<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K/A
Amendment No. 2
(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 27, 1998
OR
[ ] TRANSITION 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
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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.)
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 the following items of its Annual
Report for the fiscal year ended March 27, 1998 on Form 10-K as set forth in the
pages attached hereto.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors Following the Carlyle Investment and the Merger
At the 1996 Annual Meeting of Stockholders, 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). 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. The 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.
Pursuant to an agreement of merger dated January 15, 1998 (the "Merger
Agreement"), the Company acquired OHM Corporation ("OHM") in a two-step
transaction, comprised of a tender offer for 13,933,000 shares of OHM common
stock, or 54% of the outstanding OHM stock, for $160,300,000 in cash, which was
consummated on February 25, 1998, and a merger (the "Merger") of an IT
subsidiary into OHM on June 11, 1998. In the Merger, the former OHM shareholders
received IT common stock representing approximately 57% of the outstanding IT
common stock and 45% of the voting power of IT, as well as cash in the aggregate
amount of $30,800,000. Subsequent to the Merger, holders of the Convertible
Preferred Stock own approximately 21% (approximately 24% assuming exercise of
the Carlyle Warrants) of the Company's voting power.
At the Special Meeting of Shareholders held on June 11, 1998 (the "Special
Meeting"), at which the Merger was approved, the shareholders also voted to
eliminate the Company's classified Board of Directors system. Under that
system, the Common Stock Directors of the Company served for three year terms
which were staggered to provide for the election of approximately one-third of
the Board members each year. As a result of the shareholders' vote to
eliminate the Company's classified Board of Directors system, the holders of the
Common Stock are entitled to vote each year on the election of all Common Stock
Directors.
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After the Merger, pursuant to the Merger Agreement, Richard W. Pogue and
Charles W. Schmidt were appointed to the Board of Directors as Common Stock
Directors. In connection with such appointment, the authorized number of
directors (both Common and Preferred Stock Directors) was increased to nine (9),
with the Board consisting of five Preferred Stock Directors and four Common
Stock Directors so that the Preferred Stock Directors continue to represent a
majority of the Board of Directors. To effectuate this change, one of the
Common Stock Directors, E. Martin Gibson, resigned as such and was reappointed
as a Preferred Stock Director.
After giving effect to the changes approved in connection with the Merger, the
Company's Board of Directors is constituted as follows:
<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) 51 Director, Chief Executive Officer 1998 1996
and President
James C. McGill (3) 54 Director 1998 1990
Richard W. Pogue 70 Director 1998 1998
Charles W. Schmidt 70 Director 1998 1998
Preferred Stock Directors:
Daniel A. D'Aniello (1) (2) 51 Director and Chairman of the 1998 1996
Board (non-officer position)
Philip B. Dolan (1) (2) 40 Director 1998 1996
E. Martin Gibson (3) 60 Director 1998 1994
Robert F. Pugliese (3) 65 Director 1998 1996
James David Watkins (2) 71 Director 1998 1996
</TABLE>
(1) Member of Executive Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Background of the Directors:
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 PRA International, Inc. Mr.
D'Aniello is Chairman of GTS Duratek, Inc. and Vice Chairman of Baker & Taylor,
Inc.
Mr. DeLuca was named Chief Executive Officer and President of the Company on
July 22, 1997 and President and Acting Chief Executive Officer and a Director of
the Company as of July 1, 1996. 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. 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
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and was engaged in management consulting and practiced public accounting with
Seidman & Seidman. Mr. Dolan is a Certified Public Accountant.
Mr. Gibson became a Director of the Company on October 11, 1994 and served as
Chairman of the Board of Directors, a non-officer, non-employee position, from
April 6, 1995 until his resignation as such upon completion 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., NovaCare, Inc. and Primerica, 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 Trustees of the University of Tulsa
and on the Boards of Directors of two private corporations that are engaged in
venture capital and health exercise equipment businesses.
Mr. Pogue is a consultant with Dix & Eaton, a public relations firm.
Effective June 30, 1994, Mr. Pogue retired as Senior Partner of the law firm of
Jones, Day, Reavis & Pogue, Cleveland, Ohio, of which he had been a partner
since 1961. Mr. Pogue is also a Director of Continental Airlines, Inc., Derlan
Industries Limited, M.A. Hanna Company, KeyCorp, LAI Ward Howell, Inc., Rotek
Incorporated and TRW Inc. Mr. Pogue was a Director of OHM for 12 years (since
1986) prior to the Merger.
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. 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, and served as a Director of OCWEN Asset Investment Corporation and St.
Clair Memorial Hospital.
