employer's assets shall be, and remain, the general, unpledged and
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
13.2 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in
the Plan.
13.3 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are expressly declared to
be unassignable and non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure or sequestration for
the payment of any debts, judgments, alimony or separate maintenance owed
by a Participant or any other person, nor be transferable by operation of
law in the event of a Participant's or any other person's bankruptcy or
insolvency.
13.4 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
13.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any time
for any reason, with or without cause, unless expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of any
Employer, either as an employee or a director, or to interfere with the
right of any Employer to discipline or discharge the Participant at any
time.
22
<PAGE>
13.6 Furnishing Information. a Participant or his or her Beneficiary
will cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder.
13.7 Terms. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
The masculine pronoun shall be deemed to include the feminine and vice
versa, unless the context clearly indicates otherwise.
13.8 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
13.9 Governing Law. Subject to ERISA, the provisions of this Plan shall
be construed and interpreted according to the laws of the State of
California.
13.10 Notice. Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to:
Human Resources Department
IT Corporation
23456 Hawthorne Blvd
Torrance, CA 90505
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
13.11 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant, the Participant's Beneficiaries, and their permitted
successors and assigns.
13.12 Spouse's Interest. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor
23
<PAGE>
shall such interest pass under the laws of intestate succession.
13.13 Validity. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
13.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
13.15 Distribution in the Event of Taxation. If, for any reason, all or
any portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the Committee
for a distribution of assets sufficient to meet the Participant's tax
liability (including additions to tax, penalties and interest). Upon the
grant of such a petition, which grant shall not be unreasonably withheld,
a Participant's Employer shall distribute to the Participant immediately
available funds in an amount equal to that Participant's federal, state
and local tax liability associated with such taxation (which amount shall
not exceed the Participant's vested Account Balance), which liability
shall be measured by using that Participant's then current highest
federal, state and local marginal tax rate, plus the rates or amounts for
the applicable additions to tax, penalties and interest. If the petition
is granted, the tax liability distribution shall be made within 90 days of
the date when the Participant's petition is granted. Such a distribution
shall reduce the benefits to be paid under this Plan.
13.16 Legal Fees to Enforce Rights After Change in Control. The Company
is aware that upon the occurrence of a Change in Control with respect to
an Employer, the board of directors of such Employer (which might then be
composed of new members) or a shareholder of such Employer, or of any
successor corporation might then cause or attempt to cause the Employer or
such successor to refuse to comply with its obligations under the Plan and
might cause or attempt to cause the Employer to institute, or may
24
<PAGE>
institute, litigation seeking to deny Participants the benefits intended
under the Plan. In these circumstances, the purpose of the Plan could be
frustrated. Accordingly, if, following a Change in Control, it should
appear to any Participant that an Employer or the Committee has failed to
comply with any of its obligations under the Plan or any agreement
thereunder or, if an Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or
other legal action designed to deny, diminish or to recover from any
Participant or Beneficiary the benefits intended to be provided, then all
Employers irrevocably authorize such person to retain counsel of his or
her choice at the expense of the Employers to represent such person in
connection with the initiation or defense of any litigation or other legal
action, whether by or against an Employer, the Committee, or any director,
officer, shareholder or other person affiliated with any of them or any
successor thereto in any jurisdiction.
13.17 Counterparts. This instrument may be executed in one or more
counterparts each of which shall be legally binding and enforceable.
IN WITNESS WHEREOF, the Company has signed this Plan document
on behalf of all Employers as of January 1, 1996.
