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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
2790 Mosside Boulevard
Monroeville, Pennsylvania 15146-2792
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 372-7701
The undersigned registrant hereby amends Part III, Items 10-13 of its Annual
Report for the fiscal year ended March 28, 1997 on Form 10-K as set forth in the
pages attached hereto.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS FOLLOWING THE CARLYLE INVESTMENT
At the 1996 Annual Meeting of Stockholders, held November 20, 1996,
stockholders approved a cash investment (the "Investment") of $45,000,000 in the
Company by certain investors affiliated with The Carlyle Group (collectively,
"Carlyle"), a private merchant bank headquartered in Washington, D.C. In
consideration of its investment, Carlyle received 45,000 shares of newly issued
Cumulative Convertible Participating Preferred Stock, par value $100 per share
(the "Convertible Preferred Stock"), and warrants (the "Warrants") to purchase
up to 1,250,000 shares of the Company's Common Stock (at the current exercise
price of $11.39 per share). Holders of the Convertible Preferred Stock own
approximately 38% of the voting power of the Company (43% assuming exercise of
the Warrants). Carlyle's purchase of the Convertible Preferred Stock and
Warrants was financed through the private sale of interests in limited
partnerships affiliated with Carlyle or through other entities. These
partnerships and other entities then purchased the Convertible Preferred Stock
and Warrants.
Pursuant to the terms of the Investment, Carlyle is entitled to elect a
majority of the Company's Board of Directors, until November 20, 2001, which
date is five years from the consummation of the Investment (the "Five-Year
Period"), provided that Carlyle continues to own at least 20% of the voting
power of the Company. Also pursuant to the terms of the Investment, the number
of directors comprising the Company's Board shall be an odd number. A majority
of the directors (the "Preferred Stock Directors") will be elected by the
holders of the Convertible Preferred Stock acting by written consent and without
a meeting of the Common Stock holders, and the remaining directors (the "Common
Stock Directors") will be elected by the Common Stock holders. Presently, the
Board of Directors consists of seven members, four of whom are Preferred Stock
Directors and three of whom are Common Stock Directors. The four Preferred
Stock Directors serve for annual terms. The Investment agreements also provide
that at least two of the directors elected by the holders of the Common Stock
will have no employment or other relationship with the Company or Carlyle, other
than their positions as directors of the Company. During the Five-Year Period,
holders of the Convertible Preferred Stock will not participate in elections of
the Common Stock Directors and the Preferred Stock Directors will not have the
right to vote on the election of any director to fill a vacancy among the Common
Stock Directors. At the end of the Five-Year Period, provided that Carlyle
continues to own at least 20% of the voting power of the Company, holders of the
Convertible Preferred Stock will be entitled to elect the largest number of
directors which is a minority of the directors of the Company and to vote with
the Common Stock holders (as a single class) on the election of the remaining
directors. Additionally, the holders of the Convertible Preferred Stock, in the
event they no longer have the right to elect at least a minority of the
directors, will have the right (voting as a class with holders of the Company's
7% Cumulative Convertible Exchangeable Preferred Stock, par value $100 per
share, and any other parity stock) to elect two directors to the Board in the
event the Company fails to make payment of dividends on the Convertible
Preferred Stock for six dividend periods.
Under the classified Board of Directors and cumulative voting provisions
of the Company's Certificate of Incorporation, the Common Stock Directors of
the Company serve for three year terms which are staggered to provide for the
election of approximately one-third of the Board members each year, and
stockholders are entitled to cumulate voting rights in the election of Common
Stock Directors.
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Certain information about the directors is set forth in the following
table.
<TABLE>
<CAPTION>
TERM TO DIRECTOR OF THE
NAME AGE CURRENT POSITION EXPIRE COMPANY SINCE
-------------------------- --- ------------------------- -------- ----------------
<S> <C> <C> <C> <C>
COMMON STOCK DIRECTORS:
Anthony J. DeLuca(1)....... 50 Director, President and 1997 1996
Chief Executive Officer
E. Martin Gibson(3)........ 59 Director 1998 1994
James C. McGill(3)......... 53 Director 1999 1990
PREFERRED STOCK DIRECTORS:
Daniel A. D'Aniello(1)(2).. 50 Director and Chairman of 1997 (4) 1996
the Board (non-officer
position)
Philip B. Dolan(1)(2)...... 39 Director 1997 (4) 1996
James David Watkins(2)..... 70 Director 1997 (4) 1996
Robert F. Pugliese(3)...... 64 Director 1997 (4) 1996
</TABLE>
(1) Member of Executive Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) The Preferred Stock Directors serve for annual terms. The holders of the
Convertible Preferred Stock have indicated to the Company their intention
to reelect, on or before the date of the Company's 1997 Annual Meeting of
Stockholders, Mr D'Aniello, Mr. Dolan, Admiral Watkins and Mr. Pugliese to
serve an annual term to expire in 1998.
BACKGROUND OF THE DIRECTORS
Mr. DeLuca was named President and Acting Chief Executive Officer and a
director of the Company as of July 1, 1996 and President and Chief Executive
Officer as of July 22, 1997. Prior thereto, Mr. DeLuca had been Senior Vice
President and Chief Financial Officer of the Company since March 1990. Before
joining the Company, Mr. DeLuca had been a senior partner at the public
accounting firm Ernst & Young LLP.
Mr. Gibson became a director of the Company on October 11, 1994 and was
Chairman of the Board of Directors, a non-officer, non-employee
position, from April 6, 1995 until the closing of the Investment. From 1990
until December 1994, Mr. Gibson served as Chairman of Corning Life Sciences,
Inc., a subsidiary of Corning Incorporated. Mr. Gibson served in various other
senior management capacities with Corning Incorporated during his 32 year
career there, including as a Senior Vice President and General Manager
of Corning Medical and Scientific Division from 1980 until 1983, and as Group
President of Corning Consumer Products and Laboratory Sciences from 1983
until 1990. From 1983 to 1994, Mr. Gibson served on the Board of Directors
of Corning Incorporated. Mr. Gibson also serves on the Boards of Directors
of Hardinge, Inc. and NovaCare, Inc.
Mr. McGill is currently, and has been for at least five years, a private
investor. He served as Chairman of McGill Environmental Systems, Inc. from 1970
to 1987. Mr. McGill serves on the Board of
2
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Trustees of the University of Tulsa and on the Boards of Directors of four
private corporations that are engaged in tax consulting, health care, pipeline
construction and golf.
Mr. D'Aniello has been a Managing Director for Carlyle since 1987. Mr.
D'Aniello was Vice President, Finance and Development for Marriott Corporation,
a hospitality company, from 1981 to 1987. He currently serves on the Board of
Directors for GTS Duratek, Inc., an environmental services company, Baker &
Taylor, Inc., a wholesale distributor of books, and CB Commercial Real Estate
Group, Inc., a commercial real estate firm. Mr. D'Aniello is Chairman of GTS
Duratek, Inc. and Vice Chairman of Baker & Taylor, Inc.
