-----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, Oy80/22vRs8LlKYczo5WgheeTlLgkVMB8yYYnMuP5B6y9rXWZaV7CRDjGwpVHnXx JxsL8l7IX2tjvCFiOpG9vw== 0000950152-97-002019.txt : 19970321 0000950152-97-002019.hdr.sgml : 19970321 ACCESSION NUMBER: 0000950152-97-002019 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHM CORP CENTRAL INDEX KEY: 0000788964 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 341503050 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09654 FILM NUMBER: 97559819 BUSINESS ADDRESS: STREET 1: 16406 US RTE 224 EAST CITY: FINDLAY STATE: OH ZIP: 45840 BUSINESS PHONE: 4194233529 MAIL ADDRESS: STREET 1: P.O. BOX 551 CITY: FINDLAY STATE: OH ZIP: 45839-0551 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL TREATMENT & TECHNOLOGIES CORP DATE OF NAME CHANGE: 19890209 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL TREATMENT & TECHNOLOGY CORP DATE OF NAME CHANGE: 19880816 10-K405 1 OHM CORPORATION 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________________ to _________________ Commission file number 1-9654 OHM CORPORATION (Exact name of registrant as specified in its charter) Ohio 34-1503050 (State of Incorporation) (I.R.S. Employer Identification Number) 16406 U.S. Route 224 East, Findlay, OH 45840 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (419) 423-3526 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $0.10 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: 8% Convertible Subordinated Debentures due October 1, 2006 (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant on February 28, 1997, was $216,369,920. The number of shares of common stock outstanding on February 28, 1997, was 27,046,240 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1997 Annual Meeting of Shareholders to be held May 8, 1997 are incorporated by reference into Part III. 2 OHM CORPORATION 1996 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART I - -------------------------------------------------------------------------------------------------------------------- ITEM 1. Business.................................................................................... 1 ITEM 2. Properties.................................................................................. 9 ITEM 3. Legal Proceedings........................................................................... 9 ITEM 4. Submission of Matters to a Vote of Security Holders......................................... 10 ITEM 4A. Executive Officers of the Registrant........................................................ 10 EXECUTIVE OFFICERS OF THE REGISTRANT PART II - -------------------------------------------------------------------------------------------------------------------- ITEM 5. Market for the Registrant's Common Stock and Related Shareholder Matters......................................................................... 12 ITEM 6. Selected Financial Data..................................................................... 13 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 15 ITEM 8. Financial Statements and Supplementary Data................................................. 22 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures....................................................................... 39 PART III - -------------------------------------------------------------------------------------------------------------------- ITEM 10. Directors and Executive Officers of the Registrant.......................................... 40 ITEM 11. Executive Compensation...................................................................... 40 ITEM 12. Security Ownership of Certain Beneficial Owners and Management.............................. 40 ITEM 13. Certain Relationships and Related Transactions.............................................. 40 PART IV - -------------------------------------------------------------------------------------------------------------------- ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............................. 40 SIGNATURES ............................................................................................ 46
3 PART I ITEM 1. BUSINESS OVERVIEW OHM Corporation, an Ohio corporation, and its predecessors (the "Company"), is one of the largest providers of technology-based, on- site hazardous waste remediation services in the United States. The Company has been in the environmental services business since 1969. The Company has successfully completed approximately 31,000 projects involving contaminated groundwater, soil and facilities. The Company provides a wide range of environmental services, primarily to government agencies and to large chemical, petroleum, transportation and industrial companies. The Company has worked for the United States Environmental Protection Agency ("EPA"), the Department of Defense ("DOD") (including the U.S. Army Corps of Engineers ("USACE") and the U.S. Departments of the Air Force, Army and Navy), the Department of Energy ("DOE"), a number of state and local governments and a majority of the Fortune 100 industrial and service companies. In addition to its technology-based, on-site remediation services, the Company also offers a broad range of other services, including site assessment, engineering, remedial design and analytical testing. Service is provided through 30 regional offices, one fixed laboratory at its headquarters in Findlay, Ohio, eight mobile laboratories, and approximately 2,800 pieces of mobile treatment and related field equipment. Since the disposition by the Company in early 1993 of its interest in OHM Resource Recovery Corp., the operator of a hazardous waste treatment and disposal facility, the Company does not own or operate any hazardous waste disposal sites or other off-site waste treatment or disposal facilities. The Company generally coordinates through licensed subcontractors the transportation and disposal of any hazardous waste which is not remediated on-site. On May 30, 1995, pursuant to an Agreement and Plan of Reorganization, the Company through its wholly-owned subsidiary, OHM Remediation Services Corp. ("OHMR"), acquired (the "Acquisition") in exchange for 9,668,000 shares of Common Stock of the Company, par value $.10 per share ("Common Stock"), substantially all of the assets and certain liabilities of the environmental remediation services business of Rust International Inc. ("Rust"), a majority-owned subsidiary of WMX Technologies, Inc. ("WMX"). In connection with the Acquisition, the Company and WMX entered into a Guarantee Agreement whereby in exchange for a warrant exercisable for five years, to purchase 700,000 shares of Common Stock at a price per share of $15.00, WMX agreed, until May 30, 2000, to guarantee indebtedness of the Company in an amount not to exceed $62,000,000 which will increase proportionately up to $75,000,000 upon issuance of shares under the warrant. In addition, the Company entered into a Standstill and Non-competition Agreement (the "Standstill Agreement") with WMX and its affiliates. As contemplated by the Standstill Agreement, three designees of WMX were elected to the Board of Directors of the Company. The Company also has an approximately 40% interest in NSC Corporation ("NSC"), a provider of asbestos abatement and specialty contracting services. OHM'S ENVIRONMENTAL REMEDIATION SERVICES The Company assists its clients by providing comprehensive on-site treatment of toxic materials and hazardous wastes. By applying a broad range of biological, chemical, physical, soil vapor extraction and thermal treatment technologies, the Company performs on-site treatment and remediation services for the control, detoxification, decontamination, and volume reduction of hazardous and toxic material. Accordingly, the Company has designed a wide range of modular mobile treatment equipment, which can be used on-site, either independently or in a system, for removing, detoxifying, reducing the volume of, or stabilizing contaminants. This equipment includes thermal destruction units, dewatering presses, filters, separators, ion exchangers, stripping systems and mobile process equipment which apply various physical, chemical and biological technologies to remediate contaminants. Since 1970, the Company has completed approximately 31,000 projects throughout the United States, cleaning up hazardous wastes, removing toxic chemicals from groundwater and cleaning facilities of contaminants. The Company endeavors to offer clients an increasingly broad array of on-site treatment services, either on a planned or emergency basis, from its 30 regional offices located throughout the country. On-site environmental remediation services provided by the Company include: * Treatment, stabilization or removal of contaminants; * Decontamination of industrial facilities; 1 4 * Assessment, characterization and treatment of contaminated soil and/or groundwater; * Surface impoundment restoration, including volume reduction, stabilization and closure of contaminated lagoons; * Management of underground and above ground storage tanks; * Design, engineering, fabrication, installation and operation of on-site treatment equipment; and * Emergency response to virtually any kind of industrial or transportation-related accident involving hazardous waste or materials. The Company undertakes these projects on both a planned basis, which is scheduled in advance, and an emergency basis, which is performed in direct response to spills, fires and industrial accidents. The Company places its emphasis upon planned work because of its more predictable resource requirements, and because of its larger potential market. In 1996, planned projects accounted for approximately 98% of the Company's revenue. The Company believes that professional project management and cost accounting systems are key factors in ensuring that projects are accurately and successfully completed on time and within prescribed cost estimates. The Company's project management structure combines the various functional areas performing work at the project, including technical, engineering, administrative and accounting specialists, into a coordinated team, reporting directly to the project manager. The project manager's responsibility for scheduling and project completion allows technical and operations specialists to operate efficiently with fewer distractions. The Company also believes that professional project management is a critical element in limiting the significant risks and potential liabilities involved in environmental remediation projects due to the presence of hazardous and toxic substances. The Company has adopted a number of risk management policies and practices including special employee training and health monitoring programs. The Company's health and safety staff establish a safety plan for each project prior to the initiation of work, monitor compliance with the plan and administer the Company's medical monitoring program to staff involved. The Company believes that it has an excellent overall health and safety record. TREATMENT TECHNOLOGIES Designing, developing and implementing solutions to environmental hazards requires an interdisciplinary approach combining practical field experience with remediation processes and technical skills in fields such as chemistry, microbiology, hydrogeology, fluid mechanics, thermodynamics, and geotechnical, biochemical and process engineering. The Company employs scientific and engineering professionals in the environmental services field who enhance the Company's ability to effectively participate in larger, more technically complex remediation projects. The Company has significant experience in the commercialization and practical field application of new and existing technologies for the treatment of hazardous wastes, with emphasis on the further development and application of existing technologies. To provide direct support for its efforts to place innovative technology in the field, in 1973, the Company built its own equipment fabrication facility; in 1978, the Company built a laboratory dedicated to developing commercial applications of biological treatment of hazardous wastes; and in 1993, the Company built a treatability laboratory to support testing and enhancement of a broad range of innovative technology applications. The Company also provides technology development services under contract to its clients. The following represent the principal technologies used by the Company for remediation projects: * BIOLOGICAL REMEDIATION: The Company's Bioremediation Department designs and tests bioremediation techniques for treating hazardous waste. Biological treatment technologies generally utilize enhanced microbiological activity to decompose and detoxify contaminants, often using a site's natural flora to remediate a problem. The Company's biological laboratories can "feed" the microorganisms, that destroy the pollutant, so that they grow at a faster rate than would occur in nature. The Company has developed considerable expertise in transferring innovative bioremediation techniques from the laboratory to the field. The Company utilizes the following biological treatment technologies: 2 5 Anaerobic Digestion Vessel -- degradation of organic contaminants in the absence of air. Trickling Filters -- secondary treatment on large-scale treatment applications to enhance the oxygenation process. Activated Sludge Reactor -- treatment utilizing holding tanks to enhance biological degradation. Submerged Fixed Reactor Vessel -- combines a trickling filter and an activated sludge reactor for more efficient degradation of contaminants. Aeration Lagoons -- secondary or tertiary treatment to remove carbon, nitrogen or phosphorous. * CHEMICAL TREATMENT: The Company's mobile chemical treatment equipment utilizes the following technologies: Carbon Adsorption -- passage of a liquid or vapor discharge stream through a bed of activated carbon which adsorbs certain contaminants. Oxidation/Reduction -- conversion of complex components of the wastestream into simpler, less toxic materials through addition of oxidizing or reducing agents such as ozone, hydrogen peroxide and sodium bisulfate. Clarification/Flocculation -- addition of chemicals which bond or interact with suspended solids and dissolved contaminants to form a flocculated product which can be separated through settling or filtration techniques. Ion-Exchange -- ion-exchange resins used for the selective removal of heavy metals and hazardous ions. Ultraviolet Treatment -- use of ultraviolet light to kill pathogens and convert or degrade some organic chemicals, especially when combined with the use of oxidants. * PHYSICAL TREATMENT: The Company's physical treatment technologies generally involve removal of contaminants through osmosis, settlement or filtration. The Company's mobile physical treatment equipment utilizes the following technologies: Heated Volatile Stripping -- removal of contaminants with low boiling points by passage of air under pressure through the wastestream. Fume Scrubbing -- passage of a vaporized stream through an aerosol spray to remove contaminant particles from the vapor stream. Immiscible Fraction Separation -- removal of a component of a wastestream which is immiscible in water through settling techniques. Mixed Media Filtration -- removal of suspended particles by passage through selected filter media. * SOIL VAPOR EXTRACTION AND SOIL FLUSHING: The Company has applied several innovative technologies, known generally as soil vapor extraction and soil flushing, based on a patent granted in 1984 for a portable method of soil decontamination above or below the groundwater table. The technologies generally involve the use of a system of pressurized injection and vacuum extraction wells to induce a pressure gradient and a fluid flow to extract contaminants and treat them in-situ or in an aboveground system. The technologies can be used to remove contaminants in soils and groundwater, in-situ or ex-situ, and can be combined with bioremediation to treat mixtures of volatile and non-volatile contaminants. * THERMAL TREATMENT: The Company's thermal treatment technologies include infrared incineration, rotary kiln technology and thermal desorption. Infrared incineration uses electric powered resistance heaters as a source of radiant heat for removal and destruction of hazardous organic contaminants. Rotary kiln incineration is the traditional incineration process for destroying organic hazardous waste constituents in a refractory lined rotating 3 6 kiln. Thermal desorption is a thermal treatment technology which uses heat to remove volatile compounds from a waste without oxidation of the compounds. The Company has established a thermal treatment engineering group to assess, develop and commercialize thermal technologies for on-site remediation. FOCUS ON LARGER PROJECTS AND GOVERNMENT CONTRACTS The Company pursues larger projects and term contracts as a method to achieve more predictable revenue, more consistent utilization of equipment and personnel, and greater leverage of sales and marketing costs. Historically, the Company relied most heavily on private sector remediation projects in the Northeast and Midwest that typically involved planned cleanups of sites that were contaminated in the normal course of manufacturing activity and emergency cleanups of oil or chemical spills. Contract values typically were less than $1 million in size and less than one year in duration. The Company now targets more complex, multi-million dollar, multi-year private sector and government site-specific and term contracts. As a result of its shift in project focus, since the beginning of 1991 the Company has been awarded a large number of multi-million dollar government term contracts which, in some cases, may require several years to complete. Although the Company still performs private sector remediation projects, the Company currently derives a majority of its revenue from government term contracts and these larger projects. Larger site-specific projects impose heightened risks of loss in the event that actual costs are higher than those estimated at the time of bid due to unanticipated problems, inefficient project management, or disputes over the terms and specifications of the contracted performance. Since the beginning of 1991, the Company has been awarded 30 government term contracts, and several large projects, including those acquired by the Company in connection with the Acquisition, with potential values ranging from $10 million to $250 million and terms ranging from one to ten years. Such government term contracts typically are performed by completing remediation work under delivery orders, issued by the contracting government entity, for a large number of small-to-medium-sized projects throughout the geographic area covered by the contract. Such government term contracts do not represent commitments with respect to the amount, if any, that will actually be expended pursuant to such contracts, may generally be canceled, delayed or modified at the sole option of the government, and are subject to annual funding limitations and public sector budget constraints. Accordingly, such government contracts represent the potential dollar value that may be expended under such contracts; therefore, no assurance can be provided that such amounts, if any, will be actually spent on any projects, or of the timing thereof. For the fiscal year ended December 31, 1996, 77% of the Company's revenue was derived from federal, state and local government contracts. The Company expects that the percentage of its revenue attributable to such government clients will continue to represent a significant portion of its revenue. In addition to its dependence on government contracts, the Company also faces the risks associated with such contracting, which could include substantial civil and criminal fines and penalties. As a result of its government contracting business, the Company is, has been and may in the future be subject to audits and investigations by government agencies. In addition to potential damage to the Company's business reputation, the failure by the Company to comply with the terms of any of its government contracts could also result in the Company's suspension or debarment from future government contracts for a significant period of time. The fines and penalties which could result from noncompliance with appropriate standards and regulations, or the Company's suspension or debarment, could have a material adverse effect on the Company's business, particularly in light of the increasing importance to the Company of work for various government agencies. ENVIRONMENTAL CONTRACTOR RISKS Although the Company believes that it generally benefits from increased environmental regulations, and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, remediation, analysis, handling and management of hazardous or radioactive substances necessarily involve significant risks, including the possibility of damages or injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violation of environmental laws and regulations, and liabilities to customers and to third parties, including governmental agencies, for damages arising from performing services for clients, which could have a material adverse effect on the Company. Potential Liabilities Arising Out of Environmental Laws and Regulations. All facets of the Company's business are conducted in the context of a developing and changing statutory and regulatory framework. The Company's operations and services are affected by and subject to regulation by a number of federal agencies, including the EPA, the Occupational Safety 4 7 and Health Administration ("OSHA"), and in limited occasions, the Nuclear Regulatory Commission, as well as applicable state and local regulatory agencies. For a description of certain applicable laws and regulations, see "Regulation." Potential Liabilities Involving Clients and Third Parties. In performing services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage and negligence, including claims for lack of timely performance and/or for failure to deliver the service promised (including improper or negligent performance or design, failure to meet specifications and breaches of express or implied warranties). The damages available to a client, should it prevail in its claims, are potentially large and could include consequential damages. Environmental contractors, in connection with work performed for clients, also potentially face liabilities to third parties from various claims, including claims for property damage or personal injury stemming from a release of hazardous substances or otherwise. Claims for damage to third parties could arise in a number of ways, including through a sudden and accidental release or discharge of contaminants or pollutants during the performance of services, through the inability--despite reasonable care--of a remedial plan to contain or correct an ongoing seepage or release of pollutants, through the inadvertent exacerbation of an existing contamination problem, or through reliance on reports prepared by the Company. Personal injury claims could arise contemporaneously with performance of the work or long after completion of the project as a result of alleged exposure to toxic substances. In addition, increasing numbers of claimants assert that companies performing environmental remediation should be held strictly liable (i.e., liable for damages regardless of whether its services were performed using reasonable care) on the grounds that such services involved "abnormally dangerous activities." Clients frequently attempt to shift various liabilities arising out of remediation of their own environmental problems to contractors through contractual indemnities. Such provisions seek to require the Company to assume liabilities for damage or injury to third parties and property and for environmental fines and penalties. The Company has adopted risk management policies designed to address these problems, but cannot assure their adequacy. In addition, the Company generally coordinates through subcontractors the transportation of any hazardous waste which is not remediated on-site to a licensed hazardous waste disposal or incineration facility. Moreover, during the past several years, the EPA and other governmental agencies have constricted significantly the circumstances under which they will indemnify contractors against liabilities incurred in connection with remediation projects undertaken by contractors under contract with such governmental agencies. DEPENDENCE ON ENVIRONMENTAL REGULATION Much of the Company's business is generated either directly or indirectly as a result of federal and state laws, regulations and programs related to environmental issues. Accordingly, a reduction in the number or scope of these laws, regulations and programs, or changes in government policies regarding the funding, implementation or enforcement of such laws, regulations and programs, could have a material adverse effect on the Company's business. See "Regulation." MARKETS AND CUSTOMERS The Company provides its services to a broad base of clients in both the private and government sectors. Its private sector clients include large chemical, petroleum, manufacturing, transportation, real estate, electronics, automotive, aerospace and other industrial companies, as well as engineering and consulting firms. The Company has worked for a majority of the Fortune 100 industrial companies. Historically, the majority of the Company's private sector revenue was derived from projects with values typically less than $1 million in size and less than one year in duration. Revenue from industrial clients for 1996 was $124.7 million and constituted 23% of the Company's revenue. In the government sector, the market for the Company's services primarily consists of federal government agencies. The Company has been a prime contractor to the EPA since 1984 under Emergency Response Cleanup Services ("ERCS") contracts administered under the Superfund Removal Program. In addition, through site specific and term contracts, the Company provides its services to the DOD, including USACE, the U.S. Departments of the Navy, Air Force and Army, at DOE facilities and to state and local governments. Revenue from government agencies in 1996 aggregated $426.3 million and accounted for 77% of revenue, of which the Department of the Navy and the USACE accounted for approximately $167.7 million or 30% and $127.1 million or 23% of revenue, respectively. 