<PAGE>
AS FILED ON JULY 8, 1999.
Registration Statement No. 333-74427
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
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CH2M Hill Companies, Ltd.
(Exact name of registrant as specified in its charter)
Oregon 8711 93-0549963
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
6060 South Willow Drive,
Greenwood Village, CO 80111-5142
(303) 771-0900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Samuel H. Iapalucci
CH2M HILL Companies, Ltd.
6060 South Willow Drive
Greenwood Village, CO 80111-5142
(303) 771-0900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Francis R. Wheeler, Esq.
Mashenka Lundberg, Esq.
Holme Roberts & Owen LLP
1700 Lincoln Street
Denver, CO 80203
(303) 861-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and from time
to time thereafter.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and will be amended and +
+completed. A registration statement relating to the common stock has been +
+filed with the Securities and Exchange Commission and we may not sell these +
+securities until the registration statement becomes effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any jurisdiction where the offer or sale +
+is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated July 8, 1999
PROSPECTUS
[LOGO OF CH2MHILL]
23,859,330 Shares of Common Stock
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CH2M HILL Companies, Ltd. and its shareholders are offering up to 23,859,330
shares of common stock, including:
. Up to 2,000,000 shares that CH2M HILL may offer to its employees directly
or through its internal market
. Up to 2,000,000 shares that CH2M HILL may offer to its employees through
our employee benefit plans
. Up to 1,408,490 shares that officers and directors may offer through the
internal market
. Up to 16,450,840 shares that other shareholders may offer through the
internal market
. Up to 2,000,000 shares that our employee benefit plans may offer through
the internal market
This offering of common stock is designed to allow trading of the common
stock among CH2M HILL employees, directors, consultants and employee benefit
plans up to four times each year on the internal market. No exchange will list
the common stock. For more details on how the internal market will function,
see "Internal Market Information" beginning on page 6.
All of the shares being offered for sale by this prospectus will be sold
through the internal market at the price set by the Board of Directors from
time to time. Effective for the year 1999, the price for the common stock is
$4.31 per share.
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 3.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
Prospectus dated , 1999
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 3
Securities Offered by this Prospectus.................................... 6
Internal Market Information.............................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Dilution................................................................. 13
Selected Financial Data.................................................. 14
Business................................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Employee Benefit Plans and Direct Stock Purchases........................ 33
Management............................................................... 55
Executive Compensation................................................... 57
Security Ownership of Certain Beneficial Owners and Management........... 59
Related Transaction...................................................... 60
Policy Related to Affiliated Transactions................................ 60
Securities Offered by the Current Shareholders........................... 61
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 66
Validity of Common Stock................................................. 66
Experts.................................................................. 66
Available Information.................................................... 67
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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ii
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Before investing in the common stock, you should read the entire prospectus
carefully, including the "Risk Factors" section and the financial statements
and the notes to those statements. The information in this prospectus,
including number of shares and share prices, has been adjusted to reflect the
conversion of each outstanding share of Class A preferred stock into one share
of common stock and a ten-for-one stock split of the common stock.
General
CH2M HILL provides engineering, consulting, design, construction,
procurement, operations, maintenance, and project management services to our
clients in the public and private sectors. We provide services to our domestic
and foreign clients through three operating segments:
. Environmental, Energy and Infrastructure
. Water
. Industrial
For the year ended December 31, 1998, CH2M HILL had gross revenues of
approximately $935 million.
Environmental, Energy and Infrastructure consists of two businesses:
Environmental, Nuclear, Energy & Systems and Transportation. The Environmental,
Nuclear, Energy & Systems business provides integrated environmental and waste
management consulting and engineering services, and performs design and build,
remediation, construction and implementation of infrastructure and
telecommunications systems for a variety of public and private clients. The
Transportation business provides planning, siting, permitting, design, program
and construction management, transportation management and consulting services
for aviation, ports, highways, bridges and transit systems.
Water consists of two businesses: Water & Wastewater and Operations &
Maintenance. The Water & Wastewater business focuses on the planning, design,
construction and implementation of water supply systems and wastewater
treatment facilities. The Operations & Maintenance business provides services
to water and wastewater operators, including startup, performance testing,
facility operations, maintenance and management.
Industrial provides design, construction, specialized precision
manufacturing support and facility services to high-technology manufacturing
companies, food and beverage processing businesses and fine chemical and
pharmaceutical manufacturers.
Business Strategy
CH2M HILL is seeking to grow through increasing market share in each of our
operating segments both domestically and internationally. The key elements of
our strategy include:
. Increasing the number and the dollar value of our contracts
. Expanding and diversifying our client base
. Increasing the number of large, longer-term projects with the potential
for higher profit margins
. Encouraging ownership in our common stock across a greater proportion of
our workforce
Expansion of Common Stock Ownership
Historically, our key employee policy has restricted ownership of common
stock to persons known as "key employees," and to employee benefit trusts.
Employees were selected for key employee status by existing key employees on
the basis of various objective and subjective criteria. To expand our ownership
base beyond "key employees," the Board of Directors decided to establish a new
ownership program as a replacement for the key employee policy. The main goals
of the new program are:
. Establishing an internal market to enable shareholders to buy and sell
common stock
1
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. Expanding the opportunity for common stock ownership to include all
eligible employees, directors and consultants
. Adopting new and amending existing employee benefit plans to encourage
employees to invest in common stock
Operation of the Internal Market
Through the internal market, any eligible shareholder may offer shares of
common stock for sale to eligible buyers up to four times each year on pre-
determined trade dates. Our 401(k) plan, employee stock plan, stock option
plan, payroll deduction stock purchase plan and trusts holding common stock for
the benefit of the employees may also participate in these trades. Shares will
be bought and sold through the internal market at a price determined by the
Board of Directors that is intended to represent fair market value. The stock
price is determined by the Board of Directors based upon our after-tax profits,
otherwise referred to as net income, and shareholders' equity as well as a
subjective analysis of market factors the Board of Directors considers
relevant. CH2M HILL may purchase or sell shares of common stock on the internal
market on any trade date to balance the supply and demand for common stock
between sellers and buyers, but we will not be obligated to do so.
Principal Executive Offices
Our principal executive offices are located at 6060 South Willow Drive,
Greenwood Village, Colorado 80111-5142. Our telephone number is (303) 771-0900.
2
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RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus before deciding to invest in our common stock.
Government Contracts Present Risks of Termination for Convenience, Adjustment
of Payments Received, Restrictions on Ability to Compete for Government Work
and Funding Constraints
In 1998, we derived approximately 63% of our total revenues from contracts
with federal, state, local and foreign government agencies. In addition, we own
equity interests in joint ventures with revenues attributable primarily or
entirely to contracts with governmental clients. The following risks are
inherent in government contracts:
. Because federal law and some state laws permit government agencies to
terminate a contract for convenience, our governmental clients may
terminate or decide not to renew our contracts with little or no prior
notice.
. Federal governmental clients may audit contract payments we receive for
several years after these payments are made. Based on these audits, the
clients may adjust or demand repayment of payments we previously
received. Audits have been completed on our federal contracts through
December 31, 1994 and are continuing for subsequent periods. None of the
audits performed to date on our federal contracts have resulted in any
significant adjustments to our financial statements. We believe, on the
basis of the information that we currently have about the ongoing audits,
that the ongoing audits will not result in material adjustments to our
financial statements. However, we cannot be sure that an audit in the
future will not result in a material adjustment to our financial
statements.
. Federal government contract regulations provide that any company
convicted of a crime or indicted on a violation of statutes related to
federal contracting may lose its right to receive future contract awards
or extensions. To our knowledge, we are not currently subject to any
investigation that may affect our ability to compete for federal
government work.
. Our ability to earn revenues from our existing and future government
projects will depend upon the availability of funding from various
federal, state, local and foreign government agencies and private sector
clients. We cannot control whether those clients will fund or continue
funding our outstanding projects.
Our ability to secure new government contracts and our revenues from
existing government contracts could be adversely affected by any one or a
combination of the factors listed above. In addition, if Kaiser-Hill Company,
LLC, a joint venture in which we own a 50% equity interest, fails to extend its
contract with the Department of Energy, this failure could adversely affect our
operating income.
We Could Sustain Losses on Our Fixed Price Contracts If Our Costs Exceed the
Fixed Price
Under "fixed price" contracts, we estimate the costs of the project and
agree to deliver the project for a definite, predetermined payment regardless
of our actual costs incurred over the life of the project. Many fixed price
contracts involve large industrial facilities and public infrastructure
projects and present the risk that our costs to complete a project may exceed
the fixed price agreed to with the client. The fixed payments negotiated for
such projects may not cover our actual costs and desired profit margins for
such projects. If our actual costs for a fixed price project are higher than we
expect, our profit margins on the project will be reduced or we could suffer a
loss on the affected project.
A Reduction in the Scope of Environmental Regulations or Changes in Government
Policies Could Adversely Affect Our Revenues
A substantial portion of our business is generated either directly or
indirectly as a result of federal, state, local and foreign laws and
regulations related to environmental matters.
3
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Changes in environmental regulations could affect our business more
significantly than they would affect some other engineering firms. Accordingly,
a reduction in the number or scope of these laws and regulations, or changes in
government policies regarding the funding, implementation or enforcement of
such laws and regulations, could significantly reduce the size of one of our
most important markets and limit our opportunities for growth or reduce our
revenues below their current levels. In addition, any significant effort by
government agencies to reduce the role of private contractors in regulatory
programs, including environmental compliance projects, could have the same
adverse effects.
Our Environmental Remediation Work May Expose Us to Environmental Liability
We could become subject to liabilities or fines for our environmental
activities. The assessment, analysis, remediation, handling, management, and
disposal of hazardous substances compose a significant portion of our business
and involve significant risks, including the possibility of property damages,
personal injuries, fines and penalties and other regulatory action. Civil and
criminal liabilities and liabilities to clients and third parties for
environmental violations and damages can be very large. Although we have never
been subject to any significant fines relating to environmental matters, it is
possible that we could be subject to substantial fines or liabilities in the
future. In that case, the fines could reduce our net income, or cause a loss,
and other penalties could adversely affect our ability to compete for new
business in the future.
Our Projects May Result in Liability for Faulty Engineering Services
Because our projects are often large and can affect many people, our
failure to make judgments and recommendations in accordance with applicable
professional standards could result in disproportionately large damages and,
perhaps, punitive damages. Our engineering practices involve professional
judgments regarding the planning, design, development, construction, operation
and management of industrial facilities and public infrastructure projects.
Although we have adopted a range of insurance, risk management and avoidance
programs designed to reduce potential liabilities, there can be no assurance
that such programs will protect us fully from all risks and liabilities.
Absence of a Public Market May Prevent You from Selling Your Stock and Cause
You to Lose All or Part of Your Investment
There is no public market for our common stock. While we intend the
internal market to provide liquidity to shareholders, there can be no assurance
that there will be enough orders to purchase shares to permit shareholders to
resell their shares on the internal market, or that a regular trading market
will develop or be sustained in the future. The price in effect on any trade
date may not be attractive enough to both buyers and sellers to result in a
balanced market because the price will be fixed in advance by the Board of
Directors, using their judgment of the fair market value of the common stock,
and not by actual market trading activity. Moreover, although CH2M HILL may
enter the internal market as a buyer of common stock if there are more sell
orders than buy orders, we have no obligation to engage in internal market
transactions and will not guarantee market liquidity. Consequently,
insufficient buyer demand could cause sell orders to be prorated, or could
prevent the internal market from opening on any particular trade date.
Insufficient buyer demand could cause shareholders to suffer a total loss of
investment or substantial delay in their ability to sell their common stock. No
assurance can be given that shareholders desiring to sell all or a portion of
their shares of common stock will be able to do so. Accordingly, the purchase
of common stock is suitable for you only if you have limited need for liquidity
in this investment.
Investors in the Offering Will Experience Immediate and Substantial Dilution
The initial offering price per share of common stock exceeds CH2M HILL's
net tangible book value per share. Accordingly, the purchasers of shares sold
in the offering will experience immediate and substantial dilution. At the
stock price in effect for 1999 of $4.31 per share, based on our net tangible
book value per share of $2.60 as of December 31, 1998, new investors will
experience immediate dilution of $1.52 per share, or 35.3%.
4
<PAGE>
Transfer Restrictions on the Common Stock Could Prevent You from Selling Your
Stock and Cause You to Lose All or Part of Your Investment
The transfer restrictions applicable to the common stock could cause you to
lose all or part of your investment. Since all of the shares of common stock
will be subject to transfer restrictions, you will generally only be able to
sell your stock on one of the four trade dates for the internal market in each
year. Unlike shares that are actively traded in the public markets, you may not
be able to sell at a particular time even though you would like to. The stock
price could decline between the time you want to sell and the time you become
able to sell.
The Offering Price Is Determined by the Board of Directors' Judgment of Fair
Market Value and Not by Market Trading Activity
The offering price is, and subsequent offering prices at each trade date
will be, established by the Board of Directors approximately 30 days before the
trade date. In establishing the price, the Board will take into consideration
the factors which are described in the section of this prospectus called
"Internal Market Information." However, since the Board of Directors will set
the offering price in advance of the trade date, market trading activity on any
given trade date can not affect the price on that trade date. This is a risk to
you because our stock price will not change to reflect supply of and demand for
shares on a given trade date as it would in a public market. You may not be
able to sell shares or you may have to sell your shares at a price that is
lower than the price that would prevail if the internal market price could
change on a given trade date to reflect supply and demand. Our Board of
Directors intends the formula to result in offering prices for the common stock
that represent fair market value. The formula is subject to change at the
discretion of the Board of Directors.
The Limited Market and Transfer Restrictions on the Common Stock Will Likely
Have Anti-Takeover Effects
Only CH2M HILL employees, directors, consultants and employee benefit plans
may own CH2M HILL common stock and participate in the internal market. In
addition, we have imposed significant restrictions on the transfer of our
common stock other than through sales on the internal market. These limitations
make it extremely difficult for a potential acquirer who does not have the
prior consent of our Board of Directors to acquire control of our company,
regardless of the price per share the acquirer were willing to pay and whether
or not shareholders were willing to sell at that price. As a result, it is
unlikely that a hostile bidder would try to take control of our company.
Actual Results May Differ From Results Discussed in Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to:
. the continuance of and funding for certain governmental regulation and
enforcement programs which create demand for our services;
. our ability to attract, finance and perform large, longer-term projects;
. our ability to insure against or otherwise cover the liability risks
inherent in our business, including environmental liabilities and
professional engineering liabilities;
. our ability to manage the risks inherent in the government contracting
business;
. our ability to manage the costs associated with our fixed-price
contracts;
. our ability to attract and retain professional personnel; and
. general economic conditions.
5
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SECURITIES OFFERED BY THIS PROSPECTUS
The shares of common stock offered by CH2M HILL may be offered to present
and future employees, including executive officers, directors and consultants,
of CH2M HILL through the internal market or through the employee benefit plans
listed below and summarized in the section of this Prospectus called "Employee
Benefit Plans."
------------------------------------------
CH2M HILL EMPLOYEE BENEFIT
PLANS
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. Retirement and Tax-Deferred Savings Plan
(401(k) Plan)
. Employee Stock Plan
. Stock Option Plan
. Stock Purchase Plan
. Pre-Tax and After-Tax Deferred
Compensation Plans
------------------------------------------
This offering of common stock is not intended to raise capital for CH2M
HILL. CH2M HILL will offer common stock to its employees through bonuses,
through the various employee benefit plans and, if necessary, in case of an
over-subscribed market, as described in the section called "Internal Market
Information."
Officers, including officers who are also directors, may sell up to an
aggregate of 1,408,490 shares of common stock through the internal market.
Other employees of CH2M HILL may sell up to an aggregate of 16,450,840 shares
of common stock on the internal market. We do not know whether these officers
and other employees will offer or sell some, none or all of such shares. The
shares offered by officers and other employees may include shares they hold
directly and also shares they hold indirectly through the employee benefit
plans summarized below. The officers and other employees will not be treated
more favorably than other shareholders participating on the internal market.
Pursuant to our Restated Bylaws, all shares of common stock are subject to
CH2M HILL's repurchase right, right of first refusal and other restrictions on
transferability.
INTERNAL MARKET INFORMATION
General
This section contains a summary of the material provisions of:
. Our key employee policy
. The transition from the key employee policy to the internal market
. How the internal market will work
We encourage you to read the entire key employee policy and the internal market
rules, which are attached as exhibits to the registration statement filed with
the Securities and Exchange Commission.
Until this offering, our principal policy on stock ownership has been our
key employee policy, which restricted ownership of the common stock to persons
referred to as "key employees." As of July 1, 1999, approximately 1,000 key
employees held common stock. To expand our ownership base beyond key employees,
the Board of Directors decided to establish a new ownership program as a
replacement for the key employee policy. The main goals of the new program are:
. Establishing an internal market to enable shareholders to buy and sell
common stock
. Expanding the opportunity for common stock ownership to include all
eligible employees, directors and consultants
. Adopting new and amending existing employee benefit plans to encourage
employees to invest in common stock
6
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Our Existing Shareholders Received Common Stock Under Key Employee Policy
Under the key employee policy, existing key employees voted to select new
key employees recommended by the Board of Directors. To earn the recommendation
of the Board of Directors to become a key employee, an employee generally had
to work for CH2M HILL for four or more years, receive consistent high job
performance evaluations and be deemed critical to the success of CH2M HILL.
Designation as a key employee qualified an individual to receive bonuses in the
form of stock and cash. Each year we granted bonuses expressed in dollar
amounts, but paid in shares of common stock and cash, to selected key employees
based on job performance and position. Upon a key employee's termination or
retirement, we repurchased his or her shares at a price calculated according to
a formula established annually by the Board of Directors.
Under the old formula, the market value of a share of common stock was
equal to the sum of present book value ("PBV") and the present going concern
value ("PGCV") divided by the number of outstanding shares of stock ("CS").
Old Formula Price = (PBV + PGCV)/CS
"PBV" was the total audited book value of CH2M HILL at the end of the most
recent fiscal year, prior to giving effect to the issuance of bonuses for the
most recent fiscal year. Nonrecurring or unusual transactions could be excluded
from the calculation at the discretion of the Board of Directors.
"PGCV" was 1.5 times the previous five fiscal year rolling average of net
income. Net income was defined as the net income on an accrual basis according
to our audited financial statements, after the deduction of all costs but
before the deduction of bonuses and income taxes. Nonrecurring or unusual
transactions could be excluded from the calculation at the discretion of the
Board of Directors.
As of July 1, 1999, approximately 1,000 key employees and the employee
benefit plan trusts held 30,046,760 shares of common stock.
4.69% = Executive officers and employee directors,
1,408,490 shares
54.75% = Other key employees, 16,450,840 shares
40.56% = Employee benefit plan trusts, 12,187,430 shares
Transition from the Key Employee Policy to the Internal Market
In connection with establishing a new ownership program, on November 6,
1998, the Board of Directors terminated the key employee policy and established
the internal market, effective on the date that the contingencies described
below are satisfied, and adopted the 1999 Stock Option Plan. Our shareholders
approved these actions of the Board of Directors during the key employee vote
on December 18, 1998. The Board of Directors will approve the final terms of
all of the other benefit plans before any common stock is sold under this
prospectus.
These actions by the Board of Directors, however, remain subject to the
effectiveness of the registration statement and to the rules and regulations of
the Securities and Exchange Commission and the securities commissions of a
sufficient number of states so that the internal market can function
efficiently, as determined by the Board of Directors in its discretion. The
Board of Directors intends to review the status of these contingencies at its
November 1999 meeting and determine at that time whether to proceed with the
internal market offering. Once these contingencies have been satisfied, the old
formula will no longer be in effect and the key employee policy will not govern
new transactions in the common stock. The conversion of the Class A preferred
stock and the ten-for-one split of the common stock would then be given effect
prior to the first trade date.
7
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How the Internal Market Works
The internal market will permit shareholders, eligible employees and the
benefit plans to buy and sell shares of common stock up to four times each year
on predetermined trade dates.
Authorized Buyers. All sales of common stock on the internal market will be
restricted to the following authorized buyers:
----------------------------------------------
Authorized Buyers of Common Stock
----------------------------------------------
. Employees, directors and consultants
of CH2M HILL
. Trustees of the 401(k) Plan
. Trustees of the Employee Stock Plan
. Trustees of the Deferred Compensation Plans
. Administrator of the Payroll Deduction Stock
Purchase Plan
------------------------------------------------
Limitations on the number of shares which an individual may purchase may be
imposed when there are more buy orders than sell orders for a particular trade
date.
Broker. We established and will manage the internal market through a
broker, initially Buck Investment Services, Inc., which will act upon
instructions from the buyers and sellers. Buck Investment Services, Inc. is not
affiliated with CH2M HILL. Individual stock ownership account records will be
maintained by the broker. Subsequent to determination of the applicable stock
price for use on the next trade date, and at approximately fifteen days prior
to such trade date, we will advise all employees and directors as to the new
stock price and the next trade date, inquiring whether such individuals wish to
purchase or sell shares on the internal market and advising them on how to
deliver written buy and sell orders approximately five days prior to such trade
date.
CH2M HILL May Purchase Shares if Market is Under-Subscribed. CH2M HILL may,
but is not obligated to, purchase shares of common stock on the internal market
on any trade date at the price in effect on that trade date, but only to the
extent that the number of shares offered for sale by shareholders exceeds the
number of shares sought to be purchased by Authorized Buyers. CH2M HILL will
consider a variety of factors including, but not limited to, CH2M HILL's cash
position, financial performance and number of shares outstanding in making the
determination of whether to participate in an under-subscribed market.
If the aggregate number of shares offered for sale on the internal market
on any trade date is greater than the number of shares sought to be purchased,
shareholder offers to sell will be accepted as follows:
. If enough orders to buy are received to purchase all the shares offered
by each seller selling fewer than 500 shares and at least 500 shares from
each other seller, then all sell orders will be accepted up to the first
500 shares and the portion of any sell orders exceeding 500 shares will
be accepted on a pro-rata basis.
. If not enough orders to buy are received to purchase all the shares
offered by each seller selling fewer than 500 shares and at least 500
shares from each other seller, then the purchase orders will be allocated
equally to each seller.
CH2M HILL May Sell Shares if Market is Over-Subscribed. To the extent that
the aggregate number of shares sought to be purchased exceeds the aggregate
number of shares offered for sale, CH2M HILL may, but is not obligated to, sell
authorized but unissued shares of common stock on the internal market on any
trade date at the price in effect on that trade date to satisfy purchase
demands. CH2M HILL will consider a variety of factors including, but not
limited to, CH2M HILL's cash position, financial performance and number of
shares outstanding in making the determination of whether to participate in an
over-subscribed market.
If the aggregate purchase orders exceed the number of shares available for
sale, the following prospective purchasers will have priority, in the order
listed:
. Administrator of the Payroll Deduction Stock Purchase Plan
8
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. Trustees of the 401(k) Plan
. Trustees of the Employee Stock Plan
. Individual employees and directors on a pro rata basis which includes
purchases through the pre-tax and after-tax deferred compensation plans
Sellers Pay Sales Commission. All sellers on the internal market, other
than CH2M HILL and the employee benefit plans, will pay the broker, initially
Buck Investment Services, Inc., a commission equal to 2% of the proceeds from
such sales. No commission is paid by Authorized Buyers on the internal market.
All offers and sales of common stock made on the internal market may be
attributed to CH2M HILL for securities law purposes.
Stock Price Determined by Board of Directors. The Board of Directors will
determine the price, which is intended to be the fair market value, of the
shares of common stock on each trade date pursuant to the formula and valuation
process described below. The price per share of common stock is as follows:
----------------------------------------------
Share Price = [(7.8 x M x P) + (SE)]/CS
----------------------------------------------
In order to determine the fair market value of the stock in the absence of
a public trading market, the Board of Directors felt it appropriate to develop
a formula to use as a tool to determine a price that would be within a fair
market value range. In determining the fair market value stock price, the Board
believes that the use of a formula incorporating a going concern component
(i.e., net income, which we call profit after tax) and a book value component
(i.e., total shareholders' equity) is important. The Board of Directors
believes that the process CH2M HILL has developed reflects modern equity
valuation techniques and is based on those factors that are generally used in
the valuation of equity securities.
The constant 7.8 is a multiple necessary for the stock price derived by the
new formula to approximate our historical estimate of the fair market value of
the common stock as derived by the old formula. The 7.8 constant is the factor
required to derive a fair market value stock price using an "M" factor of 1.0
at the beginning of the internal market.
"M" is the market factor, which is subjectively determined in the sole
discretion of the Board of Directors. In determining the market factor, the
Board of Directors will take into account factors the directors consider to be
relevant in determining the fair market value of the common stock, including:
. the market for publicly traded equity securities of companies comparable
to CH2M HILL
. the merger and acquisition market for companies comparable to CH2M HILL
. the prospects for CH2M HILL's future performance
. general economic conditions
. general capital market conditions
. other factors the Board of Directors deems appropriate
CH2M HILL believes that starting the internal market program with a market
factor equal to 1.0 will make it easier for shareholders to understand future
changes, if any, to the market factor.
In setting the market factor, The Board of Directors may take into account
the company appraisal information obtained by the trustees of the benefit
plans. The existence of an over-subscribed or under-subscribed market on any
given trade date will not affect the stock price on that trade date. However,
the Board of Directors, when determining the stock price for a future trade
date, may take into account the fact that there have been under-subscribed or
over-subscribed markets on prior trade dates.
The Board has not assigned predetermined weights to the various factors it
may consider in determining the market factor. A market factor greater than one
would increase the price per share and a market factor less than one would
decrease the price per share.
In its discretion, the Board of Directors may change, from time to time,
the market factor component of the formula price. The Board of Directors could
change the market factor, for example, following a change in general market
9
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conditions that either increased or decreased stock market equity values
generally, if the Board of Directors felt that the market change were
appropriately applicable to the common stock as well. The Board of Directors
will not make any other change in the method of determining the price per share
of common stock unless in the good faith exercise of its fiduciary duties and,
if appropriate, after consultation with its professional advisors, the Board of
Directors determines that the method for determining the price per share of
common stock no longer results in a stock price that reasonably reflects the
fair market value of CH2M HILL on a per share basis.
"P" is profit after tax, otherwise referred to as net income, for the four
fiscal quarters immediately preceding the trade date. Nonrecurring or unusual
transactions could be excluded from the calculation at the discretion of the
Board of Directors. Nonrecurring or unusual transactions are unforeseen
developments that the market would not generally take into account in valuing
an equity security. A change in accounting rules, for example, could increase
or decrease net income without changing the fair market value of the common
stock. Similarly, such a change could fail to have an immediate impact on the
value of the common stock, but still have an impact on the value of the common
stock over time. As a result, the Board of Directors feels that in order to
determine the fair market value of the common stock, it needs the ability to
review unusual events that affect net income.
"SE" is total shareholders' equity, which includes intangible items, as set
forth on CH2M HILL's most recently available quarterly or annual financial
statements. Nonrecurring or unusual transactions could be excluded from the
calculation at the discretion of the Board of Directors.
"CS" is the weighted average number of shares of common stock outstanding
during the four fiscal quarters immediately preceding the trade date,
calculated on a fully diluted basis. By "fully diluted" we mean that the
calculations are made as if all outstanding options to purchase common stock
had been exercised and as if other "dilutive" securities were converted into
shares of common stock.
Under the new formula, and as demonstrated by the following calculation,
the price per share of common stock would have been $4.30 per share based on a
market factor of 1.0 on January 1, 1999. As of December 31, 1998, we had
cumulative profit after tax (P) of $5,812,000 and total shareholders' equity of
$75,132,000.
[(7.8X1.0X$5,812,000)+($75,132,000)]
---------------------------------- =$4.30
28,025,490
Under the old formula, the price for the common stock for 1999 is $4.31, as
determined by our Board of Directors.
Following a determination by our Board of Directors at their November 1999
meeting to put the internal market into effect, commencing in the first quarter
of 2000, the stock price will be reviewed by the Board of Directors up to four
times each year.
This review will be made in conjunction with Board of Directors meetings,
currently scheduled for February, May, August and November. The Board of
Directors believes that the valuation process described above will result in a
stock price that will reasonably reflect the fair market value of CH2M HILL on
a per share basis.
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Quarterly Trade Timeline
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Trade Date Set Confirmations
Fiscal Quarter Board of and Buy/Sell Buy/Sell Orders and Checks
Ends Directors Meets Orders Solicited Due to Broker TRADE DATE Mailed
- ---------------------------------------------------------------------------------------------------------
Approximately Approximately Approximately Approximately Buy/Sell Approximately
75 Days 30 Days 15 Days 5 Days Before Orders 5 Days After
Before Trade Before Trade Before Trade Trade Date Effective Trade Date
Date Date Date
</TABLE>
We intend to publish the current stock price and upcoming trade date prior
to each trade date to all participants in the internal market through internal
communications, including bulletins, electronic mail communications or mailed
reports. Trade dates are expected to occur approximately 75 days after the end
of each fiscal quarter.
We will also distribute our audited annual financial statements to all
shareholders, as well as other employees, and to participants in the internal
market through the employee benefit plans. Such information will be distributed
at the same time as our annual reports, proxy information and solicitations are
distributed for voting instructions from shareholders and participants in the
employee benefit plans each year.
Price Range of Common Stock
Because the common stock has not been publicly traded, there has not been
any historical market-determined price. However, the Board of Directors has
periodically determined the price of the common stock for purposes of awards of
common stock made pursuant to the key employee policy.
The price per share figures shown below for 1989 through 1999 are the stock
prices established by the Board of Directors pursuant to the old formula for
purposes of transactions under the key employee policy and employee benefit
plans. There can be no assurance that the common stock will, in the future,
provide returns comparable to historical returns.
The stock prices have been adjusted to reflect the ten-for-one stock split
that will be implemented in conjunction with the implementation of the internal
market.
Because of the change from the old formula to the new formula for
determining the price, the historical prices for the common stock are not
directly comparable to the stock prices that will be determined under the new
formula. Since the determination of the price includes market analyses that are
applied by the Board at the time of making its determinations, we do not know
what the historical prices for the common stock would have been under the new
formula.
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- --------------------------------------
Price Per
Share % Increase
Date (Old Formula) (Decrease)
- ---------------------------------------
1989 $2.05 -%
1990 2.25 9.8
1991 2.52 12.0
1992 2.77 9.9
1993 2.99 7.9
1994 2.95 (1.3) [line graph appears here]
1995 3.07 4.1
1996 3.31 7.8
1997 3.59 8.5
1998 3.82 6.4
1999 4.31 12.8
- --------------------------------------
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USE OF PROCEEDS
The shares of common stock which may be offered by CH2M HILL are
principally being offered to permit the acquisition of shares by the employee
benefit plans as described herein and to permit CH2M HILL to offer shares of
common stock on the internal market if necessary because there are more buy
orders than sell orders on a trade date. We do not intend or expect this
offering to raise significant capital. Any net proceeds received by CH2M HILL
from the sale of the common stock offered, after paying expenses of the
offering, will be added to our general funds and used for working capital and
general corporate purposes. It is anticipated that the majority of the sales of
common stock on the internal market will be made by shareholders and the
employee benefit plans. All shareholders other than CH2M HILL and the employee
benefit plans will pay a commission equal to 2% of the proceeds of the sale of
any shares of common stock. The commission will be used by the broker to defray
the costs of establishing and maintaining the internal market.
DIVIDEND POLICY
We do not currently anticipate paying any cash dividends on the common
stock and intend to retain any future earnings to finance the growth and
development of our business.
DILUTION
The tangible book value of CH2M HILL on December 31, 1998 was $72,946,000
or $2.60 per share. Tangible book value per share represents the amount of
total tangible assets less total liabilities, divided by the shares of common
stock then outstanding. Total common stock outstanding at December 31, 1998 was
28,025,940 shares. As the following table demonstrates, after giving effect to
the sale of 4,000,000 shares of common stock by CH2M HILL in the offering at a
price per share of common stock of $4.31 per share, and after deducting
anticipated expenses that had not been paid as of December 31, 1998, the pro
forma book value of the common stock on December 31, 1998 would have been
$89,363,921 or $2.79 per share, representing an immediate dilution of $1.52 per
share to new investors purchasing shares of common stock at the price per share
of common stock. "Dilution per share" represents the difference between the
price per share to be paid by new investors for shares issued in this offering
and the net pro forma book value per share as of December 31, 1998.
<TABLE>
<S> <C> <C>
Price per share of common stock..................................... $4.31
Net tangible book value per share before the offering............. $2.60
Increase per share attributable to new investors.................. 0.19
-----
Pro forma net tangible book value per share after the offering...... 2.79
-----
Dilution per share to new investors................................. $1.52
=====
</TABLE>
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SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived
from the Consolidated Financial Statements of CH2M HILL, which have been
reported on by Arthur Andersen LLP, independent public accountants, for each of
the last five years. During the periods presented, CH2M HILL paid no cash
dividends on its common stock. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and
related notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31, Quarters Ended
March 31,
(dollars in thousands except per share data) 1994 1995 1996 1997 1998 1998 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $676,205 $804,614 $937,198 $917,578 $935,030 $224,221 $274,176
Operating income............................ 10,030 12,699 13,444 13,946 14,802 3,471 3,929
Net income.................................. 3,255 5,371 4,709 4,716 5,812 1,390 1,879
Net income per common and
preferred share (basic and diluted)........ 0.11 0.19 0.17 0.17 0.21 0.05 0.07
Balance Sheet Data:
Total assets................................ 224,541 304,136 309,364 311,117 298,325 289,111 326,167
Long term debt including current maturities. 33,270 44,576 39,987 34,414 27,388 32,959 36,197
Total temporary
shareholders equity........................ 49,753 56,171 58,130 62,303 75,132 65,849 79,195
</TABLE>
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BUSINESS
Overview
CH2M HILL is a project delivery firm founded in 1946. We provide
engineering, consulting, design, construction, procurement, operations and
maintenance, and program and project management services to clients in the
private and public sector in the United States and abroad.
We are an employee-owned Oregon corporation with approximately 7,000
employees working in 65 offices throughout the United States and 33 offices
abroad.
Business Strategy
Our business strategy is to grow domestically and internationally through
increasing market share in each of our operating segments. The key elements of
this strategy are:
. Increasing the number and the dollar value of our contracts
. Expanding and diversifying our client base by attracting new private and
public sector clients and developing a diversified mix of projects
. Increasing the number of large, longer-term projects with the potential
for higher profit margins
. Encouraging ownership in our common stock across a greater proportion of
our workforce
Operating Segments
We provide services to our clients through three operating segments:
. Environmental, Energy and Infrastructure
. Water
. Industrial
Environmental, Energy and Infrastructure
Our Environmental, Energy and Infrastructure ("EE&I") operating segment
consists of two businesses: Environmental, Nuclear, Energy & Systems ("ENE&S")
and Transportation. These two businesses are described below.
EE&I's business strategy is to grow by increasing market share in each of
its two businesses, expanding its client base and obtaining large, longer-term
projects with the potential for higher profit margins. While maintaining its
focus on its traditional services, EE&I is expanding its expertise into related
industries such as telecommunications, and into related business concepts such
as "sustainable development." Sustainable development is a design approach
used, for example, in power plant design. Sustainable development addresses
environmental issues throughout the life of a project, from design and
construction to decommissioning. Sustainable development seeks to minimize
total environmental impact.
ENE&S. ENE&S provides integrated environmental and waste management
consulting and engineering services, and performs design and build,
remediation, construction and implementation of infrastructure and
telecommunications systems for a variety of public and private clients.
1. Environmental. Our Environmental group provides environmental consulting
for remedial construction projects, ecological and natural resource damage
assessments, strategic environmental management and permitting services,
environmental liability management services, site investigations, remedial
design, implementation and construction services, treatment systems for
hazardous, toxic and radioactive waste contaminated properties, and sustainable
development planning, design and construction services.
Representative Environmental projects include:
. Environmental consulting, engineering and remedial activities for the
U.S. Air Force Center for Environmental Excellence
. Remediation of contaminated sites on Naval and Marine Corps
installations in 26 domestic states and several foreign countries
. Program management and remedial design of a refinery for a large oil
company
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<PAGE>
. Environmental impact studies for a number of proposed industrial projects
and municipal programs on behalf of the Beijing city government in China
2. Nuclear. Our Nuclear group provides program management, integration,
engineering, construction and operations and maintenance services for the U.S.
Department of Energy and commercial nuclear power plants. We manage
decommissioning and closure of weapons production facilities and design nuclear
waste treatment and handling facilities in the United States, Western, Central
and Eastern Europe and the former Soviet Union.
Representative Nuclear projects include:
. Management and integration of decontamination, decommissioning, and
closure of the nuclear weapons production facility at Rocky Flats in
Golden, Colorado, on behalf of the U.S. Department of Energy
. Engineering, design and technical services to support decontamination,
decommissioning and remedial activities at the Department of Energy
Hanford Reservation in Richland, Washington
3. Energy. Our Energy group provides full lifecycle energy services for
power projects around the world. The Energy group's services range from design
to decommissioning, including consulting, engineering, design, construction,
operations and maintenance services.
Representative Energy projects include:
. Expert consulting on utility deregulation
. The design and construction of gas turbine energy systems
. The design and construction of energy efficiency upgrades
. Development of generation services in renewable energy
. Carbon and other greenhouse gasses management projects
4. Systems. For the communications industry, our Systems group provides
program management, planning, design, and construction management of local and
regional fiber optic and hybrid fiber/coaxial systems for voice, video and data
communications. In other markets, our Systems group develops and implements
environmental management information systems, and total energy management and
information technology systems. It provides military base operation services
for government agencies, and other outsourcing services for industrial and
government clients.
Representative Systems projects include:
. Program management, design and construction management of voice, video
and data networks for a large European telecommunications company in
Europe
. Design, implementation and on-going maintenance of the worldwide
environmental management information system in Detroit, Michigan
. Program management for the upgrade of a hybrid fiber/coaxial network for
voice, video and high-speed data services in several domestic cities
Transportation. Transportation provides planning, siting, permitting,
design, program and construction management, intermodal transportation planning
and consulting services for aviation, ports, highways, bridges and transit
systems.
Representative Transportation projects include:
. Master planning and program management for a large international airport
in the U.S., including terminal, financial and airport environmental
planning
. Developing lighting control systems for another large international
airport in the U.S., including touch-screen controls, runway incursion
protection and automatic safety measures
. Designing and providing project management and engineering services for
the expansion of a container shipping terminal in the Eastern U.S.,
including berths, wharf and cranes
. Seismic retrofit design of seven bridges along an interstate highway in
California
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. Design of the Eastern Transportation Corridor for the Orange County,
California transportation authority including 27 miles of highway and 58
bridges
Water
Our Water operating segment consists of two businesses: Water & Wastewater
and Operations & Maintenance.
The business strategy of the Water operating segment is to grow through
increasing market share in each of its businesses, both domestically and
internationally, to diversify its client base, and to pursue larger projects.
We seek to attract new clients by leveraging our reputation for providing
quality services, and by taking advantage of the current trends for
outsourcing operations and maintenance activities to specialized service
providers.
Water & Wastewater. Our Water & Wastewater business focuses on the
planning, design, construction and implementation of water supply systems and
wastewater treatment facilities.
Representative Water & Wastewater projects include:
. Design of a water treatment plant and transmission pipelines in Las
Vegas, Nevada
. Design, construction and commissioning of a wastewater treatment facility
in Manakau, New Zealand
. Program management for design and construction of a deep tunnel sewage
project in the Republic of Singapore
. Design, construction and commissioning of a water treatment plant in
Halifax, Nova Scotia
Operations & Maintenance. Our Operations & Maintenance business provides
water, wastewater and public works operations and maintenance services to
water and wastewater facility operators, including startup and performance
testing, consulting, facility operations, on-going maintenance and management.
The facility management services include water and wastewater treatment,
collection, and distribution, equipment and process maintenance, and site
grounds maintenance.
Representative Operations & Maintenance projects include:
. Operations and maintenance of a water reclamation center in Fairfield,
California
. Operations of the wastewater facilities in Hoboken, New Jersey
. Operations of the wastewater plant for a large brewery in Jacarei, Brazil
Industrial
Our Industrial operating segment provides design, construction, specialized
precision manufacturing support and facility services support to high-
technology manufacturing companies, food and beverage processing businesses,
and fine chemical and pharmaceutical manufacturers.
The business strategy of the Industrial operating segment is to diversify
its client base beyond the microelectronics industry, capitalizing on a strong
professional reputation in project delivery of complex manufacturing
facilities and leadership in the area of single-source design, engineering and
construction of industrial manufacturing facilities.
The Industrial operating segment built its reputation primarily in the
microelectronics industry, where it provides a single source for a broad range
of integrated design and construction services. The Industrial segment's
clients typically require design and installation services for complex systems
that comprise many of their facilities, including clean rooms, ultrapure water
and wastewater treatment systems, chemical and gas systems, and production
tools.
Representative Industrial projects include:
. Design and construction services for the development of multiple domestic
and foreign production facilities for a large microelectronics
manufacturer
. Design and construction services for a soy sauce production facility in
California for a Japanese manufacturer
. Complete engineering and construction services for an ultrapure water
system for
17
<PAGE>
a multi-national pharmaceutical manufacturer
. Continuous facility engineering, maintenance and operations support
services for several microelectronics manufacturers under multi-year
contracts
Clients
Our clients include:
. Corporations in the energy, transportation, chemical, steel, aluminum,
mining, forest products, electronics, food, pharmaceuticals and
manufacturing industries in the United States and abroad
. The U.S. Agency for International Development, U.S. Department of
Defense, U.S. Department of Energy and U.S. Environmental Protection
Agency
. A variety of state and local government agencies in the United States and
abroad
Kaiser-Hill
In 1995, through Kaiser-Hill, we won the U.S. Department of Energy's
Performance Based Integrating Management Contract for the Rocky Flats Closure
Project in Golden, Colorado. Kaiser-Hill is a joint venture with ICF Kaiser
International, Inc. in which we hold a 50 percent interest. Rocky Flats is a
former U.S. Department of Energy nuclear weapons production facility. Under the
five-year contract, Kaiser-Hill oversees plutonium stabilization and storage,
environmental restoration, waste management, decontamination and
decommissioning, site safety and security, and construction activities of
subcontractor companies.
Under the performance-based contract signed by Kaiser-Hill, a concept that
was developed in the U.S. Department of Energy's 1994 Contract Reform
Initiative, 85% of Kaiser-Hill's fees are based on performance, while only 15%
are fixed. Kaiser-Hill's contract commits it to dealing with urgent risks
first. Achievement of measurable results in the following "urgent risk" areas
determines Kaiser-Hill's incentive fee: stabilize plutonium and plutonium
residues for specific time frames; consolidate plutonium in a single building;
and clean up and remove all high-risk "hot spot" contamination. The Rocky Flats
contract is scheduled to expire in June 2000. Kaiser-Hill is in the process of
applying for renewal of the contract, but there can be no assurance that the
contract will be renewed.
Backlog
At December 31, 1998, our backlog was approximately $1,337 million,
compared to a backlog of approximately $966 million at December 31, 1997. We
define backlog as contracted task orders less previously recognized revenue on
such task orders. U.S. government agencies operate under annual fiscal
appropriations by Congress and fund various federal contracts only on an
incremental basis. The same is true of many state, local and foreign contracts.
Our ability to earn revenues from our backlog depends on the availability of
funding for various U.S., state, local and foreign government agencies.
Government Contracting
Overall, we received 16% of our revenues in 1998 from U.S. federal
government contracts. Typically, a federal contract has an initial term of one
year combined with two, three, or four one-year renewal periods, exercisable at
the discretion of the federal government. The government is not obligated to
exercise its option to renew a federal contract. At the expiration of the term
of a federal contract, the contract in its entirety is resubmitted for
competitive bids by all interested service providers. The government's failure
to renew, or the early termination of, any significant portion of our federal
contracts would adversely affect our business and prospects.
Contracts with the federal government and its prime contractors usually
contain standard provisions for termination at the convenience of the
government or such prime contractors. Upon such a termination, we are generally
entitled to recover costs incurred, settlement expenses and profit on work
completed prior to termination. Our federal contracts do not provide for
renegotiation of profits. Terminations of federal contracts may occur, and such
terminations could adversely affect our business and prospects.
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<PAGE>
Federal contract payments we receive in excess of allowable direct and
indirect costs are subject to adjustment and repayment after audit by
government auditors. The U.S. government has completed audits on our incurred
contract costs through December 31, 1994, and audits are continuing for
subsequent periods.
As a U.S. government contractor, we are subject to federal regulations
under which our right to receive future awards of new federal contracts, or
extensions of existing federal contracts, may be unilaterally suspended or
barred if CH2M HILL is convicted of a crime or indicted based on allegations of
a violation of specific federal statutes. Suspensions, even if temporary, can
result in the loss of valuable contract awards for which we would otherwise be
eligible. While suspension and debarment actions may be limited to that
division or subsidiary of a company engaged in the improper activity,
government agencies have authority to impose debarment and suspension on
affiliated entities that were not involved in the improper activity. Any
suspension or debarment action against us or any of our affiliates could have a
material adverse impact upon our business and prospects.
Many similar regulations are also applicable to our contracts with state,
local and foreign governments.
Our Environmental Activities and Potential Liabilities
A substantial portion of our business has been generated either directly or
indirectly as a result of federal, state, local and foreign laws and programs
related to protection of the environment. Our environmental activities are
conducted in the context of a rapidly developing and changing statutory and
regulatory framework. Such activities are subject to regulation by a number of
federal agencies, including the U.S. Environmental Protection Agency ("EPA"),
the U.S. Nuclear Regulatory Commission and the U.S. Occupational Safety and
Health Administration, as well as similar state, local and foreign regulatory
agencies.
Several federal statutes govern our environmental activities. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
established the "superfund" program to clean up hazardous waste sites, and
provides for penalties and punitive damages for noncompliance with EPA orders.
CERCLA may impose strict liability (joint and several as well as individual) on
hazardous substance waste owners, operators, disposal arrangers, transporters
and disposal facility owners and operators (collectively, "Potentially
Responsible Parties" or "PRPs"). Liabilities under CERCLA may include payment
of the costs of removal or remedial action, for other necessary response costs,
for damages for injury, destruction or loss of natural resources, and for the
cost of health effects studies.
Although the liabilities imposed by environmental legislation are generally
intended to remedy and prohibit pollution by industrial companies, we could
face liability under environmental laws in some circumstances. Increasingly,
there are efforts to expand the reach of CERCLA to make environmental
contractors responsible for cleanup costs by claiming that environmental
contractors are owners or operators of hazardous waste facilities or that they
arranged for treatment, transportation, or disposal of hazardous substances.
Should we be held responsible under CERCLA for damages caused while performing
services or otherwise, CH2M HILL could be forced to bear such liability by
itself, if contribution or indemnification is not available from other parties.
The Resources Conservation and Recovery Act ("RCRA") governs hazardous
waste generation, treatment, transportation, storage, and disposal. RCRA, or
similar EPA-approved state programs, govern waste-handling activities involving
wastes classified as "hazardous." Substantial fees and penalties may be imposed
under RCRA and similar state statutes for any violation.
In addition to civil and criminal liabilities under environmental laws, we
could face liabilities to clients and other private parties for property
damage, personal injury and other claims. Such claims could arise in a number
of ways, including:
. An accidental release of pollutants during our performance of services
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. The inability of one of our remedial plans to contain or correct an
ongoing seepage or release of pollutants
. The inadvertent exacerbation by us of an existing contamination problem
. Reliance by others on reports or recommendations we prepare that turn
out to be incorrect
In the environmental field, personal injury claims may arise in connection
with our work while it is being done or long after completion of the project.
In addition, claimants may assert that we should be strictly liable for
performing environmental remediation services -- that is, liable for damages
even though our services may have been performed using reasonable care -- on
the grounds that such services involve "abnormally dangerous activities."
Our Contractual Obligations and Potential Liabilities
We operate under a number of different types of contracts with our private
and public sector clients, including cost reimbursement contracts, time-and-
materials contracts, and fixed price contracts. The most common type is the
fixed price contract, which accounted for 36.1% of our revenues in 1998. Under
fixed price contracts, we are paid a predetermined amount for all services
provided as determined at the project's inception. Under time-and-materials
contracts, we are paid at a specified fixed hourly rate for direct labor hours
worked. Under cost reimbursement contracts, our costs are reimbursed, often
with a negotiated cost ceiling and also with an incentive fee to provide
inducement for effective project management. We assume the greatest financial
risk on fixed price contracts because we assume the risk of performing those
contracts at the stipulated prices regardless of actual costs incurred. We
also incur some financial risks under time-and-materials contracts because we
contract to complete the work at negotiated hourly rates. The failure to
accurately estimate ultimate costs or to control costs during performance of
the work could result in losses or reduced anticipated profits.
When we perform services for our clients, we can become liable for breach
of contract, personal injury, property damage, and negligence. Such claims
could include improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties. Because our
projects are typically large enough to affect the lives of many people, the
damages available to a client or third parties are potentially large and could
include punitive and consequential damages. For example, our transportation
projects and manufacturing facility projects involve services and products
that affect not only our client, but also the many end users of those services
and products. In addition, our clients often require us to be responsible for
liabilities through contractual indemnities. Such provisions typically require
us to assume liabilities for damage or personal injury to the client, third
parties and their property, and also for fines and penalties.
We seek to protect CH2M HILL from potential liabilities by obtaining
indemnification where possible from our private sector clients. Under most of
our private sector contracts, we have been successful in obtaining such
indemnification, but such indemnification generally is not available if we
fail to satisfy specified standards of care in performing our services or if
the indemnifying party has insufficient assets to cover the liability.
We also try to obtain available indemnities from our public sector clients.
For example, some of our clients, including some U.S. government agencies, are
Potentially Responsible Parties under CERCLA. Under our contracts with these
clients, we usually try to seek contribution from the client for liability
imposed on us in connection with our work at these clients' CERCLA sites. In
addition, when we perform superfund related work for our U.S. government
clients, CERCLA generally permits us to limit our potential liabilities.
However, the EPA recently has significantly narrowed the circumstances under
which it will indemnify contractors against liabilities incurred in connection
with CERCLA projects. There are also proposals both in Congress and at various
regulatory agencies to further restrict indemnification of contractors from
third-party claims. In connection with services at the Rocky Flats closure
project, Kaiser-Hill is indemnified by its U.S. government client against
liability claims
20
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arising out of contractual activities involving a nuclear incident.
International Operations Pose Risks and Complexities
We routinely conduct operations outside of the United States. Overall, we
derived approximately $57 million or 6.1% of our service revenues in 1998 from
such operations. International operations entail additional business risks and
complexities such as foreign currency exchange fluctuations, different taxation
methods, restrictions on financial and business practices and political
instability. Our international clients include both private sector firms and
foreign government agencies in more than 20 countries, with significant
projects in Egypt, Spain, Singapore, and New Zealand.
Our Industry Is Highly Competitive
The market for the design, consulting, engineering and construction
services that we offer is highly competitive. We compete with many other
design, consulting, engineering and construction firms, including large
multinational firms having substantially greater financial, management, and
marketing resources. Other competitors are small firms with lower cost
structures enabling them to offer lower prices for particular services. We also
compete with government agencies, including our own clients, that can utilize
their internal resources to perform services that we might otherwise perform.
Most contracts between public sector clients and our EE&I and Industrial
operating segment are awarded through a competitive bidding process that places
no limit on the number or type of potential service providers. The process
usually begins with a government agency request for proposal that delineates
the size and scope of the proposed contract. The government agency evaluates
the proposals on the basis of technical merit and cost. For the Water operating
segment, most contracts are awarded through qualification selection processes
that vary among projects.
In both the private and public sectors, acting either as a prime contractor
or as a subcontractor, we may join with other firms that we otherwise compete
with to form a team to compete for a single contract. Because a team can often
offer stronger combined qualifications than any firm standing alone, these
teaming arrangements can be very important to the success of a particular
contract competition or proposal. Consequently, we maintain a network of
relationships with other companies to form teams that compete for particular
contracts and projects.
Conflicts of Interest May Limit Opportunities
Many of our clients and potential clients are concerned about actual or
possible conflicts of interest in retaining professional services consultants.
Governmental agencies and some private sector clients have contracting policies
that may, from time to time, prevent us from seeking or performing contracts
for other clients if there is a conflict of interest. We have, on occasion,
declined to bid on particular projects because of actual or perceived conflicts
of interest, and we are likely to continue encountering such conflicts of
interest in the future.
Our Properties are Leased
Our corporate headquarters, a 131,000 square foot facility, is located at
6060 South Willow Drive, Greenwood Village, Colorado 80111. We lease all of our
significant facilities, including our corporate headquarters and 65 domestic
and 33 foreign office locations, under many separate leases. We believe that
comparable facilities are available for lease and therefore that the loss of
any such leases would not have a material adverse impact on our operations. We
believe that our facilities are adequate for the present needs of our business.
