-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QAusvlfaH1SdhdwshYPJ3gOS5fm2IeNuU6aD8wQTuROE9v8/A6g9LKcHpLR4Cx8n LcfAtX9h2ZZdsh3bLboCag== 0000950109-99-004130.txt : 19991117 0000950109-99-004130.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950109-99-004130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IT GROUP INC CENTRAL INDEX KEY: 0000731190 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 330001212 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09037 FILM NUMBER: 99756403 BUSINESS ADDRESS: STREET 1: 2790 MOSSIDE BLVD CITY: MONROEVILLE STATE: PA ZIP: 15146 BUSINESS PHONE: 4123727701 MAIL ADDRESS: STREET 1: 2790 MOSSIDE BLVD CITY: MONROEVILLE STATE: PA ZIP: 15146 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL TECHNOLOGY CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended October 1, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission file number 1-9037 --------- The IT Group, Inc. (Exact name of registrant as specified in its charter) Delaware 33-0001212 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 372-7701 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ _____ At November 5, 1999 the registrant had issued and outstanding an aggregate of 22,763,652 shares of its common stock. THE IT GROUP, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR QUARTER ENDED OCTOBER 1, 1999 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements. Condensed Consolidated Balance Sheets as of October 1, 1999 (unaudited) and December 25, 1998..................................... 3 Condensed Consolidated Statements of Operations for the Fiscal Quarters and Three Fiscal Quarters ended October 1, 1999 and September 25, 1998 (unaudited)............... 4 Condensed Consolidated Statements of Cash Flows for the Three Fiscal Quarters ended October 1, 1999 and September 25, 1998 (unaudited)...................................... 5 Notes to Condensed Consolidated Financial Statements (unaudited)................................ 6-15 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition......... 16-26 Item 3 Quantitative and Qualitative Disclosures about Market Risk........................................... 28 PART II. OTHER INFORMATION Item 1 Legal Proceedings..................................... 29 Item 6 Exhibits and Reports on Form 8-K...................... 30 Signatures............................................ 31 2 PART I Item 1. Financial Statements THE IT GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
October 1, December 25, 1999 1998 -------------- ------------- (Unaudited) (In thousands) ASSETS ------ Current assets: Cash and cash equivalents....................................... $ 21,509 $ 21,265 Receivables, net................................................ 473,911 338,589 Prepaid expenses and other current assets....................... 24,781 17,308 Deferred income taxes........................................... 19,504 15,919 ---------- --------- Total current assets........................................... 539,705 393,081 Property, plant and equipment, at cost: Land and land improvements...................................... 617 2,166 Buildings and leasehold improvements............................ 14,601 15,072 Machinery and equipment......................................... 104,048 81,763 ---------- --------- 119,266 99,001 Less accumulated depreciation and amortization................. 57,533 51,331 ---------- --------- Net property, plant and equipment............................. 61,733 47,670 Cost in excess of net assets of acquired businesses.............. 491,976 356,619 Other assets..................................................... 45,750 17,469 Deferred income taxes............................................ 89,594 93,719 Long-term assets of discontinued operations...................... 40,048 40,048 ---------- --------- Total assets $1,268,806 $ 948,606 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable................................................ $ 196,412 $ 150,912 Accrued liabilities............................................. 81,621 96,087 Billings in excess of revenues.................................. 18,121 8,219 Short-term debt, including current portion of long-term debt.... 19,818 17,603 ---------- --------- Total current liabilities...................................... 315,972 272,821 Long-term debt................................................... 628,119 364,824 8% convertible subordinated debentures........................... 35,935 40,235 Other long-term accrued liabilities.............................. 28,203 32,558 Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 22,916,909 and 22,675,917 shares issued........................ 229 227 Preferred stock, $100 par value; 180,000 shared authorized: 7% cumulative convertible exchangeable, 20,556 shares issued and outstanding, 24,000 shares authorized..................... 2,056 2,056 6% cumulative convertible participating, 46,095 shares issued and outstanding............................................... 4,609 4,609 Additional paid-in capital...................................... 349,995 348,794 Deficit......................................................... (94,847) (116,984) ---------- --------- 262,042 238,702 Treasury stock at cost, 67,059 and 47,484 shares................ (943) (74) Accumulated other comprehensive loss............................ (522) (460) ---------- --------- Total stockholders' equity..................................... 260,577 238,168 ---------- --------- Total liabilities and stockholders' equity..................... $1,268,806 $ 948,606 ========== =========
See accompanying notes 3 THE IT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Fiscal quarters ended Three fiscal quarters ended -------------------------- --------------------------- October 1, September 25, October 1, September 25, 1999 1998 1999 1998 ---------- ------------- ---------- ------------- (Unaudited) Revenues....................................... $394,148 $260,187 $953,412 $621,413 Cost and expenses: Cost of revenues............................. 339,068 229,756 820,428 546,535 Selling, general and administrative expenses. 19,525 13,350 50,429 37,820 Special charges................................ - - - 30,665 -------- -------- -------- -------- Operating income............................... 35,555 17,081 82,555 6,393 Interest expense, net.......................... 17,048 7,969 39,763 21,454 -------- -------- -------- -------- Income (loss) before income taxes.............. 18,507 9,112 42,792 (15,061) Provision for income taxes..................... 6,171 3,644 15,885 2,290 -------- -------- -------- -------- Net income (loss) from continuing operations... 12,336 5,468 26,907 (17,351) Discontinued operations - closure costs (net of $3,040 income tax benefit)........... - - - 4,960 -------- -------- -------- -------- Income (loss) before extraordinary item........ 12,336 5,468 26,907 (22,311) Extraordinary item - loss on early extinguishment of debt (net of $3,497 income tax benefit)........... - - - 5,706 -------- -------- -------- -------- Net income (loss).............................. 12,336 5,468 26,907 (28,017) Preferred stock dividends...................... (1,590) (1,569) (4,770) (4,696) -------- -------- -------- -------- Net income (loss) applicable to common stock... $ 10,746 $ 3,899 $ 22,137 $(32,713) ======== ======== ======== ======== Net income (loss) per share basic: Earnings (loss) from continuing operations (net of preferred stock dividends).......... $ 0.47 $ 0.17 $ 0.98 $ (1.49) Loss from discontinued operations............ - - - (0.34) Extraordinary item - early extinguishment of debt........................................ - - - (0.39) -------- -------- -------- -------- $ 0.47 $ 0.17 $ 0.98 $ (2.22) ======== ======== ======== ======== Net income (loss) per common share diluted..... $ 0.39 $ 0.16 $ 0.83 $ (2.22) ======== ======== ======== ======== Weighted average common shares outstanding: Basic.......................................... 22,758 22,631 22,703 14,750 ======== ======== ======== ======== Diluted........................................ 31,228 28,646 29,348 14,750 ======== ======== ======== ========
See accompanying notes 4 THE IT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three fiscal quarters ended -------------------------------- October 1, September 25, 1999 1998 -------------- ------------- (Unaudited) Cash flows from operating activities: Net income (loss)............................................ $ 26,907 $ (28,017) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 22,967 20,163 Deferred income taxes..................................... 13,515 (1,419) Special charges........................................... - 24,971 Net loss from disposition of discontinued operations...... - 4,960 Extraordinary charge for early retirement of debt......... - 3,640 Other..................................................... 309 (996) Changes in assets and liabilities, net of effects from acquisitions: Changes in assets and liabilities......................... (78,789) (33,915) Decrease in site closure costs of discontinued operation.. (4,391) (10,749) --------- --------- Net cash used for operating activities....................... (19,482) (21,362) Cash flows from investing activities: Capital expenditures......................................... (14,461) (5,730) Acquisition of businesses.................................... (195,704) (215,482) Proceeds from sale of assets................................. 2,040 5,750 Other, net................................................... (5,773) (945) --------- --------- Net cash used for investing activities....................... (213,898) (216,407) Cash flows from financing activities: Financing costs.............................................. (8,392) (9,530) Net borrowing of long-term debt.............................. 247,036 227,234 Net issuance of common stock................................. 648 - Dividends paid on preferred stock............................ (5,668) (2,713) --------- --------- Net cash provided by financing activities.................... 233,624 214,991 --------- --------- Net increase (decrease) in cash and cash equivalents............ 244 (22,778) Cash and cash equivalents at beginning of period................ 21,265 54,128 --------- --------- Cash and cash equivalents at end of period...................... $ 21,509 $ 31,350 ========= =========
See accompanying notes. 5 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of significant account policies: The condensed consolidated financial statements included herein have been prepared by The IT Group, Inc. (IT or the Company), without audit, and include all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of the results of operations for the fiscal quarter and year to date period ended October 1, 1999, pursuant to the rules of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations although the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading. The Company follows the 52/53 week fiscal year convention. The 1999 fiscal year includes 53 weeks, with the additional week included in the quarter ending October 1, 1999. As previously reported, during the nine-month transition period ended December 25, 1998 the Company changed its fiscal year-end from the last Friday in March to the last Friday in December. Consequently, unaudited financial statements for the nine months ended September 25, 1998 have not been previously reported. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current year's presentation. The reclassifications had no impact on income or total assets. These condensed consolidated financial statements should be read in conjunction with the Company's transition report on Form 10-K for the nine months ended December 25, 1998. The results of operations for the fiscal period ended October 1, 1999 are not necessarily indicative of the results for the full fiscal year. The December 25, 1998 balance sheet amounts were derived from audited financial statements. 2. Business acquisitions: EMCON On June 15, 1999, the Company acquired all of the outstanding capital stock of EMCON, Inc. (EMCON) for approximately $61.9 million plus the assumption of approximately $13.3 million in debt. EMCON, based in San Mateo, California, was a fully integrated environmental consulting, engineering, design, construction and related outsourced services firm serving primarily the private sector with a focus on the solid waste service market. For the twelve months ended December 31, 1998, EMCON had revenues of $151.3 million and net income of $1.6 million. The transaction was accounted for as a purchase in accordance with Accounting Principles Board (APB) Opinion No. 16, "Business Combinations". The excess of the purchase price over the fair value of assets acquired and liabilities assumed of $29.3 million is classified as cost in excess of net assets of acquired businesses and is being amortized over twenty five years. The estimated fair value of the assets acquired and liabilities assumed of EMCON, as adjusted, are as follows: Description Amount ----------- --------- (In thousands) Current assets.............................................. $46,640 Property and equipment...................................... 11,576 Cost in excess of net assets of acquired businesses......... 29,333 Other long term assets...................................... 13,173 Current liabilities......................................... 27,432 Long term liabilities, primarily debt....................... 10,378 6 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) As a result of the acquisition of EMCON, the Company has adopted a plan and commenced the process of closing specific overlapping facilities and reducing consolidated employment. The acquired balance sheet includes an accrual of $6.6 million for the estimated EMCON severance, office closure and lease termination costs of which $4.4 million has been paid through October 1, 1999. The balance will be paid over the next four years. EFM Group On April 9, 1999, the Company acquired specified assets of EFM Group (EFM) from ICF Kaiser International, Inc. (Kaiser) for $74.0 million in cash net of $8.0 million representing working capital retained by Kaiser. EFM provides environmental remediation, program management and technical support for United States Government agencies including the DOD, NASA and the DOE as well as private sector environmental clients. EFM had revenues of approximately $106.0 million for the calendar year ended December 31, 1998. The transaction was accounted for as a purchase in accordance with APB Opinion No. 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed of $77.7 million is classified as cost in excess of net assets of acquired businesses, and is being amortized over twenty five years. The EFM net assets acquired were $2.2 million. As a result of the acquisition of EFM, the Company has adopted a plan and commenced the process of closing specific overlapping facilities and reducing consolidated employment. The acquired balance sheet includes an accrual of $4.5 million for the estimated EFM severance, office closure and lease termination costs of which $3.0 million has been paid through October 1, 1999. The balance will be paid over the next two years. Roche On March 31, 1999, the Company acquired all of the outstanding capital stock of Roche Limited Consulting Services (Roche) for $10.2 million plus potential future earnout payments ranging from zero to $9.0 million. Roche is based in Quebec City, Canada and provides engineering and construction services to wastewater, paper, mining and transportation industries worldwide. Roche had revenues of approximately $28.0 million for the year ended December 31, 1998. The transaction was accounted for as a purchase in accordance with APB Opinion No. 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed of $4.6 million is classified as cost in excess of net assets of acquired businesses, and is being amortized over twenty years. The estimated fair value of the assets acquired and liabilities assumed of Roche as adjusted are as follows: Description Amount ----------- ---------- (In thousands) Current assets................................................ $12,583 Property and equipment........................................ 1,711 Cost in excess of net assets of acquired businesses........... 4,632 Other long term assets........................................ 3,616 Current liabilities........................................... 11,340 Long term liabilities, primarily debt......................... 664 Fluor Daniel GTI, Inc. On December 3, 1998, the Company acquired the outstanding common stock of Fluor Daniel GTI, Inc. (GTI), an environmental consulting, engineering and construction management services company. GTI operates mainly throughout the United States with minor foreign operations. Total consideration amounted to $69.4 million plus approximately $2.0 7 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) million in transaction costs. This transaction was accounted for as a purchase in accordance with APB Opinion No. 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the merger of $16.3 million is primarily classified as cost in excess of net assets of acquired businesses, and is being amortized over twenty years. The estimated fair value of the assets acquired and liabilities assumed of GTI are as follows: Description Amount ----------- ---------- (In thousands) Current assets............................................ $91,644 Property and equipment.................................... 3,587 Intangibles, primarily cost in excess of net assets of acquired businesses.................................. 16,324 Other long term assets.................................... 5,972 Current liabilities....................................... 46,130 As a result of the acquisition of GTI, the Company has adopted a plan and commenced the process of closing specific overlapping facilities and reducing consolidated employment. The acquired balance sheet includes an accrual of $9.0 million for the estimated GTI severance, office closure costs and lease termination costs of which $8.1 million has been paid through October 1, 1999. The balance, relating primarily to office lease costs, will be paid over the next three years. OHM Acquisition In January 1998, the Company entered into a merger agreement to acquire OHM Corporation (OHM), an environmental and hazardous waste remediation company servicing primarily industrial, federal government and local government agencies located in the United States. The transaction was effected through a two-step process for a total purchase price of $303.4 million consisting of (a) the acquisition of 54% of the total outstanding shares through a cash tender offer, which was consummated on February 25, 1998, at $11.50 per share for 13.9 million shares of OHM common stock, for a total consideration of $160.2 million plus $4.6 million in acquisition costs and (b) the acquisition on June 11, 1998 of the remaining 46% of the total outstanding shares through the exchange of 12.9 million shares of Company common stock valued at $8.04 per share, or $103.8 million and payment of $30.8 million plus $4.0 million in acquisition costs. This transaction was accounted for as a step acquisition and therefore the effects of the first phase of the merger were included in the quarter ended March 27, 1998 financial statements and the effects of both phases were included in the quarter ended June 26, 1998 financial statements. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the merger of $346.3 million is classified as cost in excess of net assets of acquired businesses with amortization over forty years. The estimated fair value of the assets acquired and liabilities assumed of OHM as adjusted are as follows: Description Amount ----------- ---------- (In thousands) Current assets................................................. $105,096 Property and equipment......................................... 18,344 Cost in excess of net assets of acquired businesses............ 346,299 Other long term assets......................................... 78,229 Current liabilities............................................ 136,558 Long term liabilities, primarily debt.......................... 107,924 8 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) As a result of the merger with OHM (the OHM Merger), the Company adopted a plan and completed the process of closing specific overlapping facilities and reducing consolidated employment. The acquired balance sheet includes an accrual of $14.8 million for the estimated OHM severance, office closure costs and lease termination costs of which $12.6 million has been paid through June 25, 1999. The balance relating primarily to office lease costs is anticipated to be paid over the next seven years. Summary The purchase price allocations for the GTI, EFM, Roche and EMCON acquisitions are preliminary and based upon information currently available. Management is continuing to gather and evaluate information regarding the valuation of assets and liabilities at the dates of the acquisitions. Management does not anticipate material changes to the preliminary allocations. The following unaudited pro forma condensed statement of operations gives effect to the OHM, GTI, EFM, Roche and EMCON acquisitions as if the transactions had occurred at the beginning of the nine-month periods ended October 1, 1999 and September 25, 1998.