5 8 SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS The timing of the Company's revenue is dependent on its backlog, contract awards and the performance requirements of each contract. The Company's revenue is also affected by the timing of its clients' planned remediation activities which generally increase during the third and fourth quarters. Because of this change in demand, the Company's quarterly revenue can fluctuate, and revenue for the first and second quarters of each year has historically been lower than for the third and fourth quarters. Although the Company believes that the historical trend in quarterly revenue for the third and fourth quarters of each year are generally higher than the first and second quarters, there can be no assurance that this will occur in future periods. Accordingly, quarterly or interim results should not be considered indicative of results to be expected for any quarter or for the full year. COMPETITION The environmental services industry is highly competitive with numerous companies of various size, geographic presence and capabilities participating. The Company believes that it has approximately a dozen principal competitors in the environmental remediation sector of the environmental services industry and numerous smaller competitors. The Company believes that the principal competitive factors in its business are operational experience, technical proficiency, breadth of services offered, local presence and price. In certain aspects of the Company's environmental remediation business, substantial capital investment is required for equipment. Certain of the Company's competitors have greater financial resources, which could allow for greater investment in equipment and provide better access to bonding and insurance markets to provide the financial assurance instruments which are often required by clients. Additionally, the relatively recent entry of several aerospace and defense contractors, as well as large construction and engineering firms, into the environmental services industry has increased the level of competition. The Company believes that the demand for environmental services is still developing and expanding and, as a result, many small and large firms will continue to be attracted to the industry. INSURANCE The Company maintains a comprehensive liability insurance program that is structured to provide coverage for major and catastrophic losses while essentially self-insuring losses that may occur in the ordinary course of business. The Company contracts with primary and excess insurance carriers and generally retains $250,000 to $500,000 of liability per occurrence through deductible programs, self-insured retentions or through reinsurance provided by a wholly-owned insurance captive which reinsures some of the Company's workers' compensation risks. Although the Company believes its insurance program to be appropriate for the management of its risks, its insurance policies may not fully cover risks arising from the Company's operations. Policy coverage exclusions, retaining risks through deductible and self-insured retention programs, or losses in excess of the coverage may cause all or a portion of one or more losses not to be covered by such insurance. EMPLOYEES The Company had approximately 3,100 employees at December 31, 1996. Approximately 30 employees of the Company were covered by collective bargaining agreements. The Company considers relations with its employees to be satisfactory. PATENTS The Company currently owns two patents covering certain design features of equipment employed in its on-site remediation business. The first relates to a filtration system developed and used by the Company to remove pollutants from flowing creeks and streams and the second, known as a Portable Method for Decontaminating Earth, relates to a decontamination system used by the Company to remove contaminants from the soil through a process, commonly known as soil vapor extraction. The Company utilizes X*TRAX(R) and LT*X(R) to perform thermal desorption services. The X*TRAX(R) and LT*X(R) systems are waste treatment processes that thermally separate organic contaminants from soils or solids with subsequent treatment of the organic vapor stream. Although the Company considers its patents to be important, they are not a material factor in its business. REGULATION The environmental services business, including the remediation services segment of the industry, has benefited from extensive federal and state regulation of environmental matters. On the other hand, the Company's environmental services are also 6 9 subject to extensive federal and state legislation as well as regulation by the EPA, the OSHA and applicable state and local regulatory agencies. All facets of the Company's business are conducted in the context of a rapidly developing and changing statutory and regulatory framework and an aggressive enforcement and regulatory posture. The full impact of these laws and regulations, and the enforcement thereof, on the Company's business is difficult to predict, principally due to the complexity of the relatively new legislation, new and changing regulations, and the impact of political and economic pressures. The assessment, remediation, analysis, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") addresses cleanup of sites at which there has been a release or threatened release of hazardous substances or contaminants, including certain radioactive substances, into the environment. CERCLA assigns liability for costs of cleanup of such sites and for damage to natural resources to any person who, currently or at the time of disposal of a hazardous substance, owned or operated any facility at which hazardous substances were disposed of; and to any person who by agreement or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment of hazardous substances owned or possessed by such person for disposal or treatment by others; and to any person who accepted hazardous substances for transport to disposal or treatment facilities or sites selected by such persons from which there is a release or threatened release of hazardous substances. CERCLA authorizes the federal government both to clean up these sites itself and to order persons responsible for the situation to do so. In addition, under the authority of Superfund and its implementing regulations, detailed requirements apply to the manner and degree of remediation of facilities and sites where hazardous substances have been or are threatened to be released into the environment. CERCLA created the Superfund to be used by the federal government to pay for the cleanup efforts. Where the federal government expends money for remedial activities, it may seek reimbursement from the "potentially responsible parties." CERCLA imposes strict, joint and several retroactive liability upon such parties. Increasingly, there are efforts to expand the reach of CERCLA to make environmental contractors responsible for cleanup costs by claiming that environmental contractors are owners or operators of hazardous waste facilities or that they arranged for treatment, transportation or disposal of hazardous substances. Several recent court decisions have accepted these claims. Should the Company be held responsible under CERCLA for damages caused while performing services or otherwise, it may be forced to bear such liability by itself, notwithstanding the potential availability of contribution or indemnity from other parties. The statutory funding mechanism of CERCLA is comprised of contributions from the general revenue and tax on petrochemical feedstocks. The CERCLA tax expired December 31, 1995. However, an additional $1.4 billion was appropriated for fiscal year 1997 and the authority to tax and use the funds has been extended through September 30, 1997. Additionally, EPA has a large amount of appropriated, unobligated funds which are projected by the Congressional Budget Office to be sufficient for EPA to continue operating at current levels for approximately two years, should there be a lapse in the CERCLA tax after September 30, 1997. The leadership of both the House of Representatives and the Senate have stressed that reauthorization of Superfund is one of their top priorities for 1997. A bill to reauthorize Superfund has been introduced to the Senate and the introduction of a House bill is pending. The Senate bill would maintain historic levels of funding for a period of five years beginning in fiscal year 1998. Support for environmental programs also remains strong in the Executive Branch. President Clinton's fiscal year 1998 budget included increases in funding for all EPA, Department of Defense and Department of Energy environmental programs. Despite the priority given to reauthorization of Superfund, and the history of Congress never to allow an actual lapse in the tax, the perceived potential for this occurrence adversely impacts the environmental industry due to resultant funding uncertainties. Additional uncertainties arise from significant changes being considered for Superfund including shifting the current preference for permanent treatment to a wider acceptance of containment and other engineering/institutional controls. This change could lead to smaller volumes of waste being treated on-site, and the potential to qualify for less stringent remedies could cause clients to delay the initiation of remediation projects. However, many of the proposed changes to Superfund are beneficial to the environmental remediation industry including doubling the dollar amount and time period in which emergency removal actions take place; increasing contractor indemnification protections; streamlining the study phase of the process to accelerate actual remediation; and creating incentives for brownfield cleanups. The Resource Conservation and Recovery Act of 1976, as amended in 1984 ("RCRA"), is the principal federal statute governing hazardous waste generation, treatment, storage and disposal. RCRA, or EPA-approved state programs at least as stringent, govern waste handling activities involving wastes classified as "hazardous." Under RCRA, liability and stringent operating requirements are imposed on a person who is either a "generator" or "transporter" of hazardous wastes, or an "owner" 7 10 or "operator" of a hazardous waste treatment, storage or disposal facility. The EPA has issued regulations under RCRA for hazardous waste generators, transporters and owners and operators of hazardous waste treatment, storage or disposal facilities. These regulations impose detailed operating, inspection, training, emergency preparedness and response standards, and requirements for closure, continuing financial responsibility, manifesting, recordkeeping and reporting. The Company's clients remain responsible by law for the generation or transportation of hazardous wastes or ownership or operation of hazardous waste treatment, storage or disposal facilities. Although the Company does not believe its conduct in performing environmental remediation services would cause it to be considered liable as an owner or operator of a hazardous waste treatment, storage or disposal facility, or a generator or transporter of hazardous wastes under RCRA, RCRA and similar state statutes regulate the Company's practices for the treatment, transportation and other handling of hazardous materials, and substantial fines and penalties may be imposed for any violation of such statutes and the regulations thereunder. The Company's services are also utilized by its clients in complying with, and the Company's operations are subject to regulation under, among others, the following federal laws: the Toxic Substances Control Act, the Clean Water Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the Hazardous Materials Transportation Act. In addition, many states have passed Superfund-type legislation and other statutes, regulations and policies to cover more detailed aspects of hazardous materials management. The Company, through its on-site treatment capabilities and the use of subcontractors, attempts to minimize its transportation of hazardous substances and wastes. However, there are occasions, especially in connection with its emergency response activities, when the Company does transport hazardous substances and wastes. Such transportation activities are closely regulated by the United States Department of Transportation, the Interstate Commerce Commission, and transportation regulatory bodies in each state. The applicable regulations include licensing requirements, truck safety requirements, weight limitations and, in some areas, rate limitations and operating conditions. BACKLOG AND POTENTIAL VALUE OF TERM CONTRACTS The following table lists at the dates indicated (i) the Company's backlog, defined as the unearned portion of the Company's existing contracts and unfilled orders, and (ii) the Company's term contracts, defined as the potential value of government term contracts (in thousands):
December 31, ------------ 1996 1995 1994 ---- ---- ---- Backlog $ 375,000 $ 445,000 $ 255,000 Term contracts 1,401,000 1,531,000 1,498,000 ---------- ---------- ---------- Total contract backlog $1,776,000 $1,976,000 $1,753,000 ========== ========== ==========
Backlog. In accordance with industry practice, substantially all of the Company's contracts in backlog may be terminated at the convenience of the client. In addition, the amount of the Company's backlog is subject to changes in the scope of services to be provided under any given contract. The Company estimates that approximately 80% of the backlog at December 31, 1996 will be realized within the next year. Term Contracts. Term contracts typically are performed by completing remediation work under delivery orders, issued by the contracting government entity, for a large number of small-to-medium-sized projects throughout the geographic area covered by the contract. The Company's government term contracts generally may be canceled, delayed or modified at the sole option of the government, and typically are subject to annual funding limitations and public sector budget constraints. Accordingly, such government contracts represent the potential dollar value that may be expended under such contracts, but there is no assurance that such amounts, if any, will be actually spent on any projects, or of the timing thereof. EQUITY INVESTMENT NSC is a provider of asbestos-abatement and other specialty contracting services to a broad range of commercial, industrial and institutional clients located throughout the United States. NSC provides asbestos-abatement services through two of its wholly-owned subsidiaries, National Surface Cleaning, Inc. and National Service Cleaning Corp.; demolition and dismantling services through its wholly-owned subsidiary, Olshan Demolishing Management, Inc. ("ODMI"); and specialty coatings application and lead paint-abatement through its wholly-owned subsidiary, NSC Specialty Coatings, Inc. In May 1993, the Company's investment in NSC was reduced from 70% to 40% as a result of NSC's purchase of the asbestos abatement division of The Brand Companies, Inc. ("Brand") in exchange for its industrial cleaning and maintenance business and the issuance of 8 11 4,010,000 shares of NSC common stock. The Company accounts for NSC on the equity method. In April 1995, NSC entered into an agreement with Rust under which NSC, through ODMI, assumed the management of Olshan Demolishing Company, a Rust subsidiary specializing in demolition and dismantling, primarily in the industrial market. Rust owns another 40% of NSC and the remaining 20% is publicly held. An asbestos-abatement or demolition and dismantling program is focused on meeting the needs of the facility owner or operator to properly manage the financial, regulatory and safety-related risks associated with a demolition or asbestos project. NSC's removal and demolition services require the coordination of several processes: marketing, bidding and contracting, project management, health and safety programs, and the actual asbestos removal or dismantling and demolition. NSC management maintains administrative and operational control over all phases of a project, from estimating and bidding through project completion. Although some of NSC's contracts are directly entered into with its clients without a formal bidding process, NSC receives a significant portion of its contracts through a bidding process. The majority of NSC's projects are contracted on a fixed-price basis, while the remainder are contracted either on a time and materials or a unit-price basis. All work is done in accordance with applicable EPA and OSHA regulations and applicable state and local regulations. NSC is also subject to the regulations of the Mine Safety and Health Act when it conducts demolition and dismantling projects at mine locations. The market for asbestos abatement services is highly competitive. NSC competes with large asbestos abatement firms, several of which provide services on a regional basis. NSC also competes, to a lesser extent, with smaller local and regional firms. While the demand for asbestos-abatement services has stabilized, demand is still dependent on the fluctuation of national and regional economies and the finite amount of asbestos remaining to be removed, there can be no assurance that such demand will remain steady. Through the diversification into the demolition, specialty coatings and lead paint-abatement markets, NSC is seeking to provide a full range of specialty contracting services to the performance-sensitive customer. NSC's Board of Directors declared and NSC paid a cash dividend of $602,000 to the Company for each of the years ended December 31, 1996 and 1995. While NSC's Board of Directors has not established a policy concerning payment of regular dividends, it has stated its intention to review annually the feasibility of declaring additional dividends depending upon the results of NSC's operations and the financial condition and cash needs of NSC. ITEM 2. PROPERTIES The Company currently owns property in four states and leases property in 18 states and the District of Columbia. The property owned by the Company includes approximately 26 acres in Findlay, Ohio, upon which are located the Company's 37,500 square foot corporate headquarters, a 39,600 square foot laboratory and technical facility, a 20,000 square foot support services facility, as well as its fabrication, maintenance and remediation service center and training facilities. The Company also owns remediation service centers in Covington, Georgia (approximately ten acres of land and an 8,200 square foot building), Clermont, Florida (approximately five acres of land and a 6,500 square foot building) and Baton Rouge, Louisiana (approximately ten acres of land and a 52,500 square foot building). The Company operates other offices and remediation service centers in the following states: California, Colorado, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Iowa, Massachusetts, Minnesota, Missouri, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington. All of these offices and service center facilities are leased. Under these leases, the Company is required to pay base rentals, real estate taxes, utilities and other operating expenses. Annual rental payments for the remediation service centers and office properties are approximately $4,500,000. ITEM 3. LEGAL PROCEEDINGS The Company is currently in litigation in the U.S. District Court for the Western District of Louisiana with Citgo Petroleum Corporation ("Citgo"), Oxy USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to cost overruns and production shortfalls on a remediation project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and 1994. The Company has recorded in its financial statements approximately $27,609,000 as a claim receivable and $5,381,000 of accounts receivable that are in dispute for work performed under the terms of the Company's base contract with Citgo. The Company is seeking damages in excess of $35,000,000. Citgo's second amended complaint seeks damages under the contract for production shortfalls, which Citgo has asserted in answer to the Company's interrogatories to be approximately $27,600,000. The Company has filed a third party complaint against Oxy for negligent misrepresentation and 9 12 detrimental reliance as a result of Oxy's involvement with the development of sample and analytical data relied upon by the Company in preparation of its bid and cost estimates for work at the Lake Charles refinery. In December 1996 and January 1997, Oxy and Citgo, respectively, filed motions for summary judgment and partial summary judgment on the Company's claims. The Company filed briefs in opposition to these motions. These motions for summary judgment and partial summary judgment are still pending. The Company is currently in litigation in the U.S. District Court for the Western District of New York with Occidental Chemical Corporation ("Occidental") relating to the Durez Inlet Project performed in 1993 and 1994 for Occidental in North Tonawanda, New York. The Company's accounts receivable at December 31, 1996 include a claim receivable of $8,618,000 related to this matter. The Company's work was substantially delayed and its costs of performance were substantially increased as a result of conditions at the site which the Company believes were materially different than as represented by Occidental. Occidental's amended complaint seeks $8,806,000 in damages primarily for alleged costs incurred as a result of project delays and added volumes of incinerated waste. The Company's counterclaim seeks an amount in excess of $9,200,000 for damages arising from Occidental's breach of contract, misrepresentation and failure to pay outstanding contract amounts. The Company is currently in arbitration proceedings with Separation and Recovery Systems, Inc. ("SRS") resulting from SRS's failure to adequately perform it's subcontract obligations to the Company for thermal desorption services at the Hilton- Davis project in Cincinnati, Ohio. The Company's financial statements on December 31, 1996 include a back charge receivable of approximately $7,345,000 representing additional costs the Company has and will incur as a result of completing SRS's scope of work under its thermal desorption subcontract with the Company. SRS has filed a counterclaim against the Company for approximately $2,500,000 alleging wrongful termination of the subcontract. Management believes that it has established adequate reserves should the resolution of the above matters be lower than the amounts recorded. There is, however, always risk and uncertainty in pursuing and defending litigation and arbitration proceedings in the course of the Company's business and, notwithstanding the reserves currently established, adverse future results in litigation or other proceedings could have a material adverse impact upon the Company's consolidated future results of operations or financial condition. In addition to the above, the Company is subject to a number of claims and lawsuits in the ordinary course of its business. In the opinion of management, the outcome of these actions, which are not clearly determinable at the present time, are either adequately covered by insurance, or if not insured, will not, in the aggregate, have a material adverse impact upon the Company's consolidated financial position or the results of future operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are listed below:
Name Age Positions ---- --- --------- James L. Kirk 47 Chairman of the Board, President and Chief Executive Officer Joseph R. Kirk 45 Executive Vice President and a Director Pamela K.M. Beall 40 Vice President, Treasurer and Assistant Secretary Robert J. Blackwell 40 Vice President, Marketing and Strategic Planning Fred H. Halvorsen 55 Vice President, Health and Safety Kris E. Hansel 39 Vice President and Controller Steven E. Harbour 48 Vice President, Legal and Secretary Gene J. Ostrow 42 Vice President, Corporate Development Phillip V. Petrocelli 38 Vice President, Western Operations Philip O. Strawbridge 42 Vice President, Chief Financial and Administrative Officer Michael A. Szomjassy 46 Vice President, Eastern Operations
10 13 James L. Kirk - Chairman of the Board, President and Chief Executive Officer. Mr. Kirk was elected President and Chief Executive Officer of the Company in July 1986, and was elected Chairman of the Board in January 1987. Mr. Kirk has been Chairman of the Board and Chief Executive Officer of OHMR since April 1985. Mr. Kirk is a founder of OHMR and has served in various capacities as an officer and director of OHMR. Joseph R. Kirk - Executive Vice President and Director. Mr. Kirk assumed his current position in July 1986 and previously served as Vice Chairman of OHMR. He is a founder of OHMR and has served in various capacities as an officer and director of OHMR. Pamela K.M. Beall - Vice President, Treasurer and Assistant Secretary. Ms. Beall joined the Company in June 1985 as Director of Finance of OHMR, became Treasurer and Assistant Secretary of OHMR in September 1985, and became Treasurer and Assistant Secretary of the Company in January 1986. Ms. Beall assumed her current position in August 1994. Prior to joining the Company, Ms. Beall was General Manager, Treasury Services for USX Corporation and previous to that with Marathon Oil Company. Ms. Beall also serves as a director of NSC. Robert J. Blackwell - Vice President, Marketing and Strategic Planning. Mr. Blackwell joined the Company in July 1993 as Vice President, Government Business Development of OHMR, and has served as Senior Vice President, Marketing of OHMR since October 1995. Prior to joining the Company, Mr. Blackwell was Vice President for Federal Marketing and Legislative Affairs, from January 1993 to July 1993, and Director of Marketing and Federal Relations, from January 1989 to December 1992, of Ebasco Services Incorporated. Mr. Blackwell also serves as a director of NSC. Fred H. Halvorsen - Vice President, Health and Safety. Dr. Halvorsen joined the Company in July 1984 as Director of Health and Safety of OHMR and assumed his current position in May 1987. Kris E. Hansel - Vice President and Controller. Mr. Hansel joined the Company as General Accounting Manager in November 1988 of OHMR, became Assistant Controller in October 1991 of the Company, and became Controller in October 1992. Mr. Hansel assumed his current position in August 1994. Prior to joining the Company, Mr. Hansel was General Accounting Manager of WearEver-ProctorSilex, Inc. Steven E. Harbour - Vice President, Legal and Secretary. Mr. Harbour joined the Company in December 1996. Prior to joining the Company, Mr. Harbour served in various management and legal capacities with The Coca-Cola Company from 1983 to 1993, was Vice President, The Coca-Cola Bottling Company of New York, Inc., from 1993 to 1995, and most recently was affiliated with the law firm of Sumner & Anderson. Gene J. Ostrow - Vice President of Corporate Development of OHM Corporation since March of 1997. From November 1994 to March of 1997, Mr. Ostrow was a Senior Vice President, Corporate Finance with Raymond James and Associates and Co-head of that firm's mergers and acquisitions practice. Mr. Ostrow was employed by OHM Corporation and its affiliates from February 1986 to October 1993 in various positions, including Vice President and Chief Financial Officer of OHM Corporation from February 1986 through September 1991, as Executive Vice President, Corporate Development from October 1991 to May 1993 and as Vice President and Chief Financial Officer of NSC Corporation from July 1988 through October 1993. From November 1993 to October 1994, Mr. Ostrow was Vice President and Chief Financial Officer and Acting Chief Operating Officer of Ecoscience Corp., an agricultural biotechnology firm in Worcester, Massachusetts. Phillip V. Petrocelli - Vice President, Western Operations. Mr. Petrocelli joined the Company in August 1993 as Vice President, Western Region of OHMR, and since October 1995 has served as Senior Vice President, Western Operations of OHMR. Mr. Petrocelli assumed his current position with the Company in May 1995. Prior to joining the Company, Mr. Petrocelli was Regional Director and previous to that was Acting Vice President - Analytical Labs, with IT Corporation. Philip O. Strawbridge - Vice President, Chief Financial and Administrative Officer. Mr. Strawbridge joined the Company in February 1996. Prior to joining the Company, Mr. Strawbridge was Senior Director of Government Contracts and Compliance with Fluor Daniel, Inc. Michael A. Szomjassy - Vice President, Eastern Operations. Mr. Szomjassy joined the Company in November 1989 as Vice President, Southeast Region of OHMR and since October 1995 has served as Senior Vice President, Eastern Operations of OHMR. Prior to joining OHM, Mr. Szomjassy was Regional Manager, Remediation Services of Ebasco Services, Inc. 11 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's common stock is traded on The New York Stock Exchange under the symbol "OHM." The table sets forth by quarter, for the last two fiscal years, the high and low sales prices of the Company's common stock on The New York Stock Exchange Composite Tape as reported by The Wall Street Journal (Midwest Edition):