Mr. Schmidt retired in January 1991 as Senior Vice President, External Affairs
of Raytheon Company, a broadly diversified manufacturer of industrial and
consumer products, and was formerly President and Chief Executive Officer of SCA
Services, Inc., a company that provided waste management-related services and
previously was President and Chief Executive Officer of S.D. Warren Company, a
division of Scott Paper Company. Mr. Schmidt also serves as a trustee of the
Massachusetts Financial Services Family of Mutual Funds and is a Director of
Mohawk Paper Company. Mr. Schmidt was a Director of OHM for 12 years (since
1986) prior to the Merger.
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 Secretary of Energy of the United
States from 1989 to 1993. Prior to his appointment as Secretary of Energy, the
Admiral served as Director of Philadelphia Electric Company and VESTAR, Inc. (a
pharmaceutical company), and was a consultant to the Carnegie Corporation of New
York. From 1982 to 1986, he served as the Chief of Naval Operations, capping a
career spanning nearly four decades. Admiral Watkins was also appointed to chair
the Presidential Commission on AIDS from 1987 to 1988. He was a Trustee of the
Carnegie Corporation of New York from 1993 to 1998. Admiral Watkins currently
serves as a Director of Edison International and GTS-Duratek and as Chairman of
Eurotech, Ltd.
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 any noncompliance with those requirements
during fiscal year 1998. Based solely upon a review of reports delivered to the
Company, the Company believes all Section 16(a) filing requirements were
satisfied, except that Messrs. Pugliese and Watkins each filed one late report
with respect to one transaction.
3
<PAGE>
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 fiscal years
1998, 1997 and 1996 of those persons who were, as of March 27, 1998, the Chief
Executive Officer and all other executive officers of the Company (the "Named
Officers").
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------- ----------------------
Other Securities All
Annual Compen- Restricted Stock Underlying Other Compen-
Name & Principal Position Year Salary ($) Bonus($)(1) sation($)(2) Awards($)(3) Options (#)(4) sations($)(5)
- --------------------------- ---- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. DeLuca 1998 $320,000 $170,000 $ ------ $ 0 0 $248,250
Chief Executive Officer 1997 307,981 50,000 ------ 0 26,333 37,614
and President 1996 270,400 12,776 ------ 296,875 0 17,732
Raymond J. Pompe 1998 $265,000 $106,000 $ ------ $ 0 0 $ 29,473
Senior Vice President, 1997 248,075 26,500 ------ 0 16,417 18,270
Engineering & Construction 1996 206,691 9,923 ------ 118,750 0 16,250
James R. Mahoney 1998 $260,000 $ 47,383 $40,681 $ 0 0 $143,687
Senior Vice President, 1997 260,000 26,000 ------ 0 16,333 27,060
Consulting & Ventures 1996 260,000 12,285 ------ 118,750 0 28,579
James G. Kirk 1998 $160,000 $ 36,074 $ ------ $ 0 0 $ 10,863
Vice President, 1997 150,625 10,000 ------ 0 4,667 8,352
General Counsel &
Secretary 1996 140,500 28,319 ------ 0 0 7,168
Franklin E. Coffman (6) 1998 $194,000 $ 47,140 $ ------ $ 0 0 $ 29,440
Senior Vice President, 1997 194,000 19,400 ------ 0 15,233 15,356
DOE Programs 1996 192,346 8,201 ------ 0 0 26,923
</TABLE>
(1) 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.
(2) The dollar value of perquisites and other personal benefits, if any, for
each of the Named Officers except Mr. Mahoney in 1998 was less than
reporting thresholds established by the SEC. For fiscal year 1998, Mr.
Mahoney received $17,022 for tax reimbursement for relocation expenses
reported under All Other Compensation.
(3) 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. 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).
(4) 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.
Mahoney, 4,333 shares; Mr. Pompe, 4,417 shares; Mr. Kirk, 1,667 shares; and
Mr. Coffman, 3,233 shares.