October 1, 1999 September 25, 1998 Pro Forma Pro Forma --------------- ------------------ (In thousands, except per share data) Revenues........................................... $1,045,076 $1,038,053 Income (loss) from continuing operations........... 23,457 (29,195) Net income (loss) applicable to common stock....... 18,687 (44,557) Income (loss) per share: Basic........................................... 0.82 (1.97) Diluted......................................... 0.71 (1.97)
The above amounts are based upon certain assumptions and estimates, which the Company believes are reasonable. The pro forma results do not reflect anticipated cost savings and do not necessarily represent results, which would have occurred if the OHM, GTI, EFM, Roche and EMCON acquisitions had taken place at the dates and on the basis assumed above. 9 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Earnings per share: The following table sets forth the computation of basic and diluted earnings per share:
For the three fiscal For the fiscal quarter ended quarters ended ----------------------------- -------------------------- October 1, September 25, October 1, September 25, 1999 1998 1999 1998 ---------- -------------- ---------- ------------- (In thousands, except per share data) Numerator: Net income (loss) from continuing operations......... $12,336 $ 5,468 $26,907 $(17,351) Preferred stock dividends...... (1,590) (1,569) (4,770) (4,696) ------- ------- ------- -------- Numerator for basic earnings per share - net income (loss) available to common stockholders................. 10,746 3,899 22,137 (22,047) Discontinued operations - closure costs (net of income tax benefit).................. - - - (4,960) Extraordinary charge for early retirement of debt (net of income tax benefit)........... - - - (5,706) ------- ------- ------- -------- Net income (loss) applicable to common stock............... $10,746 $ 3,899 $22,137 $(32,713) Effect of conversion of dilutive securities: Preferred stock dividends..... 692 670 2,076 - Convertible subordinated debentures................... 597 - - - ------- ------- ------- -------- Numerator for diluted earnings per share - net income (loss) applicable to common stock........................ $12,035 $ 4,569 $24,213 $(32,713) ======= ======= ======= ======== Denominator: Denominator for basic earnings per share- weighted average shares....... 22,758 22,631 22,703 14,750 Effect of conversion of dilutive securities: Common equivalent shares...... 391 - 572 - Convertible preferred stock... 6,073 6,015 6,073 - Convertible subordinated debentures................... 2,006 - - - ------- ------- ------- -------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions....... 31,228 28,646 29,348 14,750 ======= ======= ======= ======== Net income (loss) per share basic: Earnings from continuing operations (net of preferred stock dividends)............. $ 0.47 $ 0.17 $ 0.98 $ (1.49) Earnings from discontinued operations.................... - - - (0.34) Extraordinary item - early extinguishment of debt........ - - - (0.39) ------- ------- ------- -------- $ 0.47 $ 0.17 $ 0.98 $ (2.22) ======= ======= ======= ======== Net income (loss) per share diluted......................... $ 0.39 $ 0.16 $ 0.83 $ (2.22) ======= ======= ======= ========
In June 1998, approximately 12.9 million shares were issued in connection with the second step of the OHM Merger (see Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 2). 10 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Recent accounting pronouncements: In June of 1999, the Financial Accounting Standards Board (FASB) issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133" which deferred for a one year period the required adoption of FASB Statement No. 133 to fiscal years beginning after June 15, 2000. As a result, the Company intends to adopt FASB Statement No. 133 in the first fiscal quarter of the year 2001 although earlier adoption is permitted. The Company is required by its Credit Facilities to use swap agreements to manage the interest rate risks associated with the variable nature of a portion of borrowings under the Company's Credit Facilities. FASB Statement No. 133 requires these swap agreements to be recorded at fair market value and reflected in earnings. The Company has evaluated its existing interest rate contracts and management does not believe that the impact of adopting this new standard will be material to the Company's financial statements. 5. Discontinued operations: In December 1987 the Company's Board of Directors adopted a strategic restructuring program which included a formal plan to divest the transportation, treatment and disposal operations through the sale of some facilities and closure of certain other facilities. As of October 1, 1999, three of the Company's inactive disposal sites have been formally closed and the fourth is in the process of closure. At October 1, 1999, the Company's condensed consolidated balance sheet included accrued liabilities of $3.6 million to complete the closure and post-closure of its disposal facilities and the PRP matters, net of certain trust fund and annuity investments, restricted by trust agreements with the California EPA Department of Toxic Substance Control (DTSC) to closure and post-closure use. In the quarter ended October 1, 1999, the Company renegotiated its financial assurance requirements on closure and thirty year post-closure obligations with the DTSC to enable the use of a performance bond to replace restricted trust fund assets. The renegotiated requirements included purchasing environmental insurance and a performance bond with an internationally recognized insurance carrier for the Company's obligations at its disposal facilities within the transportation, treatment and disposal discontinued operations. As a result of obtaining the insurance and the performance bond, subsequent to October 1, 1999, the Company obtained the release of trust fund assets, and received $14.9 million in cash which had previously provided financial assurance to the DTSC. Separately, the trustee also transferred to the insurance company annuities held in the trust funds. Under the performance bond, the Company is required to continue to perform, at its cost, closure activities at the remaining disposal site. Under the environmental insurance policy, the Company will perform post-closure activities at the four inactive disposal sites, and will be reimbursed by the insurance company, up to the policy limits, which are in excess of the Company's estimates for post-closure costs, during the policy's thirty one year term. Had the release of trust fund assets and the other changes occurred on October 1, 1999, the accrued liabilities of the discontinued operations would have been $18.5 million, including closure costs of $11.3 million which are expected to be incurred within two years, and $7.2 million of insurance program premium costs and PRP matters. In anticipation of implementing the renegotiated financial assurance requirements, during the quarter ended October 1, 1999, the Company instructed the trustee to convert investments held in marketable securities into cash, within the trust funds. 11 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The provision for loss on disposition of transportation, treatment and disposal discontinued operations is based on various assumptions and estimates. Outcomes significantly different from those used to estimate the provision for loss could substantially increase the costs to the Company of completing the disposition. 6. Contingencies: For information regarding legal proceedings of the Company's continuing operations, please see the note "Commitments and contingencies" in the Notes to Consolidated Financial Statements in the Company's Transition Report on Form 10-K for the fiscal year ended December 25, 1998 (as amended through Amendment No. 1); current developments regarding continuing operations' legal proceedings are discussed in Part II of this filing. See Management's Discussion and Analysis of Results of Operations and Financial Condition - Financial Condition - Transportation, Treatment and Disposal Discontinued Operations for information regarding the legal proceedings of the discontinued operations of the Company. 7. Contract accounting and accounts receivable: Included in accounts receivable, net at October 1, 1999 are billed receivables, unbilled receivables and retention in the amounts of $397.1 million, $62.7 million and $14.1 million, respectively. Billed receivables, unbilled receivables and retention from various agencies of the U.S. Government as of October 1 were $192.8 million, $47.1 million and $3.0 million, respectively. At December 25, 1998, billed receivables, unbilled receivables and retention were $269.0 million, $60.6 million and $9.0 million, respectively. Billed receivables, unbilled receivables and retention from the U.S. Government as of December 25, 1998 were $145.6 million, $37.5 million and $2.2 million, respectively. Unbilled receivables typically represent amounts earned under the Company's contracts but not yet billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones, negotiation of change orders or completion of the project. Generally, unbilled receivables are expected to be billed and collected in the subsequent year. Billings in excess of revenues represent amounts billed in accordance with contract terms, which are in excess of the amounts includable in revenue. Included in accounts receivable at October 1, 1999 is approximately $31.2 million associated with claims and unapproved change orders, which are believed by management to be probable of realization. Most of these claims and change orders are being negotiated or are in arbitration and should be settled within one year. This amount includes contract claims in litigation (see Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 6). While management believes no material loss will be incurred related to these claims and change orders, the actual amounts realized could be materially different than the amount recorded. 8. Special charges: Special charges totaling $30.7 million were recorded for the three fiscal quarters ended September 25, 1998, as follows: A special charge of $5.7 million was recorded in the fiscal quarter ended March 27, 1998 for integration costs associated with the acquisition of OHM, including $2.2 million of costs for severance and $3.5 million of costs other related items for closing and consolidating the Company's offices with OHM's offices. As part of the plan of integration, the Company identified slightly more than 100 IT employees in the operating group and administrative support functions to be laid off. In addition, the Company approved a plan for restructuring IT offices in which it would close three leased facilities, reduce the size of three more facilities and sublease a portion of eight additional facilities. As of October 1, 1999, $0.3 million of the integration charge remained to be paid. The remaining costs relate to the facility closures and office consolidations and will be paid over the remaining terms of the leases. Most of these lease commitments will be paid within the next three years. 12 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the second quarter ended June 26, 1998, special charges included $10.6 million (net of cash proceeds of $5.8 million) related to the sale of the Company's investment in Quanterra, Incorporated, and $14.4 million related to the write down of assets associated with the Company's Hybrid Thermal Treatment System (HTTS(R)) business to estimated salvage value. There were no special charges recorded in the third quarter ended September 25, 1998. 9. Income taxes: The income tax provision for the quarter ended October 1, 1999 was $6.2 million, reflecting an annual tax rate of approximately 40.5% on income of $18.5 million and a $1.5 million tax benefit from utilization of tax attributes in the quarter previously reserved. For the three fiscal quarters ended October 1, 1999, the Company recorded an income tax provision of $15.9 million, reflecting an income tax rate of 40.5% on income of $42.8 million and a $1.5 million tax benefit from utilization of tax attributes previously reserved. For the three fiscal quarters ended September 25, 1998, the Company recorded an income tax provision of $2.3 million, reflecting an income tax rate of 40% on income of $15.6 million excluding special charges of $30.7 million. The income tax benefit related to the special charges was offset by an increase in the deferred tax valuation allowance of $8.3 million. Based on a net deferred tax asset of $109.1 million (net of a valuation allowance of $49.8 million) at October 1, 1999 and assuming a net federal and state effective tax rate of 40%, the level of future earnings necessary to fully realize the net deferred tax asset would be approximately $273.0 million. The Company evaluates the adequacy of the valuation allowance and the realizability of the net deferred tax asset on an ongoing basis. Because of the Company's position in the industry, recent acquisitions, restructuring and existing backlog, management expects that its future taxable income will more likely than not allow the Company to fully realize its net deferred tax asset. 10. Long-term debt: As amended to date, the Company's credit facilities consist of an eight- year amortizing term loan (term loans) of $223.5 million and a six-year revolving credit facility (revolving loans) of $185.0 million that contains a sublimit of $25.0 million for letter of credit issuance. The term loans made under the credit facilities bear interest at a rate equal to LIBOR plus 2.75% as adjusted per annum (or the lender's base rate plus 1.75% per annum) and amortize on a semi-annual basis in aggregate annual installments of $4.5 million until June, 2004, with the remainder payable in eight equal subsequent quarterly installments. The revolving loans made under the credit facilities bear interest at a rate equal to LIBOR plus 2.25% as adjusted per annum (or the lender's base rate plus 1.25% per annum). The interest rate spreads on the term loans and revolving loans are subject to downward adjustments, if applicable, based upon the ratio of the Company's consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization. The credit facilities, as amended, provide that excess proceeds from the issuance of subordinated notes utilized to reduce the revolving credit facility portion of the credit facilities would not affect the future availability to the Company under the revolving facility. Paydowns of the Company's revolving facility allow for subsequent re-borrowing under the facility. On April 9, 1999, the Company issued $225.0 million of senior subordinated notes (Notes). The Company received $215.8 million in proceeds, net of expenses of $9.2 million. The Notes have an 11.25% fixed rate of interest payable every six months in cash commencing in 1999 and will be redeemable in or after 2004 at a premium. The Notes are general unsecured obligations of the Company, subordinated to the Company's credit facilities and other senior indebtedness and pari passu with other existing and future indebtedness unless the terms of that indebtedness expressly provide otherwise. The proceeds of the Notes were used to fund the Roche and EFM acquisitions and to refinance existing indebtedness under the Company's 13 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) revolving credit facility. On October 20, 1999, all issued and outstanding Notes were exchanged for registered, publicly traded notes in completion of a transaction under Rule 144A of the Securities Act of 1933. Letters of credit outstanding at October 1, 1999 were $6.5 million, of which $2.7 million were issued under the revolving credit facility. The Company also has various miscellaneous outstanding notes payable and capital lease obligations totaling $13.1 million. These notes payable mature at various dates between July 1999 and November 2000, at interest rates ranging from 7.5% to 8.6%. 11. Operating segments: Organization During the third quarter in response to market conditions, the Company modified its organizational structure, altering its four reportable segments: Engineering & Construction (E & C), Consulting, Outsourced Services and International. Prior period segment information has been presented on the new basis. The E&C segment includes the DOD, Energy and Nuclear Operations, Commercial Engineering & Construction, and Solid Waste business lines, which provide comprehensive environmental engineering and construction services to both government and commercial clients. The Consulting segment provides a wide range of consulting services including risk reduction, product registration/recertification, pollution prevention, information management, environmental health & safety management, science- based regulatory support, and real estate restoration. The Outsourced Services segment provides full service capabilities for operations, maintenance, management and construction at federal, state and local government facilities and in the private sector. The Company's International segment provides global services to the Company's U.S. based clients, and also performs international projects through controlled entities and joint ventures. The Company's principal international operations are located in Europe, Australia, Canada, and Taiwan. Segment Information
Outsourced E & C Consulting Services International Total -------- ---------- ---------- ------------- -------- (In thousands) Quarter ended October 1, 1999 Revenues................................ $331,966 $17,642 $26,885 $17,655 $394,148 Segment profit.......................... 43,265 3,457 1,785 1,283 49,790 Quarter ended September 25, 1998 Revenues................................ $224,808 $10,432 $22,588 $ 2,359 $260,187 Segment profit.......................... 23,856 1,008 2,552 186 27,602 Three quarters ended October 1, 1999 Revenues................................ $790,263 $43,418 $78,024 $41,707 $953,412 Segment profit.......................... 101,950 7,560 6,211 2,957 118,678 Three quarters ended September 25, 1998 Revenues................................ $532,894 $34,347 $49,089 $ 5,083 $621,413 Segment profit (loss)................... 58,496 5,869 4,040 (479) 67,926
14 THE IT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Quarter ended Three quarters ended ----------------------------- -------------------------- October 1, September 25, October 1, September 25, 1999 1998 1999 1998 -------------- -------------- ----------- ------------- Profit or Loss Total profit for reportable segments..................... $ 49,790 $ 27,602 $118,678 $ 67,926 Unallocated amounts: Corporate selling, general and administrative expense.. (14,235) (10,521) (36,123) (30,868) Special charges (a).................................... - - - (30,665) Interest expense, net.................................. (17,048) (7,969) (39,763) (21,454) -------- -------- -------- -------- Income (loss) before income taxes........................ $ 18,507 $ 9,112 $ 42,792 $(15,061) ======== ======== ======== ========
(a) Special charges, not included in the measurement of segment profit (loss) for the three quarters ended September 25, 1998 include amounts relating to the sale of the Quanterra investment, the write down of the HTTS(R) assets, and OHM integration costs, primarily severance and office consolidations. 12. Financial information for subsidiary guarantors The Company's payment obligations under the Notes are fully and unconditionally guaranteed on a joint and several basis by substantially all of the Company's wholly owned domestic subsidiaries. The Notes have not been guaranteed by the Company's captive insurance subsidiary nor any of the Company's foreign subsidiaries. The following summarized financial information presents separately the composition of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Summarized Condensed Financial Information As of and for the Nine Months Ended October 1, 1999
Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------- ------------- ------------ (In thousands) Current assets.................................... $ - $ 501,998 $38,224 $ (517) $539,705 Non current assets................................ 19,522 1,172,650 37,532 (500,603) 729,101 Current liabilities............................... 1,309 287,538 33,707 (6,582) 315,972 Revenues.......................................... - 913,090 40,513 (191) 953,412 Gross margin...................................... - 129,535 3,640 (191) 132,984 Net income (loss) from continuing operations...... (10,028) 35,509 2,218 (792) 26,907 Net income (loss)................................. (10,028) 35,509 2,218 (792) 26,907
Summarized Condensed Financial Information As of and for the Nine Months Ended September 25, 1998
Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------- -------------- ------------- ------------- (In thousands) Current assets.................................... $ 3 $340,026 $10,081 $ (474) $349,636 Non current assets................................ 12,557 646,441 8,988 (147,417) 520,569 Current liabilities............................... 3,135 221,772 15,606 (7,167) 233,346 Revenues.......................................... - 615,447 6,061 (95) 621,413 Gross margin...................................... - 75,069 (96) (95) 74,878 Net income (loss) from continuing operations...... (2,568) (14,455) 1,304 (1,632) (17,351) Net income (loss)................................. (2,568) (25,121) 1,304 (1,632) (28,017)