Market Price ------------ High Low ---- --- 1996 First 8 1/8 7 Second 9 1/4 7 1/4 Third 7 7/8 6 1/2 Fourth 9 7 1995 First 10 1/8 6 7/8 Second 12 1/8 10 1/8 Third 14 3/8 8 3/4 Fourth 9 7 1/8
NOTE: (1) As of December 31, 1996, the Company has approximately 875 shareholders of record. (2) The Company has not declared any cash dividends on its Common Stock and has bank covenants that restrict the amount of cash dividends that can be paid in the future. See "Note 7 to the Consolidated Financial Statements." 12 15 ITEM 6. SELECTED FINANCIAL DATA (a) The Five Year Summary of Results of Operations for each of the five years ended December 31 is set forth below:
Years Ended December 31, ------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In Thousands, Except Per Share Data) Revenue $ 550,984 $ 457,925 $ 323,381 $ 242,401 $ 221,370 Cost of services 478,924 393,149 296,159 202,341 185,707 --------- --------- --------- --------- --------- Gross Profit 72,060 64,776 27,222 40,060 35,663 Selling, general and administrative expenses 49,250 45,223 32,281 27,110 30,845 --------- --------- --------- --------- --------- Operating Income (Loss) 22,810 19,553 (5,059) 12,950 4,818 --------- --------- --------- --------- --------- Other (Income) Expenses: Investment income (124) (849) (28) (28) (31) Interest expense 7,087 10,413 9,177 7,748 7,106 Equity in net (earnings) loss of affiliates' continuing operations (748) (287) (1,032) (1,600) 1,121 Miscellaneous (income) expense (296) (72) 898 341 966 --------- --------- --------- --------- --------- 5,919 9,205 9,015 6,461 9,162 Income (Loss) From Continuing Operations Before Income Taxes (Benefit) 16,891 10,348 (14,074) 6,489 (4,344) Income taxes (benefit) 5,376 3,541 (6,458) 2,082 (1,230) --------- --------- --------- --------- --------- Income (Loss) From Continuing Operations 11,515 6,807 (7,616) 4,407 (3,114) Discontinued Operations of Affiliate, Net of Income Taxes (Benefit): Income from operations -- -- -- -- 122 Provision for loss on disposition -- -- -- -- (420) --------- --------- --------- --------- --------- Income (Loss) Before Cumulative Effect of Accounting Change 11,515 6,807 (7,616) 4,407 (3,412) Cumulative effect of accounting change -- -- -- -- (857) --------- --------- --------- --------- --------- Net Income (Loss) $ 11,515 $ 6,807 $ (7,616) $ 4,407 $ (4,269) ========= ========= ========= ========= ========= Net Income (Loss) Per Share: Continuing operations $ 0.43 $ 0.30 $ (0.49) $ 0.35 $ (0.26) Discontinued operations: From operations -- -- -- -- 0.01 From disposition -- -- -- -- (0.03) --------- --------- --------- --------- --------- Income (Loss) Per Share Before Effect of Cumulative Accounting 0.43 0.30 (0.49) 0.35 (0.28) Cumulative effect of accounting change -- -- -- -- (0.07) --------- --------- --------- --------- --------- Net Income (Loss) Per Share $ 0.43 $ 0.30 $ (0.49) $ 0.35 $ (0.35) ========= ========= ========= ========= ========= Weighted Average Number Of Common and Common Equivalent Shares Outstanding 26,844 22,525 15,582 12,506 12,051 ========= ========= ========= ========= =========
NOTES: (1) The results of operations for the year ended December 31, 1992 reflect the accounting for discontinued operations of certain business units. (2) The cumulative effect of accounting change of $857,000 or $0.07 per share for the year ended December 31, 1992 is for adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." (3) Special and nonrecurring charges include: (i) for the year ended December 31, 1995, the Company recorded a $2,312,000 charge (net of income tax benefit of $1,542,000) for integration costs related to the acquisition of the hazardous and nuclear waste remediation service business (the "Division") of Rust International Inc. ("Rust"); (ii) for the year ended December 31, 1994, the Company recorded a special charge of $15,000,000 (net of income tax benefit of $10,000,000) to establish a reserve for accounts receivable, primarily where such accounts are in litigation; and (iii) for the year ended December 31, 1992, special charges of $2,550,000 (net of income tax benefit of $1,600,000) recorded by the Company, and $2,162,000 recorded by NSC, both of which relate to the restructuring of the Company and NSC's asbestos abatement operations in anticipation of NSC's acquisition of the asbestos abatement division of The Brand Companies, Inc. (completed on May 4, 1993), and which include provisions for legal and insurance reserves, and for certain other matters. 13 16 (4) On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the Division in exchange for 9,668,000 shares of Common Stock of the Company, or approximately 37% of the outstanding shares of the Company's Common Stock. The acquisition of the Division has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities, including goodwill, have been recorded at their estimated fair values as of May 30, 1995. The Company's consolidated financial statements for the year ended December 31, 1995, include the results of operations for the Division since May 30, 1995. See "Note 2 to the Consolidated Financial Statements." (b) The Five Year Summary of Financial Position as of December 31 is set forth below (In Thousands):
December 31, ------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Working capital $ 94,342 $129,156 $116,464 $ 69,985 $ 56,148 Total assets 336,537 376,506 272,546 215,357 185,415 Long-term debt 52,972 104,111 127,279 71,113 101,085 Shareholders' equity 174,572 160,492 76,920 82,743 43,833 NOTE: (1) The Company has not declared any cash dividends on its Common Stock and is restricted by bank covenants from the payment of cash dividends in the future. See "Note 7 to the Consolidated Financial Statements."
14 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) RESULTS OF OPERATIONS GENERAL The Company provides a broad range of environmental and hazardous waste remediation services to its clients located primarily in the United States. The timing of the Company's revenue is dependent on its backlog, contract awards and the performance requirements of each contract. The Company's revenue is also affected by the timing of its clients' planned remediation activities which generally increase during the third and fourth quarters. Because of this change in demand, the Company's quarterly revenue can fluctuate, and revenue for the first and second quarters of each year have historically been lower than for the third and fourth quarters, although there can be no assurance that this will occur in future years. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any quarter or full fiscal year. On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the hazardous and nuclear waste remediation service business (the "Division") of Rust International Inc. ("Rust") in exchange for 9,668,000 shares of Common Stock of the Company, or approximately 37% of the outstanding shares of the Company's Common Stock. In exchange for a warrant to purchase up to 700,000 shares of the Company's common stock at an exercise price of $15.00 per share during the five years following the closing date, Rust's parent Company, WMX Technologies, Inc. ("WMX"), provided the Company with a credit enhancement in the form of guarantees, issued from time to time upon request of the Company, of up to $62,000,000 of the Company's indebtedness, which will increase proportionately up to $75,000,000 upon issuance of shares under the warrant. The acquisition of the Division has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities, including goodwill, have been recorded at their estimated fair values as of May 30, 1995. See "Note 2 to the Consolidated Financial Statements." The Company's consolidated financial statements include the results of operation for the Division since May 30, 1995. During the second quarter of 1995, the Company recorded a $3,854,000 pre-tax, $2,312,000 after-tax or $0.10 per share, charge for integration costs related to the acquisition of the Division. The charge was recorded as a selling, general and administrative expense and was primarily for severance and relocation costs for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Division and the Company. During the fourth quarter of 1994, certain developments within and external to the Company caused management to revaluate certain accounts receivable recorded during 1994. As a result, the Company recorded a $25,000,000 pre-tax charge against revenue, $15,000,000 after-tax or $0.96 per share, to establish a reserve for accounts receivable, primarily where such accounts are in litigation, including projects performed by the Company for Citgo Petroleum Company ("Citgo") and Occidental Chemical Corporation ("Occidental"). See "Note 15 to the Consolidated Financial Statements." The following table sets forth, for the periods indicated, the percentage relationship that items in the statement of operations bear to revenue:
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ---- ---- ---- Revenue 100% 100% 100% Cost of services 87 86 92 ---- ---- ---- Gross profit 13 14 8 Selling, general and administrative expenses 9 10 10 ----- ---- ---- Operating income (loss) 4 4 (2) Net interest expense 1 2 2 Equity in net earnings of affiliate -- -- -- ----- ------ ----- Income (loss) before income taxes (benefit) 3 2 (4) Income taxes (benefit) 1 1 (2) ----- ----- ---- Income (loss) from continuing operations 2% 1% (2)% ===== ===== ====
15 18 TWELVE MONTHS ENDED DECEMBER 31, 1996 VS. TWELVE MONTHS ENDED DECEMBER 31, 1995 Revenue. The following table sets forth the Company's revenue by client type for the twelve months ended December 31, 1996 and 1995 (in thousands, except percentages):
1996 1995 ---- ---- Federal, State, and Local Government $426,256 77% $349,052 76% Industrial 124,728 23 108,873 24 --------- ---- --------- ---- Total Revenue $550,984 100% $457,925 100% ======== === ======== ===
Total revenue for the year ended December 31, 1996, increased 20% to $550,984,000 from $457,925,000 in 1995. Such improvement resulted primarily from increased revenue from federal government agencies. In addition, revenue from industrial sector clients was favorably impacted by the acquisition of the Division, which was included for a full year in 1996 compared to only seven months of 1995. Revenue from government agencies for the twelve months ended December 31, 1996 increased $77,204,000 or 22% from $349,052,000 in 1995. This improvement resulted primarily from an increase in revenue from the Company's term contracts with the United States Air Force ("Air Force"), the United States Army Corps of Engineers ("USACE"), the Department of Energy ("DOE") and the United States Navy ("Navy"). Such increases were partially offset by a decrease in revenue from state and local governments and the Environmental Protection Agency ("EPA") during 1996. The federal government shutdown during the first quarter of 1996 negatively impacted the Company's revenue from the EPA and delayed delivery orders issued under the Company's existing federal term contracts. The Company expects to continue to receive funding under its federal contracts into the foreseeable future and continues to experience a significant amount of proposal activity for new contracts with the various Department of Defense ("DOD") agencies, as well as the DOE. However, no assurance can be given that the Company will be awarded any new contracts with the DOD or DOE. In addition, reductions by Congress in future environmental remediation budgets of government agencies may have a material adverse impact upon future revenue from such agencies and the funding of the Company's government term contracts included in contract backlog. The Company experienced a $15,855,000 or 15% increase in revenue from industrial clients for the year ended December 31, 1996 as compared to 1995. Such increase is primarily a result of the acquisition of the Division during May 1995. The Company believes that revenue growth from the industrial sector has been negatively impacted due to anticipated changes in the Superfund law pending its reauthorization as well as current economic conditions in certain industry and geographic sectors. Although the Company cannot predict the impact upon the environmental industry of the failure of Congress to reauthorize the Superfund law, further delays in Superfund reauthorization may have a material impact upon the demand for the Company's services in the form of project delays as clients and potential clients wait for and anticipate changes in these regulations. In addition, demand for the Company's services from the industrial sector will also remain dependant on general economic conditions. During 1996, the Company's government revenue as a percent of total revenue was 77%. The Company believes that the government sector will continue to be its primary source of revenue for the foreseeable future in light of the factors discussed above. Cost of Services and Gross Profit. Cost of services for the year ended December 31, 1996 increased 22% to $478,924,000 from $393,149,000 in 1995 primarily due to increased revenue. Cost of services as a percentage of revenue increased to 87% for the year ended December 31, 1996 from 86% for 1995. Gross profit increased 11% to $72,060,000 in 1996 from $64,776,000 in 1995. The increase in gross profit is primarily due to increased revenues. Gross profit as a percentage of revenue decreased to 13% for the year ended December 31, 1996 from 14% in 1995. The Company's gross profit on its fixed-price contracts has been negatively impacted by competitive market conditions and, during the first quarter of 1996, by the severe winter weather in the midwest and northeast regions of the country. In addition, the Company has experienced a decrease in the overall gross margin it has received on its government projects as a result of the nature of the projects that have been awarded to the Company under its term contracts which has required an increase in the use of subcontracted services and materials over levels historically experienced. Under the terms of such contracts, the Company receives minimal markups on such subcontracted services and materials. 16 19 The Company believes the trend towards the use of subcontracted services and materials for government projects will continue. In addition, competitive pressure for future industrial sector projects will continue due to the lack of regulatory enforcement, and resultant diminished number of contract opportunities, as a result of the failure of Congress to reauthorize the Superfund law. Both of these factors will continue to impact the Company's gross profit margin on its contracts into the foreseeable future. Selling, General and Administrative Expenses. Selling, general and administrative ("SGA") expenses for the year ended December 31, 1996 increased 9% to $49,250,000 from $45,223,000 in 1995. SGA expenses for the year ended December 31, 1995 include the aforementioned charge of $3,854,000 for integration costs related to the acquisition of the Division. Without such charge, SGA expenses increased 19% primarily as a result of the acquisition of the Division and the growth in revenue. In addition, the Company has made a substantial investment in personnel and systems in support of its government contracts and related compliance issues. SGA expense as a percent of revenue was 9% for the twelve months ended December 31, 1996 and 1995, exclusive of the integration charge in 1995. Interest expense. Interest expense, net of investment income, decreased 27% to $6,963,000 for the year ended December 31, 1996 from $9,564,000 for 1995. The decrease in interest expense was a result of a decrease in the average borrowings outstanding, as well as interest rates charged, under the Company's revolving credit agreement during 1996 compared to 1995. The decrease in interest rates charged under the revolving credit agreement primarily is a result of the WMX guarantee of the Company's debt in exchange for the warrant described above. Investment income for the twelve months ended December 31, 1995 included income earned on certain outstanding receivables guaranteed by Rust pursuant to the agreement for the acquisition of the Division. Such receivables were paid to the Company on September 30, 1995. Equity in Net Earnings of Affiliate. The Company's equity interest in NSC's net earnings increased $461,000 to $748,000 in 1996 from $287,000 in 1995. The twelve months ended December 31, 1995 was negatively impacted by the settlement of claims with certain clients of NSC as well as increases in insurance reserves. NSC has experienced a decrease in revenues from asbestos abatement contracts for the twelve months ended December 31, 1996 compared to 1995. Such decrease in revenue was more than offset by increases in revenue from its specialty contractor services subsidiary, Olshan Demolishing Management, Inc. The asbestos abatement industry in general continues to experience competitive pressures in the marketplace which have negatively impacted the gross margin on NSC's projects. Net Income. Net income for the year ended December 31, 1996 was $11,515,000 or $0.43 per share compared to $6,807,000 or $0.30 per share in 1995. The improvement in net income is primarily due to increased revenue, the integration charge recorded during 1995, decreased interest expense and other factors discussed above. TWELVE MONTHS ENDED DECEMBER 31, 1995 VS. TWELVE MONTHS ENDED DECEMBER 31, 1994 Revenue. The following table sets forth the Company's revenue by client type for the twelve months ended December 31, 1995 and 1994 (in thousands, except percentages):
1995 1994 ---- ---- Federal, State, and Local Government $349,052 76% $208,610 65% Industrial 108,873 24 114,771 35 -------- --- -------- --- Total Revenue $457,925 100% $323,381 100% ======== === ======== ===
Total revenue for the year ended December 31, 1995, increased 42% to $457,925,000 from $323,381,000 in 1994. Such improvement resulted primarily from increased revenue from federal government agencies and the acquisition of the Division. During 1995, the Company experienced a $140,442,000 or a 67% increase in revenue from government agencies. This improvement resulted primarily from an increase in revenue from the Company's term contracts with the Navy, the USACE and the Air Force, as well as increased revenue from other federal government agencies. Such increases were partially offset by a decrease in revenue from state and local governments for the year ended December 31, 1995 when compared to 1994. The Company experienced a $5,898,000 or 5% decrease in revenue from industrial clients for the year ended December 31, 1995 as compared to 1994. Such revenue would have decreased further if not for the Company's acquisition of the Division during May 1995. The Company believes that revenue from the industrial sector has been negatively impacted due to anticipated changes in the Superfund law pending its reauthorization as well as economic conditions in certain industry and geographic 17 20 sectors. Industrial sector revenue was negatively impacted for the year ended December 31, 1994 by the previously discussed $25,000,000 accounts receivable reserve which was primarily related to industrial clients. Industrial sector revenue as a percentage of total revenue decreased to 24% for 1995 from 35% in 1994. Cost of Services and Gross Profit. Cost of services for the year ended December 31, 1995 increased 33% to $393,149,000 from $296,159,000 in 1994 primarily due to increased revenue. Cost of services as a percentage of revenue decreased to 86% for the year ended December 31, 1995 from 92% for 1994. Such decrease is primarily due to the aforementioned charge for accounts receivable recorded during the fourth quarter of 1994. Cost of services as a percentage of revenue for 1994 would have been 85% without the accounts receivable charge. Gross profit increased 138% to $64,776,000 in 1995 from $27,222,000 in 1994. The increase in gross profit is primarily due to the increase in revenue and the accounts receivable charge recorded in 1994. The Company has experienced a slight decrease in the overall gross margin it has received on its government projects than it has historically experienced. Such decrease is due to the nature of the projects that have been awarded to the Company under its term contracts which has required an increase in the use of subcontracted services and materials over levels historically experienced. Under the terms of such contracts, the Company receives minimal markups on such subcontracted services and materials. In addition, cost of services and gross profit have been negatively impacted by the acquisition of the Division during 1995. The Company has incurred additional indirect cost of services for the Division's offices and employees, while revenue from the Division's projects were significantly lower than expected during 1995. Selling, General and Administrative Expenses. SGA expenses for the year ended December 31, 1995 increased 40% to $45,223,000 from $32,281,000 in 1994. SGA expenses for the year ended December 31, 1995 include the previously discussed charge of $3,854,000 for integration costs related to the acquisition of the Division. Without such charge, SGA expenses increased 28% primarily as a result of the acquisition of the Division and the growth in revenue. Interest expense. Interest expense, net of investment income, increased 5% to $9,564,000 for the year ended December 31, 1995 from $9,149,000 for 1994. The increase in interest expense was offset by interest earned on certain outstanding receivables guaranteed by Rust pursuant to the agreement for the acquisition of the Division. Such receivables guaranteed by Rust were paid to the Company on September 30, 1995. The increase in interest expense was primarily due to additional borrowing under the Company's credit facility during the first half of 1995 as a result of the increased working capital requirements of certain large remediation projects and government contracts. Equity in Net Earnings of Affiliate. The Company's equity interest in NSC's net earnings decreased $745,000 to $287,000 in 1995 from $1,032,000 in 1994. Such decrease in earnings is primarily a result of losses recorded by NSC on claims settled in the third quarter of 1995 with certain of its clients and an increase in insurance reserves. The asbestos abatement industry in general continues to experience competitive pressures in the marketplace which have negatively impacted the gross margin on NSC's projects. Net Income (Loss). Net income for the year ended December 31, 1995 was $6,807,000 or $0.30 per share compared to a net loss of $(7,616,000) or $(0.49) per share in 1994. The improvement in net income is primarily due to the reserve recorded for accounts receivable during 1994 and other factors discussed above. CONTRACT BACKLOG The following table lists at the dates indicated (i) the Company's backlog, defined as the unearned portion of the Company's existing contracts and unfilled orders, and (ii) the Company's term contracts, defined as the potential value of government term contracts (in thousands):
December 31, ------------ 1996 1995 1994 ---- ---- ---- Backlog $ 375,000 $ 445,000 $ 255,000 Term contracts 1,401,000 1,531,000 1,498,000 ---------- ---------- ---------- Total contract backlog $1,776,000 $1,976,000 $1,753,000 ========== ========== ==========