We Are Not Involved in any Material Lawsuits
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which involve claims of substantial sums. Damages
assessed in connection with and the cost of defending any such actions could be
substantial. CH2M HILL's management believes that the levels of insurance
coverage are generally adequate to cover CH2M HILL's liabilities, if any, with
regard to such claims. CH2M HILL generally accrues amounts for retentions and
deductibles based on advice from legal counsel when it is probable that a loss
will be incurred and such loss is estimable. Gain contingencies or recoveries
are rare and are usually recorded when the cash is collected.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis explains our general financial
condition, changes in financial condition and results of operations for CH2M
HILL as a whole and each of our operating segments including:
. Factors affecting our business
. Our revenues and profits for the three-month period ended March 31, 1999
and for the years ended December 31, 1998, 1997, and 1996
. Where our revenues and profits came from
. Why those revenues and profits were different from year to year
. Where our cash came from and how it was used
. How all of this affects our overall financial condition
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in the forward-
looking statements.
As you read this section, you should also refer to our consolidated
financial statements and the accompanying notes. These consolidated financial
statements provide additional information regarding our financial activities
and condition.
This analysis may be important to you in making decisions about your
investments in CH2M HILL.
Introduction
The engineering and construction industry has been undergoing substantial
change as public and private clients privatize and outsource many of the
services that were formerly provided internally. Numerous mergers and
acquisitions in the industry have resulted in a group of larger firms that
offer a full complement of single-source services including studies, designs,
construction, operations, and in some instances, facility ownership. Included
in the current trend is the movement towards longer-term contracts for the
expanded array of services, e.g., 5 to 20 year contracts for facility
operations. These larger, longer contracts require us to have substantially
greater financial capital to remain competitive.
We believe we provide our clients with innovative project delivery using
cost effective approaches and advanced technologies. We continuously monitor
acquisition and investment opportunities that will expand our portfolio of
services, add value to the projects undertaken for clients, or enhance capital
strength. We believe that we are well positioned geographically, technically
and financially to compete worldwide in the markets we have elected to pursue
and clients we serve.
First Quarter 1999 Results of Operations Compared to First Quarter 1998
Revenues for the three-month period ending March 31, 1999 were $274.2
million compared to $224.2 million for the same period in 1998. The increase of
$50.0 million or 22.3% is comprised of significant improvements in the
Environmental, Energy & Infrastructure ("EE&I") segment of $28.0 million and
the Water segment of $26.4 million, offset by a decline in the Industrial
segment of $4.4 million.
Pre-tax profit for the first quarter of 1999 was $3.7 million compared to
$3.4 million in the same period of 1998. The increase of $0.3 million was
comprised of an increase in the EE&I segment of $0.9 million in addition to a
significant improvement in the Water segment of $1.7 million, offset by a
decline in the Industrial segment of $1.8 million. Corporate expenses also
increased by $0.5 million.
Environmental, Energy and Infrastructure
Revenues in the EE&I segment for first quarter 1999 were $119.3 million
compared to $91.3 million for the same period in 1998. This increase of $28.0
million was primarily attributable to growth of $5.2 million in the
telecommunications markets, growth of $10.6 million in the construction
services market, and $8.0 million in the transportation markets. The growth in
22
<PAGE>
revenues from construction services is indicative of our commitment to
diversify our business. Construction services revenues generated in the first
quarter of 1999 were primarily from remedial action contracts with the U.S.
Navy. The increase in the transportation markets is primarily the result of the
Transportation Equity Act for the 21st Century (TEA-21) which was adopted by
Congress in 1998. TEA-21 provides federal funding to the various states for
transportation infrastructure improvement projects including construction-
related projects for highways, highway safety, and transit for the six-year
period from 1998 to 2003.
Pre-tax profit for the EE&I segment was $2.6 million in the first quarter
of 1999 compared to $1.7 million in the first quarter of 1998. Profit as a per-
cent of revenue was 2.2% in the first quarter of 1999 compared to 1.9% for the
first quarter of 1998. The increase in pre-tax profit of $0.9 million was pri-
marily generated by increased project margins of $1.3 million from the
telecommunications markets offset by an increase in indirect costs of $1.4 mil-
lion primarily due to business development activities necessary for growth. The
remaining increase of $1.0 million was achieved in the construction management
and transportation markets. Although revenues increased significantly from the
construction services markets, we also reported a similar increase in direct
costs related to the pass-through of construction costs. The margins in the
transportation sector remained relatively unchanged.
Water
The Water segment reported revenues of $104.7 million in the first quarter
of 1999 compared to revenues of $78.3 million in the first quarter of 1998.
This increase of $26.4 million was due to significant growth in several market
areas. In general, the Water segment is capitalizing on prior business
development efforts, especially in the design/build markets, and obtaining new
business from existing clients as a result of the strong domestic economy.
Revenues from design/build projects increased by $9.4 million, as a result of
our ongoing efforts to provide a full array of services to our customers.
Revenues from operations and maintenance services increased by $6.0 million due
to the addition of new infrastructure support contracts, primarily with
municipalities. Services from other domestic water operations increased by
$14.0 million in the same period. These increases were offset by decreases in
international revenues due to the completion of projects.
The Water segment reported $2.7 million of pre-tax profit in the first
quarter of 1999 compared to $1.0 million of pre-tax profit for the same period
of 1998. Pre-tax profit as a percent of revenues was 2.6% for the first quarter
of 1999 compared to 1.3% in the first quarter of 1998. The increase in profit
is primarily due to the increase in the volume of new services contracts, as we
have been able to leverage our costs and increase efficiencies. Although we
realized an increase in revenues from the design/build markets, we also
increased direct costs due to the pass-through of construction costs. We also
increased indirect costs in order to establish our internal infrastructure to
support the long-term opportunities expected in the design/build markets.
Industrial
The Industrial segment reported revenues of $50.2 million for the first
quarter of 1999, of which $33.4 million was generated from the microelectronics
industry. The revenues for first quarter 1998 were $54.6 million, of which
$40.0 million was generated from the microelectronics industry. The decline of
$4.4 million was comprised of a $6.6 million decrease in revenues from the
microelectronics industry and an increase in revenues of $2.2 million from
other industries, including food, biopharmaceutical, fine chemical and facility
services. The mix of the revenues between construction costs versus services
for engineering and construction management also changed significantly from
first quarter 1999 versus first quarter 1998. The construction cost component
of revenues increased from $14.0 million, which was 25.8% of first quarter 1998
revenues, to $28.7 million, which was 57.2% of first quarter 1999 revenues.
This increase in construction revenues of $14.7 million offset the decrease in
revenues from services of $40.6 million in first quarter 1998 to $21.5 million
in first quarter 1999. The construction revenue increase was due to two
construction projects that were started in first quarter 1999.
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The Industrial segment reported virtually no pre-tax profit in first
quarter 1999 versus $1.8 million in first quarter 1998. Profit as a percent of
revenues for first quarter 1998 was 3.3%. The most significant factor causing
the profit decline was the decrease in volume of services sold during first
quarter 1999. In addition to the impact of reduced volume, reduced project
margins and flat overhead costs also reduced profitability. Direct project
costs, as a percentage of revenues, increased 14.0% in first quarter 1999
versus first quarter 1998. This increase in direct project costs is the pass-
through of construction related costs directly associated with the increase in
construction revenues. This results in a decline in project margins due
primarily to the change in mix of revenues where the construction revenue
component increased considerably over the services revenue component during
first quarter 1999. With the exception of indirect labor costs, all other
overhead, general and administrative costs remained approximately the same
percentage of the services portion of revenues in first quarter 1999 as in
first quarter 1998. Indirect labor expenses, which are made up of salaries and
benefits of all administrative personnel plus salaries and benefits of
technical personnel for hours not working on billable client services,
increased. Indirect labor costs increased, as a percent of the services portion
of gross revenues, 7.0% from first quarter 1999 versus first quarter 1998. This
increase is due to the significant decline in the number and size of projects
performed for the microelectronics industry.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------
Pre-tax Pre-tax Pre-tax
(in millions) Revenues Profit Revenues Profit Revenues Profit
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Environmental, Energy
and Infrastructure $386.1 41% $9.3 $360.2 39% $5.8 $389.6 42% $7.2
Water 362.8 39% 7.2 309.9 34% 5.0 289.3 31% 2.2
Industrial 186.1 20% 3.6 247.5 27% 7.2 258.3 27% 8.2
Corporate - - (5.7) - - (6.0) - - (5.6)
----------------------------------------------------------------------------------------
Total $935.0 100% $14.4 $917.6 100% $12.0 $937.2 100% $12.0
----------------------------------------------------------------------------------------
</TABLE>
1998 Results of Operations Compared to 1997
Revenues for 1998 were $935.0 million compared to $917.6 million in 1997.
The increase of $17.4 million or 1.9% is comprised of significant improvements
in the EE&I segment of $25.9 million and the Water segment of $52.9 million.
These gains were reduced by the decrease of $61.4 million in the Industrial
segment revenues.
Pre-tax profit for 1998 was $14.4 million compared to $12.0 million in
1997. The increase of $2.4 million or 20.0% was primarily due to volume
increases in the EE&I and Water segments as well as a reduction in corporate
expenses. Contracts in the EE&I and Water segments generally have a lower
margin than the contracts in the Industrial segment, but increases in the
volume of contracts offset any decline generated by the Industrial segment.
Bad debt expense was $57,000 in 1996, $1.4 million in 1997, and $5.2
million in 1998, which also impacts pre-tax profit. The increases in 1997 and
1998 relate to specific projects in the EE&I and Water segments that needed to
be reserved for due to the uncertainty of collection. At December 31, 1997, the
outstanding receivables related to these projects were $2.2 million of unbilled
and $1.2 million of billed. No amounts were outstanding at December 31, 1998.
The entire outstanding receivable balances were reserved for as the projects
were halted due to poor economic conditions in Latin America. Currently, future
collection of these receivables is not probable.
The loss on the sale of assets in 1998 of $1.7 million also negatively
impacted pre-tax profit. This loss related to assets that were sold in closing
two of our offices.
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Environmental, Energy and Infrastructure
Revenues in the EE&I segment increased $25.9 million or 7.2% to $386.1
million in 1998, compared to $360.2 million in 1997. EE&I revenues accounted
for 39.0% of our total operating revenues in 1997 and 41.0% in 1998. During
1998 we benefited from the business development efforts undertaken in 1997. We
reported a full year of revenues in 1998 for public sector hazardous waste
remediation contracts awarded in 1997 by the Department of Defense and the
Department of Energy. Revenue growth from the Department of Defense was strong
in part due to legislation requiring military base closure and remediation. The
initial assessment phases are complete and the environmental remediation and
clean-up phases have begun.
The telecommunications markets, both domestically and internationally, also
attributed to the increase in revenues in 1998. We obtained several major
clients in this market providing program management oversight, site development
and construction management services to install or upgrade cable and wireless
networks and related infrastructure. With the technological advances in
wireless telecommunications, the ability to communicate rapidly via voice,
data, and video have become a necessity for business enterprises and
individuals around the world. We believe this market will provide continued
revenue growth in future years.
Although the private sector of the environmental and infrastructure market
slowed in 1997, we realized some recovery from this sector in 1998. We
attribute this growth to the strong domestic economy, which is affording
larger, multinational corporations the opportunity to improve their
environmental performance and sustainability.
The transportation market also contributed to the increase in revenues in
1998. We have benefited from the growth generated by the Intermodal Surface
Transportation Efficiency Act (ISTEA) adopted by Congress in 1991, which caused
significant increases in federal funding to the states for transportation
projects. We believe that we are also well positioned in the market to benefit
from the TEA-21 legislation.
The EE&I segment reported higher pre-tax profit in 1998, increasing from
$5.8 million in 1997 to $9.3 million in 1998, an increase of 60.3%. Profit as a
percent of revenues was 2.4% in 1998 compared to 1.7% in 1997. The growth in
the telecommunications markets contributed $2.8 million in profit while the
remaining net increase of $0.7 million was attained by successful cost
containment efforts. The demand for services is high in the telecommunications
market, which can return higher gross margins than the public and private
sector environmental and infrastructure contracts.
During 1998, cost containment measures enacted in prior years reduced
overhead costs as administrative functions have been consolidated to enable us
to manage our resources more effectively.
Water
Water segment revenues were $362.8 million in 1998 versus $309.9 million in
1997, an increase of $52.9 million or 17.1%. Approximately 30% of the increase
came from new contracts, with terms up to 15 years, in the utility plant
operations market for public and private clients. The balance of the increase
came from contract activities in water and wastewater infrastructure facility
improvement programs principally in the United States. The demand for the Water
segment's services continues to be strong as water and wastewater treatment
infrastructure improvement projects are undertaken by municipalities and other
utility authorities across the United States and abroad. The desire by
municipalities to preserve the environment and provide clean water creates a
demand for services we offer.
Profitability in the Water segment increased from $5.0 million in 1997 to
$7.2 million in 1998, an increase of 44.0%. Profit as a percent of revenues was
2.0% in 1998 compared to 1.6% in 1997. Profitability continues to improve as we
continue to win significant new contracts as reflected by the increase in
revenues mentioned above. Additionally, the Water segment reported an increase
of $1.0 million in profit due to lower business development expenditures. From
year to year, we achieved increasing margins by focusing on improvements in
project delivery and effective
25
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cost management, even though competition in this industry is increasing as a
result of rapid consolidation. We believe that our future success in the Water
segment is dependent on continuing improvements in our project delivery
performance and our ability to win significant new contracts.
Industrial
The Industrial segment's revenues for 1998 were $186.1 million, of which
$141.4 million or 76.0% was generated from the microelectronics industry. The
Industrial segment's revenues for 1997 were $247.5 million, of which $222.8
million or 90.0% was generated from the microelectronics industry. Total
revenues from the Industrial segment declined $61.4 million from 1997 to 1998
due to declines in the microelectronics industry offset by an increase in
revenues from other industries including, food, biopharmaceutical, fine
chemical, and facility services. The microelectronics industry began to reduce
capital spending in 1997 which has continued into 1999, resulting in a sharp
decline in purchases of engineering and construction services by our
microelectronics clients. In order to reduce its dependence on the
microelectronics industry, the industrial segment has reallocated some of its
workforce to focus on diversifying into other industries mentioned above.
Pre-tax profit in the Industrial segment was $3.6 million in 1998 versus
$7.2 million in 1997. Profit as a percent of revenues was 2.0% in 1998 compared
to 2.9% in 1997. The decrease in the total volume of services sold during 1998
to the microelectronics industry caused this profit decline. In addition to the
impact of reduced volume, direct project costs as well as overhead expenses
affected profitability. Direct project costs, as a percentage of revenues,
decreased 2.0% in 1998 versus 1997, slightly improving gross margins. Indirect
labor costs, included in overhead expenses, as a percentage of gross revenues,
increased 4.0% from 1997 to 1998 because of the significant decline in revenue
during 1998.
1997 Results of Operations Compared to 1996
Revenues for 1997 were $917.6 million compared to $937.2 million in 1996.
The decrease of $19.6 million or 2.1% resulted from a decline in the EE&I
segment revenues of $29.4 million and a decline in the Industrial segment
revenues of $10.8 million which were partially offset by improvements in Water
segment revenues of $20.6 million. Pre-tax profit remained unchanged overall.
Environmental, Energy and Infrastructure
Revenues for the EE&I segment were $360.2 million in 1997 versus $389.6
million in 1996, a decrease of $29.4 million or 7.5%. Included in revenues were
equity in earnings of investees accounted for by the equity method of $5.4
million in 1996 and $7.9 million in 1997.
The decrease in revenues from 1996 to 1997 was caused by the completion of
a significant transportation project and the decline in the private sector
environmental market. This decrease was offset by other gains in the
transportation sector and in the federal sector environmental market.
Excluding the revenues from the major project we completed, we actually
reported revenue growth in the transportation markets in the United States.
This revenue growth has been generated from the ISTEA bill that was passed in
1991, which provided significant increases in the level of federal funding for
transportation infrastructure projects across the nation.
The federal sector environmental market showed strong gains in 1997,
contributing 15% of total revenues versus 11.0% in 1996. Earlier marketing
efforts and favorable legislative developments resulted in significant project
wins from the Department of Defense.
The EE&I segment reported lower pre-tax profit in 1997 versus 1996 of $1.4
million. Profit as a percent of revenues was 1.7% in 1997 compared to 1.9% in
1996. The decrease in pre-tax profit from 1996 to 1997 is entirely due to the
completion of a significant transportation project in 1997, which was not
replaced by another project of comparable size. Although this project was
completed, we made a strategic decision to retain the workforce and incur a
temporary reduction in profits in anticipation of growth to be generated from
TEA-21. We also experienced an increase in general and administrative expenses
due to geographic expansion in 1997.
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<PAGE>
Water
Water segment revenues were $309.9 million for 1997 versus $289.3 million
for 1996, an increase of $20.6 million or 7.1%. A significant portion of the
revenue increase was attributable to the utility plant operations market for
public and private clients. We continued to win substantial contracts that are
for longer terms and will contribute to revenues in future years. The balance
of the increase was attributable to contract activities in the water and
wastewater infrastructure facility improvement programs principally in the
United States.
The Water segment reported pre-tax profit of $5.0 million in 1997 compared
to $2.2 million in 1996, an increase of $2.8 million. Profit as a percent of
revenues was 1.6% in 1997 compared to 0.8% in 1996. The increase in pre-tax
profit resulted from an increase in revenues as mentioned above, as well as a
$2.1 million reduction in indirect costs due to increased efficiencies in our
design functions. During 1996, the water segment incurred more business
development costs to ensure steady growth in a market that is growing rapidly.
During 1997, these marketing efforts paid off as we added significant new
contracts while leveraging our cost structure and maintaining stable margins.
Industrial
The Industrial segment's revenues for 1997 were $247.5 million, of which
90.0% was attributable to the microelectronics industry. The Industrial
segment's revenues for 1996 were $258.3 million, of which 97.0% was
attributable to the microelectronics industry. Total segment revenues declined
$10.8 million from 1996 to 1997. This decline was due to a $27.8 million
decrease in revenues from the microelectronics industry that was partially
offset by an increase in revenues of $17.0 million from other industries
including, food, biopharmaceutical, fine chemical, and facility services
markets. The microelectronics industry fostered significant growth for the
Industrial segment in past years by providing several very sizable projects
during 1995 and 1996. These large projects were substantially complete by mid-
1997 at which time the microelectronics industry entered into a period of
reevaluation of its capital expenditure plans, ultimately leading to a decline
in procurement of engineering and construction services during 1997.
Pre-tax profit in the Industrial segment was $7.2 million in 1997 versus
$8.2 million in 1996, a decline of $1.0 million or 12.2%. Profit as a percent
of revenues was 2.9% in 1997 compared to 3.2% in 1996. The decline in profit
was due primarily to the decrease in volume of services sold during 1997 to the
microelectronics industry. Direct project costs, as a percentage of revenues,
decreased 2.0% in 1997 versus 1996, slightly improving gross margins and
improving profitability. Total overhead costs, as a percentage of gross
revenues, increased 2.0% in 1997 versus 1996 offsetting the decrease in direct
project costs as a percentage of revenues.
Joint Ventures
We routinely enter into joint venture arrangements in order to service the
needs of our clients. Such arrangements are customary in the engineering and
construction industry and generally are established to manage a specific
project. Our largest joint venture is Kaiser-Hill Company, LLC ("Kaiser-Hill"),
a joint venture in which we own a 50% interest. This joint venture is
attributable to our EE&I operating segment. The earnings from this joint
venture are reported as equity in earnings of investees accounted for under the
equity method, along with other joint ventures that are individually
insignificant.
For the first quarter of 1999, we reported equity in earnings of investees
accounted for under the equity method of $0.8 million compared to $0.9 million
in the same period of 1998. The earnings from the Kaiser-Hill joint venture for
first quarter 1999 were $0.5 million compared to $1.0 million for the first
quarter of 1998. Under the Performance Based Management contract, as discussed
below, fees are earned based upon specific negotiated performance incentives
which are heavily weighted to the U.S. Government's fiscal year end of
September 30. Due to the timing of specific work scopes and the completion of
these activities, earnings may not be comparable from period to period.
Equity in earnings of investees accounted for by the equity method
generated $8.4 million of
27
<PAGE>
revenues in 1998 compared to $8.7 million in 1997, a majority of which comes
from Kaiser-Hill. For 1998, the $8.4 million of revenues represents 56.7% of
operating income and 144.53% of net income. For 1997, the $8.7 million of
revenues represents 62.6% of operating income and 184.99% of net income. The
decrease in the earnings from Kaiser-Hill is due to different negotiated
performance measures from year to year. Our contract expires on June 30, 2000.
The Department of Energy is currently considering its options, which could
include an extension of the contract or re-bid under a competitive process.
Equity in earnings of investees accounted for by the equity method
generated $8.7 million of revenues in 1997 compared to $5.3 million of revenues
in 1996. For 1997, the $8.7 million of revenues represents 62.6% of operating
income and 184.99% of net income. For 1996, the $5.3 million of revenues
represents 39.2% of operating income and 112.04% of net income. These revenues
are primarily generated from Kaiser-Hill. 1997 was the second full year on the
contract and Kaiser-Hill's performance in meeting certain measurable targets
was better than in 1996. At the end of 1995 and throughout the first half of
1996, Kaiser-Hill focused on the transition from the former contractor and
performed less of the plutonium stabilization and cleanup activities. Kaiser-
Hill has a Performance Based Management Contract, which means that, except for
a small base fee, the fees on this contract are dependent on Kaiser-Hill's
performance.
Corporate Expenses
Corporate expenses for the three-month period ended March 31, 1998 were
$1.1 million compared to $1.7 million for the same period of 1999. The increase
of $0.6 million is related to costs incurred for the registration of our stock
with the Securities and Exchange Commission.
Corporate expenses for the years ended December 31, 1996, 1997, and 1998
were $5.6 million, $6.0 million, and $5.7 million, respectively. These costs
represent centralized management costs that are not allocable to individual
operating segments and primarily include expenses associated with
administrative compliance functions such as legal, treasury, accounting, tax,
and general business development efforts. The fluctuations from year to year
are generally dependent on the business development efforts undertaken as other
administrative costs historically remained constant.
Income Taxes
The income tax provision for the first quarter of 1998 was $2.1 million, or
an effective tax rate of 59.6%, compared to $1.8 million, or an effective tax
rate of 48.9%, for the same period of 1999. The decrease in the effective tax
rate is primarily due to the reduction of non-deductible foreign net operating
losses as we have been able to improve the financial performance of our
international operations. Our effective tax rate continues to be higher than
the U.S. statutory income tax rate of 35.0% due to disallowed portions of meals
and entertainment expenses and non-deductible foreign net operating losses.
Our income tax provisions for the last several years were as follows:
---------------------------------------
Year Income Tax Effective
Provision Tax Rate
---------------------------------------
1998 $ 8,571 59.6%
1997 $ 7,295 60.7%
1996 $ 7,291 60.8%
---------------------------------------
The effective tax rates are higher than the statutory tax rates since we
cannot deduct all foreign net operating losses on our U.S. income tax return.
We are also disallowed a tax deduction for portions of meals and entertainment
expenses that are considered necessary to conduct our business.
Liquidity and Capital Resources
Cash Flows From Operating Activities
For the first quarter of 1998, operations used $5.7 million of cash
compared to the use of $17.7 million of cash for the same period in 1999.
During the first quarter of 1999, our receivables and payables increased due to
the pass-through of revenues and expenses related to new, large construction
projects. Offsetting this net increase was the reduction of accrued incentive
compensation and the settlement of accrued liabilities.
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Operations generated $38.9 million of cash flows in 1997 and used $4.4
million in 1998. The decrease of $43.3 million from 1997 to 1998 was
attributable to the following working capital changes:
. revenue growth provided a corresponding increase in accounts receivable
. prepaids increased as we contributed cash to our largest pension plan to
maintain its funded status
. billings in excess of revenues decreased due to a reduction in advance
payments on contracts formerly realized in the Industrial operating
segment
In 1996 and 1997, operations generated $32.4 million and $38.9 million of
cash flows. The increase of $6.5 million from 1996 to 1997 was primarily
attributable to the change in working capital. Accounts receivable decreased
primarily due to the decline in revenues.
Cash Flows from Investing Activities
Our business does not require significant capital expenditures. The capital
expenditures are generally for purchases of office equipment and leasehold
improvements. We spent $4.9 million in 1996, $2.6 million in 1997, and $4.7
million in 1998 on such expenditures. The decline in capital spending from 1996
to 1997 was largely due to a revamping of our procurement practices from
purchasing computer related assets to leasing such assets under favorable
operating lease terms. We have now established a formal operating lease program
under which most of our computing and related equipment is procured on an
ongoing basis. The increase in capital expenditures from 1997 to 1998 reflects
leasehold improvements for large regional office moves for which the leases had
expired.
Cash Flows from Financing Activities
For the first quarter of 1998, we used $1.5 million of cash in financing
activities compared to financing activities providing $8.0 million of cash in
the first quarter of 1999. At the end of the first quarter of 1999, we borrowed
$9.3 million against our line of credit to fund operations.
In June 1999, we entered into a new credit facility for a $100.0 million
revolving line of credit maturing June 2002, which may be extended for an
additional one-year period, and the maximum amount of credit available may be
increased by $25.0 million, under certain conditions. The facility may be used
for general corporate purposes and permitted acquisitions. At the option of
CH2M HILL, the facility bears interest at a rate equal to either the London
Inter-Bank Offering Rate for interest periods of 1, 2, 3 or 6 months, plus
applicable margins ranging from 1.0% to 2.0%, the lender's prime rate, or the
sum of 0.5% plus the federal fund rate, if greater than the lender's prime
rate. Borrowings under the credit agreement are available on a revolving basis
through the final maturity date, subject to any mandatory commitment reductions
and applicable conditions of borrowing. The credit facility is secured by a
guaranty from each direct and indirect wholly-owned subsidiary of CH2M HILL
whose gross revenues account for greater than 5% of the consolidated annual
revenues of CH2M HILL. The credit agreement contains usual and customary
representations and warranties, and affirmative and negative covenants and
financial covenants for credit facilities of like size, type and purpose.
At December 31, 1998, under our unsecured loan agreement, we had an
outstanding term loan for $6.0 million, of which $4.0 million will be paid in
1999. The interest rate on the loan is 7.1% and payments are made quarterly.
We also have a wholly-owned subsidiary that has an unsecured credit
facility of $9.5 million with interest payable on borrowings at prime rate. The
subsidiary has not used its facility for over three years.
We also had $22.5 million in 1997 and $20.6 million in 1998, in notes
payable to over 300 former shareholders in varying amounts over the next ten
years.
Derivatives and Financial Instruments
We occasionally enter into forward contracts to hedge foreign currency
risks and not for speculative purposes. At December 31, 1997 and 1998, there
were no significant forward contracts outstanding. Generally, we do not have
derivative type instruments.
29
<PAGE>
New Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes fair value
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of SFAS No. 133 was deferred until January 1,
2001 by the issuance of SFAS No. 137. We will adopt SFAS No. 133 in the first
quarter of 2001. We are currently assessing the effect of adoption, if any, on
our financial position, results of operations, and cash flows.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," requires costs of start-up activities, including organization
costs, to be expensed as incurred. We adopted this statement effective January
1, 1999, which did not have an impact on earnings.
Year 2000 Compliance
General. The upcoming turn of the century poses many challenges to
companies worldwide that rely on computers and/or programmed control devices to
operate their businesses or are suppliers or providers of time-sensitive
software or automated technology devices. The problems stem from the practice
of software writers, software vendors and equipment suppliers of using only two
digits to designate calendar year (e.g., 98 versus 1998) in automated
applications. That practice does not provide for proper recognition of the Year
2000 because computers and other automated equipment may interpret the two-
digit date "00" as, for example, 1900, rather than 2000. Consequently,
computers and other automated systems may cease operation or operate
incorrectly. This effect is commonly referred to as the "year 2000 problem."
Several years ago, we recognized that the year 2000 problem could have a
significant adverse impact on our operations. We have, therefore, been actively
working to mitigate potential impacts on our internal operations as well as
working with our vendors and clients to identify and remediate potential year
2000 problems. Since 1997, we have been evaluating and taking steps to remedy
year 2000 problems in the following major areas of information technology and
other systems:
. Software: internal software and operating systems, including
financial/management software, communications systems, facilities
controls, design and other technical software
. Hardware: desktop computers and network servers
. Communications: local area networks, wide area networks and
telecommunications systems
. Non-Information Technology Systems: power plant operating and control
systems and facilities
Readiness. In order to assess our readiness, we identified four major
phases of our year 2000 compliance program. They are as follows:
1. Inventory Phase.
. Identify functions that rely on computer systems that accept, create or
manipulate calendar-related data
. Survey all significant vendors and facilities owners
. Identify all computer and communications hardware and software
2. Assessment Phase.
. Prioritize systems and functions that are critical to all lines of
business, including management and human resource information systems,
facilities, procurement, project delivery and billing systems
. Prioritize functions performed by each system and the level of
susceptibility to date-sensitive information
3. Remediation Phase.
. Make necessary repairs, replacements or implement contingency plans for
the most critical systems
. Install third party application software upgrades
4. Testing/Implementation Phase.
. Test systems to verify they are year 2000 compliant
. Place compliant systems into production
30
<PAGE>
The following chart demonstrates our progress over time by phase for each
major area identified:
[CHART APPEARS HERE]
External Vendors. We have contacted supply and service vendors with whom we
have material business to confirm the year 2000 compliance of their
applications, services and products that we rely on for operations.
Approximately 75% of major vendors responded by the end of 1998 and second
requests for compliance confirmation either have been sent or are in the
process of being sent to those that did not respond or that provided
inadequate responses. This portion of the evaluation is scheduled for
completion in June 1999. Mission critical vendors such as our primary bank and
payroll services and landlords have responded adequately on the year 2000
compliance issue in their services or products.
Clients of CH2M HILL. Because we are a service organization providing
design and operating services for a wide range of clients, we have actively
notified clients during the last half of 1998 of the need to be aware of
potential year 2000 problems in their operations. While we do not generally
provide year 2000 problem identification and remediation services to our
clients, we have suggested in the notifications that the clients recognize
that problems could exist and an identification/ remediation program in their
operations should be undertaken immediately if not already done. We also made
available to each client a list of year 2000 service firms via direct personal
delivery or reference to a worldwide web site we established for this purpose.
Follow-up client reminders are being done in instances where we operate
facilities on behalf of clients that have not confirmed to us that they have
undertaken or completed compliance verification activities.
Worst Case Year 2000 Scenarios. The worst case scenario that could affect
our business is the failure of electric power and communications. We are
dependent on data and voice communication for delivery of our services, and on
electric power to conduct operations. Each of our regional offices and project
sites is vulnerable to business disruption from a local loss of power or
telecommunications. The most sensitive areas are our payroll system and our
water and wastewater treatment systems. We have contacted our critical
infrastructure suppliers regarding their preparedness and they have asserted
to us that they are year 2000 compliant. Although it does not appear that a
failure of electric power is likely based on assertions made to us, we have
developed the following contingency plans:
. Mobilize teams to our two communication hubs and data centers to
constantly monitor critical infrastructure components as the date rolls
over. This means having staff on-
31
<PAGE>
site during the entire holiday period and for as long afterwards as proves
necessary to respond to needs on a priority basis
. Adjust payroll and accounting system schedules to complete processing
prior to December 31, 1999 for the last pay period of the year
. Install a redundant link (with another supplier) to the Internet for
enhanced messaging protection
. Install a diesel auxiliary power source at our main location in Denver,
Colorado that can support the data center and telephone system for a
minimum of 36 hours
With respect to the water and wastewater treatment facilities that we
operate in accordance with contractual service agreements, some of these
facilities have back up generators or duplicate power sources. If the power
supply is severed, the water treatment plants could not pump water and
customers would be without water for a period of time. As a contingency plan,
we are encouraging clients to fill above-ground water towers prior to December
31, 1999, and assisting in the preparation of water conservation plans.
It is also possible that the water and wastewater treatment plants will
have power but the computerized control systems fail. This could cause
"automatic" equipment to turn on or off and otherwise act in a manner that
upsets the chemical, mechanical, and biologic processes in the plants. To
mitigate this event, all facilities will be manned on December 31, 1999, and
operated in a manual mode if necessary.
Cost Estimates for Compliance Efforts. The total estimated costs for our
year 2000 remediation efforts was between $3.5 to $4.0 million as of December
31, 1998, of which we have spent approximately $2.5 million. Of the total
estimated cost, approximately $1.75 to $2.0 million represents the effort to
migrate our current systems to year 2000 compliant versions. All costs of year
2000 activities have been, and will in the future be, charged to current
operations as the costs are incurred.
32
<PAGE>
EMPLOYEE BENEFIT PLANS AND DIRECT STOCK PURCHASES
CH2M HILL maintains a number of plans that provide benefits to employees of
CH2M HILL and its affiliates. Under some of these plans, employees of CH2M HILL
and most of our affiliates may acquire common stock or beneficial interests in
common stock held in trusts. Employees may also purchase stock directly in the
internal market. The material provisions of the plans are summarized below in
general terms. We encourage you to read the plan documents, which will be made
available to you on request and which have been attached as exhibits to the
registration statement filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Plans at a Glance How Plan Works CH2M HILL Contribution
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock Purchase Stock Purchase Plan Payroll withholding (1%- In 2000, 10% of purchase
(Direct Ownership) 10% of compensation) to price; thereafter as
purchase determined by the Board of
common stock with after- Directors
tax dollars
--------------------------------------------------------------------------------
Pre-Approved Direct Purchase 5,000 shares or None
Stock Purchase less on any trade date
--------------------------------------------------------------------------------
Direct Stock Purchase Request approval from None
through offer cycle Stock Purchase Committee
to purchase over 5,000
shares
- ------------------------------------------------------------------------------------------------------
Retirement Plans 401(k) Plan Invest pre-tax for Match determined by each
(Beneficial retirement via payroll member employer limited to a
Ownership) withholding percentage of compensation
or a specified dollar amount
Meet eligibility Defined contribution
requirements determined by each member
employer, subject to Board
approval and limitations set
forth in the plan
--------------------------------------------------------------------------------
Employee Stock Plan CH2M HILL funded 100%
retirement plan invested
in common stock
--------------------------------------------------------------------------------
Deferred Compensation Deferral of compensation For payroll deductions into
Plans to be paid at a later the pre-tax deferred
date in shares of compensation plan, in 2000,
common stock 10% of purchase price;
thereafter as determined by
the Board of Directors
- ------------------------------------------------------------------------------------------------------
Stock Incentives Stock Bonus Grant of shares with no Full value of shares awarded
(Direct Ownership) vesting restrictions by CH2M HILL
--------------------------------------------------------------------------------
Stock Options Right to purchase shares Right to appreciation on
within 5 years at the option shares over the
stock price on the option period
grant date, subject to 3-
year vesting
</TABLE>
33
<PAGE>
Retirement and Tax-Deferred Savings Plan
The Retirement and Tax-Deferred Savings Plan, a 401(k) plan, is a profit
sharing plan that includes a cash or deferred arrangement that is intended to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. This
means that contributions to the 401(k) plan receive favorable federal income
tax treatment.
Employees Eligible to Participate in the 401(k) Plan
All of our employees are eligible to participate in the 401(k) plan,
except:
. Leased employees
. Temporary employees
. Employees of affiliates that have not adopted the 401(k) plan
As of January 1, 1999, none of CH2M HILL's foreign affiliates have adopted
the 401(k) plan. Some, but not all, affiliates of CH2M HILL have adopted the
401(k) plan but have not adopted the provisions of the 401(k) plan relating to
defined contributions or matching contributions. CH2M HILL and its affiliates
that have adopted the 401(k) plan are referred to in this description as member
employers.
Timing of Participation in the 401(k) Plan
Each eligible employee can participate in the 401(k) plan with respect to
employee contributions and matching contributions, if applicable, beginning on:
. The first date of hire, or
. The first day of the first full pay period that begins on or after the
employee's date of hire
Each eligible employee begins to participate in the 401(k) plan with
respect to defined contributions, (if applicable), as of the first day of the
first month that begins on or after the eligible employee completes a twelve-
month period of service during which the employee is credited with at least
1,000 hours of service.
Contributions to the 401(k) Plan
Employee Contributions. The 401(k) plan allows a participant to elect to
defer a portion of the participant's compensation for a calendar year, subject
to limits, and to have that deferred amount contributed to the participant's
employee contribution account in the 401(k) plan.
Matching Contributions. Each Member Employer may, but is not required to,
make matching contributions each calendar quarter. Matching contributions may
be made in an amount that is based on a percentage of the employee's
contributions for the calendar quarter up to 3% of the employee's compensation,
or limited to a specified dollar amount per employee. Matching contributions to
the 401(k) plan may be made in cash or common stock.
Defined Contributions. Each member employer may, but is not required to,
make defined contributions to the 401(k) plan on behalf of that member
employer's employees. The amount of each member employer's annual defined
contribution, if any, is determined by the Board of Directors of CH2M HILL.
Each member employer's defined contributions to the 401(k) plan are
allocated to the defined contribution accounts of eligible employees of that
member employer. A participant in the 401(k) plan is eligible to receive a
defined contribution for a calendar year if any of the following apply:
. The participant completed 1,000 hours of service during the calendar year
and was employed by the member employer at the end of the calendar year
. The participant retired during the calendar year at or after age 65 or
age 55 if the participant has at least five years of service
. The participant died during the calendar year
. The participant became permanently disabled during the calendar year
Each eligible participant receives a proportionate share of the member
employer's defined contribution for the calendar year. Each eligible
participant's proportionate share is determined by dividing that participant's
eligible compensation for the calendar year by the total eligible compensation
for the calendar year of all eligible participants. Eligible compensation is an
34
<PAGE>
employee's basic hourly wage, times the number of regular hours worked during
the year. Eligible compensation for 1999 is limited to $160,000 under Section
401(a)(17) of the Internal Revenue Code.
Rollover Contributions. Participants or potential participants may transfer
a rollover contribution from another qualified retirement plan to the 401(k)
plan.
Investment of Contributions to the 401(k) Plan
Matching contributions to the 401(k) plan, other than matching
contributions made by Operations Management International, Inc., are invested
in common stock.
Defined contributions to the 401(k) plan are initially invested in an
investment alternative selected by the trustees until direction is provided by
the participant. Participants in the 401(k) plan may direct the investment of
contributions that are allocated to their accounts, other than matching
contributions made by CH2M HILL and invested in CH2M HILL stock, among various
investment alternatives selected by the trustees of the 401(k) plan.
As of January 1, 2000, the investment alternatives offered by the trustees
will be as follows:
Fidelity Retirement Government Money Market Portfolio
CH2M HILL Fixed Income Fund
Fidelity Balanced Fund
Fidelity Equity-Income Fund
Spartan U.S. Equity Index Fund
Fidelity Magellan Fund
Fidelity Growth Company Fund
PIMCO Mid Cap Growth Fund
Janus Worldwide Fund
Company Stock Fund (invested in common stock of CH2M HILL)
The following tables summarize, as of the dates indicated, the investment
performance of each of the investment funds for the last three years, except
for the Company Stock Fund, which did not exist during the last three years.
The summary is based on an initial investment of $100 in each investment fund
as of December 31, 1996. Past performance is not a guarantee of future results.
The funds may, therefore, perform worse or better in the future than they
performed in the past.
Fidelity Retirement Government Money Market Portfolio
<TABLE>
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $105.38 5.38%
December 31, 1998........................................ $110.96 5.30%
CH2M HILL Fixed Income Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $106.13 6.13%
December 31, 1998........................................ $112.62 6.12%
</TABLE>
35
<PAGE>
Fidelity Balanced Fund
<TABLE>
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $123.45 23.45%
December 31, 1998........................................ $148.41 20.22%
Fidelity Equity-Income Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $129.98 29.98%
December 31, 1998........................................ $146.26 12.53%
Spartan U.S. Equity Index Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $133.04 33.04%
December 31, 1998........................................ $170.93 28.48%
Fidelity Magellan Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $122.79 22.79%
December 31, 1998........................................ $164.08 33.63%
Fidelity Growth Company Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $118.91 18.91%
December 31, 1998........................................ $151.29 27.23%
PIMCO Mid Cap Growth Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $133.87 33.87%
December 31, 1998........................................ $144.33 7.81%
Janus Worldwide Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $120.51 20.51%
December 31, 1998........................................ $151.69 25.87%
</TABLE>
36
<PAGE>
Except for investments in the Company Stock Fund, participants may transfer
amounts among the investment alternatives in accordance with rules established
by the trustees.
Amounts invested in the Company Stock Fund, other than matching
contributions, which are always invested in common stock, may be transferred
into other investment alternatives only as of a trade date. If a participant
wishes to transfer amounts invested in the Company Stock Fund into another
investment alternative as of a trade date, the trustees will direct the sale in
the internal market of an appropriate number of shares of common stock held in
the Company Stock Fund on that trade date. If only a portion of the common
stock offered for sale by the 401(k) plan in the internal market is sold, only
that portion of the participant's investment in the Company Stock Fund will be
transferred into the other investment alternatives. The remaining portion of
the participant's investment in the Company Stock Fund will remain in the
Company Stock Fund. Thus, a participant's ability to transfer amounts out of
the Company Stock Fund may be restricted. A participant considering an
investment in the Company Stock Fund should read this entire Prospectus,
particularly the sections entitled "Risk Factors" and "Internal Market
Information."
Amounts invested in investment alternatives other than the Company Stock
Fund may not ordinarily be transferred into the Company Stock Fund. However,
the trustees may from time to time permit the transfer of amounts held in other
investment alternatives into the Company Stock Fund, subject to any
restrictions and conditions that the trustees deem to be appropriate.
It is the current intent of the trustees to keep all amounts allocated to
the Company Stock Fund invested in common stock, except for cash reserves for
distributions and expenses.
Vesting in Accounts in the 401(k) Plan
Each participant in the 401(k) plan is, at all times, 100% vested in amounts
allocated to the participant's rollover contribution account and employee
contribution account.
Amounts allocated to a participant's defined contribution account and
matching contribution account are subject to the following vesting schedule:
----------------------------------------------------
Completed Amount Vested
Years of Amount Vested (Non-OMI
Service (OMI Employees) Employees)
----------------------------------------------------
1 20% 0%
2 40% 20%
3 60% 40%
4 80% 60%
5 100% 80%
6 100% 100%
----------------------------------------------------
A participant's defined contribution account and matching contribution
account become fully vested if the participant is still employed by CH2M HILL
or an affiliate and any of the following occurs:
. The participant reaches age 65 or age 55 if the participant has at least
five years of service
. The participant becomes permanently disabled
. The participant dies
Loans from the 401(k) Plan
Loans from the 401(k) plan are available to any participant who is an active
employee of CH2M HILL or an affiliate. The total amount of a loan to a
participant from the 401(k) plan may not exceed $50,000. This $50,000 limit is
reduced by the participant's highest outstanding loan balance during the twelve
months before the date on which a loan is obtained. The total amount of a loan
to a participant in the 401(k) plan is further limited to 50% of the
participant's vested interest in the participant's accounts in the 401(k) plan.
The loan may not exceed the combined amount in the participant's employee
contribution account and rollover contribution account. The minimum loan amount
is $1,000. A participant may only have one loan outstanding at any time.
A loan must be repaid within five years, unless the loan is used to acquire
the principal residence of the participant, in which case the term of the loan
may be up to 25 years. Loan payments must be repaid through payroll deductions.
Loans are secured by up to 50% of the participant's vested account balance in
the 401(k) plan. Loans bear interest at the interest rates in effect at the
CH2M HILL Federal Credit Union at the time the loan is granted.
37
<PAGE>
Distributions and Withdrawals from the 401(k) Plan
If a participant in the 401(k) plan terminates employment with us and if
the value of the vested portion of the participant's account in the 401(k) plan
does not exceed $5,000, the vested portion of the participant's account in the
401(k) plan will be distributed to the participant in a lump sum cash payment
as soon as reasonably practicable.
If a participant in the 401(k) plan terminates employment with us and if
the value of the vested portion of the participant's account in the 401(k) plan
is greater than $5,000, the participant may request an immediate distribution
or may elect to defer distribution until a later date. If distribution is
deferred, the participant's account will remain invested in accordance with the
401(k) plan until the participant requests distribution. In any case,
distribution from the 401(k) plan must begin when the participant reaches age
70 1/2.
A participant who has reached age 59 1/2 may request a distribution of the
participant's employee contribution account or the participant's rollover
account even if the participant has not terminated employment with CH2M HILL
and its affiliates.
When a participant requests a distribution from the 401(k) plan, the
distribution will be made in cash in a lump sum as soon as reasonably
practicable. If the participant's account in the 401(k) plan includes common
stock, the portion of the participant's account invested in common stock will
be distributed in cash as soon as reasonably practicable after the common stock
is sold on the internal market or to CH2M HILL. CH2M HILL intends to purchase
from the 401(k) plan on each trade date sufficient common stock to permit
distributions to all participants whose requests for distributions are pending.
On some trade dates, however, CH2M HILL may not purchase from the 401(k) plan
sufficient common stock to permit distributions to all participants whose
requests for distributions are pending. In that case, distribution of some or
all of the portion of a participant's account invested in common stock may be
delayed until a subsequent trade date.
If a participant dies while employed by CH2M HILL or an affiliate,
distribution of the participant's account in the 401(k) plan will be made to
the participant's spouse or, if the participant's spouse has given proper
consent or if the participant has no spouse, to the beneficiary designated by
the participant. A surviving spouse of a deceased participant may delay
distribution of the participant's account in the 401(k) plan for up to five
years from the date of death. A distribution from the account will be made in
accordance with the procedures described in the previous paragraph.
The 401(k) plan permits a participant to obtain a hardship withdrawal from
the participant's employee contribution account or rollover contribution
account if there is an immediate and heavy financial need which may not
reasonably be met by the participant's other resources. The amount of a
hardship withdrawal may not exceed the amount required to meet the immediate
financial need, including any taxes or penalties resulting from the withdrawal,
and may be subject to various other limitations.
Employee Stock Plan
The employee stock plan was originally adopted in 1977 as an employee stock
ownership plan, or ESOP. In 1983 the ESOP was converted into a profit sharing
plan designed to invest up to 100% of its assets in stock of CH2M HILL. The
employee stock plan is a profit sharing plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code. This means that contributions to
the employee stock plan receive favorable federal income tax treatment.
Employees Eligible to Participate in the Employee Stock Plan
All of our employees are eligible to participate in the employee stock
plan, except:
. Leased employees
. Temporary employees
. Employees of affiliates that have not adopted the Employee Stock Plan
As of January 1, 1999, none of CH2M HILL's foreign affiliates have adopted
the Employee Stock Plan. CH2M HILL and each affiliate that has adopted the
employee stock plan are referred to as member employers.
38
<PAGE>
Each eligible employee begins to participate in the employee stock plan
after completing a twelve-month period of service with a Member Employer during
which the eligible employee is credited with at least 1,000 hours of service.
Contributions to the Employee Stock Plan
For each calendar year, each Member Employer may, but is not required to,
make a contribution to the employee stock plan. The amount of each Member
Employer's contribution to the employee stock plan, if any, for a calendar year
is determined by the Board of Directors of CH2M HILL. For the calendar year
ended December 31, 1998, member employers contributed a total of $3.5 million
to the employee stock plan. Employees are not permitted to make contributions
to the employee stock plan.
Each member employer's contribution to the employee stock plan for a
calendar year is allocated to the accounts of eligible employees of that member
employer who are participants in the employee stock plan.
Each eligible participant receives a proportionate share of the member
employer's contribution for the calendar year. Each eligible participant's
proportionate share is determined by dividing that participant's eligible
compensation for the calendar year by the total eligible compensation for the
calendar year of all participants.
Eligible compensation is an employee's basic hourly wage, times the number
of regular hours worked during the year. Eligible compensation for 1999 is
limited to $160,000 under Section 401(a)(17) of the Internal Revenue Code.
Forfeitures, if any, of the nonvested portion of accounts of terminated
participants are allocated to the accounts of remaining eligible participants.
Investment of the Assets of the Employee Stock Plan
The employee stock plan is authorized to invest up to 100% of its assets in
common stock. Cash contributions to the employee stock plan will be used to
purchase common stock through the internal market on the next trade date, to
the extent that common stock is available for purchase on that trade date. If
common stock is not available for purchase on that trade date, cash
contributions will be held until common stock is available for purchase.
It is the intent of CH2M HILL that, to the maximum extent possible, all of
the assets of the employee stock plan will be invested in common stock at all
times. Any cash in the employee stock plan will be invested in an investment
vehicle selected by the trustees.
Vesting of Accounts in the Employee Stock Plan
Amounts contained in a participant's account in the employee stock plan are
subject to the following vesting schedule:
---------------------------------------
Completed Years of
Service Amount Vested
---------------------------------------
2 20%
3 40%
4 60%
5 80%
6 100%
---------------------------------------
A participant also becomes fully vested if the participant is still
employed by CH2M HILL or an affiliate when the participant:
. Reaches age 65 or age 55 if the participant has at least five years of
service
. Becomes permanently disabled
. Dies
Loans from the Employee Stock Plan
Loans are not available to a participant from the employee stock plan.
Distributions from the Employee Stock Plan
If a participant's employment with us terminates and the vested portion of
the participant's account in the employee stock plan does not exceed $5,000,
the vested portion of the participant's account will be distributed to the
participant in a lump sum cash payment as soon as practicable after the next
trade date. If a
39
<PAGE>
participant's employment with us terminates and the vested portion of the
participant's account in the employee stock plan is greater than $5,000, the
participant may request a distribution or may elect to defer distribution of
the account until a later date. If distribution is deferred, the participant's
account will remain invested in common stock until the participant requests
distribution.
If a participant dies while employed by us, distribution of the
participant's account in the Employee Stock Plan will be made to the
participant's surviving spouse or, if the participant's surviving spouse has
given proper consent or if the participant has no surviving spouse, to the
beneficiary designated by the participant. Distributions to a surviving spouse,
or a beneficiary will be made in the same manner.
CH2M HILL intends to purchase from the Employee Stock Plan at each trade
date sufficient common stock to permit distribution covering all pending
requests for distributions. On some trade dates, CH2M HILL may not purchase
from the Employee Stock Plan sufficient common stock to permit distribution
covering all pending distribution requests. In that case, distribution of a
participant's account from the Employee Stock Plan may be delayed to a
subsequent trade date.
General Provisions of the 401(k) Plan and the Employee Stock Plan
The following is a summary of the material provisions of the 401(k) plan
and the employee stock plan:
Contribution Limitations
The maximum contribution for any calendar year which CH2M HILL or its
affiliates may make to the 401(k) plan and the employee stock plan together for
the benefit of a participant, including employee contributions to the 401(k)
plan, plus forfeitures, may not exceed the lesser of $30,000 or 25% of the
participant's compensation for the calendar year. The $30,000 limit will be
adjusted for cost of living in accordance with rules of the Secretary of the
Treasury.
Administration
The 401(k) plan and the employee stock plan are administered by the
trustees. The trustees have the power to supervise each plan's operations,
including the power and authority to do all of the following:
. Allocate fiduciary responsibilities among the fiduciaries of each of the
plans
. Designate agents to carry out responsibilities relating to each of the
plans
. Employ legal, actuarial, accounting, and other assistance as the trustees
may deem appropriate in carrying out the terms of each of the plans
. Establish rules and regulations for the administration of each of the
plans
. Administer, interpret, construe and apply the plans and determine
questions relating to eligibility, the amount of any participant's
service and the amount of benefits to which any participant or
beneficiary is entitled
. Determine the manner in which each of the plans' assets are disbursed
Pass-Through Voting and Tendering of Common Stock
Each participant in the 401(k) plan and the employee stock plan has the
right to instruct the trustees on a confidential basis how to vote the
participant's interest in common stock held in the plans. The trustees will
vote all allocated shares held in the plans as to which no voting instructions
are received, together with all unallocated shares held in each of the plans,
in the same proportion, on a plan-by-plan basis, as the allocated shares for
which voting instructions have been received are voted. The trustees are
required to notify participants of their pass-through voting rights prior to
each meeting of shareholders.
In the event of a tender or exchange offer for the common stock, each
participant in the 401(k) plan and the employee stock plan has the right to
instruct the trustees on a confidential basis whether or not to tender or
exchange the participant's proportionate interest in common stock held in the
plans. The trustees will not
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tender or exchange any allocated shares unless instructions are received from
participants. Shares held in the plans which have not yet been allocated to the
accounts of participants will be tendered or exchanged by the trustees, on a
plan-by-plan basis, in the same proportion as the allocated shares held in each
plan are tendered or exchanged.
The trustees' duties with respect to voting and tendering of common stock
are governed by the fiduciary provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"). These fiduciary provisions of ERISA may
require, in limited circumstances, that the trustees override the votes, or
decisions whether or not to tender, of participants with respect to common
stock and to determine, in the trustees' best judgment, how to vote the shares
or whether or not to tender the shares.
Trustees of the 401(k) Plan and the Employee Stock Plan
The current trustees of the 401(k) plan and the employee stock plan are
Fred K. Berry, Samuel H. Iapalucci, Stan Vinson, Sharon Schlechter, and Cliff
Thompson, all of whom are officers of the Company or its affiliates.