15 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. THE IT GROUP, INC. FOR QUARTER ENDED OCTOBER 1, 1999 RESULTS OF OPERATIONS Overview We are a leading provider of a broad range of environmental consulting, engineering and construction, and remediation services, designed to address clients' environmental needs and to add value by reducing clients' financial liabilities. In addition, we are leveraging our ability to manage large, complex environmental projects, one of our core strengths, to offer a variety of services, such as facilities management and non-environmental civil construction, to clients who no longer wish to perform these services themselves. We have a strong reputation for both the high quality of our work and the breadth of the services we provide. Our clients are federal, state and local governments in the U.S. and commercial businesses worldwide. We obtained 58% of our revenues for the nine months ended October 1, 1999 from the federal government under more than 100 contracts that range in length from one to ten years. In addition, we serve 1,600 commercial clients on projects, which range in length from one month to more than one year. For the nine months ended October 1, 1999, our revenues were $953.4 million. Approximately 86% of our backlog at October 1, 1999 was under federal government programs, and approximately 83% is expected to be charged to our clients on a cost-reimbursable basis. In the course of providing our services, we routinely subcontract services. These subcontractor costs are passed through to clients and, in accordance with industry practice, are included in our revenues. Our cost of revenues include subcontractor costs, salaries, direct and indirect overhead costs such as rents, utilities and travel directly attributable to projects. Our selling, general and administrative expenses are comprised primarily of costs related to the executive offices, corporate accounting, information technology, marketing and bid and proposal costs. These costs are generally unrelated to specific client projects. In addition, we include in these expenses amortization of intangible assets such as goodwill resulting from acquisitions. Revenues and Gross Margins Company. Revenues for the three months ended October 1, 1999 increased $134.0 million, or 51.5%, to $394.1 million, and for the nine-month year to date period increased $332.0 million, or 53.4%, to $953.4 million over the comparable prior year period. The increases in revenues are primarily attributable to the acquisitions of OHM Corporation (OHM) in February and June, 1998, Fluor Daniel GTI, Inc. (GTI) in December 1998, Roche Limited Consulting Group (Roche) in March 1999, the Environment and Facilities Management Group of ICF Kaiser International, Inc. (EFM) in April 1999, and EMCON, Inc. (EMCON) in June 1999 (see Item 1 - Notes to Condensed Consolidated Financial Statements, Note 2). Annual revenues for 1999 are projected to be approximately $1.3 billion. Our gross margin for the quarter ended October 1, 1999, improved to 14.0% of revenues, compared to 11.7% of revenues reported in the quarter ended September 25, 1998. Our gross margin for the nine months ended October 1, 1999 increased to 13.9% of revenues, compared to 12.0% of revenues reported in the nine months ended September 25, 1998. The increases in gross margins over the prior year periods were due to a favorable mix of higher margin revenue, contract performance, and overhead efficiencies. We expect our gross margin percentage to continue at the current level throughout the balance of the year. Our ability to maintain or improve our gross margin levels as well as to achieve target earnings is dependent on various factors in addition to the mix of work, including utilization of professional staff, successful execution of projects and bidding of new contracts at adequate margin levels, and continued realization of overhead savings achieved upon the successful integration of recent acquisitions. 16 THE IT GROUP, INC. RESULTS OF OPERATIONS (CONTINUED) A significant percentage of our revenues continue to be earned from federal government contracts with various federal agencies. Revenues from federal government contracts accounted for 58% of our consolidated revenues in the nine months ended October 1, 1999 and 64% in the nine months ended September 25, 1998. Although the percentage of revenues from federal government contracts decreased, the absolute dollars of federal government revenues increased to $556.4 million in the nine months ended October 1, 1999 compared to $388.7 million in the nine months ended September 25, 1998. This increase is primarily attributable to the acquisitions of OHM, GTI and EFM. Federal government revenues are derived principally from work performed for the Department of Defense (DOD) and, to a lesser extent, the Department of Energy (DOE). We expect to continue to earn a substantial portion of our Engineering & Construction segment revenues from DOD indefinite delivery order contracts, which are primarily related to remedial action work. In addition, we expect to increase our revenues from the DOE in the future due to an expected transition by the DOE over the next several years to emphasize remediation, as opposed to studies, combined with our favorable experience in winning and executing similar work for the DOD, however, recent bidding results on new DOE contract awards have been impacted by significant competition, which will affect our DOE revenue growth from new awards in the near term. Revenue growth from the commercial sector is expected to be directly related to the desire on the part of our clients for strategic environmental services that provide an integrated, proactive approach to environmental issues that are driven by economic, as opposed to regulatory, concerns. To address this trend in industry spending, we have undertaken a strategy of expanding through acquisitions our integrated environmental service capabilities to provide additional proactive and cost-effective environmental solutions based on economic rather than regulatory considerations. In addition, we have realigned our organizational resources to meet market conditions. Engineering & Construction. Revenues from the Engineering & Construction segment increased $107.2 million, or 47.7%, to $332.0 million for the three months ended October 1, 1999. For the nine months ended September 25, 1999, performed for the DOD, the DOE, other governmental agencies, and commercial clients Engineering & Construction segment revenues increased $257.4 million, or 48.3%, to $790.3 million. Our Engineering & Construction segment includes revenues from our DOD, Energy and Nuclear Operations (ENO), Commercial Engineering & Construction (CEC), and Solid Waste business lines, which draw personnel, equipment and other project resource requirements from our national shared services organization. For the three months ended October 1, 1999, revenues from DOD increased $24.2 million, or 18.7%, to $153.3 million, ENO revenues, derived principally from the DOE, increased $11.1 million, or 39.6%, to $39.2 million, and commercial revenues from the CEC and Solid Waste business lines increased $71.9 million, or 106.3%, to $139.5 million. DOD revenues increased primarily as a result of the EFM acquisition. ENO revenues increased primarily due to the transition to the remediation phase of a $122.0 million project to perform the excavation, pretreatment and drying of an estimated one million tons of materials for the DOE's Fernald Environmental Management Project (Fernald Project). Commercial revenues increased primarily as a result of the EFM, GTI and EMCON acquisitions. For the nine months ended October 1, 1999, revenues from DOD increased $85.2 million, or 28.4%, to $385.5 million, ENO revenues increased $34.0 million, or 55.1%, to $95.6 million, and commercial revenues increased $137.2 million, or 79.7%, to $309.2 million. The increase in DOD revenues was mainly the result of the OHM and EFM acquisitions. The increase in ENO revenues is mainly due to our Fernald Project. The increase in commercial revenues is mainly due to the EFM, GTI and EMCON acquisitions, which was partially offset by second quarter client- controlled delays in starting fieldwork construction activities. Our Engineering & Construction segment profit margin was $43.3 million, or 13.0% of segment revenues, for the three months ended October 1, 1999, compared to $23.9 million, or 10.6% of segment revenues, for the three months ended September 25, 1998. Segment profit margin represents revenues, less cost of revenues and selling general and administrative expenses (excluding goodwill) directly attributable to operations. DOD margins were 10.5% for the current year's quarter, compared to 10.9% for the prior year period. ENO margins were 14.6% for the current year's quarter, compared to 13.1% for the prior year period. Commercial margins were 15.5% for the current year's quarter compared to 9.0% for the prior year period, and increased primarily due to the GTI and EMCON acquisitions. For the nine months ended October 1, 1999, our Engineering & Construction segment profit margin was $102.0 million, or 12.9% of segment revenues, for the nine months ended October 1, 1999 compared to $58.5 million, or 11.0% of segment 17 THE IT GROUP, INC. RESULTS OF OPERATIONS (CONTINUED) revenues, for the nine months ended September 25, 1998. DOD margins were 11.0% for the current year-to-date period, compared to 10.6% in the prior year. ENO margins were 12.5% in the current year-to-date period, compared to 13.9% in the prior year. Commercial margins were 15.4% for the current year-to-date period, compared to 10.6% for the prior year and increased primarily due to the GTI and EMCON acquisitions. The changes in margin percentages for the three months and nine months ended October 1, 1999 over the prior year periods were also due to the revenue mix, contract performance, and improved overhead efficiencies. Consulting. Revenues from our Consulting segment increased $7.2 million, or 69.1%, to $17.6 million for the three months ended October 1, 1999. For the nine months ended October 1, 1999, Consulting revenues increased $9.1 million, or 26.4%, to $43.4 million. Most of the revenues in Consulting are derived from commercial clients, and the increases were primarily due to the GTI, EFM and EMCON acquisitions. Our Consulting segment profit margin was $3.5 million, or 19.6% of segment revenues in the three months ended October 1, 1999, compared to $1.0 million, or 9.7% of segment revenues, for the three months ended September 25, 1998. The real estate restoration business completed transactions in the quarter ended October 1, 1999 which had the impact of improving segment profit margins. The timing of transactions in real estate restoration is dependent on a number of factors, not all of them within our control, which may cause significant fluctuations in segment profit margins in the periods in which transactions close. Our Consulting segment profit margin was $7.6 million, or 17.4% of segment revenues, for the nine months ended October 1, 1999, compared to $5.9 million, or 17.1% of segment revenues for the nine months ended September 25, 1998. Outsourced Services. Outsourced Services revenues increased $4.3 million, or 19.0%, to $26.9 million for the three months ended October 1, 1999. For the nine months ended October 1, 1999, Outsourced Services revenues increased $28.9 million, or 58.9%, to $78.0 million. The revenue increases are attributable to the OHM acquisition in February 1998 and the inclusion of its outsourcing operations in our results of operations for the entire nine months ended October 1, 1999, as opposed to seven months of revenues included in comparable prior year period, and also to the EFM acquisition. Our outsourcing operations provide a range of project, program and construction management services to the DOD as well as state and local government agencies. Our Outsourced Services segment profit margin was $1.8 million, or 6.6% of revenues for the three months ended October 1, 1999, and $2.6 million, or 11.3% of revenues for the three months ended September 25, 1998. The decrease in overall gross margin dollars and in gross margin percentage is the result of an increase in contract volume for larger, longer term contracts that have lower overall margins. For the nine months ended October 1, 1999, the Outsourced Services segment profit margin was $6.2 million, or 8.0% of segment revenues, compared to $4.2 million, or 8.2% of segment revenues for the nine months ended September 25, 1998. International. International revenues were $17.7 million for the three months ended October 1, 1999 compared to $2.4 million for the three months ended September 25, 1998. For the nine month periods ended October 1, 1999 and September 25, 1998, International revenues were $41.7 million and $5.1 million, respectively. The increase is the result of the acquisitions of GTI in December 1998 and Roche in March 1999. Our International segment profit margin was $1.3 million, or 6.6% of revenues for the three months ended October 1, 1999 compared to a profit of $0.2 million in the three months ended September 25, 1998. International segment profit margin was $3.0 million, or 6.8% of revenues for the nine months ended October 1, 1999 compared to a loss of $0.5 million in the nine months ended September 25, 1998. This improvement is primarily due to the GTI and Roche acquisitions. The GTI acquisition increased the size of the International segment with operations primarily in Australia, the United Kingdom and Italy. The GTI acquisition included approximately $80.0 million of contract backlog for work to be performed for the U.S. Air Force Center for Environmental Excellence under a worldwide five-year indefinite delivery order cost-reimbursable contract. Roche, based in Canada, had $28.0 million in revenues for 1998. 18 THE IT GROUP, INC. RESULTS OF OPERATIONS (CONTINUED) Backlog. Our total funded and unfunded backlog at October 1, 1999 was $4.0 billion, an increase of $0.5 billion from December 25, 1998, primarily due to the acquisitions of EFM, Roche and EMCON. We have an additional $0.5 billion of backlog which is performed through joint venture arrangements and accounted for under the equity method. New contract awards in the period came from a cross- section of our markets including federal and state/local government agencies, utility and other commercial clients and outsourced services. We expect to earn revenues from our backlog primarily over the next one to five years, with a substantial portion of the backlog consisting of federal government contracts, many of which are subject to annual funding and definition of project scope. The backlog at October 1, 1999 includes $3.0 billion of future work we estimate we will receive (based on historical experience) under existing indefinite delivery order programs. In accordance with industry practices, substantially all of our contracts are subject to cancellation, delay or modification by the customer. Our backlog at any given time is subject to changes in scope of services, which may lead to increases or decreases in backlog amounts. These scope changes have led to a number of contract claims requiring negotiations with clients in the ordinary course of business. (See Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 7 - Contract accounting and accounts receivable.) Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) were 5.0% of revenues for the three months ended October 1, 1999 compared to 5.1% of revenues in the three months ended September 25, 1998. SG&A expenses were 5.3% of revenues for the nine months ended October 1, 1999 compared to 6.1% of revenues in the nine months ended September 25, 1998. As a percentage of revenues, SG&A expenses are generally lowest in the third quarter due to increased revenues from the seasonal nature of the construction portion of the business. The decreases in SG&A expenses as a percentage of revenues compared to the prior year periods are primarily attributable to the elimination of certain duplicative overhead functions and other cost savings achieved as a result of the OHM, GTI, EFM and EMCON acquisitions.. SG&A expenses include goodwill amortization expense of $4.3 million for the three months ended October 1, 1999 and $2.3 million for the three months ended September 25, 1998. SG&A expenses excluding goodwill were 3.9% of revenues for the three months ended October 1, 1999 and 4.2% of revenues for the three months ended September 25, 1998. For the nine months ended October 1, 1999, SG&A expenses include goodwill amortization expense of $10.0 million compared to $5.0 million for the nine months ended September 25, 1998. The increases in goodwill amortization expenses are primarily due to the OHM, GTI, EFM and EMCON acquisitions. SG&A expenses excluding goodwill were 4.2% of revenues for the nine months ended October 1, 1999 and 5.3% of revenues for the nine months ended September 25, 1998. Management expects SG&A expenses excluding goodwill, compared to prior year-to-year periods, to continue to decrease slightly as a percentage of revenue because we anticipate additional cost savings to be achieved from our recent acquisitions. Special Charges Special charges of $30.7 million were recorded in the three fiscal quarters ended September 25, 1998 as outlined below:
Cash/ Special Reserve balance Noncash Charges Activity at 10/1/99 --------------- ------------------- ---------------- --------------- (In thousands) Sale of the Quanterra Investment Noncash $(10,550) $10,550 $ - Write-down of assets - Primarily Noncash (14,421) 14,421 - the Hybrid Thermal Treatment System (HTTS) Integration costs--OHM acquisition Severance...................................... Cash (2,197) 2,197 - Duplicative offices/assets..................... Cash (2,478) 2,160 (318) Other.......................................... Cash (1,019) 1,019 - -------- ------- ----- Total.......................................... $(30,665) $30,347 $(318) ======== ======= =====
19 THE IT GROUP, INC. RESULTS OF OPERATIONS (CONTINUED) A $10.6 million special charge (net of cash proceeds of $5.8 million) related to the sale of our investment in Quanterra, Incorporated. A $14.4 million special charge related to the write down of assets associated with our HTTS(R) business to estimated salvage value. A $5.7 million special charge for integration costs associated with the acquisition of OHM included $2.2 million of costs for severance and $3.5 million of costs and other related items for closing and eliminating duplicative offices. As part of the plan of integration, we laid-off more than 100 IT employees, primarily in the operating group and administrative support functions. In addition, as part of the plan we closed three leased facilities, reduced the size of three more facilities and subleased a portion of eight additional facilities. As of October 1, 1999, $0.3 million of the integration charge remained to be paid. The remaining costs relate to the facility closures and office consolidations and will be paid over the remaining terms of the leases. Most of these lease commitments will be paid within the next three years. Interest, Net Net interest expense represented 4.2% of revenues in the three fiscal quarters ended October 1, 1999 and 3.5% for the three fiscal quarters ended September 25, 1998. In absolute dollars, net interest expense was $39.8 million and $21.5 million for the nine months ended October 1, 1999 and September 25, 1998, respectively. This increase in net interest expense is due principally to the April 9, 1999 issuance of $225.0 million, 11.25%, ten year senior subordinated notes and the increased level of debt required to finance the OHM, GTI, EFM and EMCON acquisitions. Income Taxes For the three fiscal quarters ended October 1, 1999, the income tax provision was $15.9 million, reflecting an income tax rate of approximately 40.5% on income of $42.8 million and a $1.5 million benefit from utilization of tax attributes previously reserved. For the three fiscal quarters ended September 25, 1998, the income tax provision was $2.3 million, reflecting an income tax rate of 40% on income of $15.6 million excluding special charges of $30.7 million. The income tax benefit related to the special charges was offset by an increase in the deferred tax valuation allowance of $8.3 million. See Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 9. Extraordinary Item For the nine months ended September 25, 1998, we recorded a $5.7 million charge, net of income tax benefit of $3.5 million, for the early extinguishment of $65.0 million of senior debt which was refinanced in connection with the acquisition of OHM. We incurred a $5.6 million payment for the make whole interest provision as a result of retiring our $65.0 million senior debt early in accordance with the loan agreement. In addition, we also expensed approximately $3.6 million related to the unamortized loan origination expenses associated with issuing the $65.0 million senior debt. Dividends Our reported dividends for the three quarters ended October 1, 1999 were $4.8 million and for the three quarters ended September 25, 1998 were $4.7 million. Our reported dividends for three quarters ended September 25, 1998 include imputed dividends of $1.1 million, which were paid in stock. 20 THE IT GROUP, INC. RESULTS OF OPERATIONS (CONTINUED) Our dividends are summarized below:
Fiscal quarters ended Three fiscal quarters ended --------------------------- --------------------------- September 25, October 1, September 25, October 1, Dividend Summary on Preferred Stock 1999 1998 1999 1998 - ----------------------------------------- -------------- ----------- ------------- ---------- 7% Cumulative convertible exchangeable Cash dividend.......................... $ 898,000 $ 899,000 $2,694,000 $2,697,000 6% Cumulative convertible participating Cash dividend.......................... 692,000 - 2,076,000 - Imputed non-cash dividend.............. - 330,000 - 1,137,000 In kind 3% stock dividend.............. - 340,000 - 862,000 ---------- ---------- ---------- ---------- Total............................... $1,590,000 $1,569,000 $4,770,000 $4,696,000 ========== ========== ========== ==========