Mr. Dolan has been a Vice President for Carlyle since 1989. Prior to
joining Carlyle, Mr. Dolan was an investment analyst and fund manager with the
Trust Division of the Mercantile-Safe Deposit and Trust Company and was engaged
in management consulting and practiced public accounting with Seidman & Seidman.
Mr. Dolan is a Certified Public Accountant.
Admiral Watkins has been the President of the Joint Oceanographic
Institutions, Inc. since 1993 and President of Consortium Oceanographic Research
and Education since 1994. Admiral Watkins was appointed Chief of Naval
Operations in 1982 by President Reagan and served as Secretary of Energy under
President Bush from 1989 to 1993. Prior to his appointment as Secretary of
Energy, Admiral Watkins served on the Board of New York Medical College and the
Math/Science Advisory Council of the National Executive Service Corps. He also
served as a consultant to the Carnegie Corporation of New York, the Education
Commission of the States and the Exxon Education Foundation. Additionally, he
was a member of the Marymount University's Board of Trustees and co-chair of the
National Committee for the Vatican Judaica Exhibition. In 1987, Admiral Watkins
was appointed Chairman of the Presidential Commission on the Human
Immunodeficiency Virus Epidemic. Admiral Watkins has also served on the Boards
of Directors of the Philadelphia Electric Company, a biopharmaceutical company,
VESTAR, Inc. and the Ford Aerospace Corporation. After leaving the Department
of Energy, Admiral Watkins became a trustee to the Carnegie Corporation of New
York, a Director of Edison International, a Director of GTS-Duratek, Inc. and a
member of Advisory Boards of Digital Systems Research, Inc. and Eurotech, Ltd.
The Admiral is a graduate of the United States Naval Academy, the U.S. Naval
Postgraduate School and the Oak Ridge National Laboratory.
Mr. Pugliese has been Special Counsel to Eckert Seamans Cherin & Mellott
since 1993. Mr. Pugliese was Executive Vice President, Legal and Corporate
Affairs for Westinghouse Electric Corporation and served as General Counsel from
1976 to 1992. Mr. Pugliese is a member of the Association of General Counsel
and a director of Ocwen Asset Investment Corporation. Mr. Pugliese has served
as Secretary to the Board of Directors of Westinghouse Electric Corporation and
Chairman of the Board of Trustees at the University of Scranton.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires directors, certain officers of the Company and persons holding more
than 10% of the Company's Common Stock to file reports concerning their
ownership of Common Stock by dates established under the Exchange Act and also
requires that the Company disclose in this Proxy Statement any noncompliance
with those requirements during fiscal year 1997. Based solely upon a review of
reports delivered to the Company, the Company believes all Section 16(a) filing
requirements were satisfied.
3
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual, long-term compensation and other
compensation for services in all capacities to the Company for the fiscal years
1997, 1996 and 1995 of those persons who were, as of March 28, 1997, the Chief
Executive Officer, or who had served as Chief Executive Officer at any time
during the 1997 fiscal year and the other four most highly compensated executive
officers of the Company (the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------- -------------------------
OTHER RESTRICTED
ANNUAL STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- AWARDS UNDERLYING COMPEN-
POSITION YEAR SALARY($) BONUS($)(3) SATION($)(4) ($)(5) OPTIONS(#)(6) SATION($)(7)
- ---------------------------- ------ ----------- ------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. DeLuca (1).... 1997 $ 307,981 $ 50,000 - $ 0 26,333 $ 37,614
President and Chief 1996 270,400 12,776 - 296,875 0 17,732
Executive Officer 1995 270,400 108,160 - 173,550 19,250 16,519
Franklin E. Coffman...... 1997 $ 194,000 $ 19,400 - $ 0 15,233 $ 15,356
Senior Vice President, 1996 192,346 8,201 - 0 0 26,923
DOE Programs, Corporate 1995 183,999 55,200 - 155,888 8,750 27,529
Business Development
James R. Mahoney......... 1997 $ 260,000 $ 26,000 - $ 0 16,333 $ 27,060
Senior Vice President, 1996 260,000 12,285 - 118,750 0 28,579
Consulting and Ventures 1995 256,925 104,000 - 172,163 19,250 20,330
and Corporate Development
Raymond J. Pompe ........ 1997 $ 248,075 $ 26,500 - $ 0 16,417 $ 18,270
Senior Vice President, 1996 206,691 9,923 - 118,750 0 16,250
Engineering and 1995 192,992 57,000 - 156,498 8,750 11,328
Construction
James G. Kirk............ 1997 $ 150,625 $ 10,000 - $ 0 4,667 $ 8,352
Vice President, General 1996 140,500 28,319 - 0 0 7,168
Counsel and Secretary 1995 140,500 28,100 - 0 1,325 5,681
Robert B. Sheh (2)....... 1997 $ 112,500 $ 0 - $ 0 0 $ 5,077
President and 1996 450,000 26,578 - 475,000 0 52,100
Chief Executive Officer 1995 450,000 225,000 - 74,993 37,500 34,519
</TABLE>
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(1) On July 22, 1997, Mr. DeLuca was named President and Chief Executive
Officer of the Company. As of July 1, 1996, Mr. DeLuca was named President
and Acting Chief Executive Officer and a director of the Company. Prior to
that time Mr. DeLuca served as Senior Vice President and Chief Financial
Officer of the Company.
(2) Mr. Sheh resigned as President and Chief Executive Officer and a director
of the Company as of July 1, 1996, but will be treated as an employee of
the Company through June 26, 1998. See "Employment Agreements and
Termination of Employment Arrangements - Sheh Agreements."
4
<PAGE>
(3) Bonus amounts are reported in the fiscal year they are earned or accrued,
even though some or all of the actual cash payment may be made in the next
fiscal year. For fiscal year 1997, each Named Officer who received a
"Bonus" also received a grant of stock options in fiscal year 1998 for
achieving the performance objectives set forth in the 1997 Management
Incentive Plan. Such stock options are reported in this table under
Securities Underlying Options in 1997. The amount reported for Mr. Kirk in
1996 includes a special, one-time cash payment of $25,000 for his efforts
in resolving the Motco litigation. Certain Named Officers also received an
award of restricted stock in fiscal year 1996 attributable to the fiscal
year 1995 incentive compensation plan. The value of such restricted stock
awards is reported in this table under Restricted Stock Awards in 1995. The
total value of bonuses, including the aforementioned restricted stock
awards, earned in fiscal year 1995, by each of the Named Officers are as
follows: Mr. DeLuca, $144,210; Mr. Coffman, $73,588; Mr. Mahoney,
$138,663; Mr. Pompe, $75,998; and Mr. Sheh, $299,993.
(4) The dollar value of perquisites and other personal benefits, if any, for
each of the Named Officers was less than the reporting thresholds
established by the SEC.