18 21 Backlog. In accordance with industry practice, substantially all of the Company's contracts in backlog may be terminated at the convenience of the client. In addition, the amount of the Company's backlog is subject to changes in the scope of services to be provided under any given contract. The Company estimates that approximately 80% of the backlog at December 31, 1996 will be realized within the next year. Term Contracts. Term contracts are typically performed under delivery orders, issued by the contracting government entity, for a large number of small-to medium-sized remediation projects throughout the geographic area covered by the contract. The Company's government term contracts generally may be canceled, delayed or modified at the sole option of the government, and typically are subject to annual funding limitations and public sector budget constraints. Accordingly, such government contracts represent the potential dollar value that may be expended under such contracts, but there is no assurance that such amounts, if any, will be actually spent on any projects or of the timing thereof. In addition, further reductions by Congress in future environmental remediation budgets of government agencies may adversely impact future revenue from such agencies and the funding of the Company's government term contracts included in contract backlog. (b) LIQUIDITY AND CAPITAL RESOURCES On May 31, 1995, the Company entered into a $150,000,000 revolving credit agreement with a group of banks (the "Bank Group") to provide letters of credit and cash borrowings. The agreement has a five year term and is scheduled to expire on May 30, 2000. WMX has issued a guarantee of up to $62,000,000 outstanding under the credit agreement in favor of the Bank Group. See "Note 2 to the Consolidated Financial Statements." Under the terms of the agreement the entire credit facility can be used for either cash borrowings or letters of credit. Cash borrowings bear interest at either the prime rate plus a percentage up to 0.625% or, at the Company's option, the Eurodollar market rate plus a percentage ranging from 0.325% to 1.625%. The percentage over the prime rate or the Eurodollar market rate is based on the aggregate amount borrowed under the facility, the presence of the guarantee, and the Company's financial performance as measured by an interest coverage ratio and a total funded debt ratio. The agreement provides the participating banks with a security interest in the Company's equipment, inventories, accounts receivables, general intangibles and in the Company's investment in the common stock of NSC as well as the Company's other subsidiaries. The agreement also imposes, among other covenants, a minimum tangible net worth covenant, a restriction on all of the Company's retained earnings including the declaration and payment of cash dividends and a restriction on the ratio of total funded debt to earnings before income taxes, depreciation and amortization. The amounts outstanding for cash borrowing under the revolving credit facility at December 31, 1996 and 1995 were $0 and $42,100,000, respectively, and aggregate letters of credit outstanding at December 31, 1996 and 1995 were $12,223,000 and $14,655,000, respectively. Capital expenditures for the years ended December 31, 1996, 1995, and 1994 were $23,279,000, $14,276,000, and $13,354,000, respectively. The Company's capital expenditures are primarily related to the installation of computer systems and related equipment, the purchase of heavy construction equipment and the fabrication of custom equipment by the Company for the execution of remediation projects. Capital expenditures for fiscal year 1997 are expected to range between $20,000,000 and $25,000,000. The Company's long-term capital expenditure requirements are dependent upon the type and size of future remediation projects awarded to the Company. During 1996, the Company derived 77% of its revenue from government agencies. Revenue from government agencies historically has required greater working capital, the major component of which is accounts receivable, than revenue from industrial sector clients. In addition, the Company is bidding on a number of large, long-term contract opportunities with industrial sector clients, the DOD and the DOE which, if awarded to the Company, would also increase working capital needs and capital expenditures. The Company believes it will be able to finance its increased working capital needs and capital expenditures in the short term through a combination of cash flows from operations, borrowings under its Revolving Credit Facility, proceeds from permitted asset sales, utilization of operating leases and other external sources. In addition, under the terms of the acquisition of Rust's hazardous and nuclear waste remediation business, Rust's parent Company, WMX, has provided the Company with a credit guarantee of up to $62,000,000 of the Company's indebtedness outstanding until May 30, 2000. See "Note 2 to the Consolidated Financial Statements." Such credit guarantee has allowed the Company to expand its borrowing capacity and lower its cost of capital under its new credit facility entered into on May 31, 1995. The Company, from time to time, evaluates potential acquisitions of companies in the environmental remediation industry and industries related to the core skills of the Company. While the Company believes that there are currently available a number of potential acquisition candidates that would be complementary to its business, the Company currently has no agreements, understandings or arrangements to acquire a specific business or other material assets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisition would be. Future 19 22 acquisitions may involve the expenditure of significant funds and management time. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise additional capital through financings, including public or private equity or debt offerings or additional bank financing. There is no assurance that such additional financing will be available to the Company on acceptable terms. The Company's identified long-term capital needs consist of payments due upon the maturity of the Company's Revolving Credit Facility in 2000 and sinking fund payments which commenced in 1996 of 7.5% of the principal amount as well as payments due upon maturity of its Convertible Debentures in 2006. The Company has purchased and retired $10,736,000 of the outstanding Convertible Debentures during 1995 and 1996, sufficient to meet its annual sinking fund obligations through October 1, 1997, as well as a portion of the sinking fund obligation due October 1, 1998. The Company believes that it will be able to refinance the remaining indebtedness as necessary. See "Note 7 to the Consolidated Financial Statements." (c) INFLATION Historically, inflation has not been a significant factor to the Company or to the cost of its operations. (d) DEFERRED TAX ASSETS The Company has recorded a valuation allowance for its deferred tax assets to the extent that the Company believes such deferred tax assets may not be realized. With respect to deferred tax assets for which a valuation allowance has not been established, the Company believes it will realize the benefit of these assets through the reversal of taxable temporary differences and future income. The Company believes that the future taxable income of approximately $36,092,000 necessary to realize the deferred tax assets is more likely than not to occur because of its substantial backlog and term contracts from which the Company has historically realized sufficient margin to produce consolidated net income. The principal uncertainty of realization of the deferred tax assets is the Company's ability to convert its backlog to revenue and margin. See "Contract Backlog" and "Environmental Matters and Government Contracting" in other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company intends to evaluate the realizability of its deferred tax assets quarterly by assessing the need for an additional valuation allowance. See "Note 9 to the Consolidated Financial Statements." (e) ENVIRONMENTAL MATTERS AND GOVERNMENT CONTRACTING Although the Company believes that it generally benefits from increased environmental regulations and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, remediation, analysis, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from performing services for clients, which could have a material adverse effect on the Company. The Company does not believe there are currently any material environmental liabilities which should be recorded or disclosed in its financial statements. The Company anticipates that its compliance with various laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, future earnings or competitive position. Because of its dependence on government contracts, the Company also faces the risks associated with such contracting, which could include civil and criminal fines and penalties. As a result of its government contracting business, the Company has been, is, and may in the future be subject to audits and investigations by government agencies. The fines and penalties which could result from noncompliance with the Company's government contracts or appropriate standards and regulations, or the Company's suspension or debarment from future government contracting, could have a material adverse effect on the Company's business. (f) FORWARD LOOKING STATEMENTS All statements, other than statements of historical facts, included in this Form 10-K that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, including the amount and nature thereof, potential acquisitions by the Company, trends affecting the Company's financial condition or results of operations, and the Company's business and growth strategies are forward-looking 20 23 statements. Such statements are subject to a number of risks and uncertainties, including risks and uncertainties identified in "Business -- Environmental Contractor Risks," " Business -- Regulation," "-- Results of Operation," "-- Environmental Matters and Government Contracting," "Note 1 to Consolidated Financial Statements" and other general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations affecting the Company's operations and other factors, many of which are beyond the control of the Company. In addition, these risks and uncertainties include, without limitation, (i) the potential for fluctuations in funding of backlog, (ii) weather conditions affecting or delaying the Company's ability to perform or complete the services required by its contracts, (iii) the Company's ability to be awarded new contracts in its target markets or its ability to expand existing contracts, (iv) other industry-wide market factors, including the timing of client's planned remediation activities, (v) interpretation or enforcement by federal, state or local regulators of existing environmental regulations. Also, there is always risk and uncertainty in pursuing and defending litigation, arbitration proceedings and claims in the course of the Company's business. All of these risks and uncertainties could cause actual results to differ materially from those assumed in the forward-looking statements. These forward- looking statements reflect management's analysis, judgment, belief or expectation only as of the date of this Form 10-K. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review risks and uncertainties contained in other documents the Company files or has filed from time to time with the Commission pursuant to the Exchange Act that are incorporated by reference herein. 21 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary quarterly financial data of the Company and its subsidiaries for the years ended December 31, 1996, 1995 and 1994, are set forth on pages 22 through 39. OHM CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, ------------ 1996 1995 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 14,002 $ 11,205 Accounts receivable 85,461 100,291 Costs and estimated earnings on contracts in process in excess of billings 56,303 77,156 Materials and supply inventory, at cost 13,899 11,831 Receivable from affiliated company -- 15,000 Prepaid expenses and other assets 17,274 7,621 Deferred income taxes 10,513 16,600 Refundable income taxes 493 401 -------- -------- 197,945 240,105 -------- -------- Property and Equipment, net 70,521 81,107 -------- -------- Other Noncurrent Assets: Investment in affiliated company 23,185 23,038 Intangible assets relating to acquired businesses, net 33,534 21,613 Deferred debt issuance and financing costs 1,412 1,779 Deferred income taxes 3,563 1,440 Other assets 6,377 7,424 -------- -------- 68,071 55,294 -------- -------- Total Assets $336,537 $376,506 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 69,230 $ 65,233 Billings on contracts in process in excess of costs and estimated earnings 897 1,387 Accrued compensation and related taxes 6,528 6,174 Federal, state and local taxes 150 200 Other accrued liabilities 21,477 33,538 Current portion of non-current liabilities 5,321 4,417 -------- -------- 103,603 110,949 -------- -------- Non-current Liabilities: Long-term debt 52,972 104,111 Deferred gain from sale leaseback of equipment 4,484 -- Capital leases 32 53 Pension agreement 874 901 -------- -------- 58,362 105,065 -------- -------- Commitments and Contingencies Shareholders' Equity: Preferred stock, $10.00 par value, 2,000,000 shares authorized; none issued and outstanding -- -- Common stock, $.10 par value, 50,000,000 shares authorized; shares issued: 1996 - 26,992,140; 1995 - 26,647,077 2,699 2,664 Additional paid-in capital 138,989 136,428 Retained earnings 32,884 21,400 -------- -------- 174,572 160,492 -------- -------- Total Liabilities and Shareholders' Equity $336,537 $376,506 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 22 25 OHM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Revenue $ 550,984 $ 457,925 $ 323,381 Cost of services 478,924 393,149 296,159 --------- --------- --------- Gross Profit 72,060 64,776 27,222 Selling, general and administrative expenses 49,250 45,223 32,281 --------- --------- --------- Operating Income (Loss) 22,810 19,553 (5,059) --------- --------- --------- Other (Income) Expenses: Investment income (124) (849) (28) Interest expense 7,087 10,413 9,177 Equity in net earnings of affiliate (748) (287) (1,032) Miscellaneous (income) expenses (296) (72) 898 --------- --------- --------- 5,919 9,205 9,015 --------- --------- --------- Income (Loss) Before Income Taxes (Benefit) 16,891 10,348 (14,074) Income taxes (Benefit) 5,376 3,541 (6,458) --------- --------- --------- Net Income (Loss) $ 11,515 $ 6,807 $ (7,616) ========= ========= ========= Net Income (Loss) Per Share: $ 0.43 $ 0.30 $ (0.49) ========= ========= ========= Weighted average number of common and common equivalent shares outstanding 26,844 22,525 15,582 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 23 26 OHM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock ------------ Additional Cumulative Number of Paid-In Retained Translation Treasury Shares Amount Capital Earnings Adjustments Stock ------ ------ ------- -------- ----------- ----- BALANCE AT JANUARY 1, 1994 15,763,089 $ 1,576 $ 62,774 $ 22,272 $ (50) $(3,829) Proceeds from sale of 85,000 shares of common stock, less issuance expenses of $86,000 85,000 8 789 Stock options exercised, 105,425 shares reissued from treasury (269) 1,273 Deferred translation adjustments (8) Net loss (7,616) ---------- -------- ------- -------- ------- ------- BALANCE AT DECEMBER 31, 1994 15,848,089 1,584 63,294 14,656 (58) (2,556) Proceeds from sale of 1,000,000 shares of common stock, less issuance expenses of $25,000 1,000,000 100 9,875 Shares issued for the acquisition of the Division 9,668,000 967 61,149 Issuance of common stock warrants 1,372 Stock options exercised, 211,624 shares reissued from treasury (861) 2,556 Shares issued for stock options 37,921 4 776 Shares issued for 401(k) plan funding 93,067 9 823 Deferred translation adjustments (5) Net income 6,807 ---------- -------- ------- -------- ------- ------- BALANCE AT DECEMBER 31, 1995 26,647,077 2,664 136,428 21,463 (63) -- Shares issued for 401(k) plan funding 345,063 35 2,561 Deferred translation adjustments (31) Net income 11,515 ---------- -------- ------- -------- ------- ------- BALANCE AT DECEMBER 31, 1996 26,992,140 $ 2,699 $138,989 $ 32,978 $ (94) $ -- ========== ======== ======== ======== ======= ==========
The accompanying notes are an integral part of these consolidated financial statements. 24 27 OHM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ 11,515 $ 6,807 $ (7,616) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 19,963 10,652 7,395 Amortization of other noncurrent assets 3,332 2,916 2,418 Deferred income taxes 5,376 3,541 (6,458) (Gain) loss on sale of property and equipment (206) 423 764 Equity in net earnings of affiliate, net of dividends received (147) 314 (430) Deferred translation adjustments and other (1,346) (1,939) (1,253) Changes in current assets and liabilities: Accounts receivable 13,622 10,049 (22,279) Costs and estimated earnings on contracts in process in excess of billings 11,972 (10,278) (19,693) Materials and supply inventory (2,068) (1,732) (3,216) Prepaid expenses and other assets (8,125) (206) (1,704) Refundable income taxes and other (92) (196) (114) Accounts payable 2,949 3,907 5,263 Billings on contracts in process in excess of costs and estimated earnings (490) (1,019) (669) Accrued compensation and related taxes (512) 476 715 Federal, state and local income taxes (50) 98 (195) Other accrued liabilities (11,286) (4,416) 795 --------- --------- --------- Net cash flows provided by (used in) operating activities 44,407 19,397 (46,277) --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (23,279) (14,276) (13,354) Proceeds from sale of property and equipment 4,612 3,813 1,847 Proceeds from sale and leaseback of equipment 12,850 -- -- Cash acquired from purchase of business, net of acquisition costs -- 13,527 -- Decrease (increase) in receivable from affiliated company 15,000 (6,695) -- Increase in other noncurrent assets (1,140) (589) (1,835) --------- --------- --------- Net cash provided by (used in) investing activities 8,043 (4,220) (13,342) --------- --------- --------- Cash flows from financing activities: Increase in long-term debt 204 2,209 8,900 Payments on long-term debt and capital leases (10,230) (8,691) (1,782) Proceeds from borrowing under revolving credit agreement 202,300 159,900 47,200 Payments on revolving credit agreement (244,400) (175,500) (96,500) Proceeds from public offering of common stock -- -- 797 Proceeds from private placement of common stock -- 9,975 -- Common Stock issued for 401(k) funding and stock options 2,597 1,612 -- Payments on pension agreement (124) (102) (109) Reissuance of treasury stock -- 1,695 1,004 --------- --------- --------- Net cash (used in) provided by financing activities (49,653) (8,902) 59,510 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 2,797 6,275 (109) Cash and cash equivalents at beginning of year 11,205 4,930 5,039 --------- --------- --------- Cash and cash equivalents at end of year $ 14,002 $ 11,205 $ 4,930 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 25 28 OHM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of OHM Corporation (the "Company") and its subsidiaries. The Company also includes its proportionate share of joint ventures, in which the Company's ownership is less than 50%, which were entered into for the purpose of performing large remediation projects. The Company's investment in 40% of the outstanding common stock of NSC Corporation ("NSC") is carried on the equity basis. All material intercompany transactions and balances among the consolidated group have been eliminated in consolidation. USE OF ESTIMATES. The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES. The Company provides a broad range of environmental and hazardous waste remediation services to its clients located primarily in the United States. The assessment, remediation, analysis, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or injuries caused by the escape of hazardous material into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violations or environmental laws and regulations, and liability to customers and to third parties for damages arising from performing services for clients, which could have a material adverse effect on the Company. Although the Company believes that it generally benefits from increased environmental regulations, and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The Company does not believe there are currently any material environmental liabilities which should be recorded or disclosed in its financial statements. The Company anticipates that its compliance with various laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, future earnings or competitive position. The Company's revenue from government agencies accounted for 77%, 76% and 65% of revenue for the years ended December 31, 1996, 1995 and 1994, respectively. Because of its dependence on government contracts, the Company also faces the risks associated with such contracting, which could include civil and criminal fines and penalties. As a result of its government contracting business, the Company has been, is and may in the future be subject to audits and investigations by government agencies. The fines and penalties which could result from noncompliance with the Company's government contracts or appropriate standards and regulations, or the Company's suspension or debarment from future government contracting, could have a material adverse effect on the Company's business. The dependence on government contracts will also continue to subject the Company to significant financial risk and an uncertain business environment caused by the strain of the federal budget deficit and the lengthy budget negotiations each year. In addition to the above, there are other risks and uncertainties that involve the use of estimates in the preparation of the Company's consolidated financial statements. See "Note 2 - Acquisition" and "Note 15 - Litigation and Contingencies." STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of shares to employees and members of the Board of Directors with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock compensation arrangements in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and accordingly, recognizes no compensation expense for the stock compensation arrangements. The Company has no intention of changing this accounting practice. The pro forma information regarding net income and earnings per share as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") is disclosed in "Note 13 - Stock Option Plan." REVENUE AND COST RECOGNITION. The Company primarily derives its revenue from providing environmental services under cost plus fee, time and materials, fixed price and unit price contracts. The Company records revenue and related income from its fixed and unit price contracts in process using the percentage-of-completion method of accounting. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in project performance, project 26 29 conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated. Back charges to subcontractors are recorded as receivables to the extent considered collectible. Revenue from time and materials and cost plus fee type contracts is recorded based on performance and efforts expended. Contract costs include all direct labor, material, per diem, subcontract and other direct and indirect project costs related to contract performance. Revenue derived from non-contract activities is recorded when the services are performed. PROPERTY AND EQUIPMENT. Property and equipment are carried at cost and include expenditures which substantially increase the useful lives of the assets. Maintenance, repairs and minor renewals are expensed as incurred. Depreciation and amortization, including amortization of assets under capital leases, are provided on a specific item basis net of salvage value over the estimated useful lives of the respective assets, using the units of production method on thermal destruction equipment and the straight-line method on all other fixed assets. CAPITALIZED INTEREST. Interest expense incurred on capital expenditures for assets constructed by the Company is capitalized and is included in the cost of such assets. Total interest expense incurred by the Company was $8,085,000, $11,205,000 and $10,127,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Total interest capitalized was $998,000, $792,000 and $950,000 for the years ended December 31, 1996, 1995 and 1994, respectively. INTANGIBLE ASSETS. Intangible assets consist principally of goodwill and other intangible assets resulting primarily from acquisitions accounted for using the purchase method of accounting. Goodwill is amortized using the straight-line method over forty years. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill will be reduced by the estimated shortfall of cash flows. Other intangible assets relating to acquired businesses consist principally of proprietary processes, and other deferred costs, and are amortized on a straight-line basis over nine to ten years. The accumulated amortization of intangible assets, including goodwill, relating to acquired businesses, was $1,938,000 and $1,159,000 at December 31, 1996 and 1995, respectively. INCOME TAXES. The Company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the liability method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. STATEMENT OF CASH FLOWS. The Company considers all short-term deposits and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash paid for income taxes for the years ended December 31, 1996, 1995 and 1994 was $482,000, $986,000 and $550,000, respectively. Cash paid for interest was $8,137,000, $10,937,000 and $9,171,000 for each of the years ended December 31, 1996, 1995 and 1994, respectively. With respect to non-cash investing and financing activities, the Company acquired $1,870,000, $29,000 and $91,000 of fixed assets under financial obligations for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, the Company issued 9,668,000 shares of its common stock in fiscal 1995 for an acquisition. See "Note 2 - Acquisition." NET INCOME (LOSS) PER SHARE. Net income (loss) per share amounts are based on the weighted average common and common equivalent shares outstanding during the respective periods. Shares of common stock issuable upon conversion of the 8% Convertible Subordinated Debentures due 2006 are not considered to be common stock equivalents and were antidilutive in each of the years presented; therefore, they were excluded from the calculation of net income per share. RECLASSIFICATION. Certain amounts presented for the years ended December 31, 1995 and 1994 have been reclassified to conform to the 1996 presentation. NOTE 2 - ACQUISITION On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the hazardous and nuclear waste remediation service business (the "Division") of Rust International Inc. ("Rust") in exchange for 9,668,000 shares of common stock of the Company, or approximately 37% of the outstanding shares of the Company's common stock. Such shares issued to Rust are subject to a number of restrictions set forth in a Standstill and Non-competition Agreement that was entered into pursuant to the Agreement and Plan of Reorganization dated December 5, 1994, as amended (the "Reorganization Agreement"), among the Company, Rust and certain of their subsidiaries. In addition to the net assets of the 27 30 Division, the Company received $16,636,000 in cash pursuant to provisions of the Reorganization Agreement that provided for an adjustment based on the average per share price of the Company's common stock for a 20 trading day period prior to closing. Also, under terms of the Reorganization Agreement, as amended on March 22, 1996, the Company received an additional $15,000,000 on March 25, 1996. For purposes of calculating the consideration given by the Company for the Division, such 20 trading day average per share price of $11.25 was used, adjusted to reflect a 40% discount for the restricted nature of the common stock issued. Consideration for the Division aggregated $65,259,000, which includes $3,143,000 of direct costs related to the acquisition. In exchange for a warrant to purchase up to 700,000 shares of the Company's common stock at an exercise price of $15.00 per share during the five years following the closing date, Rust's parent company, WMX Technologies, Inc. ("WMX"), will provide the Company with a credit enhancement in the form of guarantees, issued from time to time upon request of the Company, of up to $62,000,000 of the Company's indebtedness, which will increase proportionately up to $75,000,000 upon issuance of shares under the warrant. The acquisition of the Division has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities have been recorded at their estimated fair values as of May 30, 1995. The acquired operations of the Division included contracts in process for which the Company recognizes revenue using the percentage of completion method of accounting. The valuation of the contracts in process require estimates relating to the costs to complete certain large contracts in process which require provisions for losses. The Company has estimated the fair value of contracts acquired at amounts which will allow the Company to achieve reasonable operating margins on the effort it expends to complete these contracts. The Company resolved certain preacquisition contingencies pending at December 31, 1995 and finalized the purchase accounting adjustments during the second quarter of 1996. As a result of the final purchase accounting adjustments, goodwill was increased by $12,700,000. The Company's consolidated financial statements include the results of operations for the Division since May 30, 1995. The following table sets forth the unaudited combined pro forma results of operations for the year ended December 31, 1995 and 1994 giving effect to the acquisition of the Division as if such acquisition had occurred on January 1, 1994.