Discontinued Operations In the nine months ended September 25, 1998, we increased our provision for loss on disposition of our discontinued transportation, treatment and disposal business by $5.0 million net of income tax benefit of $3.0 million. This increased provision primarily related to an additional accrual for closure costs related to the former Panoche disposal site. In March 1998, we obtained approval by the California Department of Toxic Substances Control (DTSC) of the final closure and post closure plan for the last of our four inactive treatment, storage and disposal facilities. The approved plans allow us to proceed with the completion of final closure construction and provides for future submittal of technical studies that will be utilized to determine final aspects and costs of closure construction and monitoring programs for the former Panoche disposal site. For further information regarding our discontinued operations, see Item 1. Notes to Condensed Consolidated Financial Statements - Note 5 - Discontinued Operations, and Management's Discussion and Analysis of Results of Operations and Financial Condition - Financial Condition Transportation, Treatment and Disposal Discontinued Operations. 21 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES THE IT GROUP, INC. FINANCIAL CONDITION Working capital at October 1, 1999 was $223.7 million, which is an increase of $103.4 million, or 86%, from the December 25, 1998 working capital of $120.3 million. The current ratio at October 1, 1999 was 1.71:1, which compares to 1.44:1 at December 25, 1998. Cash used by operating activities, which includes cash outflows related to discontinued operations, for the nine months ended October 1, 1999 totaled $19.5 million compared to $21.4 million used by operating activities in the corresponding period of last year, a reduction in the use of cash by operating activities of $1.9 million. The usage of cash by operations as measured by the changes in operating assets and liabilities increased $44.9 million over the prior year due to increased volume, which offset a $54.9 million year-to-year improvement in net income. Our seasonal working capital requirements generally result in additional uses of cash by operating activities during the third quarter. Cash used by investing activities was $213.9 million for the nine months ended October 1, 1999 compared to $216.4 million for the nine months ended September 25, 1998. The uses of cash in both periods were primarily related to the acquisition of businesses, net of cash acquired. For the nine months ended October 1, 1999, we used $195.7 million for acquisitions, including $74.0 million for EFM, $10.2 million for Roche, $61.9 million for EMCON, and the balance for acquisition related liabilities including employee severance, relocation and facility closure costs, and consideration paid relating to these companies and other previously acquired entities. For the nine months ended September 25, 1998, we used $215.5 million for acquisitions, including $199.6 for OHM, and $15.9 million related to other acquisitions and related liabilities. Capital expenditures of $14.5 million for the nine months ended October 1, 1999 were $8.8 million greater than the prior fiscal year principally due to the system enhancements to accommodate acquisitions and the related increases in revenues. Long-term debt of $664.1 million at October 1, 1999 increased from $405.1 million at December 25, 1998 primarily due to the issuance of $225.0 million in 10 year senior subordinated notes (Notes), which were used for the acquisitions of EFM and Roche, and to refinance our existing indebtedness, and also increased due to borrowings under the revolving credit facility to finance the EMCON acquisition, and due to seasonal working capital requirements. The ratio of total debt, including current portion, to equity was 2.62:1 at October 1, 1999 and was 1.77:1 at December 25, 1998. The Notes have a 11.25% fixed rate of interest payable semiannually in cash commencing October 1999 and will be redeemable on or after 2004 at a premium with a stated maturity of April 2009. The Notes are general unsecured obligations of the Company, subordinated to the Company's credit facilities (see Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 10 - Long-term debt) and other senior indebtedness and pari passu with other existing and future indebtedness unless the terms of that indebtedness expressly provide otherwise. As a result of the utilization of funds for acquisition purposes, seasonal working capital requirements, and interest payments, we have utilized a larger portion of our existing revolving credit capacity than was planned. For the quarter, our average liquidity was approximately $23.0 million. We expect the liquidity position to improve throughout the fourth quarter, and to be sufficient to meet our operational needs over the next year. Additionally, subsequent to October 1, 1999, we obtained the release of $14.9 million previously held in restricted trust funds associated with our discontinued operations (see Item 1. Financial Statements--Notes to Condensed Financial Statements, Note 5--Discontinued Operations). The Company continues to have substantial cash requirements, including interest, operating lease payments, obligations related to acquisitions, and capital expenditures. We are continuing with our ongoing efforts to identify acquisition candidates and simultaneously capital resources which will be required to complete any significant acquisition transaction. 22 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Transportation, Treatment and Disposal Discontinued Operation As a part of the Company's discontinued transportation, treatment, and disposal operations, the Company operated a series of treatment, storage and disposal facilities in California, including four major disposal facilities. Closure plans for all four of these facilities have now been approved by all applicable regulatory agencies. As of October 1, 1999, three of the Company's inactive disposal sites have been formally closed and the fourth is in the process of closure, which is scheduled to be substantially completed by the fall of 2000. On March 18, 1998, the DTSC certified the Environmental Impact Report and approved the Closure Plan for the Panoche facility. The approved plans provide for submittal of technical studies that will be utilized to determine final aspects, details and costs of closure construction and monitoring programs. While we believe that the approved closure plans substantially reduce future cost uncertainties to complete the closure of the Panoche facility, the ultimate costs will depend upon the results of the technical studies called for in the approved plans. Closure and post-closure costs are incurred over a significant number of years (including post-closure monitoring and maintenance of its disposal facilities for at least thirty years) and are subject to a number of variables including, among others, negotiations with and oversight by regulatory agencies regarding the details of site closure and post-closure. We have estimated the impact of closure and post-closure costs in the provision for loss on disposition of transportation, treatment and disposal discontinued operations; however, closure and post-closure costs could be higher than estimated if regulatory agencies were to require closure and/or post-closure procedures significantly different than those in the approved plans, or if we are required to perform unexpected remediation work at the facilities in the future or to pay penalties for alleged noncompliance with regulations or permit conditions. We believe this insurance coverage substantially reduces our potential post-closure cost growth risk. We will have future cash requirements for closure costs over the next two years, and premium payments on the environmental insurance coverage over the next three years. (see Item 1 Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 5 - Discontinued operations). With regard to the carrying value of residual land at the inactive disposal facilities, a substantial component of which is adjacent to those facilities and was never used for waste disposal, in June 1999, a local community's review of its growth strategy resulted in limitations, in line with our expectations, on our ability to develop a portion of our residual land. If the assumptions used to determine the carrying value are not realized, the value of the land could be materially different from the current carrying value. With respect to the Operating Industries, Inc. Superfund site in Monterey Park, California, for which USEPA notified a number of entities, including the Company, that they were PRPs, there were no significant developments during the quarter, but in September 1999 mediation commenced in our litigation (Members of the GBF/Pittsburg Landfill(s) Respondents Group, etc. et al, v. Contra Costa Waste Service, etc., et al. U.S.D.C., N.D. CA, Case No. C96-03147SI) against the owner/operators of the site and other non-cooperating PRP's to cause them to bear their proportionate share of site remedial costs. Negotiations continue with the owner/operators, and the PRP group continues to explore methods to resolve the matter satisfactorily. Discovery in the case has been suspended for 90 days. During the quarter, we finalized our arrangements with other members of the PRP group to share approximately 50% of site costs, which was consistent with our previous interim agreement. Failure of the PRP group to effect a satisfactory resolution with respect to the choice of appropriate remedial alternatives or to obtain an appropriate contribution towards site remedial costs from the current owner/operators of the site and other non-cooperating PRPs, could substantially increase the cost to the Company of remediating the site. The outcome of the litigation cannot be determined at this time. 23 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Year 2000 Compliance The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of our computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. State of Readiness. We are engaged in a company-wide effort (Project) to address the issues that are likely to arise if computer programs and embedded computer chips are unable to properly recognize dates in and after the year 2000. The Project is focused on three main areas: . the information technology systems in our computers and computer software, including those that are linked to the systems of third parties; . the non-information technology systems embedded in equipment that controls or monitors our operating assets; and . our business relationships with third parties. The thrust of the Project is to address those information technology systems, non-information technology systems and relationships with external agents which we judge to be materially important to our operating results or financial condition, including those relating to significant entities (OHM, GTI, EFM, Roche and EMCON) which we have recently acquired. Work dealing with both information technology and non-information technology systems has the following three phases: . Inventory and Assessment - inventorying all of our systems (including those that are linked to third parties), identifying our systems that are not year 2000 compliant, and making judgments as to which of our systems (both compliant and non-compliant) would likely be materially important; . Strategy and Planning - developing strategies and plans for: . remediating, upgrading or replacing all non-compliant systems (except those whose failure would, in our judgment, have an insignificant impact on our operations), and . testing all systems judged to be materially important, and estimating the costs of implementing these strategies and executing these plans; and . Execution - implementing the strategies and executing the plans. Work dealing with relationships with external agents has the following three phases: . Inventory and Assessment - inventory of our relationships with external agents and making judgments as to which of these relationships would likely be materially important; . Communication and Evaluation - delivery of letters and questionnaires to materially important external agents to obtain information about their plans and actions to achieve timely year 2000 readiness, and evaluating their responses; and . Follow up - contacting these external agents to obtain further assurance that they will achieve timely year 2000 readiness. 24 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Additional Project work, discussed below, involves identifying scenarios involving failures for year 2000 reasons of materially important systems or materially important relationships with external agents and developing contingency plans for mitigating the impact of such failures. For information technology systems, including those of our recently acquired entities, the materially important systems are the core financial and administrative software system, network operating systems, desktop and laptop computers, and telecommunications equipment. The inventory and assessment and the strategy and planning phases of the work dealing with all materially important information technology systems are complete. The execution phase of this work involves both application and infrastructure repair and systems upgrades and replacements. Our core financial and administrative software systems are certified as Year 2000 compliant by the vendor. During the year ended March 27, 1998, we established an integration test plan to test this software and verify Year 2000 compliance. In February 1998, these integration tests were successfully completed. Our core hardware was also tested and found to be fully compliant with the Year 2000 requirements, and includes the integration of the acquired operations of OHM, GTI, EFM, and EMCON. The financial and accounting systems of Roche have been upgraded for Year 2000 compliance, and our other significant international operations have been integrated into our core system. All upgrades for network operating systems, desktop and laptop computers were competed in October 1999. Our remaining telecommunications equipment upgrades, representing less than 10% of the PBX phone systems, will be completed by the end of November 1999. Materially important non-information technology systems involved in operations include products purchased from third parties, primarily design and engineering support software, proprietary software sold by us used in ongoing environmental remediation and compliance activities, and field monitoring equipment. All phases of Year 2000 compliance for design and engineering support software and field monitoring equipment were completed by October 1999. For proprietary environmental software, all remediation of non-Year 2000 software was completed by July 1999. The inventory and assessment phase of the work dealing with relationships with external agents is complete. Our Year 2000 Program Director has coordinated communications with clients, suppliers, financial institutions and others with which we do business to obtain information about the state of these parties' Year 2000 readiness. The follow-up phase of this work will be undertaken on a continuous, ongoing basis through the end of 1999. Our communications have included over 3,000 vendors, with over 55% of our vendors, including 90% of our 50 largest dollar volume vendors, having positively responded as being Year 2000 compliant. Our 50 largest dollar volume commercial clients all report to be Year 2000 compliant and in final contingency planning stages. Our communications have included various entities of the U.S. federal government, which comprised approximately 58% of our revenues for the nine months ended October 1, 1999. The principal U.S. federal government payment systems with which we process cash receipts have all reported to be Year 2000 compliant. At this time, we cannot predict the impact on our consolidated financial condition, liquidity and results of operations of the U.S. federal government's Year 2000 readiness. The failure of the U.S. federal government to pay its bills on a timely basis could have a material adverse effect on our consolidated financial condition, liquidity and results of operations. Costs. Management has prepared a detailed conversion plan and has estimated the total cost of Year 2000 compliance to be approximately $6.2 million, including costs related to the recent acquisitions described above. As of October 1, 1999, we had incurred costs of approximately $5.0 million to address Year 2000 issues, with the remaining costs to be incurred mainly in 1999. All of the costs have been or will be charged to operating expense and funded through operating cash flows. Approximately 90% of both planned and incurred costs relate to hardware and software expenditures, and approximately 10% relate to outside consultants. Internal costs of the Project are not separately tracked. Additional costs could be incurred if significant remediation activities are required with third parties. Risks and Contingencies. We continue to develop contingency plans to address how we will handle the most reasonably likely worst case scenarios including situations where our clients, suppliers, financial institutions and others are not Year 2000 compliant on January 1, 2000. We do not have control over these third parties and, as a result, cannot currently estimate to what extent future operating results may be adversely affected by the failure of these third parties to successfully address their Year 2000 issues. However, our contingency plans will include actions designed to identify and minimize any third party exposures and management believes that, based on third party exposures identified to date, these issues should be resolved by the year 2000. 25 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Forward Looking Statements Relating to the Year 2000. The foregoing discussion about the year 2000 issue includes a number of forward-looking statements, which are based on our best assumptions and estimates. These include statements concerning our estimated timetables for completing the uncompleted phases of the Project work, our estimates of the percentages of the work that remains to be performed to complete these phases, our estimated timetable for identifying scenarios involving possible failures for year 2000 issues in materially important systems and relationships with external agents and the development and implementation of contingency plans for mitigating the impacts of these scenarios, and our estimates of the costs of each phase of our year 2000 work. Actual results could differ materially from the estimates expressed in these forward-looking statements, due to a number of factors. These factors, which are not necessarily all the key factors that could cause such differences, include the following: . our failure to judge accurately which of our systems and relationships with external agents are materially important; . our inability to obtain and retain the staff and third-party assistance necessary to complete the uncompleted phases of the Project in accordance with our estimated timetables; . the inability of such staff and third parties (1) to locate and correct all non-year 2000 compliant computer code in materially important systems and test such corrected code and (2) to install and test upgrades or new systems containing year 2000-compliant computer code, all in accordance with our estimated timetables; . unforeseen costs of completing our year 2000 work; . our inability or failure to identify significant year 2000 issues not now contemplated; and . the failure of external agents to achieve timely year 2000 readiness. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words "anticipate," "believe," "estimate," "expect," "project," "imply," "intend," "foresee" and similar expressions are forward- looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. These risks, uncertainties and assumptions include the following: . changes in laws or regulations affecting our operations, as well as competitive factors and pricing pressures, . bidding opportunities and successes, . project results, including success in pursuing claims and change orders, . management of our cash resources, particularly in light of our substantial leverage, . funding of our backlog, . matters affecting contracting and engineering businesses generally, such as the seasonality of work, the impact of weather and clients' timing of projects, . our ability to generate a sufficient level of future earnings to utilize our deferred tax assets, 26 THE IT GROUP, INC. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) . the ultimate closure costs and post-closure costs of our discontinued operations, . the success of our acquisition strategy, including the effects of the integration of our recent acquisitions and any future acquisitions, and achievement of expected cost savings and other synergies from these acquisitions, . adequacy of Year 2000 compliance, or assessments regarding compliance, by ourselves or third parties, including our customers, and the costs or completeness of remediation or the adequacy of contingency plans, and . industry-wide market factors and other general economic and business conditions. Our actual results could differ materially from those projected in these forward-looking statements as a result of these factors, many of which are beyond our control. 27 THE IT GROUP, INC. Item 3. Quantitative and Qualitative Disclosures about Market Risk On April 9, 1999, the Company issued $225.0 million of senior subordinated notes which have a fixed interest rate of 11.25%. Since these instruments have a fixed rate of interest, we are not exposed to the risk of earnings loss due to changes in market interest rates. The fair value of these instruments at October 1, 1999 was $216.0 million. On October 20, 1999, these notes were exchanged for registered, publicly traded notes. There were no other material changes in the Company's exposure to market risk from December 25, 1998. 28 PART II THE IT GROUP, INC. Item 1. Legal Proceedings. The continuing operations litigation to which the Company is a party is more fully discussed in the note "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K, as amended, for the nine months ended December 25, 1998. See also Management's Discussion and Analysis of Results of Operations and Financial Condition - Transportation, Treatment and Disposal Discontinued Operations for information regarding litigation related to the discontinued operations of the Company. Except as noted, there have been no material changes in any of the Company's legal proceedings since the date of the Company's Annual Report on Form 10-K. Coakley Landfil Action Trial in this case have been set for September 2000. 29 THE IT GROUP, INC. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. These exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit No. Description ----------- --------------------------------------------------------- 10(ii) 34. Commercial Premium Finance Agreement, dated September 15, 1999, by and between the Registrant and AFCO Credit Corporation. 35. General Indemnity Agreement, dated September 13, 1999, by and between the Registrant, IT Corporation, and the American International Group of Companies. 36. Forms of Hazardous Waste -- Post-Closure Policies, dated September 1999, (including forms of Notional Commutation Account Endorsements), issued by American International Specialty Lines Insurance Company on behalf of the Registrant and IT Corporation and the Named Insureds thereunder. 10(iii) 44. The IT Group, Inc. 1999 Management Incentive Plan* _____________________________________ * Filed as a management compensation plan or arrangement per Item 14(a)(3) of Securities Exchange Act. (b) Reports on Form 8-K 1. Current Report on Form 8-K, filed August 6, 1999, reporting under Item 5 the reorganization of the Company's principal business units and related senior management changes. 30 THE IT GROUP, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE IT GROUP, INC. (Registrant) ANTHONY J. DELUCA November 15, 1999 - ------------------------------------ -------------------------- Anthony J. DeLuca President and Chief Executive Officer and Duly Authorized Officer HARRY J. SOOSE, JR. November 15, 1999 - ------------------------------------ -------------------------- Harry J. Soose, Jr. Senior Vice President, Chief Financial Officer and Principal Financial Officer JAMES J. PIERSON November 15, 1999 - ------------------------------------ -------------------------- James J. Pierson Vice President, Finance and Principal Accounting Officer 31 EX-10.II.34 2 COMMERCIAL PREMIUM FINANCE AGREEMENT Exhibit 10(ii) (34) AFCO Commercial Premium Finance Agreement 401 Washington Avenue, P.O. Box 27413, Baltimore, MD 21285 Tel. Nos. (410) 2296-5000 (800) 288-4217 Page 1 of 2 Agent Insured (Name and Address) 70-37-11798-1 (Name and Address as shown on the policy) MARSH USA INC The IT Group Attn: Paul Hoyt 2790 Mosside Blvd. Six PPG Place, Ste 300 Monroeville, PA 15146 Pittsburgh, PA 15222 (412) 552-5000 A) Total Premiums B) Down Payment C) Amount Financed D) Finance Charge E) Total Payments 8,200,000.00 749,180.64 7,450,819.36 790,167.68 8,240,987.04 F) Annual Percentage Rate No. of Payments Amount of Payments First Installment Due Installment Due Dates 6.870% 11 (Quarterly) 749,180.64 12/1/99 1st SCHEDULE OF POLICIES Policy Prefix and Name of Insurance Company Numbers and Name and Address of General or Policy Effective Date of Issuing Agent or Type of Months Premiums $ Policy/Inst. Intermediary Coverage Covered 06/01/1999 AMERICAN INTL SPEC LINES NS POLL 360 8.200.000.00