IT CORPORATION
a Delaware corporation
By:_______________________________
Its:_______________________________
25
<PAGE>
Exhibit 10(iii)15
-----------------
IT CORPORATION
RESTORATION PLAN
Effective July 1, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 Selection, Enrollment, Eligibility. . . . . . . . . . .5
2.1 Selection by Committee. . . . . . . . . . . . . . . . .5
2.2 Enrollment Requirements . . . . . . . . . . . . . . . .5
2.3 Eligibility; Commencement of Participation. . . . . . .5
ARTICLE 3 Contribution and Interest Crediting . . . . . . . . . .6
3.1 Company Contribution. . . . . . . . . . . . . . . . . .6
3.2 Effect of Election Form . . . . . . . . . . . . . . . .6
3.3 Interest Crediting Prior to Distribution. . . . . . . .6
3.4 Interest Crediting for Installment Distributions. . . .6
3.5 FICA Taxes. . . . . . . . . . . . . . . . . . . . . . .7
3.6 Vesting . . . . . . . . . . . . . . . . . . . . . . . .7
3.7 Statements. . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 4 Unforeseeable Financial Emergencies;
Withdrawal Election . . . . . . . . . . . . . . . . . .8
4.1 Withdrawal Payout/Suspensions
for Unforeseeable Financial Emergencies . . . . . . . .8
4.2 Withdrawal Election . . . . . . . . . . . . . . . . . .8
ARTICLE 5 Retirement Termination Benefits . . . . . . . . . . . .9
5.1 Retirement Benefit. . . . . . . . . . . . . . . . . . .9
5.2 Payment of Retirement Benefits. . . . . . . . . . . . .9
5.3 Death Prior to Completion of Retirement Benefits. . . .9
5.4 Termination Benefit . . . . . . . . . . . . . . . . . .9
5.5 Disability. . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . 11
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . 11
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . 11
ARTICLE 7 Beneficiary Designation . . . . . . . . . . . . . . . 12
7.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . 12
7.2 Beneficiary Designation; Change; Spousal Consent. . . 12
7.3 Acknowledgment. . . . . . . . . . . . . . . . . . . . 12
7.4 No Beneficiary Designation. . . . . . . . . . . . . . 12
<PAGE>
7.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . 12
7.6 Discharge of Obligations. . . . . . . . . . . . . . . 12
ARTICLE 8 Termination, Amendment or Modification. . . . . . . . 14
8.1 Termination . . . . . . . . . . . . . . . . . . . . . 14
8.2 Amendment . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Change in Control . . . . . . . . . . . . . . . . . . 14
8.4 Effect of Payment . . . . . . . . . . . . . . . . . . 14
ARTICLE 9 Administration. . . . . . . . . . . . . . . . . . . . 15
9.1 Committee Duties. . . . . . . . . . . . . . . . . . . 15
9.2 Agents. . . . . . . . . . . . . . . . . . . . . . . . 15
9.3 Binding Effect of Decisions . . . . . . . . . . . . . 15
9.4 Indemnity of Committee. . . . . . . . . . . . . . . . 15
9.5 Employer Information. . . . . . . . . . . . . . . . . 15
ARTICLE 10 Claims Procedures . . . . . . . . . . . . . . . . . . 16
10.1 Presentation of Claim . . . . . . . . . . . . . . . . 16
10.2 Notification of Decision. . . . . . . . . . . . . . . 16
10.3 Review of a Denied Claim. . . . . . . . . . . . . . . 16
10.4 Decision on Review. . . . . . . . . . . . . . . . . . 17
10.5 Legal Action. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 11 Miscellaneous . . . . . . . . . . . . . . . . . . . . 18
11.1 Unsecured General Creditor. . . . . . . . . . . . . . 18
11.2 Employer's Liability. . . . . . . . . . . . . . . . . 18
11.3 Nonassignability. . . . . . . . . . . . . . . . . . . 18
11.4 Coordination with Other Benefits. . . . . . . . . . . 18
11.5 Not a Contract of Employment. . . . . . . . . . . . . 18
11.6 Furnishing Information. . . . . . . . . . . . . . . . 18
11.7 Terms . . . . . . . . . . . . . . . . . . . . . . . . 19
11.8 Captions. . . . . . . . . . . . . . . . . . . . . . . 19
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . 19
11.10 Notice. . . . . . . . . . . . . . . . . . . . . . . . 19
11.11 Successors. . . . . . . . . . . . . . . . . . . . . . 19
11.12 Spouse's Interest . . . . . . . . . . . . . . . . . . 19
11.13 Validity. . . . . . . . . . . . . . . . . . . . . . . 19
11.14 Incompetent . . . . . . . . . . . . . . . . . . . . . 20
11.15 Distribution in the Event of Taxation . . . . . . . . 20
11.16 Legal Fees to Enforce Rights After Change in Control. 20
11.17 Counterparts. . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
EXECUTIVE RESTORATION PLAN 10/95
===============================================
=====================
THE FOLLOWING PLAN WAS
APPROVED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS APRIL 6, 1995
IT CORPORATION
Restoration Plan
Effective July 1, 1995
Purpose
The purpose of this Plan is to provide specified benefits to a
select group of management or highly compensated employees who contribute
materially to the continued growth, development and future business
success of IT Corporation, a Delaware corporation, and its affiliates.
The Plan constitutes an unfunded plan that is not qualified under Code
Section 401(a).
ARTICLE 1
Definitions
-----------
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" or "Account" shall mean, with respect to a
Participant, the sum of (i) the Participant's share of Company Contribu-
tions plus (ii) interest thereon credited in accordance with the
applicable interest crediting provisions of the Plan, net of all
distributions from such account. This account shall be a bookkeeping entry
only and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to or in respect of a Participant
pursuant to the Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base
Annual Salary, paid annually during a Plan Year, either in cash or stock,
to a Participant as an employee under any Employer's annual bonus and
incentive plans without regard to any limits under Code Section
401(a)(17).
1.3 "Base Annual Salary" shall mean the annual compensation and
commissions (but excluding bonuses, overtime, incentive payments,
non-monetary awards, directors fees, and other fees) paid to a Participant
for services rendered to any Employer, before reduction for compensation
deferred pursuant to all qualified, non-qualified and Code Section 125
plans of any Employer without regard to any limits under Code Section
401(a)(17).