Pro Forma Year Ended December 31, ----------------------- 1995 1994 ---- ---- (In Thousands, Except Per Share Data) Revenue $520,465 $554,289 Net income (loss) 8,142 (1,640) Net income (loss) per share $ 0.31 $ (0.06)
The combined pro forma results of operations for the year ended December 31, 1995 and 1994 are based upon certain assumptions and estimates which the Company believes are reasonable. The combined pro forma results of operations may not be indicative of the operating results that actually would have been reported had the transaction been consummated on January 1, 1994, nor are they necessarily indicative of results which will be reported in the future. The estimated fair value of the assets acquired and liabilities assumed at the date of acquisition are as follows (in thousands): Current assets $ 55,118 Property and equipment 21,523 Goodwill 34,183 Current liabilities 45,565
NOTE 3 - ACCOUNTS RECEIVABLE AND COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS Accounts receivable are summarized as follows:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Accounts billed and due currently $ 45,573 $ 65,377 Unbilled receivables 59,649 54,295 Retained 5,167 6,530 --------- -------- 110,389 126,202 Allowance for uncollectible accounts (24,928) (25,911) --------- -------- $ 85,461 $100,291 ========= ========
28 31 The consolidated balance sheets include the following amounts:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Costs incurred on contracts in process $ 442,923 $ 342,093 Estimated earnings 90,442 70,600 --------- --------- 533,365 412,693 Less billings to date (477,959) (336,924) --------- --------- $ 55,406 $ 75,769 ========= ========= Costs and estimated earnings on contracts in process in excess of billings $ 56,303 $ 77,156 Billings on contracts in process in excess of costs and estimated earnings (897) (1,387) --------- --------- $ 55,406 $ 75,769 ========= =========
Unbilled receivables and costs and estimated earnings on contracts in process typically represent: (i) amounts earned under the Company's contracts but not yet billable to clients according to contract terms, which usually consider passage of time, achievement of certain project milestones or completion of the project; and (ii) amounts equal to contract costs attributable to claims included in revenue. In addition, unbilled receivables and costs and estimated earnings on contracts in process include amounts relating to contracts with federal government agencies which require services performed by the Company's subcontractors to be paid prior to billing. The Company provides a broad range of environmental and hazardous waste remediation services to industrial, federal government agencies, and state and local government agencies located primarily in the United States and Canada. The Company's industrial, federal government, and state and local government clients constituted 44%, 52%, and 4%, respectively, of total accounts receivable and costs and estimated earnings on contracts in process at December 31, 1996. NOTE 4 - PROPERTY AND EQUIPMENT
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Land $ 257 $ 374 Buildings and improvements 21,698 17,681 Machinery and equipment 89,831 91,997 Construction in progress 8,385 14,937 --------- --------- 120,171 124,989 Less accumulated depreciation and amortization (49,650) (43,882) --------- --------- $ 70,521 $ 81,107 ========= =========
NOTE 5 - INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANY The combined summarized financial information of the Company's 40% owned asbestos abatement and specialty contracting subsidary, NSC, is set forth below:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Current assets $ 41,123 $ 41,805 Noncurrent assets 44,102 45,356 Total assets 85,225 87,161 Current liabilities 19,969 24,466 Noncurrent liabilities 7,610 5,414
29 32
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- (In Thousands) Revenue $129,043 $124,529 $132,218 Gross profit 22,589 19,447 21,716 Operating income 4,361 1,859 5,101 Net income 1,861 715 2,566 Company's interest in net income 748 287 1,032
The Company's accumulated equity in the undistributed earnings of NSC included in consolidated retained earnings was $6,000,000 at December 31, 1996. The Company received cash dividends from NSC aggregating $602,000 for each of the years ended December 31, 1996 and 1995. NOTE 6 - OTHER ACCRUED LIABILITIES Other accrued liabilities are summarized as follows:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Reserve for loss projects $ 5,839 $19,357 Reserve for legal settlements 5,490 2,352 Reserve for self-insurance 4,212 3,555 Accrued insurance 2,601 2,503 Other 3,335 5,771 --------- --------- $21,477 $33,538 ======= =======
The reserve for loss projects is related to certain contracts in process of the acquired Division. The reduction in such reserve during 1996 was a result of losses incurred on projects of the Division and a $4,687,000 reclassification recorded as a reduction to goodwill, which resulted from the final purchase accounting adjustments recorded in the second quarter of 1996. See "Note 2 - Acquisition." NOTE 7 - LONG-TERM DEBT The long-term debt of the Company is summarized below:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) 8% Convertible Subordinated Debentures due October 1, 2006 $ 46,764 $ 52,500 Revolving credit facility -- 42,100 Notes payable to financial institutions 8,434 11,704 Notes payable 3,066 2,170 --------- --------- 58,264 108,474 Less current portion (5,292) (4,363) --------- --------- $ 52,972 $ 104,111 ========= =========
The convertible subordinated debentures are convertible into 41.67 shares of common stock per $1,000 unit with interest payable semiannually on April 1 and October 1, and are redeemable at the option of the Company. The convertible subordinated debentures require annual mandatory sinking fund payments of 7.5% of the principal amount which commenced in 1996, and continue through October 1, 2005. The Company purchased and retired $5,736,000 and $5,000,000 of the outstanding debentures during 1996 and 1995, respectively, sufficient to meet the first and second annual sinking fund obligations due October 1, 1996 and 1997 which resulted in a gain of $492,000 and $222,000 and have been included in miscellaneous income in the Company's statement of operations for the years ended December 31, 1996 and 1995, respectively. The fair value of the convertible subordinated debentures, based on a quoted market price, approximates $43,491,000 at December 31, 1996. The amortization of debt issuance costs related to the convertible subordinated debentures was $97,000, $108,000 and $108,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 30 33 On May 31, 1995, the Company entered into a $150,000,000 revolving credit agreement with a group of banks (the"Bank Group") to provide letters of credit and cash borrowings. The agreement has a five year term and is scheduled to expire on May 30, 2000. WMX has issued a guarantee of up to $62,000,000 outstanding under the credit agreement in favor of the Bank Group. See "Note 2 - Acquisition." Under the terms of the agreement the entire credit facility can be used for either cash borrowings or letters of credit subject to certain covenants. Cash borrowings bear interest at either the prime rate plus a percentage up to 0.625% or, at the Company's option, the Eurodollar market rate plus a percentage ranging from 0.325% to 1.625%. The percentage over the prime rate or the Eurodollar market is based on the aggregate amount borrowed under the facility, the presence of the WMX guarantee, and the Company's financial performance as measured by an interest coverage ratio and a total funded debt ratio. The arrangement provides the participating banks and WMX with a security interest in the Company's equipment, inventories, accounts receivables, general intangibles and in the Company's investment in the common stock of NSC as well as the Company's other subsidiaries. The agreement also imposes, among other covenants, a minimum tangible net worth covenant, a restriction on all of the Company's retained earnings including the declaration and payment of cash dividends and a restriction on the ratio of total funded debt to earnings before income taxes, depreciation and amortization. The Company had $12,223,000 and $14,655,000 of letters of credit outstanding under its revolving credit facility at December 31, 1996 and 1995, respectively. Notes payable to financial institutions consist of: (i) a $3,246,000 note payable bearing interest at 7.24% payable in equal monthly installments of $146,000 with the final payment due in December 1998, (ii) a $772,000 note payable bearing interest at 9.25% payable in equal monthly installments of $35,000 with the final payment due in December 1998, (iii) a $3,927,000 note payable bearing interest at 8.58% payable in quarterly installments of $356,000 with the final payment of $957,000 due in August 1999, and (iv) a $489,000 note payable bearing interest at 8.72% payable in equal monthly installments of $43,000 with the final payment due in January 1998. Each of the above agreements provides the respective financial institution with a security interest in the equipment financed with the proceeds from such notes. Notes payable include: (i) a $767,000 interest bearing note at a rate of 9.50% payable in equal monthly installments of $48,000, due in April 1998, (ii) a $235,000 interest bearing note at a rate of 9.22% payable in equal monthly installments of $13,000, due in June 1998, (iii), a $203,000 interest bearing note at a rate of 7.50% payable in equal monthly installments of $8,000, due in December 1998, (iv) a $1,503,000 interest bearing note at a rate of 8.67% payable in equal monthly installments of $48,000, due in July 1999, (v) a $106,000 interest bearing note at a rate of 8.70% per schedule payable in equal installments of $5,000, due in June 1999, (vi) a $251,000 interest bearing note at a rate of 7.51% per schedule payable in equal monthly installments of $8,000, due in July 1999. The aggregate maturity of long-term debt for the five years ending December 31 is: 1997, $5,292,000; 1998, $6,472,000; 1999, $6,252,000; 2000, $4,313,000; 2001, $4,313,000; 2002 and thereafter, $31,622,000. NOTE 8 - LEASES Future minimum lease payments under noncancelable operating leases total $13,390,000, $10,203,000, $8,876,000, $7,419,000 and $4,733,000 for the years ended December 31, 1997, 1998, 1999, 2000 and 2001, respectively. Lease payments under noncancelable operating leases subsequent to the year ended December 31, 2001 aggregate $7,637,000. On December 24, 1996, the Company entered into an agreement for the sale and leaseback of the Company's self constructed thermal destruction unit located at the Drake Chemical project in Lockhaven, Pennsylvania. The lease is a one year lease with annual renewals at the option of the Company. The lease calls for rental payments which total $3,214,000, $3,214,000, $3,214,000 and $5,784,000 for the years ended December 31, 1997, 1998, 1999 and 2000, respectively, with required early termination payments of $9,179,000, $6,962,000 or $5,956,000 in the event the lease is canceled on or before December 24, 1997, 1998 or 1999, respectively. The lease is classified as an operating lease in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases". The cost and accumulated depreciation of $11,579,000 and $4,181,000 were removed from the accounts and gain realized on the sale of $5,452,000 was deferred. The deferred gain is being amortized to income as adjustments to lease expense over the term of the lease. Rental expense under operating leases totaled $14,029,000, $8,858,000 and $5,906,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 31 34 NOTE 9 - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995 are as follows:
December 31, ------------ 1996 1995 ---- ---- (In Thousands) Long-term deferred tax liabilities: Property and equipment $ 10,470 $ 8,043 Intangible assets 1,131 2,003 Investments 2,784 2,729 -------- -------- Total long-term deferred tax liabilities 14,385 12,775 Long-term deferred tax assets: Net operating loss ("NOL") carryforwards 7,571 3,767 Intangible assets 1,840 2,248 Research and development tax credits 5,832 4,116 Other tax credit carryforwards 2,431 2,410 Other, net 3,474 2,777 -------- -------- Total long-term deferred tax assets 21,148 15,318 Valuation allowance for long-term deferred tax assets (3,358) (1,303) -------- -------- Total long-term deferred tax assets - net of valuation allowance 17,790 14,015 -------- -------- Net long-term deferred tax assets - domestic operations 3,405 1,240 Foreign tax NOL carryforwards 167 220 Valuation allowance for foreign deferred tax assets (9) (20) -------- -------- Net long-term deferred tax assets $ 3,563 $ 1,440 ======== ======== Current deferred tax liabilities: Revenue recognition $ -- $ 1,520 Prepaid expenses 1,095 1,216 Tax reserves 366 445 -------- -------- Total current deferred tax liabilities 1,461 3,181 Current deferred tax assets: Bad debt reserves 9,722 9,863 Project accruals 8,709 13,262 NOL carryforwards 1,950 1,950 Other, net 1,196 1,579 -------- -------- Total current deferred tax assets 21,577 26,654 Valuation allowance for current deferred tax assets (9,603) (6,873) -------- -------- Total current deferred tax assets - net of valuation allowance 11,974 19,781 -------- -------- Net current deferred tax assets $ 10,513 $ 16,600 ======== ========
The net foreign long-term deferred tax assets of $158,000 and $200,000 at December 31, 1996 and 1995, respectively, are attributable to the foreign operations of the Company and cannot be offset with the net long term deferred tax liabilities resulting from the Company's domestic operations. 32 35 The provisions for income taxes (benefit) consist of the following:
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- (In Thousands) Current: Federal $ -- $ -- $ 244 State 41 58 -- ------- ------- ------- 41 58 244 Benefit of loss carryforwards -- -- (5,380) Deferred: Federal 4,569 3,036 (1,161) State 766 447 (161) ------- ------- ------- 5,335 3,483 (1,322) ------- ------- ------- $ 5,376 $ 3,541 $(6,458) ======= ======= =======
The reasons for differences between the provisions for income taxes and the amount computed by applying the statutory federal income tax rate to income (loss) from operations before income taxes are as follows:
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Federal statutory rate 34.0% 34.0% 34.0% Add (deduct): State income taxes, net of federal benefit 4.8 3.2 3.7 Research and development tax credits (8.6) (4.5) 3.6 Goodwill 2.4 1.2 -- Equity in net earnings of affiliates (1.2) (0.8) 2.0 Other, net 0.4 1.1 2.6 ---- ---- ---- 31.8% 34.2% 45.9% ==== ==== ====
Net operating loss, capital loss and tax credit carryforward amounts and their respective expiration dates for income tax purposes are as follows (in thousands):
Amount Expiration Date ------ --------------- Net operating losses $24,414 2006 through 2010 State net operating losses in excess of federal 14,420 1997 through 2010 Research and development tax credits 5,832 2002 through 2011 Alternative minimum tax credits 1,228 Indefinite Miscellaneous credits 482 1997 through 2005 Foreign tax net operating losses 427 1997 through 1998
The valuation allowance for deferred tax assets is $12,970,000 and $8,196,000 at December 31, 1996 and 1995, respectively. The change in valuation allowance for the current year is due to the final purchase accounting adjustments for the Rust acquisition recorded in the second quarter of 1996. The increase in the valuation allowance reduces the net deferred tax asset recorded from the acquisition of the Division. See "Note 2 - Acquisition." In the event the valuation allowance is not required, a reduction to goodwill will occur in accordance with SFAS No. 109. NOTE 10 - RELATED PARTY TRANSACTIONS The Company has a policy whereby transactions with directors, executive officers and related parties require the approval of a disinterested majority of the Board of Directors. The Company has been reimbursed by NSC for certain third party charges paid on NSC's behalf, such as letter of credit fees, insurance and bonding costs and legal fees. The costs charged to NSC for general liability and other insurance coverages were $1,774,000, $981,000 and $363,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In the normal course of business, NSC has provided the Company with subcontract services on certain of its projects for asbestos abatement and 33 36 industrial maintenance services. The costs for such services were $40,000, $212,000 and $1,377,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The Company has provided remediation services to NSC in the amount of $121,000 for the year ended December 31, 1996. In the normal course of business, the Company has provided to WMX and its affiliates certain subcontractor services on remediation and construction projects, the cost of these services, in the aggregate, were $12,959,000 and $10,242,000 for the years ended December 31, 1996 and 1995, respectively. The Company has purchased from WMX and its affiliates, hazardous waste disposal services, the cost of these services, in the aggregate, were $7,536,000 and $6,636,000 for the years ended December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, the Company has $6,873,000 and $3,871,000 of accounts receivable and $968,000 and $806,000 of accounts payable, respectively, recorded related to such activities. In addition to the above, the Company's financial statements at December 31, 1995 included a receivable from WMX for $15,000,000, which was related to final payments due under terms of the Reorganization Agreement, as amended March 22, 1996. Such amount was paid to the Company on March 25, 1996. The Company rents certain buildings and contracts certain services from The KDC Company and Findlay Machine and Tool, Inc. Such expenses totaled $348,000, $94,000 and $38,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The principal shareholders of the companies are certain officers and directors of the Company. The Company has purchased general contractor services and equipment from Alvada Construction, Inc. which totaled $957,000, $226,000 and $24,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The principal shareholder of the company is directly related to certain officers and directors of the Company. In the normal course of business, the Company has purchased subcontractor services on certain of its projects from Kirk Brothers Co., Inc. which totaled $2,265,000, $615,000 and $2,055,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The principal shareholders of the company are directly related to certain officers and directors of the Company. NOTE 11 - AGREEMENT WITH FORMER SHAREHOLDER During 1985, the Company executed a pension agreement with a former officer, directly related to certain directors of the Company, for an annual pension commencing on June 1, 1990, of $96,000, subject to cost of living adjustments, for the remainder of his life and that of his spouse if she survives him. The Company made pension payments totaling $124,000, $102,000 and $109,000 pursuant to this agreement during the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 12 - CAPTIAL STOCK The Company has authorized 2,000,000 shares of preferred stock at a $10.00 par value. No shares of preferred stock had been issued at December 31, 1996. The rights and preferences of the preferred stock will be fixed by the Board of Directors at the time such shares are issued. The preferred stock, when issued, will have dividend and liquidation preferences over those of the common shareholders. In December 1993, the Company completed a public offering of 3,365,000 shares of common stock at $11.00 per share. Total net proceeds to the Company from such offering were $34,963,000, less issuance expenses of $705,000, and were used to reduce the outstanding amounts under the Company's revolving credit agreement. In January 1994, the Company issued an additional 85,000 shares of common stock at $11.00 per share which resulted in $883,000 of net proceeds, less issuance expenses of $86,000, to the Company. On March 28, 1995, the Company sold to H. Wayne Huizenga and an affiliated family foundation 1,000,000 shares of its common stock and options for an aggregate purchase price of $10,000,000, less issuance expenses of $25,000. The options are exercisable over five years for the purchase of 620,000 shares of common stock upon payment of $10.00 per share and 380,000 shares of common stock upon payment of $12.00 per share. On May 30, 1995, the Company issued 9,668,000 shares of common stock in exchange for substantially all of the assets and certain liabilities of the hazardous and nuclear waste remediation service business of Rust. In addition, the Company issued a warrant to purchase up to 700,000 shares of common stock at an exercise price of $15.00 per share to Rust's parent company, WMX, in exchange for a $62,000,000 guarantee of the Company's indebtedness by WMX. The warrant is exercisable until May 30, 2000. See "Note 2 - Acquisition." 34 37 NOTE 13 - STOCK OPTION PLAN The Company has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company's 1986 Incentive Stock Option Plan ("1986 Plan") as amended by vote of the shareholders at the 1994 and 1996 Annual Meetings, has authorized the grant of options to officers and key employees for up to 3,850,000 shares of the Company's common stock. All options granted have 10 year terms and vest and become fully exercisable at the end of up to 6 years of continued employment. The number of shares available for grants of additional options under the 1986 Plan were 1,161,674 and 254,844 at December 31, 1996 and 1995, respectively. On August 6, 1992, the Company's Board of Directors approved a stock option plan for the Board of Directors (the "Directors' Plan"), which was subsequently approved by the Company's shareholders at the 1993 Annual Meeting. The Directors' Stock Option Plan provides for the immediate grant to each non-employee director a stock option for 15,000 shares of the Company's common stock, less the number of shares held by any such director under the 1986 Stock Option Plan. Additionally, the Directors' Plan provides for additional grants of stock options for 5,000 shares of the Company's common stock, at prices not less than the fair value, to each non-employee director annually. Options granted under the Directors' Plan may not be exercised for a period of six months following the date of grant and terminate up to eleven years after the date of grant or eighteen months after the holder ceases to be a member of the Board of Directors, whichever occurs earlier. The total number of shares available for grants of additional options under the Directors' Plan at December 31, 1996 and 1995 was 805,000 and 850,000, respectively. On August 15, 1996, the Board of Directors of the Company approved the OHM Corporation Incentive Stock Plan ("ISP") which permits the Board to grant shares of common stock of the Company to officers of the Company under restrictions set forth with the grant. Shares issued under the ISP are subject to substantial risk of forfeiture within the meaning of Section 83 of the Internal Revenue Code of 1986. There have been 105,000 shares of common stock issued under the ISP with a vesting date of August 15, 2001 for 100% of the shares. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996: risk-free interest rate of 6.0%; no dividend yield; volatility factor of the expected market price of the Company's common stock of 0.46; and a weighted-average expected life of each option of 7 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures of net income and earnings per share, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
Pro Forma Years Ended December 31, 1996 1995 ---- ---- (In Thousands, Except Per Share Data) Net income $10,901 $6,428 Net income per share $ 0.41 $ 0.29
Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1997. 35 38 The following is a summary of the stock option activity:
Number Weighted Average of Shares Exercise Price --------- -------------- 1996 PLAN Outstanding at January 1, 1994 1,485,800 $ 8.45 Granted 477,350 11.92 Exercised (105,425) 7.45 Canceled (92,375) 9.32 ---------- ------ Outstanding at December 31, 1994 1,765,350 9.41 Granted 632,750 9.89 Exercised (249,545) 7.74 Canceled (134,735) 9.81 ---------- ------ Outstanding at December 31, 1995 2,013,820 9.74 Granted 1,097,569 8.33 Exercised -- -- Canceled (1,004,399) 11.06 ---------- ------ Outstanding at December 31, 1996 2,106,990 $ 8.38 ========== ====== Exercisable at December 31, 1995 935,105 $ 9.04 ========== ====== Exercisable at December 31, 1996 1,037,008 $ 8.44 ========== ====== DIRECTORS' PLAN Outstanding at January 1, 1994 60,000 $ 7.88 Granted 25,000 15.63 ---------- ------ Outstanding at December 31, 1994 85,000 10.16 Granted 65,000 11.83 ---------- ------ Outstanding at December 31, 1995 150,000 10.88 Granted 60,000 7.94 Canceled (15,000) 10.50 ---------- ------ Outstanding at December 31, 1996 195,000 $10.01 ========== ====== Exercisable at December 31, 1995 150,000 $10.88 ========== ====== Exercisable at December 31, 1996 180,000 $10.20 ========== ======