(5) For 1998, the amounts shown for Messrs. DeLuca, Mahoney, Pompe, Kirk and
Coffman represent $7,507, $6,943, $11,433, $165 and $1,671 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 years 1998 and 1997 and one and one-half times
their salary in calendar year 1996. In addition, the
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<PAGE>
amounts shown include: the Company's contribution to the Company's
Retirement Plan, a defined contribution plan, for the Company's fixed and
401k Company matching contributions for Messrs. DeLuca, Mahoney, Pompe, Kirk
and Coffman in the amounts of $4,800, $7,908, $8,000, $7,975 and $8,000
respectively; the Company's contribution to the Company's Restoration Plan,
a non-qualified supplemental retirement plan, to Messrs. DeLuca, Mahoney,
Pompe, Kirk and Coffman as follows: $14,800, $5,680, $10,040, $2,723 and
$4,846 respectively; $3,500 and $10,000 for partial principal forgiveness on
a relocation loan to purchase a residence for Messrs. DeLuca and Mahoney
respectively; $27,692 and $14,923 in accrued but unused paid time off for
Mr. DeLuca and Mr. Coffman respectively; $93,951 and $35,157 in reimbursed
relocation expenses for Messrs. DeLuca and Mahoney respectively; and $96,000
and $78,000 in relocation mobility allowances for Messrs. DeLuca and Mahoney
respectively. For 1997, the amounts shown for Messrs. DeLuca, Mahoney,
Pompe, Kirk and Coffman represent $5,255, $4,860, $5,897, $991 and $4,596
respectively, of life insurance premiums in excess of $50,000. 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, Mahoney, Pompe,
Kirk and Coffman in the amounts of $4,500, $7,500, $7,500, $7,361 and $7,500
respectively; the Company's contribution to the Company's Restoration Plan,
a non-qualified supplemental retirement plan, to Messrs. DeLuca, Mahoney,
Pompe and Coffman as follows: $7,300, $4,700, $4,873 and $3,260,
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 expenses for
Mr. DeLuca. For 1996, the amounts shown include: $5,798, $5,990, $5,706,
$819 and $6,157 for Messrs. DeLuca, Mahoney, Pompe, Kirk and Coffman
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, Mahoney, Pompe, Kirk and Coffman of $6,459, $7,498,
$7,209, $6,349 and $7,058 respectively; a contribution to the Company's
Restoration Plan for Messrs. DeLuca, Mahoney, Pompe and Coffman of $5,475,
$5,091,$3,334 and $2,515 respectively; and $10,000 for partial principal
forgiveness of a relocation loan to purchase a principal residence for Mr.
Mahoney.
(6) Mr. Coffman resigned as Senior Vice President, DOE Programs pursuant to an
Agreement dated April 17, 1998. See "Certain Transactions - Coffman
Agreement."
Stock Option Grants in the 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 27, 1998. No stock appreciation rights ("SARs") were
granted during the last fiscal year.
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options Granted Grant Date
Underlying Option to Employees in Exercise Price Expiration Present
Name Granted(#)(1) Fiscal Year (per share)(2) Date Value(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Anthony J. DeLuca 8,333 6.27 $7.00 5/13/07 $35,582
Raymond J. Pompe 4,417 3.32 $7.00 5/13/07 $19,391
James R. Mahoney 4,333 3.26 $7.00 5/13/07 $19,022
James G. Kirk 1,667 1.25 $7.00 5/13/07 $ 7,318
Franklin E. Coffman 3,233 2.43 $7.00 5/13/07 $14,193
</TABLE>
___________________
(1) All options granted in fiscal year 1998 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 1998, the Company
used the Black-Scholes option pricing model to obtain a calculated present
value of $4.39 per share. The Company assumed a volatility of 0.472, a risk
free interest rate of 6.25% and assumed that the shares would be exercised
evenly throughout the four-year vesting schedule. In addition, the Company
took a 3% discount for each year in the vesting period to account for the
risk of forfeiture in the event that the executive terminates employment
with the Company. The valuation is not intended to forecast possible future
appreciation, if any, of the Common Stock. The real value of the option
depends on the actual performance of the Company's Common Stock during the
applicable period.
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Aggregated Option Exercises During Last Fiscal Year and Option Values At End of
Last Fiscal Year
The following table provides information with respect to the exercise of stock
options during the fiscal year ended March 27, 1998 by the Named Officers, and
with respect to unexercised "in-the-money" stock options outstanding as of March
27, 1998. In-the-money stock options are options for which the exercise price is
less than the market price of the underlying stock at the end of the fiscal
year. No executive officer or any other employee of the Company held or
exercised any SARs at any time during fiscal year 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal Year In-the-Money Options
Acquired End (In shares) At Fiscal Year End($)(1)
On Value -------------------------------- ------------------------------
Name Exercise Realized ($) Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ---- -------- ------------ ----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. DeLuca 0 $0 27,437 29,146 $5,344 $39,468
Raymond J. Pompe 0 $0 14,062 17,065 $3,563 $23,110
James R. Mahoney 0 $0 22,937 20,146 $3,563 $22,874
James G. Kirk 0 $0 2,075 3,917 $ 891 $ 7,360
Franklin E. Coffman 0 $0 14,562 14,421 $3,563 $19,780
</TABLE>
(1) Represents the difference between the $9.8125 closing market price of the
Company's Common Stock at March 27, 1998, minus the exercise price of the
options.