1
<PAGE>
1.4 "Beneficiary" shall mean one or more persons, trusts, estates or
other entities, designated in accordance with Article 7, that are entitled
to receive benefits under the Plan upon the death of a Participant.
1.5 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.6 "Board" shall mean the board of directors of the Company.
1.7 "Change in Control" shall mean with respect to an Employer the first
to occur of any of the following events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2)
of the Securities Exchange Act of 1934 ("Exchange Act")), after the date
hereof becomes the beneficial owner (as that term is used in Section 13(d)
of the Exchange Act), directly or indirectly, of 50% or more of the
Employer's capital stock entitled to vote in the election of directors;
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the board of directors of the
Employer cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Employer's-
shareholders of each new director was approved by a vote of at least
three-quarters of the directors then still in office who were directors at
the beginning of the period;
(c) Any consolidation or merger of the Employer, other than a
consolidation or merger of the Employer in which the holders of the
common stock of the Employer immediately prior to the consolidation or
merger hold more than 50% of the common stock of the surviving corporation
immediately after the consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) Substantially all of the assets of the Employer are sold or
otherwise transferred to parties that are not within a "controlled group
of corporations" (as defined in Section 1563 of the Code) in which the
Employer is a member.
1.8 "Claimant" shall have the meaning set forth in Section 11.1.
3
<PAGE>
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.10 "Committee" shall mean the administrative committee appointed to
manage and administer the Plan in accordance with its provisions pursuant
to Article 10.
1.11 "Company" shall mean IT Corporation, a Delaware corporation.
1.12 "Company Contribution" shall mean any contribution made and credited
to Participants' Accounts by the Company in accordance with Section 3.1
below.
1.13 "Crediting Rate" shall mean, for a particular Plan Year, an interest
rate determined by the compensation committee of the Board, in its sole
and absolute discretion.
1.14 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's Employer's
long-term disability plan (or would qualify if he were a participant in
such a plan).
1.15 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee upon the commencement of his participation hereunder to make a
distribution election under the Plan.
1.16 "Employer" shall mean the Company or any affiliate authorized by the
Board to participate in the Plan.
1.17 "Participant" shall mean any employee of an Employer (i) who is
selected to participate in the Plan, (ii) who signs a Plan Agreement, an
Election Form and a Beneficiary Designation Form, (iii) whose signed Plan
Agreement, Election Form and Beneficiary Designation Form are accepted by
the Committee, (iv) who commences participation in the Plan, and (v) whose
Account Balance has not been paid in full.
1.18 "Plan" shall mean the IT Corporation Restoration Plan, which shall
be evidenced by this instrument, as it may be constituted from time to
time.
1.19 "Plan Agreement" shall mean a written agreement, as may be amended
from time to time, which is entered into by and between one or more
Employers and a Participant. Each Plan Agreement executed by a
Participant shall provide for the entire benefit to which such Participant
is entitled under the Plan, and shall specify the Employer or Employers
liable for the Participant's benefits hereunder and the magnitude or
extent of such liability. The Plan Agreement bearing the latest date of
acceptance by the
3
<PAGE>
Committee shall govern such entitlement and each Employer's liability.
Upon the complete payment of a Participant's Account Balance, each
individual's Plan Agreement and his or her status as a Participant shall
terminate.
1.20 "Plan Year" shall, for the first Plan Year, begin on July 1, 1995,
and end on December 31, 1995. For each Plan Year thereafter, the Plan
Year shall begin on January 1 of each year and continue through December
31.
1.21 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth
in Article 6.
1.22 "Retirement," "Retire," "Retires," or "Retired" shall mean severance
from employment with all Employers for any reason other than a leave of
absence on or after the attainment of (a) the date on which the sum of a
Participant's age and Years of Service is equal to seventy (70), or (b)
age sixty-five (65), whichever is earlier.
1.23 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.24 "Termination Benefit" shall mean the benefit set forth in Article 5.
1.25 "Termination of Employment" shall mean the ceasing of employment
with all Employers, voluntarily or involuntarily, for any reason other
than Retirement, death or an authorized leave of absence.
1.26 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant
that would result in severe financial hardship to the Participant
resulting from (i) a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other extraordinary
and unforeseeable circumstances arising as a result of events beyond the
control of the Participant, all as determined in the sole and absolute
discretion of the Committee.
1.27 "Years of Service" shall mean, with respect to a Participant, the
total number of such years recognized and taken into account under the IT
Corporation Retirement Plan.
4
<PAGE>
ARTICLE 2
Selection, Enrollment, Eligibility
----------------------------------
2.1 Selection by Committee. Participation in the Plan shall be limited
to employees of an Employer who are part of a select group of management
or highly compensated employees. Generally, such group shall be limited
to employees whose Base Annual Salary for a year is at least $150,000.