The weighted-average fair value of options granted during the year ended December 31, 1996 and 1995 was $4.20 and $5.40, respectively. Exercise prices for options outstanding as of December 31, 1996 for the 1996 Plan and the Director's Plan ranged from $6.38 to $11.88 and $7.38 to $15.63, respectively. The weighted-average remaining contractual life of those options is 7.2 and 8.2 years, respectively. NOTE 14 - RETIREMENT AND PROFIT-SHARING PLANS The Company has a Retirement Savings Plan (the "Plan") which allows each of its eligible employees to make contributions, up to a certain limit, to the Plan on a tax-deferred basis under Section 401(k) of the Internal Revenue Code of 1986, as amended. Eligible employees are those who are employed full-time, are over twenty-one years of age, and have one year of service with the Company. The Company may, at its discretion, make matching contributions and profit sharing contributions to the Plan out of its profits for the plan year. The Company made matching contributions of $2,691,000, $1,643,000 and $1,225,000 to the Plan for the years ended December 31, 1996, 1995 and 1994, respectively. Effective January 1, 1996, the Board of Directors of the Company approved the Retirement and Incentive Compensation Plan ("RICP") which provides eligible employees an election to defer a specified percentage of their cash compensation. The obligations of the Company under the RICP will be unsecured general obligations to pay the deferred compensation under the terms of the RICP. Participants may elect under the plan to invest deferrals in an OHM Common Stock Deferral Account for which contributions will be treated as if such amounts had been used to purchase shares of the Company's stock and not as actual purchases of the Company's stock. At the discretion of the compensation committee of the Board of Directors, contributions to the plan will be matched by the Company and all amounts invested in the plan will earn interest at the prime rate published by the Wall Street Journal if not invested in the OHM Common Stock Deferral Account. 36 39 NOTE 15 - LITIGATION AND CONTINGENCIES The Company is currently in litigation in the U.S. District Court for the Western District of Louisiana with Citgo Petroleum Corporation ("Citgo"), Oxy USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to cost overruns and production shortfalls on a remediation project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and 1994. The Company has recorded in its financial statements approximately $27,609,000 as a claim receivable and $5,381,000 of accounts receivable that are in dispute for work performed under the terms of the Company's base contract with Citgo. The Company is seeking damages in excess of $35,000,000. Citgo's second amended complaint seeks damages under the contract for production shortfalls, which Citgo has asserted in answer to the Company's interrogatories to be approximately $27,600,000. The Company has filed a third party complaint against Oxy for negligent misrepresentation and detrimental reliance as a result of Oxy's involvement with the development of sample and analytical data relied upon by the Company in preparation of its bid and cost estimates for work at the Lake Charles refinery. In December 1996 and January 1997, Oxy and Citgo, respectively, filed motions for summary judgment and partial summary judgment on the Company's claims. The Company filed briefs in opposition to these motions. These motions for summary judgment and partial summary judgment are still pending. The Company is currently in litigation in the U.S. District Court for the Western District of New York with Occidental Chemical Corporation ("Occidental") relating to the Durez Inlet Project performed in 1993 and 1994 for Occidental in North Tonawanda, New York. The Company's accounts receivable at December 31, 1996 include a claim receivable of $8,618,000 related to this matter. The Company's work was substantially delayed and its costs of performance were substantially increased as a result of conditions at the site which the Company believes were materially different than as represented by Occidental. Occidental's amended complaint seeks $8,806,000 in damages primarily for alleged costs incurred as a result of project delays and added volumes of incinerated waste. The Company's counterclaim seeks an amount in excess of $9,200,000 for damages arising from Occidental's breach of contract, misrepresentation and failure to pay outstanding contract amounts. The Company is currently in arbitration proceedings with Separation and Recovery Systems, Inc. ("SRS") resulting from SRS's failure to adequately perform it's subcontract obligations to the Company for thermal desorption services at the Hilton-Davis project in Cincinnati, Ohio. The Company's financial statements on December 31, 1996 include a back charge receivable of approximately $7,345,000 representing additional costs the Company has and will incur as a result of completing SRS's scope of work under its thermal desorption subcontract with the Company. SRS has filed a counterclaim against the Company for approximatley $2,500,000 alleging wrongful termination of the subcontract. Management believes that it has established adequate reserves should the resolution of the above matters be lower than the amounts recorded. There is, however, always risk and uncertainty in pursuing and defending litigation and arbitration proceedings in the course of the Company's business and, notwithstanding the reserves currently established, adverse future results in litigation or other proceedings could have a material adverse impact upon the Company's consolidated future results of operations or financial condition. In addition to the above, the Company is subject to a number of claims and lawsuits in the ordinary course of its business. In the opinion of management, the outcome of these actions, which are not clearly determinable at the present time, are either adequately covered by insurance or other reserves, or if not insured or reserved, will not, in the aggregate, have a material adverse impact upon the Company's consolidated financial position or the results of future operations. NOTE 16 - MAJOR CUSTOMERS Revenue from federal government agencies accounted for 72%, 71% and 55% of total revenue from continuing operations for the years ended December 31, 1996, 1995 and 1994, respectively. Revenue from state and local government agencies accounted for 5%, 5% and 10% of total revenue from continuing operations for the years ended December 31, 1996, 1995 and 1994, respectively. There were no industrial customers which accounted for more than 10% of total revenue for the years ended December 31, 1996, 1995 and 1994. NOTE 17 - SPECIAL CHARGES The Company's consolidated statement of operations for the year ended December 31, 1995 includes a $2,312,000 (net of $1,542,000 income tax benefit) or $0.10 per share, charge for integration costs related to the acquisition of the Division. The charge was recorded as a selling, general and administrative expense and was primarily for severance and relocation costs 37 40 for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Division and the Company. The Company's consolidated statement of operations for the year ended December 31, 1994 included a special charge of $15,000,000 (net of $10,000,000 income tax benefit) or $0.96 per share, to establish a reserve for accounts receivable, primarily where such accounts are in litigation. Such charge was recorded as a reduction of revenue. NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth the Company's condensed consolidated statements of operations by quarter for 1996 and 1995.
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In Thousands, Except Per Share Data) 1996 - ---- Revenue $118,963 $129,177 $158,272 $144,572 Gross profit 15,030 17,560 20,638 18,832 Selling, general and administrative expenses 11,176 11,943 13,124 13,007 Operating income 3,854 5,617 7,514 5,825 Net income $ 1,330 $ 2,379 $ 3,996 $ 3,810 ======== ======== ======== ======== Net income per share $ 0.05 $ 0.09 $ 0.15 $ 0.14 ======== ======== ======== ======== 1995 - ---- Revenue $ 80,217 $ 99,501 $135,886 $142,321 Gross profit 12,910 16,144 19,071 16,651 Selling, general and administrative expenses (1) 7,681 13,285 12,348 11,909 Operating income 5,229 2,859 6,723 4,742 Net income $ 1,287 $ 234 $ 3,187 $ 2,099 ======== ======== ======== ======== Net income per share $ 0.08 $ 0.01 $ 0.12 $ 0.08 ======== ======== ======== ======== NOTES: (1) During the second quarter of 1995, the Company recorded a $3,854,000 pre-tax, $2,312,000 after-tax or $0.10 per share, charge for integration costs related to the acquisition of the Division. The charge was recorded in selling, general and administrative expenses and was primarily for severance and relocation costs for certain of the Company's personnel and the closing of certain of the Company's offices as a result of combining the operations of the Division and the Company.
38 41 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders OHM Corporation We have audited the accompanying consolidated balance sheets of OHM Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OHM Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Columbus, Ohio February 7, 1997 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. 39 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, in addition to that set forth above in Part I under the caption "Executive Officers of the Registrant," is set forth in the section entitled "Election of Directors" of the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Proxy Statement") in connection with the Company's 1997 Annual Meeting of Shareholders, and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Proxy Statement under the caption "Executive Compensation and Other Information," and such information is incorporated herein by reference except that the information included under the headings "Board Compensation and Stock Option Committee Report" and "Performance Graph" is not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANANGEMENT The information required by this item is contained in the Proxy Statement under the caption "Voting Securities and Principal Holders Thereof," and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions," and such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of the Company and its subsidiaries are included in Item 8: Consolidated Balance Sheets -As of December 31, 1996 and 1995 Consolidated Statements of Operations -For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity -For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows -For the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Auditors (a)(2) The following consolidated financial statement schedule of the Company and its subsidiaries is submitted herewith: Schedule II Valuation and Qualifying Accounts -- For the Years Ended December 31, 1996, 1995 and 1994 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (a)(3) Exhibits 40 43 The following Exhibits are included in this Annual Report on Form 10-K: Exhibit Exhibit Number Description - ------ ----------- 2.1 Agreement of Merger dated as of May 6, 1994 by and between OHM Corporation, a Delaware corporation and the Registrant [incorporated by reference to Exhibit 2(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 2.2 Agreement and Plan of Reorganization among OHM Corporation, Rust Remedial Services, Inc., Enclean Environmental Services Group, Inc., Rust Environmental, Inc., and Rust International Inc. dated December 5, 1994 [incorporated by reference to Appendix B to the Registrant's Proxy Statement for its Annual Meeting of Shareholders to be held May 11, 1995]. 2.3 Amendment dated as of May 4, 1995 to the Agreement and Plan of Reorganization dated as of December 5, 1994 by and among OHM Corporation, Rust Remedial Services Inc., Enclean Environmental Services Group, Inc., Rust Environmental, Inc., and Rust International Inc. [incorporated by reference to Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995]. 2.4 Amendment No. 2 dated as of July 27, 1995 to the Agreement and Plan of Reorganization dated as of December 5, 1994 by and among OHM Corporation, Rust Remedial Services Inc., Enclean Environmental Services Group, Inc., Rust Environmental, Inc., and Rust International Inc. [incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 31, 1995]. 2.5 Amendment No. 3, Settlement and Release Agreement dated as of March 22, 1996 to the Agreement and Plan of Reorganization dated December 5, 1994 by and among OHM Corporation, OHM Remediation Services Corp., Rust Remedial Services Inc., Rust International Inc. and WMX Technologies, Inc. [incorporated by reference to Exhibit 2.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 2.6 Standstill and Non-Competition Agreement by and among the Registrant, WMX Technologies, Inc., and Rust International Inc., dated May 30, 1995 [incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 2.7 Warrant Agreement by and between WMX Technologies, Inc., and the Registrant dated May 30, 1995 [incorporated by reference to Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 2.8 Stock Purchase Agreement by and between the Huizenga Family Foundation, Inc. and OHM Corporation dated as of March 28, 1995 [incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995]. 2.9 Stock Purchase Agreement by and between H. Wayne Huizenga and OHM Corporation dated as of March 28, 1995 [incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995]. 3.1 Amended and Restated Articles of Incorporation of the Registrant dated May 19, 1994 [incorporated by reference to Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. - ----------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 41 44 Exhibit Exhibit Number Description - ------ ----------- 3.2 Regulations of the Registrant [incorporated by reference to Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 4.1 Indenture dated as of October 1, 1986 between Registrant and United States Trust Company of New York, Trustee, relating to the Registrant's 8% Convertible Subordinated Debentures due October 1, 2006 [incorporated by reference to Exhibit 4(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986]. 4.2 Specimen Debenture Certificate [incorporated by reference to Exhibit 4(b) to the Registrant's Amendment No. 1 to Registration Statement on Form S-1, No. 33-8296]. 4.3 First Supplemental Indenture dated as of May 20, 1994 by and among the Registrant and United States Trust Company of New York [incorporated by reference to Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 4.4 Specimen Common Stock Certificate [incorporated by reference to Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996]. 10.1* OHM Corporation 1986 Stock Option Plan, as amended and restated as of May 10, 1994 [incorporated by reference to Appendix 2 to the Registrant's Proxy Statement for its Annual Meeting held May 10, 1994]. 10.2* OHM Corporation Nonqualified Stock Option Plan for Directors [incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992]. 10.3* OHM Corporation Retirement Savings Plan, as amended and restated as of January 1, 1994 [incorporated by reference to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 10.4* Amendment No. 1 to OHM Corporation Retirement Savings Plan, as amended and restated as of January 1, 1994 [incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.5* Amendment No. 2 to OHM Corporation Retirement Savings Plan, as amended and restated as of January 1, 1994 [incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 10.6* OHM Corporation Retirement Savings Plan Trust Agreement between Registrant and National City Bank, as Trustee, as amended and restated effective July 1, 1994 [incorporated by reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 10.7* OHM Corporation Directors' Deferred Fee Plan [incorporated by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 10.8* Amendment No. 1 to OHM Corporation Directors' Deferred Fee Plan [incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.9* Form of Amended and Restated Indemnification Agreements entered into between Registrant and its Directors and Executive Officers [incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. - ----------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 42 45 Exhibit Exhibit Number Description - ------ ----------- 10.10* Form of Employment Agreements providing certain severance benefits in the event of a change of control entered into between Registrant and certain of its executive officers [incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 10.11 Revolving Credit Agreement dated as of May 31, 1995 among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America Illinois, as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10(e) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.12 Amendment No. 1 dated as of October 16, 1995 to the Revolving Credit Agreement dated as of May 31, 1995 among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America Illinois, as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 31, 1995]. 10.13 Security Agreement dated as of May 11, 1993, among OHM Corporation, OHM Remediation Services Corp. and Continental Bank N.A., as Administrative Agent [incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993]. 10.14 First Amendment dated as of May 4, 1994 to Security Agreement dated as of May 11, 1993 by and between the Registrant, OHM Remediation Services Corp., and Bank of America Illinois as Issuing and Paying Agent [incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 10.15 Second Amendment dated as of May 31, 1995 to Security Agreement dated as of May 11, 1993 by and between the Registrant, OHM Remediation Services Corp., and Bank of America Illinois as Issuing and Paying Agent [incorporated by reference to Exhibit 10(g) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.16 Pledge Agreement dated as of May 11, 1993, executed by the Registrant in favor of Continental Bank N.A., as Administrative Agent [incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993]. 10.17 First Amendment dated as of May 31, 1995 to Pledge Agreement dated as of May 11, 1993 by and between the Registrant and Bank of America Illinois as Issuing and Paying Agent [incorporated by reference to Exhibit 10(f) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.18 Intercreditor Agreement dated May 31, 1995 by and among Citicorp USA, Inc., as administrative agent, Bank of America Illinois, as issuing and paying agent and WMX Technologies, Inc. [incorporated by reference to Exhibit 10(h) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.19 Guarantee Agreement by and among the Registrant and WMX Technologies, Inc., dated May 30, 1995 [incorporated by reference to Exhibit 10(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.20 Reimbursement Agreement dated as of May 31, 1995 among WMX Technologies, Inc., OHM Corporation, and OHM Remediation Services Corp. [incorporated by reference to Exhibit 10(j) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.21 Security Agreement dated as of May 31, 1995 by and between the Registrant, OHM Remediation Services Corp., and WMX Technologies, Inc. [incorporated by reference to Exhibit 10(k) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. - ----------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 43 46 Exhibit Exhibit Number Description - ------ ----------- 10.22 Pledge Agreement dated as of May 31, 1995 by and between the Registrant and WMX Technologies, Inc. [incorporated by reference to Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.23 Master Loan and Security Agreement dated May 11, 1993, between OHM Remediation Services Corp. and BOT Financial Corporation [incorporated by reference to Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993]. 10.24 Amendment No. 1 to Master Loan and Security Agreement dated as of January 19, 1995 between BOT Financial Corporation and OHM Remediation Services Corp. [incorporated by reference to Exhibit 10(g) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995]. 10.25 Promissory Note dated December 23, 1993 executed by OHM Remediation Services Corp. in favor of BOT Financial Corporation [incorporated by reference to Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. 10.26 Promissory Note dated December 28, 1994 executed by OHM Remediation Services Corp. in favor of BOT Financial Corporation [incorporated by reference to Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 10.27 Loan and Security Agreement dated as of August 1, 1994 by and between OHM Remediation Services Corp. and Internationale Nederlanden Lease Structured Finance B.V. [incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994]. 10.28 Promissory Note dated August 31, 1994 executed by OHM Remediation Services Corp. in favor of Internationale Nederlanden Lease Structured Finance B.V. [incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994]. 10.29 Continuing Corporate Guaranty dated as of August 1, 1994 executed by OHM Corporation in favor of Internationale Nederlanden Lease Structured Finance B.V. [incorporated by reference to Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994]. 10.30 Purchase Agreement dated as of December 15, 1992, among OHM Corporation, NSC Corporation, NSC Industrial Services Corp., Waste Management, Inc., and The Brand Companies, Inc. [incorporated by reference to Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992]. 10.31 Stock Purchase Agreement dated December 17, 1992, among OHM Corporation and Chemical Waste Management, Inc. [incorporated by reference to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992]. 10.32* OHM Corporation 1996 Management Incentive Plan [incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 10.33* OHM Corporation Executive Retirement Plan, dated as of January 1, 1996 [incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. 10.34* OHM Corporation Retirement and Incentive Compensation Plan [incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996]. - ----------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 44 47 Exhibit Exhibit Number Description - ------ ----------- 10.35* OHM Corporation Incentive Stock Plan [incorporated by reference to Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996]. 10.36* Employment Agreement, dated August 21, 1996, between Joseph R. Kirk and OHM Corporation [incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996]. 10.37 Equipment Agreement, dated as of December 24, 1996, between BTM Capital Corporation and OHM Remediation Services Corp. 10.38 Supplement No. 01 to the Equipment Agreement, dated as of December 24, 1996, between BTM Capital Corporation and OHM Remediation Services Corp. 11 Statement Re Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP. 24 Powers of Attorney of certain directors of the Company. 27 Financial Data Schedule. (b) There were no reports on Form 8-K filed during the three months ended December 31, 1996. (c) The response to this portion of Item 14 is included as Exhibits to this report. - ----------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 45 48 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. OHM CORPORATION By: /s/ STEVEN E. HARBOUR ---------------------------------------- Steven E. Harbour-Vice President, Legal and Secretary March 18, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on March 18, 1997. /s/ JAMES L. KIRK - ----------------------------------------------------------------------------- James L. Kirk-Chairman of the Board, President and Chief Executive Officer /s/ PHILIP O. STRAWBRIDGE - ----------------------------------------------------------------------------- Philip O. Strawbridge-Vice President and Chief Financial and Administrative Officer (Principal Financial Officer) /s/ KRIS E. HANSEL - ----------------------------------------------------------------------------- Kris E. Hansel-Vice President and Controller (Principal Accounting Officer) * WILLIAM P. HULLIGAN - ----------------------------------------------------------------------------- William P. Hulligan-Director * HERBERT A. GETZ - ----------------------------------------------------------------------------- Herbert A. Getz-Director * IVAN W. GORR - ----------------------------------------------------------------------------- Ivan W. Gorr-Director * CHARLES D. HOLLISTER - ----------------------------------------------------------------------------- Charles D. Hollister-Director * JOSEPH R. KIRK - ----------------------------------------------------------------------------- Joseph R. Kirk-Director * JAMES E. KOENIG - ----------------------------------------------------------------------------- James E. Koenig-Director * RICHARD W. POGUE - ----------------------------------------------------------------------------- Richard W. Pogue-Director * CHARLES W. SCHMIDT - ----------------------------------------------------------------------------- Charles W. Schmidt-Director * The undersigned, by signing his name hereto does sign and execute this report pursuant to Powers of Attorney executed on behalf of the above-named directors and contemporaneously herewith filed with the Securities and Exchange Commission. /s/ STEVEN E. HARBOUR March 18, 1997 - ----------------------------------------------------------------------------- Steven E. Harbour, Attorney-in-Fact 46 49 OHM CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands) Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions --------- Balance at Charged to Charged to (2) Balance Beginning Costs and Other Deductions at End Description of Period Expenses Accounts(1) Describe of Period - ----------- --------- -------- ----------- -------- --------- Year ended December 31, 1996 Allowance for Uncollectible Accounts $25,911 $ 5,343 $1,208 $7,534 $24,928 Year ended December 31, 1995 Allowance for Uncollectible Accounts $26,063 $ 2,931 $2,628 $5,711 $25,911 Year ended December 31, 1994 Allowance for Uncollectible Accounts $ 2,776 $ 25,522 $ -- $2,235 $26,063 (1) Adjustments made as a result of the acquisition of the hazardous and nuclear waste remediation service business of Rust International Inc. (2) Uncollectible accounts charged against the valuation reserve.