Generally, the trustees have all the rights afforded a trustee under
applicable law. Subject to limitations in the plans, the trustees' rights
include, but are not limited to, the right to:
. Invest and reinvest the funds held in the plans' trusts in any investment
of any kind
. Retain or sell the securities and other property held in the plans'
trusts
. Consent or participate in any reorganization or merger in regard to any
corporation whose securities are held in the plans' trusts
-- In the case of the common stock, such rights are subject to the
participants' pass-through voting rights and right to instruct the
trustees in the event of a tender or exchange offer
. Exercise all the rights of the holder of any security held in the plans'
trusts, including the right to vote such securities
-- In the case of the common stock, such rights are subject to the
participants' pass-through voting rights
. Vote proxies and exercise any other similar rights of ownership
. Lend to participants in the plans such amounts as may be permitted under
the plans
The trustees receive no compensation from the plans for their service as
trustees of the plans. Expenses incurred in the establishment, administration
and operation of the plans are paid by the respective plans unless CH2M HILL
elects to pay such expenses.
Administrative Services
CH2M HILL has entered into an agreement with Fidelity Institutional
Retirement Services Company to provide recordkeeping and other administrative
services to the 401(k) plan and the employee stock plan. Fidelity's fees for
these services are paid by each of the plans.
Account Statements
Each participant is furnished with a quarterly statement of the
participant's account in the 401(k) plan and with an annual statement of the
participant's account in the employee stock plan.
Amendment and Termination
CH2M HILL has reserved the right to amend each of the plans at any time,
for any reason and without prior notice, except that no such amendment may have
the effect of:
. Generally causing any assets of the plans' trusts to be used for or
diverted to any purpose other than providing benefits to participants and
their beneficiaries and defraying expenses of the plans, except as
permitted by applicable law
. Depriving any participant or beneficiary, on a retroactive basis, of any
benefit to which they would otherwise be entitled had the participant's
employment with us terminated immediately prior to the amendment
. Increasing the liabilities or responsibilities of the trustees without
their written consent
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CH2M HILL has also retained the right to terminate either of the plans at
any time and for any reason. In addition, CH2M HILL may discontinue
contributions to the plans, but any such discontinuation does not automatically
terminate the plans as to funds and assets then held by the trustees.
ERISA
The 401(k) plan and the employee stock plan are both subject to ERISA,
including reporting and disclosure obligations, fiduciary standards and
prohibited transaction rules. Since the plans are individual account plans
under ERISA, they are not subject to the jurisdiction of the Pension Benefit
Guaranty Corporation under Title IV of ERISA and none of the plans' benefits
are guaranteed by the Pension Benefit Guaranty Corporation.
Federal Income Tax Consequences
The following paragraphs summarize the material federal income tax
consequences of participating in the 401(k) plan and the employee stock plan.
This summary is intended to be general and is not intended to address every
federal income tax issue that may arise from participation in the plans. This
summary does not address state or local tax issues, which may be significant.
Each participant in the plans should consider obtaining professional tax advice
with respect to the plans' tax impact on that participant.
Each of the plans is intended to qualify under Section 401(a) of the
Internal Revenue Code. Qualification under Section 401(a) of the Internal
Revenue Code generally produces the following federal income tax results with
respect to contributions, income and earnings, and distributions and loans
from, the plans.
Contributions to the 401(k) Plan and the Employee Stock Plan. A participant
will not be subject to federal income tax on CH2M HILL contributions to the
plans at the time those contributions are made.
A participant in the 401(k) plan who makes employee contributions will
exclude the amount of those employee contributions from the participant's gross
income.
Neither the participant nor CH2M HILL will be subject to federal employment
taxes on CH2M HILL contributions to the Plans. Employee contributions to the
401(k) plan will be subject to federal employment taxes.
The plans will not be subject to federal income tax on contributions made
to the plans by CH2M HILL.
Subject to limits contained in each of the plans, CH2M HILL will be able to
deduct the amounts that it contributes to the plans, including amounts
contributed to the 401(k) plan as employee contributions. The amount of CH2M
HILL's deduction will generally be equal to the amount of the contributions.
Income and Appreciation of the 401(k) Plan and the Employee Stock Plan.
Participants will not be subject to federal income tax on income or
appreciation in their accounts in the plans until distributions are made or
deemed to be made to the participant.
The plans will not be subject to federal income tax on their income or
appreciation, except to the extent that the plans realize unrelated business
taxable income.
Distributions from the 401(k) Plan and the Employee Stock
Plan. Distributions from the plans will be subject to federal income tax under
complex rules that apply generally to distributions from all tax-qualified
retirement plans.
In general, a distribution from either of the plans will be taxable in the
year of receipt as ordinary income unless the recipient is eligible for and
elects to make a qualifying "rollover" to an individual retirement account or
to another qualified plan.
An early distribution from the plans will result in an additional 10% tax
on the taxable portion of the distribution. Early distributions are all
distributions made before the participant has reached age 59 1/2 unless:
. The participant is permanently disabled
. The distribution is made after termination of employment due to the death
of the participant
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. The distribution is made after termination of employment to a participant
who terminated employment during or after the calendar year the
participant attained the age of 55
Exceptions from the 10% additional tax apply to distributions that are
rolled over to an individual retirement account or to another qualified plan
and to distributions that are used for deductible medical expenses.
A participant, or the participant's spouse in the event of the
participant's death, who receives a distribution from the plans, other than
mandatory distributions after age 70 1/2, and wishes to defer immediate tax on
the distribution, may transfer or "rollover" all or part of the distribution to
an individual retirement account. The participant may rollover the distribution
to another qualified retirement plan. To be effective, the rollover must be
completed within 60 days of receipt of the distribution. Alternatively, the
participant or spouse may request a direct transfer from the plans to an
individual retirement account or, in the case of the participant, to another
qualified retirement plan.
A participant or a participant's spouse who does not arrange a direct
transfer to an individual retirement account or to another qualified plan will
be subject to federal income tax withholding at a rate of 20% of the
distribution, even if the participant or spouse later makes a rollover.
A participant or the participant's spouse who makes a valid rollover to an
individual retirement account or to another qualified plan will defer payment
of federal income tax until such time as such participant or spouse actually
begins to receive distributions from the individual retirement account or other
qualified plan.
Loans from the 401(k) Plan. A loan from the 401(k) plan is generally not
considered to be a distribution and is not subject to federal income tax when
made. Interest paid by the participant on a loan from the 401(k) plan will
generally not be deductible.
1999 Stock Option Plan
The Board adopted the 1999 Stock Option Plan on November 6, 1998. The stock
option plan is not subject to ERISA. The shareholders of CH2M HILL approved the
stock option plan on December 18, 1998. The stock option plan was effective as
of January 1, 1999.
--------------------------------------------------
What is an Option?
--------------------------------------------------
A stock option is a contract between CH2M HILL
and you, which allows you to buy common stock at
a price set when you receive the option, even if
the value of the stock has changed by the time
you exercise the option. When you exercise stock
options, you are simply buying shares of common
stock.
Shares issued when an option is exercised will be
subject to the same transfer restrictions as other
shares of common stock.
--------------------------------------------------
Administration of the Stock Option Plan
The stock option plan is administered by the Ownership and Incentive
Compensation Committee ("O&IC Committee"). The O&IC Committee is appointed by
the Board of Directors. The O&IC Committee consists of two or more members of
the Board of Directors and other individuals appointed by the Board of
Directors.
The following individuals are the current members of the O&IC Committee:
Ralph R. Peterson, Philip G. Hall, Susan D. King, Donald S. Evans, Kenneth F.
Durant, Joseph A. Ahearn, Michael D. Kennedy, Michael Y. Marcussen, Steve
Guttenplan, James J. Ferris, Jill T. Shapiro Sideman, Cliff Thompson and Craig
T. Zeien.
The O&IC Committee decides which of our eligible participants, who are
employees, directors and consultants of CH2M HILL will be granted options to
buy common stock under the stock option plan. The O&IC Committee also
determines all of the terms and conditions of each stock option granted under
the stock option plan, such as:
. The manner in which the stock option may be exercised
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. Whether there are conditions that must be met before the stock option may
be exercised
. The exercise price that must be paid in order to buy common stock upon
exercise of each stock option
. When the stock option becomes vested and may be exercised
We intend to grant stock options at the fair market value of the common
stock on the day that a stock option is granted, which is the price for the
common stock in effect at the time of the grant. In any case, the exercise
price cannot be less than 90% of the fair market value of the common stock on
the day that the stock option is granted. Although the Stock Option Plan
permits the issuance of both "incentive" and "nonqualified" stock options, the
O&IC Committee does not intend to issue incentive stock options, and no
incentive stock options will be granted unless we first provide appropriate
disclosure to potential recipients.
The O&IC Committee is not required to provide the same terms and conditions
in each stock option agreement. Stock options granted to different participants
or at different times may contain different terms and conditions, including
different exercise prices.
Limits on Stock Options Granted Under the Stock Option Plan
Under the stock option plan, the O&IC Committee may grant cancellable stock
options for up to 8,000,000 shares of common stock, subject to adjustments. As
of July 1, 1999, 2,434,840 stock options had been issued under the stock option
plan.
Stock Options May Be Restricted
The O&IC Committee may provide in the grant of a stock option that the
exercise of the stock option is restricted or conditional. For example, the
O&IC Committee may provide in the grant of a stock option that the stock option
cannot be exercised unless the optionee agrees to sell the common stock
acquired as a result of the exercise in the internal market on the next trade
date or agrees to transfer the common stock acquired to the after-tax deferred
compensation trust.
--------------------------------------------------
What is Vesting?
--------------------------------------------------
A participant who receives options usually has to
"earn" them over time by staying with CH2M HILL.
We expect that most options will be vested
("earned") over three years:
. 25% vested one year from the date of grant
. 25% more vested two years from the date of
grant
. The remaining 50% vested three years from
the date of grant
You may not exercise an option until it is vested.
--------------------------------------------------
Exercise of Stock Options
If the O&IC Committee grants a stock option to a participant, the
participant may exercise the stock option after all conditions described in the
stock option agreement, including vesting, have been met and before the stock
option expires.
The participant may exercise a stock option by following the procedures for
exercise described in the stock option agreement. These procedures will include
providing written notice of exercise to CH2M HILL, paying the exercise price,
and paying any amount required for federal, state, or local income tax
withholding as a result of the employee's exercise of the stock option as
described below. The procedures may also include other requirements imposed by
the O&IC Committee from time to time.
Payment for Common Stock Bought Pursuant to the Exercise of a Stock Option
Granted Under the Stock Option Plan
Payment for shares of common stock bought pursuant to the exercise of a
stock option may be made in cash or a personal check payable to CH2M HILL.
Unless the O&IC Committee provides otherwise, payment may also be made by
returning to CH2M HILL shares of common stock already owned by the participant.
If the participant uses shares of common stock the participant
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already owns as payment for the exercise of a stock option, then the number of
shares given to the participant as a result of the exercise will be the net
number. The net number will be the difference between the number of shares
bought through the exercise of the stock option and the number of shares
already owned by the participant and used as payment for the exercise.
- --------------------------------------------------------------------------------
Examples of Option Exercises
- --------------------------------------------------------------------------------
Assumptions:
. Participant was granted 100 options at an exercise price of $10 per share
. Participant exercises 100 options with an exercise price of $10 per share when
the price per share of common stock is $20 per share
. Participant already owns 200 shares of common stock
. Combined federal, state and FICA tax rate is 42%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Stock for Stock Transaction: Cash Transaction:
1. Number of Options to be Exercised 100 1. Number of Options to be Exercised 100
2. Option Exercise Price $ 10 2. Option Exercise Price $ 10
3. Cost to Participant (1 x 2) $1,000 3. Cost to Participant (1 x 2) $1,000
4. Current Stock Price $ 20 4. Current Stock Price $ 20
5. Value of Options Exercised (1 x 4) $2,000 5. Value of Options Exercised (1 x 4) $2,000
6. Gain (5 - 3) $1,000 6. Gain (5 - 3) $1,000
7. Applicable Tax (6 x 42%) $ 420 7. Applicable Tax (6 x 42%) $ 420
8. Total Amount owed by Participant 8. Total Amount Owed by Participant to
to CH2M HILL (3 + 7) $1,420 CH2M HILL (3 + 7) $1,420
9. Number of Shares to be Tendered to 9. Cash to be Paid by Participant as
CH2M HILL as Payment for Option Payment for Option Exercise $1,420
Exercise (8/4) 71
</TABLE>
- --------------------------------------------------------------------------------
The shares exchanged in a stock-for-stock transaction are treated as a "Like
Kind" exchange which does not trigger the recognition of capital gains. The
shares exchanged carry their original tax basis and acquisition date. Newly
acquired shares have a basis equal to the fair market value at the time of
exercise. The shares sold to pay taxes represent new shares acquired through the
exercise of the option and would therefore not trigger any capital gains.
- --------------------------------------------------------------------------------
Payment may also be made in a combination of cash, a personal check, and
shares of common stock, unless the O&IC Committee provides that payment by
shares of common stock will not be allowed. If shares of common stock owned by
the participant are used to pay all or part of the purchase price, the value
assigned to each share will be equal to the price of the common stock on the
date of exercise of the stock option.
Expiration of Stock Options Granted Under the Stock Option Plan
A stock option granted to a participant may not be exercised after the
stock option expires. A stock option expires on the expiration date set forth
in the stock option agreement. The O&IC Committee generally intends to grant
stock options that expire five years after the date on which the stock options
are granted.
Regardless of the date stated in the stock option agreement, a stock option
granted under the stock option plan and not previously exercised will
terminate when the participant terminates employment with us, unless the stock
option agreement provides that the stock option may be exercised after
termination of employment.
The O&IC Committee generally intends to permit the exercise of a stock
option granted
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<PAGE>
under the stock option plan within thirty days after termination of employment
with us for any reason other than for cause. If a participant terminates
employment with us due to disability or death, the O&IC Committee generally
intends to permit the stock option to be exercised within one year after the
date on which the participant's employment terminates due to the disability or
death.
A participant may work for an affiliate of CH2M HILL that becomes
ineligible to participate in the stock option plan. For example, an affiliate
may become ineligible to participate because CH2M HILL's interest in the
affiliate is sold. In that case, stock options held by the participant will
become immediately exercisable, but the participant will be considered to
terminate employment with us on the day that the affiliate becomes ineligible
to participate in the stock option plan. Therefore, the participant will be
able to exercise the stock options only if and to the extent that the stock
option agreement permits the participant to exercise the stock options on
termination of employment.
Amendment and Termination of the Stock Option Plan
The Board of Directors may amend or terminate the stock option plan at any
time. Any amendment or termination of the stock option plan will not change the
terms of any stock option agreement already in place at the time of such
amendment or termination unless the participant agrees to such change. The
following changes may not be made by the Board without shareholder approval:
. Increasing the number of shares of common stock available under the stock
option plan
. Reducing the minimum price at which stock options may be granted under
the stock option plan
. Changing the class of participants who may be granted stock options under
the stock option plan
The stock option plan will terminate on December 31, 2008. No stock options
will be granted under the stock option plan after that date. Any stock option
agreement already in place on December 31, 2008, will remain in effect until
the stock options covered by that stock option agreement are exercised or
expire.
Corporate Reorganization, Sale of Assets, or Change in Control
If CH2M HILL experiences a stock split, a stock dividend, a
recapitalization, or a similar transaction that changes the number of
outstanding shares of common stock without receipt of payment by CH2M HILL, the
O&IC Committee will adjust the number of shares of common stock that may be
bought under outstanding stock options and the exercise price that must be paid
to buy shares of common stock under outstanding stock options, in order to
reflect the change in the common stock.
If a change in control of CH2M HILL occurs, then all outstanding stock
options granted under the stock option plan may be exercised immediately, even
if the conditions on exercise stated in the stock option agreement have not
been met. A change in control of CH2M HILL occurs when one person or a group of
persons, other than an employee benefit plan, acting jointly, acquires at least
50% of the common stock, or when CH2M HILL agrees to a merger in which CH2M
HILL is not the surviving company, or when CH2M HILL disposes of more than 50%
of its assets, measured by the value of the assets. The O&IC Committee will
determine whether a change in control of CH2M HILL has occurred.
For example, if CH2M HILL experiences a merger, liquidation,
reorganization, or similar transaction in which CH2M HILL is not the surviving
corporation, the O&IC Committee will either:
. Convert outstanding stock options into comparable options to buy stock in
the surviving corporation; or
. Require that outstanding stock options be exercised within a specific
period of time before the effective date of the transaction or be
forfeited.
In connection with the transaction, if there is not a change in control of
CH2M HILL, the O&IC Committee may, but is not required to, provide that any
outstanding stock options granted under
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<PAGE>
the stock option plan may be exercised immediately, even if the conditions on
exercise stated in the stock option agreement have not been met.
Federal, State, and Local Income Tax Withholding
The federal income tax consequences of the grant and exercise of stock
options under the stock option plan are described below. Sometimes the exercise
of a stock option or the sale of shares of common stock bought through the
exercise of a stock option may produce compensation income to a participant. In
that case, your employer may be required to withhold federal, state, and local
income taxes with respect to the amount of compensation income you recognized,
as though that amount was paid to you by your employer. Your employer may
satisfy this withholding obligation by withholding the required amount from
other amounts, such as other compensation or wages, your employer paid to you.
Alternatively, your employer may require you to pay the amount necessary to
satisfy the withholding obligation. The payment of the amount necessary to
satisfy the withholding obligation may be a prerequisite to the exercise of a
stock option granted under the stock option plan.
--------------------------------------------------
Are Options Taxable?
--------------------------------------------------
No. For tax purposes, options are not treated as
having monetary value when they are granted to
employees. Thus, they do not have an impact on
your taxes when granted. After you exercise an
option, however, the difference between the
exercise price and the formula price in effect at
the time is taxed as ordinary income.
--------------------------------------------------
Federal Income Tax Consequences of Stock Options Granted under the Stock Option
Plan
This summary of the material federal income tax consequences of the grant
and exercise of stock options under the stock option plan does not address
every federal income tax issue that may arise and does not address foreign,
state or local tax issues, which may be significant.
This summary does not address the tax consequences for incentive stock
options because the O&IC Committee does not intend to grant incentive stock
options.
Each holder of stock options granted under the stock option plan should
consider obtaining professional tax advice with respect to the tax impact of
their stock options.
Exercise of Nonqualified Stock Options with Cash. Generally, an individual
will not be taxed when a stock option is granted. Instead, at the time the
individual exercises a stock option, the individual will recognize ordinary
income for federal income tax purposes. The amount of ordinary income
recognized by the individual will be equal to the excess of the fair market
value of the common stock at the time of exercise over the exercise price. CH2M
HILL generally will be entitled to a federal income tax deduction at that time
and in the same amount that the individual realizes as ordinary income.
If common stock bought through the exercise of a stock option is later sold
or exchanged, then the difference between the sale price and the fair market
value of the common stock on the date of exercise will be recognized as gain or
loss to the seller. If the common stock is a capital asset in the seller's
hands, the gain or loss on the sale will be long-term or short-term capital
gain or loss, depending on whether the holding period for the common stock at
the time of sale is more than 12 months or 12 months or less, respectively.
Exercise of Nonqualified Stock Options With Shares of Common Stock. If
payment of the exercise price under a stock option is made by surrendering
previously owned shares of common stock, the following rules apply:
. No gain or loss will be recognized as a result of the tendering of shares
in exchange for an equal number of shares available through the exercise
of nonqualified stock options
. Any additional shares received will be taxed as ordinary income in an
amount equal to the fair market value of the shares at the time of
exercise
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<PAGE>
1999 Payroll Deduction Stock Purchase Plan
We have recently established the stock purchase plan for the benefit of our
employees and employees of certain of our affiliates. The stock purchase plan
provides for the purchase of common stock through payroll deductions by
participating employees. The stock purchase plan is intended to qualify under
Section 423 of the Internal Revenue Code. Under the stock purchase plan, the
O&IC Committee may decide to let employees begin payroll deductions for
purchases of common stock as early as October 1, 1999. However, no common stock
will be purchased under the stock purchase plan until after January 1, 2000.
The Stock Purchase Plan is not subject to ERISA.
Administration of the Stock Purchase Plan
The stock purchase plan is administered by the O&IC Committee, which is the
same committee that administers the stock option plan, described above.
The O&IC Committee decides which affiliates of CH2M HILL will be eligible
to participate in the stock purchase plan. The O&IC Committee also decides
whether employees must meet eligibility requirements in order to participate in
the stock purchase plan.
The O&IC Committee may adopt rules for the administration of the stock
purchase plan. The O&IC Committee interprets the stock purchase plan. The O&IC
Committee's decisions on any questions that arise under the stock purchase plan
are binding on all persons, including CH2M HILL and any employee who
participates in the stock purchase plan.
Employees Eligible to Participate in the Stock Purchase Plan
Generally, all employees of CH2M HILL and any participating affiliate may
participate in the stock purchase plan. The O&IC Committee decides which
affiliates of CH2M HILL may participate in the stock purchase plan.
The O&IC Committee intends to exclude employees who normally work less than
20 hours per week and employees who normally work five or fewer months in a
year from participating in the stock purchase plan.
Any employee who owns five percent or more of CH2M HILL or of any
subsidiary of CH2M HILL is excluded from participating in the stock purchase
plan.
An employee who terminates employment with CH2M HILL and all participating
affiliates is no longer eligible to participate in the stock purchase plan. For
this purpose, termination of employment includes death, disability, retirement,
transfer to an affiliate that is not eligible to participate in the stock
purchase plan, or any other termination of employment. If an employee becomes
ineligible to continue participating in the stock purchase plan, any amount
held in the employee's stock purchase account will be distributed to the
employee.
Participating in the Stock Purchase Plan
In order to participate in the stock purchase plan, an employee must
deliver a written payroll deduction authorization form to the plan
administrator of the stock purchase plan. The payroll deduction authorization
form will tell the eligible employee's employer to withhold a specific
percentage of the eligible employee's pay to be used to buy common stock under
the stock purchase plan. The payroll deduction authorization form must provide
for the deduction of at least 1% of the employee's pay, but no more than 10% of
the employee's pay, in a whole number percentage. The employee may change the
specified percentage at any time. However, an employee cannot purchase more
than $25,000 of common stock under the stock purchase plan in any calendar
year.
Purchases of Common Stock Under the Stock Purchase Plan
No shares of common stock will be bought under the stock purchase plan
until after January 1, 2000, even though the O&IC Committee may decide to allow
employees to have amounts deducted from their paychecks and contributed to
their stock purchase accounts during the last quarter of 1999. Beginning in
2000, CH2M HILL will use the amount in the employee's stock purchase account to
buy common stock for the employee on each trade date.
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Each year, the Board of Directors will decide what percentage of the
purchase price of common stock CH2M HILL will contribute toward the purchase of
common stock under the stock purchase plan during that year. CH2M HILL's
percentage may be as low as 0% or as high as 15%. As of January 1, 2000, CH2M
HILL's percentage will be 10%. We will not actually contribute any amount to
the employee's payroll deduction stock purchase account. Instead, we will add
the contribution percentage to the amount in the employee's stock purchase
account and use the combined amount to purchase common stock on each trade
date. We will either buy the common stock on each trade date in the internal
market, if available, or we will issue new shares of common stock.
Reservation of Common Stock for Purchase Under the Stock Purchase Plan
CH2M HILL has reserved 1,000,000 shares of common stock to be sold under
the stock purchase plan. This is in addition to any shares of common stock
bought in the internal market under the stock purchase plan. The number of
shares of common stock reserved for sale under the stock purchase plan can be
changed by the O&IC Committee to reflect any stock split, stock dividend,
recapitalization, or similar transaction that CH2M HILL may experience.
Distribution of Common Stock Bought Through the Stock Purchase Plan
When shares of common stock are bought through the stock purchase plan,
they will initially be held by CH2M HILL in the name of the employee. Before
the next vote of shareholders, the shares of common stock bought through the
stock purchase plan will be distributed to the employee. The employee may
petition the O&IC Committee for an earlier distribution of the shares.
Restrictions on Common Stock Bought Through the Stock Purchase Plan
All shares of common stock bought through the stock purchase plan will be
subject to the restrictions on common stock contained in CH2M HILL's Restated
Bylaws. Those restrictions are described below, in the section of this
Prospectus called "Description of Capital Stock."
An employee is not permitted to purchase common stock under the stock
purchase plan if doing so would cause the employee to own more shares of common
stock than the employee is permitted to own under CH2M HILL's Restated Bylaws.
Amendment and Termination of the Stock Purchase Plan
The Board of Directors of CH2M HILL may amend or terminate the stock
purchase plan at any time. However, the Board of Directors may not increase the
number of shares of common stock reserved for sale under the stock purchase
plan unless the shareholders of CH2M HILL also approve that change.
Unless previously terminated by CH2M HILL, the stock purchase plan will
terminate on December 31, 2008.
Federal, State, and Local Income Tax Withholding
The federal income tax consequences of purchasing common stock under the
stock purchase plan are described below. Sometimes the sale of shares of common
stock bought through the stock purchase plan may produce compensation income to
an employee. In that case, the employee's employer may be required to withhold
federal, state, and local income tax with respect to the amount of compensation
income recognized by the employee, as though that amount was paid to the
employee by the employer as wages. The employer may satisfy this withholding
obligation by withholding the required amount from other amounts, such as other
compensation or wages, paid by the employer to the employee or by having CH2M
HILL withhold the required amount from any amount that CH2M HILL may owe the
employee upon a re-purchase of the shares of common stock.
Federal Income Tax Consequences of Purchases of Common Stock Under the Stock
Purchase Plan
The following paragraphs summarize the material federal income tax
consequences of participation in the stock purchase plan. This summary is
intended to be general and is not
49
<PAGE>
intended to address every federal income tax issue that may arise from
participation in the stock purchase plan. This summary does not address
foreign, state or local tax issues, which may be significant. Each participant
in the stock purchase plan should consider obtaining professional tax advice
with respect to the tax impact on that participant of participation in the
stock purchase plan.
Federal Income Tax Consequences for the Participant. The federal income tax
consequences of participation in the stock purchase plan depend in part on
whether the participant is participating in the portion of the stock purchase
plan that is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code, or whether the participant is
participating in the portion of the stock purchase plan that is not intended
to qualify as an employee stock purchase plan under that Section of the
Internal Revenue Code.
With respect to most of the participating affiliates, the stock purchase
plan is intended to qualify as an employee stock purchase plan under Section
423 of the Internal Revenue Code. This means that, with respect to purchases
of common stock under the stock purchase plan by employees of those
affiliates:
. The participant will not recognize income for federal income tax purposes
when the participant buys shares of common stock under the stock purchase
plan.
. The participant will recognize ordinary income when the participant
disposes of the common stock bought under the stock purchase plan. For
this purpose, a participant is considered to dispose of common stock
bought under the stock purchase plan when the participant transfers title
to the common stock in any manner, including by sale, exchange, or gift,
except that a participant is not considered to dispose of common stock
bought under the stock purchase plan when the participant transfers the
common stock to a spouse or into joint ownership if the participant is
one of the joint owners.
. The amount of ordinary income recognized by the participant when the
participant disposes of shares of common stock bought under the stock
purchase plan depends on whether the participant held the shares for at
least two years before disposing of them. If the participant held the
shares for at least two years after the date on which the shares were
bought for the participant's account under the stock purchase plan, the
participant will recognize ordinary income when the shares are sold or
otherwise disposed of. The amount of the ordinary income is equal to the
smaller of:
(i) the amount by which the fair market value on the purchase date
exceeded the amount paid for the shares, or
(ii) the amount by which the fair market value on the date of
disposition exceeds the amount paid for the shares.
If the participant dies while owning shares of common stock bought under
the stock purchase plan, ordinary income is recognized in the year of
death in the amount described in the previous sentence.
. If the participant disposes of shares of common stock bought under the
stock purchase plan before the two year holding period expires, the
participant will recognize ordinary income at the time of the
disposition. The amount of the ordinary income recognized by the
participant will be the amount by which the fair market value of the
shares on the purchase date exceeded the amount paid for the shares, even
if the disposition is by gift or is at a loss.
. If the common stock is a capital asset in the hands of the participant,
additional gain on the disposition of the shares of common stock, if any,
will be short-term or long-term capital gain depending on whether the
participant held the shares of common stock for 12 months or less, or for
more than 12 months, respectively.
50
<PAGE>
In the cases discussed above, other than in the case of the participant's
death, the amount of ordinary income recognized by the participant is added to
the purchase price paid by the participant in order to determine the amount of
gain or loss from the disposition of the shares.
With respect to the portion of the stock purchase plan that is not intended
to be qualified as an employee stock purchase plan under Section 423 of the
Internal Revenue Code, a participant purchasing shares will recognize
compensation income at the time of the purchase of shares of common stock under
the stock purchase plan. The amount of this compensation income will be the
amount by which the fair market value of the shares on the purchase date
exceeds the amount of the purchase price paid by the participant.
Tax Consequences for CH2M HILL. CH2M HILL will not be entitled to a
deduction at any time with respect to shares sold under the portion of the
stock purchase plan that is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code, if the participant buying
the shares does not dispose of the shares before the two-year holding period
expires. If the participant disposes of the shares prior to the expiration of
the two-year holding period, CH2M HILL is allowed a federal income tax
deduction that is equal to the amount of ordinary income recognized by the
participant.
Pre-Tax and After-Tax Deferred Compensation Plans
CH2M HILL will adopt, in connection with this offering, The CH2M HILL
Companies, Ltd. Pre-Tax Deferred Compensation Plan and the CH2M HILL Companies,
Ltd. After-Tax Deferred Compensation Plan, referred to in this description as
the deferred compensation plans. In connection with the deferred compensation
plans, CH2M HILL will establish the CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Trust and the CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Trust, referred to in this description as the deferred
compensation trusts. Neither deferred compensation plan is subject to ERISA.
Two deferred compensation plans will be established to separately handle
pre-tax contributions in one plan and after-tax contributions in the other
plan. In effect, the pre-tax plan will hold contributions made through deferred
compensation and deferred bonus payments. CH2M HILL intends to administer
deferred compensation by participants in the pre-tax plan under the same terms
and conditions as the stock purchase plan. In contrast, the after-tax plan will
hold contributions made directly by employees eligible to participate. All of
the terms of the pre-tax plan and the after-tax plan are generally the same,
however the tax treatment distributions from the pre-tax plan and the after-tax
plan will be different.
Employees who are eligible to participate in the deferred compensation plan
may elect to invest by making after-tax contributions to the after-tax deferred
compensation plan. An employee who is eligible to participate in the pre-tax
deferred compensation plan may elect to defer a portion of his or her
compensation by entering into a deferred compensation agreement and by filing
an annual election to defer compensation in accordance with that agreement. In
addition, CH2M HILL or its affiliates may provide that bonuses to employees who
are eligible to participate in the pre-tax deferred compensation plan will be
deferred in accordance with the provisions of the plan.
Administration of the Deferred Compensation Plans
CH2M HILL will appoint a committee called the deferred compensation
committee that will administer the deferred compensation plans. The deferred
compensation committee will designate the affiliates of CH2M HILL whose
employees are eligible to participate in the deferred compensation plans.
The Deferred Compensation Trusts
The deferred compensation trusts are irrevocable trusts established by CH2M
HILL. The Trustee will be named at a later date. Copies of the agreements
establishing the deferred compensation trusts will be available from the
deferred compensation committee.
Contributions to the Deferred Compensation Trusts
Under the agreement between CH2M HILL and the Trustee, the Trustee will
receive and hold
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<PAGE>
common stock contributed to the deferred compensation trusts by CH2M HILL. When
an eligible employee elects under the pre-tax deferred compensation plan to
defer compensation, we will use the compensation that would have been paid to
the employee to purchase common stock, and will contribute that common stock to
the pre-tax deferred compensation trust. We may also contribute common stock to
the pre-tax deferred compensation trust as bonuses on behalf of eligible
employees.
When an eligible employee elects to make voluntary contributions to the
after-tax deferred compensation plan, we will use the cash contribution to
purchase common stock and contribute the common stock to the after-tax deferred
compensation trust.
Each contribution to the deferred compensation trusts will be allocated to
an account in the name of the employee on behalf of whom the contribution is
made. However, the employee will not have a direct ownership interest in the
shares of common stock held in the deferred compensation trusts.
Nature of the Deferred Compensation Trusts
All assets of the deferred compensation trusts will be held by the Trustee
for the benefit of the participants in the deferred compensation plans and for
the benefit of the general creditors of CH2M HILL in the event CH2M HILL
becomes insolvent. CH2M HILL is considered to be insolvent if it is unable to
pay its debts as they become due or if it is the subject of a bankruptcy
proceeding. If CH2M HILL becomes insolvent, the assets of the deferred
compensation trusts will be available to pay the debts of CH2M HILL. In that
case, a participant in the deferred compensation plans will not have any
priority rights with respect to the assets of the deferred compensation trusts
or with respect to any other assets of CH2M HILL. Rather, in the event of
insolvency, a participant in the deferred compensation plans will have only a
claim against CH2M HILL for the amount of compensation previously deferred and
the amount of any after-tax contribution made by the participant. This claim
will be treated like any other claim of a general unsecured creditor of CH2M
HILL. The assets of the deferred compensation trusts are not guaranteed or
insured by any party, including CH2M HILL.
Voting of Common Stock Held in the Deferred Compensation Trusts
Shares of common stock held in the deferred compensation trusts will be
voted by the Trustee, not by the participants in the deferred compensation
plans. The Trustee will vote the shares of common stock held in the deferred
compensation trusts in accordance with instructions given to the Trustee by the
deferred compensation committee.
Dividends on Common Stock Held in the Deferred Compensation Trusts
Cash dividends, if any, paid with respect to shares of common stock held in
the deferred compensation trusts will be returned to CH2M HILL and will not be
held in the deferred compensation trusts or made available to participants in
the deferred compensation plans. Other dividends, if any, paid with respect to
shares of common stock held in the deferred compensation trusts will be
credited to the account in the deferred compensation trusts in which the shares
of common stock are held.
Distributions from the Deferred Compensation Trusts
The common stock held in the deferred compensation trusts in the name of a
participant in the deferred compensation plans will be distributed to the
participant when a distribution event under the deferred compensation plans
occurs. The following events are distribution events under each deferred
compensation plan:
. The termination of the participant's affiliation with us, as defined in
the Restated Bylaws.
. The death of the participant. In this case, the distribution will be made
to the beneficiary of the participant, as designated on a form signed by
the participant and filed with the deferred compensation committee before
the death of the participant. If the participant does not file a signed
designation of beneficiary
52
<PAGE>
with the deferred compensation committee before the participant's death,
the distribution will be made to the participant's estate.
. A change in the participant's employment status that makes the
participant ineligible to participate in the deferred compensation plans.
. A request by the participant to exercise the participant's interest in
the deferred compensation trusts. In this case a distribution will be
made only if:
(i) the deferred compensation committee approves the participant's
request, and
(ii) the common stock held in the deferred compensation trusts in the
name of the participant can be sold in the internal market on the
next trade date.
. The termination of the deferred compensation plans. This will occur no
later than January 2, 2008. CH2M HILL, in its discretion, may terminate
the deferred compensation plans before that date.
. The date specified by the participant at the date of election to
participate in the deferred compensation plans.
Distributions from the deferred compensation trusts will be made in the
form of common stock. Shares of common stock distributed to a participant from
the deferred compensation trusts will be subject to the restrictions on
ownership of common stock set forth in our Restated Bylaws.
Removal or Resignation of Trustee
CH2M HILL may remove the Trustee of the deferred compensation trusts at any
time and for any reason, upon thirty days' notice to the Trustee. The Trustee
may resign at any time and for any reason, upon thirty days' notice to CH2M
HILL. If the Trustee is removed or resigns, CH2M HILL will appoint a new
Trustee.
Amendment of the Deferred Compensation Trusts
CH2M HILL and the Trustee may amend either deferred compensation trust at
any time by executing a written amendment to the corresponding deferred
compensation trust agreement.
Federal Income Tax Consequences
We have designed the deferred compensation trusts to be grantor trusts
under the federal income tax laws. This means that CH2M HILL's contribution of
common stock to the pre-tax deferred compensation trust should not cause a
participant in the pre-tax deferred compensation plan to recognize income at
the time of the contribution. Instead, the participant will recognize
compensation income when an amount is distributed or made available to the
participant from the pre-tax deferred compensation trust. The assets of both
deferred compensation trusts will be treated as assets of CH2M HILL for federal
income tax purposes.
In contrast, participants in the after-tax deferred compensation trust will
recognize compensation equal to the difference between the amount they
contributed and the value of cash or other property when it is distributed or
made available from the after-tax deferred compensation trust.
This treatment of participants in the deferred compensation plans for
federal income tax purposes is based on private letter rulings issued by the
Internal Revenue Service. The deferred compensation plans and the deferred
compensation trusts are not identical to the arrangements involved in those
private letter rulings, however, and a private letter ruling is binding on the
Internal Revenue Service only with respect to the specific taxpayer to whom the
private letter ruling is issued. We do not plan to seek a private letter ruling
on the federal income tax consequences of participation in the deferred
compensation plans. Therefore, while we believe that the federal income tax
consequences of participation in the deferred compensation plans should be as
described above, there is no definite assurance that this will in fact be the
case. If the federal income tax consequences of participation in the deferred
compensation plans are ultimately determined to be different from those
described above, participants in the deferred compensation plans may be liable
for additional income taxes, interest, and penalties for tax years during which
they participate in the deferred compensation plans.
53
<PAGE>
This description summarizes the material federal income tax consequences of
participation in the deferred compensation plans, but is not intended to be a
complete discussion of all federal income tax or other tax consequences of
participation in the deferred compensation plans. Each participant in the
deferred compensation plans should consider discussing the federal, state, and
local tax consequences of participation in the deferred compensation plans with
that participant's tax advisors.
54
<PAGE>
MANAGEMENT
Directors and Executive Officers
The current directors and executive officers of CH2M HILL are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Philip G. Hall.......... 57 Chairman of the Board of Directors and Senior Vice President
Joseph A. Ahearn........ 62 Director and Senior Vice President
Kenneth F. Durant....... 61 Director and Senior Vice President
Donald S. Evans......... 49 Director and Senior Vice President
James J. Ferris......... 55 Director and Senior Vice President
Craig T. Zeien.......... 53 Director and Senior Vice President
Jerry D. Geist.......... 64 Director
Michael D. Kennedy...... 49 Director
Susan D. King........... 43 Director
Michael Y. Marcussen.... 46 Director
Jill T. Shapiro
Sideman................ 59 Director
Barry L. Williams....... 54 Director
Ralph R. Peterson....... 53 President and Chief Executive Officer
Samuel H. Iapalucci..... 46 Senior Vice President, Chief Financial Officer and Secretary
</TABLE>
Philip G. Hall has served as Chairman of the Board of Directors of CH2M
HILL since 1992, and as a director since 1987. Mr. Hall has served as Senior
Vice President of CH2M Hill, Inc. since 1995, and as its Southwest Regional
Manager since 1997.
Joseph A. Ahearn has served as a director of CH2M HILL since 1996, and as a
Senior Vice President since 1995. Mr. Ahearn has served as President of the
Transportation business of CH2M Hill, Inc. since 1996 and served as Eastern
Region Manager of CH2M Hill, Inc. from 1994 until 1996.
Kenneth F. Durant has served as a director of CH2M HILL since 1995 and as a
Senior Vice President since 1997. Mr. Durant has served as the President of
Industrial Design Corporation, a subsidiary of CH2M HILL, since its formation
in 1985.
Donald S. Evans has served as a director of CH2M HILL since 1997 and as a
Senior Vice President since 1997. Mr. Evans has served as the President of the
Water business and the Operations and Maintenance business since 1985.
James J. Ferris has served as a director of CH2M HILL since 1998, and as
its Senior Vice President since 1995. Dr. Ferris has served as President of the
Energy, Environment and Systems business since 1995 and President of CH2M Hill
Constructors, Inc. since 1994. He served as President and Chief Executive
Officer of Ebasco Environmental from 1989 until 1994. Dr. Ferris also serves as
a director of Kaiser-Hill.
Craig T. Zeien has served as a Senior Vice President of CH2M HILL since
1995 and was elected as a director in 1999. Mr. Zeien has served as President
of Regional Operations since 1994, and as President of CH2M Hill International,
Ltd. since 1995. From 1991 to 1994, Mr. Zeien served as Director of Technology
for CH2M Hill, Inc.
Jerry D. Geist has served as a director of CH2M HILL since 1989. Mr. Geist
has been Chairman of Santa Fe Center Enterprises, Inc. since 1990 and President
and Chief Executive Officer of Howard International Utilities/Projects since
1990. He serves on the Board of Directors of the Davis Family of Mutual Funds.
Michael D. Kennedy has served as a director of CH2M HILL since 1998, and
has served as the Northwest Regional Manager of CH2M Hill, Inc. since 1993. Mr.
Kennedy served as the Portland Regional Manager of CH2M Hill, Inc. from 1987
until 1992 and the Western Regional Business Development Director from 1992
until 1993.
55
<PAGE>
Susan D. King has served as a director of CH2M HILL since 1997. Ms. King
has served as the Chief Financial Officer of Industrial Design Corporation
since 1993, and as its Secretary and Treasurer since 1995.
Michael Y. Marcussen has served as a director of CH2M HILL since 1998. Mr.
Marcussen has served as the European Manager for CH2M Hill IDC Ltd., Dublin,
Ireland since 1977 and has been an employee of Industrial Design Corporation
since 1993.
Jill T. Shapiro Sideman was elected as a director in 1999 and has served as
a Vice President and Client Service Manager of CH2M Hill, Inc. since 1993.
Barry L. Williams has served as a director of CH2M HILL since April 1995. He
has been President of Williams Pacific Ventures, Inc., a consulting firm, since
1987. Mr. Williams has served as Senior Mediator for JAMS/Endispute since 1993
and a visiting lecturer for the Haas Graduate School of Business, University of
California since 1993. Mr. Williams has acted as a general partner of WDG, a
California limited partnership, since 1987 and a general partner of Oakland
Coliseum Joint Venture since 1998. He also serves on the board of directors of
Pacific Gas & Electronic Company, Northwestern Mutual Life Insurance Company,
Newhall Land & Farming Company, Simpson Manufacturing Company, USA Group, Inc.,
Comp USA, R. H. Donnelly, and several not-for-profit organizations.
Ralph R. Peterson has served as President and Chief Executive Officer of
CH2M HILL since 1991. Mr. Peterson also serves as a director of Kaiser-Hill.
Samuel H. Iapalucci has served as Senior Vice President, Chief Financial
Officer and Secretary of CH2M HILL since 1994. Mr. Iapalucci served as Vice
President and Chief Financial Officer for OHM Corporation, an engineering and
construction company, from 1991 to 1994.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding annual incentive
compensation for the chief executive officer and the other four most highly
compensated executive officers of CH2M HILL.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
(a) (b) (c) (d) (i)
All other
Name and principal position Year Salary(2) Bonus(2) compensation(3)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Ralph R. Peterson....................... 1998 $451,060 $344,802 $29,430
President & Chief Executive Officer 1997 438,437 293,631 36,877
1996 396,076 326,374 8,985
Kenneth F. Durant....................... 1998 273,000 281,465 7,885
Senior Vice President 1997 260,000 384,046 12,354
1996 230,000 391,440 14,242
Philip G. Hall.......................... 1998 316,786 128,157 8,112
Senior Vice President 1997 299,120 175,687 29,285
1996 295,479 201,300 11,122
Samuel H. Iapalucci..................... 1998 308,389 190,404 7,147
Senior Vice President, Chief Financial 1997 275,520 148,162 71,880
Officer & Secretary 1996 267,681 131,793 3,442
Donald S. Evans......................... 1998 305,654 148,860 6,874
Senior Vice President 1997 278,640 95,538 6,621
1996 254,099 114,761 1,690
</TABLE>
- --------
(1) Certain columns have been omitted because they are not applicable.
(2) Amounts shown include compensation earned by executive officers, whether
paid during or after such year, or deferred at the election of those
officers.
(3) Amounts shown for 1998 include:
<TABLE>
<CAPTION>
Group Term Life
and Split-
Employee Defined dollar Life
Stock 401(k) Contribution Insurance
Plan Plan Pension Plan Premiums
-------- ------ ------------ ---------------
<S> <C> <C> <C> <C>
Ralph R. Peterson............... $2,041 $1,296 $2,400 $3,615
Kenneth F. Durant............... 4,177 -- 3,200 508
Philip G. Hall.................. 2,041 1,296 2,400 2,375
Samuel H. Iapalucci............. 2,041 1,296 2,400 1,410
Donald S. Evans................. 1,610 1,296 2,400 1,568
</TABLE>
1999 Long-Term Incentives
The following table sets forth information regarding Long-Term Incentive
Plan opportunities that were granted to the chief executive officer and the
other four most highly compensated executive officers of CH2M HILL. This long-
term incentive plan was established effective January 1, 1999 and will be paid
out on or after the 3 year award period ending December 31, 2001. There are no
payouts in years 1999 and 2000. The payment of the awards will be 60% in common
stock, valued at the date of payment, and 40% cash. The criteria for payout is
based on specific long-term goals of earnings growth and strategic imperatives
for CH2M HILL as well as individual goals.
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<PAGE>
Long-Term Incentive Plan Awards in 1999(1)(2)
<TABLE>
<CAPTION>
Estimated future payouts
under non-stock price-based
plans
-----------------------------
(a) (c) (d) (e) (f)
Period
Until
Name Payout Threshold Target Maximum
---- ------- --------- -------- ----------
<S> <C> <C> <C> <C>
Ralph R. Peterson..................... 3 years $0 $542,400 $1,084,800
Kenneth F. Durant..................... 3 years $0 $168,000 $ 336,000
Philip G. Hall........................ 3 years $0 $183,000 $ 366,000
Samuel H. Iapalucci................... 3 years $0 $174,000 $ 348,000
Donald S. Evans....................... 3 years $0 $171,600 $ 343,200
</TABLE>
- --------
(1) Certain columns have been omitted because they are not applicable.
(2) The Target amounts for the first two years of the Long-Term Incentive Plan
are adjusted to reflect 1.5 times what the Target will be when it begins
the payouts in year 3 and thereafter. For example, beginning in year 3 the
Target and Maximum amounts for the named executives will be the following
beginning in 2001:
<TABLE>
<CAPTION>
Name Threshold Target Maximum
---- --------- -------- --------
<S> <C> <C> <C>
Ralph R. Peterson............................... $0 $361,600 $723,200
Kenneth F. Durant............................... $0 $112,000 $224,000
Philip G. Hall.................................. $0 $122,000 $244,000
Samuel H. Iapalucci............................. $0 $116,000 $232,000
Donald S. Evans................................. $0 $114,400 $228,800
</TABLE>
Stock Options Granted
During 1999, the named executive officers were granted the following stock
options at $4.31 per share of common stock, vesting 25% on February 12, 2000,
25% more on February 12, 2001 and the remaining 50% on February 12, 2002. These
stock options represent 3.9% of the total stock options granted of 2,434,840,
of which the remaining stock options were granted to other employees of CH2M
HILL.
<TABLE>
<S> <C>
Ralph R. Peterson............... 28,350
Kenneth F. Durant............... --
Philip G. Hall.................. 17,780
Samuel H. Iapalucci............. 24,750
Donald S. Evans................. 24,750
</TABLE>
Retirement Plans
Messrs. Peterson and Hall are participants in the CH2M HILL Pension Plan.
Benefits under the CH2M HILL Pension Plan are equal to 1% of 1987-1991 average
base compensation (up to $150,000) multiplied by years of credited service
prior to 1992 plus 1% of each year's base compensation (up to $150,000) for
each year of credited service from January 1, 1992 through December 31, 1993.
Plan benefits were frozen as of December 31, 1993. The estimated annual
benefits payable at the earliest age when a participant may retire with an
unreduced benefit (age 65) are $37,849 to Mr. Peterson, and $34,955 to Mr.
Hall.
Mr. Durant is a participant in the CH2M HILL Pension Plan with respect to
credited service prior to February 25, 1985 and he is a participant in the CH2M
HILL Industrial Design Corporation Pension Plan with respect to credited
service from February 25, 1985 through January 31, 1994. The benefits under the
CH2M HILL Industrial Design Corporation Pension Plan are equal to 1.3% of each
year's base compensation (up to the legal limit) for each year of credited
service from February 25, 1985 through January 31, 1994. Plan benefits were
frozen as of January 31, 1994. The estimated annual benefits payable to Mr.
Durant at the earliest age when a participant may retire with an unreduced
benefit (age 65) are $15,718 from the CH2M HILL Pension Plan and $13,101 from
the CH2M HILL Industrial Design Corporation Pension Plan, or a total of
$28,819.
Mr. Evans is a participant in the CH2M HILL Pension Plan with respect to
credited service prior to May 1, 1986 and he is a participant in the OMI
Retirement Plan with respect to credited service from May 1, 1986 through
December 31, 1995.
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<PAGE>
The normal retirement benefits under the OMI Retirement Plan are equal to 1.5%
of average compensation (up to the IRS limit) for the first 20 years of
credited service plus 0.5% of average compensation (up to the IRS limit) for
years of service in excess of 20. Mr. Evans' benefit under the OMI plan was
frozen as of December 31, 1995 upon his transfer from employment covered by the
plan. The estimated annual benefits payable to Mr. Evans at the earliest age
when a participant may retire with an unreduced benefit (age 65) are $12,771
from the CH2M HILL Pension Plan and $23,521 from the OMI Retirement Plan, or a
total of $36,292.
Mr. Iapalucci is not a participant in a CH2M HILL Pension Plan.
Board of Directors
The Restated Bylaws provide that the Board of Directors shall consist of at
least nine and no more than thirteen directors and shall be subject to change
pursuant to resolutions of the Board of Directors. The current number of
directors is eleven. The Restated Bylaws provide that the directors shall be
elected to three-year staggered terms by dividing the directors into three
classes as equal in number as possible. At each annual meeting the same number
of directors shall be elected for a three-year term as the number whose term
expires. Each director shall serve until his respective successor is elected
and qualified. A decrease in the number of directors shall not shorten the term
of any incumbent director.
Compensation of Directors
Non-employee directors of CH2M HILL receive an annual retainer fee of
$15,000 as directors and $4,000 for each committee on which they serve as the
chairman. CH2M HILL also pays non-employee directors a meeting fee of $1,000
for attendance at each Board of Directors meeting and $1,000 per day for
attendance at committee meetings. Directors are reimbursed for expenses
incurred in connection with attendance at meetings and other CH2M HILL
functions. Non-employee directors are eligible to receive a discretionary cash
bonus each year which for 1998 was $12,000.
Directors and Officers Liability Insurance
CH2M HILL pays the premium for insurance in respect of claims against its
directors and officers and in respect of losses for which CH2M HILL may be
required or permitted by law to indemnify such directors and officers. The
directors to be insured are the directors named herein and all directors of
CH2M HILL's subsidiaries. The officers to be insured are all officers and
assistant officers of CH2M HILL and its subsidiaries. CH2M HILL does not expect
to allocate or segregate the premium with regard to specific subsidiaries or
individual directors and officers.
Compensation Committee Interlocks and Insider Participation
The members of CH2M HILL's Compensation Committee of the Board of
Directors are Joseph A. Ahearn, Kenneth F. Durant, Donald S. Evans, James F.
Ferris, Jerry D. Geist and Barry L. Williams. All members of the Compensation
Committee except Jerry D. Geist and Barry L. Williams are officers of CH2M
HILL.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information regarding the ownership of all
classes of CH2M HILL's securities as of July 1, 1999, by (a) any person or
group known to have beneficial ownership of more than five percent of the
common stock or Class A preferred stock and (b) beneficial ownership by
directors and executive officers individually and as a group.
Security Ownership of Certain Beneficial Owners
The following table presents information as of July 1, 1999, concerning the
only known beneficial owners of five percent or more of common stock.
<TABLE>
<CAPTION>
Amount & Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Title of Class Ownership Class
------------------- -------------- --------------- ----------
<S> <C> <C> <C>
Trustees of the CH2M HILL Employee
Stock Plan.......................... Common 10,957,970(1) 36.5%
6060 S. Willow Dr.
Greenwood Village, CO
80111
</TABLE>
- --------
(1) Common shares are held for the accounts of participants in the Employee
Stock Plan and will be voted in accordance with instructions received from
participants. Shares as to which no instructions are received will be voted
in the same proportions.
59
<PAGE>
Security Ownership of Directors and Executive Officers
The following table sets forth information as of July 1, 1999 as to the
beneficial ownership of CH2M HILL's equity securities by each director, the
most highly compensated executive officers and by all directors and executive
officers as a group. None of the individuals listed below owns more than one
percent of the outstanding shares of CH2M HILL. As a group, all directors and
executive officers own less than five percent of the outstanding shares of CH2M
HILL.