From the foregoing, the Committee shall select, in its sole and absolute
discretion, employees to participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each
selected employee shall complete, execute and return to the Committee
within 30 days of selection a Plan Agreement, an Election Form and a
Beneficiary Designation Form. In addition, the Committee shall establish
from time to time such other enrollment requirements as it determines in
its sole and absolute discretion are necessary.
2.3 Eligibility; Commencement of Participation. Provided an employee
selected to participate herein has met all enrollment requirements set
forth herein and required by the Committee, including returning all
required documents to the Committee within 30 days of selection, that
employee shall commence participation in the Plan upon the timely
completion of those requirements and the Committee's acceptance of all
submitted documents. If an employee fails to meet all such requirements
within the required 30 day period, that employee shall not be eligible to
participate in the Plan until the first day of the Plan Year following the
delivery to and acceptance by the Committee of the required documents.
5
<PAGE>
ARTICLE 3
Contributions and Interest Crediting
------------------------------------
3.1 Company Contribution. For each Plan Year, each Employer shall make
a Company Contribution on behalf of each Participant equal to the sum of
(a)(I) four percent (4%) of the sum of Participant's Base Annual Salary
and Annual Bonus less (ii) the amount actually contributed on behalf of
the Participant under the fixed company contribution portion of the IT
Corporation Retirement Plan for such Plan Year plus (b)(I) the percentage
designated for such Plan Year for the company discretionary profit sharing
contribution under the IT Corporation Retirement Plan multiplied by the
sum of the Participant's Base Annual Salary and Annual Bonus less (ii) the
amount actually contributed on behalf of the Participant under the company
discretionary profit sharing contribution under the IT Corporation-
Retirement Plan.
3.2 Effect of Election Form. In connection with a Participant's
commencement of participation in the Plan, the Participant shall deliver
to the Committee a completed and signed Election Form, which election and
form must be accepted by the Committee for a valid election to exist. In
such Election Form, the Participant shall specify the commencement time
and format of distributions where such matters are elective hereunder.
3.3 Interest Crediting Prior to Distribution. Prior to any
distributions of benefits under Articles 4, 5, or 6, interest at the
Crediting Rate shall be credited and compounded annually on a
Participant's Account Balance as of the date the Company Contribution for
that Plan Year was actually credited. In the event of Retirement, death
or a Termination of Employment prior to the end of a Plan Year, the basis
for that year's interest crediting will be a fraction of the full year's
interest, based on the number of full months that the Participant was
employed with the Employer during the Plan Year prior to the occurrence of
such event. If a distribution is made under this Plan, for purposes of
crediting interest, the Account Balance shall be reduced as of the first
day of the month in which the distribution is made. A Participant shall
receive credit for a full month of interest if he or she was a Participant
for at least 15 days of a particular month.
3.4 Interest Crediting for Installment Distributions. In the event a
benefit is paid in installments under Articles 5 or 6, interest shall be
credited and compounded on the undistributed portion of the Participant's
Account Balance commencing on the first day of the month in which the
Participant terminates employment, using a fixed interest rate that is
determined by averaging the Crediting Rates for the Plan Year in which
installment payments commence and the four (4) preceding Plan Years. If
6
<PAGE>
a participant has completed fewer than five (5) full years of Plan
participation, this average shall be determined using the Crediting Rates
for the Plan Years during which the Participant participated in the Plan.
3.5 FICA Taxes. For each Plan Year, the Participant's Employer(s) shall
ratably withhold from that portion of the Participant's Base Annual Salary
and/or Annual Bonus, the Participant's share, if any, of FICA taxes on
contributions (or earnings thereon).
3.6 Vesting. a Participant shall have at all times a vested and
nonforfeitable interest in his Account Balance hereunder that is coexten
sive with his vested and nonforfeitable interest in the fixed company
contribution portion of the IT Corporation Retirement Plan, except that a
Participant's interest shall become fully vested and nonforfeitable upon
the onset of a Disability. Notwithstanding the foregoing, all Account
Balances hereunder shall become fully vested and nonforfeitable upon the
occurrence of a Change in Control.
3.7 Statements. The Company shall provide no less frequently than
annually to each Participant a statement of the Participant's total
Account Balance including earnings credited thereto.
7
<PAGE>
ARTICLE 4
Unforeseeable Financial Emergencies; Withdrawal Election
--------------------------------------------------------
4.1 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergen-
cies. If the Participant experiences an Unforeseeable Financial
Emergency, the Participant may petition the Committee to receive a partial
or full payout from the Plan. The payout shall not exceed the lesser of
the vested portion of the Participant's Account Balance, calculated as if
such Participant were receiving a Termination Benefit, or the amount
reasonably needed to satisfy the Unforeseeable Financial Emergency. If,
subject to the sole and absolute discretion of the Committee, the petition
for a suspension and/or payout is approved, suspension shall take effect
upon the date of approval and any payout shall be made within 60 days of
the date of approval.