(5) 12,500 shares of restricted stock were awarded to each of Messrs. DeLuca,
Coffman, Mahoney and Pompe on March 2, 1995, with a fair market value of
$11.00 per share on the date of grant. The shares vest in 20% increments
over five years provided that Messrs. Mahoney, DeLuca and Pompe remain
employed by the Company on the vesting dates. In lieu of cash, certain
Named Officers received awards of restricted stock in connection with a
fiscal year 1995 incentive compensation plan. A total of 14,646 shares of
restricted stock were awarded to the Named Officers on July 5, 1995 with a
fair market value of $12.50 per share. The shares awarded were as follows:
Mr. DeLuca, 2,884 shares; Mr. Coffman, 1,471 shares; Mr. Mahoney, 2,773
shares; Mr. Pompe, 1,159 shares; and Mr. Sheh, 5,999 shares. The
restrictions on the shares will lapse three years from the date of award
provided that each Named Officer remains employed by the Company at that
date. On March 28, 1996, the following number of restricted shares were
issued to the Named Officers, with a fair market value of $9.50 per share
on the date of grant: Mr. Sheh, 50,000 shares (which shares were returned
to the Company pursuant to Mr. Sheh's separation agreement with the Company
(see "Employment Agreements and Termination of Employment Arrangements,Sheh
Agreements")); Mr. DeLuca, 31,250 shares; Mr. Mahoney, 12,500 shares; and
Mr. Pompe, 12,500 shares. The restrictions on the shares will lapse upon
the earlier of: (i) attainment of an average $16.00 or greater price of the
Company's Common Stock for any period of sixty consecutive calendar days;
(ii) four years from the date of issuance of the restricted shares; or
(iii) upon death, disability or retirement of the holder or a change of
control (as defined).
(6) For fiscal year 1997, each Named Officer who received a "Bonus" also
received a grant of non-qualified stock options in fiscal year 1998 for
achieving the performance objectives set forth in the 1997 Management
Incentive Plan. The options vest in 25% increments over four years
beginning one year from the date of grant, expire ten years after grant and
were issued at an exercise price equal to the fair market value of the
Common Stock on the date of grant. The number of option shares granted to
the Named Officers in fiscal year 1998 are as follows: Mr. DeLuca, 8,333
shares; Mr. Coffman, 3,233 shares; Mr. Mahoney, 4,333 shares; Mr. Pompe,
4,417 shares; and Mr. Kirk, 1,667 shares.
(7) For 1997, the amounts shown for Messrs. DeLuca, Coffman, Mahoney, Pompe and
Kirk represent $5,255, $4,596, $4,860, $5,897 and $991, respectively, of
life insurance premiums in excess of $50,000. Although required to be
reported as income, the Named Officers, as do all salaried employees, pay
the cost for all life insurance premiums for coverage in excess of one
times their salary in calendar year 1997 and one and one-half times their
salary in calendar year 1996. In addition, the amounts shown include: the
Company's contribution to the Company's Retirement Plan, a defined
contribution plan, for the Company's fixed and 401(k) Company matching
contributions for Messrs. DeLuca, Coffman, Mahoney, Pompe, Kirk and Sheh in
the amounts of $4,500, $7,500, $7,500, $7,500, $7,361 and $1,702,
respectively; the Company's contribution to the Company's Restoration Plan,
a non-qualified supplemental retirement plan, to Messrs. DeLuca, Coffman,
Mahoney, Pompe and Sheh as follows: $7,300, $3,260, $4,700, $4,873 and
$3,375, respectively; $10,000 for partial principal forgiveness on a
relocation loan to purchase a residence for Mr. Mahoney; $17,508 in accrued
but unused paid time off for Mr. DeLuca; and $3,052 in reimbursed
relocation
5
<PAGE>
expenses for Mr. DeLuca. For 1996, the amounts shown include: $5,798,
$6,157, $5,990, $5,706, $819 and $20,034 for Messrs. DeLuca, Coffman,
Mahoney, Pompe, Kirk and Sheh, respectively, for life insurance premiums in
excess of $50,000; the Company's contribution to the Company's Retirement
Plan for the Company's fixed, discretionary profit sharing and 401(k)
Company matching contribution for Messrs. DeLuca, Coffman, Mahoney, Pompe,
Kirk and Sheh of $6,459, $7,058, $7,498, $7,209, $6,349 and $9,003,
respectively; a contribution to the Company's Restoration Plan for Messrs.
DeLuca, Coffman, Mahoney, Pompe and Sheh of $5,475, $2,515, $5,091, $3,334
and $13,063, respectively; $10,000 for partial principal forgiveness of a
relocation loan to purchase a principal residence for each of Messrs.
Mahoney and Sheh; and $11,192 for accrued but unused paid time off for Mr.
Coffman. For 1995: the amounts shown for Messrs. DeLuca, Coffman, Mahoney,
Pompe, Kirk and Sheh include life insurance premiums in excess of $50,000
in the amount of $4,711, $6,071, $3,731, $4,711, $764 and $17,947,
respectively; the Company's contribution to the Company's Retirement Plan
for Messrs. DeLuca, Coffman, Mahoney, Pompe, Kirk and Sheh in the
respective amounts of $6,608, $7,304, $6,599, $6,617, $4,918 and $6,572;
$10,000 for partial principal forgiveness of a relocation loan to purchase
a principal residence for each of Messrs. Mahoney and Sheh; and $5,200 and
$14,154, respectively, for Messrs. DeLuca and Coffman for accrued but
unused vacation.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information related to grants of stock options
to the Named Officers pursuant to the Company's Stock Incentive Plans during the
fiscal year ended March 28, 1997. No stock appreciation rights ("SARs") were
granted during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING OPTION TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE PRESENT
NAME GRANTED(#)(1) FISCAL YEAR (PER SHARE)(2) DATE VALUE(3)
- ------------------------------ ------------------ ----------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Franklin E. Coffman . . . . . 12,000 7.0 $8.625 2/25/07 $ 64,920
Anthony J. DeLuca . . . . . . 18,000 10.5 $8.625 2/25/07 $ 97,380
James G. Kirk . . . . . . . . 3,000 1.7 $8.625 2/25/07 $ 16,230
James R. Mahoney . . . . . . 12,000 7.0 $8.625 2/25/07 $ 64,920
Raymond J. Pompe . . . . . . 12,000 7.0 $8.625 2/25/07 $ 64,920
</TABLE>
___________________
(1) All options granted in fiscal year 1997 vest in 25% increments over
four years beginning one year from the date of grant. Full vesting
occurs on the fourth anniversary date and expires ten years after
grant. Options become 100% vested and are exercisable for two years
after retirement from the Company.
(2) The exercise price on options granted is the fair market value of the
Common Stock on the date of grant.
(3) When calculating the present value of options granted in 1997, the
Company used the Black-Scholes option pricing model to obtain a
calculated present value of $5.41 share. The Company assumed a
volatility of 0.462, a risk free interest rate of 6.55% and assumed
that the shares would be exercised evenly throughout the four-year
vesting schedule. In addition, the Company took a 3% discount for
each year in the vesting period to account for the risk of forfeiture
in the event that the executive terminates employment with the
Company. The valuation is not intended to forecast possible future
appreciation, if any, of the Common Stock. The real value of the
option depends on the actual performance of the Company's Common Stock
during the applicable period.