<TABLE>
<CAPTION>
Total
Common Common Common
Stock Stock Stock
Name of Beneficial Owner Held Directly Held Indirectly(1) Held
------------------------ ------------- ------------------ ---------
<S> <C> <C> <C>
Joseph A. Ahearn................... 34,220 2,848 37,068
Kenneth F. Durant.................. 250,000 24,915 274,915
Donald S. Evans.................... 180,240 13,381 193,621
James J. Ferris.................... 56,720 2,506 59,226
Jerry D. Geist..................... -- -- --
Philip G. Hall..................... 250,000 31,573 281,573
Samuel H. Iapalucci................ 50,590 2,381 52,971
Michael D. Kennedy................. 68,480 17,141 85,621
Susan D. King...................... 63,500 5,286 68,786
Michael Y. Marcussen............... 13,420 -- 13,420
Ralph R. Peterson.................. 250,000 29,873 279,873
Jill T. Shapiro Sideman............ 13,470 4,990 18,460
Barry L. Williams.................. -- -- --
Craig T. Zeien..................... 177,850 23,175 201,025
All directors and executive
officers as a group (14 people)... 1,408,490 158,069 1,566,559
</TABLE>
- --------
(1) Includes common stock held through the Employee Stock Plan and the 401(k)
Plan. Shares are vested, except for shares held indirectly by Mr. Ferris
and Mr. Iapalucci, who indirectly hold 501 and 952 unvested shares,
respectively.
RELATED TRANSACTION
We own a 40% interest in Dan Engineering A/S, a Dutch company. The
aggregate purchase price of our interest in Dan Engineering was $255,000.
Michael Y. Marcussen, who is one of our directors, owns 40% of Dan Engineering.
Dan Engineering was founded in 1985 by Mr. Marcussen and a partner and
specializes in the design, construction and operation of non-ferrous metal
smelting equipment and plants, particularly tin and lead smelters.
POLICY RELATING TO AFFILIATED TRANSACTIONS
CH2M HILL will make or enter into all future material affiliated
transactions and loans, if any, on terms that are no less favorable to CH2M
HILL than those that can be obtained from unaffiliated third parties. A
majority of CH2M HILL's independent directors who do not have an interest in
the transactions and who have had access, at CH2M HILL's expense, to legal
counsel will approve all future material affiliated transactions, loans and
forgiveness of loans, if any.
60
<PAGE>
SECURITIES OFFERED BY THE CURRENT SHAREHOLDERS
The current shareholders may sell up to an aggregate of 17,859,330 shares
of common stock. While we are registering all of the shares held by our current
shareholders, including all the shares currently held by our directors and
executive officers, we do not know whether they intend to sell any of their
common stock, but they may sell some, none or all of their shares.
We surveyed our significant shareholders informally on the number of shares
they actually expect to sell. These surveys indicate that current shareholders
intend to sell fewer than 10% of their shares in the next 12 months.
The following table sets forth, as of July 1, 1999, the number of shares of
common stock owned by the current CH2M HILL shareholders, excluding shares
allocated to them under the employee benefit plans, with all directors and
executive officers individually identified. The table does not reflect the sale
of any shares of common stock being offered by CH2M HILL. All of the shares are
owned of record.
<TABLE>
<CAPTION>
Percent of Number
Number of Ownership Of Shares
Name of Beneficial Owner Shares Owned Before Offering Registered
------------------------ ------------ --------------- ----------
<S> <C> <C> <C>
Joseph A. Ahearn................. 34,220 * 34,220
Kenneth F. Durant................ 250,000 * 250,000
Donald S. Evans.................. 180,240 * 180,240
James J. Ferris.................. 56,720 * 56,720
Philip G. Hall................... 250,000 * 250,000
Samuel H. Iapalucci.............. 50,590 * 50,590
Michael D. Kennedy............... 68,480 * 68,480
Susan D. King.................... 63,500 * 63,500
Michael Y. Marcussen............. 13,420 * 13,420
Ralph R. Peterson................ 250,000 * 250,000
Jill T. Shapiro Sideman.......... 13,470 * 13,470
Craig T. Zeien................... 177,850 * 177,850
All directors and executive
officers as a group
(12 people)..................... 1,408,490(1) 4.69 1,408,490(1)
All other current shareholders... 16,450,840(2) 54.75 16,450,840(2)
</TABLE>
- --------
* Less than one percent.
(1) The 1,408,490 shares of common stock registered by the directors and
executive officers listed above represent the maximum number of shares that
they may sell. Based on the currently available information, the directors
and executive officers intend to sell significantly less than this maximum
number of shares.
(2) The 16,450,840 shares of common stock registered by the current
shareholders (other than directors and executive officers) listed above,
represent the maximum number of shares that they may sell. Based on the
currently available information, the other current shareholders intend to
sell significantly less than this maximum number of shares.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of the material provisions of CH2M HILL's
Restated Articles of Incorporation and Restated Bylaws regarding CH2M HILL's
capital stock. You may find more detailed information by reading the Restated
Articles of Incorporation and the Restated Bylaws, copies of which are filed as
exhibits to the registration statement filed with the Securities and Exchange
Commission. The Restated Articles of Incorporation and Restated Bylaws will
take effect prior to the first trade date in the internal market if the Board
of Directors determines to give effect to the internal market at the Board's
November 1999 meeting.
CH2M HILL is authorized to issue 150,000,000 shares of capital stock, of
which 100,000,000 shares are common stock, par value $.01 per share, and
50,000,000 shares are Class A preferred stock, par value $.02 per share. As of
July 1, 1999, 1,789,661 shares of common stock and 1,215,015 shares of Class A
preferred stock were outstanding and held of record by approximately 1,000 key
employees and the employee benefit plan trusts.
As noted in the Prospectus Summary, the information in this prospectus has
been adjusted to reflect the conversion of each outstanding share of Class A
preferred stock into one share of common stock and a ten-for-one stock split of
the common stock, which will occur prior to the first trade date in the year
2000, if the Board of Directors determines to give effect to the internal
market at its November 1999 meeting. If the class A preferred stock had been
converted into common stock and the ten-for-one stock split had been completed
on July 1, 1999, there would have been 30,046,760 shares of common stock and no
Class A preferred stock outstanding on that date.
Common Stock
General. Holders of common stock are entitled to one vote per share on all
matters submitted to the shareholders of CH2M HILL. Each share of common stock
is equal in respect of voting rights, liquidation rights and rights to
dividends and to distributions. Shareholders of CH2M HILL do not and will not
have any preferred or preemptive rights to subscribe for, purchase or receive
additional shares of any class of capital stock of CH2M HILL, or any securities
convertible into or exchangeable for such shares.
Restrictions on Common Stock. All the shares of common stock presently
outstanding are, and all shares of common stock offered hereby will be, subject
to restrictions set forth in the Restated Bylaws:
1. Right of Repurchase upon Termination of Employment or Affiliation. All
shares of common stock are subject to CH2M HILL's right of repurchase upon the
termination of the shareholder's employment or affiliation with CH2M HILL. Such
right of repurchase will also be applicable to all shares of common stock which
such person has the right to acquire after his or her termination of employment
or affiliation pursuant to any of CH2M HILL's employee benefit plans or
pursuant to any option or other contractual right to acquire shares of common
stock which was outstanding at the date of such termination of employment or
affiliation. Such right of repurchase will not be applicable to shares of
common stock held by an employee benefit plan or any other retirement or
pension plan adopted by CH2M HILL or any of its subsidiaries which pursuant to
applicable law or by its terms does not provide for CH2M HILL's right to
repurchase shares issued thereunder upon termination of employment or
affiliation.
CH2M HILL's right of repurchase is exercised by mailing a written notice to
such holder within 60 days following termination of employment or affiliation.
If CH2M HILL repurchases the shares, the price will be the price per share:
. in effect on the date of such termination of employment or affiliation,
in the case of shares owned by the holder at that date and shares
issuable to the holder after that date pursuant to any option or other
contractual right to acquire shares of common stock which were
outstanding at that date; or
. in effect on the date such shares are distributed to the holder, in the case
of shares distributable to the holder after his or her termination of
employment or affiliation pursuant to any of CH2M HILL's employee benefit
plans.
62
<PAGE>
CH2M HILL will, in the event it exercises its right of repurchase upon
termination of employment or affiliation, pay for such shares in cash or
promissory notes.
CH2M HILL and any holder of shares may agree to extend the time period of
CH2M HILL's right to repurchase such holder's shares or to alter the payment
terms.
2. Right of First Refusal. If a holder of common stock desires to sell any
of his or her shares to a third party other than in the internal market, such
holder must first give notice to the Secretary of CH2M HILL including:
. A signed statement indicating that such holder desires to sell his or her
shares of common stock and that he or she has received a bona fide offer
to purchase such shares
. A statement signed by the intended purchaser containing:
(i) the intended purchaser's full name, address and taxpayer
identification number
(ii) the number of shares to be purchased
(iii) the price per share to be paid
(iv) the other terms under which the purchase is intended to be made
(v) a representation that the offer, under the terms specified, is bona
fide; and
. If the purchase price is payable in cash, in whole or in part, a copy of
a certified check, cashier's check or money order payable to such holder
from the purchaser in the amount of the purchase price to be paid in cash
CH2M HILL then has the right, exercisable within 14 days, to purchase all
of the shares specified in the notice at the offer price and upon the same
terms as set forth in the notice. In the event CH2M HILL does not exercise such
right, the holder may sell the shares specified in the notice within 30 days
thereafter to the person specified in the notice at the price and upon the
terms and conditions set forth therein. The holder may not sell such shares to
any other person or at any different price or on any different terms without
first re-offering the shares to CH2M HILL.
If circumstances occur which would permit CH2M HILL to exercise its right
of repurchase upon termination of employment or affiliation and its right of
first refusal, then CH2M HILL may, in its sole discretion, elect which of these
rights it will exercise.
3. Other Transfers. Except for sales in the internal market or pursuant to
the repurchase right or right of first refusal procedure described above, no
holder of common stock may sell, assign, pledge, transfer or otherwise dispose
of or encumber any shares of common stock without the prior written approval of
CH2M HILL. Any attempt to do so without such prior approval will be null and
void. If any transfer of CH2M HILL's shares is not a sale by an employee,
director or consultant, or is by a person who acquired such shares other than
by purchase, directly or indirectly, from an employee, director or consultant,
CH2M HILL may condition its approval of such transfer upon the transferee's
agreement to hold such shares subject to CH2M HILL's right to repurchase such
shares upon the termination of employment or affiliation of the employee,
director or consultant.
4. Ownership Limit. The Restated Bylaws provide that no person may own more
than 350,000 shares of common stock, excluding such person's beneficial
interest in common stock held indirectly by an employee benefit trust.
Class A Preferred Stock
Holders of Class A preferred stock have no voting rights with respect to
matters submitted to the shareholders of CH2M HILL, except as required by law.
Upon the liquidation, dissolution, or winding up of CH2M HILL, whether
voluntary or involuntary, each holder of Class A preferred stock would be
entitled to be paid $.02 per share prior to any distributions to holders of
common stock. Rights granted to the holders of Class A preferred stock can only
be amended by a majority of the holders of common stock and a majority of the
holders of Class A preferred stock, each voting as a separate class. The Board
of Directors may elect at any time to convert each outstanding share of Class A
preferred stock into one share of common stock, without the prior consent of
the holders of either the Class A preferred stock or common stock.
63
<PAGE>
Limitation of Liability and Indemnification
Under the Oregon Business Corporation Act (the "Act"), a corporation may
provide for the limitation of liability of directors and indemnification of
directors and officers under some circumstances. CH2M HILL's Restated Articles
of Incorporation provide that directors are not personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for any act or omission for which the elimination of liability is not
permitted under the Act. Section 60.047(2)(d) of the Act sets forth the
following actions for which limitation of liability is not permitted,
including;
. any breach of a director's duty of loyalty to the corporation or its
shareholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law
. any unlawful distributions to shareholders; or
. any transaction from which the director received an improper or illegal
personal benefit.
The Restated Bylaws allow CH2M HILL to indemnify any person who is or was a
party, or is threatened to be made a party, to any civil, administrative, or
criminal proceeding by reason of the fact that the person is or was a director
or officer of CH2M HILL or any of its subsidiaries, or is or was serving at
CH2M HILL's request as a director, officer, partner, agent, or employee of
another corporation or entity. The indemnification may include expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by that person. Under the Section 60.391(1) of
the Act, indemnification is available if:
. the person acted in good faith
. the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and
. in the case of a criminal proceeding, the person had no reasonable cause
to believe the conduct was unlawful.
In addition, a person who is wholly successful, on the merits or otherwise,
in the defense of a proceeding in which the person was a party because the
person was a director, is entitled to indemnification for expenses actually and
reasonably incurred by the person in connection with the proceeding.
Commission Position on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of CH2M HILL pursuant to provisions described
above, or otherwise, CH2M HILL has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities is asserted
by such director, officer or controlling person in connection with the
securities being registered, CH2M HILL will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
Anti-Takeover Provisions -- Legislation
The Act provides that corporate directors, when evaluating a proposed
tender or exchange offer, merger, acquisition, or similar proposal, "may, in
determining what they believe to be in the best interests of the corporation,
give due consideration to the social, legal, and economic effects on employees,
clients, and suppliers of the corporation and on the communities and
geographical areas in which the corporation and its subsidiaries operate, the
economy of the state and nation, the long-term as well as short-term interests
of the corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the corporation
and other relevant factors." Consequently, when evaluating a proposal for the
merger, consolidation, or sale of CH2M HILL, the Board of Directors may
consider the interests of groups or constituents other than CH2M HILL's
shareholders. Such consideration may cause the Board of Directors to reject an
acquisition proposal for reasons other than the price being offered.
64
<PAGE>
CH2M HILL is also subject to the Oregon Business Combination Act (the
"OBCA"). The OBCA generally provides that if a person (an "Interested
Shareholder") acquires voting stock of an Oregon corporation in a transaction
resulting in such person owning 15% or more of the total voting stock of such
corporation, then the corporation and the Interested Shareholder may not engage
in business combination transactions for three years following the date of such
acquisition. "Business combination transactions" include:
. a merger or plan of share exchange
. any sale, lease, mortgage, or other disposition of corporate assets where
the assets have an aggregate market value of 10% or more of the aggregate
market value of the corporation's assets or outstanding capital stock;
and
. certain transactions that result in the issuance of capital stock of, or
loans by, the corporation to the Interested Shareholder.
These restrictions do not apply if:
. the Interested Shareholder, as a result of the acquisition, owns at least
85% of the outstanding voting stock of the corporation, excluding shares
owned by directors who are also officers, and certain employee benefit
plans
. prior to the completion of the acquisition the Board of Directors
approves either the business combination transaction or the acquisition
. after the completion of the acquisition the Board of Directors and the
holders of at least two-thirds of the outstanding voting stock of the
corporation, excluding shares owned by the Interested Shareholder,
approve the business combination transaction
A corporation may provide in its Articles of Incorporation or bylaws that
the OBCA does not apply to its shares. CH2M HILL has not adopted such a
provision and does not presently plan to do so.
In addition, the Oregon Control Share Act (the "OCSA") also applies to CH2M
HILL. The OCSA provides that a person or persons who acquire no less than 20%
of the voting shares of a corporation in a "control share acquisition," lose
the right to vote the shares unless such voting rights are restored through a
majority vote of the remaining shareholders. A person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction which
results in such Acquiring Person holding more than 20%, 33%, or 50% of the
total voting power of the corporation (a "Control Share Acquisition") cannot
vote such shares ("Control Shares") unless voting rights are accorded to the
Control Shares by the holders of a majority of the outstanding voting shares,
excluding such Control Shares and shares held by insiders. The vote is required
at the time an Acquiring Person's holdings exceed 20% of the total voting power
of a company, and again at the time the Acquiring Person's holdings exceed 33%
and 50%, respectively. "Acquiring Person" is broadly defined to include persons
acting as a group. The Acquiring Person may, but is not required to, submit to
CH2M HILL an "Acquiring Person Statement" setting forth information about the
Acquiring Person and its plans with respect to CH2M HILL. The Acquiring Person
Statement may also request that CH2M HILL call a special meeting of
shareholders to determine whether the Control Shares will be allowed to retain
voting rights. If the Acquiring Person does not request a special meeting of
shareholders, the issue of voting rights of Control Shares will be considered
at the next annual meeting or special meeting of shareholders that is held more
than 60 days after the date of the Control Share Acquisition. If the Acquiring
Person's Control Shares are accorded voting rights and represent a majority of
all voting power, shareholders who vote against restoring such voting rights
are entitled to the appraised "fair value" of their shares, which may not be
less than the highest price paid per share by the Acquiring Person for the
Control Shares.
The OCSA and the OBCA effectively encourage any potential acquirer to
negotiate with CH2M HILL's Board of Directors, and discourage potential
acquirers unwilling to comply with their provisions. A corporation may provide
in its Articles of Incorporation or bylaws that these laws shall not apply to
its shares. CH2M HILL has not adopted such provisions and does not currently
intend to do so. These laws may make CH2M
65
<PAGE>
HILL less attractive for takeover, and shareholders, therefore, may not benefit
from a rise in the price of the common stock that could result from a takeover.
Anti-Takeover Provisions -- Restated Articles of Incorporation and Restated
Bylaws
In addition to the laws discussed above, CH2M HILL's Restated Articles of
Incorporation and Restated Bylaws contain provisions that could make the
acquisition of CH2M HILL through a tender offer, proxy contest, or merger
difficult for a potential suitor opposed by the Board of Directors. These
provisions are:
. The restriction on the sale of common stock outside of the internal
market
. CH2M HILL's right to repurchase shares of common stock upon the holder's
termination of employment with CH2M HILL
. CH2M HILL's right of first refusal on shares of common stock, except for
shares sold in the internal market
. CH2M HILL's right to refuse to allow the transfer of shares of common
stock to proposed transferees, except for shares sold in the internal
market or pursuant to the right of first refusal
. The Restated Bylaws' prohibition on any shareholder owning more than
350,000 shares of the common stock
. The existence of staggered terms for directors of CH2M HILL
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, CH2M HILL will have outstanding up to
34,046,760 shares of common stock. Of these shares, the maximum 23,859,330
shares sold in the offering will be freely tradable in the internal market
without restriction or further registration under the Securities Act except for
any shares purchased by an "affiliate" of CH2M HILL, as defined in Rule 144
under the Securities Act. The remaining 10,187,430 shares of common stock are
held by our employee benefit plan trusts and may be sold in the internal market
either under Rule 144, subject to volume or holding period limitations, or
pursuant to a future registration statement declared effective under the
Securities Act.
As of July 1, 1999, 2,434,840 options to purchase common stock were
outstanding. A total of 8,000,000 shares of common stock are currently
available for future grants of options.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
CH2M HILL by Holme Roberts & Owen LLP.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
66
<PAGE>
AVAILABLE INFORMATION
CH2M HILL has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act, with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement, certain items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to CH2M HILL and the common
stock offered hereby, reference is made to the registration statement,
including the exhibits thereto, and the financial statements and notes and
schedules filed as a part thereof. Statements made in this prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The registration statement, including the exhibits thereto, and the
financial statements and notes and schedules filed as a part thereof, as well
as such reports and other information filed with the Commission, may be read
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission.
As a result of the offering, CH2M HILL will become subject to the
information and reporting requirements of the Exchange Act, and will file
periodic reports, proxy statements and other information with the Commission.
CH2M HILL intends to furnish to its shareholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
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<PAGE>
CH2M HILL COMPANIES, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants--Arthur Andersen LLP............. F-2
Independent Auditor's Report--KPMG Peat Marwick LLP....................... F-3
Consolidated Financial Statements:
Audited Consolidated Balance Sheets at December 31, 1997 and 1998 and
Unaudited Consolidated Balance Sheet at March 31, 1999................. F-4
Audited Consolidated Statements of Income for the Years Ended December
31, 1996, 1997 and 1998 and Unaudited Consolidated Statements of Income
for the Three-Month Periods Ended March 31, 1998 and 1999.............. F-5
Audited Consolidated Statements of Temporary Shareholders' Equity for
the Years Ended December 31, 1996, 1997 and 1998....................... F-6
Audited Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and Unaudited Consolidated Statements
of Cash Flows for the Three-Month Periods Ended March 31, 1998 and
1999................................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Financial Statement Schedules:
Report of Independent Public Accountants--Arthur Andersen LLP........... F-31
Schedule II--Valuation and Qualifying Accounts.......................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CH2M HILL Companies, Ltd.:
We have audited the accompanying consolidated balance sheets of CH2M HILL
Companies, Ltd. (an Oregon corporation) and subsidiaries as of December 31,
1997 and 1998 and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of CH2M HILL's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
CH2M HILL Industrial Design Corporation, which statements reflect total assets
and total revenues of 15 percent and 28 percent in 1996, 17 percent and 27
percent in 1997, and 8 percent and 20 percent in 1998, respectively, of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
the amounts included for this entity, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of CH2M HILL Companies, Ltd. and subsidiaries
as of December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 12, 1999.
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
CH2M HILL INDUSTRIAL DESIGN
CORPORATION:
We have audited the consolidated balance sheets of CH2M HILL INDUSTRIAL
DESIGN CORPORATION AND SUBSIDIARIES as of December 31, 1998 and 1997, and the
related consolidated statements of income and retained earnings, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998 (not presented separately herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CH2M HILL
INDUSTRIAL DESIGN CORPORATION AND SUBSIDIARIES as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
January 22, 1999
F-3
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31, March 31, March 31,
1997 1998 1999 1999
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
(Note 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents...... $ 38,327 $ 16,595 $ 6,054
Receivables, net--
Client accounts............. 141,830 136,882 148,428
Unbilled revenue............ 78,265 87,635 108,798
Other....................... 3,923 4,567 8,621
Prepaid expenses & other..... 6,957 8,059 7,157
-------- -------- --------
Total current assets........ 269,302 253,738 279,058
-------- -------- --------
Property, plant & equipment,
at cost
Land........................ 229 229 229
Building & land
improvements............... 2,848 2,845 2,845
Furniture, fixtures &
equipment.................. 40,645 31,466 28,579
Leasehold improvements...... 7,880 7,522 7,554
-------- -------- --------
51,602 42,062 39,207
Less: Accumulated
depreciation and
amortization............... (35,385) (28,072) (25,382)
-------- -------- --------
Net property, plant &
equipment.................. 16,217 13,990 13,825
-------- -------- --------
Other assets, net............ 25,598 30,056 32,743
Deferred income taxes........ -- 541 541
-------- -------- --------
Total assets................ $311,117 $298,325 $326,167
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt........................ $ 5,296 $ 4,512 $ 4,512
Current portion of notes
payable to former
shareholders................ 4,414 4,527 4,527
Outstanding portion under
line of credit.............. -- -- 9,300
Accounts payable............. 34,468 29,187 60,467
Billings in excess of
revenues.................... 43,782 30,556 36,185
Accrued incentive
compensation................ 19,768 18,065 2,424
Employee related
liabilities................. 35,595 42,013 45,219
Other accrued liabilities.... 22,792 27,725 15,501
Current deferred income
taxes....................... 20,789 23,855 25,179
-------- -------- --------
Total current liabilities... 186,904 180,440 203,314
Deferred income taxes........ 511 -- --
Other long-term liabilities.. 36,695 24,404 25,800
Long-term debt............... 6,665 2,286 1,313
Notes payable to former
shareholders................ 18,039 16,063 16,545
-------- -------- --------
Total liabilities........... 248,814 223,193 246,972
-------- -------- --------
Commitments and contingencies
(Notes 3, 6 and 13)
Temporary shareholders'
equity:
Preferred stock, Class A $.02
par value, 50,000,000 shares
authorized; 9,911,710,
11,068,580 and 11,123,690
issued and outstanding at
December 31, 1997 and 1998
and March 31, 1999,
respectively; redeemable for
$47,943, at March 31, 1999.. 198 221 222
Common stock, $.01 par value,
100,000,000 shares
authorized; 17,347,000,
16,957,360 and 18,068,290
issued and outstanding at
December 31, 1997 and 1998
and March 31, 1999,
respectively; redeemable for
$77,874 at March 31, 1999... 174 170 181
Additional paid-in capital... 15,022 20,283 22,968
Retained earnings............ 50,336 56,148 58,027
Accumulated other
comprehensive loss.......... (3,427) (1,690) (2,203)
Permanent shareholders'
equity:
Common stock, 29,191,980
issued and outstanding
pro forma................... -- -- -- $ 403
Additional paid-in capital,
pro forma................... -- -- -- 22,968
Retained earnings, pro
forma....................... -- -- -- 58,027
Accumulated other
comprehensive loss, pro
forma....................... -- -- -- (2,203)
-------- -------- -------- -------
Total shareholders'
equity..................... -- -- -- $79,195
-------- -------- -------- =======
Total liabilities and
shareholders' equity..... $311,117 $298,325 $326,167
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share)
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Period
December 31, December 31, December 31, Ended March 31, Ended March 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $ 931,922 $ 908,854 $ 926,630 $ 223,400 $ 273,436
Equity in earnings of
joint ventures and
affiliated companies... 5,276 8,724 8,400 821 740
---------- ---------- ---------- ---------- ----------
Total revenues........ 937,198 917,578 935,030 224,221 274,176
Operating expenses:
Direct cost of
services and
overhead............. (643,365) (617,356) (629,468) (151,480) (198,611)
General and
administrative....... (280,389) (286,276) (290,760) (69,270) (71,636)
---------- ---------- ---------- ---------- ----------
Operating income.... 13,444 13,946 14,802 3,471 3,929
Other income (expense):
Interest income....... 1,200 570 1,735 530 224
Interest expense...... (2,644) (2,505) (2,154) (560) (476)
---------- ---------- ---------- ---------- ----------
Income before provision
for income taxes....... 12,000 12,011 14,383 3,441 3,677
Provision for income
taxes.................. (7,291) (7,295) (8,571) (2,051) (1,798)
---------- ---------- ---------- ---------- ----------
Net income.............. $ 4,709 $ 4,716 $ 5,812 $ 1,390 $ 1,879
========== ========== ========== ========== ==========
Net income per common
and preferred share:
Basic and Diluted....... $ 0.17 $ 0.17 $ 0.21 $ 0.05 $ 0.07
Weighted average number
of common and preferred
shares:
Basic and Diluted....... 27,698,970 27,688,780 28,330,940 27,888,494 28,340,840
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF TEMPORARY SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Total Class A Accumulated
Preferred Stock Common Stock Preferred and Additional Other
------------------ ------------------ Common Paid-in Comprehensive Retained Comprehensive
Shares Amount Shares Amount Shares Capital Income Earnings Loss
---------- ------ ---------- ------ ------------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December
31, 1995.......... 7,800,100 $156 20,000,200 $200 27,800,300 $ 15,948 $ -- $40,911 $(1,044)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 953,750 19 1,240,700 12 2,194,450 7,343 -- -- --
Shares purchased
and retired....... (11,840) -- (3,028,450) (30) (3,040,290) (10,009) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 4,709 4,709 --
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (85) -- (85)
-------
Comprehensive
income......... -- -- -- -- -- -- 4,624 -- --
---------- ---- ---------- ---- ---------- -------- ======= ------- -------
Balances, December
31, 1996.......... 8,742,010 175 18,212,450 182 26,954,460 13,282 45,620 (1,129)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 1,210,540 24 1,218,390 12 2,428,930 9,151 -- -- --
Shares purchased
and retired....... (40,840) (1) (2,083,840) (20) (2,124,680) (7,411) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 4,716 4,716 --
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (2,298) -- (2,298)
-------
Comprehensive
income......... -- -- -- -- -- -- 2,418 -- --
---------- ---- ---------- ---- ---------- -------- ======= ------- -------
Balances, December
31, 1997.......... 9,911,710 198 17,347,000 174 27,258,710 15,022 50,336 (3,427)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 1,203,830 24 1,341,720 13 2,545,550 11,693 -- -- --
Shares purchased
and retired....... (46,960) (1) (1,731,360) (17) (1,778,320) (6,432) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 5,812 5,812 --
Other
comprehensive
income:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 1,737 -- 1,737
-------
Comprehensive
income......... -- -- -- -- -- -- $ 7,549 -- --
---------- ---- ---------- ---- ---------- -------- ======= ------- -------
Balances, December
31, 1998.......... 11,068,580 $221 16,957,360 $170 28,025,940 $ 20,283 $56,148 $(1,690)
========== ==== ========== ==== ========== ======== ======= =======
<CAPTION>
Total
Temporary
Shareholders'
Equity
-------------
<S> <C>
Balances, December
31, 1995.......... $ 56,171
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 7,374
Shares purchased
and retired....... (10,039)
Comprehensive
income:
Net income........ 4,709
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... (85)
Comprehensive
income......... --
-------------
Balances, December
31, 1996.......... 58,130
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 9,187
Shares purchased
and retired....... (7,432)
Comprehensive
income:
Net income........ 4,716
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... (2,298)
Comprehensive
income......... --
-------------
Balances, December
31, 1997.......... 62,303
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 11,730
Shares purchased
and retired....... (6,450)
Comprehensive
income:
Net income........ 5,812
Other
comprehensive
income:
Foreign currency
translation
adjustments..... 1,737
Comprehensive
income......... --
-------------
Balances, December
31, 1998.......... $ 75,132
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CH2M HILL COMPANIES, LTD.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Ended Period Ended
December 31, December 31, December 31, March 31, March 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 4,709 $ 4,716 $ 5,812
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities--
Depreciation and
amortization.......... 9,518 9,605 8,558
Stock issued in
connection with stock
based compensation and
employee benefit
plans................. 7,628 8,520 10,725
Bad debt expense....... 57 1,441 5,224
Deferred income taxes
and other............. 4,698 829 2,983
Loss on sale of
assets................ 159 217 1,727
Change in--
Receivables............ 1,454 10,288 (7,336)
Prepaid expenses and
other................. (2,862) (1,713) (9,327)
Accounts payable....... (6,694) (10,479) (5,373)
Billings in excess of
revenues.............. 7,005 12,990 (13,226)
Other current
liabilities........... 6,752 2,448 (4,143)
-------- -------- --------
Net cash provided by
(used in) operating
activities............. 32,424 38,862 (4,376) $(5,686) $(17,656)
-------- -------- -------- ------- --------
Cash flows from
investing activities:
Proceeds from the sale
of assets.............. 646 75 372 -- 332
Capital expenditures.... (4,908) (2,612) (4,723) (1,388) (1,341)
Other investing
activities............. (2,583) (898) -- -- --
-------- -------- -------- ------- --------
Net cash used in
investing activities... (6,845) (3,435) (4,351) (1,388) (1,009)
-------- -------- -------- ------- --------
Cash flows from
financing activities:
Borrowing on long-term
debt................... 132 843 111 -- 32
Borrowing on line of
credit................. -- -- -- -- 9,300
Principal payments on
notes payable to former
shareholders........... (4,420) (4,968) (4,966) (455) (337)
Principal payments on
long-term debt......... (6,148) (5,652) (5,274) (1,000) (1,005)
Purchases and
retirements of stock... (3,610) (2,561) (2,342) -- (25)
-------- -------- -------- ------- --------
Net cash provided by
(used in) financing
activities............. (14,046) (12,338) (12,471) (1,455) 7,965
-------- -------- -------- ------- --------
Cash effect of
cumulative translation
adjustment............. (17) (437) (534) (31) 159
-------- -------- -------- ------- --------
Increase (decrease) in
cash and cash
equivalents............ 11,516 22,652 (21,732) (8,560) (10,541)
Cash and cash
equivalents, beginning
of period.............. 4,159 15,675 38,327 38,327 16,595
-------- -------- -------- ------- --------
Cash and cash
equivalents, end of
period................. $ 15,675 $ 38,327 $ 16,595 $29,767 $ 6,054
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Summary of Business and Significant Accounting Policies
CH2M HILL Companies, Ltd. and its wholly owned subsidiaries is a
multinational infrastructure and environmental services firm. CH2M HILL's
predominant line of business is providing engineering services related to
water, environmental, transportation, infrastructure and management services.
CH2M HILL also provides facility design and construction management services
to the electronics, food processing and biopharmaceutical related industries
and provides utility system operations and maintenance services primarily for
water and wastewater treatment facilities.
CH2M HILL provides the above services for clients in private industry,
federal government agencies, as well as state, municipal and local government
entities. A substantial portion of professional fees arises from projects that
are funded directly or indirectly by governmental entities.
Unaudited Interim Financial Statements
The consolidated interim financial statements included with the annual
financial statements herein have been prepared by CH2M HILL pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures relating to the interim periods normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although CH2M HILL believes that the disclosures
included herein are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the interim period contain all
adjustments necessary to present fairly the financial position of CH2M HILL as
of March 31, 1999 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The results
of operations for the quarter ended March 31, 1999 are not necessarily
indicative of the results that may be achieved for a full fiscal year and
cannot be used to indicate financial performance for the entire year.
Unaudited Pro Forma Information
On November 6, 1998, the Board of Directors approved a new ownership
program for CH2M HILL and certain resolutions that were subsequently ratified
by a vote of the shareholders on December 18, 1998. Such resolutions included,
but were not limited to, the adoption of the 1999 Stock Option Plan and the
adoption of the Restated Bylaws and the Restated Articles of Incorporation
which provide for the:
. termination of the existing Key Employee Policy and Agreement,
. authorization to convert all outstanding Class A preferred stock into
shares of common stock on a one-for-one basis,
. increase in the authorized shares of common stock to 100,000,000, par
value $.01 per share, and Class A preferred stock to 50,000,000, par
value $.02 per share,
. authorization of a ten-for-one stock split on CH2M HILL's common stock
and Class A preferred stock, and,
. imposition of certain restrictions on the stock including, but not
limited to, the right but not the obligation to repurchase shares upon
termination of employment or affiliation, the right of first refusal,
and ownership limits.
The effective date of the above resolutions will be decided at the
discretion of the Board of Directors based on its evaluation of the
effectiveness of the stock registration process, which includes an effective
registration statement on Form S-1 filed with the Securities and Exchange
Commission and the state Blue Sky commissions.
F-8
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Common and preferred stock amounts, equivalent share amounts and per share
amounts have been adjusted retroactively to give effect to the stock split. The
conversion of outstanding Class A preferred stock to common stock has been
reflected in the unaudited pro forma balance sheet at March 31, 1999.
Preferred and common stock that is currently redeemable has been reflected
as temporary shareholders' equity in the consolidated balance sheets at
December 31, 1997 and 1998 and March 31, 1999. The pro forma unaudited balance
sheet at March 31, 1999 reflects the reclassification of the preferred and
common stock from temporary shareholders' equity to permanent shareholders'
equity. Once CH2M HILL's new ownership program is deemed effective, as
discussed above, the mandatory redemption feature of the stock will no longer
apply.
Principles of Consolidation
The consolidated financial statements include the accounts of CH2M HILL and
all of its wholly owned subsidiaries after elimination of all intercompany
accounts and transactions. Investments in affiliates which are 50 percent or
less owned are reported using the equity method. Certain 1996 and 1997 amounts
have been reclassified to conform with the current year presentation.
Currency Translation
All assets and liabilities of CH2M HILL's foreign subsidiaries are
translated into U.S. dollars at the period-end exchange rate. Revenues and
expenses are translated at the average exchange rate for the year. Translation
gains and losses are reflected in shareholders' equity as part of accumulated
other comprehensive loss. Deferred taxes are not provided on the translation
gains and losses. Gains and losses on foreign currency transactions are not
significant.
Accounting for Revenue
CH2M HILL operates under a number of different types of contracts including
cost reimbursement contracts, time-and-materials contracts and fixed price
contracts. These contracts typically have specified limits on the amount that
may be earned by CH2M HILL. Revenue for these contracts is recognized primarily
on a percentage-of-completion basis by relating the actual cost of work
performed to date to the current estimated total cost of each contract.
Unbilled revenue represents the excess of contract revenue recognized over
billings to date. Billings in excess of revenues represent the excess of
amounts billed over revenue recognized. Losses on contracts in process are
recognized in their entirety when the loss becomes evident and the amount of
loss can be reasonably estimated.
The federal government accounted for 16.4% and 15.8% of our net receivables
in 1997 and 1998, respectively. Receivables are stated at net realizable
values, reflecting reserves of $2,977 and $8,201 in 1997 and 1998,
respectively.
F-9
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Cash and Cash Equivalents
CH2M HILL maintains a cash management system which provides for cash in the
bank sufficient to pay checks as they are submitted for payment and invests
cash in excess of this amount in interest bearing short-term investments such
as certificates of deposit, commercial paper and repurchase agreements. These
investments are invested with original short-term maturities of less than
three months and are considered cash equivalents in the consolidated balance
sheets and statements of cash flows.
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Cash paid for interest............................... $2,716 $ 2,431 $ 1,777
====== ======= =======
Cash paid for income taxes........................... $8,916 $11,869 $16,352
====== ======= =======
</TABLE>
The following noncash transactions have been excluded from the accompanying
statements of cash flows:
. Stock purchases for debt of $6,683, $4,204 and $3,103 in 1996, 1997 and
1998, respectively
. Decrease of an additional minimum pension liability and related asset at
December 31, 1996, 1997 and 1998, of $1,464, $2,122 and $198,
respectively
Property, Plant and Equipment
All additions, including betterments to existing facilities, are recorded
at cost. Maintenance and repairs are charged to expense as incurred. When
assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts. Any gain or
loss on retirements is reflected in income in the year of disposition.
Depreciation for owned property is based on the estimated useful lives of
the assets using both straight-line and accelerated methods for financial
statement purposes. Useful lives for buildings and land improvements range
from 15 to 30 years with an average life of 25 years. Leasehold improvements
are depreciated over the remaining term of the associated lease. Useful lives
on other assets range from two to ten years with an average of approximately
five years.
Other Assets
Other Assets includes capitalized software costs and goodwill which are
amortized on a straight-line basis over five to seven years. The historical
cost of these assets at December 31, 1997 and 1998 totaled $17,116 and
$14,789, respectively. The amortization reflected in the statements of income
and the statements of cash flows totaled $1,439 in 1996, $2,195 in 1997 and
$2,778 in 1998.
Other Accrued Liabilities
Other accrued liabilities include amounts accrued for the payment of
various types of taxes, including income, property, sales and use, and value
added taxes. It also includes amounts accrued for professional liability
settlements that have not yet been paid and amounts accrued for general
business expenses.
Other Long-Term Liabilities
Other long-term liabilities include amounts accrued for post-retirement
medical benefits, pension obligations, professional liabilities and deferred
compensation benefits.
F-10
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturities of these assets and liabilities. The interest rates on
CH2M HILL's bank borrowings are adjusted regularly to reflect current market
rates. Accordingly, the carrying amount of CH2M HILL's short-term and long-term
borrowings also approximate fair value. At December 31, 1997 and 1998, the fair
value of CH2M HILL's notes payable to former shareholders was $20,579 and
$19,237, respectively, based on a discount rate that is estimated using the
rates currently offered for debt with similar remaining maturities.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Asset Impairment
CH2M HILL reviews its assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets which are held and used in operations would be impaired if
the undiscounted future cash flows related to the asset did not exceed the net
book value.
New Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 requires that all changes in equity, other than transactions with owners,
be reported as comprehensive income in the financial statements. Other
comprehensive income items include foreign currency translation adjustments and
minimum pension liability adjustments. CH2M HILL has adopted SFAS No. 130
during fiscal 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments. It also establishes standards for enterprise-wide disclosures related
to geographic areas and major customers. CH2M HILL has adopted SFAS No. 131
during fiscal 1998.
SFAS No. 132, "Employers Disclosure About Pensions and Other Postretirement
Benefits, an Amendment of FASB Statements No. 87, 88 and 106," revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of these plans. CH2M HILL has
adopted SFAS No. 132 during fiscal 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes fair value accounting and reporting standards for
derivative instruments and hedging activities. The effective date of SFAS No.
133 was deferred until January 1, 2001 by the issuance of SFAS No. 137. CH2M
HILL will adopt SFAS No. 133 in the first quarter of fiscal 2001. CH2M HILL is
currently assessing the effect of adoption, if any, on its financial position,
results of operations, and cash flows.
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," requires costs of start-up activities, including organization
costs, to be expensed as incurred. CH2M HILL adopted SOP 98-5 effective January
1, 1999. Such adoption did not have an impact on earnings.
F-11
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
(2) Segment Information
CH2M HILL operates in three reportable segments that offer different
services to different customer bases. They are managed separately because each
business requires different business and marketing strategies. Environmental,
Energy, and Infrastructure (EE&I) includes management, consulting, design,
construction, procurement, and operations and maintenance services to the
environmental, nuclear, energy, systems, and transportation industries. Water
focuses on the planning, design and implementation of water supply systems and
wastewater treatment facilities as well as providing operations and maintenance
services to water and wastewater facility operators. Industrial provides
design, construction, specialized manufacturing support and sustained facility
services support to high-technology manufacturing companies, food and beverage
processing businesses, and fine chemical and pharmaceutical manufacturers.
CH2M HILL evaluates performance based on several factors, of which the
primary financial measure is profit before tax. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. Intersegment sales are accounted for at fair value as if
the sales were to third parties. Other includes the elimination of intersegment
sales and unallocable corporate expenses.
Certain financial information relating to the years ended December 31,
1996, 1997 and 1998 for each segment is provided below:
<TABLE>
<CAPTION>
Financial
Statement
Year Ended December 31, 1996 EE&I Water Industrial Other Balances
- ---------------------------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $384,244 $289,342 $258,336 $ -- $931,922
Intersegment sales.......... 29,026 22,241 1,316 (52,583) --
Equity in earnings of
investees accounted for by
the equity method.......... 5,386 -- (110) -- 5,276
Depreciation and
amortization............... 4,605 3,429 1,484 -- 9,518
Interest income............. 349 361 490 -- 1,200
Interest expense............ 1,090 411 1,143 -- 2,644
Segment profit.............. 7,192 2,236 8,248 (5,676) 12,000
Segment assets.............. 155,332 102,420 51,612 -- 309,364
<CAPTION>
Financial
Statement
Year Ended December 31, 1997 EE&I Water Industrial Other Balances
- ---------------------------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $352,343 $310,014 $246,497 $ -- $908,854
Intersegment sales.......... 16,025 22,764 1,088 (39,877) --
Equity in earnings of
investees accounted for by
the equity method.......... 7,886 (144) 982 -- 8,724
Depreciation and
amortization............... 4,729 2,684 2,192 -- 9,605
Interest income............. 159 159 252 -- 570
Interest expense............ 804 736 965 -- 2,505
Segment profit.............. 5,853 5,011 7,174 (6,027) 12,011
Segment assets.............. 136,119 113,725 61,273 -- 311,117
</TABLE>
F-12
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Financial
Statement
Year Ended December 31, 1998 EE&I Water Industrial Other Balances
---------------------------- -------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................... $378,276 $362,668 $185,686 $ -- $926,630
Intersegment sales............ 21,301 18,586 1,342 (41,229) --
Equity in earnings of
investees accounted for by
the equity method............ 7,785 124 491 -- 8,400
Depreciation and
amortization................. 4,034 3,423 1,101 -- 8,558
Interest income............... 582 720 433 -- 1,735
Interest expense.............. 928 677 549 -- 2,154
Segment profit................ 9,259 7,230 3,648 (5,754) 14,383
Segment assets................ 142,124 128,967 27,234 -- 298,325
</TABLE>
CH2M HILL derived approximately 11% in 1996, 15% in 1997 and 16% in 1998,
of its total revenues from contracts with federal government agencies.
Revenues are attributed to the country in which the services are performed.
Although CH2M HILL provides services in numerous countries, no single country
outside of the United States accounted for a significant portion of the total
consolidated revenues.
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
United States..................................... $853,687 $803,844 $877,794
International..................................... 83,511 113,734 57,236
-------- -------- --------
Total............................................. $937,198 $917,578 $935,030
======== ======== ========
</TABLE>
Certain financial information relating to the three month periods ended
March 31, 1998 and 1999 for each segment is provided below:
<TABLE>
<CAPTION>
Financial
Three-Month Period Ended Statement
March 31, 1998 EE&I Water Industrial Other Balances
- ------------------------------ -------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................... $ 90,655 $ 78,200 $54,545 $ -- $223,400
Intersegment sales............ 6,780 1,783 130 (8,693) --
Equity in earnings of
investees accounted for by
the equity method............ 542 141 138 -- 821
Segment profit................ 1,737 1,025 1,811 (1,132) 3,441
<CAPTION>
Financial
Three-Month Period Ended Statement
March 31, 1999 EE&I Water Industrial Other Balances
- ------------------------------ -------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................... $118,801 $104,395 $50,240 $ -- $273,436
Intersegment sales............ 7,571 2,516 1,004 (11,091) --
Equity in earnings of
investees accounted for by
the equity method............ 472 334 (66) -- 740
Segment profit................ 2,595 2,748 3 (1,669) 3,677
</TABLE>
F-13
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
(3) Lines Of Credit
CH2M HILL has an unsecured revolving credit agreement with a maximum
borrowing capacity of $85,000, which expires December 31, 1999. Interest
accrues on outstanding borrowings at variable rates, which as of December 31,
1997 and 1998, ranged from 6.0% to 8.5%, and from 5.4% to 7.8%, respectively,
based on maturity and a liabilities to earnings ratio. At December 31, 1997 and
1998, no amounts were outstanding under this line. Subsequent to yearend, CH2M
HILL renegotiated this line of credit. See Note 14.
The agreement requires CH2M HILL to maintain, among other restrictions,
prescribed liabilities to earnings, tangible net worth, working capital, and
fixed cost coverage ratios.
The agreement allows CH2M HILL to issue letters of credit to back various
trade activities and insurance policies. Issued letters of credit are reserved
against the borrowing base of the line of credit. As of December 31, 1997 and
1998, there were $4,735 and $5,125 issued and outstanding letters of credit,
respectively.
A subsidiary of CH2M HILL has a commitment for a line of credit for general
corporate purposes. The agreement is unsecured, and provides for aggregate
borrowings of $9,500, at an annual interest rate of prime (8.5% and 7.8% at
December 31, 1997 and 1998, respectively). No amounts were outstanding on the
line at December 31, 1997 and 1998.
(4) Notes Payable to Former Shareholders
CH2M HILL issues interest-bearing notes to former shareholders for the
purchase price of stock redeemed by CH2M HILL. The total amount outstanding for
notes payable to former shareholders at December 31, 1997 and 1998 was $22,453
and $20,590, respectively. The interest on the notes is adjusted annually (on
the anniversary dates of the notes) based upon the U.S. Federal Reserve
Discount Rate on the first business day of each calendar year. At January 1,
1997 and 1998 the interest rate of the notes was 3.8%. The notes are unsecured,
and payable in varying annual installments through 2008.
Future minimum principal payments on notes payable to former shareholders
are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999........................................................... $ 4,527
2000........................................................... 3,745
2001........................................................... 3,502
2002........................................................... 3,054
2003........................................................... 2,019
Thereafter...................................................... 3,743
-------
$20,590
=======
</TABLE>
(5) Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- ------
<S> <C> <C>
Note payable to bank, 7.1%, payable in quarterly installments
through 2000.................................................. $10,000 $6,000
Other notes payable, various rates between 5.0% and 7.8%,
payable through 2000.......................................... 1,961 798
------- ------
Total long-term debt......................................... 11,961 6,798
Less: current portion of long-term debt........................ 5,296 4,512
------- ------
$ 6,665 $2,286
======= ======
</TABLE>
F-14
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Future minimum principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999............................................................ $4,512
2000............................................................ 2,286
------
$6,798
======
</TABLE>
(6) Operating Lease Obligations
CH2M HILL has entered into certain noncancelable leases, which are being
accounted for as operating leases.
At December 31, 1998, future minimum operating lease payments are as
follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999.......................................................... $ 28,325
2000.......................................................... 25,767
2001.......................................................... 20,659
2002.......................................................... 17,166
2003.......................................................... 12,214
Thereafter..................................................... 41,748
--------
$145,879
========
</TABLE>
Total lease and rental expense charged to operations was $42,534, $40,561
and $41,475 during 1996, 1997 and 1998, respectively.
Certain of CH2M HILL's operating leases contain provisions for a specific
rent free period. In accordance with generally accepted accounting principles,
CH2M HILL accrues rental expense during the rent free period based on total
expected rent payments to be made over the life of the related lease. The
excess of expense over actual cash payments to date is shown in the
accompanying balance sheets in other long-term liabilities. The cash payments
expected to exceed rental expense in the next year are included in other
accrued liabilities.
(7) Shareholders' Equity
The bylaws and key employee agreements of CH2M HILL currently restrict
ownership of CH2M HILL's Class A preferred and common stock to active
employees and further provide that the following applies to such stock:
. Upon death, withdrawal, legal incapacity, retirement or discharge, a
shareholder's shares must be sold back to CH2M HILL.
. Upon death, legal incapacity or retirement, the purchase price is
determined by a formula calculated as of December 31 of each year, based
on the net book value of CH2M HILL and a multiple of the average of the
past five years' earnings.
. The purchase price of stock from employees withdrawing to compete or who
are discharged is the greater of the net book value of the shares or the
price of the shares at acquisition by the employee.
. The purchase price of stock returned to CH2M HILL generally becomes
interest-bearing debt to be paid over a ten-year period. Subject to
Board of Directors approval, the payout period can be shortened upon
occurrence of certain criteria.
F-15
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
As discussed in Note 1, CH2M HILL and the shareholders have approved
changes to the features of its stock that will take affect once certain
contingencies have been removed.
(8) Income Taxes
CH2M HILL accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 uses an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax effects of events that have been recognized in the
financial statements or tax returns. In estimating future tax consequences,
CH2M HILL generally considers all expected future events other than enactment
of changes in the tax laws or rates.
Income (loss) from continuing operations before income taxes includes the
following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
U.S. income....................................... $17,124 $13,703 $14,461
Foreign loss...................................... (5,124) (1,692) (78)
------- ------- -------
Net income before taxes........................... $12,000 $12,011 $14,383
======= ======= =======
</TABLE>
The provision for income taxes for the years ended December 31 is comprised
of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current income tax expense:
Federal............................................ $10,171 $ 9,343 $4,195
Foreign............................................ 949 1,224 1,458
State & local...................................... 2,191 2,012 903
------- ------- ------
Total current taxes................................ 13,311 12,579 6,556
Deferred income tax (benefit) expense.............. (6,020) (5,284) 2,015
------- ------- ------
Total tax expense.................................. $ 7,291 $ 7,295 $8,571
======= ======= ======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to CH2M HILL's effective income tax rate for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Pretax income................................... $12,000 $12,011 $14,383
Federal statutory rate.......................... 35% 35% 35%
------- ------- -------
Expected tax expense............................ 4,200 4,204 5,034
Reconciling items:
State income taxes.............................. 1,479 1,358 610
Disallowance of meals and entertainment
expenses....................................... 1,667 1,589 1,665
Foreign operating losses........................ 396 630 991
Other........................................... (451) (486) 271
------- ------- -------
Provision for income taxes...................... $ 7,291 $ 7,295 $ 8,571
======= ======= =======
</TABLE>
F-16
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Foreign net operating losses............................. $ 2,934 $ 2,800
Depreciation and amortization............................ -- 1,133
Investments in affiliates................................ 2,980 4,413
------- -------
Total deferred tax assets................................ 5,914 8,346
Valuation allowance...................................... (2,934) (2,800)
------- -------
Net deferred tax assets.................................. 2,980 5,546
------- -------
Deferred tax liabilities:
Deferred recognition of net income until collection or
payment occurs.......................................... 22,838 28,860
Depreciation and amortization............................ 1,442 --
------- -------
Total deferred tax liabilities........................... 24,280 28,860
------- -------
Net deferred tax liability............................... $21,300 $23,314
======= =======
</TABLE>
A valuation allowance is required to be established for those deferred tax
assets that it is more likely than not that they will not be realized based
upon certain estimated circumstances. The above valuation allowances relate to
foreign net operating losses of $7,500 and $9,000 for the years ended December
31, 1997 and 1998, respectively, which will require taxable income within the
applicable foreign subsidiary in order for the deferred tax asset to be
realized. The foreign net operating losses generally may be carried forward
indefinitely.
At December 31, 1998, CH2M HILL has no material tax carryforwards.
Undistributed earnings of CH2M HILL's foreign subsidiaries amounted to
approximately $4,200 at December 31, 1998. Those earnings are considered to be
indefinitely reinvested and accordingly, no provision for U.S. federal and
state income taxes or foreign withholding taxes has been made. Upon
distribution of those earnings, CH2M HILL would be subject to U.S. income taxes
(subject to a reduction for foreign tax credits) and withholding taxes payable
to the various foreign countries. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practicable; however, unrecognized
foreign tax credit carryovers would be available to reduce some portion of the
U.S. tax liabilities.