(2) 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 the 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.
Compensation of Directors
Retainer Fees. Non-employee directors each receive annual compensation of
approximately $35,000, 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.
Chairman of the Board. The Chairman of the Board of Directors serves as a
member or ex-officio member of all committees of the Board and is required to
spend significant time on Company matters. The chairmanship is a non-officer,
non-employee position.
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 the previous chairman, Mr. E. Martin Gibson, received.
Stock Options. At the 1996 Annual Meeting, Stockholders approved the 1996
Stock Inventive 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.
Prior to the Special Meeting, the maximum number of shares of Common Stock
that could be issued pursuant to awards granted under the 1996 Plan was
639,357; and on April 1 of each of the years 1999, 2000 and 2001, such maximum
number was to be increased by a number equal to 2% of the number of shares of
Common Stock issued and outstanding on each of such dates. At the Special
Meeting, stockholders approved amendments to the plan to provide for a one-time
increase equal to 2% of the shares of Common Stock issued in the Merger, and to
change the date of occurrence of the remaining scheduled annual increases from
April 1 of each such year to the first business day of each fiscal year of the
Company through 2001, in accordance with the previously announced change to the
last Friday in December as the end of the Company's fiscal year.
The 1996 Plan is administered by the Compensation Committee of the Board (the
"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,
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<PAGE>
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.
Pursuant to the Merger Agreement, each holder of an option to purchase a share
of OHM Common Stock (each an "OHM Option") granted under OHM's 1986 Stock Option
Plan, the Directors Deferred Fee Plan, the Incentive Stock Plan and the
Nonqualified Stock Option Plan for Directors (collectively, the "OHM Stock
Plans") was required to elect the treatment of their OHM Options under the
provisions of the Merger Agreement. OHM Option holders were permitted to elect
that each OHM Option, be converted into the right to receive cash consideration
equal to the product of (x) (1) the excess of $11.50 over (2) the exercise price
per share subject to such OHM Option and (y) the number of shares subject to
such OHM Option, or that, at the effective time of the Merger, each OHM Option
would be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such OHM Option, a number of shares of
Common Stock equivalent to the number of shares of OHM Common Stock that could
have been purchased immediately prior to the effective time under such OHM
Option multiplied by 1.394 shares of OHM Common Stock for each share of Common
Stock (the "Exchange Ratio") rounded up to the nearest whole number of shares of
Common Stock), at a price per share of Common Stock (rounded up to the nearest
whole cent) equal to (y) the aggregate exercise price for the Shares otherwise
purchasable pursuant to such OHM Option divided by (z) the Exchange Ratio;
provided, however, that in the case of any OHM Option to which Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") applied, the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option would be determined in accordance with
the foregoing, subject to such adjustments necessary in order to satisfy the
requirements of Section 424(a) of the Code. Pursuant to the Merger Agreement,
the Company assumed each OHM Option to which this second election applied in
accordance with the terms of the OHM Stock Plans under which such OHM Option was
issued and the stock option agreement by which it was evidenced. Holders of OHM
Options with respect to 188,038 shares of OHM Common Stock (convertible into
262,126 shares of Company Common Stock) chose the second election.
Retirement Plan. Prior to the consummation of the Investment, the Company
maintained a retirement plan for non-employee directors and under certain
circumstances directors who met the plan's length of service requirements were
entitled to an accelerated lump sum payment upon a change of control such as
caused by the Investment. In connection with the Investment, however, each of
the then non-employee directors of the Company acknowledged and agreed to a
modification of the right to receive the accelerated lump sum payment. The
payments to be received by non-employee directors pursuant to the amended plan
are significantly less than the lump sum payments that were waived. Pursuant to
the plan as amended, Mr. Gibson is to receive $16,000 in annual benefits, for a
total of $80,000, and Mr. McGill is to receive $40,000 in annual benefits, for a
total of $200,000, payable in monthly installments over five years, on account
of their service as directors prior to the Investment.
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.