7075728-1 (1) DEFINITIONS: The above named Insured ("the insured") is debtor, AFCO Credit Corporation ("AFCO") is the lender to whom the debt is owed, "insurance company" or "company ", "insurance policy" or "policy" and "premium " refer to those items listed under the "Schedule of Policies". Singular words mean plural and vice-versa as may be required in order to give the agreement meaning. For New York insureds, services for which any charge pursuant to Insurance Law, Section 2119, is imposed, are in connection with obtaining and servicing the policies listed herein. NOTICE: 1. Do not sign this agreement before you read it or if it contains any blank space. 2. You are entitled to a completely filled in copy of this agreement. 3. Under the law, you have the right to pay off in advance the full amount due and under certain conditions to obtain a partial refund of the service charge. INSURED AGREES TO THE TERMS SET FORTH ABOVE AND ON THE LAST PAGE OF THIS AGREEMENT The IT Group, Inc. X /s/ James J. Pierson V.P., Finance September 15, 1999 - ------------------------ -------------------------------------- ----------------------------------- --------------------- INSUREDS NAME SIGNATURE OF INSURED OR TITLE DATE AUTHORIZED REPRESENTATIVE
09101999Pafxiadaiiixiaxaiii AGENT OR BROKER REPRESENTATIONS The undersigned warrants and agrees: 1. The policies are in full force and effect and the information in the Schedule of Policies and the premiums are correct. 2. The insured has authorized this transaction and recognizes the security interest assigned herein and has received a copy of this agreement. 3. To hold in trust for AFCO any payments made or credited to the insured through or to the undersigned, directly or indirectly, actually or constructively by the insurance companies or AFCO and to pay the monies as well as any unearned commissions to AFCO upon demand to satisfy the outstanding indebtedness of the insured. Any lien the undersigned has or may acquire in the return premiums arising out of the listed insurance policies is subordinated to AFCO's lien or security interest therein. 4. The policies comply with AFCO's eligibility requirements. 5. No audit or reporting form policies, pollicies subject to retrospective rating or minimum earned premium are included. The deposit or provisional premiums are not less than anticipated premiums to be earned for the full term of the policies. 6. The policies can be cancelled by the insured and the unearned premiums will be computed on the standard short- rate or pro-rata table. 7. The undersigned represents that a proceeding in bankruptcy, receivership, or insolvency has not been instituted by or against the named insured. IF THERE ARE ANY EXCEPTIONS TO THE ABOVE STATEMENTS PLEASE LIST BELOW: THE UNDERSIGNED FURTHER WARRANTS THAT IT HAS RECEIVED THE DOWN PAYMENT AND ANY OTHER SUMS DUE AS REQUIRED BY THE AGREEMENT AND IS HOLDING SAME OR THEY ARE ATTACHED TO THIS AGREEMENT ______________________ _______________________________ __________________ ______________________ AGENT OR BROKER SIGNATURE OF AGENT OR BROKER TITLE DATE
2. LIMITED POWER OF ATTORNEY: The insured irrevocable appoints AFCO as its attorney in fact with full authority to cancel the insurance policies for the reasons stated in paragraph (14), and to receive all sums assigned to AFCO or in which it has granted AFCO a security interest. AFCO a security interest. AFCO may execute and deliver on the insured's behalf all documents, instruments of payment, forms, and notices of any kind relating to the insurance policies in furtherance of this agreement. 3. PROMISE OF PAYMENT: The insured requests that AFCO pay the premiums in the Schedule of Policies. The insured promises to pay to AFCO the amount in Block E above according to the payment schedule, subject to the remaining terms of this agreement. 4. SECURITY INTEREST: The insured assigns to AFCO as security for the total amount payable in this agreement any and all unearned premiums and dividends which may become payable under the insurance policies for whatever reason and loss payments which reduce the unearned premiums subject to any mortgages or loss payee interests. The insured gives to AFCO a security interest in all items mentioned in this paragraph. The insured further grants to AFCO its interest which may arise under any state insurance guarantee fund relating to any policy shown in the Schedule of Policies. 5. WARRANTY OF ACCURACY: The insured warrants to AFCO that the insurance policies listed in the Schedule have been issued to the insured and are in full force and effect and that the insured has not assigned any interest in the policies except for the interest of mortgages and loss payees. The insured authorizes AFCO to insert or correct on this agreement, if omitted or incorrect, the insurer's name, the policy numbers, and the due date of the first installment. AFCO is permitted to correct any obvious errors. In the event of any change or insertion, AFCO will give the insured written notice of those changes or corrections made in accordance with this provision. 6. REPRESENTATION OF SOLVENCY: The insured represents that the insured is not insolvent or presently the subject of any insolvency proceeding. 7. ADDITIONAL PREMIUMS: The money paid by AFCO is only for the premium as determined at the time the insurance policy is issued. The insured agrees to pay the company any additional premiums which become due for any reason. AFCO may assign the company any rights it has against the insured for premiums due the company in excess of the premiums returned to AFCO. 8. SPECIAL INSURANCE POLICIES: If the insurance policy issued to the insured is auditable or is a reporting form policy or is subject to retrospective rating, then the insured promises to pay to the insurance company the earned premium computed in accordance with the policy provisions which is in excess of the amount of premium advanced by AFCO which the insurance company retains. 9. NAMED INSURED: If the insurance policy provides that the first named insured in the policy shall be responsible for payment of premiums and shall act on behalf of all other insureds with respect to any actions relating to the policy, then the same shall apply to this agreement. If such is not the case, then all insureds' names must be shown on this agreement unless a separate agreement specifies one insured to act I all matters for the others. 10. FINANCE CHARGE: The finance charge shown in Block D begins to accrue as of the earliest policy effective date unless otherwise indicated in the Schedule of Policies. Interest earns as of 9/1/99. 11.AGREEMENT BECOMES A CONTRACT: This agreement becomes a binding contract when AFCO mails a written acceptance to the Insured. 12. DEFAULT CHARGES: If the insured is late in making an Installment payment to AFCO by more than the number of days specified by law the insured will pay to AFCO a delinquency charge not to exceed the maximum charge permitted by law. 13. DISHONORED CHECK: If an insureds' check is dishonored for any reason and if permitted by law, the insured will pay to AFCO a fee for expenses in processing that check not to exceed the amount permitted by law. 14. CANCELLATION: AFCO may cancel the insurance policies after giving any required statutory notice and the unpaid balance due to AFCO shall be immediately payable by the insured if the insured does not pay any installment according to the terms of this agreement. AFCO at its option may enforce payment of this debt without recourse to the security given to AFCO. If cancellation occurs, the borrower agrees to pay a finance charge on the balance due at the contract rate of interest until that balance is paid in full or until such other date as required by law. 15.CANCELLATION CHARGES: If AFCO cancels any insurance policy in accordance with the terms of this agreement, then the insured will pay AFCO a cancellation charge, if permitted, up to the limit specified by law. 16.MONEY RECEIVED AFTER NOTICE OF CANCELLATION: Any payments made to AFCO after AFCO's notice of cancellation of the insurance policy has been mailed may be credited to the insured's account without affecting the acceleration of this agreement and without any liability or obligation on AFCO's part to request reinstatement of a cancelled insurance policy. Any money AFCO receives from an insurance company shall be credited to the amount due AFCO with any surplus being paid over to whomever is entitled to the money. No refund of less than $1.00 shall be made. In the event that AFCO does request, on the insured's behalf, a reinstatement of the policy, such request does not guarantee that coverage under the policy will be reinstated or continued. 17. ATTORNEY FEES - COLLECTION EXPENSE: If, for collection , this agreement is placed in the hands of an attorney who is not a salaried employee of AFCO, then the insured agrees to pay reasonable attorney fees and costs including those in the course of appeal as well as other expenses, as permitted by law or granted by the court. 18. REFUND CREDITS: The insured will receive a refund credit of the finance charge if the account if the account is voluntarily prepaid in full prior to the last installment due date as required or permitted by law. Any minimum or fully earned fees will be deducted as permitted by law. 19. INSURANCE AGENT OR BROKER: The insurance agent or broker named in this agreement is the insured's agent, not AFCO's and AFCO is not legally bound by anything the agent or broker represents to the insured orally or in writing. 20. NOT A CONDITION OF OBTAINING INSURANCE: This agreement is not required as a condition of the insurance obtaining insurance coverage. 21. SUCCESSORS AND ASSIGNS: All legal rights given to AFCO shall benefit AFCO's successors and assigns. The insured will not assign the policies without AFCO's written consent except for the interest of mortgagees and loss payees. 22. LIMITATION OF LIABILITY: The insured agrees that AFCO's liability for breach of any of the terms of this agreement or the wrongful exercise of any of its powers shall be limited to the amount of the principal balance outstanding except in the event of gross negligence or willful misconduct. 23. ENTIRE DOCUMENT - GOVERNING LAW: This document is the entire agreement between AFCO and the insured and can only be changed in writing and signed by both parties except as stated in paragraph (5). The laws of the state indicated in the insured's address as set forth in the Schedule will govern this agreement unless stated in that Schedule. ADDENDUM A BY AND BETWEEN AFCO CREDIT CORPORATION AND THE IT GROUP It is agreed that any failure to made any payment when due pursuant to this premium finance agreement shall also be deemed an event of default with respect to a premium finance agreement bearing account no. 70-75728-1. Such default will result in cancellation of all insurance coverage financed pursuant to both such premium finance agreements. Furthermore, any failure to make any payment when due pursuant to a premium finance agreement bearing account no 70-75728-1 shall be deemed an event of default with respect to this premium finance agreement. It is further agreed that the collateral that secures each premium finance agreement shall secure both premium finance agreements. EX-10.II.35 3 GENERAL INDEMNITY AGREEMENT Exhibit 10 (ii) (35) American International Companies AIG Insurance Company American Fidelity Company American Home Assurance Company Principal Bond Office Granite State Insurance Company 70 Pine Street Illinois National Insurance Company New York, NY 10270 The Insurance Company of the State of Pennsylvania National Union Fire Insurance Company of Pittsburgh, PA New Hampshire Insurance Company Commerce and Industry Insurance Company of Canada GENERAL INDEMNITY AGREEMENT --------------------------- THIS AGREEMENT of indemnity, made and entered into this 13/th/ day of September, 1999, by The IT Group, Inc.: IT Corproration (herein ----------------------------------- after called the Contractor) and The IT Group, Inc.; IT Corporation (hereinafter ---------------------------------- called the Indemnitors, if any) and the member companies of the AMERICAN INTERNATIONAL GROUP OF COMPANIES (AIG Insurance Company, American Fidelity Company, American Home Assurance Company, Granite State Insurance Company, Illinois National Insurance Company, The Insurance Company of the State of Pennsylvania, National Union Fire Insurance Company of Pittsburgh, Pa., New Hampshire Insurance Company, Commerce and Industry Insurance Company of Canada), hereinafter individually and collectively referred to as "SURETY". WITNESSETH: ----------- WHEREAS, IT Corporation ("IT") is the owner of four (4) sites formerly used for the disposal of hazardous waste in Northern California, three (3) of which have been closed, and the fourth site(the Panoche site) is presently in the process of closure construction. IT is required by regulations of the California Environmental Protection Agency, Department of Toxic Substances Control ("DTSC") to maintain certain trust funds to assure completion of such closure and post closure care of the sites; and WHEREAS, the DTSC is prepared to release the trust funds in consideration of the issuance of a bond issued by the Surety on behalf of the Contractor/Indemnitor. WHEREAS, the Contractor, in the performance of contracts and the fulfillment of obligations generally, whether in its own name solely, or any one, combination of, or all of the indemnitors, or any present or future subsidiary, or a subsidiary of a subsidiary of the Contractor, whether alone or in joint venture with others not named herein and any corporation, partnership or person who may desire, or be required to give or procure certain surety bonds, undertakings or instruments of guarantee, and to renew, or continue or substitute the same from time to time; or new bonds, undertakings or instruments of guarantee with the same or different penalties, and/or conditions, may be desired or required, in renewal, continuation, extension or substitutions thereof; any one or more of which are hereinafter called Bonds; or the Contractor or Indemnitors may request the Surety to refrain from canceling said Bonds; and WHEREAS, at the request of the Contractor and the Indemnitors and upon the express understanding that this Agreement of Indemnity should be given, the Surety has executed or procured to be executed, and may from time to time hereafter execute or procure to be executed, said Bonds on behalf of the Contractor; and WHEREAS, the Indemnitors have a substantial, material and beneficial interest in the obtaining of the Bonds or in the Surety's refraining from canceling said Bonds. NOW, THEREFORE, in consideration of the premises the Contractor and Indemnitors for themselves, their heirs, executors, administrators, successors and assigns, jointly and severally, hereby covenant and agree with the Surety, its successors and assigns, as follows: PREMIUMS -------- FIRST: The Contractor and Indemnitors will pay to the Surety in such manner as may be agreed upon all premiums and charges of the Surety for Bonds in accordance with its rate filings, its manual of rates, or as otherwise agreed upon, until the Contractor or Indemnitors shall serve evidence satisfactory to the Surety of its discharge or release from the Bonds and all liability by reason thereof. 1 INDEMNITY --------- SECOND: The Contractor and Indemnitors shall exonerate, indemnify, and keep indemnified the Surety from and against any and all liability for losses and/or expense of whatsoever kind or nature (including, but not limited to, interest, court costs and reasonable counsel fees) and from and against any and all such losses and/or expenses which the Surety may sustain and incur: (1) By reason of having executed or procured the execution of the Bonds, (2) By reason of the failure of the Contractor or Indemnitors to perform or comply with the covenants and conditions of this Agreement or (3) in enforcing any of the covenants and conditions of this Agreement; provided, however, and notwithstanding anything in this Agreement to the contrary, neither Contractor nor any of the Indemnitors shall be liable for any amount or in any other manner by reason of any negligence, willful misconduct or violation of law of Surety or any substitute contractor that Surety may hire to complete the work at any of the sites. Payment by reason of the aforesaid causes shall be made to the Surety by the Contractor and Indemnitors as soon as liability exists or is asserted against the Surety, whether or not the Surety shall have made any payment therefor. Such payment shall be equal to the amount of the reserve set by the Surety. In the event of any payment by the Surety the Contractor and Indemnitors further agree that in any accounting between the Surety and the Contractor, or between the Surety and the Indemnitors, or either or both of them, the Surety shall be entitled to charge for any and all disbursements made by it in good faith in and about the matters herein contemplated by this Agreement under the belief that it is or was liable for the sums and amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity or expediency existed; and that the vouchers or other evidence of any such payments made by the Surety shall be prima facie evidence of the fact and amount of the liability to the Surety. ASSIGNMENT ---------- THIRD: The Contractor, the Indemnitors hereby consenting, will assign, transfer and set over, and does hereby assign, transfer and set over to the Surety, as collateral, to secure the obligations in any and all of the paragraphs of this Agreement and any other indebtedness and liabilities of the Contractor to the Surety, whether heretofore or hereafter incurred, the assignment in the case of each contract to become effective as of the date of the bond covering such contract, but only in the event of (1) any abandonment, forfeiture or breach of any contracts referred to in the Bonds or of any breach of any said Bonds; or (2) of any breach of the provisions of any of the paragraphs of this Agreement; or (3) of a default in discharging such other indebtedness or liabilities when due; or (4) of any assignment by the Contractor for the benefit of creditors, or of the appointment, or of any application for the appointment, of a receiver or trustee for the Contractor whether insolvent or not; or (5) of any proceeding which deprives the Contractor of the use of any of the machinery, equipment, plant, tools, or material referred to in section (b) of this paragraph; or (6) of the Contractor's, absconding, disappearing, lack of legal capacity, being convicted of a felony solely applicable to the site in question: (a) All the rights of the Contractor in, and growing in any manner out of, all contracts referred to in the Bonds, or in, or growing in any manner out of the Bonds; (b) All the rights, title and interest of the Contractor in and to all machinery, equipment, plant, tools and materials which are now, or may hereafter be, about or upon the site or sites of any and all of the contractual work referred to in the Bonds or elsewhere, including materials purchased for or chargeable to any and all contracts referred to in the bonds, materials which may be in process of construction, in storage elsewhere, or in transportation to any and all of said sites; (c) All the rights, title and interest of the Contractor in and to all subcontracts let or to be let in connection with any and all contracts referred to in the Bonds, and in and to all surety bonds supporting such subcontracts; (d) All actions, causes of actions, claims and demands whatsoever which the Contractor may have or acquire against any subcontractor, laborer or materialman, or any person furnishing or agreeing to furnish or supply labor, material, supplies, machinery, tools or other equipment in connection with or on account of any and all contracts referred to in the Bonds; and against any surety or sureties of any subcontractor, laborer, or materialman; (e) Any and all percentages retained and any and all sums that may be due or hereafter become due on account of any and all contracts referred to in the Bonds and all other contracts whether bonded or not in which the Contractor has an interest, in all cases subject to any prior encumbrances thereon. TRUST FUND ---------- FOURTH: If any of the Bonds are executed in connection with a contract which by its terms or by law prohibits the assignment of the contract monies, or any part thereof, the Contractor and Indemnitors covenant and agree that all payments received for or on account of said contract shall be held as a trust fund in which the Surety has an interest, for the payment of obligations incurred in the performance of the contract and for labor, materials, and services furnished in the prosecution of the work provided in said contract or any authorized extension or modification thereof; and, further, it is expressly understood and declared that all monies due and to become due under any contract or contracts covered by the Bonds are trust funds, whether in the possession of the Contractor or 2 Indemnitors or otherwise, for the benefit of and for payment of all such obligations in connection with any such contract or contracts for which the Surety would be liable under any of said Bonds, which said trust also inures to the benefit of the Surety for any liability or loss it may have or sustain under any said Bonds, and this