(9) Earnings Per Share
The computation of basic income per share is based on the weighted average
number of common and preferred shares outstanding during the year. The
outstanding preferred shares are included in the basic income per share
calculation since the preferred shares do not have any preferences over common
shares, other than in liquidation, and CH2M HILL anticipates conversion to
common shares on a one-for-one basis. Diluted income per share is based on the
weighted average number of common and preferred shares outstanding during the
year and, to the extent dilutive, common stock equivalents consisting of stock
options, stock awards subject to restrictions and stock appreciation rights. At
December 31, 1996, 1997 and 1998 and March 31, 1999, CH2M HILL did not have
dilutive securities outstanding.
F-17
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
(10) Employee Incentive and Benefit Plans
Stock Based Compensation Plans
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires that stock-
based compensation plans be accounted for based on the fair value based method
of accounting. CH2M HILL continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted
by SFAS No. 123. CH2M HILL has three stock-based compensation plans as
described below. Had compensation cost been determined in accordance with SFAS
No. 123, CH2M HILL's net income and earnings per share for 1996, 1997 and 1998
would not have changed.
Incentive Plan
CH2M HILL, at the discretion of the Board of Directors, provides stock
bonuses to certain designated key employees of CH2M HILL. Expenses under this
program amounted to $4,365, $4,784 and $5,550 in 1996, 1997 and 1998,
respectively.
Employee Stock Plan
CH2M HILL has a profit sharing plan ("ESP") for all eligible employees and
has established an Employee Stock Plan and Trust to administer the ESP.
Contributions to the ESP are made to the Trust as determined by the Board of
Directors. Contributions to the ESP were $2,650, $2,804, and $3,513 in 1996,
1997 and 1998, respectively. The contributions are to be made primarily through
the issuance of Class A preferred stock.
Retirement and Tax-Deferred Savings Plan (the "401(k) Plan")
CH2M HILL has a 40l(k) Plan that provides for company matching
contributions, which range from 0.5% to 2.0% of eligible employees' base pay.
Contributions for 1996, 1997 and 1998 were $1,493, $1,589 and $1,996,
respectively, and vest equally over a five year period, beginning with the
employees' second year of service. The contributions were made primarily
through the issuance of Class A preferred stock.
Defined Contribution Savings Plan
CH2M HILL has a defined contribution plan that provides for contributions
generally equal to 1.5% of eligible employees' base pay. These contributions
vest equally over a five-year period, beginning with the employees' second year
of service. For the years ended December 31, 1996, 1997 and 1998, CH2M HILL
recorded $5,591, $6,045 and $5,084 in expense, respectively. Contributions are
made in cash.
(11) Other Employee Benefits
Pension and Other Postretirement Benefits
CH2M HILL has several noncontributory defined benefit pension plans, of
which one remains active. Benefits are based on years of service and
compensation during the span of employment. Funding for these plans is provided
through contributions based on recommendations from the plans' independent
F-18
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
actuary. Plan assets consist primarily of common stock, corporate debt
instruments and U.S. government securities.
CH2M HILL sponsors a medical benefit plan for retired employees of three
subsidiaries. The plan is contributory, with retiree premiums based on service
at retirement. The benefits contain limitations and a cap on future cost
increases. CH2M HILL continues to fund postretirement medical benefits on a
pay-as-you-go basis.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- -----------------
1997 1998 1997 1998
--------- --------- ------- --------
<S> <C> <C> <C> <C>
Plan Assets in Excess of Benefit
Obligations:
Benefit obligation at December 31.... $ (49,858) $ (59,054)
Fair value of plan assets at December
31.................................. 52,856 59,808
--------- ---------
Funded status........................ $ 2,998 $ 754
========= =========
Benefit Obligations in Excess of Plan
Assets:
Benefit obligation at December 31.... $ (10,558) $ (14,759) $(8,932) $(11,680)
Fair value of plan assets at December
31.................................. 9,015 10,566 -- --
--------- --------- ------- --------
Unfunded status...................... $ (1,543) $ (4,193) $(8,932) $(11,680)
========= ========= ======= ========
Prepaid (accrued) benefit cost
recognized in the balance sheet..... $ 1,958 $ 8,155 $(4,728) $ (6,104)
Weighted-average assumptions at
December 31:
Discount rate........................ 7.00-8.25% 6.75-7.20% 8.25% 7.20%
Expected return on plan assets....... 8.00-9.00% 8.00-9.00% -- --
</TABLE>
For measurement purposes, an 11.14% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.45% for 2010 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
-------------- --------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net periodic benefit cost.................... $2,245 $ 674 $1,365 $1,633
Employer contributions....................... 3,498 8,593 -- --
Participant contributions.................... -- -- 258 257
Benefit payments............................. (2,426) (1,996) (545) (514)
</TABLE>
(12) Investments In Unconsolidated Affiliates
CH2M HILL has investments in affiliated companies that are 50% or less
owned, which are accounted for under the equity method. These investments
consist primarily of a 50% ownership interest in Kaiser-Hill Company, LLC and
MK/IDC (PSI), which are domestic organizations, a 49% ownership interest in
CH2M Gore and Storrie Limited, a 50% ownership interest in CH2M HILL BECA, Ltd.
and TDC International of Israel, which are foreign organizations. As of
December 31, 1997 and 1998, the total investments in these material
unconsolidated affiliates were approximately $3,000 and $2,629, respectively,
and are included in other assets in the accompanying consolidated balance
sheets. As of December 31, 1997 and 1998, CH2M HILL received distributions from
Kaiser-Hill Company, LLC of $13,950 and $8,335, respectively.
F-19
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Summarized financial information for these affiliates is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998
-------- --------
<S> <C> <C>
Financial Position:
Current assets............................................... $113,150 $148,784
Noncurrent assets............................................ 4,910 9,339
-------- --------
$118,060 $158,123
======== ========
Current liabilities.......................................... $102,012 $139,561
Noncurrent liabilities....................................... 9,647 7,041
Shareholders' equity......................................... 6,401 11,521
-------- --------
$118,060 $158,123
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three-Month Period
Year Ended December 31, Ended March 31,
----------------------------- -----------------------
1996 1997 1998 1998 1999
---------- -------- -------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues................ $1,354,337 $874,534 $873,524 $237,626 $144,129
Direct costs............ 1,169,601 698,600 681,091 232,158 138,200
---------- -------- -------- -------- --------
Gross margin............ 184,736 175,934 192,433 5,468 5,929
General and
administrative
expenses............... 174,105 158,822 174,790 3,425 3,713
---------- -------- -------- -------- --------
Operating income........ 10,631 17,112 17,643 2,043 2,216
Other income (expense).. (14) 483 348 101 (748)
---------- -------- -------- -------- --------
Net income.............. $ 10,617 $ 17,595 $ 17,991 $ 2,144 $ 1,468
========== ======== ======== ======== ========
</TABLE>
(13) CONTINGENCIES
General
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which involve claims of substantial sums. Damages
assessed in connection with and the cost of defending any such actions could be
substantial. CH2M HILL's management believes that the levels of insurance
coverage are generally adequate to cover CH2M HILL's liabilities, if any, with
regard to such claims. CH2M HILL generally accrues amounts for retentions and
deductibles based on advice from legal counsel when it is probable that a loss
will be incurred and such loss is estimable. Gain contingencies or recoveries
are rare and are usually recorded when the cash is collected.
The amounts accrued at December 31, 1997 and 1998 related to probable
claims were $13,365 and $13,981, respectively, the majority of which was paid
out subsequent to December 31, 1998. Management believes that the amounts
accrued are adequate to cover the claims that have been identified by our legal
counsel as probable of loss. The amounts expensed for probable claims was
$3,900, $6,000 and $2,100 for 1996, 1997 and 1998, respectively. CH2M HILL
believes that should our loss exposure exceed the amount accrued, the final
settlement of these claims, individually or in the aggregate, will not have a
material adverse effect on our operations, cash flows or financial condition.
F-20
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Guarantor
CH2M HILL has an equity investment in an affiliate. The affiliate has a
facility which allows it to borrow up to $5,000. The facility is comprised of a
$3,000 line of credit and a $2,000 term loan. As of December 31, 1997, the
outstanding balance on the term loan was $2,000, which was paid off during
1998. No amounts were outstanding under the line of credit as of December 31,
1997 and 1998. The facility is guaranteed by CH2M HILL.
CH2M HILL has guaranteed a $6,000 credit facility between a subsidiary and
a joint venture partner. The facility is secured by assets of the joint venture
and is used for general project purposes. CH2M HILL has joint and several
liability with the joint partner for the full amount. At December 31, 1998,
$2,400 was outstanding on the credit facility which bears interest at varying
rates, as defined, and ranged from 6.6% to 7.8%.
Performance Bonds
In the normal course of business, CH2M HILL purchases performance bonds to
comply with client mandated contractual obligations. At December 31, 1997 and
1998, the performance bonds purchased were $55,000.
(14) Events Occurring Subsequent to Opinion Date (Unaudited)
Effective June 18, 1999, CH2M HILL negotiated a new line of credit
facility. Under the amended terms, CH2M HILL has a maximum borrowing capacity
of $100,000 with an option to increase to $125,000, which expires June 18,
2002. Interest accrues on outstanding borrowings at variable rates, which as of
March 31, 1999 ranged from 5.3% to 7.8%, based on maturity and a liabilities to
earnings ratio. Additionally, a commitment fee is payable based on the
Company's liabilities to earnings ratio.
Effective February 1999, CH2M HILL granted 2,434,840 stock options at an
estimated fair market value of $4.31 per share. These options vest 25% in
February 2000, 25% more in February 2001 and the remaining 50% in February
2002.
F-21
<PAGE>
Kaiser-Hill Company, LLC
and Subsidiary
Consolidated Financial Statements
as of March 31,1999 (unaudited), December 31, 1998 and 1997 and for
the three months ended March 31, 1999 and 1998 (unaudited) and each of the
three years in the period ended December 31, 1998 together with Report of
Independent Accountants
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Kaiser-Hill Company, LLC:
We have audited the accompanying consolidated balance sheets of Kaiser-Hill
Company, LLC (a Colorado limited liability company) (the "Company") and
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income, members' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Kaiser-Hill Company, LLC and subsidiary as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 22, 1999.
F-23
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
December 31,
March 31, ----------------
1999 1998 1997
----------- -------- -------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,692 $ 3,644 $10,182
Contract receivables.............................. 122,081 124,352 87,389
Receivable from Member............................ -- 396 --
-------- -------- -------
Total current assets.............................. 129,773 128,392 97,571
Financing and organization costs, net of
accumulated amortization of $2,578 and $1,791,
respectively..................................... 138 1,004 1,791
-------- -------- -------
$129,911 $129,396 $99,362
======== ======== =======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and payable to subcontractors.... $110,844 $114,988 $78,391
Accrued vacation.................................. 8,147 7,627 7,794
Accrued salaries and employee benefits............ 7,667 5,039 8,351
Payable to Members................................ 1,353 742 2,656
-------- -------- -------
Total current liabilities......................... 128,011 128,396 97,192
Contingencies (Note 6)
Members' equity................................... 1,900 1,000 2,170
-------- -------- -------
$129,911 $129,396 $99,362
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
For the three months ended For the years ended
March 31, December 31,
----------------------------- -------------------------------
1999 1998 1998 1997 1996
------------- ------------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $ 167,892 $ 140,700 $ 636,190 $ 584,739 $ 543,756
Subcontractor costs and
direct material costs.. (130,181) (108,109) (464,692) (421,800) (376,000)
------------- ------------- --------- --------- ---------
Service revenue......... 37,711 32,591 171,498 162,939 167,756
Direct cost of service
and overhead........... (35,996) (30,687) (156,072) (145,708) (155,995)
------------- ------------- --------- --------- ---------
Operating income........ 1,715 1,904 15,426 17,231 11,761
Other income (expense):
Interest income......... 70 122 295 661 539
Interest expense........ (46) (46) (221) (128) (134)
------------- ------------- --------- --------- ---------
Income before cumulative
effect of a change in
accounting principle... 1,739 1,980 15,500 17,764 12,166
Cumulative effect of a
change in accounting
principle (Note 7)..... (839) -- -- -- --
------------- ------------- --------- --------- ---------
Net income.............. $ 900 $ 1,980 $ 15,500 $ 17,764 $ 12,166
============= ============= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
for the years ended December 31, 1998 and 1997
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
ICF Kaiser CH2M Hill
Government Constructors,
Programs, Inc. Inc. Total
-------------- ------------- --------
<S> <C> <C> <C>
Members' equity, December 31, 1995...... $ 2,142 $ 2,498 $ 4,640
Net income.............................. 6,083 6,083 12,166
Distributions........................... (2,072) (2,428) (4,500)
-------- -------- --------
Members' equity, December 31, 1996...... 6,153 6,153 12,306
Net income.............................. 8,882 8,882 17,764
Distributions........................... (13,950) (13,950) (27,900)
-------- -------- --------
Members' equity, December 31, 1997...... 1,085 1,085 2,170
Net income.............................. 7,750 7,750 15,500
Distributions........................... (8,335) (8,335) (16,670)
-------- -------- --------
Members' equity, December 31, 1998...... $ 500 $ 500 $ 1,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
For the three months For the years ended
ended March 31, December 31,
----------------------- ----------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income............... $ 15,500 $ 17,764 $ 12,166
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Amortization............ 787 627 764
Changes in assets and
liabilities:
Increase in contract
receivables............ (36,963) (12,402) (703)
Increase in receivable
from Member............ (396) -- --
Decrease in prepaid
expenses and other
current assets......... -- -- 2,017
Increase in accounts
payable and payable to
subcontractors......... 36,597 18,987 15,899
Increase (decrease) in
accrued salaries and
employee benefits...... (3,479) 627 (8,315)
Increase (decrease) in
payable to Members..... (1,914) 511 2,145
-------- -------- --------
Net cash provided by
operating activities.... $4,048 $ 4,586 10,132 26,114 23,973
------ ------- -------- -------- --------
Cash flows from financing
activities:
Distributions to
Members................. -- -- (16,670) (27,900) (4,500)
Repayment of operating
expenses and
organization costs paid
by Members.............. -- -- -- -- (8,512)
------ ------- -------- -------- --------
Net cash used in
financing activities.... -- -- (16,670) (27,900) (13,012)
------ ------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............. 4,048 4,586 (6,538) (1,786) 10,961
Cash and cash
equivalents, beginning
of year................. 3,644 10,182 10,182 11,968 1,007
------ ------- -------- -------- --------
Cash and cash
equivalents, end of
year.................... $7,692 $14,768 $ 3,644 $ 10,182 $ 11,968
====== ======= ======== ======== ========
Supplemental cash flow
information:
Cash paid for interest... $ 46 $ 46 $ 221 $ 128 $ 134
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Kaiser-Hill Company, LLC (the "Company") was formed on October 24, 1994.
The principal business of the Company is to procure, execute, deliver, and
perform under a five-year contract, commencing July 1, 1995, with the
Department of Energy ("DOE") to manage the programs and operate the DOE
facilities at Rocky Flats Environmental Technology Site ("RFETS") in Golden,
Colorado ("DOE contract"). The mission of the RFETS is directed toward cleanup,
deactivation, and preparation for decontamination and disposition of these DOE
facilities.
The Company's contract will expire on June 30, 2000. The DOE is currently
considering its options which could include an extension of the Company's
contract or re-bid under a competitive process. While the Company believes that
its relationship with the DOE is good, the outcome will not be finalized until
after the release of these financial statements.
At December 31, 1998, the Company employed 1,439 hourly workers and 321
salaried workers. Approximately 93% of the hourly employees are represented by
United Steel Works of America (the "Union") under a collective bargaining
agreement which expires on October 3, 2001.
The Company maintains its cash accounts primarily with banks located in
Colorado, New York and North Carolina. The total cash balances are insured by
the FDIC up to $100,000 per bank. The Company had cash balances on deposit with
one Colorado bank in eight accounts at December 31, 1998 and 1997.
The Company is a limited liability company owned equally by ICF Kaiser
Government Programs, Inc., a wholly owned subsidiary of ICF Kaiser
International, Inc. ("ICF Kaiser"), and CH2M Hill Constructors, Inc., an
indirect wholly owned subsidiary of CH2M Hill Companies, Ltd. ("CH2M Hill")
(collectively, the "Members"). Net profits and/or losses are allocated equally
to the Members, except for the 1994 bid and proposal costs which were allocated
to the Members based upon the actual amount incurred by such Members.
Distributions of Company earnings are allocated equally to the Members, except
for the 1996 distribution which adjusted the Members' equity balances for the
1994 bid and proposal costs.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the wholly owned subsidiary
of the Company, Kaiser-Hill Funding Company, LLC. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Unaudited Interim Financial Statements
The consolidated interim financial statements included with the annual
financial statements herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures relating to the interim period normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements of the interim period contain all adjustments necessary to present
fairly the financial position of the Company as of March 31, 1999 and the
results of operations and cash flows for the periods presented. All such
adjustments are of a normal recurring nature. The results of operations for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
F-28
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Revenue Recognition
Revenue is recognized using the percentage of completion method whereby
revenue is accrued in an amount equal to cost plus management's best estimate
of base fee, performance based incentive fees and cost reduction proposal fees
to be received.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers cash in
checking and short-term investments with original maturities of three months or
less to be cash and cash equivalents.
Organization Costs and New Accounting Policy
Organization costs are nonreimbursable costs, including legal, consulting,
financing and pre-transition costs incurred by the Company prior to the
commencement of the DOE contract, recorded at historical cost and amortized on
a straight line basis over five years. Amortization expense was $787,000,
$627,000 and $764,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of
Start-Up Activities, which states that costs of start-up activities, including
organization costs, should be expensed as incurred. This statement is effective
for fiscal years beginning after December 15, 1998, and the initial adoption of
SOP 98-5 should be reported as a cumulative effect of a change in accounting
principle. Management believes that the Company's adoption of this new
accounting policy will result in costs of $839,000 to be written off in 1999.
Income Taxes
The financial statements do not include a provision for income taxes
because the Company is treated as a partnership for income tax purposes and
does not incur federal or state income taxes. Instead, its earnings and losses
are included in the Members' separate income tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Related Party Transactions
In 1998 and 1997, the Members were subcontracted by the Company to perform
certain tasks under the DOE contract. The "Payable to Members" in the
accompanying balance sheets as of December 31, 1998 and 1997 consists of
$742,000 and $1,742,000, respectively, to ICF Kaiser and $-0- and $914,000,
respectively, to CH2M Hill for these subcontracted tasks. These payables are
non-interest bearing. The "Receivable from Member" in the accompanying balance
sheet as of December 31, 1998 consists of $396,000 due from CH2M Hill relating
to advance payment of general and administrative expenses, less operating
payables.
In addition, costs incurred related to work performed by ICF Kaiser and
CH2M Hill, the majority of which are reimbursable and billed under the DOE
contract in 1998 were approximately $3,600,000 and
F-29
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$960,000, respectively, in 1997 were approximately $2,600,000 and $1,100,000,
respectively, and in 1996 were approximately $1,300,000 and $1,000,000,
respectively.
4. Contract Receivables and Receivables Purchase Facility Agreement
Contract receivables as of December 31, 1998 and 1997 represent unbilled
receivables due under the DOE contract. Unbilled receivables result from
revenue that has been earned by the Company but not billed to the DOE as of the
end of the period. The unbilled receivables can be invoiced at contractually
defined intervals and milestones. Management anticipates that the unbilled
receivables will be billed and collected in less than one year.
The Company's trade receivables result primarily from its long-term
contract with the DOE. As a consequence, management believes that credit risk
is minimal.
Through its wholly owned subsidiary, Kaiser-Hill Funding Company, LLC, the
Company has available at a financial institution a receivables purchase
facility agreement which provides temporary financing for the payment of the
Company's costs incurred under the DOE contract. This financing is utilized
throughout the year for periods of less than one month as, under the terms of
the DOE contract, the DOE must pay the Company's invoices within three days of
receipt. Contract receivables are collateral for the financed amount. The
maximum funding level for this agreement is $50,000,000, of which approximately
$50,000,000 and $27,000,000 were the unused portions at December 31, 1998 and
1997, respectively.
5. Contingencies
The Company's reimbursable costs are subject to audit in the ordinary
course of business by various U.S. Government agencies. The Company is not
presently aware of any significant costs which have been, or may be, disallowed
by any of these agencies.
6. Employee Benefit Plans
In accordance with the DOE contract, the Company sponsors several benefit
plans covering substantially all employees who meet length of service
requirements. These plans include the following defined benefit pension plans:
The Rocky Flats Multiple Employer Salaried Retirement Plan and the Kaiser-Hill
Retirement Plan for Hourly Production and Maintenance Employees. The Company
also sponsors the following defined contribution plans: Kaiser-Hill Company,
LLC Savings Plan for Hourly Employees, which includes no Company matching; and
Rocky Flats Multiple Employer Salaried Thrift Plan, which includes Company
matching. The Company contribution amounts for the Savings Plan/Thrift Plan
were approximately $413,000, $482,000 and $615,000 for 1998, 1997 and 1996,
respectively. No amounts were contributed to the Retirement Plans during 1998
and 1997 because the Plans were overfunded. In 1996, contributions of
$6,917,000 were made to the retirement plans.
The Company administers these benefit plans with benefits equivalent to the
RFETS contractor benefit plans maintained by the contractor that preceded the
Company at RFETS. Under the DOE contract, the Company recognizes the cost of
benefit plans when paid, and such costs are reimbursed by the DOE. Any excess
pension plan assets or unfunded pension plan liability which may currently
exist or is remaining at the end of the DOE contract is the responsibility of
the DOE.
7. Subsequent Event (unaudited)
Effective January 1, 1999, the Company adopted SOP 98-5 resulting in a
cumulative effect of a change in accounting principle of $839,000 included in
the accompanying consolidated statement of income for the three months ended
March 31, 1999.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTS
To CH2M HILL Companies, Ltd.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of CH2M HILL Companies, Ltd. and
subsidiaries included in this registration statement and have issued our report
thereon dated February 12, 1999. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
referred to in the index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 12, 1999
F-31
<PAGE>
CH2M HILL COMPANIES, LTD.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Expense Accounts Deductions Period
----------- ---------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
Year ended December 31,
1996..................... $1,593 $ 57 $-- $114 $1,536
Year ended December 31,
1997..................... $1,536 $1,441 $-- $-- $2,977
Year ended December 31,
1998..................... $2,977 $5,224 $-- $-- $8,201
</TABLE>
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23,859,330 Shares
CH2M HILL Companies, Ltd.
Common Stock
[CH2MHILL LOGO APPEARS HERE]
--------
PROSPECTUS
--------
, 1999
Prospective investors may rely only on the information contained in this
prospectus. CH2M HILL has not authorized anyone to provide prospective
investors with information different from that contained in this prospectus.
This prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale
of these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Estimated expenses payable by CH2M HILL in connection with the sale of the
common stock offered hereby are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 29,029
Blue Sky fees and expenses..................................... 75,000
Legal fees and expenses........................................ 575,000
Accounting fees and expenses................................... 275,000
Directors' and Officers' liability insurance premium........... 110,000
Printing and engraving expenses................................ 100,000
Miscellaneous.................................................. 200,000
----------
Total........................................................ $1,364,029
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Under the Oregon Business Corporation Act (the "Act"), a corporation's
Articles of Incorporation may provide for the limitation of liability of
directors and indemnification of directors and officers under some
circumstances. In accordance with Oregon law, CH2M HILL's Restated Articles of
Incorporation provide that directors are not personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for any act or omission for which the elimination of liability is not
permitted under the Act. Section 60.047(2)(d) of the Act sets forth the
following actions for which limitation of liability is not permitted, including
(i) any breach of a director's duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) any unlawful
distributions to shareholders; or (iv) any transaction from which the director
received an improper or illegal personal benefit.
CH2M HILL's Restated Bylaws allow it to indemnify any person who is or was
a party, or is threatened to be made a party, to any civil, administrative, or
criminal proceeding by reason of the fact that the person is or was a director
or officer of CH2M HILL or any of its subsidiaries, or is or was serving at
CH2M HILL's request as a director, officer, partner, agent, or employee of
another corporation or entity. The indemnification may include expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by that person. Under the Section 60.391(1) of
the Act, indemnification is available if (i) the person acted in good faith;
(ii) the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and (iii) in the
case of a criminal proceeding, the person had no reasonable cause to believe
the conduct was unlawful. In addition, a person who is wholly successful, on
the merits or otherwise, in the defense of a proceeding in which the person was
a party because the person was a director, is entitled to indemnification for
expenses actually and reasonably incurred by the person in connection with the
proceeding.
CH2M HILL intends to purchase and pay the premium for insurance in respect
of claims against its directors and officers and in respect of losses for which
CH2M HILL may be required or permitted by law to indemnify such directors and
officers. The directors to be insured are the directors named herein and all
directors of CH2M HILL's subsidiaries. The officers to be insured are all
officers and assistant officers of CH2M HILL and its subsidiaries. CH2M HILL
does not expect to allocate or segregate the premium with regard to specific
subsidiaries or individual directors and officers.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
As of December 31, 1997, CH2M HILL sold 783 shares of common stock to
Robert G. Card for $28,081.11 and 300 shares of common stock to Nancy R. Tuor
for $10,758.00. As of December 31, 1998, CH2M HILL sold 1,318 shares of common
stock to Robert G. Card for $50,373.96 and 184 shares of common stock to Nancy
R. Tuor for $7,032.48. Mr. Card and Ms. Tuor are former employees of CH2M HILL
who were key employee shareholders when employed by CH2M HILL and who currently
work for its affiliate, Kaiser-Hill Company, LLC. The issuance of such shares
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, as a transaction by the issuer not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a list of exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
+3.1 Form of Restated Articles of Incorporation of CH2M HILL
Companies, Ltd.
+3.2 Form of Restated Bylaws of CH2M HILL Companies, Ltd.
+5.1 Opinion of Holme Roberts & Owen LLP with respect to legality of
securities being registered
+5.2 Opinion of Holland & Hart LLP with respect to compliance with
ERISA for the CH2M HILL Retirement and Tax-Deferred Savings Plan
+5.3 Opinion of Holland & Hart LLP with respect to compliance with
ERISA for the CH2M HILL Employee Stock Plan.
+10.1 Form of CH2M HILL Retirement and Tax-Deferred Savings Plan
+10.2 Form of CH2M HILL Employee Stock Plan
+10.3 CH2M HILL Companies, Ltd. 1999 Stock Option Plan
**10.3.1 CH2M HILL Companies, Ltd. Amendment to 1999 Stock Option Plan
+10.4 Form of CH2M HILL Companies, Ltd. 1999 Payroll Deduction Stock
Purchase Plan
+10.5 Form of CH2M HILL Companies, Ltd. Pre-Tax Deferred Compensation
Plan
+10.6 Form of Trust Under CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Plan
+10.7 Form of CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Plan
+10.8 Form of Trust Under CH2M HIll Companies, Ltd. After-Tax Deferred
Compensation Plan
+10.9 Form of Contract with Buck Investment Services, Inc.
**10.10 Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy
dated as of April 4, 1995, along with Modifications 1 to 81 to
Contract #DE-AC3495RF00825 (Modifications 41, 72 and 78 not
received).
*10.11 $100,000,000 Senior Unsecured Revolving Credit Agreement dated
as of June 18, 1999, Wells Fargo Bank, National Association, as
Agent.
+21 Subsidiaries of CH2M HILL Companies, Ltd.
*23.1 Consent of Arthur Andersen LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*23.2 Consent of KPMG Peat Marwick LLP
+23.3 Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1)
+23.4 Consent of Holland & Hart LLP (included in Exhibit 5.2 and Exhibit
5.3)
+24 Powers of Attorney (included on signature page)
+27 Financial Data Schedule
+99.1 Form of Internal Market Rules
+99.2 Key Employee Policy
</TABLE>
- -------
+Previously filed.
*Filed herewith.
**To be filed by amendment.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been included in
the prospectus, are not required under the related instructions, are
inapplicable and therefore have been omitted, or the information required by
the applicable schedule is included in the notes to the consolidated financial
statements.
Item 17. Undertakings
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously enclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the
II-3
<PAGE>
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver, State
of Colorado, on the 8th day of July, 1999.
CH2M HILL COMPANIES, LTD.
/s/ RALPH R. PETERSON
By: ____________________________________
Ralph R. Peterson
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph R. Peterson President and Chief July 8, 1999
______________________________________ Executive Officer
Ralph R. Peterson (Principal Executive
Officer)
* Chairman of the Board of July 8, 1999
______________________________________ Directors and Senior Vice
Philip G. Hall President
/s/ Samuel H. Iapalucci Chief Financial Officer July 8, 1999
______________________________________ (Principal Financial and
Samuel H. Iapalucci Principal Accounting
Officer)
* Director July 8, 1999
______________________________________
Joseph A. Ahearn
* Director July 8, 1999
______________________________________
Kenneth F. Durant
* Director July 8, 1999
______________________________________
Donald J. Evans
* Director July 8, 1999
______________________________________
James J. Ferris
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director July 8, 1999
______________________________________
Jerry D. Geist
* Director July 8, 1999
______________________________________
Michael D. Kennedy
* Director July 8, 1999
______________________________________
Susan D. King
* Director July 8, 1999
______________________________________
Michael Y. Marcussen
* Director July 8, 1999
______________________________________
Barry L. Williams
By: /s/ Samuel H. Iapalucci
______________________________________
Samuel H. Iapalucci, as attorney-in-
fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
+3.1 Form of Restated Articles of Incorporation of CH2M HILL Companies,
Ltd.
+3.2 Form of Restated Bylaws of CH2M HILL Companies, Ltd.
+5.1 Opinion of Holme Roberts & Owen LLP with respect to legality of
securities being registered
+5.2 Opinion of Holland & Hart LLP with respect to compliance with ERISA
for the CH2M HILL Retirement and Tax-Deferred Savings Plan
+5.3 Opinion of Holland & Hart LLP with respect to compliance with ERISA
for the CH2M HILL Employee Stock Plan
+10.1 Form of CH2M HILL Retirement and Tax-Deferred Savings Plan
+10.2 Form of CH2M HILL Employee Stock Plan
+10.3 CH2M HILL Companies, Ltd. 1999 Stock Option Plan
**10.3.1 CH2M HILL Companies, Ltd. Amendment to 1999 Stock Option Plan
+10.4 Form of CH2M HILL Companies, Ltd. 1999 Payroll Deduction Stock
Purchase Plan
+10.5 Form of CH2M HILL Companies, Ltd. Pre-Tax Deferred Compensation Plan
+10.6 Form of Trust Under CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Plan
+10.7 Form of CH2M HILL Companies, Ltd. After-Tax Deferred Compensation
Plan
+10.8 Form of Trust Under CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Plan
+10.9 Form of Contract with Buck Investment Services, Inc.
**10.10 Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy
dated as of April 4, 1995, along with Modifications 1 to 81 to
Contract #DE-AC3495RF00825 (Modifications 41, 72 and 78 not
received).
*10.11 $100,000,000 Senior Unsecured Revolving Credit Agreement dated as of
June 18, 1999, Wells Fargo Bank, National Association, as Agent.
+21 Subsidiaries of CH2M HILL Companies, Ltd.
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of KPMG Peat Marwick LLP
+23.3 Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1)
+23.4 Consent of Holland & Hart LLP (included in Exhibit 5.2 and Exhibit
5.3)
+24 Powers of Attorney (included on signature page)
+27 Financial Data Schedule
+99.1 Form of Internal Market Rules
+99.2 Key Employee Policy
</TABLE>
- --------
+Previously filed.
*Filed herewith.
**To be filed by amendment.
<PAGE>
EXHIBIT 10.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CH2M HILL COMPANIES, LTD.
CH2M HILL, INC.
OPERATIONS MANAGEMENT INTERNATIONAL, INC.
CH2M HILL INDUSTRIAL DESIGN CORPORATION
$100,000,000 SENIOR UNSECURED REVOLVING CREDIT AGREEMENT
dated as of June 18, 1999
WELLS FARGO BANK, NATIONAL ASSOCIATION, Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION> Page
<S> <C>
1. Definitions; Certain Rules of Construction ......................................................1
2. The Credits ....................................................................................19
2.1 Revolving Credit ..........................................................................19
2.2 Swing Line ................................................................................22
2.3 Currency Equivalents for Multicurrency LIBOR Loans ........................................23
2.4 Letters of Credit .........................................................................24
2.5 Application of Proceeds ...................................................................26
2.6 Option to Extend Final Maturity Date ......................................................26
2.7 Option to Increase Maximum Amount of Credit ...............................................27
3. Interest; LIBOR Pricing Options; Fees; Changes in Circumstance, Yield Protection ...............27
3.1 Interest ..................................................................................27
3.2 LIBOR Pricing Options .....................................................................28
3.3 Fees ......................................................................................30
3.4 Computations of Interest and Fees .........................................................31
3.5 Changes in Circumstances; Yield Protection ................................................31
4. Payment ........................................................................................36
4.1 Payment at Maturity .......................................................................36
4.2 Voluntary Payments ........................................................................36
4.3 Mandatory Prepayments .....................................................................37
4.4 Letters of Credit .........................................................................37
4.5 Reborrowing; Application of Payments, Etc .................................................38
4.6 Sharing of Payments, Etc ..................................................................38
</TABLE>
<PAGE>
5. Appointment of the Parent; Authorized Representatives ..................39
6. Subsidiary Guarantees ..................................................40
7. Joint and Several Liability; Rights of Contribution ....................40
7.1 Acknowledgements ..................................................40
7.2 Joint and Several Liability .......................................40
7.3 Absolute and Unconditional Obligations ............................40
7.4 Continuation ......................................................41
7.5 Rights of Contribution ............................................42
8. Conditions to Extending Credit .........................................42
8.1 Conditions on Initial Closing Date ................................42
8.2 Conditions to Each Extension of Credit ............................43
9. Covenants ..............................................................44
9.1 Conduct of Business, etc ..........................................44
9.2 Insurance .........................................................44
9.3 Fiscal Year; Financial Statements, Etc ............................44
9.4 Consolidated Net Worth ............................................47
9.5 Current Ratio .....................................................47
9.6 Interest Coverage Ratio ...........................................47
9.7 Leverage Ratio ....................................................47
9.8 Profitable Operations .............................................47
9.9 Year 2000 Compliance ..............................................47
9.10 Indebtedness .....................................................47
9.11 Liens ............................................................48
9.12 Transactions with Affiliates .....................................50
9.13 Environmental Laws ...............................................50
-ii-
<PAGE>
9.14 Bonuses and Profit Sharing ..........................................50
9.15 Payment of Taxes, Etc ...............................................50
9.16 Preservation of Existence, Etc ......................................51
9.17 Compliance with Terms of Leaseholds .................................51
9.18 Material Subsidiaries ...............................................51
9.19 Mergers, Etc ........................................................51
9.20 Sales, Etc of Assets. ...............................................51
9.21 Investments .........................................................52
9.22 Distributions, Etc ..................................................52
9.23 Limits on Capital Expenditures ......................................53
9.24 Charter and By-laws Amendments ......................................53
9.25 Prepayments, Etc. of Indebtedness ...................................53
9.26 Preservation of Rights and Properties ...............................53
9.27 Payment of Obligations ..............................................53
9.28 Maintenance of Properties ...........................................53
9.29 ERISA ...............................................................53
9.30 Ownership of the Borrowers ..........................................54
9.31 Pari Passu ..........................................................54
10. Representations and Warranties ...........................................54
10.1 Organization and Business ...........................................54
10.2 Financial Statements and Other Information ..........................55
10.3 No Material Adverse Effect ..........................................55
10.4 Operations in Conformity with Law, Etc ..............................55
10.5 Litigation ..........................................................56
10.6 Authorization and Enforceability ....................................56
-iii-
<PAGE>
10.7 No Legal Obstacle to Agreements ....................................56
10.8 Tax Returns ........................................................57
10.9 Environmental Regulations ..........................................57
10.10 Plans .............................................................58
10.11 Consents or Approvals .............................................58
10.12 No Liens ..........................................................58
10.13 Business Authorizations ...........................................58
10.14 Year 2000 Compliance ..............................................58
10.15 Disclosure ........................................................58
10.16 Solvency ..........................................................59
11. Defaults ................................................................59
11.1 Events of Default ..................................................59
11.2 Certain Actions Following an Event of Default ......................62
11.3 Annulment of Defaults ..............................................63
11.4 Waivers ............................................................63
12. Expenses; Indemnity .....................................................63
12.1 Expenses ...........................................................63
12.2 General Indemnity ..................................................64
13. The Agent ...............................................................65
13.1 Authorization and Action ...........................................65
13.2 Agent's Reliance, Etc ..............................................65
13.3 Lender Credit Decision; Agent in its Individual Capacity ...........66
13.4 Indemnification ....................................................67
13.5 Successor Agents ...................................................67
-iv-
<PAGE>
14. Successors and Assigns; Lender Assignments and Participations ..........68
14.1 Assignments by Lenders ............................................68
14.2 Credit Participants ...............................................71
15. Confidentiality ........................................................72
16. Notices ................................................................72
17. Course of Dealing; Amendments and Waivers ..............................73
18. Defeasance .............................................................74
19. Venue: Service of Process ..............................................74
20. WAIVER OF JURY TRIAL ...................................................75
21. Arbitration ............................................................75
21.1 Arbitration .......................................................75
21.2 Governing Rules ...................................................75
21.3 No Waiver; Provisional Remedies; Self-Help and Foreclosure ........76
21.4 Arbitrator Qualifications and Powers; Awards ......................76
21.5 Judicial Review ...................................................76
21.6 Miscellaneous Arbitration Provisions ..............................77
22. Judgment Currency ......................................................77
22.1 Conversion Requirements ...........................................77
22.2 Change in Rate of Exchange ........................................77
23. Setoff .................................................................78
24. No Third Party Beneficiaries ...........................................78
25. General ................................................................78
Schedule I List of Bankers
Exhibit 2.1.4 Form of Revolving Credit Note
Exhibit 2.2.2 Form of Swing Line Note
-v-
<PAGE>
Exhibit 2.4.2 Form of Letter of Credit Request
Exhibit 5 Designation of Authorized Representatives
Exhibit 6 Form of Subsidiary Guarantee
Exhibit 8.2.1 Form of Notice of Revolving Credit Advance
Exhibit 9.10 Existing Indebtedness
Exhibit 9.21 Existing Investments
Exhibit 9.22 Proposed Bylaws
Exhibit 10.1 Material Subsidiaries
Exhibit 10.10 Plans
Exhibit 14.1.1 Form of Assignment and Acceptance
-vi-
<PAGE>
$100,000,000 SENIOR UNSECURED REVOLVING CREDIT AGREEMENT
This Agreement, dated as of June 18, 1999, is entered into among CH2M
HILL Companies, Ltd., an Oregon corporation, CH2M HILL, Inc., a Florida
corporation, Operations Management International, Inc., a California
corporation, and CH2M Hill Industrial Design Corporation, an Oregon corporation
(each a "Borrower," and collectively, the "Borrowers"), the Lenders from time to
time party hereto and Wells Fargo Bank, National Association, in its capacity as
a Lender and in its capacity as the Issuing Bank and in its capacity as agent
for itself and the other Lenders. The parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain capitalized terms are
------------------------------------------
used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP, (f)
references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time in effect, and (g) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
this Agreement and the other Credit Documents. References to "the date hereof"
mean the date first set forth above.
"AAA" is defined in Section 21.2.
---
"Acquisition" means the acquisition of a Person (by merger,
-----------
consolidation or stock purchase), or the acquisition of all or substantially all
of the assets of a Person, or the acquisition of any division or similar
operating unit of a Person, or the acquisition of the business of a Person or of
the assets comprising such division, unit or business.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly controlling (including but not limited to all directors,
officers and general partners of such Person), controlled by or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such corporation, or (ii) to direct or cause direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agent" means Wells Fargo in its capacity as agent for the Lenders
-----
hereunder, as well as its successors in such capacity pursuant to Section 13.5.
<PAGE>
"Agreement" means this Credit Agreement, as from time to time amended,
---------
modified and in effect.
"Applicable LIBOR Margin" means, on any date, a margin determined by
-----------------------
(i) the Pricing Ratio as of the Initial Closing Date and (ii) thereafter,
effective on the first day of the month commencing after the month in which the
Agent receives the Parent's financial statements for the Parent's most recently
completed fiscal quarter, the Pricing Ratio for the most recently completed
fiscal quarter, determined in accordance with the following table:
Applicable
Pricing Ratio LIBOR Margin
------------- ------------
(more than) 3.50 2.000%
(more than) 3.00 (less than
or equal to) 3.50 1.750%
(more than) 2.50 (less than
or equal to) 3.00 1.500%
(more than) 1.50 (less than
or equal to) 2.50 1.250%
(less than or equal to) 1.50 1.000%
"Applicable Rate" means, at any date, the sum of:
---------------
(a) (i) with respect to each LIBOR Loan, the sum of the
Applicable LIBOR Margin plus the LIBOR Rate;
(ii) with respect to each Base Rate Loan, the Base
Rate; and
(iii) with respect to each Swing Line Loan, the Base
Rate.
plus (b) an additional 2% effective on the day the Agent
notifies the Borrowers that the interest rates hereunder are
increasing as a result of the occurrence and continuance of an
Event of Default under Section 11.1.1 until the earlier of
such time as (i) such Event of Default is no longer
continuing, or (ii) such Event of Default is deemed no longer
to exist, in each case pursuant to Section 11.3.
"Assignee" is defined in Section 14.1.1.
--------
"Assignment and Acceptance" is defined in Section 14.1.1.
-------------------------
"Auditors" is defined in Section 9.3.2 (a).
--------
"Authorized Representative" means each officer of the Parent designated
-------------------------
by the Parent in the most recent Notice of Authorized Representatives delivered
by the Parent to the Agent as being authorized to request any borrowing or make
any interest rate selection on behalf of the Borrowers, or to give the Agent any
other notice hereunder
-2-
<PAGE>
which is required by the terms of this Agreement to be made through an
Authorized Representative.
"Available Credit" means, at any time, the amount by which (a) the
----------------
Total Commitment is greater than (b) the aggregate of (i) the outstanding
principal amount of the Loans at such time, and (ii) the Letter of Credit
Exposure at such time.
"Banking Day" means (a) for all purposes other than as covered by
-----------
clause (b), any day other than Saturday, Sunday or a day on which commercial
banks in Denver, Colorado are authorized or required by law or other
governmental action to close and (b) if such term is used with reference to a
LIBOR Loan, such day is also a day on which (i) in the case of Dollar LIBOR
Loans, dealings between bank are carried on in United States Dollar deposits,
and (ii) in the case of Multicurrency LIBOR Loans, dealings are carried on
between banks in the applicable Foreign Currency.
"Bankruptcy Code" means Title 11 of the United States Code.
---------------
"Bankruptcy Default" means an Event of Default referred to in Section
------------------
11.1.10.
"Base Rate" means, on any date, the greater of (a) the rate of interest
---------
most recently announced within Wells Fargo at the San Francisco Office as its
prime rate, as evidenced by the recording thereof in such internal publication
or publications as Wells Fargo may designate, with any change in the prime rate
to be effective as of the day such change is announced within Wells Fargo, and
with the understanding that the prime rate is one of Well Fargo's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and may not be the lowest rate at which
Wells Fargo makes any loan, or (b) the sum of 0.5% p1us the Federal Funds Rate.
----
"Base Rate Loan" means a Loan that bears interest with reference to the
--------------
Base Rate.
"Bylaws" means all written bylaws, rules, regulations and all other
------
documents relating to the management, governance or internal regulation of any
Person other than an individual, or interpretive of the Charter of such Person,
all as from time to time in effect.
"Capital Expenditures" means, for any Person, for any period, the sum
--------------------
of (a) all expenditures made, directly or indirectly, by such Person or any of
its Subsidiaries during such period for equipment, fixed assets, real property
or improvements, or for replacements or substitutions therefor or additions
thereto, that have been or are expected to be reflected as additions to
property, plant or equipment on a Consolidated balance sheet of such Person,
plus (b) without duplication of amounts included under clause (a), the aggregate
principal amount of all Indebtedness (including obligations under Capitalized
Leases) assumed or incurred during such period in connection with such
expenditures.
-3-
<PAGE>
"Capitalized Leases" means, in the case of any Person, (a) all leases
------------------
that have been, should be or are expected to be recorded as capital leases on a
balance sheet of such Person in accordance with GAAP, and (b) the principal
balance outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing transaction where
such transaction is considered borrowed money indebtedness for tax purposes but
is classified as an operating lease in accordance with GAAP.
"Cash Equivalents" means cash equivalents determined in accordance with
----------------
GAAP.
"CERCLA" means the federal Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980.
"CERCLIS" means the federal Comprehensive Environmental Response
-------
Compensation Liability Information System List (or any successor document)
issued under CERCLA.
"Change of Control" means any of the following events: (a) any "person"
-----------------
or any syndicate or group deemed a "person" within the meaning of Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") other than the Trustees of the CH2M HILL Employee Stock Plan, has become,
directly or indirectly, the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), of 30% or more of the voting power of the voting stock of the Parent
on a fully-diluted basis, after giving effect to the conversion and exercise of
all outstanding warrants, options and other securities of the Parent (whether or
not such securities are then currently convertible or exercisable), or (b)
during any period of two consecutive calendar years, individuals who at the
beginning of such period constituted the board of directors of the Parent cease
for any reason (other than death, disability or expiration of term) to
constitute a majority of the directors of the Parent then in office unless such
new directors were elected by the directors of the Parent who constituted the
board of directors of the Parent at the beginning of such period.
"Charter" means the articles of organization, certificate of
-------
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other charter
document of any Person other than an individual, each as from time to time in
effect.
"Closing Date" means the Initial Closing Date and each other date on
------------
which any extension of credit is made or any Letter of Credit is issued pursuant
to Sections 2.1, 2.2 or 2.4.
"Code" means the Federal Internal Revenue Code of 1986.
----
-4-
<PAGE>
"Commitment" means, with respect to any Lender, such Lender's
----------
obligations to extend the credits contemplated by Section 2, in the maximum
amount as set forth on Schedule I and as adjusted under Sections 3.5.7, 4.2.1 or
14.
"Commercial Paper Documents" means: (1) the Commercial Paper Dealer
--------------------------
Agreement [3(a)3 Program] to be entered into in June 1999 or shortly thereafter
by and between the Parent, as Issuer, and U.S. Bancorp Investments, Inc., as
Dealer (as amended, modified or supplemented from time to time); (2) the Issuing
and Paying Agency Agreement to be entered into in June 1999 or shortly
thereafter by and between the Parent and U.S. Bank Trust National Association
(as amended, modified, or supplemented from time to time); (3) the Corporate
Commercial Paper - Master Note executed by the Parent (as amended, modified, or
supplemented from time to time); (4) the Letter of Representations addressed to
The Depository Trust Company to be entered into in June 1999 or shortly
thereafter and executed by the Parent, the Issuing Agent and the Paying Agent
(as amended, modified or supplemented from time to time); and (5) any other
document or agreement executed by the Parent pursuant to any of the foregoing.
"Commercial Paper Facility" means the $25,000,000 Senior Unsecured
-------------------------
Revolving Credit Agreement to be entered into in June 1999 or shortly
thereafter, between the Parent and U.S. Bank National Association.
"Consolidated" means, with respect to any Person's accounts, the
------------
accounts of the Person and all of its Subsidiaries, or such of its Subsidiaries
as may be specified, consolidated (or combined) in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or
-----------------------
loss) after taxes for such period of the Parent and its Subsidiaries on a
Consolidated basis, determined in accordance with GAAP.
"Consolidated Net Worth" means, at any reporting date, stockholder's
----------------------
equity (minus the aggregate value of any treasury stock) of the Parent and its
Subsidiaries on a Consolidated basis, determined in accordance with GAAP.
"Converted Principal Amount" is defined in Section 2.3.1.
--------------------------
"Credit Documents" means:
----------------
(a) this Agreement, the Revolving Credit Notes, the Swing Line Note,
each Letter of Credit, each draft presented or accepted under a Letter of Credit
and the Subsidiary Guarantees and the Fee Letter, each as from time in effect;
(b) all financial statements, reports, notices and certificates
delivered to the Agent or any of the Lenders by any Obligor; and
-5-
<PAGE>
(c) any other present or future agreement or instrument from time to
time entered into among the Borrowers, any of their Subsidiaries or any other
Obligor, on one hand, and the Agent or all the Lenders, on the other hand,
relating to, amending or modifying this Agreement or any other Credit Document
referred to above or which is stated to be a Credit Document, each as from time
to time in effect.
"Credit Obligations" means all present and future liabilities,
------------------
obligations and Indebtedness of the Borrowers, any of their Subsidiaries or any
other Obligor owing to the Agent or any Lender (or any Affiliate of a Lender and
including the Issuing Bank) under or in connection with this Agreement or any
other Credit Document, including obligations in respect of principal, interest,
reimbursement obligations under Letters of Credit, fees, Letter of Credit fees,
amounts provided for in Sections 3.2.4, 3.4, 3.5 and 12 and other fees, charges,
indemnities and expenses from time to time owing hereunder or under any other
Credit Document (whether accruing before or after a Bankruptcy Default).
"Credit Participant" is defined in Section 14.2.
------------------
"Current Ratio" means, at any reporting date, total current assets of
-------------
the Parent and its Subsidiaries divided by total current liabilities of the
Parent and its Subsidiaries on a Consolidated Basis, determined in accordance
with GAAP.
"Default" means any Event of Default and any event or condition which
-------
with the passage of time or giving of notice, or both, would become an Event of
Default and the filing against any Obligor of a petition commencing an
involuntary case under the Bankruptcy Code.
"Denver Office" means the principal banking office of Wells Fargo in
-------------
Denver, Colorado.
"Dispute" is defined in Section 21.1.
-------
"Distributions" means, as to any Person, any dividend or distribution
-------------
to its stockholders, partners or members as such.
"Dollar LIBOR Loan" means a Loan that bears interest with reference to
-----------------
the LIBOR Base Rate for United States Dollar deposits.
"EBIT" means, for any period, the sum of (a) Consolidated Net Income
----
for such period (excluding the effect of any extraordinary or non-recurring
gains (including any gain from the sale of property)), plus (b) an amount which,
in the determination of Consolidated Net Income for such period, has been
deducted for (i) Interest Expense for such period, and (ii) total federal,
state, foreign and other income taxes for such period, all as determined in
accordance with GAAP.
-6-
<PAGE>
"EBITDA" means, for any period, the sum of (a) Consolidated Net Income
------
for such period (excluding the effect of any extraordinary or non-recurring
gains (including any gain from the sale of property)), plus (b) an amount which,
in the determination of Consolidated Net Income for such period, has been
deducted for (i) Interest Expense for such period, and (ii) total federal,
state, foreign and other income taxes for such period, and (iii) all
depreciation and amortization for such period, all as determined in accordance
with GAAP. In addition, if (i) the Parent or its Subsidiary makes a Permitted
Acquisition during any fiscal quarter, (ii) the Target becomes a Material
Subsidiary as a result of such Permitted Acquisition, and (iii) the Target's
financial statements for the four fiscal quarters ending at the quarter during
which the Permitted Acquisition occurs (the "Determination Period") are audited
by independent certified public accountants of recognized national standing
reasonably satisfactory to the Agent, then the reported financial results of the
Target for the Determination Period may, at the option of the Borrowers by
notice to the Agent, be included in determining EBITDA for such Determination
Period.
"EMU" means the economic and monetary union as contemplated in the
---
Treaty on European Union.
"EMU Commencement" means January 1, 1999 (the date of commencement of
----------------
the third stage of EMU).
"EMU Legislation" means legislative measures of the European Council
---------------
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the "euro", "euros" or otherwise), being in
part the implementation of the third stage of EMU.
"Environmental Laws" means all applicable federal, state or local
------------------
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment, including OSHA.
"ERISA" means the federal Employee Retirement Income Security Act of
-----
1974.
"ERISA Group Person" means the Parent, any Subsidiary of the Parent and
------------------
any Person which is a member of the controlled group or under common control
with the Parent or any Subsidiary within the meaning of Section 414 of the Code
or section 4001(a)(14) of ERISA.
"ERISA Event" means (a) a Reportable Event with respect to a Plan, (b)
-----------
a withdrawal by an ERISA Group Person from a Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in
Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by an ERISA Group Person from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice of
intent to terminate under Section 4041(c) of
-7-
<PAGE>
ERISA, the treatment of a Plan amendment as a termination under Section 4041 or
4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan or Multiemployer
Plan; or (f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon an ERISA
Group Person.
"Euro" means the single currency of Euro Members of the European Union.
----
"Euro Member" mean each state described as a "participating member
-----------
state" in any EMU Legislation.
"Euro Unit" means the currency unit of Euros.
---------
"Event of Default" is defined in Section 11.1.
----------------
"Federal Funds Rate" means, for any day, the rate (rounded upward to
------------------
the nearest 1/8%) set forth in the weekly statistical release designated as
H.15(519), or any successor publication, published by the Federal Reserve Bank
of New York (including any such successor, "H.15(519)") on the preceding Banking
Day opposite the caption "Federal Funds (Effective"); or, if for any relevant
day such rate is not so published on any such preceding Banking Day, the rate
for such day will be the arithmetic mean as determined by the Agent of the rates
for the last transaction in overnight federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of federal
funds transactions in New York City selected by the Agent.