7
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Stockholders of the Company
The following table sets forth information as of July 20, 1998 with respect to
beneficial ownership of (a) Common Stock, (b) Depositary Shares, each
representing 1/100 of a share of 7% Preferred Stock (the "Depositary Shares"),
(C) Convertible Preferred Stock and (d) the Warrants, by (w) each person known
by the Company to be the beneficial owner of 5% or more of the outstanding
Common Stock (based solely on information contained in Schedules 13D, -G, or-F
filed by such persons and delivered to the Company), Depositary Shares,
Convertible Preferred Stock or Warrants, (x) each director of the Company, (y)
the executive officers of the Company and (z) all directors and persons serving
as executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Amount and Amount and Percent of
Nature of Percent of Nature of Percent of Nature of Convertible
Beneficial Common Beneficial Depositary Beneficial Preferred
Ownership of Stock Ownership of Shares Ownership of Stock
Common Beneficially Depositary Beneficially Convertible Beneficially
Name Stock (1)(2) Owned (2) Shares Owned Preferred Stock Owned
- ---- ------------- ------------ ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
TCG Holdings, L.L.C............ 6,492,689 (3) 22.23% 40,782 89.54%
Carlyle Investment
Management, L.L.C............. 757,731 (4) 3.24% 4,762 10.46%
Libra Fund, L.P. (5)........... 1,497,576 6.6%
Baron Capital Group, Inc. (6).. 1,200,000 5.3%
Daniel A. D'Aniello (7)........ 0 --
Philip B. Dolan (7)............ 0 --
E. Martin Gibson............... 10,976 * 5,000 *
James C. McGill (8)............ 26,963 * 1,000 *
Robert F. Pugliese............. 2,966 *
James D. Watkins............... 2,966 *
Anthony J. DeLuca.............. 90,089 *
James G. Kirk.................. 2,267 *
James R. Mahoney............... 67,471 *
Richard W. Pogue............... 56,841 (9) *
Raymond J. Pompe............... 55,298 *
Charles W. Schmidt............. 13,940 *
Philip O. Strawbridge.......... 169,169 *
Franklin E. Coffman (11)....... 49,383 * 1,000 *
All directors and executive
officers as a
group (14 persons) (12)....... 535,608 2.33%
- ------------------
</TABLE>
* Less than 1%
(1) The number of shares of Common Stock beneficially owned includes shares of
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 60 days of
July 20, 1998 upon exercise of stock options (and conversion of Depositary
Shares in the case of Messrs. Gibson, McGill, and Coffman) in the following
amounts: (i) 5,625 shares upon exercise of options and 5,351 shares upon
conversion of the Depositary Shares as to Mr. Gibson, (ii) 4,375 shares upon
exercise of options and 1,070 shares upon conversion of the Depositary
Shares as to Mr. McGill, (iii) 55,760 shares as to Mr. Pogue, (iv) 13,940
shares as to Mr. Schmidt, (v) 34,334 shares as to Mr. DeLuca, (vi) 28,834
shares as to Mr. Mahoney, (vii) 17,355 shares as to Mr. Pompe, (viii) 2,267
shares as to Mr. Kirk, (ix) 136,566 shares as to Mr. Strawbridge, and (x)
26,795 shares upon exercise of options and 1,070 shares upon conversion of
the Depositary Shares as to Mr. Coffman.
(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 such
shares is divided by the sum of the number of outstanding shares of Common
Stock on July 20, 1998 plus (i) the number of shares of Common Stock subject
to options exercisable currently or within 60 days of July 20, 1998 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
8
<PAGE>
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 Carlyle Warrants held by
certain limited partnerships controlled by TCG Holdings, L.L.C., a Delaware
limited liability company ("TCG Holdings"), as set forth in more detail in
the following sentence. The cumulative TCG Holdings ownership figure
represents (i) 1,803,941 shares beneficially owned by Carlyle Partners II,
L.P., a Delaware limited partnership ("CPII"), (ii) 82,146 shares
beneficially owned by Carlyle Partners III, L.P., a Delaware limited
partnership ("CPIII"), (iii) 1,517,100 shares beneficially owned by Carlyle
International Partners II, L.P., a Cayman Islands limited partnership
("CIPII"), (iv) 81,568 shares beneficially owned by Carlyle International
Partners III, L.P., a Cayman Islands limited partnership ("CIPIII"), (v)
341,575 shares beneficially owned by C/S International Partners, a Cayman
Islands partnership ("C/SIP"), (vi) 1,907 shares beneficially owned by
Carlyle Investment Group, L.P., a Delaware limited partnership ("CIG"),
(vii) 2,386,686 shares beneficially owned by Carlyle-IT International
Partners, L.P., a Cayman Islands limited partnership ("CITIP"), (viii)
80,291 shares beneficially owned by Carlyle-IT International Partners II,
L.P., a Cayman Islands limited partnership ("CITIPII"), and (ix) 197,475
shares beneficially owned by Carlyle-IT Partners, L.P., a Delaware limited
partnership ("CITP"). TC Group, L.L.C., a Delaware limited liability
company ("TC Group"), may be deemed to be the beneficial owner of 6,492,689
shares of ITC Common Stock as the general partner of CPII, CPIII, CIG, and
CITP, and as the managing general partner of CIPII, CIPIII, C/SIP, CITIP and
CITIPII. TCG Holdings, as a member holding a controlling interest in TC
Group, may be deemed to share all rights herein described belonging to TC
Group. Furthermore, because certain managing members of TCG Holdings are
also managing members of Carlyle Investment Management, L.L.C., a Delaware
limited liability company ("CIM"), TCG Holdings may be deemed the beneficial
owner of the shares of Common Stock controlled by CIM (see footnote 4
below). The principal business address of TC Group and TCG Holdings is c/o
The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South,
Washington DC 20004. The principal business address of CPII, CPIII, CIG,
CITP and CIM is Delaware Trust Building, 900 Market Street, Suite 200,
Wilmington, Delaware 19801. The principal business address of CIPII,
CIPIII, C/SIP, CITIP and CITIPII is Coutts & Co., P.O. Box 707, Cayman
Islands, British West Indies.