6
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AGGREGATED OPTION EXERCISES DURING LAST FISCAL YEAR AND OPTION VALUES AT END OF
LAST FISCAL YEAR
The following table provides information with respect to the exercise of
stock options during the fiscal year ended March 28, 1997 by the Named Officers,
and with respect to unexercised "in-the-money" stock options outstanding as of
March 28, 1997. In-the-money stock options are options for which the exercise
price is less than the market price of the underlying stock at the end of the
fiscal year. No executive officer or any other employee of the Company held or
exercised any SARs at any time during fiscal year 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL YEAR MONEY OPTIONS AT FISCAL
SHARES END (IN SHARES) YEAR ENDED($)(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. DeLuca. . . . 0 $0 32,999 31,501 $0 $0
Franklin E. Coffman. . . 0 0 9,999 17,251 0 0
James G. Kirk. . . . . . 0 0 1,208 3,117 0 0
James R. Mahoney . . . . 0 0 27,499 25,001 0 0
Raymond J. Pompe . . . . 0 0 10,749 19,501 0 0
Robert B. Sheh(1). . . . 0 0 90,625 21,875 0 0
___________________
</TABLE>
(1) Mr. Sheh resigned as President and Chief Executive Officer and a
director of the Company as of July 1, 1996, but will be treated as an
employee of the Company through June 26, 1998. See "Employment
Agreements and Termination of Employment Arrangements -- Sheh
Agreements."
(2) Represents the difference between the $6.875 fair market value of the
Company's Common Stock on March 28, 1997 (represented by the closing
market price on March 27, 1997), minus the exercise price of the
options.
(3) Messrs. DeLuca, Mahoney and Pompe's options with respect to 2,500
shares, 2,000 shares and 2,000 shares, respectively, have vested as a
result of the passage of time but may not be exercised unless the
Company's stock price increases to certain predetermined levels.
Because this condition has not been satisfied and the options
therefore are not vested, such options are not included in the
"Beneficial Ownership of Shares" table in Item 12.
1997 MANAGEMENT INCENTIVE PLAN
Pursuant to the Company's 1997 Management Incentive Plan, $500,000 in cash
and 83,333 shares of stock options were reserved to reward key associates if
pre-established performance targets for the second half of the fiscal year were
achieved. Payments and stock option grants under the Plan were dependent upon
achieving three targets: 1) a required level of pre-tax operating income, 2) an
improvement in the collection of accounts receivable (days sales outstanding)
and 3) individual performance goals. The plan was administered by the
Compensation Committee. Target incentive awards ranging from 10% to 50% of
participants' salary were reduced pro-rata to reflect the one-half year
performance period and the grant of stock options supplemental to the payment of
cash awards. Individual incentive awards and stock option grants may have been
increased or decreased from their targets depending upon individual performance.
Cash incentive awards in the aggregate of $499,705 and 80,221 shares of stock
options in
7
<PAGE>
the aggregate were awarded to the 90 plan participants. The total incentive
awards earned and shares of stock options granted to the Named Officers were as
follows:
NAMED OFFICER CASH BONUS STOCK OPTION SHARES
- ------------------------- ------------ --------------------
Anthony J. DeLuca. . . . $50,000 8,333
Franklin E. Coffman. . . 19,400 3,233
James G. Kirk. . . . . . 10,000 1,667
James R. Mahoney . . . . 26,000 4,333
Raymond J. Pompe . . . . 26,500 4,417
COMPENSATION OF DIRECTORS
RETAINER FEES. Following the closing of the Investment, non-employee
directors each receive annual compensation at the rate of approximately $35,000
per year, consisting of a retainer fee of $6,000 per quarter and a board meeting
fee of $2,750 for each board meeting attended (no additional compensation is
given for attendance at committee meetings). Directors' compensation may be
paid in cash and/or stock as determined by the Executive Committee. Payments on
account of directors fees earned by Messrs. D'Aniello and Dolan are paid
directly to Carlyle.
In February 1997 the Company adopted a plan pursuant to which the directors
could receive their directors fees in Common Stock in lieu of cash. Directors
who elect in writing to be paid in stock are entitled to be paid Common Stock in
lieu of all fees other than reimbursement of out-of-pocket expenses. Directors
may elect to receive stock in lieu of cash fees for a fiscal quarter by
delivering notice to the Company at least five days before the end of the
quarter (except in case of fees due as of the adoption of the plan). The number
of shares to be issued is determined by dividing the dollar amount of fees
payable by the closing sale price on the New York Stock Exchange of the
Company's Common Stock on the first business day of the quarter (and each
succeeding quarter) after the director elects to be paid in stock (except in the
case of fees payable as of the adoption of the plan, which were determined using
the closing sale price as of the date of adoption of the plan), until the
director revokes his election. A maximum of 100,000 shares may be awarded under
the plan. Common Stock issued under the plan will be treasury stock or stock
purchased in the open market, to avoid dilution to stockholders. Common Stock
may not be awarded after February 26, 2002, or the earlier termination of the
plan by the Compensation Committee.
Prior to the closing of the Investment, non-employee directors received a
retainer fee of $5,000 per quarter, $1,000 for each Board or committee meeting
attended, $500 for each telephonic Board or committee meeting attended, $500 per
day for travel on business days and reimbursement of air travel and other
expenses incurred in connection with attending Board or committee meetings.
Committee chairmen received $1,500 for each committee meeting attended and $750
for each telephonic committee meeting attended. The fees paid for meeting
attendance were limited to no more than one committee meeting for all committee
meetings held in tandem with a Board meeting, regardless of the actual number of
committee meetings attended. Additionally, effective with the third quarter of
fiscal year 1996 through and including the third quarter of fiscal year 1997,
the quarterly retainer fee payable to each director for the third quarter of
each fiscal year was paid in the form of shares of Common Stock, rather than in
cash. Such shares were purchased by the Company in the open market and reissued
to directors.
CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors serves as a
member or ex-officio member of certain committees of the Board and is required
to spend significant time on Company matters. The chairmanship is a
non-officer, non-employee position.
8
<PAGE>
Upon completion of the Investment, Carlyle named one of the Preferred Stock
Directors, Mr. Daniel A. D'Aniello, Chairman of the Board. Mr. D'Aniello is
compensated for his services at the rate of $120,000 per year, in lieu of the
non-employee director fees described above. Mr. D'Aniello receives the same
compensation as the previous chairman, Mr. E. Martin Gibson, received. Payments
for compensation earned by Mr. D'Aniello are paid directly to Carlyle.
Mr. E. Martin Gibson served as Chairman of the Board from his election on
April 6, 1995 until his resignation as Chairman on November 20, 1996, upon
completion of the Investment. As indicated above, Mr. Gibson continues to serve
as a director.