"Fee Letter" means the letter agreement relating to fees among the
----------
Borrowers and the Agent executed in connection with this Agreement.
"Final Maturity Date" means June 17, 2002 (the day before the third
-------------------
anniversary of Initial Closing Date), or such later date to which the Final
Maturity Date has been extended in accordance with Section 2.6.
"Financial Officer" means the Parent's chief executive officer, chief
-----------------
financial officer, chief operating officer, chairman, president, treasurer or
any of its vice presidents whose primary responsibility is for its financial
affairs, all of whose incumbency and signatures have been certified to the Agent
by the secretary or other appropriate attesting officer of the Parent.
"Foreign Currency" means such currencies other than United States
----------------
Dollars as may be approved by the Lenders in their sole discretion. Each Foreign
Currency must be one (a) that is freely transferable and convertible into United
States Dollars, and (b) in which deposits are generally available to all the
Lenders in the London interbank market.
-8-
<PAGE>
"Funding Liability" means (a) any deposit which was used (or deemed by
-----------------
Section 3.2.6 to have been used) to fund any portion of the Loan subject to a
LIBOR Pricing Option, and (b) any portion of the Loan subject to a LIBOR Pricing
Option funded (or deemed by Section 3.2.6 to have been funded) with the proceeds
of any such deposit.
"GAAP" means generally accepted accounting principles as from time to
----
time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board.
"Governmental Authority" means any federal, state, local, provincial or
----------------------
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantee" means, with respect to a specified Person:
---------
(a) any guarantee by the specified Person of the payment or
performance of, or any contingent obligation by the specified Person in respect
of, any Indebtedness or other obligation of any primary obligor;
(b) any other arrangement whereby credit is extended to a primary
obligor on the basis of any obligation of the specified Person to a creditor or
prospective creditor of such primary obligor, to (i) pay the Indebtedness of
such primary obligor, (ii) purchase an obligation owed by such primary obligor,
(iii) pay for the purchase or lease of assets or services regardless of the
actual delivery thereof or (iv) maintain the capital, working capital, solvency
or general financial condition of such primary obligor;
(c) any liability of the specified Person as a joint venturer whether
imposed as a matter of law or by contract, of a Joint Venture in respect of
Indebtedness of such Joint Venture other than liabilities that are not
classified as liabilities on the Consolidated balance sheet of the Parent and
that are incurred in connection with Joint Ventures entered into by the
Borrowers or their Subsidiaries in the ordinary course of the Borrowers'
business and in a manner consistent with the Borrowers' past practices; and
(d) reimbursement obligations, whether contingent or matured, of the
specified Person with respect to letters of credit, bankers acceptances, other
financial guarantees and interest rate protection agreements;
in each case whether or not any of the foregoing are reflected on the balance
sheet of the specified Person or in a footnote thereto.
"Hazardous Material" means any pollutant, toxic or hazardous material
------------------
or waste, including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of CERCLA or any other Environmental Law or regulated
as toxic or hazardous under RCRA or any other Environmental Law.
-9-
<PAGE>
"Indebtedness" means any of the following items:
------------
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease obligations;
(d) the deferred purchase price of assets or securities, including
related noncompetition and consulting obligations (other than ordinary trade
accounts payable within six months after the incurrence thereof in the ordinary
course of business);
(e) mandatory redemption or dividend rights on capital stock (or
other equity);
(f) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers acceptances, other financial guarantees
and interest rate protection agreements (without duplication of other
Indebtedness supported or guaranteed thereby); and
(g) all Guarantees in respect of Indebtedness of others.
"Indemnified Party" is defined in Section 12.2.
-----------------
"Initial Closing Date" means such date prior to the Final Maturity Date
--------------------
agreed to by the Borrowers and the Agent as the first Closing Date hereunder.
"Insufficiency" means, with respect to any Plan, the amount, if any, of
-------------
its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Expense" means, for any period, total interest expense
----------------
(including the interest component of any Capitalized Leases) of the Parent and
its Subsidiaries, on a Consolidated basis, determined in accordance with GAAP.
"Interest Payment Date" means (a) as to Base Rate Loans, the last day
---------------------
of each calendar quarter and the Final Maturity Date, and (b) as to LIBOR Loans,
the last day of each applicable Interest Period and the Final Maturity Date and
in addition where the applicable Interest Period for a LIBOR Loan is greater
than three months, then also the date three months from the beginning of the
Interest Period and each three months thereafter.
"Interest Period" means, as to LIBOR Loans, a period of one, two, three
---------------
or six months, as the Borrowers may elect, commencing, in each case, on the date
of the borrowing (including continuations and conversions thereof); provided,
--------
however, (a) if any Interest Period would end on a day which is not a Banking
- -------
Day, such Interest Period will be extended to the next succeeding Banking Day
and such extension of time will be included in the computation of interest and
fees (except that where the next succeeding
-10-
<PAGE>
Banking Day falls in the next succeeding calendar month, then on the next
preceding Banking Day), (b) no Interest Period will extend beyond the Final
Maturity Date, and (c) where an Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month in which the Interest
Period is to end, such Interest Period will end on the last Banking Day of such
calendar month.
"Investment" means, with respect to a specified Person:
----------
(a) any share of capital stock, partnership or other equity interest,
evidence of Indebtedness or other security issued by any other Person;
(b) any loan, advance or extension of credit to, or contribution to
the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other Person; and
(d) any Acquisition.
The investments described in the foregoing clauses (a) through (d) are
included in the term "Investment" whether they are made or acquired by purchase,
exchange, issuance of stock or other securities, merger, reorganization or any
other method; provided, however, that the term "Investment" does not include (i)
--------- --------
current trade and customer accounts receivable for property leased, goods
furnished or services rendered in the ordinary course of business and payable in
accordance with customary trade terms, (ii) deposits, advances or prepayments to
suppliers for property leased or licensed, goods furnished and services rendered
in the ordinary course of business, (iii) advances to employees for relocation
and travel expenses, drawing accounts and similar expenditures, (iv) stock or
other securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims due to the specified Person or as security for any such
Indebtedness or claim, or (v) demand deposits in banks or similar financial
institutions.
"Issuing Bank" means Wells Fargo or any successor Agent, in each case
------------
in its capacity as the issuer of a Letter of Credit.
"Joint Venture" means a corporation, partnership, limited liability
-------------
company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) now or hereafter formed
by a Borrower or any of its Subsidiaries with another Person in order to conduct
a common venture or enterprise with such Person.
"Judgment Currency" is defined in Section 22.1.
-----------------
"Judgment Currency Conversion Date" is defined in Section 22.1.
---------------------------------
-11-
<PAGE>
"Key Employee Notes" means (a) notes issued to former employees for the
------------------
purchase price of stock redeemed by the Parent in accordance with the stock
repurchase requirements set forth in the Parent's Bylaws in effect as of the
date of this Agreement, (b) notes issued in the purchase by the Parent of shares
of its common stock under the repurchase rights set forth in the Parent's Bylaws
as proposed to be in effect and attached as Exhibit 9.22, (c) notes issued in
------------
the purchase by the Parent of shares of its common stock on the internal market
to balance the supply and demand for common stock between sellers and buyers,
and (d) notes issued to employees or former employees upon the exercise of (or
in satisfaction of) stock appreciation rights or to pay or satisfy rights under
a phantom stock plan.
"Legal Requirement" means any present or future requirement imposed
-----------------
upon any of the Lenders or any of the Borrowers and their Subsidiaries by any
law, statute, rule, regulation, directive, order, decree, guideline (or any
interpretation thereof by courts or of administrative bodies) of the United
States of America, or any jurisdiction in which any LIBOR Office is located or
any state or political subdivision of any of the foregoing, or by any board,
governmental or administrative agency, central bank or monetary authority of the
United States of America, any jurisdiction in which any LIBOR Office is located,
or any political subdivision of any of the foregoing. Any such requirement
imposed on any of the Lenders not having the force of law will be deemed to be a
Legal Requirement for purposes of Section 3 if such Lender reasonably believes
that compliance therewith is in the best interest of such Lender.
"Lender" means each of the Persons listed as lenders on the signature
------
page hereto, including Wells Fargo in its capacity as a Lender and such other
Persons who may from time to time own a Percentage Interest in the Credit
Obligations, but the term "Lender" will not include any Credit Participant.
"Lending Officer" means such individuals whom the Agent may designate
---------------
by notice to the Parent from time to time as an officer who may receive
telephone requests for borrowings under Section 2.1.3 or 2.2.1.
"Letter of Credit" is defined in Section 2.4.1.
----------------
"Letter of Credit Agreement" means the Issuing Bank's standard letter
--------------------------
of credit application and documentation modified to such extent, if any, as the
Issuing Bank deems necessary.
"LC Available Credit" means the lesser of (i) $60,000,000, or (ii) the
-------------------
Available Credit.
"Letter of Credit Exposure" means, at any date, the sum of (a) the
-------------------------
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, plus (b) the
----
aggregate face amount of all drafts that the Issuing Bank has previously
accepted under Letters of Credit but that the Borrowers have not paid to the
Issuing Bank.
-12-
<PAGE>
"LIBOR Base Rate" means, for any Interest Period, the rate of interest
---------------
at which United States Dollar deposits (in the case of Dollar LIBOR Loans) or
the applicable Foreign Currency deposits (in the case of Multicurrency LIBOR
Loans) in an amount comparable to the portion of the Loan as to which a LIBOR
Pricing Option has been elected and which have a term corresponding to such
Interest Period are offered to the Agent in the London interbank market for
delivery in immediately available funds at a LIBOR Office selected by the Agent
on the first day of such Interest Period as determined by the Agent at
approximately 11:00 a.m. (London time) two Banking Days prior to the date upon
which such Interest Period is to commence (which determination by the Agent
shall, in the absence of manifest error, be conclusive).
"LIBOR Loan" means a Dollar LIBOR Loan or a Multicurrency LIBOR Loan.
----------
"LIBOR Office" means such non-United States office or international
------------
banking facility of any Lender as the Lender may from time to time select.
"LIBOR Pricing Options" means the options granted pursuant to Section
---------------------
3.2.1 to have the interest on any portion of the Loan computed on the basis of a
LIBOR Rate.
"LIBOR Rate" for any Interest Period means the rate, rounded upward to
----------
the next highest 1/16%, obtained by dividing (a) the LIBOR Base Rate for such
Interest Period by (b) an amount equal to 1 minus the LIBOR Reserve Rate;
-----
provided, however, that if at any time during such Interest Period the LIBOR
- -------- -------
Reserve Rate applicable to any outstanding LIBOR Pricing Option changes, the
LIBOR Rate for such Interest Period will automatically be adjusted to reflect
such change, effective as of the date of such change to the extent required by
the Legal Requirement implementing such change.
"LIBOR Reserve Rate" means the stated maximum rate (expressed as a
------------------
decimal) of all reserves (including any basic, supplemental, marginal or
emergency reserve or any reserve asset), if any, as from time to time in effect,
required by any Legal Requirement to be maintained by any Lender against (a)
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System applicable to LIBOR Pricing Options, (b)
any other category of liabilities that includes deposits by reference to which
the interest rate on portions of the Loan subject to LIBOR Pricing Options is
determined, (c) the principal amount of or interest on any portion of the Loan
subject to a LIBOR Pricing Option or (d) any other category of extensions of
credit, or other assets, that includes loans subject to a LIBOR Pricing Option
by a non-United States office of any of the Lenders to United States residents,
in each case without the benefits of credits for prorations, exceptions or
offsets that may be available to a Lender.
"Lien" means, with respect to any specified Person:
----
(a) any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the specified Person,
whether now owned or hereafter acquired, or upon the income or profits
therefrom;
-13-
<PAGE>
(b) the purchase of, or the agreement to purchase, any property or
asset upon conditional sale or subject to any other title retention agreement,
device or arrangement (including a Capitalized Lease); and
(c) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the specified Person, with or
without recourse.
"Loan" means the aggregate principal amount of all Base Rate Loans,
----
LIBOR Loans and Swing Line Loans outstanding from time to time.
"MLA Cost" means an addition to the interest rate on a Multicurrency
--------
LIBOR Loan to compensate a Lender for the cost imputed to a Lender in respect of
any Multicurrency LIBOR Loan made during the term of any Multicurrency LIBOR
Loan resulting from the imposition from time to time under or pursuant to the
Bank of England Act 1998 (the "Act") and/or by the Bank of England and/or the
Financial Services Authority (the "FSA") (or other United Kingdom governmental
authorities or agencies) of a requirement to place non-interest-bearing deposits
or special deposits (whether interest-bearing or not) with the Bank of England
to meet cash ratio requirements and/or pay fees to the FSA calculated by
reference to liabilities used to fund the Multicurrency LIBOR Loan.
"Margin Stock" means "margin stock" within the meaning of Regulation U
------------
of the Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, financial condition, income or prospects of any Borrower (on
an individual or collective basis) or the Parent and its Subsidiaries (on a
Consolidated basis), or (b) the ability of the Obligors collectively to perform
their obligations under the Credit Documents, or (c) the rights and remedies of
the Agent and the Lenders under the Credit Documents.
"Material Subsidiary" means each direct or indirect wholly-owned
-------------------
Subsidiary of the Parent whose gross revenues account for greater than 5% of the
Consolidated annual revenues of the Parent.
"Maximum Amount of Credit" is defined in Section 2.1.2.
------------------------
"Multicurrency Available Credit" means the lesser of (i) the U.S.
------------------------------
Dollar Equivalent of $10,000,000, or (ii) the Available Credit.
"Multicurrency LIBOR Loan" means a Loan made in a Foreign Currency that
------------------------
bears interest with reference to the LIBOR Base Rate for deposits in that
Foreign Currency.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
------------------
4001(a)(3) of ERISA, to which any ERISA Group Person is making or accruing an
-14-
<PAGE>
obligation to make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
"Net Funded Debt" means all Indebtedness of the Parent and its
---------------
Subsidiaries (excluding Key Employee Notes).
"Notes" means the Revolving Credit Notes and the Swing Line Note.
-----
"Notice of Authorized Representatives" is defined in Section 5.
------------------------------------
"Notice of Revolving Credit Advance" is defined in Section 2.1.3.
----------------------------------
"Obligation Currency" is defined in Section 22.1.
-------------------
"Obligor" means each Borrower, each Material Subsidiary and each other
-------
Person guaranteeing or providing collateral for the Credit Obligations.
"OSHA" means the federal Occupational Health and Safety Act.
----
"Parent" means CH2M Hill Companies, Ltd., an Oregon corporation.
------
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
entity.
"Percentage Interest" means (a) at all times when no Event of Default
-------------------
under Section 11.1.1 and no Bankruptcy Default exists, the ratio that the
respective Commitments of the Lenders bears to the total Commitments of all
Lenders as from time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the outstanding Credit
Obligations (including Letter of Credit Exposure) owing to the Lenders in
respect of extensions of credit under Section 2 bear to the total outstanding
Credit Obligations owing to all Lenders.
"Permitted Acquisition" means an Acquisition that meets the following
---------------------
conditions:
(a) The Agent shall receive at least 10 days prior written notice of
any such proposed Permitted Acquisition for which the cash consideration exceeds
$15,000,000;
(b) Such Permitted Acquisition shall only involve assets or businesses
comprising a business, or those assets of a business, substantially of the type
engaged in by the Borrowers as of the date of this Agreement;
(c) Such Permitted Acquisition shall be consensual and shall have been
approved by the Target's board of directors (and stockholders to the extent
required by applicable law);
-15-
<PAGE>
(d) No additional Indebtedness shall be incurred, assumed or otherwise
reflected on the Consolidated balance sheet of the Parent and its Subsidiaries
after giving effect to the Permitted Acquisition, except (i) ordinary course
trade payables and accrued expenses and (ii) other assumed Indebtedness not
incurred in anticipation of the proposed Acquisition, provided that upon the
--------
assumption of such Indebtedness the Borrowers would be in compliance with the
financial covenants set forth in Section 9.4 through 9.7 on a pro forma basis,
and, provided, further, that (A) any purchase money Indebtedness or Capitalized
-------- -------
Leases assumed are secured only by the assets of the Target acquired with the
proceeds of such purchase money Indebtedness or Capitalized Leases, (B) any
Indebtedness secured by Liens on real property is in an outstanding principal
amount not in excess of the fair market value of the real property (except this
restriction shall not apply if the aggregate amount of such Indebtedness secured
by Liens on real property for all Permitted Acquisitions does not exceed
$2,500,000), and (C) no Indebtedness secured by accounts receivable shall be
assumed;
(e) The business and assets of the Target shall be free of Liens,
except Liens permitted in connection with Indebtedness permitted to be assumed
by paragraph (d) of this definition;
(f) All necessary or appropriate third party and government waivers
and consents relating to the Permitted Acquisition have been received; and
(g) Prior to becoming contractually committed to make such Acquisition
for which cash consideration exceeds $15,000,000, the Borrowers shall deliver to
the Agent, pro forma Consolidated financial statements for the Parent and its
Subsidiaries, including the Target, for the four fiscal quarters preceding the
date of the Acquisition, in form satisfactory to the Agent, accompanied by a
certificate of a Financial Officer certifying that after giving effect to such
Acquisition, the Borrowers will be in compliance with the financial covenants
set forth in Section 9.4 through 9.8, and no Default or Event of Default will
exist.
"Person" means any present or future natural person or any corporation,
------
association, partnership, joint venture, limited liability, joint stock or other
company, business trust, trust, organization, business or government or any
governmental agency or political subdivision thereof.
"Plan" means, at any date, any pension benefit plan subject to Title IV
----
of ERISA maintained, or to which contributions have been made or are required to
be made, by any ERISA Group Person within six years prior to such date.
"Pricing Ratio" means, for any period of four consecutive fiscal
-------------
quarters, the ratio of Net Funded Debt as of the last day of such period to
EBITDA for the four fiscal quarters then ended.
"RCRA" means the federal Resource Conservation and Recovery Act, 42
----
U.S.C. (S) 690, et seq.
-- ---
-16-
<PAGE>
"Register" is defined in Section 14.1.3.
--------
"Reportable Event" means an event that is reportable under Section
----------------
4043(c)(1), (2), (3), (4), (5), (6), (7), (10), (11), (12) or (13) of ERISA and
for which a waiver is not available.
"Required Lenders" means, with respect to any approval, consent,
----------------
modification, waiver or other action to be taken by the Agent or the Lenders
under the Credit Documents which require action by the Required Lenders, two or
more Lenders owning together at least 66 2/3% of the Percentage Interests.
"Revolving Credit Loan" means a Loan made by a Lender to the Borrowers
---------------------
pursuant to Section 2.1.
"Revolving Credit Notes" is defined in Section 2.1.4.
----------------------
"San Francisco Office" means the principal banking office of Wells
--------------------
Fargo in San Francisco, California.
"Significant Subsidiary" means each direct or indirect Subsidiary of
----------------------
the Parent (a) of which the Parent owns or controls 80% or more of the issued
and outstanding stock or other ownership interests and (b) which has total
assets as shown on its balance sheet, determined in accordance with GAAP,
exceeding $750,000.
"Solvent" means, with respect to any Person as of a particular date,
-------
that on such date (a) such Person is able to pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business, (b) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature in their ordinary course, (c) such
Person is not engaged in a business or a transaction, and is not about to engage
in a business or a transaction, for which such Person's assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged or is to engage, (d)
the fair value of the assets of such Person is greater than the total amount of
liabilities including, without limitation, contingent liabilities, of such
Person, and (e) the present saleable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and mature. In computing the amount
of contingent liabilities at any time, it is intended that such liabilities are
to be computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subsidiary" means any subsidiary required by GAAP to be included in
----------
the consolidated financial reporting of the Parent (or other specified Person).
"Subsidiary Guarantees" is defined in Section 6.
---------------------
-17-
<PAGE>
"Swing Line Available Credit" means the lesser of (i) $10,000,000, or
---------------------------
(ii) the Swingline Lender's Percentage Interest of the Available Credit.
"Swing Line Commitment" means the Swing Line Lender's obligations to
---------------------
extend the Swing Line Loan.
"Swing Line Lender" means Wells Fargo.
-----------------
"Swing Line Loan" means a Loan made by the Swing Line Lender pursuant
---------------
to Section 2.2.
"Swing Line Note" is defined in Section 2.2.2.
---------------
"Target" means any Person that a Borrower proposes to acquire by
------
merger, stock purchase or by the purchase of all or substantially all of its
assets.
"Tax" means any present or future tax, levy, duty, impost, deduction,
---
withholding or other charges of whatever nature at any time required by any
Legal Requirement (a) to be paid by any Lender or (b) to be withheld or deducted
from any payment otherwise required hereby to be made to any Lender, in each
case on or with respect to its obligations hereunder, the Loan, any payment in
respect of the Credit Obligations or any Funding Liability not included in the
foregoing; provided, however, that the term "Tax" shall not include taxes
-------- -------
imposed upon or measured by the net income of such Lender (other than
withholding taxes).
"Total Commitment" means the total of all Commitments.
----------------
"Total Funded Debt" means all Indebtedness of the Parent and its
-----------------
Subsidiaries, including Key Employee Notes.
"Treaty on European Union" means the Treaty of Rome of March 25, 1957,
------------------------
a amended by the Single European Act of 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on November 1,
1993, as amended from time to time).
"United States Dollars" means lawful currency of the United States of
---------------------
America.
"Unused Line Percentage" means a percentage per annum determined by the
----------------------
Pricing Ratio for the preceding fiscal quarter, determined in accordance with
the following table:
-18-
<PAGE>
Pricing Ratio Unused Line Fee
------------- ---------------
Greater than 3.50 .400%
Greater than 3.00 less than or equal to 3.50 .350%
Greater than 2.50 less than or equal to 3.00 .300%
Greater than 1.50 less than or equal to 2.50 .250%
Less than or equal to 1.50 .250%
"U.S. Dollar Equivalent" means the amount of Dollars that would be
----------------------
realized by converting a Foreign Currency into United States Dollars at
approximately 11:00 a.m. (London time), at the conversion rate or exchange rate
as set forth on the applicable Telerate Screen, on the date of determination;
provided that if more than one rate is listed then the applicable conversion
rate shall be the arithmetic average of such rates. If for any reason such
conversion rates are not available, the U.S. Dollar Equivalent shall be
calculated using the arithmetic average of the spot buying rates for such
Foreign Currency in United States Dollars as quoted to the Agent by three
foreign exchange dealers of recognized standing in the United States selected by
the Agent at approximately 11:00 a.m. (London time) on any date of
determination.
"Wells Fargo" means Wells Fargo Bank, National Association (or any
-----------
successor thereto).
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
--------------------
E of Title IV of ERISA.
"Year 2000 Compliance" means that all material computer systems and
--------------------
programs (a) are designed to be used prior to, during and after the calendar
year 2000 AD without error relating to date data; (b) are capable of operating
without error relating to the production of date data which represents or refers
to different centuries or more than one century; and (c) are designed so that
all data fields, date-related user interfaces, and other interfaces include the
indication of century, and "Year 2000 Compliant" will have a corresponding
meaning.
2. The Credits.
-----------
2.1 Revolving Credit.
----------------
2.1.1 Revolving Credit Loans. Subject to all terms and
----------------------
conditions of this Agreement and so long as no Default exists, from
time to time on and after the Initial Closing Date and prior to the
Final Maturity Date, the Lenders will, severally in accordance with
their respective Commitments, make Revolving Credit Loans to the
Borrowers, in United States Dollars or a Foreign Currency, as
applicable, in such amounts as may be requested by the Parent in
accordance with Section 2.1.3. The sum of (a) the aggregate outstanding
principal amount of the Revolving Credit Loans plus (b) the outstanding
----
principal amount of all Swing Line Loans plus (c) the Letter of Credit
Exposure, will not exceed the Maximum Amount of Credit. The outstanding
principal amount of Loans made by any
-19-
<PAGE>
Lender will not exceed the Lender's Commitment. The aggregate
outstanding principal amount of Multicurrency LIBOR Loans will not
exceed the Multicurrency Available Credit.
2.1.2 Maximum Amount of Credit. The term "Maximum Amount of
------------------------ -----------------
Credit" means the lesser of (a) $100,000,000 (or such greater amount
------
to which the Maximum Amount of Credit has been increased in accordance
with Section 2.7), or (b) the amount to which the Total Commitment has
been permanently reduced pursuant to Section 4.2.1.
2.1.3 Borrowing Requests. The Parent, on behalf of the
------------------
applicable Borrower, may from time to time request a Revolving Credit
Loan under
Section 2.1.1 by providing to the Agent a notice (which may be given
by a telephone call from an Authorized Representative received by a
Lending Officer if promptly confirmed in writing) ("Notice of
Revolving Credit Advance"). Such Notice of Revolving Credit Advance
must be not later than 11:00 a.m. (Denver time) on the first Banking
Day (third Banking Day if any portion of such Revolving Credit Loan
shall be a Dollar LIBOR Loan and the fourth Banking Day if any portion
of such Revolving Credit Loan shall be a Multicurrency LIBOR Loan)
prior to the requested Closing Date for such Revolving Credit Loan.
The notice must specify (a) the amount of the requested Revolving
Credit Loan, (b) the name of the applicable Borrower, (c) whether the
requested Revolving Credit Loan will be a Dollar LIBOR Loan, a
Multicurrency LIBOR Loan (and the applicable Foreign Currency) or a
Base Rate Loan, (d) with respect to LIBOR Loans, the Interest Period,
and (e) the requested Closing Date therefor (which will be a Banking
Day). Each Base Rate Loan will be at least $500,000 and an integral
multiple of $100,000. Each Dollar LIBOR Loan will be at least
$3,000,000 and an integral multiple of $1,000,000. Each Multicurrency
LIBOR will be at least the U.S. Dollar Equivalent of $500,000 and an
integral multiple of the U.S. Dollar Equivalent of $100,000. Upon
receipt of such Notice of Revolving Credit Advance, the Agent will
promptly inform each other Lender (by telephoning or otherwise). In
connection with each Revolving Credit Loan, the Parent will furnish to
the Agent a certificate in substantially the form of Exhibit 8.2.1.
-------------
2.1.4 Revolving Credit Notes. The Agent will keep a record of
----------------------
the Revolving Credit Loan. Each Revolving Credit Loan will be deemed
owed to each Lender severally in accordance with such Lender's
Percentage Interest, and all payments will be for the account of each
Lender in accordance with its Percentage Interest. The Borrower's
obligations to pay each Lender's Percentage Interest in the Revolving
Credit Loan will be evidenced by a separate note of the Borrowers in
substantially the form of Exhibit 2.1.4 (the "Revolving Credit Notes"),
------------- ----------------------
payable to each Lender in accordance with such Lender's Percentage
Interest in the Revolving Credit Loan.
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<PAGE>
2.1.5 Lender Funding and Disbursement. Each Lender will, before
-------------------------------
10:00 a.m. (Denver time) on the date of each borrowing under Section
2.1.1. make available to the Agent at the Denver Office (or, at the
request of the Agent, in the case of a Multicurrency LIBOR Loan
advance, at such bank as the Agent may designate to the Lenders) by
deposit, in United States Dollars or the applicable Foreign Currency,
in same day or immediately available funds, such Lender's Percentage
Interest thereof. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Section 8, the
Agent will promptly disburse such funds in same day or immediately
available funds in the applicable Foreign Currency in the case of
Multicurrency LIBOR Loans, and in United States Dollars in the case of
all other Loans, to the Borrowers. Each Revolving Credit Loan will be
made at the Denver Office by depositing the amount thereof to the
general account of the Parent with the Agent.
2.1.6 Continuations and Conversions. The Borrowers will have
-----------------------------
the option, on any Banking Day, to continue existing LIBOR Loans for a
subsequent Interest Period, to convert Base Rate Loans into LIBOR
Loans or to convert LIBOR Loans into Base Rate Loans; provided,
however, that (i) LIBOR Loans may only be continued or converted into
Base Rate Loans on the last day of the applicable Interest Period,
(ii) LIBOR Loans may not be continued nor may Base Rate Loans be
converted into LIBOR Loans during the existence of a Default, and
(iii) any request to continue a LIBOR Loan that fails to comply with
the terms hereof including the time periods in 2.1.3 or any failure to
request a continuation of a LIBOR Loan at the end of an Interest
Period shall constitute a conversion to a Base Rate Loan on the last
day of the Interest Period.
2.1.7 Lenders' Obligations to Fund. Unless the Agent has
----------------------------
received notice from a Lender prior to the date of any Revolving Credit
Loan that such Lender will not make available to the Agent the Lender's
Percentage Interest of the Revolving Credit Loan, the Agent may assume
that the Lender has made its Percentage Interest available to the Agent
on the date of the Revolving Credit Loan n accordance with Section
2.1.5, and the Agent may, in reliance upon such assumption, make
available to the Borrowers a corresponding amount. If and to the extent
that a Lender has not made its Percentage Interest available to the
Agent, such Lender and the Borrowers severally agree to repay or pay to
the Agent forthwith upon demand the corresponding amount and to pay
interest thereon, for each day from the date the amount is made
available to the Borrowers until the date such amount is repaid or paid
to the Agent, at (i) in the case of the Borrowers, the interest rate
applicable at such time under Section 3.1 to such Revolving Credit
Loan, and (ii) in the case of the Lender, the Federal Funds Rate for
the first two Banking Days and the Base Rate thereafter.
2.1.8 Lenders' Obligations Several. The obligation of each
----------------------------
Lender hereunder is several. The failure of any Lender to make
available its Percentage Interest of any borrowing will not relieve any
other Lender of its obligation
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<PAGE>
hereunder to do so on the date requested, but no Lender will be
responsible for the failure of any other Lender to make available the
Percentage Interest to be funded by such other Lender.
2.2 Swing Line.
----------
2.2.1 Swing Line Loans. In lieu of making Revolving Credit
----------------
Loans, the Swingline Lender may, in its sole discretion, on the terms
and subject to the conditions of this Agreement, make available to the
Borrowers, from time to time until the Final Maturity Date, Swing Line
Loans. The aggregate outstanding principal amount of all Swing Line
Loans will not exceed the Swing Line Available Credit. Until the Final
Maturity Date, the Borrowers may from time to time borrow, repay and
reborrow under this Section 2.2.1. Each Swing Line Loan will be made
upon telephonic notice from the Parent to the Swing Line Lender on the
date of receipt of such telephonic notice if such day is a Banking Day
and if such notice is received before 11:00 a.m. (Denver time), or if
received after 11:00 a.m. (Denver time), such Swing Line Loan shall be
made on the next Banking Day. Notwithstanding any other provision of
this Agreement or the other Credit Documents, each Swing Line Loan will
constitute a Base Rate Loan. The Borrowers will repay the aggregate
outstanding principal amount of the Swing Line Loan upon demand by the
Agent. Each Swing Line Loan will be made at the Denver Office by
depositing the amount thereof in United States Dollars to the general
account of the Parent with the Agent. In connection with each such
Loan, the Parent will furnish to the Agent a certificate in
substantially the form of Exhibit 8.2.1.
-------------
2.2.2 Swing Line Note. The Swing Line Commitment will be
---------------
evidenced by a single master promissory note, in the principal amount
of $10,000,000, dated the Initial Closing Date and substantially in
the form of Exhibit 2.2.2 (the "Swing Line Note"). Each Borrower shall
------------- ---------------
execute the Swing Line Note and deliver the same to the Agent on
behalf of the Swing Line Lender. The Swing Line Note will represent
the obligation of each Borrower to pay the amount of the aggregate
unpaid principal amount of all Swing Line Loans made to the Borrowers
together with interest thereon as provided in Section 2.2.1. The
entire unpaid balance of the Swing Line Loan and all other
non-contingent Credit Obligations shall be immediately due and payable
in full in immediately available funds on the Final Maturity Date if
not sooner paid in full.
2.2.3 Refunding of Swing Line Loans. The Swing Line Lender, at
-----------------------------
any time and from time to time in its sole and absolute discretion
will, but not less frequently than weekly, on behalf of any Borrower
(and each Borrower hereby irrevocably authorizes the Swing Line Lender
to so act on its behalf), request each Lender (including the Swing
Line Lender) to make a Revolving Credit Loan to such Borrower (which
shall be a Base Rate Loan) in an amount equal to such Lender's
Percentage Interest of the principal amount of such Borrower's Swing
-22-
<PAGE>
Line Loan (the "Refunded Swing Line Loan") outstanding on the date such notice
is given. Unless a Bankruptcy Default exists (in which event the procedures of
Section 2.2.4 will apply) and regardless of whether the conditions precedent set
forth in this Agreement to the making of a Revolving Credit Loan are then
satisfied, each Lender will disburse directly to the Agent, its Percentage
Interest of the Revolving Credit Loan, prior to 12:00 noon (Denver time), in
immediately available funds on the Banking Day next succeeding the date such
notice is given. The proceeds of such Revolving Credit Loans shall be
immediately paid to the Swing Line Lender and applied to repay the Refunded
Swing Line Loan of the applicable Borrower, as requested by the Swing Line
Lender.
2.2.4 Participation in Swing Line Loans. If, prior to refunding a Swing
---------------------------------
Line Loan with a Revolving Credit Loan pursuant to Section 2.2.3, a Bankruptcy
Default exists, then each Lender shall, on the date such Revolving Credit Loan
was to have been made for the benefit of the applicable Borrower, purchase from
the Swing Line Lender an undivided participation interest in the Swing Line
Loan. Upon request, each Lender shall promptly transfer to the Swing Line
Lender, in immediately available funds, the amount of its participation.
2.2.5 Lender's Funding Obligations. Each Lender's obligation to make
----------------------------
Revolving Credit Loans in accordance with Section 2.2.3 and to purchase
participating interests in accordance with Section 2.2.4 shall not be affected
by any setoff, counterclaim, recoupment, defense or other right which such
Lender may have against the Agent, the Swing Line Lender, any Borrower or any
other Person for any reason whatsoever. If any Lender does not make available to
the Swing Line Lender the amount required pursuant to Section 2.2.3 or 2.2.4, as
the case may be, the Swing Line Lender shall be entitled to recover such amount
on demand from such Lender, together with interest thereon for each day from the
date of nonpayment until such amount is paid in full at the Federal Funds Rate
for the first two Banking Days and at the Base Rate thereafter.
2.3 Currency Equivalents for Multicurrency LIBOR Loans.
--------------------------------------------------
2.3.1 Conversion Rate for Multicurrency LIBOR Loans. The principal amount
---------------------------------------------
of each Multicurrency LIBOR Loan which is denominated in a Foreign Currency (a)
will be converted into its U.S. Dollar Equivalent on the date of the funding of
such Multicurrency LIBOR Loan (the "Converted Principal Amount"), and the
Converted Principal Amount will be added to the principal balance outstanding
under the Revolving Credit Notes on the date of the funding of such
Multicurrency LIBOR Loan, and (b) from and after any such date, will be deemed
to remain equivalent to the Converted Principal Amount until the end of the
applicable Interest Period notwithstanding any fluctuation in exchange rates
occurring thereafter.
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<PAGE>
2.3.2 Revaluation. If at the expiration of an Interest Period for a
-----------
Multicurrency LIBOR Loan, the Multicurrency LIBOR Loan will remain denominated
in the same Foreign Currency for a succeeding Interest Period, then the
principal amount of such Multicurrency LIBOR Loan will be revalued based on the
U.S. Dollar Equivalent as of the Banking Day preceding the next Interest Period.
2.4 Letters of Credit.
-----------------
2.4.1 Issuance of Letters of Credit. Subject to all terms and conditions
-----------------------------
of this Agreement and so long as no Default exists, from time to time on and
after the Initial Closing Date and prior to the Final Maturity Date, the Issuing
Bank will issue for the account of the Borrowers standby and documentary letters
of credit (the "Letters of Credit"). The Letter of Credit Exposure plus the Loan
-----------------
will not exceed the Maximum Amount of Credit. The Letter of Credit Exposure will
not exceed the LC Available Credit.
2.4.2 Requests for Letters of Credit. The Parent, on behalf of the
------------------------------
applicable Borrower, may from time to time request a Letter of Credit to be
issued by providing a notice from an Authorized Representative to the Issuing
Bank which is actually received not less than one Banking Day prior to the
requested Closing Date for such Letter of Credit specifying (a) the amount of
the requested Letter of Credit, (b) the applicable Borrower, (c) the beneficiary
thereof, (d) the requested Closing Date, and (e) the principal terms of the text
for such Letter of Credit. Each Letter of Credit will be issued by forwarding it
to the applicable Borrower or to such other Person as directed in writing by an
Authorized Representative of the Parent. In connection with the issuance of any
Letter of Credit, the Parent shall deliver to the Issuing Bank a certificate in
substantially the form of Exhibit 2.4.2 and a Letter of Credit Agreement signed
-------------
by the applicable Borrower, and such other documents or items as the Issuing
Bank may require pursuant to the terms thereof.
2.4.3 Form and Expiration of Letters of Credit. Each Letter of Credit
----------------------------------------
issued under this Section 2.4 and each draft accepted or paid under such a
Letter of Credit will be issued, accepted or paid, as the case may be, by the
Issuing Bank at its principal office. No Letter of Credit will provide for the
payment of drafts drawn thereunder, and no draft will be payable, at a date
which is later than the earlier of (a) the date one year after the date of
issuance, or (b) the Final Maturity Date. Each Letter of Credit and each draft
accepted under a Letter of Credit will be in such form and minimum amount, and
will contain such terms, as the Issuing Bank and the applicable Borrower may
agree upon at the time such Letter of Credit is issued, including a requirement
of not less than three Banking Days after presentation of a draft before payment
must be made thereunder.
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<PAGE>
2.4.4 Lenders' Participation in Letters of Credit. Upon the issuance of
-------------------------------------------
any Letter of Credit, a participation therein, in an amount equal to each
Lender's Percentage Interest in the Loan, will automatically be deemed granted
by the Issuing Bank to each Lender on the date of such issuance and the Lenders
will automatically be obligated, as set forth in Section 13.4, to reimburse the
Issuing Bank to the extent of their respective Percentage Interests in the Loan
for all obligations incurred by the Issuing Bank to third parties in respect of
such Letter of Credit not reimbursed by the Borrowers. The Agent will send to
each Lender a confirmation regarding the participations in Letters of Credit
outstanding during each month.
2.4.5 Presentation. The Issuing Bank may accept or pay any draft presented
------------
to it, regardless of when drawn, if such draft, the other required documents and
any transmittal advice are presented to the Issuing Bank and dated on or before
the expiration date of the Letter of Credit under which such draft is drawn.
Except insofar as written instructions actually received are given by the
applicable Borrower expressly to the contrary with regard to, and prior to, the
Issuing Bank's issuance of any Letter of Credit for the account of the
applicable Borrower and such contrary instructions are reflected in such Letter
of Credit, the Issuing Bank may honor as complying with the terms of the Letter
of Credit and with this Agreement any drafts or other documents otherwise in
order signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for benefit of creditors, liquidator,
receiver or other legal representative of the party authorized under such Letter
of Credit to draw or issue such drafts or other documents.
2.4.6 Payment of Drafts. At such time as the Issuing Bank makes any
-----------------
payment on a draft presented or accepted under a Letter of Credit, the Borrowers
shall on demand pay to the Issuing Bank in immediately available funds the
amount of such payment. Unless the Borrowers otherwise pay to the Issuing Bank
the amount required by the foregoing sentence, such amount shall be considered a
Revolving Credit Loan under Section 2.1.1 and part of the Loan as if the
Borrowers had paid in full the amount required with respect to the Letter of
Credit by borrowing such amount under Section 2.1.1. In that event, the Issuing
Bank shall notify each other Lender that the Lender is to make a Revolving
Credit Loan to the Borrowers (which shall be a Base Rate Loan) in an amount
equal to the Lender's Percentage Interest of the principal amount of such
Revolving Credit Loan; and, regardless of whether the conditions precedent set
forth in this Agreement to the making of a Revolving Credit Loan are then
satisfied, each Lender (other than the Issuing Bank) will disburse directly to
the Issuing Bank, its Percentage Interest of the Revolving Credit Loan, prior to
12:00 noon (Denver time), in immediately available funds on the Banking Day next
succeeding the date such notice is given. The proceeds of such Revolving Credit
Loan shall be applied to repay the amount required by the first sentence of this
Section.
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<PAGE>
2.4.7 Subrogation. Upon any payment by the Issuing Bank under any
-----------
Letter of Credit and until the reimbursement of the Issuing Bank by the
Borrowers with respect to such payment, the Issuing Bank will be entitled
to be subrogated to, and to acquire and retain, the rights which the Person
to whom such payment is made may have against the Borrowers, all for the
benefit of the Lenders. The Borrowers will take such action as the Issuing
Bank may reasonably request, including requiring the beneficiary of any
Letter of Credit to execute such documents as the Issuing Bank may
reasonably request, to assure and confirm to the Issuing Bank such
subrogation and such rights, including the rights, if any, of the
beneficiary to whom such payment is made in accounts receivable, inventory
and other properties and assets of any Obligor.
2.4.8 Modification, Consent, Etc. If the Borrowers request or
--------------------------
consent in writing to any modification or extension of any Letter of
Credit, or waive any failure of any draft, certificate or other document to
comply with the terms of such Letter of Credit, and if the Issuing Bank
consents thereto, the Issuing Bank will be entitled to rely on such
request, consent or waiver. This Agreement will be binding upon the
Borrowers with respect to such Letter of Credit as so modified or extended,
and with respect to any action taken or omitted by the Agent or the Issuing
Bank pursuant to any such request, consent or waiver.
2.5 Application of Proceeds.
-----------------------
2.5.1 Loan. The Borrowers will apply the proceeds of the Loan for
----
general corporate purposes and Permitted Acquisitions.
2.5.2 Letters of Credit. Letters of Credit will be issued only for
-----------------
such lawful corporate purposes in the Borrowers' ordinary course of
business as the Parent has requested in writing.
2.5.3 Specifically Prohibited Applications. The Borrowers will not,
------------------------------------
directly or indirectly, apply any part of the proceeds of any extension of
credit made pursuant to the Credit Documents (a) to purchase or to carry
Margin Stock or (b) to any transaction prohibited by Legal Requirements or
by the Credit Documents.
2.6 Option to Extend Final Maturity Date. So long as no Default exists,
------------------------------------
the Borrowers may request, by notice to the Lenders on either the first or
second anniversary of the date of this Agreement, that the Final Maturity Date
be extended for an additional one year period. The Lenders will provide a
written response to the Borrowers not later than 60 days after receipt of such
request. In no event will the Final Maturity Date be extended without the
consent of each of the Lenders, and any Lender which fails to respond is deemed
to have denied the request for extension of the Final Maturity Date. In the
event the Lenders offer to extend the Final Maturity Date pursuant to this
Section 2.6, the Borrowers may accept such offer by written notice
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<PAGE>
received by the Agent not later than 30 days after receipt by the Borrowers of
such offer.
2.7 Option to Increase Maximum Amount of Credit. So long as no Default
-------------------------------------------
exists, if the Commercial Paper Facility is terminated at the request of the
Borrowers, the Borrowers may request, by notice to the Lenders, at least one
year prior to the Final Maturity Date, that the Maximum Amount of Credit be
increased by $25,000,000. The Lenders will provide a written response to the
Borrowers not later than 30 days after receipt of such request and may condition
their agreement to such request upon the Agent's ability to find an additional
Lender or Lenders for the amount of the increase in the Maximum Amount of
Credit. In no event will the Maximum Amount of Credit be increased without the
consent of each of the Lenders, and no Lender shall be required to increase such
Lender's Commitment, whether or not such Lender consents to the increase of the
Maximum Amount of Credit. The effectiveness of any such increase in the Maximum
Amount of Credit shall be subject to the execution of such additional promissory
notes and other Credit Documents or amendments to existing Credit Documents and
payment of such additional fees, including without limitation, amendment fees
provided for in the Fee Letter as the Agent may reasonably request.
3. Interest; LIBOR Pricing Options; Fees; Changes in Circumstance, Yield
---------------------------------------------------------------------
Protection.
- ----------
3.1 Interest. The Loan will accrue and bear interest at a rate per
--------
annum which will at all times equal the Applicable Rate. Any Multicurrency LIBOR
Loan will have added to such Loan the MLA Cost associated with such Loan. Prior
to any stated or accelerated maturity of the Loan, the Borrowers will, on each
Interest Payment Date applicable to Base Rate Loans, pay the accrued and unpaid
interest on all Base Rate Loans. On each Interest Payment Date applicable to a
LIBOR Loan, or on any earlier termination of any LIBOR Pricing Option applicable
to such LIBOR Loan, the Borrowers will pay the accrued and unpaid interest on
the portion of the Loan which was subject to the applicable LIBOR Pricing
Option. On the conversion of a LIBOR Loan to a Base Rate Loan or the conversion
of a Base Rate Loan to a LIBOR Loan, the Borrowers will pay the accrued and
unpaid interest on the portion of the Loan which is being converted. On the
stated or any accelerated maturity of the Loan, the Borrowers will pay all
accrued and unpaid interest on the Loan, including any accrued and unpaid
interest on any portion of the Loan which is subject to a LIBOR Pricing Option.
All payments of interest will be made in the applicable Foreign Currency, in the
case of Multicurrency LIBOR Loans, and in United States Dollars, in the case of
all other Loans, in same day or immediately available funds, not later than
12:00 noon (Denver time) on the due date to the Agent at the Denver Office for
the account of each Lender in accordance with such Lender's Percentage Interest;
provided, however, that at the request of the Agent, payments of interest on
- -------- -------
Multicurrency LIBOR Loans will be made in the applicable Foreign Currency in
immediately available funds to such account at such bank as the Agent may
designate to the Parent, no later than 12:00 noon (local time in the place where
such bank is located) on the due date.
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<PAGE>
3.2 LIBOR Pricing Options.
---------------------
3.2.1 Election of LIBOR Pricing Options. Subject to all of the terms and
---------------------------------
conditions hereof and so long as no Default exists, the Borrowers may from time
to time, by irrevocable notice given by an Authorized Representative to the
Agent actually received not less than three Banking Days prior to the
commencement of the Interest Period selected in such notice, elect to have such
portion of the Loan as the Parent may specify in such notice accrue and bear
interest during the Interest Period so selected at the Applicable Rate computed
on the basis of the LIBOR Rate. In the event the Borrowers at any time fail to
elect a LIBOR Pricing Option under this Section 3.2.1 for any portion of the
Loan, then such portion of the Loan will accrue and bear interest at the Base
Rate. No election of a LIBOR Pricing Option will become effective:
(a) if, prior to the commencement of any such Interest Period, the
Agent determines that (i) as a result of the adoption of or change in any Legal
Requirement or in the interpretation or application thereof after the Initial
Closing Date, the electing or granting of the LIBOR Pricing Option in question
would be illegal, (ii) LIBOR deposits in an amount comparable to the principal
amount of the Loan as to which such LIBOR Pricing Option has been elected and
which have a term corresponding to the proposed Interest Period are not readily
available in the London interbank market, (iii) by reason of circumstances
affecting the London interbank market, adequate and reasonable methods do not
exist for ascertaining the interest rate applicable to such deposits for the
proposed Interest Period, or (iv) Loans cannot be made in the applicable Foreign
Currency; or
(b) if any Lender has advised the Agent by telephone or otherwise
at or prior to 11:00 a.m. (Denver time) on the second Banking Day prior to the
commencement of such proposed Interest Period (and has subsequently confirmed in
writing) that, after reasonable efforts to determine the availability of such
LIBOR deposits, such Lender reasonably anticipates that LIBOR deposits in an
amount equal to the Percentage Interest of such Lender in the portion of the
Loan as to which such LIBOR Pricing Option has been elected and which have a
term corresponding to the Interest Period in question will not be offered in the
London interbank market to such Lender at a rate of interest that does not
exceed the anticipated LIBOR Base Rate (unless the foregoing results from a
deterioration subsequent to the date hereof in the creditworthiness of such
Lender or a change in the availability of LIBOR markets to such Lender pursuant
to legal or regulatory restrictions).
If such notice is given in connection with (a) or (b) above, (i) any LIBOR
Loans requested to be made on the first day of such Interest Period shall
be made as Base Rate Loans, (ii) any Loans that were to have been converted
on the first day of such Interest Period to or continued as LIBOR Loans
shall be
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<PAGE>
converted to or continued as Base Rate Loans, and (iii) any outstanding LIBOR
Loans shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further LIBOR Loans
shall be made or continued as such, nor shall the Borrowers have the right to
convert Base Rate Loans to LIBOR Loans. If such notice is given in connection
with any request for a Multicurrency LIBOR Loan, the requested Loan shall be
made in United States Dollars.
3.2.2 Notice to Lenders and Borrowers. The Agent will promptly inform each
-------------------------------
Lender (by telephone or otherwise) of each notice received by it from the Parent
pursuant to Section 3.2.1 and of the Interest Period specified in such notice.
Upon determination by the Agent of the LIBOR Rate for such Interest Period or in
the event such election will not become effective, the Agent will promptly
notify the Parent and each Lender (by telephone or otherwise) of the LIBOR Rate
so determined or why such election did not become effective, as the case may be.
3.2.3 Selection of Interest Periods for LIBOR Loans. Interest Periods will
---------------------------------------------
be selected so that:
(a) no more than 12 LIBOR Pricing Options will be outstanding at
any time;
(b) no more than three Multicurrency LIBOR Loans will be
outstanding at any time; and
(c) no Interest Period will expire later than the Final Maturity
Date.
3.2.4 Additional Interest. If any LIBOR Loan is repaid, or any LIBOR
-------------------
Pricing Option is terminated for any reason (including acceleration of
maturity), on a date which is prior to the last Banking Day of the Interest
Period applicable to such LIBOR Pricing Option, the Borrowers will pay to the
Agent for the account of each Lender in accordance with such Lender's Percentage
Interest, in addition to any interest otherwise payable hereunder, an amount
equal to the present value (calculated in accordance with this Section 3.2.4) of
interest for the unexpired portion of such Interest Period on the portion of the
Loan so repaid, or as to which a LIBOR Pricing Option was so terminated, at a
per annum rate equal to the excess, if any, of (a) the rate applicable to such
LIBOR Pricing Option minus (b) the rate of interest obtainable by the Agent upon
-----
the purchase of debt securities customarily issued by the Treasury of the United
States of America which have a maturity date approximating the last Banking Day
of such Interest Period. The present value of such additional interest will be
calculated by discounting the amount of such interest for each day in the
unexpired portion of such Interest Period from such day to the date of such
repayment or termination at a per annum interest rate equal to the interest rate
determined pursuant to
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<PAGE>
clause (b) of the preceding sentence, and by adding all such amounts for all
such days during such period. The determination by the Agent of such amount of
interest will, in the absence of manifest error, be conclusive. For purposes of
this Section 3.2.4, if any portion of the Loan which was to have been subject to
a LIBOR Pricing Option is not outstanding on the first day of the Interest
Period applicable to such LIBOR Pricing Option other than for reasons described
in Section 3.2.1, the Borrowers will be deemed to have terminated such LIBOR
Pricing Option.
3.2.5 Violation of Legal Requirements. If the adoption of or change in any
-------------------------------
Legal Requirement or in the interpretation or application thereof applicable to
any Lender after the Initial Closing Date prevents any Lender from funding or
maintaining through the purchase of deposits in the London interbank market any
portion of the Loan subject to a LIBOR Pricing Option or otherwise from giving
effect to such Lender's obligations as contemplated by Section 3.2, (a) the
Agent may by notice to the Borrowers terminate all of the affected LIBOR Pricing
Options, (b) the portion of the Loan subject to such terminated LIBOR Pricing
Options shall immediately bear interest thereafter at the Applicable Rate
computed on the basis of the Base Rate, and (c) the Borrowers shall make any
payment required by Section 3.2.4.
3.2.6 Funding Procedure. The Lenders may fund any portion of the Loan
-----------------
subject to a LIBOR Pricing Option out of any funds available to the Lenders.
Regardless of the source of the funds actually used by any of the Lenders to
fund any portion of the Loan subject to a LIBOR Pricing Option, however, all
amounts payable hereunder, including the interest rate applicable to any such
portion of the Loan and the amounts payable under Sections 3.2.4 and 3.5, will
be computed as if each Lender had actually funded such Lender's Percentage
Interest in such portion of the Loan through the purchase of deposits in such
amount of the type by which the LIBOR Base Rate was determined, with a maturity
the same as the applicable Interest Period relating thereto and through the
transfer of such deposits from an office of the Lender having the same location
as the applicable LIBOR Office to one of such Lender's offices in the United
States of America.
3.3 Fees.
----
3.3.1 Unused Line Fee. In consideration of the Lenders' Commitments to
---------------
make the extensions of credit provided for in Section 2, while such Commitments
are outstanding, the Borrowers shall pay the Agent for the account of the
Lenders in accordance with the Lenders' respective Commitments, in arrears on
the last Banking Day of each calendar quarter, for the period from the date of
this Agreement to the Final Maturity Date, an unused line fee equal to the
Unused Line Percentage of the average Available Credit, calculated daily, during
such calendar quarter or portion thereof. Payment shall be made by automatic
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deduction from the Parent's general account with the Agent, and the Agent
will notify the Parent of the amount of the fee.