(4) Represents shares of Common Stock issuable upon conversion of all shares of
Convertible Preferred Stock and exercise of all Carlyle Warrants held by the
State Board of Administration of the State of Florida over which CIM holds
sole voting and disposition power. Because certain managing members of TCG
Holdings are also managing members of CIM, CIM may be deemed to be the
beneficial owner of the shares of Common Stock controlled by TCG Holdings
(see footnote 3 above).
(5) Such information is derived solely from a Schedule 13G filed by the "Libra
Stockholders", which is comprised of the entities listed in the following
sentence (filing as joint filers), with the SEC dated July 2, 1998. The
Libra Stockholders' cumulative ownership represents (i) 1,387,531 shares
owned by Libra Fund, L.P. ("Libra") and (ii) 110,045 shares of Common Stock
owned by an affiliated off-shore fund (the "Fund"). The Libra Stockholders'
report in such Schedule 13G that Libra Advisors, LLC ("Advisors"), an
Investment Advisor to the Fund, has the power to vote and to direct the
voting of and the power to dispose and direct the disposition of the 110,045
shares of Common Stock owned by the Fund. As the General Partner of Libra,
Advisors has the power to vote and to direct the voting of and the power to
dispose and direct the disposition of the 1,387,531 shares of Common Stock
owned by Libra. Accordingly, Advisors may be deemed to be the beneficial
owner of 1,497,576 shares of Common Stock, or 6.6% of the outstanding shares
of Common Stock. In addition, as the sole voting member and Manager of
Advisors, Ranjan Tandon may be deemed to have the power to vote and to
direct the voting of and the power to dispose and direct the disposition of
the 1,497,576 shares of Common Stock owned by Advisors or 6.6% of the
outstanding shares of Common Stock. The address of Libra Fund, L.P. and
affiliated reporting persons is 277 Park Avenue, 26th Floor, New York, New
York 10172.
(6) Such information is derived solely from a Schedule 13G filed by the "Baron
Shareholders", which is composed of the entities listed in the following
sentence (filing as joint filers), with the SEC dated June 4, 1998. The
Baron Stockholders is comprised of Baron Capital Group, Inc. ("BCG"), Bamco,
Inc. ("BAMCO"), Baron Small Cap Fund ("BSC"), Baron Asset Fund ("BAF"), and
Ronald Baron. The Baron Stockholders report in such Schedule 13G that (i)
BCG, BAMCO, BSC and Ronald Baron have the shared power to vote or direct the
vote of 1,200,000 shares of Common Stock; (ii) BCG, BAMCO, BAF and Ronald
Baron have shared power to dispose of or direct the disposition of 1,200,000
shares of Common Stock, but that none of BCG, BAMCO, BSC, or Ronald Baron
have the sole power to vote or direct the vote of or the sole power to
dispose or to direct the disposition of, any Common Stock. BAMCO is a
subsidiary of BCG. BSC is an investment advisory client of BAMCO. Ronald
Baron owns a controlling interest in BCG. BCG and Ronald Baron disclaim
beneficial ownership of shares held by their controlled entities (or the
investment advisory client thereof) to the extent such shares are held by
persons other than BCG and Ronald Baron. BAMCO disclaims beneficial
ownership of shares held by its investment advisory clients to the extent
such shares are held by persons other than BAMCO and its affiliates. The
address of Baron Capital Group, Inc. and the affiliated reporting persons is
767 Fifth Avenue, 24th Floor, New York, New York 10153.
9
<PAGE>
(7) Mr. D'Aniello is a Managing Member of TCG Holdings. Mr. D'Aniello's interest
in TCG Holdings is not controlling and thus Mr. D'Aniello expressly
disclaims any beneficial ownership in the shares of ITC 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 or TCG Holdings, and
as such expressly disclaims any beneficial ownership in the shares of ITC
Common Stock beneficially owned by any of such entities.