STOCK OPTIONS. At the 1996 Annual Meeting, stockholders approved the 1996
Stock Incentive Plan (the "1996 Plan"). The purpose of the 1996 Plan is to
enable the Company and its subsidiaries to attract, retain and motivate
employees by providing for or increasing their proprietary interests in the
Company, and to attract non-employee directors and further align their interests
with those of the stockholders by providing for or increasing their proprietary
interests in the Company. Every employee of the Company or any of its
subsidiaries is eligible to be considered for the grant of awards under the 1996
Plan.
The maximum number of shares of Common Stock that may be issued pursuant to
awards granted under the 1996 Plan is currently 444,767. On April 1 of each of
the years 1998, 1999, 2000 and 2001, such maximum number will be increased by a
number equal to 2% of the number of shares of Common Stock issued and
outstanding on each of such dates. The 1996 Plan is administered by the
Compensation Committee of the Board (the "Compensation Committee"). Subject to
the provisions of the 1996 Plan, the Committee has full and final authority to
adopt, amend and rescind rules and regulations relating to the 1996 Plan, select
the employees to whom awards will be granted thereunder, to grant such awards
and to determine the terms and conditions of such awards and the number of
shares to be issued pursuant thereto.
Pursuant to the terms of the 1996 Plan, grants of stock options to
non-employee directors are within the discretion of the Compensation Committee,
and since the approval of the 1996 Plan at the 1996 Annual Meeting of
Stockholders, no grants have been made to non-employee directors.
Prior to expiration of the 1991 Stock Incentive Plan (the "1991 Plan") on
March 31, 1996, each non-employee director also received automatic grants of
nonqualified stock options under the 1991 Plan. Pursuant to the 1991 Plan, the
options held by non-employee directors would have vested upon completion of the
Investment; however, all non-employee directors waived acceleration of the
vesting of their options.
RETIREMENT PLAN. Under the Company's retirement plan for non-employee
directors in effect prior to the completion of the Investment, non-employee
directors qualified for five years of retirement payments if on retirement
(i) they had five years of Board service (in which case payments would begin at
age 70, or upon retirement if the director is between 70 and 73 when he retired)
or (ii) they had ten years of Board service (in which case payments would begin
at age 65, or upon retirement if the director was between 65 and 73 when he
retired).
Pursuant to the terms of the Retirement Plan, the consummation of the
Investment would have caused the payment of certain benefits payable to
non-employee directors of the Company who did not elect to remain on the Board
of Directors following such a change in control to be accelerated to a lump sum
payment. The Company and the non-employee directors of the Company who did not
remain on the Board following the closing of the Investment agreed to amend the
Retirement Plan, effective upon the consummation of the Investment, such that
the vested benefits otherwise payable to each director as a lump sum are to be
paid over a five-year period and that directors whose benefits had not vested
prior to the
9
<PAGE>
closing of the Investment had such benefits vest partially under the Retirement
Plan pro rata based on their years of service. In addition, such amendment
provides that Messrs. Gibson and McGill will be paid amounts under the
Retirement Plan, in lieu of any benefits that may become payable to them under
the Retirement Plan in the future, notwithstanding that they remain on the Board
following the Investment. Each of the non-employee directors of the Company
acknowledged and agreed to a waiver of the right to receive the accelerated lump
sum payment. Pursuant to the Retirement Plan as amended, the directors began
receiving the following payments in November 1996:
YEARS OF ANNUAL
DIRECTOR SERVICE(1) VESTED BENEFIT PAYMENT(2)
- -------- ---------- -------------- ----------
Jack O. Vance. . . . . . 9 $ 200,000 $ 40,000
Donald S. Burns. . . . . 9 200,000 40,000
Ralph S. Cunningham. . . 13 200,000 40,000
James C. McGill. . . . . 6 200,000 40,000
W. Scott Martin. . . . . 2 80,000 16,000
E. Martin Gibson . . . . 2 80,000 16,000
Kirby L. Cramer. . . . . 1 40,000 8,000
Henry E. Riggs . . . . . 1 40,000 8,000
---------- --------
$1,040,000 $208,000
---------- --------
---------- --------
_______________
(1) Directors with five years of service as of October 31, 1996 qualified for
the full vested benefit of $200,000. The benefit for directors with less than
five years service was prorated.
(2) Benefits are to be paid in equal monthly installments over five years.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENTS. In connection with the Carlyle Investment,
Anthony J. DeLuca, Franklin E. Coffman, James R. Mahoney and Raymond J. Pompe
each entered into an employment agreement with the Company effective upon the
closing of the Investment for a term of three years, unless terminated. The
employment agreements of each of Messrs. DeLuca and Mahoney replace in their
entirety their respective prior severance benefit agreements with the Company.
The employment agreements provide for initial base salaries at the rates in
effect at the time of the closing of the Investment, namely $320,000 in the case
of Mr. DeLuca, $194,000 in the case of Mr. Coffman, $260,000 in the case of Mr.
Mahoney and $265,000 in the case of Mr. Pompe. Salaries are subject to annual
upward adjustment at the discretion of the Compensation Committee of the Board
of Directors (the "Compensation Committee"). Salaries are subject to reduction
only in connection with action taken by the Board of Directors for all
management employees. Each of the employment agreements provides for a
short-term incentive compensation plan to be administered by the Compensation
Committee. The target short-term incentive compensation level is 40%, and the
maximum level is 60%, of base salary,
10
<PAGE>
except in the case of Mr. DeLuca, for whom the target level is 50%, and the
maximum level is 75%, of base salary. The Company also is required to maintain
long-term incentive plans to be administered by the Compensation Committee,
which will make awards, primarily of stock options, based on appropriate
performance criteria. The annual awards will be at the discretion of the
Compensation Committee but will generally target long-term incentive
opportunities. The Company will have "good reason" to terminate Messrs. DeLuca,
Coffman, Mahoney or Pompe if such persons fail to meet certain management
forecasts for two consecutive fiscal years. The agreements provide for severance
payments under certain circumstances.
The Company has provided loans to Messrs. DeLuca, Mahoney and Pompe to
allow them to make substantial purchases of the Company's Common Stock in the
open market. Messrs. DeLuca, Mahoney, and Pompe have received loans in the
principal amounts of $125,000, $100,000, and $100,000, respectively, to purchase
the stock. In November and December, 1996, Mr. DeLuca purchased 12,600 shares
of Common Stock and each of Messrs. Coffman, Mahoney and Pompe purchased 7,700,
10,300 and 10,595 shares of Common Stock, respectively. In connection with the
short-term compensation plan described above, the Company may provide for
forgiveness of a certain portion of the loan principal and interest if
previously agreed to targets are met or exceeded. The loans bear interest at
the rate of 8.25% per year and are repayable upon the earlier of the executive's
termination of employment or November 19, 1999. The employment agreements also
provide for reimbursement for business expenses and vacation and other benefits
consistent with existing Company policies and practices.