47 EX-10.37 2 EXHIBIT 10.37 1 Exhibit 10.37 EQUIPMENT AGREEMENT ------------------- EQUIPMENT AGREEMENT dated as of December 24, 1996 (herein, as amended and supplemented from time to time, called "this Agreement"), between BTM Capital Corporation, a Delaware corporation (herein called "Obligee"), having its principal place of business at 125 Summer Street, Boston, MA 02110, and OHM Remediation Services Corp., an Ohio corporation (herein called "Obligor"), having its principal place of business at 16406 US Route 224 East, Findlay, Ohio 45840. In consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. Unless the context otherwise requires, the following terms shall have the following meanings for all purposes of this Agreement and shall be equally applicable to both the singular and the plural forms of the terms herein defined: "ACCEPTANCE DATE" for each Item of Equipment means the date on which Obligor has unconditionally accepted such Item for financing hereunder, as evidenced by Obligor's execution and delivery of an Agreement Supplement for such Item dated such date. "ACQUISITION PERIOD" means the period specified as such on each consecutively numbered Exhibit A now or hereafter attached hereto and made a part hereof. "ASSIGNEE" shall have the meaning given to such term in Section 14(b) hereof. "BASIC PAYMENTS" means the payments due for each Item of Equipment during (i) the Basic Term thereof pursuant to Section 7(b) hereof, and (ii) each Renewal Term thereof pursuant to Section 28(a) hereof. "BASIC TERM" for each Item of Equipment means the period consisting of the number of months set forth for the type of Equipment to which such Item relates on the Related Exhibit A for such Item. "BASIC TERM COMMENCEMENT DATE" for each Item of Equipment means the date specified as such on the Related Exhibit A for such Item. "BUSINESS DAY" means any day other than a day on which banking institutions in the State of Ohio or the Commonwealth of Massachusetts are authorized by law to close. "CASUALTY LOSS VALUE" of each Item of Equipment as of any Casualty Loss Value Payment Date means an amount determined by multiplying the Equipment Cost of such Item of Equipment by 2 the percentage set forth opposite such Casualty Loss Value Payment Date on the Schedule of Casualty Loss Values attached to the Related Exhibit A for such Item. "CASUALTY LOSS VALUE PAYMENT DATE" of each Item of Equipment shall mean the Basic Term Commencement Date for such Item and each monthly anniversary of the Basic Term Commencement Date for such Item and shall be as set forth in the Schedule of Casualty Loss Values attached to the Related Exhibit A for such Item. "CROSS RECEIPT", for any Item of Equipment, means the Cross Receipt executed by the Obligor and the Obligee for the transfer of an interest in such Item of Equipment to Obligee. "END OF TERM ADJUSTMENT" shall have the meaning given to such term in Section 29(d) hereof. "ENVIRONMENTAL LAWS" shall mean any judgement, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act or any other federal, state or local statute, regulation, ordinance, order, or decree, or common law, whether in existence now or hereafter enacted, and as such may be amended from time to time, relating to health, safety or the environment. "EPA" means the United States Environmental Protection Agency. "EQUIPMENT" means the equipment of the type(s) described on each consecutively numbered Exhibit A now or hereafter attached hereto and made a part hereof and financed by Obligee hereunder or ordered by Obligor for financing hereunder, together with any and all accessions, additions, improvements and replacements from time to time incorporated or installed therein which are subject to the interest of Obligee pursuant to the terms of this Agreement. "EQUIPMENT COST" of each Item of Equipment means the amount specified in the applicable Supplement with respect thereto as "Equipment Cost". Such amount may, in the case of any Item acquired by the Obligee directly from the Obligor, be the current fair market value thereof as set forth in an independent appraisal report delivered to and satisfactory in form and substance to the Obligee; otherwise such amount will be equal to the sum of (i) the total cost paid by Obligee for its interest in such Item, plus (ii) all excise, sales and use taxes paid by Obligor on or with respect to the acquisition of such Item, plus 2 3 (iii) all costs and expenses approved and paid by Obligor in connection with the delivery and installation of such Item. "ESTIMATED RESIDUAL VALUE" for any Item of Equipment shall mean an amount obtained by multiplying (i) the percentage set forth in the Related Exhibit A for such Item under the caption "Estimated Residual Value Percentage" applicable to the Basic Term or Renewal Term then ending, by (ii) the Equipment Cost for such Item. "EVENT OF DEFAULT" means any of the events referred to in Section 22 hereof. "EVENT OF LOSS" with respect to any Item of Equipment means (i) the loss of such Item of Equipment or any substantial part thereof, or (ii) the loss of the use of such Item of Equipment due to theft or disappearance for a period in excess of 45 days during the Term, or existing at the expiration or earlier termination of the Term, or (iii) the destruction, damage beyond repair, or rendition of such Item of Equipment or any substantial part thereof permanently unfit for normal use for any reason whatsoever, or (iv) the condemnation, confiscation, seizure, or requisition of use or title to such Item of Equipment or any substantial part thereof by any governmental authority under the power of eminent domain or otherwise. "GUARANTOR" means OHM Corporation, an Ohio corporation, and any other guarantor of the payment and performance of the Obligations under or relating to the Principal Documents. "GUARANTY" means the Guaranty of OHM Corporation dated as of December 24, 1996, and any other guaranty of the payment and performance of the Obligations under or relating to the Obligor Documents, executed and delivered by any Guarantor. "HAZARDOUS MATERIAL" means (i) petroleum or petroleum products (including crude oil and its fractions), radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, and radon gas; (ii) any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "hazardous air pollutants", "extremely hazardous substances", "restricted hazardous wastes", "toxic substances", "pollutants", "contaminants", or words of similar import, under any applicable Environmental Laws (including without limitation, hazardous waste, as defined by 42 U.S.C. Section 6903(S), any hazardous substance as defined by 42 U.S.C. Section 9601(14), and any pollutant or contaminant as defined by 42 U.S.C. Section 9601(33)); and (iii) any other chemical, material or substances, exposure to which is prohibited, limited or regulated by an Environmental Law or by a governmental authority. 3 4 "ITEM OF EQUIPMENT" OR "ITEM" means a single unitary item of the Equipment. "LIEN" means liens, mortgages, encumbrances, pledges, charges and security interests of any kind. "MAXIMUM EQUIPMENT COST" means the amount specified as such on each consecutively numbered Exhibit A now or hereafter attached hereto and made a part hereof. "MAXIMUM OBLIGOR RISK AMOUNT" for any Item of Equipment shall mean the percentage set forth in the Related Exhibit A for such Item under the caption "Maximum Obligor Risk Percentage" applicable to the Basic Term or Renewal Term then ending, multiplied by the Equipment Cost for such Item. "MAXIMUM OBLIGEE RISK AMOUNT" for any Item of Equipment shall mean the percentage set forth in the Related Exhibit A for such Item under the caption "Maximum Obligee Risk Percentage" applicable to the Basic Term or Renewal Term then ending, multiplied by the Equipment Cost for such Item. "MAXIMUM TERM" for each Item of Equipment shall mean the maximum number of months, in aggregate, of the Basic Term and all Renewal Terms of such Item of Equipment, as specified in the Related Exhibit A applicable to such Item of Equipment. "NET PROCEEDS OF SALE" shall have the meaning given to such term in Section 29(d) hereof. "OBLIGOR DOCUMENTS" shall mean this Equipment Agreement, each Related Exhibit A, each Supplement executed from time to time, each Cross Receipt, each other related instrument, document and agreement, and all riders, amendments or supplements thereto from time to time. "PAYMENT DATE" for each Item of Equipment means (i) for the Basic Term thereof, each date on which a Basic Payment is due and payable for such Item pursuant to Section 7(b) hereof, and (ii) for each Renewal Term thereof, each date on which a Basic Payment is due and payable for such Item as provided in Section 28(a) hereof. "PAYMENT PERIOD" for each Item of Equipment means (i) for the Basic Term of such Item, each period for which a Basic Payment is to be made for such Item during the Basic Term thereof as set forth on the Related Exhibit A for such Item (opposite the reference to Payment Periods for Basic Term), and (ii) for each Renewal Term of such Item, each period for which a Basic Payment is to be made for such Item during such Renewal Term as set forth on the Related Exhibit A for such Item (opposite the reference to Payment Periods for Renewal Term). 4 5 "PERSON" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization, or government or governmental authority, agency or political subdivision thereof. "PRIME RATE" means the interest rate per annum announced from time to time by Bank of Tokyo-Mitsubishi Trust Company, New York, New York,as its "prime" or "base" lending rate." "PURCHASE OPTION AMOUNT" shall have the meaning given to such term in Section 28(b) hereof. "REINVESTMENT PREMIUM" for any Item of Equipment, as of any determination date, shall mean the excess, if any, of (a) the net present value of the sum of (i) all Basic Payments remaining to be paid after such determination date through the expiration of the Maximum Term of such Item, that would have been payable for such Item following such determination date if this Agreement had been renewed through and inclusive of the expiration of the Maximum Term of such Item, and (ii) the Estimated Residual Value applicable to such Item at such expiration of the Maximum Term (together, the sum of (i) and (ii) being referred to as the "Discounted Payments"), each discounted at a rate equal to the sum of the then current yield for direct obligations of the United States Treasury having a maturity equal to the average life of the Discounted Payments plus fifty basis points (0.50%), over (b) the Estimated Residual Value applicable to such Item at such time of determination. "RELATED EXHIBIT A" means, with respect to an Item of Equipment, the particular numbered Exhibit A now or hereafter attached hereto and made a part hereof to which such Item relates as specified in Section 4 hereof. "RELEASE" shall have the meaning specified in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 ET SEQ. ("CERCLA") and the term "DISPOSAL" (or "DISPOSED") shall have the meaning specified in the Resource Conversation and Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ. ("RCRA") and regulations promulgated thereunder; provided, that in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply as of the effective date of such amendment and provided further, to the extent that applicable state law establishes a meaning for "Release" or "Disposal" which is broader than specified in either CERCLA or RCRA, such broader meaning shall apply. "REMEDIATION CONTRACT" means any contract pursuant to which Obligor becomes a remedial response contractor at any Site at which Obligor uses the Equipment to perform remedial response activities. 5 6 "RENEWAL TERM" for each Item of Equipment means each period following the end of the Basic Term for such Item with respect to which Obligor has the option to renew this Agreement pursuant to Section 28(a) hereof. "SITE" means any site at which Obligor uses the Equipment to perform remedial response activities. "SUPPLEMENT" means a Supplement substantially in the form attached hereto as Exhibit B, to be executed by Obligee and Obligor with respect to an Item or Items of Equipment as provided in Section 4 hereof, evidencing that such Item or Items are financed hereunder. "SUPPLEMENTAL PAYMENTS" means all amounts, liabilities and obligations which Obligor assumes or agrees to pay hereunder to Obligee or others, including payments of Casualty Loss Value, indemnities, and any Reinvestment Premium that may become payable by Obligor hereunder, but excluding Basic Payments. "TERM" means the full term of this Agreement with respect to each Item of Equipment, including the Basic Term and each Renewal Term. "TERMINATION DATE", for any Item of Equipment, means the last day of the Basic Term of such Item, or if the Term of such Item has been renewed pursuant to Section 28(a), the last day of the Renewal Term of such Item. "TERMINATION VALUE" of each Item of Equipment as of any termination date (as defined in Section 33) means an amount determined by multiplying the Cost of such Item of Equipment by the percentage set forth opposite such termination date on the Schedule of Termination Values attached to the Related Exhibit A for such Item. The words "this Agreement", "herein", "hereunder", "hereof" or other like words mean and include this Equipment Agreement, each Related Exhibit A, each Supplement, and each amendment and supplement hereto and thereto. 2. AGREEMENT FOR FINANCING OF EQUIPMENT. Subject to, and upon all of the terms and conditions of this Agreement, Obligee hereby agrees to finance for Obligor, and Obligor hereby agrees to finance from Obligee, each Item of Equipment. Provided that no Event of Default has occurred and is continuing hereunder, Obligee agrees that it shall not interfere with Obligor's quiet enjoyment and use of any Item of Equipment financed hereunder during the Term thereof. 3. CONDITIONS PRECEDENT. Obligee shall have no obligation to purchase an interest in any Item of Equipment and to finance the same for Obligor unless each of the following conditions are fulfilled to the satisfaction of Obligee: (i) no event which is 6 7 (or with notice or lapse of time or both would become) an Event of Default has occurred and is continuing, nor has any information come to Obligee's attention from which Obligee or Obligor could reasonably and in good faith infer that such event might occur; (ii) there shall not have occurred since the date specified as the Financial Condition Reference Date on the Related Exhibit A for such Item, any event which, in the reasonable judgment of the Obligee or Obligor, has had a material adverse effect on the properties, executive management (taken as a whole), condition (financial or otherwise), operations or business of the Obligor taken as a whole or the Guarantor taken as a whole; (iii) such Item of Equipment is acceptable to Obligee, and is free of all Liens, other than any Lien specifically excepted in Section 15 hereof; (iv) the Acceptance Date for such Item of Equipment is a date within the Acquisition Period specified on the Related Exhibit A for such Item and Obligor has executed and delivered to Obligee the Related Exhibit A for such Item; (v) the Equipment Cost of such Item of Equipment, when added to the total Equipment Cost of all Equipment of the type to which such Item relates and which has been financed hereunder, or ordered by Obligor for financing hereunder, will not be such an amount so as to cause the Maximum Equipment Cost specified on the Related Exhibit A for such Item to be exceeded; (vi) Obligee has received an invoice for such Item of Equipment from the seller thereof, approved for payment by Obligor, showing Obligor as the purchaser of an interest in such Item, or, if Obligor is the seller of an interest in such Item, a receipt for the transfer of such interest from Obligor to Obligee in form and substance satisfactory to Obligee, together with an appraisal report delivered to and satisfactory in form and substance to the Obligee, demonstrating that the Equipment Cost of such Item is equal to the current fair market value thereof, and, if requested by the Obligee, evidence, satisfactory to Obligee, that Obligee has satisfied all payment obligations incurred in connection with its original acquisition of such Item, (vii) Obligee has received a Supplement for such Item, duly executed by Obligor, and dated the Acceptance Date for such Item; (viii) all filings or recordings of such documents as shall be necessary or advisable in order to establish and perfect Obligee's or any Assignee's interest in the Equipment as against Obligor and/or third parties in any applicable jurisdiction shall have been made, and Obligee or such Assignee shall have received lien searches satisfactory to it, provided that for any Equipment subject to motor vehicle titling laws, Obligor have until the Basic Term Commencement Date to deliver to Obligee or any Assignee a copy of the certificate of title therefor, as filed with, and bearing the filing stamp of, the appropriate department of motor vehicles or other appropriate state authority, and a copy of the manufacturer's statement or certificate of origin therefor, reflecting Obligee or such Assignee as first lienholder; (ix) Obligee shall have received the Cross Receipt and such other documents concerning the Obligor and the Guarantor, appraisals, opinions, certificates and waivers, in form and substance satisfactory to Obligee, as Obligee may 7 8 require; and (x) Obligor shall have procured all licenses, registrations, certificates, permits, approvals and consents required by Federal, state or local laws or by any governmental body, agency or authority, and otherwise complied with any Environmental Laws in connection with the ownership, delivery, installation, use and operation of each Item of Equipment at its current location. 4. DELIVERY, ACCEPTANCE AND FINANCING OF EQUIPMENT. Obligee shall not be liable to Obligor for any failure or delay in obtaining any Item of Equipment or making delivery thereof. Forthwith upon delivery of each Item of Equipment to Obligor, Obligor will inspect such Item, and unless Obligor gives Obligee prompt written notice of any defect in or other proper objection to such Item, Obligor shall promptly upon completion of such inspection execute and deliver to Obligee a Supplement for such Item, dated the Acceptance Date of such Item. The execution by Obligee and Obligor of a Supplement for an Item of Equipment shall (a) evidence that such Item is financed under, and is subject to all of the terms, provisions and conditions of, this Agreement, and (b) constitute Obligor's unconditional and irrevocable acceptance of such Item for all purposes of this Agreement. An Item of Equipment shall be conclusively deemed to relate to the particular numbered Exhibit A now or hereafter attached hereto and made a part hereof on which is set forth (i) a description of such Item or the type of Equipment to which such Item relates and (ii) the Acquisition Period within which the Acceptance Date for such Item has occurred. 5. TERM. The Basic Term for each Item of Equipment shall commence on the Basic Term Commencement Date thereof and, unless this Agreement is sooner terminated with respect to such Item (or all Equipment) pursuant to the provisions hereof, shall end on the date specified therefor in the Supplement for such Item. If not sooner terminated pursuant to the provisions hereof, the Term for each Item of Equipment shall end on the last day of the Basic Term thereof, or if this Agreement is renewed pursuant to Section 28(a) hereof, on the last day of the last Renewal Term thereof. 6. END OF TERM DELIVERY OF EQUIPMENT. (a) Upon the expiration or earlier termination of the Term with respect to each Item of Equipment (unless Obligor has exercised its purchase option with respect to Obligee's interest therein pursuant to Section 28(b) hereof), Obligor will, at its expense, surrender and deliver possession of each Item of Equipment to Obligee at such location within the continental United States as shall be designated by Obligee in writing, or, in the absence of such designation, at the then location of each such Item. At the time of such delivery to Obligee, each Item of Equipment (and each part or component thereof) shall (i) be in good operating order, and in the repair and condition as when originally delivered to Obligor, ordinary wear and tear from proper use thereof excepted, (ii) be capable (including, without 8 9 limitation, in respect of its packaging and labeling) of being immediately assembled and operated by a third party purchaser or third party lessee without further inspection, repair, replacement, alterations or improvements (excluding third party peculiar requirements for compatibility with then existing third party products, equipment or facilities, or compliance by such third party with any applicable Environmental Laws), (iii) be in accordance and compliance with any and all statutes, laws, ordinances, rules and regulations of any Federal, state or local governmental body, agency or authority applicable to the use and operation of such Item (including without limitation, Environmental Laws), (iv) be capable of performing its originally intended functions within its original manufacturer's specified tolerances, (v) be free of all Hazardous Materials, contaminants, toxic chemicals and residue of any kind, (vi) be free and clear of all Liens, other than any Lien granted or placed thereon by Obligee or any Assignee. All de-installation of the Equipment shall be performed by technical personnel acceptable to the Obligee. In addition to the foregoing, Obligor shall be liable for and shall pay all costs and expenses of removing the Equipment from the location thereof in accordance with Environmental Laws. If any Item of Equipment is originally equipped with tires or mounted on Equipment with tires, such Item or Equipment shall, in addition to satisfying the requirements of the preceding sentence, be returned with all tires installed thereon, with each tire having at least fifty percent (50%) or more tread remaining thereon, and with each brake having at least fifty percent (50%) or more remaining brake life thereon. (b) Until each such Item of Equipment has been delivered to Obligee in the condition and as otherwise provided in this Section 6 (unless Obligor has exercised its purchase option with respect to Obligee's interest therein pursuant to Section 28(b) hereof), Obligor shall continue to pay Obligee, on the same dates on which Basic Payments for such Item were payable during the Basic Term thereof (or, if the Term of such Item has been renewed, the most recent Renewal Term thereof), the same Basic Payments for such Item that were payable on the last Payment Date of the Basic Term thereof, or if the Term of such Item has been renewed pursuant to Section 28(a), the same Basic Payments that were payable on the last Payment Date during the most recent Renewal Term. (c) The provisions of this Section 6 are of the essence of this Agreement and upon application to any court of equity having jurisdiction in the premises, Obligee shall be entitled to a decree against Obligor requiring specific performance of the covenants of Obligor set forth in this Section 6. 