3.3.2 Letter of Credit Fees. The Borrowers shall pay to the Agent
---------------------
for the benefit of the Lenders a Letter of Credit issuance fee (which shall
be non-refundable even if any Letter of Credit is terminated or canceled
before its stated expiration date) equal to (i) the face amount of each
standby Letter of Credit multiplied by 1.0% per annum applied for a period
equal to the term of such Letter of Credit, and (ii) the face amount of
each documentary Letter of Credit multiplied by .25% per annum applied for
a period equal to the term of such Letter of Credit. The issuance fees
shall be payable in advance upon issuance of each Letter of Credit and on
each anniversary of the issuance. The Borrowers will pay to the Issuing
Bank, for its own account, fees upon the occurrence of certain activity
with respect to any Letter of Credit, including, without limitation, the
transfer, cancellation or amendment of any Letter of Credit, determined in
accordance with the Issuing Bank's standard fees and charges then in
effect.
3.3.3 Administrative Fees. The Borrowers agree to pay to the Agent,
-------------------
for its own account, the fees in accordance with the terms of the Fee
Letter.
3.4 Computations of Interest and Fees. For purposes of this Agreement,
---------------------------------
interest (except interest on Multicurrency LIBOR Loans), commitment fees and
Letter of Credit fees (and any other amount expressed as interest or such fees)
will be computed on the basis of a 360-day year for actual days elapsed. For
purposes of this Agreement, interest on Multicurrency LIBOR Loans will be
computed on the basis of a 365- or 366-day year for actual days elapsed. Except
as provided in the definition of Interest Period with respect to LIBOR Loans, if
any payment required by this Agreement is due on a day that is not a Banking
Day, such payment will be made on the next succeeding Banking Day and such
extension of time will be included in the computation of interest and fees.
3.5 Changes in Circumstances; Yield Protection.
------------------------------------------
3.5.1 Reserve Requirements, Etc. If the adoption or change in any
-------------------------
Legal Requirement or in the interpretation or application thereof applicable to
any Lender, or compliance by any Lender with any request or directive (whether
or not having the force of law) from any central bank or other Governmental
Authority, in each case made subsequent to the Initial Closing Date, shall (a)
impose, modify, increase or deem applicable any insurance assessment, reserve,
special deposit or similar requirement against any Funding Liability or the
Letters of Credit, (b) impose, modify, increase or deem applicable any other
requirement or condition with respect to any Funding Liability or the Letters of
Credit, or (c) change the basis of taxation of Funding Liabilities or payments
in respect of any Letter of Credit (other than changes in the rate of Taxes
measured by the overall net income of such Lender) and the effect of any of the
foregoing
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shall be to increase the cost to any Lender of issuing, making, funding or
maintaining its respective Percentage Interest in any portion of the Loan
subject to a LIBOR Pricing Option or any Letter of Credit, to reduce the amounts
received or receivable by such Lender under this Agreement or to require such
Lender to make any payment or forego any amounts otherwise payable to such
Lender under this Agreement (other than any Tax or any reserves that are
included in computing the LIBOR Reserve Rate), then such Lender may claim
compensation from the Borrowers under Section 3.5.5.
3.5.2 Taxes. All payments of the Credit Obligations will be made without
-----
set-off or counterclaim and free and clear of any deductions, including
deductions for Taxes, unless the Borrowers are required by law to make such
deductions. If (a) any Lender is subject to any Tax with respect to any payment
of the Credit Obligations or its obligations hereunder, or (b) the Borrowers are
required to withhold or deduct any Tax on any payment on the Credit Obligations,
then such Lender may claim compensation from the Borrowers under Section 3.5.5.
Whenever Taxes must be withheld by the Borrowers with respect to any payments of
the Credit Obligations, the Borrowers will promptly furnish to the Agent for the
account of the applicable Lender official receipts (to the extent that the
relevant governmental authority delivers such receipts) evidencing payment of
any Taxes so paid. If the Borrowers fail to pay any such Taxes when due or fails
to remit to the Agent for the account of the applicable Lender the required
receipts evidencing payment of any such Taxes so withheld or deducted, the
Borrowers shall indemnify the affected Lender for any incremental Taxes and
interest or penalties that may become payable by such Lender as a result of any
such failure. If any Lender receives a refund of any Taxes for which it has
received payment from the Borrowers under this Section 3.5.2, such Lender shall
promptly pay the amount to the Borrowers, together with any interest thereon
actually earned by such Lender. Each Lender agrees that it will deliver to the
Parent and the Agent, upon the reasonable request of the Parent or the Agent,
either (i) a statement that it is incorporated under the laws of the United
States of America or a state thereof, or (ii) if it is not so incorporated, two
duly completed copies of United States Internal Revenue Section Form 1001 or
4224 or successor applicable form, certifying that such Lender is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes.
3.5.3 Capital Adequacy. If any Lender determines that the adoption or
----------------
becoming effective of, or any change in, or any change by any central bank or
other Governmental Authority in the interpretation or administration of any
Legal Requirement regarding capital adequacy of banks or bank holding companies,
or the compliance by such Lender or its parent corporation, with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such central bank or Governmental Authority, has or would have the effect of
reducing the rate of return on the capital of such Lender and its Affiliates as
a
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<PAGE>
consequence of such Lender's commitment to make the extensions of credit
contemplated hereby, or such Lender's maintenance of the extensions of credit
contemplated hereby, to a level below that which such Lender could have achieved
but for such compliance (taking into consideration the policies of such Lender
and its Affiliates with respect to capital adequacy immediately before such
compliance and assuming that the capital of such Lender and its Affiliates was
fully utilized prior to such compliance) by an amount deemed by such Lender to
be material, then such Lender may claim compensation from the Borrowers under
Section 3.5.5.
3.5.4 Regulatory Change. If any Lender determines that (a) any change in
-----------------
any Legal Requirement (including any new Legal Requirement) after the date
hereof will directly or indirectly (i) reduce the amount of any sum receivable
by such Lender with respect to the Loan or the Letters of Credit or the return
to be earned by such Lender on the Loan or the Letters of Credit, (ii) impose a
cost on such Lender or any Affiliate of such Lender that is attributable to the
making or maintain of or such Lender's commitment to make, its portion of the
Loan or the Letters of Credit, or (iii) require any Lender or any Affiliate of
such Lender to make any payment on, or calculated by reference to, the gross
amount of any amount received by such Lender under any Credit Document (other
than Taxes or income or franchise taxes), and (b) such increased cost or payment
will not be fully compensated for by an adjustment in the Applicable Rate or the
Letter of Credit fees, then such Lender may claim compensation from the
Borrowers under Section 3.5.5.
3.5.5 Compensation Claim. Within 15 days after the receipt by the Parent
------------------
of a certificate from any Lender setting forth why it is claiming compensation
under Section 3.5 and computations (in reasonable detail) of the amount thereof
and a description of such Lender's efforts to mitigate such amounts as required
by Section 3.5.6, the Borrowers will pay to such Lender such additional amounts
as such Lender sets forth in such certificate as sufficient fully to compensate
it on account of the foregoing provisions of Section 3.5 together with interest
on such amount from the 15th day after receipt of such certificate until payment
in full thereof at the Base Rate. The determination by such Lender of the amount
to be paid to it and the basis for computation will, in the absence of manifest
error, be conclusive. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. The Borrowers will be entitled to
replace any such Lender in accordance with Section 3.5.7.
3.5.6 Mitigation. Each Lender will take such commercially reasonable steps
----------
as it may determine are not materially disadvantageous to it, including changing
lending offices to the extent feasible, in order to reduce amounts otherwise
payable by the Borrowers to such Lender pursuant to Sections 3.2.4 and 3.5 or to
make LIBOR Pricing Options available under Sections 3.2.1 and 3.2.5. In
addition, the Borrowers will not be responsible for costs (a) under
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<PAGE>
Section 3.5, arising more than 90 days prior to receipt by the Parent of the
certificate from the affected Lender pursuant to such Section 3.5.5 or (b) under
Section 3.2.4, arising from the termination of LIBOR Pricing Options more than
90 days prior to the demand by the Agent for payment under Section 3.2.4.
3.5.7 Replacement of Lenders. On each occasion that a Lender either makes a
----------------------
demand for compensation pursuant to Section 3.5.5 in an amount in excess of the
amount that the Borrowers would have had to pay pursuant to such Section if such
Lender's Commitment were held by Wells Fargo or is unable to fund or maintain
LIBOR Loans pursuant to Section 3.2.1, the Borrowers may, upon at least 10
Banking Days' prior written notice to each of such Lender and the Agent, in
whole permanently replace the Commitment of such Lender; provided, however, that
-------- -------
the Borrowers will replace such Commitment with the commitment of a commercial
bank which is reasonably satisfactory to the remaining Lenders (a "Replacement
-----------
Lender"). Such Replacement Lender will upon the effective date of replacement
- ------
purchase the Credit Obligations owed to such replaced Lender for the aggregate
amount thereof and will thereupon for all purposes become a "Lender" hereunder.
Such notice from the Borrowers will specify an effective date for the
replacement of such Lender's Commitment, which date will not be earlier than the
tenth day after the day such notice is given. On the effective date of any
replacement of such Lender's Loan Commitment pursuant to this Section 3.5.7, the
Borrowers will pay to the Agent for the account of such Lender (i) any amounts
due to such Lender to the date of such replacement, (ii) accrued interest on the
principal amount of outstanding Loans held by such Lender to the date of such
replacement, and (iii) the amounts payable to such Lender pursuant to Sections
3.2.4 and 3.5, as applicable. The Borrower will be liable to such replaced
Lender for costs that such Lender may sustain or incur pursuant to Section 3.5.2
as a direct consequence of repayment of such Lender's Loans. Upon the effective
date of repayment of any Lender's Commitment pursuant to this Section 3.5.7,
such Lender will cease to be a "Lender" hereunder. No such termination of any
such Lender's Commitment and the purchase of such Lender's Loans pursuant to
this Section 3.5.7 will affect (x) any liability or obligation of the Borrowers
or any other Lender to such terminated Lender which accrued on or prior to the
date of such termination, or (y) such terminated Lender's rights hereunder in
respect of any such liability or obligation.
3.6 European Monetary Union.
-----------------------
3.6.1 Euro. If, as a result of the EMU Commencement, (i) any Foreign
----
Currency ceases to be lawful currency of the state issuing the same and is
replaced by Euros or (ii) any Foreign Currency and Euros are at the same time
both recognized by the central bank or comparable governmental authority of the
state issuing such currency as lawful currency of such state, then any amount
payable hereunder by any party (including without limitation the funding of a
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<PAGE>
Multicurrency LIBOR Loan) in such Foreign Currency shall instead be payable in
Euros and the amount so payable shall be determined by redenominating or
converting such amount into Euros; provided, that to the extent any EMU
Legislation provides that an amount denominated either in Euros or in the
applicable Foreign Currency can be paid either in Euros or in the applicable
Foreign Currency, each party to this Agreement shall be entitled to pay or repay
such amount in Euros or in the applicable Foreign Currency.
3.6.2 Increased Cost or Reduction in Return. The Borrowers shall, at the
-------------------------------------
request of the Agent, pay to the Agent for the account of each Lender the amount
of any cost or increased cost incurred by, or of any reduction in any amount
payable to or in the effective return on its capital to, or of interest or other
return foregone by, such Lender or any holding company of such Lender as a
result of the introduction of, changeover to or operation of Euros in any
applicable state to the extent reasonably attributable to such Lender's
obligations hereunder or for the credit which is the subject matter hereof;
provided, however, that such Lender shall promptly notify the Borrowers of an
event which might cause it to seek compensation. Each Lender that determines to
seek compensation under this Section shall notify the Borrowers and the Agent of
the circumstances that entitle the Lender to such compensation pursuant to this
Section by issuing a certificate setting forth (a) the amount or amounts
necessary to compensate such Lender, (b) describing the nature of the cost or
reduction incurred by such Lender as a consequence thereof and (c) setting forth
a reasonably detailed explanation of the calculation thereof; and this
certificate shall be conclusive absent manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
The Borrower shall pay to such Lender or the Agent for credit to the account of
the Lender, the amount shown as due on any such certificate within 10 days after
receipt thereof. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of any law, regulation or other condition which shall give rise
to any demand by such Lender for compensation.
3.6.3 Delay. With respect to the payment of any amount denominated in
-----
Euros or in any Foreign Currency, the Agent shall not be liable to the Borrowers
or any of the Lenders in any way whatsoever for any delay, or the consequences
of any delay, in the crediting to any account of any amount required by this
Agreement to be paid by the Agent if the Agent shall have taken all relevant
steps to achieve, on the date required by this Agreement, the payment of such
amount in immediately available, freely transferable, cleared funds (in the Euro
Unit or, as the case may be, in any Foreign Currency) to the appropriate account
or party. In this paragraph, "all relevant steps" mean all such steps as may be
prescribed from time to time by the regulations or operating procedures of such
clearing or settlement system as the Agent may from time to time determine for
the purpose of clearing or settling payments of Euros.
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<PAGE>
3.6.4 Inconsistent Convention or Practice. If the basis of accrual
-----------------------------------
of interest or fees expressed in this Agreement with respect to the
currency of any state that becomes a Euro Member shall be inconsistent
with any convention or practice in the London interbank market for the
basis of accrual of interest or fees in respect of Euros, such convention
or practice shall replace such expressed basis effective as of and from
the date on which such state becomes a Euro Member; provided, that if any
Loan in the currency of such state is outstanding immediately prior to
such date, such replacement shall take effect, with respect to such Loan,
at the end of the then current Interest Period.
3.6.5 Amendment Regarding Changes in Currency. In addition, the
---------------------------------------
Borrowers and the Agent shall enter into negotiations in good faith, if
and to the extent necessary, to amend this Agreement to reflect changes in
currency resulting from the implementation of the EMU and to put the
Lenders and the Borrowers in the same position, so far as possible, that
they would have been in if such implementation and change had not
occurred. The parties hereto acknowledge and agree that if, within sixty
(60) days of the commencement of such negotiations, the Borrowers and the
Agent fail to reach agreement regarding any such amendments, then the
provisions of this Section 3.6 shall be deemed operative and, until such
an agreement is reached, the obligations of the Lenders to make
Multicurrency LIBOR Loans in Euros or any other Foreign Currency issued by
a Euro Member shall be suspended. Except as provided in the foregoing
provisions of this Section, no such implementation or change in currency
nor any economic consequences resulting therefrom shall (a) give rise to
any right to terminate prematurely, contest, cancel, rescind, alter,
modify or renegotiate the provisions of this Agreement or (b) discharge,
excuse or otherwise affect the performance of any obligations of the
Borrowers under this Agreement, any Notes or any other Loan Documents.
4. Payment.
-------
4.1 Payment at Maturity. On the Final Maturity Date or any accelerated
-------------------
maturity of the Loan, the Borrowers will pay to the Agent for the account of the
Lenders an amount equal to the Loan then due, together with all accrued and
unpaid interest and fees with respect thereto and all other Credit Obligations
then outstanding.
4.2 Voluntary Payments.
------------------
4.2.1 Voluntary Permanent Reduction or Termination. The Borrowers
--------------------------------------------
may, through an Authorized Representative and upon at least five Banking Days'
prior written notice to the Agent, terminate in whole or permanently reduce in
part, as of the date specified in the notice, any then unused portion of the
Total Commitment, provided that each partial reduction shall be in the minimum
principal amount of $5,000,000 (and an integral multiple of $1,000,000). Any
partial reduction shall ratably reduce each Lender's Commitment.
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<PAGE>
4.2.2 Voluntary Prepayments. The Borrowers may from time to time
---------------------
prepay all or any portion of the Loan, together with accrued interest
thereon, in a minimum amount of $5,000,000 and an integral multiple of
$1,000,000, or such lesser amount as is then outstanding, or in the case of
Multicurrency LIBOR Loans, the U.S. Dollar Equivalents thereof, without
premium or penalty of any type (except as provided in Section 3.2.4 with
respect to the early termination of LIBOR Pricing Options). The Parent will
give the Agent at least one Banking Day prior notice of the Borrowers'
intention to prepay a Base Rate Loan and at least three Banking Days prior
notice of its intention to prepay a LIBOR Loan, specifying the date of
payment, the total amount of the Loan to be paid on such date and the
amount of interest to be paid with such prepayment.
4.3 Mandatory Prepayments. If at any time the amount of the Loan plus
---------------------
the Letter of Credit Exposure exceeds the Maximum Amount of Credit, the
Borrowers shall immediately make a principal payment to the Agent for the
account of the Lenders in an amount sufficient to reduce the aggregate amount of
the Loan plus the Letter of Credit Exposure to less than or equal to the Maximum
Amount of Credit. If at any time the aggregate outstanding Converted Principal
Amount of the Multicurrency LIBOR Loans exceeds the Multicurrency Available
Credit, the Borrowers shall immediately make a principal payment to the Agent
for the account of the Lenders, in the applicable Foreign Currency, in an amount
sufficient to reduce the Multicurrency LIBOR Loans to less than or equal to the
Multicurrency Available Credit. If at any time the aggregate outstanding
principal amount of the Swing Line Loans exceeds the Swing Line Available
Credit, the Borrowers shall immediately make a principal payment to the Agent
for the account of the Lenders in an amount sufficient to reduce the Swing Line
Loans to less than or equal to the Swing Line Available Credit.
4.4 Letters of Credit. If, on the Final Maturity Date or any accelerated
-----------------
maturity of the Credit Obligations, the Lenders will be obligated in respect of
a Letter of Credit or a draft accepted under a Letter of Credit, the Borrowers
will either:
(a) prepay such obligation by depositing with the Issuing
Bank an amount of cash; or
(b) deliver to the Issuing Bank a standby letter of credit
(designating the Issuing Bank as beneficiary and issued by a bank and on
terms reasonably acceptable to the Agent and the Issuing Bank); or
(c) deliver to the Issuing Bank such other collateral as is
acceptable to the Issuing Bank and the Required Lenders;
in each case in an amount equal to the portion of the Letter of Credit Exposure
issued and outstanding for the account of the Borrowers at such date. Any such
cash so deposited and the cash proceeds of any draw under any letter of credit
so furnished, including any interest thereon, will be returned by the Issuing
Bank to the Borrowers only when, and to the extent that, the amount of such cash
held by the Issuing Bank
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<PAGE>
exceeds the Letter of Credit Exposure at such time and no Default then exists;
provided, however, that if an Event of Default occurs and the Credit Obligations
- -------- -------
become or are declared immediately due and payable, the Issuing Bank may apply
such cash, including any interest thereon, to the payment of any of the Credit
Obligations as the Agent specifies.
4.5 Reborrowing; Application of Payments, Etc.
-----------------------------------------
4.5.1 Reborrowing. The amounts of the Loan prepaid pursuant to
-----------
Section 4.2.2 may be reborrowed from time to time prior to the Final
Maturity Date in accordance with Section 2, subject to the limits set forth
therein.
4.5.2 Order of Application. Any prepayment of the Loan will be applied
--------------------
first to the portion of the Loan not then subject to LIBOR Pricing Options,
then the balance of any such prepayment will be applied to the portion of
the Loan then subject to LIBOR Pricing Options, in the chronological order
of the respective maturities thereof (or as an Authorized Representative may
otherwise specify in writing), together with any payments required by
Section 3.2.4.
4.5.3 Principal Payments. All payments of principal hereunder will be
------------------
made to the Agent at the Denver Office for the account of the Lenders in
accordance with the Lenders' respective Percentage Interests, in the
applicable Foreign Currency, in the case of Multicurrency LIBOR Loans, or in
United States Dollars, in the case of all other Loans, in same day or
immediately available funds not later than 12:00 noon (Denver time) on the
date due; provided, however, that at the request of the Agent, payments of
-------- -------
principal on Multicurrency LIBOR Loans will be made in the applicable
Foreign Currency in immediately available funds to such account at such bank
as the Agent may designate to the Parent from time to time, no later than
12:00 noon local time in the place where such bank is located on the due
date.
4.6 Sharing of Payments, Etc. If any Lender obtains at any time any payment
------------------------
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) (a) on account of Credit Obligations due and payable to such
Lender hereunder and under the Revolving Credit Notes at such time in excess of
its ratable share (according to the proportion of (i) the amount of such Credit
Obligations due and payable to such Lender at such time to (ii) the aggregate
amount of the Credit Obligations due and payable to all Lenders hereunder and
under the Revolving Credit Notes at such time) of payments on account of the
Credit Obligations due and payable to all Lenders hereunder and under the
Revolving Credit Notes at such time obtained by all the Lenders at such time or
(b) on account of Credit Obligations owing (but not due and payable) to such
Lender hereunder and under the Revolving Credit Notes at such time in excess of
its ratable share (according to the proportion of (i) the amount of such Credit
Obligations owing (but not due and payable) to such Lender at such time to (ii)
the
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aggregate amount of the Credit Obligations owing (but not due and payable)
to all Lenders hereunder and under the Revolving Credit Notes at such time) of
payments on account of the Obligations owing (but not due and payable) to all
Lenders hereunder and under the Revolving Credit Notes at such time obtained by
all of the Lenders at such time, such Lender will forthwith purchase from the
other Lenders such participations in the Credit Obligations due and payable or
owing to them, as the case may be, as will be necessary to cause such purchasing
Lender to share the excess payment ratably with each of them; provided, however,
-------- -------
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from each other Lender will be rescinded
and such other Lender will repay to the purchasing Lender the purchase price to
the extent of such Lender's ratable share (according to the proportion of (i)
the purchase price paid to such Lender to (ii) the aggregate purchase price paid
to all Lenders) of such recovery together with an amount equal to such Lender's
ratable share (according to the proportion of (i) the amount of such other
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrowers
agree that any Lender so purchasing a participation from another Lender pursuant
to this Section 4.6 may, to the fullest extent permitted by law, exercise all
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrowers in the amount of such participation.
5. Appointment of the Parent; Authorized Representatives.
-----------------------------------------------------
In order to facilitate and ensure prompt and accurate communication between
the Borrowers and the Lenders, the Borrowers hereby appoint the Parent as the
Borrowers' agent for purposes of communicating to and receiving communications
from the Agent and the Lenders. On the Initial Closing Date, and from time to
time subsequent thereto at the Parent's option, the Parent will deliver to the
Agent a written notice in the form of Exhibit 5, which designates by name each
---------
Authorized Representative and includes each of their respective specimen
signatures (each, a "Notice of Authorized Representatives"). The Agent will be
entitled to rely conclusively on the authority of each officer or employee
designated as an Authorized Representative in the most current Notice of
Authorized Representatives delivered by the Parent to request borrowings and
select interest rate options hereunder, and to give to the Agent such other
notices as are specified herein as being made through an Authorized
Representative, until such time as the Parent has delivered to the Agent, and
the Agent has actual receipt of, a new written Notice of Authorized
Representatives. The Agent will have no duty or obligation to the Borrowers to
verify the authenticity of any signature appearing on any written notice from an
Authorized Representative or to verify the authenticity of any Person purporting
to be an Authorized Representative giving any telephone notice permitted
hereby.
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<PAGE>
6. Subsidiary Guarantees.
---------------------
All of the Borrowers' obligations under the Credit Documents will be
guaranteed by the Material Subsidiaries pursuant to a Subsidiary Guarantee
substantially identical to the form of Subsidiary Guarantee attached as Exhibit
-------
6.
- -
7. Joint and Several Liability; Rights of Contribution.
---------------------------------------------------
7.1 Acknowledgements. Each Borrower states and acknowledges that: (i)
----------------
pursuant to this Agreement, the Borrowers desire to utilize their borrowing
potential on a consolidated basis to the same extent possible if they were
merged into a single corporate entity; (ii) it has determined that it will
benefit specifically and materially from the advances of credit contemplated by
this Agreement; (iii) it is both a condition precedent to the obligations of the
Lenders hereunder and a desire of the Borrowers that each Borrower execute and
deliver to the Lenders this Agreement; and (iv) the Borrowers have requested and
bargained for the structure and terms of the credit contemplated by this
Agreement.
7.2 Joint and Several Liability. Each Borrower hereby irrevocably and
---------------------------
unconditionally: (i) agrees that it is jointly and severally liable to the
Lenders for the full and prompt payment of the Credit Obligations and the
performance by each Borrower of its obligations hereunder in accordance with the
terms of the Credit Documents; (ii) agrees to fully and promptly perform all of
its obligations under the Credit Documents with respect to each advance of
credit hereunder as if such advance had been made directly to it; and (iii)
agrees as a primary obligation to indemnify the Lenders on demand for and
against any loss incurred by the Lenders as a result of any of the obligations
of any one or more of the Borrowers under the Credit Documents being or becoming
void, voidable, unenforceable or ineffective for any reason whatsoever, whether
or not known to the Lenders or any Person, the amount of such loss being the
amount which the Lenders would otherwise have been entitled to recover from any
one or more of the Borrowers. Each Borrower hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with each other Borrower with respect to the payment and
performance of all of the Credit Obligations. If and to the extent that any
Borrower fails to make any payment with respect to Credit Obligations as and
when due or to perform any of its obligations in accordance with the terms of
the Credit Obligations, then in each such event the other Borrowers will make
such payment with respect to, or perform, such obligations.
7.3 Absolute and Unconditional Obligations. The joint and several
--------------------------------------
liability of each Borrower for the Credit Obligations is absolute and
unconditional irrespective of and is not subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and is not
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of any of
the Credit Obligations. Without limiting the generality of the foregoing, the
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obligations of each Borrower will not be discharged or impaired or otherwise
affected by:
(a) any change in the manner, place or terms of payment or
performance and/or any change or extension of the time of payment or
performance of, renewal or alteration of, any Credit Obligation, any
security therefor, or any liability incurred directly or indirectly in
respect thereof, or any rescission of, or amendment, waiver or other
modification of, or any consent to departure from any Credit Document,
including any increase in the Credit Obligations resulting from the
extension of additional credit to any of the Borrowers;
(b) any sale, exchange, release, surrender, realization upon any
property at any time pledged or mortgaged to secure any of the Credit
Obligations, and/or any offset, or failure to perfect, or continue the
perfection of, any Lien, or any amendment or waiver of or consent to
departure from any Guarantee for any of the Credit Obligations;
(c) the failure of the Agent or any other Lender to assert any
claim or demand or to enforce any right or remedy against any Borrower or
any other Person under the provisions of any Credit Document;
(d) any settlement or compromise of any Credit Obligation, any
security therefor or any liability incurred directly or indirectly in
respect thereof, and any subordination of the payment of any part thereof
to the payment of any obligation (whether due or not) of any other Borrower
to creditors of such other Borrower;
(e) any manner of application of any collateral for the Credit
Obligations or proceeds thereof, to any of the Credit Obligations, or any
manner of sale or other disposition of any such collateral for all or any
of the Credit Obligations or any other assets of any Borrower;
(f) any change, restructuring or termination of the existence of
any Borrower; or
(g) any other agreement or circumstance of any nature whatsoever
that might in any manner or to any extent vary the risk of any Borrower, or
that might otherwise at law or in equity constitute a defense available to,
or a discharge of, the obligations of any Borrower, or a defense to, or
discharge of, any Borrower or any other Person relating to any of the
Credit Obligations.
7.4 Continuation. The joint and several liability of the Borrowers will
------------
continue in full force and effect notwithstanding any consolidation, merger,
dissolution
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or any other change whatsoever in the name, membership, constitution or place of
formation of any Borrower.
7.5 Rights of Contribution. It is the intent of each Borrower that the
----------------------
indebtedness, obligations and liability hereunder of each one of them shall not
be subject to challenge on any basis. Accordingly, as of the date hereof, the
liability of each Borrower under the Credit Documents, together with all of its
other liabilities to all Persons as of the date hereof and as of any other date
on which a transfer is deemed to occur by virtue of this Agreement, calculated
in an amount sufficient to pay its probable net liabilities (including
contingent liabilities) as the same become absolute and matured ("Dated
Liabilities") is, and is to be, less than the amount of the aggregate of a fair
valuation of its property as of such corresponding date ("Dated Assets"). To
this end, each Borrower hereby (i) grants to and recognizes in each other
Borrower, ratably, rights of subrogation and contribution in the amount, if any,
by which the Dated Assets of such Borrower, but for the aggregate of subrogation
and contribution in its favor recognized herein, would exceed the Dated
Liabilities of such Borrower or, as the case may be (ii) acknowledges receipt of
and recognizes its right to subrogation and contribution ratably from each of
the other Borrowers in the amount, if any, by which the Dated Liabilities of
such Borrower, but for the aggregate of subrogation and contribution in its
favor recognized herein, would exceed the Dated Assets of such Borrower. In
recognizing the value of the Dated Assets and the Dated Liabilities, it is
understood that the Borrowers will recognize, to at least the same extent of
their aggregate recognition of liabilities hereunder, their rights to
subrogation and contribution hereunder. It is a material objective of this
Section 7.5 that each Borrower recognizes rights to subrogation and contribution
rather than be deemed to be insolvent (or in contemplation thereof) by reason of
its joint and several obligations hereunder.
8. Conditions to Extending Credit.
------------------------------
8.1 Conditions on Initial Closing Date. The obligations of the Lenders to
----------------------------------
make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Initial Closing Date, of the conditions set forth
in this Section 8.1, as well as the further conditions in Section 8.2.
8.1.1 Executed Credit Documents. The Borrowers shall have duly executed
-------------------------
and delivered to the Agent (i) this Agreement, (ii) a Revolving Credit Note for
each Lender, (iii) a Swing Line Note for the Swing Line Lender, and (iv) all
other Credit Documents, each in form and substance reasonably acceptable to the
Agent.
8.1.2 Legal Opinion. On the Initial Closing Date, the Lenders shall
-------------
have received from counsel for the Borrowers, counsel's opinion with respect to
the transactions contemplated by the Credit Documents, which opinion shall be in
form and substance satisfactory to the Agent.
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8.1.3 Subsidiary Guarantees. Each Material Subsidiary shall have duly
---------------------
authorized, executed and delivered to the Agent a Subsidiary Guarantee in
substantially the form of Exhibit 6.
---------
8.1.4 Due Diligence. The Agent shall be reasonably satisfied with the
-------------
results of its due diligence review of the Borrowers and each of the
Obligors, including three year financial projections and corporate legal
structure.
8.1.5 Financial Statements. Each of the Lenders shall have received
--------------------
the Parent's consolidated financial statements for the quarter ending March
31, 1999, certified by a Financial Officer, and each of the Lenders shall
be reasonably satisfied with the results and financial condition shown in
such financial statements.
8.1.6 Proper Proceedings. This Agreement, each other Credit Document
------------------
and the transactions contemplated hereby and thereby shall have been
authorized by all necessary corporate or other proceedings. All necessary
consents, approvals and authorizations of any governmental or
administrative agency or any other Person of the transactions contemplated
hereby or by any other Credit Document shall have been obtained and shall
be in full force and effect.
8.1.7 General. All legal and corporate proceedings in connection with
-------
the transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Agent and the Agent shall have received copies of
all documents, including certified copies of the Charter and Bylaws of each
Borrower and the other Obligors, records of corporate proceedings,
certificates as to signatures and incumbency of officers and opinions of
counsel, which the Agent may have reasonably requested in connection
therewith, such documents where appropriate to be certified by proper
corporate or governmental authorities.
8.1.8 Commercial Paper Facility. The Agent has approved the principal
-------------------------
terms of the Commercial Paper Facility.
8.2 Conditions to Each Extension of Credit. The obligations of the
--------------------------------------
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of credit,
of the following conditions:
8.2.1 Officer's Certificate. The representations and warranties
---------------------
contained in Section 10 shall be true and correct on and as of such Closing
Date with the same force and effect as though made on and as of such date
(except as to any representation or warranty which refers to a specific
earlier date); no Default shall exist on such Closing Date prior to or
immediately after giving effect to the requested extension of credit; no
event or circumstance exists which can be reasonably expected to have a
Material Adverse Effect shall have occurred since December 31, 1998; and
the Parent shall have furnished to the Agent on the
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Closing Date a certificate to these effects, in substantially the form of
Exhibit 8.2.1 if a Revolving Credit Loan or a Swing Line Loan is requested,
-------------
and in substantially the form of Exhibit 2.4.2 if a Letter of Credit is
-------------
requested, in each case signed by a Financial Officer.
8.2.2 Legality, Etc. The making of the requested extension of credit
-------------
shall not (a) subject any Lender to any penalty or special tax (other than
a Tax for which the Borrowers are required to reimburse the Lenders under
Section 3.5.2), or (b) be prohibited by any Legal Requirement.
9. Covenants. The Borrowers covenant that, until all of the Credit
---------
Obligations have been paid in full and until the Lenders' commitments to extend
credit under this Agreement and any other Credit Document have been irrevocably
terminated, the Borrowers will comply with the following provisions:
9.1 Conduct of Business, etc.
------------------------
9.1.1 Types of Business. Each Borrower, its Subsidiaries and any
-----------------
Joint Venture in which any of such Persons participates will engage only in
the types of business activities in which the Borrowers, their Subsidiaries
and their Joint Ventures engage as of the date of this Agreement.
9.1.2 Statutory Compliance. Each Borrower will, and will cause its
--------------------
Subsidiaries to, comply in all material respects with all valid and
applicable statutes, laws, ordinances, zoning and building codes and other
rules and regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions applicable
to such Person, unless failure to comply would not have a Material Adverse
Effect.
9.2 Insurance. Each Borrower will maintain with financially sound and
---------
reputable insurers insurance against liability for hazards, risks and liability
to persons and property, including product liability and environmental risk
insurance, to the extent, in amounts and with deductibles at least as favorable
as those generally maintained by businesses of similar size engaged in similar
activities; provided, however, that it may effect workers' compensation
-------- -------
insurance or similar insurance with respect to operations in any particular
state or other jurisdiction through an insurance fund operated by such state or
jurisdiction or by meeting the self-insurance requirements of such state or
jurisdiction, and will cause each Subsidiary to maintain such insurance unless
the Subsidiary's failure to maintain the insurance would not have a Material
Adverse Effect.
9.3 Fiscal Year; Financial Statements, Etc.
---------------------------------------
9.3.1 Date of Annual Financial Statements. The annual Consolidated
-----------------------------------
financial statements of the Parent will be dated as of December 31 in each
year.
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9.3.2 Annual Financial Statements. The Parent will furnish to the Lenders
---------------------------
as soon as available, and in any event within 105 days after the end of each
fiscal year, the Consolidated balance sheets and statements of income, retained
earnings and cash flow of the Parent as at the end of such fiscal year (in
reasonable detail), setting forth in comparative form the corresponding figures
for the previous fiscal year (provided that so long as the Parent is a reporting
company under the Securities Exchange Act of 1934, as amended, it may satisfy
this requirement by furnishing to the Lenders copies of its Annual Report on
Form 10-K or successor form and all exhibits thereto), accompanied by:
(a) Reports of Arthur Andersen LLP (or, if they cease to be auditors
of the Parent and its Subsidiaries, other independent certified public
accountants of recognized national standing reasonably satisfactory to the
Required Lenders) (the "Auditors") stating that such financial statements have
been prepared in accordance with GAAP and fairly present the Consolidated
financial position and results of operations of the Parent as at the end of and
for such fiscal year, and without an explanatory paragraph for a going concern
uncertainty, together with (i) a certificate of the Auditors to the Lenders
stating that in the course of the regular audit of the business of the Parent
and its Subsidiaries, which audit was conducted by such Auditors in accordance
with generally accepted auditing standards, such Auditors obtained no knowledge
that a Default has occurred and is continuing, or if, in the opinion of such
Auditors, a Default has occurred and is continuing, a statement as to the nature
thereof, and (ii) a schedule in form satisfactory to the Agent of the
computations used by such Auditors in determining, as of the end of such fiscal
year, compliance with the covenants contained in Sections 9.4, 9.5, 9.6 and 9.7.
(b) A certificate of the Parent signed by a Financial Officer to the
effect that the Financial Officer has caused this Agreement to be reviewed and
has no knowledge of any Default, or if such Financial Officer has such
knowledge, specifying such Default and the nature thereof, and what action the
Borrowers have taken, are taking or propose to take with respect thereto,
together with a schedule, in form satisfactory to the Agent, of the computations
used by the Parent in determining compliance with the covenants contained in
Sections 9.4, 9.5, 9.6 and 9.7.
9.3.3 Quarterly Financial Statements. The Parent will furnish to the
------------------------------
Lenders as soon as available and, in any event, within 55 days after the end of
each of the first three fiscal quarters of the Parent, the internally prepared
Consolidated balance sheets and statements of income, retained earnings and cash
flow of the Parent as of the end of such fiscal quarter, in all comparative form
(provided that so long as the Parent is a reporting company under the Securities
Exchange Act of 1934, as amended, it may satisfy this requirement by furnishing
to the Lenders copies of its Quarterly Reports on Form 10-Q or successor form
and all exhibits thereto), accompanied by a certificate of the Parent signed by
a
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<PAGE>
Financial Officer to the effect that such financial statements have been
prepared in accordance with GAAP (subject to normal year-end adjustments) such
Financial Officer has caused this Agreement to be reviewed and has no knowledge
of any Default, or if such Financial Officer has such knowledge, specifying such
Default and the nature thereof and what action the Borrowers have taken, are
taking or propose to take with respect thereto, together with a schedule in form
satisfactory to the Agent, of the computations by the Parent in determining
compliance with the covenants contained in Sections 9.4, 9.5, 9.6 and 9.7.
9.3.4 Projections. The Parent will furnish to the Lenders as soon as
-----------
available and, in any event within 105 days after the end of each fiscal year of
the Parent, projections of Consolidated financial statements for the Parent for
the next fiscal year, in a form and in sufficient detail acceptable to the
Agent.
9.3.5 Notice of Litigation, Defaults, Etc. The Borrowers will promptly
-----------------------------------
furnish to the Lenders notice of any litigation or any administrative or
arbitration proceeding (a) which creates a material risk of resulting, after
giving effect to any applicable insurance, in the payment by any Obligor of more
than $5,000,000, or (b) which has, or creates a material risk of having, a
Material Adverse Effect. Promptly upon acquiring knowledge thereof, the
Borrowers will notify the Lenders of the existence of any Default or event which
creates a material risk of a Material Adverse Effect, specifying the nature
thereof and what action the Borrowers have taken, are taking or propose to take
with respect thereto.
9.3.6 Other Information. The Parent will maintain accurate books, accounts
-----------------
and records of the financial affairs of the Parent and its Subsidiaries
sufficient to permit the preparation of financial statements therefrom in
accordance with GAAP and will prepare all financial statements required
hereunder in accordance with GAAP and in compliance with the regulations of any
Governmental Authority having jurisdiction thereof. The Parent will provide
copies to the Agent, promptly after the sending, making available or filing of
all reports and financial statements which the Parent sends or makes available
to its stockholders, and all registration statements and amendments thereto, and
all reports on Form 8-K or any similar form hereafter in use which the Parent
files with the Securities and Exchange Commission. From time to time at
reasonable intervals upon the request of any authorized officer of any Lender,
each Borrower and its Subsidiaries will furnish to the Agent such other
information regarding the business, assets, financial condition, income or
prospects of the Borrowers and their Subsidiaries as such officer may reasonably
request, including copies of all tax returns, licenses, agreements, leases and
instruments to which any Borrower or its Subsidiaries is party. The Lenders'
authorized officers and representatives will have the right during normal
business hours upon reasonable notice and at reasonable intervals to examine the
books and records of each
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Borrower and its Subsidiaries, to make copies and notes therefrom for the
purpose of ascertaining compliance with or obtaining enforcement of this
Agreement or any other Credit Document.
9.4 Consolidated Net Worth. Consolidated Net Worth will at all times
----------------------
exceed $65,000,000, plus 80% of Consolidated Net Income for each fiscal quarter
after 1998, excluding any fiscal quarters in which Consolidated Net Income is
negative.
9.5 Current Ratio. The Parent will at all times maintain a Current Ratio
-------------
of not less than 1.20 to 1.00.
9.6 Interest Coverage Ratio. The Parent will maintain as of the last day
-----------------------
of each fiscal quarter a ratio of EBIT to Interest Expense for the four
consecutive fiscal quarters ended as of such day of not less than 2.00 to 1.00.
9.7 Leverage Ratio. The Parent will maintain as of the last day of each
--------------
fiscal quarter a ratio of Total Funded Debt to EBITDA for the four consecutive
fiscal quarters ended as of such day of not more than 3.75 to 1.00.
9.8 Profitable Operations. The Parent and its Subsidiaries will not
---------------------
sustain a net loss on a Consolidated basis for any four consecutive fiscal
quarter period.
9.9 Year 2000 Compliance. Each Borrower will take as part of its Year
--------------------
2000 Compliance program, all reasonable and prudent steps to ensure that its
computer systems and programs are Year 2000 Compliant as soon as practicable
and, in any event, before the later of December 31, 1999 and the date any
particular system or program is scheduled to be in operation.
9.10 Indebtedness. Neither any Borrower nor any of its Significant
------------
Subsidiaries will create, incur, assume or otherwise become or remain liable
with respect to any Indebtedness (or become contractually committed do so),
except the following:
9.10.1 Indebtedness in respect of the Credit Obligations;
9.10.2 Indebtedness outstanding and lines of credit available on the
date hereof and described in Exhibit 9.10, and all renewals and extensions
------------
thereof not in excess of the amount thereof outstanding, together with all
prepayment fees, penalties and expenses in respect of such Indebtedness,
immediately prior to such renewal or extension;
9.10.3 Key Employee Notes;
9.10.4 Contingent obligations with respect to performance guarantees
and surety bonds incurred in the ordinary course of business and of a type and
amount consistent with past practices of the Borrowers and their Subsidiaries;
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9.10.5 Intercompany loans made by and between the Parent and its
Subsidiaries in connection with the internal cash management system
maintained by the Parent and its Subsidiaries substantially as in effect on
the date of this Agreement, or guarantees by the Parent of Indebtedness of
Subsidiaries to the extent necessary to support the normal operating
activities of such Subsidiaries;
9.10.6 Indebtedness of the Parent resulting from the private
placement of long-term senior unsecured notes; provided, however, the
-------- -------
Parent will be required to provide to the Lenders satisfactory evidence
that on a pro forma basis after the issuance of the senior unsecured notes,
no Default will exist and that the Borrowers would remain in compliance
with the covenants set forth in Section 9.4, 9.5, 9.6, 9.7 and 9.8, upon
the occurrence of an additional $1.00 of Indebtedness;
9.10.7 Indebtedness in respect of current accounts payable and
accrued expenses incurred in the ordinary course of business;
9.10.8 Indebtedness in respect of the Commercial Paper Facility and
all renewals and extensions thereof not in excess of $30,000,000;
9.10.9 Indebtedness arising from judgments that do not cause an
Event of Default;
9.10.10 Indebtedness arising from the Parent's issuance of commercial
paper pursuant to the Commercial Paper Documents, provided that the
--------
principal amount of Indebtedness under such commercial paper issued by the
Parent shall at no time exceed the unused portion of the maximum amount of
credit under the Commercial Paper Facility;
9.10.11 Indebtedness of any Subsidiary which becomes a Significant
Subsidiary after the date of this Agreement to the extent that such
Indebtedness is outstanding or is available under a line of credit as of
the date such Subsidiary becomes a Significant Subsidiary, and all renewals
and extensions thereof not in excess of the amount thereof outstanding,
together with all prepayment fees, penalties and expenses in respect of
such Indebtedness, immediately prior to such renewal or extension;
9.10.12 Indebtedness assumed in connection with Permitted
Acquisitions to the extent permitted in the definition of Permitted
Acquisitions; and
9.10.13 Other Indebtedness in an aggregate principal amount not in
excess of $10,000,000.
9.11 Liens. Neither any Borrower nor any of its Significant Subsidiaries
-----
will create, incur or enter into, or suffer to be created or incurred or to
exist, any Lien that
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secures Indebtedness or Taxes (or become contractually committed to do so),
except the following:
9.11.1 Liens that secure the Credit Obligations;
9.11.2 Liens to secure Taxes, assessments and other governmental
charges, to the extent that payment thereof will not at the time be
required or will be contested in good faith by appropriate proceedings with
appropriate reserves being taken thereafter;
9.11.3 Liens securing Indebtedness permitted by Section 9.10.2 and
9.10.11;
9.11.4 Liens securing Indebtedness permitted by Section 9.10.13;
9.11.5 Liens in effect on the date hereof and described in the
Parent's Consolidated financial statements for the quarter ending March 31,
1999, provided that no such Lien shall extend to any property other than
the property subject to such Lien on the date of this Agreement;
9.11.6 Liens in respect of property imposed by law arising in the
ordinary course of business such as materialmen's, mechanics,
warehousemen's, carrier, landlord's and other nonconsensual statutory Liens
which are not yet due and payable or which are being contested in good
faith by appropriate proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which property
subject to any such Lien is not yet subject to foreclosure, sale or loss on
account thereof);
9.11.7 Pledges or deposits made in the ordinary course of business
to secure payment of workers compensation insurance, unemployment
insurance, pension or social security programs;
9.11.8 Easements, rights of way, restrictions (including zoning
restrictions, matters of plat, minor defects or irregularities in title)
and other similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered property for its intended purposes;
9.11.9 Judgment Liens that would not constitute an Event of Default;
9.11.10 Liens arising by virtue of any statutory of common law
provisions relating to banker's liens, rights of setoff or similar rights
as to deposit accounts or other funds maintained with a creditor depository
institution; and
9.11.11 Liens assumed in connection with Permitted Acquisitions to
the extent permitted under the definition of Permitted Acquisitions.
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9.12 Transactions with Affiliates. Neither any Borrower nor any of its
----------------------------
Subsidiaries will effect any transaction with any of their respective Affiliates
on a basis less favorable to such Borrower or its Subsidiaries than would be the
case if such transaction had been effected with a non-Affiliate; provided,
--------
however, that such restriction shall not apply to interest rates charged on
- -------
intercompany obligations under the internal cash management system maintained by
the Parent and its Subsidiaries substantially as in effect on the date of this
Agreement.
9.13 Environmental Laws.
------------------
9.13.1 Compliance with Law and Permits. Each Borrower will, and will
-------------------------------
cause its Subsidiaries to (unless a failure by the Subsidiary would not
have a Material Adverse Effect) use and operate all of its facilities and
properties in material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and remain in
material compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Environmental Laws.
9.13.2 Notice of Claims, Etc. Each Borrower will immediately notify
---------------------
the Agent, and provide copies upon receipt, of all written material
claims, complaints, notices or inquiries from governmental authorities
relating to the condition of the facilities and properties of the
Borrowers and their Subsidiaries or compliance with Environmental Laws.
The Borrowers will promptly cure and have dismissed with prejudice to the
satisfaction of the Agent any actions and proceedings relating to material
compliance with Environmental Laws by the Borrowers, and the Borrowers
will cause each Subsidiary to cure and have dismissed such actions and
proceedings relating to material compliance with Environmental Laws by the
Subsidiaries unless the Subsidiary's failure to cure and have dismissed
such actions and proceedings would not have a Material Adverse Effect.
9.14 Bonuses and Profit Sharing. No Borrower or its Subsidiaries will
--------------------------
pay bonuses or amounts as profit sharing in any year which exceed 95% of the
Parent's Consolidated pre-tax and pre-bonus net income for the immediately
preceding fiscal year.
9.15 Payment of Taxes, Etc. Each Borrower will, and will cause each of
---------------------
its Subsidiaries to (unless a failure by the Subsidiary would not have a
Material Adverse Effect), pay and discharge, before the same become delinquent,
(i) all Taxes, assessments and governmental charges or levies imposed upon it or
upon its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property; provided, however, that unless and until any
-------- -------
Lien resulting therefrom attaches to its property and becomes enforceable
against its other creditors, no payment will be
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required if such Tax, assessment, charge, levy or claim is being contested in
good faith and by proper proceedings.
9.16 Preservation of Existence, Etc. Each Borrower will preserve and
------------------------------
maintain, and will cause each of its Subsidiaries to (unless a failure by the
Subsidiary would not have a Material Adverse Effect), preserve and maintain, its
existence, legal structure, state of incorporation, legal name, rights (charter
and statutory), permits, licenses, approvals, privileges and franchises;
provided, however, that (A) a Borrower and its Subsidiaries may consummate any
- -------- -------
merger or consolidation permitted Section 9.19, and (B) a Borrower and any of
its Subsidiaries may change its legal name so long as the Agent is given notice
of such change at least 30 days in advance, and such change will not otherwise
have any Material Adverse Effect.
9.17 Compliance with Terms of Leaseholds. Each Borrower will, and will
-----------------------------------
cause each of its Subsidiaries to, make all payments and otherwise perform all
obligations in respect of all leases of real property to which it is a party,
keep such leases in full force and effect and not allow such leases to lapse or
be terminated or any rights to renew such leases to be forfeited or canceled,
notify the Agent of any default by any party with respect to such leases, unless
the failure to do so would not have a Material Adverse Effect.
9.18 Material Subsidiaries. Within 30 days after the formation of any
---------------------
Material Subsidiary or the date on which any Subsidiary otherwise first becomes
a Material Subsidiary, cause such Subsidiary to execute and deliver to the Agent
a Subsidiary Guarantee (and if any Subsidiary that has been a Material
Subsidiary is no longer a Material Subsidiary for a period of 12 consecutive
months and if no Event of Default has occurred and is continuing, the Subsidiary
Guarantee of such former Material Subsidiary will be terminated).
9.19 Mergers, Etc. The Borrowers will not merge into or consolidate with
------------
any Person or permit any Person to merge into it, or consolidate, reorganize or
recapitalize, or permit any of their Significant Subsidiaries to do so, except
in connection with Permitted Acquisitions permitted under Section 9.21.6, in
connection with mergers among the Borrowers and their Subsidiaries provided that
a Borrower is the surviving entity , and in connection with mergers among
Subsidiaries of the Borrowers.
9.20 Sales, Etc of Assets. The Borrowers will not sell, lease, transfer
--------------------
or otherwise dispose of, or permit any of its Material Subsidiaries to sell,
lease, transfer or otherwise dispose of, any of its assets (including, without
limitation, any capital stock of any Subsidiary of a Borrower), or grant any
option or other right to purchase, lease or otherwise acquire any assets,
except:
- ------
9.20.1 Sales of inventory in the ordinary course of its business or
sales of contracts in the ordinary course of business provided that gross
revenues from those contracts sold during any fiscal year are not greater
than 5% of the Consolidated Annual Revenues of the Parent for the preceding
fiscal year;
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9.20.2 The sale or other disposition of obsolete, worn out or
materially damaged or defective property or equipment in the ordinary
course of business; and
9.20.3 Sale/leasebacks of property (whether real or personal or
mixed) with an aggregate fair market value of up to $5,000,000.
9.21 Investments. The Borrowers will not make or hold, or permit any of
-----------
their Significant Subsidiaries to make or hold, any Investment in any Person
other than:
- ----------
9.21.1 Investments in another Obligor;
9.21.2 Cash Equivalents in the ordinary course of business pursuant
to the Parent's usual and customary cash management policies and
procedures;
9.21.3 Investments existing on the date hereof and described on
Exhibit 9.21;
------------
9.21.4 Investments permitted by Section 9.10;
9.21.5 Investments in the nature of Joint Ventures or Subsidiaries
in the ordinary course of their business and in a manner consistent with
their past practices; and
9.21.6 Permitted Acquisitions with an aggregate cash purchase price
of less than $50,000,000 in any calendar year; provided that the Lenders
--------
will not unreasonably withhold their consent to additional Permitted
Acquisitions.
9.22 Distributions, Etc. No Borrower will purchase, redeem, retire,
------------------
defease or otherwise acquire for value any of its ownership interests or any
warrants, rights or options to acquire such ownership interests, now or
hereafter outstanding, return any capital to its stockholders, partners or
members, as such, declare or make any Distribution (including, without
limitation, any Distribution of cash or other assets, certificated or
uncertificated ownership interests, warrants, rights, options, obligations or
securities), or permit any of its Subsidiaries to make any Distributions or to
purchase, redeem, retire, defease or otherwise acquire for value any ownership
interests of a Borrower or any other Subsidiary of a Borrower or any warrants,
rights or options to acquire such ownership interests; provided, however, that
-------- -------
(i) any Subsidiary of a Borrower may make a Distribution to such Borrower, (ii)
any Joint Venture may make a Distribution to any Borrower; (iii) any Subsidiary
or Joint Venture may make a Distribution to its stockholders and partners on a
pro rata basis; (iv) the Parent may repurchase its common stock in accordance
with the stock repurchase provisions set forth in the Parent's Bylaws as those
Bylaws are in effect as of the date of this Agreement or, after their adoption,
in the Parent's proposed Bylaws attached as Exhibit 9.22; and (v) the Parent may
------------
repurchase its common stock on the internal market to balance the supply and
demand for common stock between buyers and sellers.