Additionally, as part of their employment agreements, each of Messrs.
DeLuca, Coffman, Mahoney and Pompe are bound by non-compete provisions with the
Company if any of them terminates his employment by resignation.
SHEH AGREEMENTS. In connection with his employment as Chief Executive
Officer, Mr. Sheh and the Company entered into an agreement dated July 15, 1992.
The agreement was intended to specify annual stock option grants and a minimum
level of base pay for Mr. Sheh, as well as to address certain other matters.
Pursuant to the agreement, Mr. Sheh's annual base salary was $450,000 subject to
merit increases and the agreement provides the opportunity to participate in the
Company's Incentive Bonus Plan with a bonus of up to 50% of base salary at
target levels. Pursuant to the agreement, Mr. Sheh received stock options
covering 62,500 shares of Common Stock upon joining the Company and was entitled
to receive a minimum specified number of stock options during the first three
years of his employment. The agreement provided for certain insurance and other
benefits. The agreement also provided that if Mr. Sheh was terminated for
"cause," he would be entitled to receive one year of base salary and bonuses.
Mr. Sheh resigned as President and Chief Executive Officer and a director
of the Company as of July 1, 1996. Pursuant to the terms of an agreement between
the Company and Mr. Sheh, Mr. Sheh will continue to be treated as an employee of
the Company until June 26, 1998, but has no further duties or responsibilities
to the Company. Pursuant to the agreement, until June 26, 1998, Mr. Sheh will
continue to be paid $450,000 per annum and will receive a car allowance of
$5,850 per annum. Mr. Sheh also received a one-time payment of $40,300 for
accrued but unused vacation. Additionally, a relocation loan made by the Company
to Mr. Sheh with an outstanding principal amount of $150,000 was forgiven. Mr.
Sheh will retain a club membership in his name for which the Company previously
paid admission and membership fees. Mr. Sheh remained eligible for certain
insurance benefits and certain other benefits until January 1, 1997, the date on
which Mr. Sheh became eligible for such benefits as a full-time employee of
another company. Under the agreement, 5,999 shares of restricted Common Stock
awarded to Mr. Sheh in July 1995 will become fully vested on June 26, 1998, and
options to purchase a total of 112,500 shares of Common Stock will continue to
vest in accordance with the terms of the applicable stock option agreements
11
<PAGE>
and will become fully vested on April 27, 1998. Finally, 50,000 shares of
restricted stock awarded to Mr. Sheh in March 1996 were returned to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors is a
former or current officer or associate of the Company or its subsidiaries and
there are no Compensation Committee interlocks.
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth information as of July 21, 1997 with
respect to beneficial ownership of (i) the Company's Common Stock, (ii) the
Company's Depositary Shares, each representing 1/100 of a share of 7%
Preferred Stock, (iii) the Company's Cumulative Convertible Participating
Preferred Stock, par value $100 per share (the "Convertible Preferred
Stock"), and (iv) the Warrants, by (a) each person known by the Company to be
the beneficial owner of 5% or more of the outstanding Common Stock,
Depositary Shares, Convertible Preferred Stock or Warrants (b) each director,
(c) the named officers listed in the Summary Compensation Table in
Item 11 (the "Named Officers"), and (d) all directors and persons serving as
executive officers as a group. All amounts have been adjusted to reflect the
one-for-four reverse stock split approved at the 1996 Annual Meeting of
Stockholders.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF AMOUNT AND PERCENT OF AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON NATURE OF DEPOSITARY OF BENEFICIAL CONVERTIBLE
OWNERSHIP STOCK BENEFICIAL SHARES OWNERSHIP OF PREFERRED STOCK
OF COMMON BENEFICIALLY OWNERSHIP OF BENEFICIALLY CONVERTIBLE BENEFICIALLY
NAME STOCK(1)(2) OWNED(2) DEPOSITARY SHARES OWNED PREFERRED STOCK OWNED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlyle Stockholders 7,178,855(3) 42.44% 45,000 100%
Wisconsin Investment Board(4) 887,950 9.70%
Dimension Fund Advisors Inc.(5) 513,300 5.61%
Michael A. Roth & Brian J. Stark (6) 553,400 5.75%
Daniel A. D'Aniello(7) 0 -
Philip B. Dolan(7) 0 -
E. Martin Gibson 9,101 * 5,000 *
James C. McGill (8) 23,838 * 1,000 *
Robert F. Pugliese 2,605 *
James D. Watkins 2,605 *
Robert B. Sheh(9) 114,149 1.12%
Franklin E. Coffman 36,052 * 1,000 *
Anthony J. DeLuca 80,465 *
James G. Kirk 1,325 *
James R. Mahoney 73,987 *
Raymond J. Pompe 53,300 *
All directors and executive 283,278 2.88%
officers as a group (11
persons)(10)
</TABLE>
* Less than 1%
13
<PAGE>
(1) The number of shares of the Common Stock beneficially owned includes shares
of the Common Stock in which the persons set forth in the table have either
investment or voting power. Unless otherwise indicated, all of such
interests are owned directly, and the indicated person or entity has sole
voting and investment power, subject to community property laws where
applicable. The number of shares beneficially owned also includes shares
that the following individuals have the right to acquire within sixty days
of July 21, 1997 upon exercise of stock options (and conversion of
Depositary Shares in the case of Messrs. Gibson, McGill and Coffman) in the
following amounts: (i) 3,750 shares upon exercise of options and 5,351
shares upon conversion of the Depositary Shares as to Mr. Gibson, (ii)
6,250 shares upon exercise of options and 1,070 shares upon conversion of
the Depositary Shares as to Mr. McGill, (iii) 103,125 shares upon exercise
of options as to Mr. Sheh, (iv) 22,937 shares as to Mr. DeLuca, (v) 13,062
shares upon exercise of options and 1,070 shares upon conversion of
Depositary Shares as to Mr. Coffman, (vi) 33,687 shares as to Mr. Mahoney,
(vii) 14,062 shares as to Mr. Pompe and (viii) 1,325 shares as to Mr. Kirk.
(2) For the purposes of determining the number of shares of Common Stock
beneficially owned as well as the percentage of outstanding Common Stock
held by each person or group set forth in the table, the number of shares
is divided by the sum of the number of outstanding shares of the Common
Stock on July 21, 1997 plus (i) the number of shares of Common Stock
subject to options exercisable currently or within 60 days of July 21, 1997
by such person or group, (ii) shares of Common Stock into which persons
who hold Depositary Shares or Convertible Preferred Stock may convert such
security (or otherwise obtain Common Stock), and/or receive Common Stock
upon exercise of Warrants, in accordance with Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended ("Rule 13d-3(d)(1)").
Depositary Shares may be converted at any time into Common Stock at the
ratio of 1.0702 Shares of Common Stock for each Depositary Share. The
Convertible Preferred Stock may be converted at any time into Common Stock
at the ratio of 131.75 shares of Common Stock for each share of Convertible
Preferred Stock (reflecting a conversion price of $7.59 per share of
Convertible Preferred Stock).