4.2 Withdrawal Election. a Participant may elect, at any time, to
withdraw all of the vested portion of his or her Account Balance,
calculated as if such Participant were receiving a Termination Benefit,
less a 15% withdrawal penalty (the net amount shall be referred to as the
"Withdrawal Amount"). No partial withdrawals of that balance shall be
allowed. The Participant shall make this election by giving the Committee
advance written notice of the election in a form determined from time to
time by the Committee. The penalty shall be equal to 15% of the vested
portion of the Participant's Account Balance determined immediately prior
to the date of his or her election. Once the Withdrawal Amount is paid,
the Participant's participation in the Plan shall terminate and the
Participant shall not be eligible to participate in the Plan in the
future.
8
<PAGE>
ARTICLE 5
Retirement and Termination Benefits
-----------------------------------
5.1 Retirement Benefit. a Participant who Retires shall receive, as a
Retirement Benefit, his or her Account Balance.
5.2 Payment of Retirement Benefits. a Participant, in connection with
his or her commencement of participation in the Plan, shall elect on the
Election Form to receive the Retirement Benefit in a lump sum or in equal
monthly payments over a period of 60, 120, or 180 months. The lump sum
payment shall be made, or installment payments shall commence, on the date
at or after his or her Retirement specified on the Election Form. The
Participant may change these elections to an allowable alternative payout
format by submitting a new Election Form to the Committee, provided that
any such new Election Form is submitted at least 3 years prior to the
Participant's Retirement. The Election Form most recently accepted by the
Committee shall govern the payout of the Retirement Benefit.
5.3 Death Prior to Completion of Retirement Benefits. If a Participant
dies after Retirement but before the Retirement Benefit is paid in full,
the Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in a lump
sum, if requested by the beneficiary and allowed at the sole and absolute
discretion of the Committee. The lump sum payment will be the Partici-
pant's Account Balance at the time of his or her death.
5.4 Termination Benefit. If a Participant experiences a Termination of
Employment prior to his or her Retirement, the Participant shall receive
a Termination Benefit, which shall be equal to the vested portion of the
Participant's Account Balance. Such Benefit shall be payable in either a
lump sum or in equal monthly payments over a period of 60, 120, or 180
months, as selected by the Participant, in connection with his or her
commencement of participation in the Plan, on the Election Form. The lump
sum payment shall be made, or installment payments shall commence, on the
date at or after his or her Termination of Employment specified on the
Election Form. The Participant may change these elections to an allowable
alternative payout format by submitting a new Election Form to the
Committee, provided that any such new Election Form is submitted at least
3 years prior to the Participant's Termination of Employment. The
Election Form most recently accepted by the Committee shall govern the
payout of the Termination Benefit.
9
<PAGE>
5.5 Disability. a Participant suffering a Disability shall continue to
be considered employed and shall be eligible for the benefits provided for
in Articles 4, 5, and 6 in accordance with the provisions of those
Articles, unless the Committee determines during such Disability, in its
sole and absolute discretion, that the Participant shall, for purposes of
the Plan, be deemed to have experienced a Termination of Employment.
10
<PAGE>
ARTICLE 6
Pre-Retirement Survivor Benefit
-------------------------------
6.1 Pre-Retirement Survivor Benefit. If a Participant dies before he or
she Retires, the Participant's Beneficiary shall receive a Pre-Retirement
Survivor Benefit equal to the Participant's Account Balance.
6.2 Payment of Pre-Retirement Survivor Benefits. The Pre-Retirement
Survivor Benefit shall be paid in the payment period previously elected by
the Participant for the payment of the Termination Benefit, or, if the
Participant was eligible to Retire at the time of his or her death, the
Retirement Benefit. However, the Pre-Retirement Survivor Benefit payment
may be made as a lump sum at the request of the Beneficiary and at the
sole and absolute discretion of the Committee. The first (or only
payment, if made in lump sum) shall be made within 60 days of the
Committee's receiving proof of the Participant's death.
11
<PAGE>
ARTICLE 7
Beneficiary Designation
-----------------------
7.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the beneficiary designation under any other
plan of an Employer in which the Participant participates.
7.2 Beneficiary Designation; Change; Spousal Consent. a Participant
shall designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. a Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms
of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Where required by law or by
the Committee, in its sole and absolute discretion, if the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
7.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged
in writing by the Committee or its designated agent.
7.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 7.1, 7.2 and 7.3 above, or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan shall be paid to the Participant's estate.
7.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its sole and absolute
discretion, to cause the Participant's Employer to withhold such payments
until this matter is resolved to the Committee's satisfaction.