(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 3,750
shares that may be purchased upon the exercise of options that are currently
exercisable or that will become exercisable within 60 days of July 20, 1998.
(9) Includes 1,081 shares of Common Stock owned by a revocable trust for Mr.
Pogue's wife with respect to which Mr. Pogue is a trustee. Mr. Pogue
disclaims beneficial ownership of all such shares.
(11) Mr. Coffman resigned as Senior Vice President, DOE Programs pursuant to an
Agreement dated April 17, 1998. See "Certain Transactions - Coffman
Agreement."
(12) Includes 326,091 shares of Common Stock that may be purchased upon the
exercise of options that are currently exercisable or that will become
exercisable within 60 days of July 20, 1998 and 7,000 Depositary Shares
(convertible into 7,491 shares of Common Stock).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements. The Company and each of Anthony J. DeLuca, James R.
Mahoney, Raymond J. Pompe, and Franklin E. Coffman have entered into employment
agreements with terms through November 1999. The employment agreements provide
for initial base salaries at the rates in effect at the time of the closing of
the Investment, 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, 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 are at the discretion of the Compensation Committee
and will generally target long-term incentive opportunities.
The agreements provide for severance payments under certain circumstances.
Under the agreements, the Company will have "good reason" to terminate Messrs.
DeLuca, Mahoney, Pompe or Coffman because of the Company's performance if such
persons fail to meet certain management forecasts for two consecutive fiscal
years. If the executive is terminated because of the Company's performance
(under the circumstances permitted in the agreements) within 24 months after a
change in control, is terminated without reason, or resigns for cause, he is
entitled to receive his base salary as adjusted from time to time (presently
$400,000 in the case of Mr. DeLuca, $260,000 in the case of Mr. Mahoney,
$280,000 in the case of Mr. Pompe, and $194,000 in the case of Mr. Coffman) for
12 months following the termination (24 months in the case of Mr. DeLuca), or,
if he is terminated because of the Company's performance (under the
circumstances permitted in the agreements) but not within 24 months after a
change in control, he is entitled to receive his base salary for six months
following the termination (12 months in the case of Mr. DeLuca). In addition,
under certain circumstances, the executive's short-term incentive compensation
will be paid on a pro-rated basis, and he will be entitled to Company employee
benefits for a specified period.
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. The agreements each required that within three months of the closing of
the Investment, Mr. DeLuca purchase between $100,000 and $125,000 worth of
Common Stock and Messrs. Mahoney and Pompe each purchase between $75,000 and
$100,000 worth of Common Stock. All of the executives have purchased the
required amounts of Common Stock, and 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 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 at 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.
10
<PAGE>
Additionally, as part of their employment agreements, each of Messrs. DeLuca,
Mahoney, Pompe and Coffman are bound by non-compete provisions with the Company
if they terminate their employment by resignation.
Mr. Strawbridge, as well as other senior executives at OHM, entered into
employment agreements with OHM prior to the execution of the Merger Agreement,
and the tender offer for OHM resulted in a change in control of OHM for purposes
of those employment agreements. As a result of the change in control, under his
employment agreement, Mr. Strawbridge was entitled to continue his employment
with OHM in his position at the time of the tender offer for a period of
approximately three years following the date of the change in control. During
his term of employment, Mr. Strawbridge would have been entitled to receive a
base salary and to continue to participate in incentive and employee benefit
plans at levels no less favorable to him than existed prior to the change in
control. In the event of a termination by OHM or by Mr. Strawbridge of his
employment during the employment term under circumstances amounting to good
reason under his employment agreement, Mr. Strawbridge would have been entitled
to receive a lump sum payment, subject to an overall limitation to assure that
payments will not constitute "excess parachute payments" under federal income
tax law. Mr. Strawbridge has agreed to remain employed but the Company has
agreed to pay to Mr. Strawbridge the amount he would have received under his
employment agreement if his employment had been terminated, and pursuant to that
agreement Mr. Strawbridge has received $1,400,000.
Sheh Agreements. Robert 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 continued to be
treated as an employee of the Company until June 26, 1998, but had no further
duties or responsibilities to the Company. Pursuant to the agreement, among
other benefits, until June 26, 1998, Mr. Sheh continued to be paid $450,000 per
annum and received a car allowance of $5,850 per annum. Under the agreement,
23,998 shares of restricted Common Stock awarded to Mr. Sheh in July 1995 became
fully vested on June 26, 1998, and options to purchase a total of 450,000 shares
of Common Stock became fully vested on April 27, 1998.