(3) Represents shares of Common Stock issuable upon conversion of all shares of
Convertible Preferred Stock and exercise of all Warrants held by the
Carlyle Stockholders, which stockholders are comprised of the entities
listed in the following sentence. The cumulative Carlyle Stockholders
ownership figure represents (i) 1,781,965 shares beneficially owned by
Carlyle Partners II, L.P., (ii) 81,357 shares beneficially owned by Carlyle
Partners III, L.P., (iii) 1,504,210 shares beneficially owned by Carlyle
International Partners II, L.P., (iv) 81,042 shares beneficially owned by
Carlyle International III, L.P., (v) 338,682 shares beneficially owned by
C/S International Partners, (vi) 1,907 shares beneficially owned by Carlyle
Investment Group, L.P., (vii) 2,366,299 shares beneficially owned by
Carlyle-IT International Partners, L.P., (viii) 79,765 shares beneficially
owned by Carlyle-IT International Partners II, L.P., (ix) 748,520 shares
beneficially owned by The State Board of Administration of the State of
Florida (the "State Board") and (x) 195,107 shares beneficially owned by
Carlyle-IT Partners, L.P. Carlyle Investment Management, L.L.C. acts as
investment advisor and manager with authority and responsibility to invest
certain assets of the State Board. Since Carlyle Investment Management,
L.L.C. has the power to vote and dispose of all such shares owned by the
State Board, it may be deemed to be the beneficial owner of such shares.
TC Group, L.L.C. may be deemed to be the beneficial owner of 6,430,335
shares of Common Stock as the general partner of Carlyle Partners II, L.P.,
Carlyle Partner III, L.P., Carlyle Investment Group, L.P., and Carlyle-IT
Partners, L.P., and as the managing general partner of Carlyle
International Partners II, L.P., Carlyle International Partners III, L.P.,
C/S International Partners, Carlyle-IT International Partners, L.P., and
Carlyle-IT International Partners II, L.P., TCG Holdings, L.L.C., as a
member holding a controlling interest in TC Group, L.L.C., may be deemed to
share all rights herein described belonging to TC Group, L.L.C.
14
<PAGE>
Furthermore, because certain managing members of TCG Holdings, L.L.C. are
also managing members of Carlyle Investment Management, L.L.C., Carlyle
Investment Management, L.L.C. may be deemed to be part of the Carlyle
Stockholders and consequently, TCG Holdings, L.L.C. may be deemed the
beneficial owner of the shares of Common Stock controlled by Carlyle
Investment Management, L.L.C. The principal business address of TC Group,
L.L.C. and TCG Holdings, L.L.C. is c/o The Carlyle Group, 1001
Pennsylvania Avenue, N.W., Suite 220 South, Washington D.C. 20004. The
principal business address of Carlyle Partners II, L.P., Carlyle Partners
III, L.P., Carlyle Investment Group, L.P., Carlyle-IT Partners, L.P., and
Carlyle Investment Management, L.L.C. is Delaware Trust Building, 900
Market Street, Suite 200, Wilmington, Delaware 19801. The principal
business address of Carlyle International Partners II, L.P., Carlyle
International Partners III, L.P., C/S International Partners, Carlyle-IT
International Partners, L.P., and Carlyle-IT International Partners II,
L.P. is Coutts & Co., P.O. Box 707, Cayman Islands, British West Indies.
(4) Such information is derived solely from a Schedule 13G filed by such
beneficial owner with the SEC dated February 10, 1997. The address of the
Wisconsin Investment Board set forth in its Schedule 13G is P.O. Box 7842,
Madison, Wisconsin 53707.
(5) Such information is derived solely from a Schedule 13G dated February 5,
1997 filed by such beneficial owner with the SEC. The address of
Dimensional Fund Advisors Inc. set forth in its Schedule 13G is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401. Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed
to have beneficial ownership of 513,300 shares of International Technology
stock as of December 31, 1996, all of which shares are held in portfolios
of DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(6) Such information is derived solely from a Schedule 13G filed by such
beneficial owners (filing as joint filers) with the SEC dated September 19,
1996. The address of the Michael A. Roth and Brian J. Stark set forth in
their Schedule 13G is George J. Mazin Stark Investments, 150 West Market
Street, Mequon, Wisconsin 53092. Shares beneficially owned by such filers
include 469,741 shares beneficially owned by Reliant Trading upon the
conversion of 438,928 shares of the Company's Depositary Shares and 83,659
shares beneficially owned by Shepherd Trading Limited upon the conversion
of 78,172 shares of the Company's Depositary Shares.
(7) Mr. D'Aniello is a Managing Member of TCG Holdings, L.L.C. Mr. D'Aniello's
interest in TCG Holdings, L.L.C. is not controlling and thus Mr. D'Aniello
expressly disclaims any beneficial ownership in the Common Stock
beneficially owned by TCG Holdings. Mr. Dolan is an employee of The
Carlyle Group and holds no economic interest in either TC Group L.L.C. or
TCG Holdings, L.L.C., and as such expressly disclaims any beneficial
ownership in the Common Stock beneficially owned by any of the Carlyle
Stockholders.
(8) Includes 1,000 shares of Common Stock and 1,000 Depositary Shares
(convertible into 1,070 shares of Common Stock) owned by Mr. McGill's wife,
as to which Mr. McGill has no voting or dispositive power, and 1,250 shares
owned by McGill Resources, Inc., a company owned by Mr. McGill. Mr. McGill
disclaims beneficial ownership of all such shares. Also includes 6,250
shares that may be purchased upon the exercise of options that are
currently exercisable or that will become exercisable within 60 days of
July 21, 1997.
15
<PAGE>
(9) Mr. Sheh resigned as President and Chief Executive Officer and a director
of the Company effective July 1, 1996, but will be treated as an employee
of the Company through June 26, 1998. See "Employment Agreements and
Termination of Employment Arrangements -- Sheh Agreements" in Item 11.
(10)Includes 95,073 shares that may be purchased upon the exercise of options
that are currently exercisable or that will become exercisable within
60 days of July 31, 1997 and 7,000 Depositary Shares (convertible into
7,491 shares of Common Stock). Excludes shares owned by Robert B. Sheh,
who resigned as President and Chief Executive Officer of the Company
effective July 1, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELOCATION LOANS. In certain circumstances, the Company has granted and
may in the future grant interest-free loans to executive officers, officers and
certain other employees principally for real estate purchases in connection with
company-initiated transfers to a new location. All loans are approved by the
Compensation Committee and are secured by the principal residence of the
individual. Mr. James R. Mahoney, Senior Vice President, entered into a
relocation loan arrangement with the Company with an original principal amount
of $200,000 and secured by a deed of trust on his personal residence.
The loan will remain interest free so long as Mr. Mahoney remains an employee.