12
<PAGE>
7.6 Discharge of Obligations. The payment of benefits under the Plan to
a Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
13
<PAGE>
ARTICLE 8
Termination, Amendment or Modification
--------------------------------------
8.1 Termination. Any Employer reserves the right to terminate the Plan
at any time with respect to Participants employed by the Employer. Upon
the termination of the Plan, the vested portion of a Participant's Account
Balance shall be paid out as though the Participant had experienced a
Termination of Employment on the date of Plan termination, or, if Plan
termination occurs after the date upon which the Participant was eligible
to Retire, the Participant had Retired on the date of Plan termination,
or, if Plan termination occurs after the Participant Retired and commenced
(but not completed) distribution hereunder, benefits shall continue to the
Participant pursuant to the terms hereof without regard to the
termination. Notwithstanding the foregoing an Employer shall have the
right, in its sole and absolute discretion, and notwithstanding any
elections made by the Participant, to pay all such benefits in a lump sum.
8.2 Amendment. Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to that Employer; provided, however, that
no amendment or modification shall be effective to decrease the vested
portion of a Participant's Account Balance, calculated as though the
Participant had experienced a Termination of Employment as of the
effective date of the amendment or modification, or, if the amendment or
modification occurs after the date upon which the Participant was eligible
to Retire, the Participant had Retired as of the effective date of the
amendment or modification. In addition, no amendment or modification of
the Plan shall affect the right of any Participant or Beneficiary who was
eligible to or did Retire on or before the effective date of such
amendment or modification to receive benefits in the manner he or she
elected.
8.3 Change in Control. Notwithstanding any other provision hereof, upon
a Change in Control, the affected Employer shall promptly pay out all
Account Balances to affected Participants and Beneficiaries in one lump
sum amount as soon as practicable.
8.4 Effect of Payment. The full payment of the applicable benefit under
Articles 4, 5, 6, or 8 of the Plan shall completely discharge all obliga
tions to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
14
<PAGE>
ARTICLE 9
Administration
--------------
9.1 Committee Duties. This Plan shall be administered by a Committee
which shall consist of individuals selected by the President and Chief
Executive Officer of the Company. Members of the Committee may be
Participants under this Plan. The Committee shall also have the
discretion and authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan and
decide or resolve any and all questions including interpretations of this
Plan, as may arise in connection with the Plan. Any Committee member must
recuse himself or herself on any matter of personal interest to such
member that comes before the Committee.
9.2 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel who
may be counsel to any Employer.
9.3 Binding Effect of Decisions. The decision or action of the
Committee with respect to any question arising out of or in connection
with the administration, interpretation and application of the Plan and
the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the Plan.
9.4 Indemnity of Committee. All Employers shall indemnify and hold
harmless the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to act
with respect to this Plan, except in the case of willful misconduct by the
Committee or any of its members.
9.5 Employer Information. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants,
the date and circumstances of the Retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
15
<PAGE>
ARTICLE 10
Claims Procedures
-----------------
10.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a determina
tion with respect to the amounts distributable to such Claimant from the
Plan. If such a claim relates to the contents of a notice received by the
Claimant, the claim must be made within 60 days after such notice was
received by the Claimant. All other claims must be made within 180 days
of the date on which the event that caused the claim to arise occurred.
The claim must state with particularity the determination desired by the
Claimant.
10.2 Notification of Decision. The Committee shall consider a Claimant's
claim within 60 days of the making of the claim, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such notice
must set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 10.3 below.
10.3 Review of a Denied Claim. Within 60 days after receiving a notice
from the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with
the Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure begins,
the Claimant (or the Claimant's duly authorized representative):
16
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(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
10.4 Decision on Review. The Committee shall render its decision on
review promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
10.5 Legal Action. a Claimant's compliance with the foregoing provisions
of this Article 10 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
17
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ARTICLE 11
Miscellaneous
-------------
11.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable right,
interest or claim in any property or assets of an Employer. Any and all
of an Employer's assets shall be, and remain, the general, unpledged and
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
11.2 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in
the Plan.
11.3 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are expressly declared to
be unassignable and non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure or sequestration for
the payment of any debts, judgments, alimony or separate maintenance owed
by a Participant or any other person, nor be transferable by operation of
law in the event of a Participant's or any other person's bankruptcy or
insolvency.
11.4 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
11.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any time
for any reason, with or without cause, unless expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of any
Employer, either as an employee or a director, or to interfere with the
right of any Employer to discipline or discharge the Participant at any
time.
11.6 Furnishing Information. a Participant or his or her Beneficiary
will cooperate with the Committee by furnishing any and all information
18
<PAGE>
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder.
11.7 Terms. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
The masculine pronoun shall be deemed to include the feminine and vice
versa, unless the context clearly indicates otherwise.
11.8 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
11.9 Governing Law. Subject to ERISA, the provisions of this Plan shall
be construed and interpreted according to the laws of the State of
California.
11.10 Notice. Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to:
Human Resources Department
IT Corporation
23456 Hawthorne Blvd.
Torrance, CA 90505
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
11.11 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant, the Participant's Beneficiaries, and their permitted
successors and assigns.
11.12 Spouse's Interest. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate succession.
11.13 Validity. In case any provision of this Plan shall be illegal or
19
<PAGE>
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and enforced
as if such illegal or invalid provision had never been inserted herein.