Agreement and declaration shall also constitute notice of such trust. UNIFORM COMMERCIAL CODE ----------------------- FIFTH: That this Agreement shall constitute a Security Agreement to the Surety and also a Financing Statement, both in accordance with the provisions of the Uniform Commercial Code of every jurisdiction wherein such Code is in effect and may be so used by the Surety without in any way abrogating, restricting or limiting the rights of the Surety under this Agreement or under law, or in equity. TAKEOVER -------- SIXTH: In the event of any breach, delay or default asserted by the obligee in any said Bonds, or the Contractor has suspended or ceased work on any contract or contracts covered by any said Bonds, or failed to pay obligations incurred in connection therewith, Contractor's conviction of a felony solely applicable to the site in question, imprisonment, incompetencylack of legal capacity, insolvency, or bankruptcy of the Contractor, or the appointment of a receiver or trustee for the Contractor solely applicable to the site in question, or the property of the Contractor, or in the event of a assignment for the benefit of creditors of the Contractor, or if any action is taken by or against the Contractor under or by virtue of the National Bankruptcy Code, or should reorganization or arrangement proceedings be filed by or against the Contractor under said Act, or if any action is taken by or against the Contractor under the insolvency laws of any state, possession, or territory of the United States the Surety shall have the right, at its option and in its sole discretion and is hereby authorized, subject to consultation with principal as described in clause Thirteen of this document, with or without exercising any other right or option conferred upon it by law or in the terms of this Agreement, to take possession of any part or all of the work under any contract or contracts covered by any said Bonds, and at the expense of the Contractor and Indemnitors to complete or arrange for the completion of the same, and the Contractor and Indemnitors shall promptly upon demand pay to the Surety all reasonable losses, and expenses so incurred. CHANGES ------- SEVENTH: The Surety is authorized and empowered, upon the sending of notice, via certified mail, return receipt requested, to the Indemnitors to assent to any change whatsoever in the Bonds, and/or any contracts referred to in the Bonds, and/or in the general conditions, plans and/or specifications accompanying said contracts, including, but not limited to, any change in the time for the completion of said contracts and to payments or advances thereunder before the same may be due, and to assent to or take any assignment or assignments, to execute or consent to the execution of any continuations, extensions or renewals of the Bonds and to execute any substitute or substitutes therefore, with the same or different conditions, provisions and obligees and with the same or larger or smaller penalties, it being expressly understood and agreed that the Indemnitors shall remain bound under the terms of this Agreement even though any such assent by the Surety does or might substantially increase the liability of said Indemnitors; provided however, and notwithstanding anything in this Agreement to the contrary, Surety shall make no changes without Contractor's and Indemnitors' written consent in any contract, plan or specification, which would, or is reasonably likely to lead to either, 1)a change in any closure or post closure plan approved for a site, or 2) an increase in the closure or post closure costs with respect to a site. ADVANCES -------- EIGHTH: The Surety is authorized and empowered to guarantee loans, to advance or lend to the Contractor any money, which the Surety may see fit, for the purpose of any contracts referred to in, or guaranteed by the Bonds; and all money expended in the completion of any such contracts by the Surety, or lent or advanced from time to time to the Contractor, or guaranteed by the Surety for the purposes of any such contracts, and all costs, and expenses incurred by the Surety in relation thereto, unless repaid with legal interest by the Contractor to the Surety when due, shall be presumed to be a loss by the Surety for which the Contractor and the Indemnitors shall be responsible, notwithstanding that said money or any part thereof should not be so used by the Contractor. BOOKS AND RECORDS ----------------- NINTH: At any time, and until such time as the liability of the Surety under any and all said Bonds is terminated, the Surety shall have the right to reasonable access to the books, records, and accounts of the Contractor and Indemnitors; and any bank depository, materialman, supply house, or other person, firm, or corporation when 3 requested by the Surety is hereby authorized to furnish the Surety any information requested including, but not limited to, the status of the work under contracts being performed by the Contractor, the condition of the performance of such contracts and payments of accounts. DECLINE EXECUTION ----------------- TENTH: Unless otherwise specifically agreed in writing, the Surety may decline to execute any Bond and the Contractor and Indemnitors agree to make no claim to the contrary in consideration of the Surety's receiving this Agreement; and if the Surety shall execute a Bid or Proposal Bond, it shall have the right to decline to execute any and all of the bonds that may be required in connection with any award that may be made under the proposal for which the Bid or Proposal Bond is given and such declination shall not diminish or alter the liability that may arise by reason of having executed the Bid or Proposal Bond. NOTICE OF EXECUTION ------------------- ELEVENTH: The Indemnitors hereby waive notice of the execution of said Bonds and of the acceptance of this Agreement, and the Contractor and the Indemnitors hereby waive all notice of any default, or any other act or acts giving rise to any claim under said Bonds, as well as notice of any and all liability of the Surety under said Bonds, and any and all liability on their part hereunder, to the end and effect that, the Contractor and the Indemnitors shall be and continue liable hereunder, notwithstanding any notice of any kind to which they might have been or be entitled, and notwithstanding any defenses they might have been entitled to make. [Reserved.] HOMESTEAD --------- TWELFTH: The Contractor and the Indemnitors hereby waive, so far as their respective obligations under this Agreement are concerned, all rights to claim any of their property, including their respective homesteads, as exempt from levy, execution, sale or other legal process under the laws of any State, Territory, or Possession. SETTLEMENTS ----------- THIRTEENTH: The Surety shall have the right to adjust, settle or compromise any claim, demand, suit or judgment upon the Bonds, unless the Contractor and the Indemnitors shall request the Surety to litigate such claim or demand, or to defend such suit, or to appeal from such judgment, and shall deposit with the Surety, at the time of such request, cash or collateral satisfactory to the Surety in kind and amount, to be used in paying any judgment or judgments rendered or that may be rendered, with interest, costs, expenses and attorney's fees, including those of the Surety. However, Surety agrees that it will first review Contractor's and Indemnitors' financial condition and in its' reasonable discretion, decide whether it will require cash or other collateral. SURETIES -------- FOURTEENTH: In the event the Surety procures the execution of the Bonds by other sureties, or executes the Bonds with co-sureties, or reinsures any portion of said Bonds with reinsuring sureties, then all the terms and conditions of this Agreement shall inure to the benefit of such other sureties, co-sureties and reinsuring sureties, as their interest may appear. SUITS ----- FIFTEENTH: Separate suits may be brought hereunder as causes of action accrue, and the bringing of suit or the recovery of judgment upon any cause of action shall not prejudice or bar the bringing of other suits upon other causes of action, whether theretofore or thereafter arising. OTHER INDEMNITY --------------- SIXTEENTH: That the Contractor and the Indemnitors shall continue to remain bound under the terms of this Agreement even though the Surety may have from time to time heretofore or hereafter, upon notice to the Contractor and the Indemnitors, accepted or released other agreements of indemnity or collateral in connection with the execution or procurement of the aforementioned Bonds, from the Contractor or Indemnitors or others, it being expressly understood and agreed by the Contractor and the Indemnitors that any and all other rights which the Surety may have or acquire against the Contractor and the Indemnitors and/or others under any such other or additional agreements of indemnity or collateral shall be in addition to, and not in lieu of, the rights afforded the Surety under this Agreement. INVALIDITY ---------- SEVENTEENTH: In case any of the parties mentioned in this Agreement fail to execute the same, or in case the execution hereof by any of the parties be defective or invalid for any reason, such failure, defect or 4 invalidity shall not in any manner affect the validity of this Agreement or the liability hereunder of any of the parties executing the same, but each and every party so executing shall be and remain fully bound and liable hereunder to the same extent as if such failure, defect or invalidity had not existed. It is understood and agreed by the Contractor and Indemnitors that the rights, powers, and remedies given the Surety under this Agreement shall be and are in addition to, and not in lieu of, any and all other rights, powers, and remedies which the Surety may have or acquire against the Contractor and Indemnitors or others whether by the terms of any other agreement or by operation of law or otherwise. ATTORNEY IN FACT ---------------- EIGHTEENTH: The Contractor and Indemnitors hereby irrevocably nominate, constitute, appoint and designate the Surety as their attorney-in-fact with the right, but not the obligation, to exercise all of the rights of the Contractor and Indemnitors assigned, transferred and set over to the Surety in this Agreement, including, but not limited to, the power to endorse in the name of the Contractor and Indemnitors and thereby to collect any check, draft, warrant or other instrument made or issued in payment of any moneys due on this agreement in which the Contractor has an interest and to disburse the proceeds thereof, and in the name of the Contractor and Indemnitors to make, execute, and deliver any and all additional or other assignments, documents or papers deemed necessary and proper by the Surety in order to give full effect not only to the intent and meaning of the within assignments but also to the full protection intended to be herein given to the Surety under all other provisions of the Agreement. The Contractor and Indemnitors hereby ratify and confirm all acts and actions taken and done by the Surety as such attorney-in-fact. TERMINATION ----------- NINETEENTH: This Agreement may be terminated by the Contractor or Indemnitors upon twenty day's written notice sent by registered mail to the Surety at its home office at 70 Pine Street, New York, New York, 10270, but any such notice of termination shall not operate to modify, bar, or discharge the Contractor or the Indemnitors as to the Bonds that may have been theretofore executed. TWENTIETH: This Agreement may not be changed or modified orally. No change or modification shall be effective unless made by written endorsement executed to form a part hereof. IN WITNESS WHEREOF, we have hereunto set our hands and seals the day and year first above written. THE IT GROUP, INC. Attest: James M. Redwine By: /s/ Richard R. Conte - --------------------------------- ---------------------------------------------- (Corporate Seal) Richard R. Conte, Vice President IT CORPORATION Attest: James M. Redwine By: /s/ Richard R. Conte - --------------------------------- ---------------------------------------------- (Corporate Seal) Richard R. Conte, Vice President 5 PARTNERSHIP ACKNOWLEDGMENT -------------------------- STATE OF - ------------------------------------------------------- COUNTY OF - ------------------------------------------------------- On this ___ day of ___________199__, before me personally appeared __________________________________, to me known and known to me to be a member of the firm of described in and who executed the foregoing instrument, and he thereupon acknowledged to me that he executed the same as and for the act and deed of the said firm. ________________________________________________________________________________ Notary Public Commission Expires ____________________ STATE OF - ------------------------------------------------------- COUNTY OF - ------------------------------------------------------- On this ___ day of ________199__, before me personally appeared __________________________________, to me known and known to me to be a member of the firm of described in and who executed the foregoing instrument, and he thereupon acknowledged to me that he executed the same as and for the act and deed of the said firm. ________________________________________________________________________________ Notary Public Commission Expires ____________________ CORPORATE ACKNOWLEDGMENT ------------------------ STATE OF PENNSYLVANIA - ------------------------------------------------------- COUNTY OF ALLEGHENY - ------------------------------------------------------- On this 13/th/ day of September 1999, before me personally appeared Richard R. Conte, to me known to be the Vice President of The IT Group, Inc., the corporation executing the above instrument, and acknowledged said instruments to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned and on oath stated that the seal affixed is the seal of said corporation and that said instrument was executed by order of the Board of Directors of said corporation. /s/ ________________________________________________________________________________ Notary Public Commission Expires July 5, 2001 ---------------- STATE OF PENNSYLVANIA - ------------------------------------------------------- COUNTY OF ALLEGHENY - ------------------------------------------------------- On this 13/th/ day of September 1999, before me personally appeared Richard R. Conte, to me known to be the Vice President of IT Corporation, the corporation executing the above instrument, and acknowledged said instruments to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned and on oath stated that the seal affixed is the seal of said corporation and that said instrument was executed by order of the Board of Directors of said corporation. /s/ ________________________________________________________________________________ Notary Public Commission Expires July 5, 2001 ---------------- 6 EX-10.II.36 4 HAZARDOUS WASTE POST-CLOSURE POLICY EXHIBIT 10(ii)36 AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY (A Capital Stock Company, herein called the Company) c/o American International Surplus Lines Agency, Inc. Harborside Financial Center 401 Plaza 3 Jersey City, NJ 07311 INTERNATIONAL TECHNOLOGIES HAZARDOUS WASTE - POST-CLOSURE POLICY THIS IS A CLAIMS MADE AND REPORTED POLICY. THIS POLICY HAS CERTAIN PROVISIONS AND REQUIREMENTS UNIQUE TO IT AND MAY BE DIFFERENT FROM OTHER POLICIES THE INSURED MAY HAVE PURCHASED. DEFINED TERMS APPEAR IN BOLD FACE TYPE. In consideration of the payment of the premium, in reliance upon the statements in the Declarations and Application made a part hereof and subject to all the terms of this Policy, the Company agrees with the Named Insured as follows: SECTION I. COVERAGES POST-CLOSURE INSURANCE 1. Insuring Agreement. Part A (Post-Closure). The Company agrees to indemnify the Insured, or the - ----------------------- Regulatory Body, subject to the limits of liability of this Policy, for such Post-Closure Costs that the Regulatory Body instructs the Company to indemnify in writing. The Insured must be legally obligated to pay such Post-Closure Costs by reason of the Partial Closure or Final Closure of a Hazardous Waste Facility designated in Item 4 of the Declarations. Claims by the Insured, or the Regulatory Body, for such Post-Closure Costs must be first reported in writing to the Company during the Policy Period. This coverage applies only to Post-Closure Costs from the Partial Closure or Final Closure of a Hazardous Waste Facility and which arise on or after the Retroactive Date shown in Item 6 of the Declarations Page. 2. Exclusions. This insurance does not apply to expenses, losses, liabilities of, or damages of any kind incurred by, accruing to, or alleged to be liabilities of the Insured, by reason of: A. Any criminal or civil penalties imposed by reason of the violation of any law or regulation. B. Any third-party claims for Bodily Injury or Property Damage or claims for damages of any nature. C. Any expenses, charges or costs resulting from the defense and/or investigation of any liability or obligation for Post-Closure Costs hereunder. However, this exclusion shall not apply to any investigations required for compliance with the Post Closure Plan, including but not limited to investigation of ground water quality, hydrogeology, or chemical fate and transport. SECTION II. CLAIMS PROVISIONS It is a condition precedent to coverage that: A. The Insured shall cooperate with the Company and, upon the Company's request, assist in obtaining information relative to any Claim made. The Insured shall not, except at his own cost, voluntarily make or approve any payments, assume any obligations or incur any expense relating to Post- Closure Costs which are not in accordance with the Post-Closure Plan without the Company's or the Regulatory Body's written permission. B. Any notices required by these conditions shall be sent to: Steven Lessick Attorney at Law P.O. Box 295 Jersey City, NJ 07303 or other address(es) as substituted by the Company in writing. C. The Company, upon receipt of a Claim, shall review and issue payment within thirty-five (35) calendar days for any uncontested portion of a Claim. If a portion of the Claim is contested by the Company, the Company shall issue a Claim payment to the Named Insured for the uncontested portion of the Claim within thirty-five (35) days. The Insured agrees to work with the Company to resolve any discrepancy on a timely basis. In no event shall the Company take longer than thirty-five (35) days to issue a Claim payment to the Named Insured for Claims that have not been contested. If a Claim payment is made to the Named Insured, and all or part of the Claim is still in dispute, the Insured agrees to continue to provide information to the Company to resolve the discrepancy. Any necessary monetary adjustment shall be reconciled with adjustments to future Claim payments. If any Claim payments remain in dispute at the end of six months after submission of a Claim, the Named Insured and the Company agree to settle the outstanding Claim through arbitration in accordance with the rules and regulations outlined in the American Arbitration Association guidelines. SECTION III. DEFINITIONS A. Bodily Injury means: bodily injury, sickness, disease, fear of sickness or disease, mental anguish and mental injury, emotional distress, psychic injury, or disability including care, loss of services or death resulting from any of the foregoing. B. Claim means: A request by the Insured or the Regulatory Body for payment of a statement or bill of expenditures made for Post-Closure Costs by reason of a Partial Closure or Final Closure of a Hazardous Waste Facility in accordance with its Post-Closure Plan, provided that such request: (a) is first submitted in writing to the Regulatory Body for approval during the Policy Period; and (b) is first reported in writing to the Company during the Policy Period. C. Closure Plan means the written closure plan attached to the Policy as Appendix A and made a part hereof, prepared in order to comply with federal regulations promulgated under the Resource Conservation and Recovery Act (contained at 40 C.F.R. Part, 260 et seq.), or other applicable federal, state or local regulations regarding closure or corrective action at hazardous Copyright, American International Group, Inc., 1999 2 waste facilities and provided that such Plan shall first have been approved by the Regulatory Body. D. Final Closure means the closure of all Hazardous Waste Management Units at a Hazardous Waste Facility pursuant to the Closure Plan. E. Hazardous Waste Facility (or Facility) means the entire facility designated by legal description in Item 4 of the Declarations which has received authorization from the Regulatory Body to engage in the treatment, storage or disposal of hazardous waste and which includes one or more Hazardous Waste Management Unit(s) on, within or under such facility. F. Hazardous Waste Management Unit means a surface impoundment, waste pile, land treatment area, landfill cell, incinerator, tank and its associated piping and underlying containment system, and container storage area, or other contiguous area of land on or in which hazardous waste is placed, or the largest area in which there is significant likelihood of mixing hazardous waste constituents in the same area. Such unit must be located on, within or under a Hazardous Waste Facility. A container alone does not constitute a unit; the unit includes containers and the land or pad upon which they are placed. G. Insured means the Named Insured, and any director, officer, partner or employee thereof while acting within the scope of his/her duties as such, and any person or entity designated as an additional insured by an endorsement issued to form a part of this Policy. H. Most Recent Published Investment Rate means the last published investment rate prior and closest in time to the date upon which the Company becomes obligated to make payment for Post-Closure Costs. I. Named Insured means the person or entity designated as such in Item 1 of the Declarations. J. Partial Closure means the closure pursuant to the Closure Plan of one or more Hazardous Waste Management Units at a Hazardous Waste Facility which contains other Hazardous Waste Management Units which remain active. K. Policy Period means the period set forth in Item 2 of the Declarations, or any shorter period arising as a result of cancellation of this Policy. L. Post-Closure Costs means all expenses specifically identified in or necessary to comply with the Post-Closure Plan approved by the Regulatory Body, including but not limited to