Beginning December 31, 1991 and on each December 31st thereafter until the due
date of the loan, 5% of the original principal amount (to a maximum of 50% of
the original principal amount) was scheduled to be forgiven by the Company,
provided Mr. Mahoney remains employed by the Company. The loan to Mr. Mahoney is
due and payable on December 31, 2000. Additionally, Mr. Mahoney has agreed to
repay the remaining 50% of the original principal amount in installments related
to the issuance of awards under the Company's incentive compensation plan.
During the fiscal year ended March 28, 1997, (i) Mr. Mahoney repaid $10,000 of
the loan, and (ii) the maximum amount owed by Mr. Mahoney to the Company under
the loan was $140,000. As of March 28, 1997, the principal amount outstanding
for Mr. Mahoney's loan was $122,451. The principal amount outstanding will be
repaid upon completion of the sale of Mr. Mahoney's California residence and a
new loan may be granted Mr. Mahoney to purchase a residence in the Washington,
D.C. area in connection with the Company's relocation of its corporate
headquarters as described below.
In connection with the relocation and consolidation of the Company's
corporate headquarters from Torrance, California to Pittsburgh, Pennsylvania,
and other relocations occurring at approximately the same time, the Company is
offering relocation assistance to a limited number of officers and key
employees. Relocation assistance packages offered to these individuals involve
three elements: 1) reimbursement of specific out-of-pocket relocation expenses,
including travel, real estate brokerage commissions (up to a 6% maximum), and
loan origination fees (up to a maximum of two points), 2) a loan to be used for
the purchase of a new residence, and 3) a mobility allowance of between 15% and
30% of
16
<PAGE>
salary to provide relief from otherwise non-reimbursable expenses and as an
incentive to move. Amounts paid to reimburse out-of-pocket expenses are
"grossed-up" for tax purposes. The loans offered to relocating associates have
ten year terms, are secured by the residence purchased, and do not bear interest
as long as the associate stays with the Company. Five percent of the loan
principal is required to be repaid annually by the associate and 5% will be
forgiven annually by the Company for each year the associate remains with the
Company. The loans are also due upon the sale of the residence purchased. Mr.
DeLuca and Mr. Mahoney have been offered and they have stated their intention to
accept, if necessary, relocation loans on such terms in amounts of the lesser of
20% of the purchase price of their respective residences or $100,000. Mr.
DeLuca and Mr. Mahoney will each receive a mobility allowance of 30% of salary
in connection with their relocations to Pittsburgh and Washington, D.C.,
respectively. The Company expects that consolidation of the corporate
headquarters will result in an annual cost savings which the Company expects
will result in a "payback" of all relocation expenses in less than two years.
CARLYLE FINANCIAL ADVISORY FEES. In connection with the Investment, the
Company agreed to pay Carlyle (i) an annual financial advisory fee of $100,000,
payable quarterly, and (ii) investment banking fees (equal to 1% of transaction
value and reimbursement of reasonable out-of-pocket expenses) for investment
banking services rendered to the Company. The Company paid no investment
banking fees to Carlyle during fiscal year 1997.
INDEMNIFICATION. The General Corporation Law of the State of Delaware, the
state of incorporation of the Company, and the Bylaws of the Company provide for
indemnification of directors and officers. Section 145 of the Delaware General
Corporation Law provides generally that a person sued as a director, officer,
employee or agent of a corporation may be indemnified by the corporation for
reasonable expenses, including attorneys' fees, if, in cases other than actions
brought by or in the right of the corporation, he or she has acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation (and in the case of a criminal proceeding, had
no reasonable cause to believe that his or her conduct was unlawful). Section
145 provides that no indemnification for any claim or matter may be made, in the
case of an action brought by or in the right of the corporation, if the person
has been adjudged to be liable, unless the Court of Chancery or other court
determines that indemnity is fair and reasonable despite the adjudication of
liability. Indemnification is mandatory in the case of a director, officer,
employee or agent who has been successful on the merits, or otherwise, in
defense of a suit against him or her. The determination of whether a director,
officer, employee or agent should be indemnified must be made by a majority of
disinterested directors, independent legal counsel or the stockholders.
Directors and officers of the Company are covered under policies of
directors' and officers' liability insurance. The directors and all officers
serving the Company as Senior Vice President or in a higher position and certain
other officers are parties to Indemnity Agreements (the "Indemnity Agreements").
The Indemnity Agreements provide indemnification for the directors and covered
officers in the event the directors' and officers' liability insurance does not
cover a particular claim for indemnification or if such a claim or claims exceed
the limits of such coverage. The Indemnity Agreements are generally intended to
provide indemnification for any amounts a director or covered officer is legally
obligated to pay because of claims arising out of the director's or officer's
service to the Company.
Additionally, in 1987 the Company's Certificate of Incorporation was
amended with the approval of stockholders to provide that its directors are not
to be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty to the fullest extent permitted by law. This provision is
intended to allow the Company's directors the benefit of the Delaware General
Corporation Law which provides that directors of Delaware corporations may be
relieved of monetary liabilities for breach of their
17
<PAGE>
fiduciary duty of care, except under certain circumstances, including breach of
the director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law or any transaction from
which the director derived an improper personal benefit.
The Investment agreements also contain additional provisions for the
indemnification of Company directors and officers in certain circumstances. The
Investment Agreement provides that the Company will indemnify, defend and hold
harmless Carlyle, and its affiliates, directors, officers, advisors, employees
and agents to the fullest extent lawful from and against all demands, losses,
damages, penalties, claims, liabilities, obligations, actions, causes of action
and reasonable expenses ("Losses") arising out of the Investment Agreement or
the related transactions or arising by reason of or resulting from the breach of
any representation, warranty, covenant or agreement of the Company contained in
the Investment Agreement for the period for which such representation or
warranty survives; provided, however, that the Company does not have any
liability to indemnify Carlyle with respect to Losses arising from the bad faith
or gross negligence of the Carlyle indemnified party.
The Investment agreements also provide that Carlyle will indemnify, defend
and hold harmless the Company, its affiliates, directors, officers, advisors,
employees and agents from and against all Losses arising out of the breach of
any representation, warranty, covenant or agreement of Carlyle contained in the
Investment Agreement for the period for which such representation or warranty
survives; provided, however, that Carlyle does not have any liability to
indemnify the Company with respect to Losses arising from the bad faith or gross
negligence of the Company indemnified party.
The Investment agreements provide that no claim may be made against an
indemnifying party for indemnification until the aggregate dollar amount of all
Losses exceeds $1,500,000 and the indemnification obligations of the respective
parties shall be effective only until the dollar amount paid in respect of the
Losses indemnified against aggregates to an amount equal to $45,000,000.
18
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 on Form 10-K/A
to its Form 10-K for the year ended March 28, 1997 to be signed on its behalf by
the undersigned, thereunto duly authorized in Monroeville, Pennsylvania on the
28th day of July, 1997.
INTERNATIONAL TECHNOLOGY CORPORATION
By: /s/ Anthony J. DeLuca
--------------------------------------------
Anthony J. DeLuca
President and Chief Executive Officer