Coffman Agreement. In connection with his resignation from the Company,
Franklin E. Coffman, a Senior Vice President, entered into an agreement dated as
of April 17, 1998 superceding his employment agreement. See "Certain
Transactions - Employment Agreements." Pursuant to that agreement Mr. Coffman
resigned as an officer of the Company and received a one-time payment of
$275,000, less payroll deductibles representing one year's salary and the cash
value of certain benefits. Mr. Coffman's eligibility to participate in Company
benefits ceased as of the date of the agreement. The Company and Mr. Coffman
also agreed that he would have the right to exercise vested options during a two
year period after the agreement and that all unvested options will expire on the
earlier of their scheduled expiration or April 7, 2000. The Company also agreed
to lift vesting restrictions on 8,971 shares of previously awarded restricted
stock. The terms of the agreement were consistent with terms that he would have
received if he had retired from the Company.
Retention of Eckert Seamans Cherin & Mellott. The Company has retained the
law firm of Eckert Seamans Cherin & Mellott, to which Robert F. Pugliese, a
director of the Company, is Special Counsel, to perform certain limited services
in connection with the Company's credit agreement and the merger of OHM
Corporation.
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 to be 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 in
California. The loan was interest free so long as Mr. Mahoney remained 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 forgiven by the Company.
Additionally, Mr. Mahoney 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. In April 1997, $122,451 remained
outstanding on this loan. In May 1998, Mr. Mahoney repaid in full the $102,451
then remaining outstanding on his loan in connection with the sale of his
California residence.
In connection with the relocation and consolidation of the Company's
corporate headquarters from Torrance, California to Pittsburgh, Pennsylvania in
June 1997, and other relocations occurring at approximately the same time, the
Company offered relocation assistance to a limited number of officers and key
employees. Relocation assistance packages offered to these individuals involve
three elements: 1) reimbursement of 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 salary (Mr. Mahoney received an allowance of 30% of salary in connection with
his relocation and Mr. DeLuca received a 30% allowance in connection with his
relocation). Amounts paid to reimburse out-of-pocket expenses were "grossed-up"
for tax purposes. The loans to relocating associates have ten year terms, are to
be secured by the residence purchased, and do not bear interest as long as the
associate stays with the Company. Five percent of the
11
<PAGE>
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 each were offered and accepted relocation loans on such
terms in the original principal amounts of up to $100,000. Mr. DeLuca accepted a
loan of $70,000 in December 1997 and Mr. Mahoney accepted a loan of $100,000 in
April 1998. Total relocation costs for all relocating employees was
approximately $953,000.
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 has paid $2,500,000 in
investment banking fees to Carlyle (and reimburse reasonable out-of-pocket
expenses) for services rendered in connection with the Merger transactions,
which is less than the 1% fee to which Carlyle would otherwise have been
entitled pursuant to the terms of its existing agreement with the Company.
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, the Company's Certificate of Incorporation provides 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
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 shall 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 shall 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.
12
<PAGE>
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.
Further, pursuant to the Merger Agreement with OHM, the Company will, from
and after the effective time of the Merger, indemnify and hold harmless, to the
fullest extent permitted under applicable law (and the Company will also advance
expenses as incurred to the fullest extent permitted under applicable law,
provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification), each present and former director and officer of
OHM and its subsidiaries against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
effective time of the Merger, including the transactions contemplated by the
Merger Agreement, which is based or arises out of the fact that such person is
or was a director or officer of OHM or any of its subsidiaries. In addition, for
not less than six years after the effective time, the Company and OHM will
maintain OHM's and its subsidiaries' existing directors' and officers' liability
insurance ("D&O Insurance"), subject to certain maximum premium payments,
provided that the Company may substitute therefor policies having at least the
same coverage and containing terms which are no less advantageous to the
intended beneficiaries thereof than the existing D&O Insurance with respect to
matters existing or occurring at or prior to the effective time or may purchase
a six-year extended reporting endorsement under OHM's existing D&O Insurance.
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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. 2 on Form 10-K/A
to its Form 10-K for the year ended March 27, 1998 to be signed on its behalf by
the undersigned, thereunto duly authorized in Monroeville, Pennsylvania on the
16th day of September, 1998.
INTERNATIONAL TECHNOLOGY CORPORATION
By: /s/ Anthony J. DeLuca
------------------------------------------
Anthony J. DeLuca
Chief Executive Officer and President
14