11.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
11.15 Distribution in the Event of Taxation. If, for any reason, all or
any portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the Committee
for a distribution of assets sufficient to meet the Participant's tax
liability (including additions to tax, penalties and interest). Upon the
grant of such a petition, which grant shall not be unreasonably withheld,
a Participant's Employer shall distribute to the Participant immediately
available funds in an amount equal to that Participant's federal, state
and local tax liability associated with such taxation (which amount shall
not exceed the Participant's vested Account Balance), which liability
shall be measured by using that Participant's then current highest
federal, state and local marginal tax rate, plus the rates or amounts for
the applicable additions to tax, penalties and interest. If the petition
is granted, the tax liability distribution shall be made within 90 days of
the date when the Participant's petition is granted. Such a distribution
shall reduce the benefits to be paid under this Plan.
11.16 Legal Fees to Enforce Rights After Change in Control. The Company
is aware that upon the occurrence of a Change in Control with respect to
an Employer, the board of directors of such Employer (which might then be
composed of new members) or a shareholder of such Employer, or of any
successor corporation might then cause or attempt to cause the Employer or
such successor to refuse to comply with its obligations under the Plan and
might cause or attempt to cause the Employer to institute, or may
institute, litigation seeking to deny Participants the benefits intended
under the Plan. In these circumstances, the purpose of the Plan could be
frustrated. Accordingly, if, following a Change in Control, it should
appear to any Participant that an Employer or the Committee has failed to
comply with any of its obligations under the Plan or any agreement
thereunder or, if an Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or
20
<PAGE>
other legal action designed to deny, diminish or to recover from any
Participant or Beneficiary the benefits intended to be provided, then all
Employers irrevocably authorize such person to retain counsel of his or
her choice at the expense of the Employers to represent such person in
connection with the initiation or defense of any litigation or other legal
action, whether by or against an Employer, the Committee, or any director,
officer, shareholder or other person affiliated with any of them or any
successor thereto in any jurisdiction.
11.17 Counterparts. This instrument may be executed in one or more
counterparts each of which shall be legally binding and enforceable.
IN WITNESS WHEREOF, the Company has signed this Plan document
on behalf of all Employers as of July 1, 1995.
IT CORPORATION,
a Delaware Corporation
By:_______________________________
Its:_______________________________
21
<PAGE>
Exhibit No. 10(iii)16
---------------------
NON-EMPLOYEE DIRECTORS
STOCK PLAN - RETAINER FEES 1/96
1. Purpose of the Plan
Under this Non-Employee Director Stock Plan--Retainer Fee (the
"Plan") of International Technology Corporation, a Delaware corporation
(the "Company"), shares of the Company's common stock, $1.00 par value
(the "Common Stock"), may be issued to eligible persons, as set forth in
Section
4. This Plan is designed to promote the long-term growth and financial
success of the Company by enabling the Company to attract, retain and
motivate such persons by providing for or increasing their proprietary
interest in the Company.
2. Effective Date
This Plan shall be in effect commencing on October 1, 1995. Shares
of Common Stock may not be awarded more than three years after the
effective date of this Plan or termination of this Plan by the Board of
Directors of the Company (the "Board"), whichever is earlier.
3. Plan Operation
This Plan is not intended to, and does not, satisfy the conditions
and requirements of Rule 16b-3 adopted under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (or its successor). However,
this Plan is intended to permit participants to remain "disinterested
persons" for purposes of Rule 16b-3, is structured as a formula plan, and
accordingly is intended to be self-governing. To this end, this Plan
requires no discretionary action by any administrative body with regard to
any transaction under this Plan. To the extent, if any, that any
questions of interpretation arise, these shall be resolved by the Board.
4. Eligible Persons
The persons eligible to receive an award of shares of Common Stock
hereunder are those directors of the Board who, on the first day of the
third fiscal quarter in any fiscal year are not employees of the Company
or a subsidiary of the Company. For purposes of this Section 4, a person
shall not be considered an employee solely by reason of serving as
Chairman of the Board.
5. Stock Subject to Plan
The maximum number of shares that may be subject to award hereunder
shall be Forty Thousand (40,000) shares of Common Stock, subject to
adjustments under Section 6.
1
<PAGE>
6. Adjustments
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property
or a different number or kind of securities, or if cash, property or
securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split,
reverse stock split or the like, or if substantially all of the property
and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Board shall make appropriate and
proportionate adjustments in the maximum number and type of shares or
other securities that may be awarded under this Plan.
7. Common Stock Awards
Commencing with the third quarter of fiscal year 1995, the quarterly
retainer fee, if any, payable to non-employee directors of the Company
with respect to the third quarter of each fiscal year shall be paid
through the issuance of shares of Common Stock on October 1 to each
non-employee director entitled to receive such quarterly retainer fee.