labor, fringe, overhead, contractor or subcontractor costs associated with Facility maintenance, operation and maintenance of ground water remediation and water management systems; repair and monitoring, regulatory oversight fees; utilities, and final closure of post closure units such as evaporation basins and solar evaporators. M. Post-Closure Plan means the written post-closure plan attached to this Policy as Appendix B and made a part hereof, and prepared in order to comply with federal regulations promulgated under the Resource Conservation and Recovery Act (contained at 40 C.F.R. Part 260 et seq.), or other applicable federal, state or local regulations regarding post-closure or corrective action at hazardous waste facilities, including all revisions, amendments, modifications or directives required in writing by the Regulatory Body, and provided that such plan shall first have been approved by the Regulatory Body. N. Property Damage means: (a) Physical injury to, or destruction of tangible property, including loss of use, profits or investments or diminution in value of; (b) the loss of use of tangible property or rights of any nature, whether related to tangible property or not. O. Regulatory Body means the Regional Administrator of the United States Environmental Protection Agency for the EPA region in which the Hazardous Waste Facility named in Item 4 Copyright, American International Group, Inc., 1999 3 of the Declarations is located, or any person or State Agency designated by the Regional Administrator, or any agency which is now or becomes responsible for the supervision of the Final Closure, Partial Closure or Post Closure of the Hazardous Waste Facility or any aspect thereof necessary to comply with the Post Closure Plan, including but not limited to the Department of Toxic Substances Control and Regional Water Quality Control Board. SECTION IV. LIMIT OF LIABILITY AND DEDUCTIBLE A. With respect to all Hazardous Waste Facility(ies) shown in the Declarations, the Company's total liability for all Post Closure Costs under Section I Coverage Post-Closure Insurance, Part A (Post-Closure) of the Insuring Agreement from all Claims shall not exceed the limit of liability shown in Item 3 of the Declarations. B. The sublimits of liability shown in the Declarations for Part A (Post- Closure) of Section I Coverages Post-Closure Insurance with respect to each Hazardous Waste Facility are separate limits of liability which are in addition to each other. C. Provided that the premium as determined by the Company has been paid in full within thirty (30) calendar days of when due, the limit of liability for each Hazardous Waste Facility, with respect to Section I Coverage Post- Closure Insurance, Part A (Post-Closure) under the Insuring Agreement, shall increase annually, as follows: Beginning from the date the Company becomes obligated under this Policy to indemnify Post-Closure Costs, the increase in the Part A (Post-Closure) limit of liability for such Hazardous Waste Facility shall be equivalent to the existing limit of liability, less any payments made under this Part A limit, multiplied by an amount equivalent to 85 percent (85%) of the Most Recent Published Investment Rate for newly issued 26-week Treasury securities. SECTION V. TERRITORY This Policy only applies to a Claim arising from Post-Closure Costs incurred at Hazardous Waste Facilities located in the United States, its territories or possessions, or Canada, and only if such Claim are made or brought in the United States, its territories or possessions, or Canada. SECTION VI. CONDITIONS A. Inspection and Audit - The Company shall be permitted but not obligated to inspect, sample and monitor on a continuing basis the Insured's property or operations, at any time. Neither the Company's right to make inspections, sample and monitor, nor the actual undertaking thereof nor any report thereon, shall constitute an undertaking, on behalf of the Insured or others, to determine or warrant that property or operations are safe, healthful or conform to acceptable engineering practice or are in compliance with any law, rule or regulation. The Company or its designee may examine and audit the Insured's books and records at any time during the Policy Period and extensions thereof, as far as they relate to the subject matter of this insurance, and within any periods of Final Closure, Partial Closure or post-closure for which coverage is provided whether Insurance of this Policy has expired. B. Cancellation - The Company shall not cancel, terminate or fail to renew the coverages provided herein except for failure to pay the full premium in accordance with the schedule shown in Item 5 in the Declarations. The Company shall notify the Insured and the Regulatory Body of its intent to cancel, terminate or not to renew by sending, by certified mail, to the Insured at the address shown in this policy and to the Regulatory Body, written notice stating the date not less than 120 days thereafter allowing time for receipt of notice on which such cancellation, termination or failure to renew shall be effective. Cancellation, termination, or failure to renew will not occur and the policy will remain in full force and effect in the event that on or before the date of expiration: Copyright, American International Group, Inc., 1999 4 1. The DTSC deems the facility/TTU abandoned; or 2. The permit is terminated or revoked or a new permit is denied by the DTSC; or 3. Closure is ordered by the DTSC; or any other State or Federal agency, or a court of competent jurisdiction; or 4. The owner or operator is named as a debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code; or 5. The premium due is paid. This policy may be cancelled by the Named Insured pursuant to applicable statute and written approval by DTSC by surrender thereof to the Company or any of its authorized agents or by mailing to the Company written notice stating the date thereafter the cancellation shall be effective. The mailing of notice as aforesaid shall be sufficient proof of notice. The time of surrender or the effective date and hour of cancellation stated in the notice shall become the end of the Policy Period. In the event of (i) cancellation or nonrenewal by the Insured or (ii) cancellation by the Company for nonpayment of premium, the full Insurance Premium shown in Item 5 of the Declarations shall be deemed earned and the unpaid portion thereof shall be immediately due and payable. Upon the effective date of cancellation by the Insured, all indemnity obligations on the part of the Company hereunder shall automatically cease and the Insured shall have no further recourse against the Company with respect to unpaid losses. C. Representations - By acceptance of this Policy, the Insured agrees that the statements in the Declarations and Application(s) are their agreements and representations, that this Policy is issued in reliance upon the truth of such representations and that this Policy embodies all agreements existing between the Insured and the Company or any of its agents relating to this insurance. D. Action Against Company - No third-party action shall lie against the Company, unless as a condition precedent thereto, there shall have been full compliance with all of the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant or regulatory body and the Company. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this Policy to the extent of the insurance afforded by this Policy. No person or organization shall have any right under this Policy to join the Company as a party to any action against the Insured to determine the Insured's liability, nor shall the Company be impleaded by the Insured or his legal representative. Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder. E. Assignment - This Policy may be assigned to a successor owner or operator of a Hazardous Waste Facility designated in Item 4 of the Declarations, provided that the Company consents to the assignment, which consent shall not be unreasonably withheld. F. Subrogation: In the event of any payment of this Policy, the Company shall be subrogated to all the Insured's rights of recovery therefor against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after a Claim to prejudice such rights. Copyright, American International Group, Inc., 1999 5 The Company agrees to the following exceptions to the above and waives subrogation: 1. as to any and all rights of recovery which the Insured may have against former clients and generators of waste at the Hazardous Waste Facility(ies), unless the Insured having such right of recovery shall give its written consent to the Company to be subrogated thereto and the Insured shall have the sole right to determine whether such consent is given; and 2. as to any rights of recovery which the Insured may have against any predecessor or affiliate of the Insured, including any insurer thereof, unless the Insured having such right of recovery shall give its written consent to the Company to be subrogated thereto and the Insured shall have the sole right to determine whether such consent is given. G. Changes - Notice to any agent or knowledge possessed by any agent or by any other person shall not effect a waiver or a change in any part of this Policy or stop the Company from asserting any right under the terms of this Policy; nor shall the terms of this Policy be waived or changed, except by endorsement issued to form a part of this Policy. H. Sole Agent - The Named Insured first listed in Item 1 of the Declarations shall act on behalf of all other Insureds, if any, for the payment or return of premium, receipt and acceptance of any endorsement issued to form a part of this Policy, giving and receiving notice of cancellation or nonrenewal. I. Other Insurance - This insurance is primary, and the Company's obligations as a primary insurer are not affected by any other insurance that may be primary. J. Premium - The full policy premium for coverage hereunder shall be payable in accordance with the schedule set forth in Item 5 of the Declarations. It is an absolute condition that the full amount of each premium installment be actually received by the Company in accordance with said schedule to be or continue to be effective K. Renewal of Coverage - Coverage may be renewed with a subsequent policy which provides limits of liability no less than those contained in this Policy, and which is issued by the Company at the expiration of the Policy Period stated in the Declarations of this Policy, subject to the cancellation provisions set forth in this Section. SECTION VII. SERVICE OF SUIT L. Service of Suit - It is agreed that in the event of failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this condition constitutes or should be understood to constitute a waiver of the Company's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. It is further agreed that service of process in such suit may be made upon Counsel, Legal Department, American International Specialty Lines Insurance Company, c/o American International Surplus Lines Agency, Inc., Harborside Financial Center, 401 Plaza 3, Jersey City, NJ 07311, or his or her representative, and that in any suit instituted against the Company upon this contract, the Company will abide by the final decision of such court or of any appellate court in the event of any appeal. Further, pursuant to any statute of any state, territory, or district of the United States which makes provision therefor, the Company hereby designates the Superintendent, Commissioner, or Director of Insurance, other officer specified for that purpose in the statute, or his or her successor or successors in office as its true and lawful attorney upon whom may be served any lawful process in Copyright, American International Group, Inc., 1999 6 any action, suit or proceeding instituted by or on behalf of the Insured or any beneficiary hereunder arising out of this contract of insurance, and hereby designates the above named counsel as the person to whom the said officer is authorized to mail such process or a true copy thereof. IN WITNESS WHEREOF, the Company has caused this Policy to be signed by its president and secretary and signed on the Declarations page by a duly authorized representative or countersigned in states where applicable. ___________________ _____________________ Secretary President Copyright, American International Group, Inc., 1999 7 ENDORSEMENT NO. This endorsement, effective 12:01 AM, Forms a part of Policy No: Issued to: By: NOTIONAL COMMUTATION ACCOUNT ENDORSEMENT ---------------------------------------- THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY The Insurer will maintain a notional commutation account balance calculated as follows: 1. 80.30% of the Deposit Premium paid; plus 2. Interest credited as per below; less 100% of losses paid by the Company. The notional commutation account, if positive, will earn interest at a rate equal to the one year United States Treasury Bill rate prevailing on the first day of each anniversary year. The interest shall be applied to the average daily balance of the notional commutation account and the interest will be compounded quarterly. The interest credit shall be calculated at each annual anniversary. Subject to the approval of the California DTSC and the conditions contained within this policy, and in particlular the condition that cancellation can only occur in accordance with applicable local, state and fedederal stautes. On the fifth and subsequent anniversaries of contract inception, the Insured may elect to commute this contract. If the Insured so elects, the Insurer will pay the Insured an amount equal to 100% of the commutation account balance in return for a complete release of liability for all claims whether known or unknown. It will be the Insured's responsibility to obtain alternate financial assurance if this policy is commuted by the Insured. Upon commutation of this contract, the Insurer will also reassign all of the remaining annuity payments from the annuities accepted as premium payment and referenced on Item 5 on the declarations page. If, at the expiration of this Policy, there is a positive balance in the Commutation Account, the Named Insured may elect to use such funds as premium towards the renewal of this Policy. Such renewal Policy's terms and conditions will be negotiated at the time of binding. All other terms, conditions and exclusions shall remain the same. ------------------------------- AUTHORIZED REPRESENTATIVE or countersignature (in states where applicable) AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY (A Capital Stock Company, herein called the Company) c/o American International Surplus Lines Agency, Inc. Harborside Financial Center 401 Plaza 3 Jersey City, NJ 07311 INTERNATIONAL TECHNOLOGIES HAZARDOUS WASTE - Post-CLOSURE POLICY THIS IS A CLAIMS MADE AND REPORTED POLICY. THIS POLICY HAS CERTAIN PROVISIONS AND REQUIREMENTS UNIQUE TO IT AND MAY BE DIFFERENT FROM OTHER POLICIES THE INSURED MAY HAVE PURCHASED. DEFINED TERMS APPEAR IN BOLD FACE TYPE. In consideration of the payment of the premium, in reliance upon the statements in the Declarations and Application made a part hereof and subject to all the terms of this Policy, the Company agrees with the Named Insured as follows: SECTION I. COVERAGES Post-CLOSURE INSURANCE 1. Insuring Agreement. Part A (Post-Closure). The Company agrees to indemnify the Insured, or the - ---------------------- Regulatory Body, subject to the limits of liability of this Policy, for such Post-Closure Costs. The Insured must be legally obligated to pay such Post- Closure Costs by reason of the Partial Closure or Final Closure of a Hazardous Waste Facility designated in Item 4 of the Declarations. Claims by the Insured, or the Regulatory Body, for such Post-Closure Costs must be first reported in writing to the Company during the Policy Period. This coverage applies only to Post-Closure Costs from the Partial Closure or Final Closure of a Hazardous Waste Facility and which arise on or after the Retroactive Date shown in Item 6 of the Declarations Page. 2. Exclusions. This insurance does not apply to expenses, losses, liabilities of, or damages of any kind incurred by, accruing to, or alleged to be liabilities of the Insured, by reason of: A. Any criminal or civil penalties imposed by reason of the violation of any law or regulation. B. Any third-party claims for Bodily Injury or Property Damage or claims for damages of any nature. C. Any expenses, charges or costs resulting from the defense and/or investigation of any liability or obligation for Post-Closure Costs hereunder. However, this exclusion shall not apply to any investigations required for compliance with the Post Closure Plan, including but not limited to investigation: of ground water quality, hydrogeology, chemical fate and transport. Copyright, American Internation Group, Inc., 1999 SECTION II. CLAIMS PROVISIONS It is a condition precedent to coverage that: A. The Insured shall cooperate with the Company and, upon the Company's request, assist in obtaining information relative to any Claim made. The Insured shall not, except at his own cost, voluntarily make or approve any payments, assume any obligations or incur any expense relating to Post- Closure Costs which are not in accordance with the Post-Closure Plan without the Company's or the Regulatory Body's written permission. B. Any notices required by these conditions shall be sent to: Steven Lessick Attorney at Law P.O. Box 295 Jersey City, NJ 07303 or other address(es) as substituted by the Company in writing. C. The Company, upon receipt of a Claim, shall review and issue payment within thirty-five (35) calendar days for any uncontested portion of a Claim. If a portion of the Claim is contested by the Company, the Company shall issue a Claim payment to the Named Insured for the uncontested portion of the Claim within thirty (30) business days. The Insured agrees to work with the Company to resolve any discrepancy on a timely basis. In no event shall the Company take longer than thirty (30) business days to issue a Claim payment to the Named Insured for Claims that have not been contested. If a Claim payment is made to the Named Insured, and all or part of the Claim is still in dispute, the Insured agrees to continue to provide information to the Company to resolve the discrepancy. Any necessary monetary adjustment shall be reconciled with adjustments to future Claim payments. If any Claim payments remain in dispute at the end of six months after submission of a Claim, the Named Insured and the Company agree to settle the outstanding Claim through arbitration in accordance with the rules and regulations outlined in the American Arbitration Association guidelines. SECTION III. DEFINITIONS A. Bodily Injury means: bodily injury, sickness, disease, fear of sickness or disease, mental anguish and mental injury, emotional distress, psychic injury, or disability including care, loss of services or death resulting from any of the foregoing. B. Claim means: A request by the Insured or the Regulatory Body for payment of a statement or bill of expenditures made for Post-Closure Costs by reason of a Partial Closure or Final Closure of a Hazardous Waste Facility in accordance with its Post-Closure Plan, provided that such request: (a) is first submitted in writing to the Regulatory Body for approval during the Policy Period; and (b) is first reported in writing to the Company during the Policy Period. C. Closure Plan means the written closure plan attached to the Policy as Appendix A and made a part hereof, prepared in order to comply with federal regulations promulgated under the Resource Conservation and Recovery Act (contained at 40 C.F.R. Part, 260 et seq., or other applicable federal, state or local regulations regarding closure, post-closure care or corrective Copyright, American International Group, Inc., 1999 2 action at hazardous waste facilities and provided that such Plan shall first have been approved by the Regulatory Body. D. Final Closure means the closure of all Hazardous Waste Management Units at a Hazardous Waste Facility pursuant to the Closure Plan. E. Hazardous Waste Facility (or Facility) means the entire facility designated by legal description in Item 4 of the Declarations which has received authorization from the Regulatory Body to engage in the treatment, storage or disposal of hazardous waste and which includes one or more Hazardous Waste Management Unit(s) on, within or under such facility. F. Hazardous Waste Management Unit means a surface impoundment, waste pile, land treatment area, landfill cell, incinerator, tank and its associated piping and underlying containment system, and container storage area, or other contiguous area of land on or in which hazardous waste is placed, or the largest area in which there is significant likelihood of mixing hazardous waste constituents in the same area. Such unit must be located on, within or under a Hazardous Waste Facility. A container alone does not constitute a unit; the unit includes containers and the land or pad upon which they are placed. G. Insured means the Named Insured, and any director, officer, partner or employee thereof while acting within the scope of his/her duties as such, and any person or entity designated as an additional insured by an endorsement issued to form a part of this Policy. H. Most Recent Published Investment Rate means the last published investment rate prior and closest in time to the date upon which the Company becomes obligated to make payment for Post-Closure Costs. I. Named Insured means the person or entity designated as such in Item 1 of the Declarations. J. Partial Closure means the closure pursuant to the Closure Plan of one or more Hazardous Waste Management Units at a Hazardous Waste Facility which contains other Hazardous Waste Management Units which remain active. K. Policy Period means the period set forth in Item 2 of the Declarations, or any shorter period arising as a result of cancellation of this Policy. L. Post-Closure Costs means all expenses specifically identified in or necessary to comply with the Post-Closure Plan approved by the Regulatory Body, including but not limited to labor, fringe, overhead, contractor or subcontractor costs associated with Facility maintenance, operation and maintenance of ground water remediation and water management systems; repair and monitoring, regulatory oversight fees; utilities, and final closure of post closure units such as evaporation basins and solar evaporators. M. Post-Closure Plan means the written post-closure plan attached to this Policy as Appendix B and made a part hereof, and prepared in order to comply with federal regulations promulgated under the Resource Conservation and Recovery Act (contained at 40 C.F.R. Part 260 et seq., or other applicable federal, state or local regulations regarding post-closure care or corrective action at hazardous waste facilities, including all revisions, amendments, modifications or directives required in writing by the Regulatory Body, and provided that such plan shall first have been approved by the Regulatory Body. N. Property Damage means: (a) Physical injury to, or destruction of tangible property, including loss of use, profits or investments or diminution in value of; (b) the loss of use of tangible property or rights of any nature, whether related to tangible property or not. O. Regulatory Body means the Regional Administrator of the United States Environmental Protection Agency for the EPA region in which the Hazardous Waste Facility named in Item 4 Copyright, American International Group, Inc., 1999 3 of the Declarations is located, or any person or State Agency designated by the Regional Administrator, or any person or State Agency designated by the Regional Administrator, or any agency which is now or becomes responsible for the supervision of the Final Closure, Partial Closure or Post Closure of the Hazardous Waste Facility or any aspect thereof necessary to comply with the Post Closure Plan, including but not limited to the Department of Toxic Substances Control and Regional Water Quality Control Board. SECTION IV. LIMIT OF LIABILITY AND DEDUCTIBLE A. With respect to all Hazardous Waste Facilities shown in the Declarations, the Company's total liability for all Post Closure Costs under Section I Coverage Post-Closure Insurance, Part A (Post-Closure) of the Insuring Agreement from all Claims shall not exceed the limit of liability shown in Item 3 of the Declarations. B. The sublimits of liability shown in the Declarations for Part A (Post- Closure) of Section I Coverages Post-Closure Insurance with respect to each Hazardous Waste Facility are separate limits of liability which are in addition to each other. The Umbrella Aggregate Limit shown in the Declarations, $5,460,175., is a separate limit from the facility sublimits and it may be applied to any or all facilities. C. Provided that the premium as determined by the Company has been paid in full within thirty (30) calendar days of when due, the limit of liability for each Hazardous Waste Facility, with respect to Section I Coverage Post- Closure Insurance, Part A (Post-Closure) under the Insuring Agreement, shall increase annually, as follows: Beginning from the date the Company becomes obligated under this Policy to indemnify Post-Closure Costs, the increase in the Part A (Post-Closure) limit of liability for such Hazardous Waste Facility shall be equivalent to the existing limit of liability, less any payments made under this Part A limit, multiplied by an amount equivalent to 85 percent (85%) of the Most Recent Published Investment Rate for newly issued 26-week Treasury securities. SECTION V. TERRITORY This Policy only applies to a Claim arising from Post-Closure Costs incurred at Hazardous Waste Facilities located in the United States, its territories or possessions, or Canada, and only if such Claim are made or brought in the United States, its territories or possessions, or Canada. SECTION VI. CONDITIONS A. Inspection and Audit - The Company shall be permitted but not obligated to inspect, sample and monitor on a continuing basis the Insured's property or operations, at any time. Neither the Company's right to make inspections, sample and monitor, nor the actual undertaking thereof nor any report thereon, shall constitute an undertaking, on behalf of the Insured or others, to determine or warrant that property or operations are safe, healthful or conform to acceptable engineering practice or are in compliance with any law, rule or regulation. The Company or its designee may examine and audit the Insured's books and records at any time during the Policy Period and extensions thereof, as far as they relate to the subject matter of this insurance, and within any periods of Final Closure, Partial Closure or post-closure for which coverage is provided whether Insurance of this Policy has expired. B. Cancellation - The Company shall not cancel, terminate or fail to renew the coverages provided herein except for failure to pay the full premium in accordance with the schedule shown in Item 5 in the Declarations. The Company shall notify the Insured of its intent to cancel, terminate or not Copyright, American International Group, Inc., 1999 4 to renew by sending, by certified mail, to the Insured at the address shown in this policy, written notice stating the date not less than 120 days thereafter allowing time for receipt of notice on which such cancellation, termination or failure to renew shall be effective. This policy may be cancelled by the Named Insured pursuant to applicable statute by surrender thereof to the Company or any of its authorized agents or by mailing to the Company written notice stating the date thereafter the cancellation shall be effective. The mailing of notice as aforesaid shall be sufficient proof of notice. The time of surrender or the effective date and hour of cancellation stated in the notice shall become the end of the Policy Period. In the event of (i) cancellation or nonrenewal by the Insured or (ii) cancellation by the Company for nonpayment of premium, the full Insurance Premium shown in Item 5 of the Declarations shall be deemed earned and the unpaid portion thereof shall be immediately due and payable. Upon the effective date of cancellation by the Insured, all indemnity obligations on the part of the Company hereunder shall automatically cease and the Insured shall have no further recourse against the Company with respect to unpaid losses. C. Representations - By acceptance of this Policy, the Insured agrees that the statements in the Declarations and Application(s) are their agreements and representations, that this Policy is issued in reliance upon the truth of such representations and that this Policy embodies all agreements existing between the Insured and the Company or any of its agents relating to this insurance. D. Action Against Company - No third-party action shall lie against the Company, unless as a condition precedent thereto, there shall have been full compliance with all of the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant or regulatory body and the Company. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this Policy to the extent of the insurance afforded by this Policy. No person or organization shall have any right under this Policy to join the Company as a party to any action against the Insured to determine the Insured's liability, nor shall the Company be impleaded by the Insured or his legal representative. Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder. E. Assignment - This Policy may be assigned to a successor owner or operator of a Hazardous Waste Facility designated in Item 4 of the Declarations, provided that the Company consents to the assignment, which consent shall not be unreasonably withheld. F. Subrogation - In the event of any payment of this Policy, the Company shall be subrogated to all the Insured's rights of recovery therefor against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after a Claim to prejudice such rights. The Company agrees to the following exceptions to the above and waives subrogation: 1. as to any and all rights of recovery which the Insured may have against former clients and generators of waste at the Hazardous Waste Facility(ies), unless the Insured having such right of recovery shall give its written consent to the Company to be subrogated thereto and the Insured shall have the sole right to determine whether such consent is given; and 2. as to any rights of recovery which the Insured may have against any predecessor or affiliate of the Insured, including any insurer thereof, unless the Insured having such Copyright, American International Group, Inc., 1999 5 right of recovery shall give its written consent to the Company to be subrogated thereto and the Insured shall have the sole right to determine whether such consent is given. G. Changes - Notice to any agent or knowledge possessed by any agent or by any other person shall not effect a waiver or a change in any part of this Policy or estop the Company from asserting any right under the terms of this Policy; nor shall the terms of this Policy be waived or changed, except by endorsement issued to form a part of this Policy. H. Sole Agent - The Named Insured first listed in Item 1 of the Declarations shall act on behalf of all other Insureds, if any, for the payment or return of premium, receipt and acceptance of any endorsement issued to form a part of this Policy, giving and receiving notice of cancellation or nonrenewal. I. Other Insurance - Where other insurance is available to the Named Insured for Post-Closure Costs covered under the terms and conditions of the Policy, the Company's obligation to the Insured shall be as follows: (1) This insurance is primary with respect to other valid and collectible insurance available to any Named Insured. The Company's obligations are not affected unless any of the other insurance is also primary and recovery under such insurance results from a Post-Closure Cost arising after the inception date of this Policy. In that case, the Company will share with all such other insurance by the method described in paragraph (2) below. (2) Where this insurance is excess insurance, the Company will pay only its share of the amount of Post-Closure Costs, if any, that exceeds the total amount of all such valid insurance. The Insured shall promptly upon request of the Company provide the Company with copies of all policies potentially applicable against the liability covered by this Policy. J. Premium - The full policy premium for coverage hereunder shall be payable in accordance with the schedule set forth in Item 5 of the Declarations. It is an absolute condition that the full amount of each premium installment be actually received by the Company in accordance with said schedule to be or continue to be effective K. Renewal of Coverage - Coverage may be renewed with a subsequent policy which provides limits of liability no less than those contained in this Policy, and which is issued by the Company at the expiration of the Policy Period stated in the Declarations of this Policy, subject to the cancellation provisions set forth in this Section. SECTION VII. SERVICE OF SUIT L. Service of Suit - It is agreed that in the event of failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this condition constitutes or should be understood to constitute a waiver of the Company's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. It is further agreed that service of process in such suit may be made upon Counsel, Legal Department, American International Specialty Lines Insurance Company, c/o American International Surplus Lines Agency, Inc., Harborside Financial Center, 401 Plaza 3, Jersey City, NJ 07311, or his or her representative, and that in any suit instituted against the Company upon this contract, the Company will abide by the final decision of such court or of any appellate court in the event of any appeal. Copyright, American International Group, Inc., 1999 6 Further, pursuant to any statute of any state, territory, or district of the United States which makes provision therefor, the Company hereby designates the Superintendent, Commissioner, or Director of Insurance, other officer specified for that purpose in the statute, or his or her successor or successors in office as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Insured or any beneficiary hereunder arising out of this contract of insurance, and hereby designates the above named counsel as the person to whom the said officer is authorized to mail such process or a true copy thereof. IN WITNESS WHEREOF, the Company has caused this Policy to be signed by its president and secretary and signed on the Declarations page by a duly authorized representative or countersigned in states where applicable. ________________________ __________________________ Secretary President Copyright, American International Group, Inc., 1999 7 ENDORSEMENT NO. This endorsement, effective 12:01 AM, Forms a part of Policy No: Issued to: By: NOTIONAL COMMUTATION ACCOUNT ENDORSEMENT ---------------------------------------- THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY The Insurer will maintain a notional commutation account balance calculated as follows: 1. 80.30% of the Deposit Premium paid; plus 2. 90% of the Annuity Payments; less 100% of losses paid by the Company. The notional commutation account, if positive, will earn interest at a rate equal to the one year United States Treasury Bill rate prevailing on the first day of each anniversary year. The interest shall be applied to the average daily balance of the notional commutation account and the interest will be compounded quarterly. The interest credit shall be calculated at each annual anniversary. On the fifth and subsequent anniversaries of contract inception, the insured may elect to commute this contract. If the Insured so elects, the Insurer will pay the Insured an amount equal to 100% of the commutation account balance in return for a complete release of liability for all claims whether known or unknown. It will be the insured's responsibility to obtain alternate financial assurance if this policy is commuted by the Insured. Upon commutation of this contract, the Insurer will also reassign all of the remaining annuity payments from the annuities accepted as premium payment and referenced on Item 5 on the declarations page. If, at the expiration of this Policy, there is a positive balance in the Commutation Account, the Named Insured may elect to use such funds as premium towards the renewal of this Policy. Such renewal Policy's terms and conditions will be negotiated at the time of binding. All other terms, conditions and exclusions shall remain the same. ------------------------- AUTHORIZED REPRESENTATIVE or countersignature (in states where applicable) EX-10.III.44 5 1999 MANAGEMENT INCENTIVE PLAN Exhibit 10(iii)44 [LOGO OF THE IT GROUP] THE IT GROUP, INC. 1999 MANAGEMENT INCENTIVE PLAN Table of Contents_________________________________________________________ 1.0 Purpose.......................................................... 1 2.0 Eligibility...................................................... 1 3.0 Plan Year........................................................ 1 4.0 Performance Criteria............................................. 2 5.0 Individual Performance........................................... 2 6.0 Individual Award Targets......................................... 2 7.0 Incentive Pool Funding........................................... 2 8.0 Determination of Incentive Award Payments........................ 3 9.0 Adjustments and Form of Payment.................................. 3 10.0 Administration................................................... 3 11.0 Changes in Capital Structure and Other Events.................... 4 12.0 Amendment and Termination of the Plan............................ 4 13.0 General Provisions............................................... 4 1.0 Purpose___________________________________________________________________ To recognize and reward key management, technical, and professional employees for their ability to assist the Company to achieve, or exceed identified Company goals, as well as personally achieve or exceed established pre-agreed individual performance goals. To offer a comprehensive compensation program that will enable the Company to: . Cost effectively attract and retain key management and professional personnel to enhance the Company's leadership position, and . Motivate responsible management to achieve Company goals and foster teamwork within the Company by relating the incentive portion of total compensation directly to measurable performance criteria linked to the creation of enhanced shareholder value. 2.0 Eligibility_______________________________________________________________ Regular full-time active employees nominated by senior management and approved by the Chief Executive Officer and President. Employees must be approved for incentive plan eligibility each year. Eligibility in any given year does not assure eligibility in subsequent years. Incentive awards will only accrue to participants who are on regular full-time employee status at the time the award is paid. Incentive awards will be calculated on the participants' annual base salary in effect at the beginning of the Plan year or at the time a participant first becomes eligible to participate in the Plan. 3.0 Plan Year_________________________________________________________________ The Plan Year will run from December 26, 1998 to December 31, 1999. All Performance Criteria will be measured over the Plan Year. 1 4.0 Performance Criteria______________________________________________________ The Compensation Committee (the "Committee") of the Board of Directors shall establish one or more elements of performance criteria for the Company and/or its major Groups for the Plan Year. 5.0 Individual Performance____________________________________________________ Individual awards are subject to an increase or decrease adjustment of up to 25% of the total award based on individual performance as determined by senior management subject to further increase or decrease by the CEO. Factors to be considered when evaluating individual performance, to determine incentive awards, may include, but not be limited to, some or all of the following: . Business unit performance . New business development . Accounts receivable improvement . Intracompany cooperation . Achievement of a personal performance plan as approved by appropriate management . Furtherance of the Company's mission with respect to client relationships, people development, quality and safety. 6.0 Individual Award Targets___________________________________________________ Each participant will be assigned a target incentive award specified as a percentage of salary. Incentive awards will be prorated as necessary so that the sum of the individual awards does not exceed the authorized Incentive Pool Funding. 7.0 Incentive Pool Funding_____________________________________________________ The Committee shall determine the total amount of funds authorized for payment of incentive awards and specify the relationship between the attainment of specified performance criteria and the payment of incentive awards. 2 8.0 Determination of Incentive Award Payments__________________________________ The Committee shall determine any formulas necessary to determine the appropriate performance criteria and the weighting of such criteria in determining incentive award payments for specific subgroups of participants in the Plan. 9.0 Adjustments and Form of Payment____________________________________________ The Committee reserves the right to make good faith adjustments to any of the Performance Criteria and/or the amount of incentive awards due to a material change in the Company's structure due to, but not limited to; acquisitions, divestitures or mergers. Further, although it is contemplated that incentive awards will be paid in cash, the Committee may at its discretion determine that incentive awards be made in the form of cash, stock, stock options, or in any other form or combination of forms as the Committee should determine. 10.0 Administration___________________________________________________________ The Plan shall be administered by the Committee. The authority of the Committee includes, but is not limited to the following: . Determining eligibility for participation in the Plan . Determining: - Incentive award opportunities and earned awards - Performance criteria and performance goals . Authorizing payments and determining the form of incentive awards (cash, stock) or other forms of award.) . Interpreting the Plan and exercising its power to prescribe, amend, or rescind rules and regulations relating to the Plan . Adjusting the Company's performance goals and/or funded incentive pool due to a material change in the organizational structure of the Company and/or occurrence of extraordinary events. 3 11.0 Changes in Capital Structure and Other Events_____________________________ Upon dissolution or liquidation of the Corporation or upon reorganization, merger, or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or upon sale of all or substantially all of the assets of the Corporation, or change in control, the Committee may in its sole discretion: . Accelerate the payment of earned awards under the Plan. . Make any other adjustments or amendments to the Plan and outstanding incentive awards as it may deem equitable. 12.0 Amendment and Termination of the Plan_____________________________________ The Board may at any time and from time to time may suspend, terminate, modify, or amend the Plan. 13.0 General Provisions________________________________________________________ . The Company may reduce incentive awards by the gross amount of any overtime paid to the participant as well the gross amount of any other incentive compensation awards paid including Spot Incentive awards. Special recognition awards (such as for years of service or for technical or professional accomplishments, etc.) will not be deducted. . The Company may deduct federal, state, and any other local taxes of any kind required by law to be withheld upon payment of any incentive award under this Plan. . The Company may deduct from or reduce the amount of an award on account of amounts due the Company by the participant. . Nothing in this Plan or in any award granted pursuant hereto shall confer on an individual any right to continue in the employ of the Company or any of its subsidiaries or deter in any way the right of the Company or any subsidiary to terminate any employment. . The Plan shall take effect upon its adoption by the Compensation Committee of the Board of Directors. . Awards granted under the Plan shall not be transferrable otherwise than by will or by laws of descent and distribution, and awards may be realized during the employment of the participant or by his/her guardian or legal representative. 4 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 1, 1999 AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE FISCAL QUARTERS ENDED OCTOBER 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 DEC-26-1998 OCT-01-1999 21,509 0 494,931 21,020 0 539,705 119,266 57,533 1,268,806 315,972 664,054 0 6,665 229 253,683 1,268,806 0 953,412 0 870,857 0 0 39,763 42,792 15,885 26,907 0 0 0 26,907 0.98 0.83
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