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9.23 Limits on Capital Expenditures. The Borrowers will not make,
------------------------------
or permit any of their Subsidiaries to make, any Capital Expenditures that
would cause the aggregate of all such Capital Expenditures made by the
Borrowers and their Subsidiaries in any fiscal year to exceed $15,000,000.
9.24 Charter and Bylaws Amendments. No Borrower will amend, or
-----------------------------
permit any of its Subsidiaries to amend, its Charter or Bylaws in any way that
would have a Material Adverse Effect.
9.25 Prepayments, Etc. of Indebtedness. No Borrower will prepay,
---------------------------------
redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity
thereof in any manner any Indebtedness in excess of $3,000,000 in the aggregate
in any fiscal year; provided, however, that the provisions of this Section 9.25
-------- -------
will not apply to (i) the prepayment of the Loans in accordance with the terms
of this Agreement, (ii) to the prepayment of the Indebtedness in respect of the
Commercial Paper Facility permitted under Section 9.10.8 in accordance with the
terms of the Commercial Paper Facility, or (iii) the prepayment of obligations
under the Borrowers' internal cash management system substantially similar to
the system in effect on the date of this Agreement.
9.26 Preservation of Rights and Properties. Each Borrower will, and
-------------------------------------
will cause its Subsidiaries to (unless a failure by a Subsidiary would not have
a Material Adverse Effect), maintain and preserve the existence of the Borrowers
and their Subsidiaries and all material public rights, privileges and franchises
now enjoyed, and conduct their business in an orderly, efficient and customary
manner.
9.27 Payment of Obligations. Each Borrower will, and will cause its
----------------------
Subsidiaries to (unless a failure by a Subsidiary would not have a Material
Adverse Effect), pay all material obligations at maturity, except such as may be
contested in good faith or as to which a bona fide dispute may exist.
9.28 Maintenance of Properties. Each Borrower will, and will cause
-------------------------
its Subsidiaries to, maintain its properties in good repair, working order and
condition and from time to time make repairs, renewals, replacements, additions
and improvements thereto, except to the extent failure to maintain such
properties would not have a Material Adverse Effect. Each Borrower will, and
will cause its Subsidiaries to (unless a failure by a Subsidiary would not have
a Material Adverse Effect), comply at all times in all material respects with
the provisions of all material licenses, leases and other material agreements to
which it is a party so as to prevent any loss or forfeiture thereof or
thereunder unless compliance therewith is being at the time contested in good
faith by appropriate proceedings.
9.29 ERISA. As soon as possible and in any event within 30 days
-----
after any Borrower knows or has reason to know that any ERISA Event (as defined
in Title IV of ERISA) with respect to any Plan has occurred, the Borrowers will
deliver to the Agent a statement of the Parent's Financial Officer setting forth
details as to such ERISA Event and the action which it proposes to take with
respect thereto, together with a copy of the
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notice of such ERISA Event to the Pension Benefit Guaranty Corporation. As soon
as possible and in event within 30 days after receipt thereof by any Borrower
or, to the extent a Borrower has knowledge thereof, by any ERISA Group Person,
the Borrowers will deliver to the Agent copies of each notice from the PBGC
stating its intention to terminate any Plan or to have a trustee appointed to
administer a Plan. As soon as possible and in event within 30 days after receipt
thereof by any Borrower or, to the extent a Borrower has knowledge thereof, by
any ERISA Group Person from the sponsor of a Multiemployer Plan, copies of each
notice concerning (i) the imposition of withdrawal liability by any such
Multiemployer Plan, (ii) the reorganization or termination, within the meaning
of Title IV of ERISA, of any such Multiemployer Plan, or (iii) the amount of
liability incurred, or that may be incurred, by such Borrower or ERISA Group
Person in connection with any event described in clause (i) or (ii).
9.30 Ownership of the Borrowers. The Parent, or a direct Material
--------------------------
Subsidiary of the Parent, will at all times own at least 80% of the outstanding
equity of each Borrower (other than the Parent).
9.31 Pari Passu. The Credit Obligations of the Borrowers under the
----------
Credit Documents shall at all times rank at least pari passu with all other
Indebtedness of the Borrowers, except to the extent permitted by Section 9.11.
10. Representations and Warranties. In order to induce the Lenders to
------------------------------
extend credit to the Borrowers hereunder, each Borrower jointly and severally
represents and warrants as follows:
10.1 Organization and Business.
-------------------------
10.1.1 Legal Status. Each Borrower is a duly organized and
------------
validly existing corporation, in good standing (except in jurisdictions
that do not recognize good standing) under the laws of the jurisdiction
in which it is organized, with all power and authority, corporate or
otherwise, necessary to (a) enter into and perform this Agreement and
each other Credit Document to which it is party and (b) own its
properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charters and Bylaws of each
Borrower have been previously delivered to the Agent and are correct
and complete;
10.1.2 Material Subsidiaries. Each Material Subsidiary of the
---------------------
Borrowers is duly organized, validly existing and in good standing
(except in jurisdictions that do not recognize good standing) under the
laws of the jurisdiction in which it is organized, with all power and
authority, corporate or otherwise, necessary to (a) enter into and may
perform each Credit Document to which it is party and (b) own its
properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charter and Bylaws of each
Material Subsidiary of the Borrowers have been previously delivered to
the Agent and are correct and complete. Exhibit 10.1, as from time
------------
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<PAGE>
to time hereafter supplemented, sets forth, as of the later of the date
hereof or the end of the most recent fiscal quarter for which financial
statements are required to be furnished in accordance with Section 9.3,
(i) the name, address of the chief executive office, and jurisdiction
of organization of each Material Subsidiary of the Borrowers, and (ii)
the name of each Material Subsidiary.
10.1.3 Qualification. Each Borrower and each Material
-------------
Subsidiary is duly and legally qualified to do business as a foreign
corporation or other entity and is in good standing (except in
jurisdictions that do not recognize good standing) in each state or
jurisdiction in which such qualification is required and is duly
authorized, qualified and licensed under all laws, regulations,
ordinances or orders of public authorities, or otherwise, to carry on
its business in the places and in the manner in which it is conducted,
except for failures to be so qualified, authorized or licensed would
not in the aggregate have a Material Adverse Effect.
10.2 Financial Statements and Other Information. The Borrowers have
------------------------------------------
previously furnished to the Lenders copies of the Consolidated financial
statements of the Parent as at December 31, 1998. Such financial statements
were prepared in accordance with GAAP and fairly present the Consolidated
financial position of the Parent at the date thereof.
10.3 No Material Adverse Effect. Since December 31, 1998, no event
--------------------------
has occurred which can be reasonably expected to have a Material Adverse Effect.
Since December 31, 1998, (a) neither the Parent nor any of its Subsidiaries has
incurred any obligations, contingent or non-contingent liabilities, long-term
leases or unusual forward or long-term commitments (other than the Credit
Obligations) which, alone or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, (b) no contract, lease or other agreement or
instrument has been entered into by the Parent or any of its Subsidiaries or has
become binding upon the Parent's or any of its Subsidiaries' assets and no law
or regulation applicable to the Parent or any of its Subsidiaries has been
adopted which has had or could reasonably be expected to have a Material Adverse
Effect, and (c) neither the Parent nor any of its Subsidiaries is in default
and, to the best of the Borrowers' knowledge, no third party is in default,
under any material contract, lease or agreement, which alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect.
10.4 Operations in Conformity with Law, Etc. The operations of each
--------------------------------------
Borrower and its Subsidiaries as now conducted or proposed to be conducted are
not in violation of, nor is any Borrower or its Subsidiaries in default under,
any Legal Requirement presently in effect, except for such violations and
defaults as do not and will not, in the aggregate, result, or create a material
risk of a Material Adverse Effect. The Borrowers have received no notice of any
such violation or default and have no knowledge of any basis on which the
operations of the Borrowers or their Subsidiaries, as now conducted and as
currently proposed to be conducted after the date hereof, would be held to
violate or to give rise to any such violation or default.
-55-
<PAGE>
10.5 Litigation. No litigation, at law or in equity, or any
----------
proceeding before any court, board or other governmental or administrative
agency or any arbitrator is pending or, to the knowledge of the Borrowers,
threatened which involves any material risk of any final judgment, order or
liability which, after giving effect to any applicable insurance, has resulted,
or creates a material risk of resulting, in any Material Adverse Effect or which
seeks to enjoin the consummation, or which questions the validity, of any of the
transactions contemplated by this Agreement or any other Credit Document. No
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds any
Borrower or any of its Subsidiaries which has resulted, or creates a material
risk of resulting, in any Material Adverse Effect.
10.6 Authorization and Enforceability. Each Obligor has taken all
--------------------------------
corporate action required to execute, deliver and perform this Agreement and
each other Credit Document to which it is party. No consent of stockholders of
any Obligor is necessary in order to authorize the execution, delivery or
performance of this Agreement or any other Credit Document to which any Obligor
is party. Each of this Agreement and each other Credit Document constitutes the
legal, valid and binding obligation of each Obligor party thereto and is
enforceable against such Obligor in accordance with its terms, except as
enforcement thereof may be subject to (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and (ii) general principles of equity.
10.7 No Legal Obstacle to Agreements. Neither the execution and
-------------------------------
delivery of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the guaranteeing of the Credit Obligations, nor the
consummation of any transaction referred to in or contemplated by this Agreement
or any other Credit Document, nor the fulfillment of the terms hereof or thereof
or of any other agreement or instrument contemplated by this Agreement or any
other Credit Document, has constituted or resulted in or shall constitute or
result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which any Borrower, any of its
Subsidiaries or any other Obligor is a party or by which it is bound,
or of the Charter or Bylaws of any Borrower, any of its Subsidiaries or
any other Obligor;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable to any
Borrower, any of its Subsidiaries or any other Obligor;
(c) the creation under any agreement, instrument, deed
or lease of any Lien upon any of the assets of any Borrower, any of its
Subsidiaries or any other Obligor; or
(d) any redemption, retirement or other repurchase
obligation of any Borrower, any of its Subsidiaries or any other
Obligor under any Charter,
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<PAGE>
By-law, agreement, instrument, deed or lease. No approval,
authorization or other action by, or declaration to or filing with, any
governmental or administrative authority or any other Person is
required to be obtained or made by any Borrower, any of its
Subsidiaries or any other Obligor in connection with the execution,
delivery and performance of this Agreement or any other Credit
Document, the transactions contemplated hereby or thereby, the making
of any borrowing hereunder or the guaranteeing of the Credit
Obligations.
10.8 Tax Returns. Each Borrower (and, to the extent failure would
-----------
have a Material Adverse Effect, its Subsidiaries) has filed all material tax and
information returns which are required to be filed by it and has paid, or made
adequate provision for the payment of, all Taxes which have or may become due
pursuant to such returns or to any assessment received by it, other than Taxes
and assessments being contested in good faith by appropriate proceedings and for
which adequate reserves have been established in accordance with GAAP.
10.9 Environmental Regulations.
-------------------------
10.9.1 Environmental Compliance. Each Borrower and its
------------------------
Subsidiaries is in compliance in all material respects with the Clean
Air Act, the Federal Water Pollution Control Act, the Marine Protection
Research and Sanctuaries Act, RCRA, CERCLA and any other Environmental
Law in effect in any jurisdiction in which any properties of any
Borrower or any of its Subsidiaries are located or where any of them
conducts its business, and with all applicable published rules and
regulations (and applicable standards and requirements) of the federal
Environmental Protection Agency and of any similar agencies in states
or foreign countries in which any Borrower or its Subsidiaries conducts
its business other than those which in the aggregate have not resulted,
and do not create a material risk of resulting, in a Material Adverse
Effect.
10.9.2 Environmental Litigation. No suit, claim, action or
------------------------
proceeding of which any Borrower or any of its Subsidiaries has been
given notice or otherwise has knowledge is now pending before any
court, governmental agency or board or other forum, or to a Borrower's
or any of its Subsidiaries' knowledge, threatened by any Person (nor to
the knowledge of each Borrower and its Subsidiaries, does any factual
basis exist therefor) for, and neither any Borrower nor any of its
Subsidiaries have received written correspondence from any federal,
state or local governmental authority with respect to:
(a) noncompliance by any Borrower or any of its
Subsidiaries with any Environmental Law;
(b) personal injury, wrongful death or other tortious
conduct relating tomaterials, commodities or products used,
generated, sold, transferred or manufactured by any Borrower or
any of its Subsidiaries (including products
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<PAGE>
made of, containing or incorporating asbestos, lead or other
hazardous materials, commodities or toxic substances); or
(c) the release into the environment by Borrower or
any of its Subsidiaries of any: Hazardous Material generated by a
Borrower or any of its Subsidiaries whether or not occurring at
or on a site owned, leased or operated by any Borrower or any of
its Subsidiaries.
10.10 Plans. Each Plan (other than a Multiemployer Plan) and,
-----
to the knowledge of each Borrower and its Subsidiaries, each Multiemployer Plan
is in material compliance with the applicable provisions of ERISA and the Code.
Each Multiemployer Plan and each Plan that constitutes a "defined benefit plan"
(as defined in ERISA) are set forth in Exhibit 10.10. Each ERISA Group Person
has met all of the funding standards applicable to all Plans that are not
Multiemployer Plans, and no condition exists which would permit the institution
of proceedings to terminate any Plan that is not a Multiemployer Plan under
section 4042 of ERISA. To the knowledge of the Borrowers and their Subsidiaries,
no Plan that is a Multiemployer Plan is currently insolvent or in reorganization
or has been terminated within the meaning of ERISA.
10.11 Consents or Approvals. No consent or approval of any
---------------------
trustee, issuer or holder of any Indebtedness or obligations of any Borrower or
its Subsidiaries, and no consent, permission, authorization, order or license of
any Governmental Authority, is necessary in connection with the execution and
delivery of the Credit Documents or any transaction contemplated by the Credit
Documents.
10.12 No Liens. Each Borrower and its Significant
--------
Subsidiaries owns its property free and clear of Liens, except Liens permitted
by Section 9.11.
10.13 Business Authorizations. Each Borrower and its Material
-----------------------
Subsidiaries possesses all patents, patent rights or licenses, trademarks,
trademark rights, trade names or trade name rights and copyrights required to
conduct its business in all material respects as now conducted without material
conflict with the rights or privileges of others.
10.14 Year 2000 Compliance. Each Borrower and its Material
--------------------
Subsidiaries has taken as part of its Year 2000 Compliance program, or will take
by the scheduled date as part of its Year 2000 Compliance Program as in effect
as of the date of this Agreement, all reasonable and prudent steps to ensure
that its computer systems and programs are Year 2000 Compliant.
10.15 Disclosure. Neither this Agreement nor any other Credit
----------
Document to be furnished to the Lenders by or on behalf of the Borrowers and
their Subsidiaries in connection with the transactions contemplated hereby or by
such Credit Document contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which they were
made.
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<PAGE>
10.16 Solvency. Each Borrower is Solvent, and, after consummation of
--------
the transactions contemplated by this Agreement, will be Solvent.
11. Defaults.
--------
11.1 Events of Default. The following events are referred to as
-----------------
"Events of Default":
-----------------
11.1.1 Payment. The Borrowers fail to make any payment in
-------
respect of: (a) interest or any fee on or in respect of any of the
Credit Obligations owed by it as the same becomes due and payable, and
such failure continues for a period of three Banking Days, or (b) any
Credit Obligation with respect to payments made by the Issuing Bank
under any Letter of Credit or any draft drawn thereunder within three
Banking Days after demand therefor by the Agent or (c) principal of any
of the Credit Obligations owed by it as the same becomes due, whether
at maturity or by acceleration or otherwise.
11.1.2 Specified Covenants. Any Borrower fails to perform or
-------------------
observe any of the provisions of Section 2.5, 9.4, 9.5, 9.6, 9.7, 9.8,
9.10, 9.11, 9.14, 9.16, 9.19, 9.20 through 9.30 or 9.31, or a Material
Subsidiary fails to perform or observe any of the provisions of Section
2.1 of a Subsidiary Guarantee.
11.1.3 Other Covenants. Any Borrower or any other Obligor
---------------
fails to perform or observe any other covenant, agreement or provision
to be performed or observed by it under this Agreement, any Subsidiary
Guarantee, or any other Credit Document, and such failure is not cured
to the written satisfaction of the Required Lenders within 30 days
after notice thereof by the Agent to the Parent.
11.1.4 Representations and Warranties. Any representation or
------------------------------
warranty of or with respect to any Borrower or any other Obligor made
to the Lenders or the Agent in, pursuant to or in connection with this
Agreement, any Subsidiary Guarantee or any other Credit Document is
materially false on the date as of which it was made.
11.1.5 Cross Default, Etc.
------------------
(a) Any Borrower or any of its Material Subsidiaries
fails to make any payment when due (after giving effect to any
applicable grace periods) in respect of any Indebtedness (other than
the Credit Obligations) outstanding in an aggregate amount of principal
(whether or not due) and accrued interest exceeding $5,000,000
(including without limitation aggregate Indebtedness arising under all
commercial paper issued by the Parent pursuant to the Commercial Paper
Documents);
(b) Any Borrower or any of its Material Subsidiaries
fails to perform or observe the terms of any agreement or instrument
relating to such
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Indebtedness and such failure continues, without having been duly
cured, waived or consented to, beyond the period of grace, if any,
specified in such agreement or instrument, and such failure permits the
acceleration of such Indebtedness;
(c) All or any part of such Indebtedness of any
Borrower or any of its Material Subsidiaries is accelerated or becomes
due or payable prior to its stated maturity (except with respect to
voluntary prepayments thereof) for any reason whatsoever;
(d) Any Lien on any property of any Borrower or any of
its Material Subsidiaries securing any such Indebtedness is enforced by
foreclosure or similar action; or
(e) Any holder of any such Indebtedness exercises any
respect to the issuance thereof or any put or repurchase rights against
any Obligor with respect to such Indebtedness (other than any such
rights that may be satisfied with "payment in kind" notes or other
similar securities).
11.1.6 Final Judgment. Any one or more final judgments, orders
--------------
or decrees for the payment of money in excess of $10,000,000 (whether
singly or in the aggregate) to the extent not covered by insurance is
rendered against any Borrowers or their Material Subsidiaries and the
Borrowers and their Material Subsidiaries do not discharge the same or
provide for its discharge in accordance with its terms, or procure a
stay of execution thereof pending appeal, within forty-five (45) days
after the date of entry thereof.
11.1.7 Change of Control. A Change of Control occurs.
-----------------
11.1.8 Enforceability, Etc. Any Credit Document, including
-------------------
without limitation any Subsidiary Guarantee, ceases for any reason
(other than the scheduled termination thereof in accordance with its
terms) to be in full force and effect and enforceable in accordance
with its terms; or any party to any Credit Document shall so assert in
a judicial or similar proceeding; or any Material Subsidiary or other
party to a Credit Document shall revoke any Subsidiary Guarantee or
other Credit Document or shall deny any further liability or obligation
thereunder; or any security interests hereafter created by this
Agreement or any other Credit Documents shall cease to be enforceable
and of the same effect and priority purported to be created thereby.
11.1.9 ERISA Events.
------------
(a) Any ERISA Event occurs with respect to a Plan and
the sum of the Insufficiency of such Plan and the Insufficiency of all
other Plans with respect to which an ERISA Event exists exceeds
$5,000,000;
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<PAGE>
(b) any ERISA Group Person shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans by
the ERISA Group Person as Withdrawal Liability (determined as of the
date of such notification), exceeds $5,000,000 or requires payments
exceeding $1,000,000 per annum; or
(c) any ERISA Group Person shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV
of ERISA, and as a result of such reorganization or termination the
aggregate annual contributions of the ERISA Group Person to all
Multiemployer Plans that are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such reorganization or
termination occurs by an amount exceeding $5,000,000;
provided, however, that an ERISA Event or a Withdrawal Liability described in
clauses (a) and (b) shall not be deemed an Event of Default if a bona fide
dispute exists as to such matter, the dispute is contested in good faith by
appropriate proceedings and the Borrowers have established on their financial
statements an adequate reserve for the amount in dispute in accordance with
GAAP.
11.1.10 Bankruptcy, Etc. Any Borrower or any other Obligor
---------------
shall:
(a) Commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board of directors
or other governing body, the commencement of such a voluntary case;
(b) (i) Have filed against it a petition commencing
an involuntary case under the Bankruptcy Code that shall not have been
dismissed within 60 days after the date on which such petition is
filed, or (ii) file an answer or other pleading within such 60-day
period admitting or failing to deny the material allegations of such a
petition or seeking, consenting to or acquiescing in the relief therein
provided, or (iii) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(c) Seek relief as a debtor under any applicable law,
other than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(d) Have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii)
ordering or approving its liquidation or reorganization as a debtor or
any modification or alteration of
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the rights of its creditors or (iii) assuming custody of, or appointing
a receiver or other custodian for, all or a substantial portion of its
property; or
(e) Make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
11.2 Certain Actions Following an Event of Default. If any one or
---------------------------------------------
more Events of Default occurs, then in each and every such case:
11.2.1 Terminate Obligation to Extend Credit. The Agent on
-------------------------------------
behalf of the Lenders may (and upon written request of the Required
Lenders the Agent shall) terminate the obligations of the Lenders to
make any further extensions of credit under the Credit Documents by
furnishing notice of such termination to the Parent.
11.2.2 Specific Performance; Exercise of Rights. The Agent on
----------------------------------------
behalf of the Lenders may (and upon written request of the Required
Lenders the Agent shall) proceed to protect and enforce the Lenders'
rights by suit in equity, action at law and/or other appropriate
proceeding, either for specific performance of any covenant or
condition contained in this Agreement or any other Credit Document or
in any instrument or assignment delivered to the Lenders pursuant to
this Agreement or any other Credit Document, or in aid of the exercise
of any power granted in this Agreement or any other Credit Document or
any such instrument or assignment.
11.2.3 Acceleration. The Agent on behalf of the Lenders may
------------
(and upon written request of the Required Lenders the Agent shall) by
notice in writing to the Parent (a) declare all or any part of the
unpaid balance of the Credit Obligations then outstanding to be
immediately due and payable, and (b) require the Borrowers immediately
to deposit with the Agent in cash or cash equivalents an amount equal
to the then Letter of Credit Exposure, and thereupon such unpaid
balance or part thereof and such amount equal to the Letter of Credit
Exposure shall become so due and payable without presentation, protest
or further demand or notice of any kind, all of which are hereby
expressly waived; provided, however, that if a Bankruptcy Default has
-------- -------
occurred, the unpaid balance of the Credit Obligations shall
automatically become immediately due and payable.
11.2.4 Enforcement of Payment; Credit Security; Setoff. The
-----------------------------------------------
Agent on behalf of the Lenders may (and upon written request of the
Required Lenders the Agent shall) proceed to enforce payment of the
Credit Obligations in such manner as it may elect, to cancel any
outstanding Letters of Credit which permit the cancellation thereof and
to realize upon any and all rights in any collateral securing the
Credit Obligations. The Lenders may offset and apply toward the payment
of the Credit Obligations (and/or toward the curing of any Event of
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Default) any Indebtedness from the Lenders to the respective Obligors,
including any Indebtedness represented by deposits in any account
maintained with the Lenders, regardless of the adequacy of any security
for the Credit Obligations. The Lenders shall have no duty to determine
the adequacy of any such security in connection with any such offset.
11.2.5 Cumulative Remedies. To the extent not prohibited by
-------------------
applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.
11.3 Annulment of Defaults. Once an Event of Default has occurred,
---------------------
such Event of Default shall be deemed to exist and be continuing for all
purposes of the Credit Documents until the Required Lenders or the Agent (with
the consent of the Required Lenders) shall have waived such Event of Default in
writing, stated in writing that the same has been cured to such Lenders'
reasonable satisfaction or entered into an amendment to this Agreement which by
its express terms cures or waives such Event of Default, at which time such
Event of Default shall no longer be deemed to exist or to have continued. No
such action by the Lenders or the Agent shall extend to or affect any subsequent
Event of Default or impair any rights of the Lenders upon the occurrence
thereof. The making of any extension of credit during the existence of any
Default or Event of Default shall not constitute a waiver thereof.
11.4 Waivers. To the extent that such waiver is not prohibited by the
-------
provisions of applicable law that cannot be waived, each of the Borrowers and
the other Obligors waives:
(a) all presentments, demands for performance, notices
of nonperformance (except to the extent required by this Agreement or
any other Credit Document), protests, notices of protest and notices of
dishonor;
(b) any requirement of diligence or promptness on the
part of any Lender in the enforcement of its rights under this
Agreement or any other Credit Document;
(c) any and all notices of every kind and description
which may be required to be given by any statute or rule of law; and
(d) any defense (other than indefeasible payment in
full) which it may now or hereafter have with respect to its liability
under this Agreement or any other Credit Document or with respect to
the Credit Obligations.
12. Expenses; Indemnity.
-------------------
12.1 Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, the Borrowers shall pay:
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(a) all reasonable expenses of the Agent (including
the out-of-pocket expenses related to forming the group of Lenders and
reasonable fees and disbursements of the counsel to the Agent) in
connection with the preparation and duplication of this Agreement and
each other Credit Document, the transactions contemplated hereby and
thereby and amendments, waivers, consents and other operations
hereunder and thereunder;
(b) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in respect of
this Agreement, any other Credit Document; and
(c) all other reasonable expenses incurred by the
Lenders or the holder of any Credit Obligation in connection with the
enforcement of any rights hereunder or under any other Credit Document,
including costs of collection and reasonable attorneys' fees (including
a reasonable allowance for the hourly cost of attorneys employed by any
Lender on a salaried basis) and expenses.
12.2 General Indemnity. The Borrowers shall indemnify the Lenders
-----------------
and the Agent and hold them harmless from any liability, loss or damage
resulting from the violation by the Borrowers of Section 2.5 and from and
against all losses, costs and expenses, incurred in liquidating or employing
deposits from third parties acquired or arranged, and/or in terminating or
unwinding any contact entered into, or order to effect or fund the whole or any
part of any drawing or any overdue amount hereunder incurred by any Lender as a
consequence of any Default or Event of Default and/or the repayment of any
amount due hereunder other than at the expiration of an Interest Period. In
addition, the Borrowers shall indemnify each Lender, the Agent, each of the
Lenders' or the Agent's directors, officers and employees, and each Person, if
any, who controls any Lender or the Agent (each Lender, the Agent and each of
such directors, officers, employees and control Persons is referred to as an
"Indemnified Party") and hold each of them harmless from and against any and all
-----------------
claims, damages, liabilities and reasonable expenses (including reasonable fees
and disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with (a) the Indemnified Party's compliance
with or contest of any subpoena or other process issued against it in any
proceeding involving the Borrowers or any of its Subsidiaries, or their
Affiliates, (b) any litigation or investigation involving the Borrowers, any of
its Subsidiaries or their Affiliates, or any officer, director or employee
thereof, (c) the existence or exercise of any security rights with respect to
any collateral for the Credit Obligations in accordance with the Credit
Documents, or (d) this Agreement, any other Credit Document or any transaction
contemplated hereby or thereby; provided, however, that the foregoing indemnity
-------- -------
shall not apply to litigation commenced by the Borrowers against the Lenders or
the Agent which seeks enforcement of any of the rights of the Borrowers
hereunder or under any other Credit Document and is determined adversely
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to the Lenders or the Agent in a final nonappealable judgment or to the extent
such claims, damages, liabilities and expenses result from a Lender's or the
Agent's gross negligence or willful misconduct.
13. The Agent.
---------
13.1 Authorization and Action. Each Lender hereby appoints and
------------------------
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement and the other Credit Documents
as are delegated to the Agent by the terms hereof and thereof, together with
such powers and discretion as are reasonably incidental thereto. The Agent shall
be fully justified in failing or refusing to take any action under this Credit
Agreement or under any of the other Credit Documents unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder or under any
of the other Credit Documents in accordance with the instructions of the
Required Lenders, and such instructions shall be binding upon all Lenders and
all holders of Notes; provided, however, that the Agent shall not be required to
-------- ------
take any action that is contrary to this Agreement or applicable law. The Agent
shall not be deemed to have knowledge or notice of the occurrence of a Default
(other than the nonpayment of principal or interest on the Loan or of fees
payable hereunder) unless the Agent has received notice from a Lender or a
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give prompt notice thereof to the Lenders. The Agent shall take such action with
respect to such Default as shall be reasonably directed by the Required Lenders
and as is permitted by the Credit Documents; provided, that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Required Lenders or of all Lenders.
13.2 Agent's Reliance, Etc. Neither the Agent nor any of its
---------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with the Credit
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Assignee, as assignee, as provided in Section
14.1.1; (b) may consult with legal counsel (including counsel for any Lender),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (c) makes no
warranty or representation
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to any Lender and shall not be responsible to any Lender for any statements,
warranties or representations (whether written or oral) made by any Borrower or
Material Subsidiary in or in connection with the Credit Documents or in any
certificate, report, document, financial statement or other written or oral
statement referred to or provided for in, or received by Agent under or in
connection herewith or in connection with the other Credit Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of any Credit Document or as to the
use of the proceeds of the Loan or the use of the Letters of Credit on the part
of any Lender; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, any Credit Document or any other
instrument or document furnished pursuant thereto or for the failure of any
Borrower or Material Subsidiary to perform their respective obligations under
the Credit Documents; and (f) is entitled to rely, and shall be fully protected
in relying, upon any notice, consent, certificate, letter, resolution or other
instrument or writing (which may be by telegram, telecopy or telex) or
conversation believed by it to be genuine and signed, sent or made by the proper
party or parties. Each Lender acknowledges and agrees that the Agent shall not
have, by reason of this Agreement, a fiduciary relationship in respect of any
Lender; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to create any express, implied or constructive trust
relationship between the Agent and any Lender and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any of the other Credit Documents or shall otherwise
exist against Agent.
13.3 Lender Credit Decision; Agent in its Individual Capacity. Each
--------------------------------------------------------
Lender acknowledges that it has, independently and without reliance upon the
Agent or any other Lender and based on the financial statements referred to in
Section 10.2 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement or any
other Credit Document. Except as expressly provided in this Agreement, the Agent
shall not have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information concerning the
affairs, financial condition or business of the Borrowers (or any Affiliate
thereof) which may come into the possession of Agent, whether coming into its
possession before the making of any Loan or the issuance of any Letter of Credit
or at any time or times thereafter, or to inspect the properties or books of any
Borrower or any Material Subsidiary. The Agent and its Affiliates may (without
having to account for the same to any Lender) make loans to, accept deposits
from, and generally engage in any kind of business with any Borrower and any
Material Subsidiary as though the Agent were not the Agent hereunder. With
respect to its Commitment and the Loans made by it and all obligations owing to
it, the Agent shall have the same rights and powers under this
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Credit Agreement and the other Credit Documents as any Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
13.4 Indemnification. Each Lender severally agrees to indemnify the
---------------
Agent (as Agent and as Issuing Bank) (to the extent not promptly reimbursed by
the Borrowers) to the extent of such Lender's Percentage Interest from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of the Credit Documents or any
action taken or omitted by the Agent under the Credit Documents; provided,
--------
however, that no Lender shall be liable for any portion of such liabilities,
- -------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to reimburse
the Agent promptly upon demand for its Percentage Interest of any costs and
expenses (including, without limitation, reasonable fees and expenses of
counsel) payable by the Borrowers under Section 12.1 or 12.2, to the extent that
the Agent is not promptly reimbursed for such costs and expenses by the
Borrower. The failure of any Lender to reimburse the Agent promptly upon demand
for its Percentage Interest of any amount required to be paid by the Lender to
the Agent as provided herein shall not relieve any other Lender of its
obligation hereunder to reimburse the Agent for its Percentage Interest of such
amount, but no Lender shall be responsible for the failure of any other Lender
to reimburse the Agent for such other Lender's Percentage Interest of such
amount. Without prejudice to the survival of any other agreement of any Lender
hereunder, the agreement and obligations of each Lender contained in this
Section 13.4 will survive the payment in full of principal, interest and all
other amounts payable hereunder and under the other Credit Documents.
13.5 Successor Agents. The Agent may resign at any time by giving
----------------
written notice thereof to the Lenders and the Borrowers and may be removed at
any time with or without cause by the Required Lenders or, so long as no Default
exists, by the Borrowers. Upon any such resignation or removal, the Required
Lenders shall have the right, upon five (5) days' notice and approval by the
Borrowers (which approval shall not be unreasonably withheld), to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then, upon five (5) days' notice and
approval by the Borrowers (which approval shall not be unreasonably withheld),
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be a bank which maintains an office in the United States or a
commercial bank organized under the laws of the United States of America or of
any State thereof having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent and upon the execution and filing or recording of such
instruments or notices as may be necessary or desirable, or as
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the Required Lenders may request, such successor Agent will succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Agent, and the retiring Agent will be discharged from its duties
and obligations under the Credit Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 13
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
14. Successors and Assigns; Lender Assignments and Participations. Any
-------------------------------------------------------------
reference in this Agreement or any other Credit Document to any of the parties
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of the Borrowers, the Obligors, the
Agent or the Lenders that are contained in this Agreement or any other Credit
Document shall bind and inure to the benefit of their respective successors and
assigns; provided, however, that (a) the Borrowers and their Subsidiaries may
-------- -------
not assign their rights or obligations under this Agreement or any other Credit
Document, and (b) the Lenders will be not entitled to assign their respective
Percentage Interests in the credits extended hereunder or their Commitments
except as set forth below in this Section 14.
14.1 Assignments by Lenders.
----------------------
14.1.1 Assignees and Assignment Procedures. Each Lender may
-----------------------------------
(a) without the consent of the Agent or the Borrowers if the proposed
assignee is already a Lender hereunder or a wholly owned subsidiary of
the same corporate parent of which the assigning Lender is a
subsidiary, or (b) otherwise with the consents of the Agent and (so
long as no Event of Default exists) the Parent (which consents shall
not be unreasonably withheld), in compliance with applicable laws in
connection with such assignment, assign to one or more commercial banks
or other financial institutions (each, an "Assignee") all or a portion
--------
of its interests, rights and obligations under this Agreement and the
other Credit Documents, including all or a portion of its Commitment,
the portion of the Loan at the time owing to it and the Notes held by
it; provided, however, that:
-------- -------
(i) no such assignment shall be for less than
$5,000,000 of the assigning Lender's Commitment,
and the remaining Commitment of the assigning
Lender after giving effect to such assignment shall
not be less than $5,000,000; and
(ii) the parties to each such assignment will
execute and deliver to the Agent an Assignment and
Acceptance (the "Assignment and Acceptance")
substantially in the form of Exhibit 14.1.1,
--------------
together with the Note subject to such assignment
and a processing and recordation fee of $3,500
payable to the Agent by the assigning Lender or the
Assignee.
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Upon acceptance and recording pursuant to Section 14.1.4, from and
after the effective date specified in each Assignment and Acceptance
(which effective date will be at least five Banking Days after the
execution thereof unless waived by. the Agent):
(A) the Assignee will be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement
and
(B) the assigning Lender will, to the extent provided in
such assignment, be released from its obligations under
this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this
Agreement, such Lender will cease to be a party hereto
but will continue to be entitled to the benefits of
Sections 3.2.4, 3.5 and 12, as well as to any fees
accrued for its account hereunder and not yet paid).
14.1.2 Terms of Assignment and Acceptance. By executing and
----------------------------------
delivering an Assignment and Acceptance, the assigning Lender and
Assignee will be deemed to confirm to and agree with each other and the
other parties hereto as follows:
(a) other than the representation and warranty that it
is the legal and beneficial owner of the interest being assigned
thereby free and clear of any adverse claim, such assigning Lender
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement,
any other Credit Document or any other instrument or document furnished
pursuant hereto;
(b) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrowers and their Subsidiaries or the performance or
observance by the Borrowers or any of their Subsidiaries of any of its
obligations under this Agreement, any other Credit Document or any
other instrument or document furnished pursuant hereto;
(c) such Assignee confirms that it has received a copy
of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 9.3 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
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(d) such Assignee will independently and without
reliance upon the Agent, such assigning Lender or any other Lender, and
based on such documents and information as it deems appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under this Agreement;
(e) such Assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in
accordance with the terms of this Agreement all the obligations which
are required to be performed by it as a Lender.
14.1.3 Register. The Agent will maintain at the Denver Office
--------
a register (the "Register") for the recordation of (a) the names and
--------
addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 14.1.1, (b) the
Percentage Interest of each such Lender and (c) the amount of the Loan
owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the
Borrowers, the Agent and the Lenders may treat each Person whose name
is registered therein for all purposes as a party to this Agreement.
The Register will be available for inspection by the Borrowers or any
Lender at any reasonable time and from time to time upon reasonable
prior notice.
14.1.4 Acceptance of Assignment and Assumption. Upon its
---------------------------------------
receipt of a completed Assignment and Acceptance executed by an
assigning Lender and an Assignee together with the Note subject to such
assignment, and the processing and recordation fee referred to in
Section 14.1.1, the Agent will (a) accept such Assignment and
Acceptance, (b) record the information contained therein in the
Register and (c) give prompt notice thereof to the Borrowers. Within
five Banking Days after receipt of notice, the Borrowers, at their own
expense, will execute and deliver to the Agent, in exchange for the
surrendered Note, a new Note to the order of such Assignee in a
principal amount equal to the applicable Commitment and Loan assumed by
it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Commitment and Loan, a new Note to the order of
such assigning Lender in a principal amount equal to the applicable
Commitment and Loan retained by it. Subject to the foregoing, such new
Note will be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note, and will be dated the date
of the surrendered Revolving Credit Note which it replaces.
14.1.5 Federal Reserve Bank. Notwithstanding the foregoing
--------------------
provisions of this Section 14, any Lender may at any time pledge or
assign all or any portion of such Lender's rights under this Agreement
and the other Credit Documents to
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a Federal Reserve Bank; provided, however, that no such pledge or
-------- -------
assignment will release such Lender from such Lender's obligations
hereunder or under any other Credit Document.
14.1.6 Further Assurances. The Borrowers and the other
------------------
Obligors shall sign such documents and take such other actions from
time to time reasonably requested by an Assignee to enable it to share
in the benefits of the rights created by the Credit Documents.
14.2 Credit Participants. Each Lender may, without the consent of the
-------------------
Borrowers or the Agent, in compliance with applicable laws in connection with
such participation, sell to one or more commercial banks or other financial
institutions (each a "Credit Participant") participations in all or a portion of
------------------
its interests, rights and obligations under this Agreement and the other Credit
Documents (including all or a portion of its Commitment, and the Loan owing to
it and the Revolving Credit Note held by it); provided, however, that:
-------- -------
(a) such Lender's obligations under this Agreement
will remain unchanged;
(b) such Lender will remain solely responsible to the
other parties hereto for the performance of such obligations;
(c) the Credit Participant will be entitled to the
benefit of the cost protection provisions contained in Sections 3.2.4,
3.5 and 12, but will not be entitled to receive any greater payment
thereunder than the selling Lender would have been entitled to receive
with respect to the interest so sold if such interest had not been
sold; and
(d) the Borrowers, the Agent and the other Lenders
will continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, and such Lender will retain the sole right as one of the
Lenders to vote with respect to the enforcement of the obligations of
the Borrowers relating to the Loan and the approval of any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications, consents or waivers that increase the
credit, reduce the interest rate or extend the stated time of payment
hereunder).
Each Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to Section 14.2 may exercise all rights of payment (including the right
of set-off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Obligors and a Lender
hereunder in the amount of such participation.
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15. Confidentiality. Each Lender will make no disclosure of confidential
---------------
information furnished to it by the Borrowers or any of their Subsidiaries, and
identified as such, unless such information has become public, except:
(a) in connection with operations under or the
enforcement of this Agreement or any other Credit Document, to Persons
who have a reasonable need to be furnished such confidential
information and who agree to comply with the restrictions contained in
this Section 15 with respect to such information and to the extent such
disclosure does not violate any Legal Requirement;
(b) pursuant to any statutory or regulatory
requirement or any mandatory court order, subpoena or other legal
process;
(c) to any parent or corporate Affiliate of such
Lender or to any Credit Participant, proposed Credit Participant or
proposed Assignee; provided, however, that any such Person agrees to
comply with the restrictions set forth in this Section 15 with respect
to such information and to the extent such disclosure does not violate
any Legal Requirement;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to keep such
information confidential; and
(e) with the prior written consent of the Parent,
to any other Person.
16. Notices. Except as otherwise specified in this Agreement or any other
-------
Credit Document, any notice required to be given pursuant to this Agreement or
any other Credit Document shall be given in writing. Any notice, consent,
approval, demand or other communication in connection with this Agreement or any
other Credit Document shall be deemed to be given if given in writing (including
telex, telecopy or similar teletransmission) addressed as provided below (or to
the addressee at such other address as the addressee has specified by notice
actually received by the addressor) and if either (a) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt
of the correct answer back) or (b) in the case of a letter, five days have
elapsed after the same has been deposited in the United States mails, with
first-class postage prepaid and registered or certified.
If to the Borrowers or any of their Subsidiaries, to the Parent at
CH2M Hill Companies, Ltd.
6060 South Willow Drive
Englewood, CO 80111
ATTN: Chief Financial Officer
Telecopier: (303) 220-5106
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If to any Lender or the Agent, to it at its address set forth on
Schedule I or in the Register, with a copy to the Agent.
17. Course of Dealing; Amendments and Waivers. No course of dealing
-----------------------------------------
between any Lender or the Agent, on one hand, and the Borrowers or any other
Obligor, on the other hand, will operate as a waiver of any of the Lenders' or
the Agent's rights under this Agreement or any other Credit Document or with
respect to the Credit Obligations. Each of the Borrowers and the Obligors
acknowledges that if the Lenders or the Agent, without being required to do so
by this Agreement or any other Credit Document, give any notice or information
to, or obtain any consent from, the Borrowers or any other Obligor, the Lenders
and the Agent shall not by implication have amended, waived or modified any
provision of this Agreement or any other Credit Document, or created any duty to
give any such notice or information or to obey such consent on any future
occasion. No delay or omission on the part of any Lender or the Agent in
exercising any right under this Agreement or any other Credit Document or with
respect to the Credit Obligations shall operate as a waiver of such right or any
other right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver, consent or amendment with respect to this Agreement or any other
Credit Document shall be binding unless it is in writing and signed by the Agent
or the Required Lenders.
Any term, covenant, agreement or condition of any Credit Document may
be amended or waived if such amendment or waiver is in writing and is signed by
the Required Lenders (or by the Agent with written consent of the Required
Lenders), the Borrowers and any other party thereto; provided, however, that any
-------- ------
amendment, waiver or consent which affects the rights or duties of the Agent,
the Swing Line Lender or the Issuing Bank must be in writing and be signed also
by the affected Agent, Swing Line Lender or Issuing Bank; and provided further,
-------- -------
that any amendment, waiver or consent which effects any of the following changes
must be in writing and signed by all Lenders (or by the Agent with the written
consent of all Lenders):
(a) increases the Maximum Amount of Credit available;
(b) extends the Final Maturity Date;
(c) reduces the principal of, or interest on, any Loan or
any fees or other amounts payable for the account of the Lenders;
(d) postpones or conditions any date fixed for any payment
of the principal of, or interest on, any Loan or any fees or other amounts
payable for the account of the Lenders;
(e) waives or amends this Section 17;
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(f) amends the definition of Required Lenders or any
provision of this Agreement requiring approval of the Required Lenders or some
other specified amount of Lenders;
(g) increases or decreases the Commitment or the Percentage
Interest of any Lender (other than through an assignment under Section 14); or
(h) releases any Subsidiary Guarantee; or
(i) waives any of the conditions set forth in Section 8.
Unless otherwise specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given.
18. Defeasance. When all Credit Obligations have been paid, performed and
----------
reasonably determined by the Lenders to have been indefensibly discharged in
full, and if at the time no Lender continues to be committed to extend any
credit to the Borrowers hereunder or under any other Credit Document, this
Agreement and the other Credit Documents will terminate; provided, however, that
-------- -------
Sections 3.2.4, 3.5, 12, 13, 19, 20 and 21 will survive the termination of this
Agreement.
19. Venue: Service of Process. Each of the Borrowers and the other
-------------------------
Obligors:
(a) Irrevocably submits to the nonexclusive
jurisdiction of the state courts of the State of Colorado and to the
nonexclusive jurisdiction of the United States District Court for the
District of Colorado for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof, subject to the
provisions of Section 21; and
(b) Waives to the extent not prohibited by applicable
law that cannot be waived, and agrees not to assert, by way of motion,
as a defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court, subject to
the provisions of Section 21.
Each of the Borrowers and the other Obligors consents to service of process in
any such proceeding in any manner at the time permitted by the laws of the State
of Colorado agrees that service of process by registered or certified mail,
return receipt requested, at it, address specified in or pursuant to Section 16
is reasonably calculated to give actual notice.
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20. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
--------------------
THAT CANNOT BE WAIVED, EACH OF THE BORROWERS, THE OTHER OBLIGORS, THE AGENT AND
THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN
ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT, THE BORROWERS OR
ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each
of the Borrowers and the other Obligors acknowledges that it has been informed
by the Agent that the provisions of this Section 20 constitute a material
inducement upon which each of the Lenders has relied and will rely in entering
into this Agreement and any other Credit Document, and that it has reviewed the
provisions of this Section 20 with its counsel. Any Lender, the Agent, any
Borrower or any other Obligor may file an original counterpart or a copy of this
Section 20 with any court as written evidence of the consent of any Borrower,
the other Obligors, the Agent and the Lenders to the waiver of their rights to
trial by jury.
21. Arbitration.
-----------
21.1 Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in Section 21.5 below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any action,
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Credit
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Credit Documents, including, without limitation, any of
the foregoing arising in connection with the exercise of any self help,
ancillary or other remedies pursuant to any of the Credit Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party that fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
21.2 Governing Rules. Arbitration proceedings shall be administered
---------------
by the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Credit
Documents. The arbitration shall be conducted at a location in Denver, Colorado
selected by the AAA or other administrator.
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If there is any inconsistency between the terms hereof and any such rules, the
terms and procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an arbitration
may be entered in any court having jurisdiction; provided, however, that nothing
-------- -------
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C. (S)91 or any similar applicable
state law.
21.3 No Waiver; Provisional Remedies; Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of the Agent or any Lender to exercise
self-help remedies such as set-off, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or ancillary
remedies, including, without limitation, injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
21.4 Arbitrator Qualifications and Powers; Awards. Arbitrators must
--------------------------------------------
be active members of the Colorado State Bar or retired judges of the state or
federal judiciary of Colorado, with expertise in the substantive laws applicable
to the subject matter of the dispute. Arbitrators are empowered to resolve
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance
with the substantive law of the State of Colorado, (ii) may grant any remedy or
relief that a court of the State of Colorado could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award, and (iii) shall have the power to award recovery of all costs and fees,
to impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Colorado Rules of Civil Procedure and other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided, however, that all
-------- -------
three arbitrators must actively participate in all hearings and deliberations.
21.5 Judicial Review. Notwithstanding anything herein to the
---------------
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall not
be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive
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law of the State of Colorado, and (iii) the parties shall have, in addition to
the grounds referred to in the Federal Arbitration Act for vacating, modifying
or correcting an award, the right to judicial review of (A) whether the findings
of fact rendered by the arbitrators are supported by substantial evidence, and
(B) whether the conclusions of law are erroneous under the substantive law of
the State of Colorado. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the State of
Colorado.
21.6 Miscellaneous Arbitration Provisions. To the maximum extent
------------------------------------
practicable, the AAA, the arbitrators and the parties shall take all action
required to conclude any arbitration proceeding within 180 days of the filing of
the Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one agreement
for arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Credit Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Credit Documents or
any relationship between the parties.
22. Judgment Currency.
-----------------
22.1 Conversion Requirements. Each Obligor's obligations under the
-----------------------
Credit Documents to make payments in United States Dollars or in the applicable
Foreign Currency (the "Obligation Currency") shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than the Obligation Currency, except to the
extent that such tender or recovery results in the effective receipt by the
Agent or Lender of the full amount of the Obligation Currency expressed to be
payable to the Agent or such Lender under the Credit Documents. If, for the
purpose of obtaining or enforcing judgment against any Obligor in any court or
in any jurisdiction, it becomes necessary to convert into or from any currency
other than the Obligation Currency (such other currency being hereinafter
referred to as the "Judgment Currency") an amount due in the Obligation
Currency, the conversion shall be made, at the U.S. Dollar Equivalent ,
determined in each case as of the Banking Day immediately preceding the day on
which the judgment is given (such Banking Day being hereinafter referred to as
the "Judgment Currency Conversion Date").
22.2 Change in Rate of Exchange. If there is a change in the rate of
--------------------------
exchange prevailing between the Judgment Currency Conversion Date and the date
of actual payment of the amount due, such amount payable by the applicable
Obligor shall be reduced or increased, as applicable, such that the amount paid
in the Judgment Currency, when converted at the rate of exchange prevailing on
the date of payment,
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will produce the amount of the Obligation Currency which could have been
purchased with the amount of Judgment Currency stipulated in the judgment or
judicial award at the rate of exchange prevailing on the Judgment Currency
Conversion Date.
23. Setoff. In addition to any rights and remedies of the Lenders
------
provided by law, each Lender shall have the right, with the prior consent of the
Agent but without prior notice to the Borrowers, any such notice being expressly
waived by the Borrowers to the extent permitted by applicable law, upon the
occurrence and during the continuance of a Default, to set-off and apply against
any indebtedness, whether matured or unmatured, of the Borrowers to such Lender,
any amount owing from such Lender or Affiliate thereof to the Borrowers, at or
at any time after, the happening of any of the above mentioned events. The
aforesaid right of set-off may be exercised by such Lender against the Borrowers
or against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receiver or execution, judgment or attachment creditor of
the Borrowers or against anyone else claiming through or against the Borrowers
or such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off has not been exercised by
such Lender prior to the occurrence of a Default. Each Lender agrees promptly to
notify the Parent after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
24. No Third Party Beneficiaries. This Agreement is made and entered into
----------------------------
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, any of the Credit Documents to which it is not a party.
25. General. All covenants, agreements, representations and warranties
-------
made in this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. If
any provision of this Agreement is prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement. The headings in this Agreement are for
convenience of reference only and will not limit or otherwise affect the meaning
hereof. This Agreement and the other Credit Documents (including the Fee Letter
and any other related fee agreements with the Agent or the Lenders) constitute
the entire understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior and contemporaneous understandings
and agreements, whether written or oral. This Agreement may be executed in any
number of counterparts which together will constitute one instrument. This
Agreement shall be governed by and construed in accordance witch the laws (other
than the conflict of laws rules) of the State of Colorado.
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Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
CH2M HILL COMPANIES, LTD.
By /S/ S. Vinson
--------------------------------------
Title:
CH2M HILL, INC.
By /S/ S. Vinson
--------------------------------------
Title:
OPERATIONS MANAGEMENT INTERNATIONAL, INC.
By /S/ Robert J. Moses
--------------------------------------
Title:
CH2M HILL INDUSTRIAL DESIGN CORPORATION
By /S/ Susan D. King
--------------------------------------
Title:
LENDERS
-------
WELLS FARGO BANK, NATIONAL ASSOCIATION
By /S/ Darlene A. Evans
--------------------------------------
Title: Vice President
Address:1740 Broadway;
Denver Co. 80274-8673
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UNION BANK OF CALIFORNIA, N.A.
By: Julie Beckley
--------------------------------------
Title:VP
U.S. BANK NATIONAL ASSOCIATION
By: /S/ Jannette Scarpino
--------------------------------------
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /S/ David Howell
-------------------------------------
Title: Vice President
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SCHEDULE I
List of Bankers
Dollar Amount of Commitment and
Percentage of Maximum Amount of Credit
Union Bank of California $20,000,000
Energy Capital Services
445 S. Figueroa Street 20%
Los Angeles, CA 90071
Telephone: (213) 236-5779
Telecopier: (303) 236-4096
Attn: Julie B. Beckley
VP - Environmental Services
U.S. Bank National Association $15,000,000
950 - 17/th/ Street, Suite 300
Denver, CO 80207 15%
Telephone: (303) 585-4235
Telecopier: (303) 585-6273
Attn: Wesley G. Zepelin
Vice President
Harris Trust and Savings Bank $25,000,000
111 West Monroe Street
Chicago, IL 60603 25%
Telephone: (312) 461-7223
Telecopier:
Attn: David Howell
VP Construction Industry/Corporate Banking
Wells Fargo Bank, National Association $40,000,000
633 Seventeenth Street, 3rd Floor
Denver, CO 80270 40%
Telephone: (303) 863-6213
Telecopier: (303) 863-6670
Attn: Darlene A. Evans
Vice President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made as part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 8, 1999.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion of our report dated January 22, 1999 on the
consolidated balance sheets of CH2M HILL INDUSTRIAL DESIGN CORPORATION AND
SUBSIDIARIES as of December 31, 1998 and 1997, and related consolidated
statements of income and retained earnings, comprehensive income, and cash
flows for each of the years in the three year period ended December 31, 1998.
KPMG Peat Marwick LLP
Portland, Oregon
July 1, 1999