The number of shares of Common Stock to be issued to non-employee
directors shall be equal to the quotient obtained by dividing the dollar
amount of the quarterly retainer fee by the fair market value of a share
of Common Stock. The shares of Common Stock to be issued to non-employee
directors pursuant to this Plan shall be acquired by the Company in the
open market or in privately negotiated transactions on the day such shares
shall be awarded (or if such day is not a business day on which trading in
any securities occurs on the New York Stock Exchange (a "Business Day"),
the next succeeding Business Day and/or on the Business Day immediately
preceding such day. For purposes of this Plan, the fair market value of
the Common Stock shall equal the average cost to the Company of the shares
of Common Stock acquired for issuance under this Plan in accordance with
the immediately preceding sentence.
Notwithstanding the foregoing, if any non-employee director eligible to
receive an award of shares of Common Stock pursuant to this Plan shall
have had, within the six-month period preceding the date of any award
hereunder, any transaction in the Common Stock that is a non-exempt sale
for purposes of Section 16(b) of the Exchange Act, such award (and the
related acquisition of shares of Common Stock by the Company) shall
automatically be delayed (a "Delayed Award") until the earlier of six
months after (i) the latest sale of Common Stock that is not exempt under
Section 16(b) by
2
<PAGE>
such non-employee director in the six months prior to October 1, and (ii)
April 1 of the follwing year. In order to receive a Delayed Award, a
non-employee director must continue to serve on the Board as of the date
of the Delayed Award. A non-employee director may, at any time prior to
the date of any such Delayed Award, decline to receive such Delayed Award.
In such event, the declining non-employee director shall not be entitled
to receive cash or any other
compensation in lieu of the Delayed Award.
8. Documentation of Awards
Awards of stock made under this Plan shall be evidenced by written
agreements or such other appropriate documentation as the Board shall
prescribe. Notwithstanding the foregoing, the Board need not require the
execution of any instrument or acknowledgment of an award under this Plan,
in which case acceptance of shares of Common Stock by the respective
non-employee director will constitute agreement to the terms of the award
and this Plan.
9. Amendment and Termination
The Board may at any time and from time to time alter, amend,
suspend, or terminate this Plan, provided that no such action shall
deprive any non-employee director, without his or her consent, of any of
his or her rights with respect to shares of Common Stock previously
awarded and provided further that the provisions of this Plan designating
persons eligible to participate in the Plan and specifying the amount and
timing of awards under the Plan shall not be amended more than once every
six months other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act, or the rules
thereunder.
10. Compliance with Law
Common Stock shall not be issued under this Plan unless and until
counsel for the Company shall be satisfied that any conditions necessary
for such issuance to comply with applicable federal, state or local tax,
securities or other laws or rules or applicable securities exchange
requirements have been fulfilled.
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
------------
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM International
Technology Corporation's Consolidated Balance Sheet as of March 29, 1996,
Consolidated Statement of Operations for the Fiscal Year Ended March 29, 1996
and related Notes to Consolidated Financial Statements, all of which were filed
with the SEC on June 27, 1996 on Form 10-K for the fiscal year ended March 29,
1996 (commission file number 1-9037) AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-END> MAR-29-1996
<CASH> 24493
<SECURITIES> 0
<RECEIVABLES> 126832
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 167789
<PP&E> 156367
<DEPRECIATION> 101201
<TOTAL-ASSETS> 315314
<CURRENT-LIABILITIES> 78615
<BONDS> 65611
<COMMON> 36598
0
2400
<OTHER-SE> 101867
<TOTAL-LIABILITY-AND-EQUITY> 315314
<SALES> 0
<TOTAL-REVENUES> 400042
<CGS> 0
<TOTAL-COSTS> 406431
<OTHER-EXPENSES> (1090)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6445
<INCOME-PRETAX> (11744)
<INCOME-TAX> (12290)
<INCOME-CONTINUING> 546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.2
------------
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM International
Technology Corporation's Consolidated Balance Sheet as of March 29, 1996,
Consolidated Statement of Operations for the fourth quarter of the Fiscal Year
Ended March 29, 1996 and related Notes to Consolidated Financial Statements, all
of which were filed with the SEC on June 27, 1996 on Form 10-K for the fiscal
year ended March 29, 1996 (commission file number 1-9037) AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-4
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-END> MAR-29-1996
<CASH> 24493
<SECURITIES> 0
<RECEIVABLES> 126832
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 167789
<PP&E> 156367
<DEPRECIATION> 101201
<TOTAL-ASSETS> 315314
<CURRENT-LIABILITIES> 78615
<BONDS> 65611
<COMMON> 36598
0
2400
<OTHER-SE> 101867
<TOTAL-LIABILITY-AND-EQUITY> 315314
<SALES> 0
<TOTAL-REVENUES> 88579
<CGS> 0
<TOTAL-COSTS> 86260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1273
<INCOME-PRETAX> 1046
<INCOME-TAX> 513
<INCOME-CONTINUING> 533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 533
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