7. PAYMENTS. (a) [intentionally omitted]. 9 10 (b) BASIC PAYMENTS. Obligor hereby agrees to pay Obligee Basic Payments for each Item of Equipment during the Basic Term thereof at the times and on the Payment Dates set forth on the Related Exhibit A for such Item and in an amount obtained by multiplying (i) the Equipment Cost of such Item by (ii) the percentage of Equipment Cost set forth (opposite the Basic Payment Percentage reference) on such Related Exhibit A, as the same may be adjusted pursuant to Related Exhibit A. (c) SUPPLEMENTAL PAYMENTS. Obligor also agrees to pay to Obligee, or to whomsoever shall be entitled thereto as expressly provided herein, all Supplemental Payments, promptly as the same shall become due and owing, and in the event of any failure on the part of Obligor so to pay any such Supplemental Payment hereunder Obligee shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Payments. (d) METHOD OF PAYMENT. All Basic Payments and Supplemental Payments required to be made by Obligor to Obligee shall be made in immediately available funds not later than 12:00 noon Eastern time. In the event of any assignment to an Assignee pursuant to Section 14(b) hereof, all payments which are assigned to such Assignee, whether Basic Payments, Supplemental Payments or otherwise, shall be paid in such manner as shall be designated by Obligee or such Assignee. Time is of the essence in connection with the payment of Basic Payments and Supplemental Payments. Whenever any payment hereunder shall be stated to be due on a day which is not a day on which banks are required to be open for business in Boston, Massachusetts (a "Banking Day"), such payment shall be made on the next succeeding Banking Day. 8. NET FINANCING. This Agreement is a net financing agreement. Obligor acknowledges and agrees that Obligor's obligations hereunder, including, without limitation, its obligations to make Basic Payments for all Equipment financed hereunder, to pay all Supplemental Payments payable hereunder and under each other Obligor Document, shall be unconditional and irrevocable under any and all circumstances, shall not be subject to cancellation, termination, modification or repudiation by Obligor, and shall be paid and performed by Obligor without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever, including, without limitation, any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Obligor may have against Obligee, any Assignee, any manufacturer or supplier of the Equipment or any part or Item thereof, or any other Person for any reason whatsoever or any defect in the Equipment or any part or Item thereof, or the condition, design, operation or fitness for use thereof, or any damage to, or any loss or destruction of, the Equipment or any part or Item thereof, any Liens or rights of 10 11 others with respect to the Equipment or any part or Item thereof, or any prohibition or interruption of or other restriction against Obligor's use, operation or possession of the Equipment or any part or Item thereof, for any reason whatsoever, or any interference with such use, operation or possession by any Person or entity, or any default by Obligee in the performance of its obligations herein contained, or any other indebtedness or liability, howsoever and whenever arising, of Obligee, or of any Assignee, or of Obligor to any other Person, or by reason of insolvency, bankruptcy or similar proceedings by or against Obligee, any Assignee or Obligor, or for any other reason whatsoever, whether similar or dissimilar to any of the foregoing, any present or future law to the contrary notwithstanding; it being the intention of the parties hereto that all Basic Payments and Supplemental Payments payable by Obligor hereunder shall continue to be payable in all events and in the manner and at the times herein provided, without notice or demand, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Agreement. 9. GRANT OF SECURITY INTEREST; EQUIPMENT TO BE AND REMAIN PERSONAL PROPERTY. This Agreement is a financing intended as security. Obligor hereby grants to Obligee a security interest in the Equipment, the Required Alterations, the Optional Alterations and all proceeds thereof as collateral security for the payment and performance by Obligor of Obligor's obligations as Obligor hereunder. It is the intention and understanding of both Obligee and Obligor, and Obligor shall take all such actions as may be required to assure, that the Equipment shall be and at all times remain personal property, notwithstanding the manner in which the Equipment may be attached or affixed to realty. Obligor shall obtain and record such instruments and take such steps as may be necessary to prevent any Person from acquiring any rights in the Equipment by reason of the Equipment being claimed or deemed to be real property. Upon request by Obligee, Obligor shall obtain and deliver to Obligee valid and effective waivers, in recordable form, by the owners, landlords and mortgagees of the real property upon which the Equipment or any Item of Equipment is located or certificates of Obligor that it is the owner of such real property or that such real property is not leased and/or mortgaged; PROVIDED, that if an Item is located on a Site designated as a National Priority Fund Site (or any similar designation) pursuant to applicable Environmental Laws, the Obligee may in lieu of delivering waivers from owners, landlords or mortgagees, deliver to the Obligee evidence, reasonably satisfactory to the Obligee, of the Obligor's currently effective contractual arrangements with respect to such Site, so long as such contractual arrangements do not provide for any lien or security interest in such Item. Obligor shall cause each Item of Equipment subject to motor vehicle titling and registration laws to be titled in the name of Obligor, as owner, with Obligee or Assignee, as applicable to be shown as sole lienholder, and shall cause all certificates of title to be promptly furnished to Obligee. 11 12 10. USE OF EQUIPMENT; COMPLIANCE WITH LAWS. Obligor agrees that the Equipment will be used and operated solely in the conduct of its business and in compliance with any and all Remediation Contracts, insurance policy terms, conditions and provisions and with all statutes, laws, ordinances, rules and regulations of any Federal, state or local governmental body, agency or authority applicable to the use, management and operation of the Equipment, including, without limitation, all applicable Environmental Laws (including without limitation, those pertaining to the operation of dewatering equipment and the disposal of any solid wastes resulting therefrom) and with the terms of all Remediation Contracts, and will promptly rectify any noncompliance therewith, and including, in the case of any Item subject to motor vehicle titling and registration laws, all titles, registrations, registration plates, permits, licenses, and all renewals thereof. Obligor shall procure and maintain in effect all licenses, registrations, certificates, permits, approvals and consents required by Federal, state or local laws or by any governmental body, agency or authority in connection with the ownership, delivery, installation, use and operation of each Item of Equipment, including without limitation, those required by Environmental Laws. Obligor will use and maintain the Equipment in a careful and proper manner, in accordance with all Remediation Contracts and the manufacturer's or supplier's instructions or manuals, and only by competent and duly qualified personnel authorized by Obligor. The Equipment will at all times be and remain in the possession and control of Obligor; PROVIDED, that the Obligor may for temporary periods not exceeding 30 days in length relinquish possession and control of any Item to the manufacturer or to an independent contractor, for purposes of repair or alteration required or permitted hereunder. The Equipment shall in no event be located outside of the continental limits of the United States. Obligor shall use every reasonable precaution to prevent loss or damage to each Item of Equipment from fire and other hazards. 10A. CERTAIN COVENANTS. All storage and use of Hazardous Substances in connection with the Equipment, and the installation and de-installation of the Equipment, shall be in strict compliance with Environmental Laws applicable thereto. Obligor will promptly give written notice to Obligee of the occurrence of any Event of Loss or Event of Default, of the commencement of any litigation or proceedings affecting Obligor from time to time which, if adversely determined, could have a material adverse effect on Obligor's business, operations or financial condition taken as a whole or which could otherwise affect the Equipment, or of any dispute between Obligor and any governmental regulatory body or other party that involves any of the Equipment. In addition to the foregoing, (1) Obligor will promptly provide the Obligee with written notice: 12 13 (a) upon the Obligor's obtaining knowledge of any cancellation or threatened cancellation or material adverse change in any insurance affecting the Equipment or the Obligee or Assignee as additional insured (whether formal or informal); (b) [intentionally omitted]; (c) upon the Obligor's obtaining knowledge of any violation or alleged violation of any Environmental Law regarding the operations of the Equipment at a Site; (d) upon the Obligor's obtaining knowledge of any potential or known Release, or threat of Release, of any Hazardous Material at or from the Equipment which it reports in writing or which is required to report in writing to any governmental authority or which could materially adversely affect the Obligor or the Equipment; (e) upon the Obligor's receipt of any notice of violation or alleged violation of any Environmental Laws or of any Release or threatened Release of Hazardous Materials, including a notice or claim of liability or potential responsibility from any third party (including without limitation any federal, state or local governmental officials) and including notice of any formal inquiry, proceeding, demand, investigation or other action, with regard to (i) the Obligor's or any person's operation of the Equipment, (ii) contamination at or from the Equipment or (iii) investigation or remediation of offsite locations at which the Obligor or its predecessors are alleged to have directly or indirectly disposed of Hazardous Materials from a Site; or (f) upon the Obligor's obtaining knowledge that any expense or loss has been incurred by such governmental authority in connection with the assessment, containment, removal or remediation of any Hazardous Materials at or from a Site, with respect to which the Obligor may be liable or for which a Lien may be imposed on the Equipment; or (g) that Obligor is or shall be named party to any claim, action, cause of action, complaint, legal or administrative proceeding arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the Release of Hazardous Materials at or from a Site, or in excess of such costs and expenses payable or reimburseable under any Remediation Contract. In addition to the foregoing, Obligor will provide to Obligee: 13 14 (h) as soon as practicable after request by the Obligee from time to time, a written report of an investigation, conducted to the satisfaction of the Obligee, by a consultant to be selected or approved by the Obligee, as to any significant environmental, health or safety violations, hazards or liabilities to which Obligor or Guarantor may be subject in respect of the Equipment or a Site; (i) promptly and in any event within five Business Days after receipt thereof by Obligor or Guarantor, a copy of each notice, citation or other communication from the United States Environmental Protection Agency, any state environmental protection agency, any court or other governmental Person, and of each consent agreement, consent decree, judgment or other document with any such Person, in each case asserting an actual or potential violation, fine, penalty, enforcement action or liability of Obligor or Guarantor under any Environmental Laws in respect of the Equipment or a Site, or otherwise if the effect or adverse determination thereof would reasonably have a materially adverse effect on the properties, condition (financial or otherwise), operations or business of Obligor and of Guarantor taken as a whole. (2) except in accordance with Environmental Laws and as set forth in any Remediation Contract: (i) no portion of the Equipment has been or will be used for the handling, processing, storage or disposal of Hazardous Materials; (ii) neither Obligor nor any of its subcontractors have released or will release any Hazardous Materials at or from a Site; and (iii) there have been and will be no unpermitted Releases or threatened Releases which would result in a lien upon such Equipment; and there have been and will be no unpermitted Releases or threatened Releases by Obligor or any of its subcontractors which would reasonably have a material adverse effect on the environment or the value of the property at or in the vicinity of a Site; (3) if any unpermitted Release or Disposal of Hazardous Materials shall occur or shall have occurred as a result of the operation of the Equipment not in accordance with Environmental Laws, Obligor shall cause the prompt containment and removal of such Hazardous Materials and remediation of a Site as necessary to comply with all Environmental Laws or to preserve the value of the Equipment; 14 15 (4) Obligor will at all times maintain in effect any indemnification of Obligee contained in any Remediation Contract, and will maintain such insurance, performance bonds, or other financial assurance as is required by applicable law or reasonably required by the Obligee or by any Remediation Contract; and (5) any Hazardous Materials that will be handled by the Equipment or that will be generated by the Equipment, to the best knowledge of Obligor, will be transported offsite only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities will be to the best knowledge of the Obligor, operating in compliance with such permits and applicable Environmental Laws. 11. MAINTENANCE AND REPAIR OF EQUIPMENT. Obligor agrees, at its own cost and expense, to keep, repair, maintain and preserve the Equipment in good order and operating condition, and in compliance with such maintenance and repair standards and procedures as are set forth in the manufacturer's manuals pertaining to the Equipment, and as otherwise may be required to enforce warranty claims against each vendor and manufacturer of each Item of Equipment, and in compliance with all Remediation Contracts and requirements of law applicable to the maintenance and condition of the Equipment, including, without limitation, environmental, noise and pollution laws and regulations (including notifications and reports). Obligor shall, at its own cost and expense, supply the necessary power and other items required in the operation of the Equipment. Obligor hereby waives any right now or hereafter conferred by law to make repairs on the Equipment at the expense of Obligee. 12. REPLACEMENTS; ALTERATIONS; MODIFICATIONS; SUBSTITUTIONS. (a) In case any Item of Equipment (or any equipment, part or appliance therein) is required to be altered, added to, replaced or modified in order to comply with any laws, regulations, requirements or rules ("Required Alteration") pursuant to Sections 10 or 11 hereof, Obligor agrees to make such Required Alteration at its own expense and an interest in the same shall immediately vest in Obligee and the same shall be subject to the terms of this Agreement. Obligor may make any optional alteration to any Item of Equipment ("Optional Alteration") provided such Optional Alteration does not impair the value, use or remaining useful life of such Item of Equipment. An interest in such Optional Alteration shall be immediately vested in Obligee and the same shall be subject to this Agreement. Obligor agrees that, within 30 days after the close of any calendar quarter in which Obligor has made any Required Alterations that could have an adverse effect upon the value, utility or useful 15 16 life of any Item of Equipment, Obligor will give written notice thereof to Obligee describing, in reasonable detail, the Required Alterations and specifying the cost thereof with respect to such Item of Equipment and the date or dates when made. Any parts installed or replacements made by Obligor upon any Item of Equipment pursuant to its obligation to maintain and keep the Equipment in good order, operating condition and repair under Section 11 hereof shall be considered accessions to such Item of Equipment and an interest therein shall be immediately vested in Obligee and the same shall be subject to this Agreement. Except as required or permitted by the provisions of this Section 12, Obligor shall not modify an Item of Equipment without the prior written authority and approval of Obligee. (b) With the prior written consent of Obligee, not to be unreasonably withheld, Obligor shall be permitted to substitute for any Item of Equipment then subject to this Agreement (provided that, in Obligor's good faith opinion, as evidenced by a certificate of its President, treasurer or chief financial officer, such Item shall have become no longer useful, or surplus, to Obligor in its business), like kind equipment having a fair market value and utility equal to or greater than such Item. Such fair market value and utility shall be determined by the Obligee in its reasonable discretion. If such substitution is permitted by the Obligee, the item of equipment so substituted shall be considered an "Item of Equipment" subject to this Agreement and the interest of the Obligee hereunder, and Obligor shall execute such documents as may be reasonably requested by Obligee to evidence its interest therein, and Obligee's rights and interests in, to and under the item of equipment having been so substituted shall be terminated and Obligee shall execute and deliver to Obligor a transfer and release of its interest in such item to Obligor, "as is where is" without representation or warranty of any kind. 13. IDENTIFICATION MARKS; INSPECTION. Obligor agrees, upon the request of Obligee, at Obligor's sole cost and expense, to place markings on the Equipment by stencil or by a metal tag or plate affixed thereto showing plainly, distinctly and conspicuously Obligee's security interest therein; provided, however, that such identification markings are to be placed so as not to interfere with the usefulness of such Item of Equipment. If during the Term any such identification marking shall at any time be defaced or destroyed, Obligor shall immediately cause such defaced or destroyed identification marking to be restored or replaced. Obligor shall not allow the name of any Person to be placed upon any Item of Equipment as a designation which might be interpreted as indicating a claim of a security interest therein by any Person other than Obligee or any Assignee. Upon the request of Obligee, Obligor shall make the Equipment available to Obligee for inspection and shall also make Obligor's records pertaining to the Equipment available to Obligee for inspection. 16 17 14. ASSIGNMENTS AND SUBLEASING. (a) BY OBLIGOR. EXCEPT IN CONNECTION WITH A TRANSACTION PERMITTED BY SECTIONS 12(b) or 14(c) AND TEMPORARY RELINQUISHMENTS OF POSSESSION PERMITTED BY SECTION 10, OBLIGOR SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF OBLIGEE, SUBLEASE OR OTHERWISE RELINQUISH POSSESSION OF ANY ITEM OF EQUIPMENT, OR ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER AND ANY ATTEMPTED SUBLEASE, RELINQUISHMENT, ASSIGNMENT, TRANSFER OR ENCUMBERING BY OBLIGOR SHALL BE NULL AND VOID. (b) BY OBLIGEE. Obligee may, at any time, without notice to, or the consent of, Obligor sell, assign or transfer or grant a security interest in all or any part of Obligee's rights, obligations, title or interest in, to and under the Equipment or any Item(s) thereof, this Agreement, any Supplement and/or any Basic Payments and Supplemental Payments payable under this Agreement or any Supplement to any leasing or finance company, bank, insurance company or other financial institution. Any entity to whom any such sale, assignment, transfer or grant of security interest is made is herein called an "Assignee" and any such sale, assignment, transfer or grant of security interest is herein called an "assignment". An Assignee may re-assign and/or grant a security interest in any of such rights, obligations, title or interest assigned to such Assignee. Obligor agrees to execute such related amendments to this Agreement, such acknowledgments and other documents that may be reasonably requested by Obligee or an Assignee and that do not, taken as a whole, materially and adversely affect the interest of Obligor in the transactions contemplated by this Agreement. Each Assignee shall have and may enforce all of the rights and benefits of Obligee hereunder with respect to the Item(s) of Equipment and related Supplement(s) covered by the assignment, including, without limitation, the provisions of Section 8 hereof and Obligor's representations and warranties under Section 21 hereof. Each such assignment shall be subject to Obligor's rights hereunder so long as no Event of Default has occurred and is occurring hereunder. Obligor shall be under no obligation to any Assignee except upon written notice of such assignment from Obligee or, in the case of a reassignment, from the Assignee. Upon written notice to Obligor of any such assignment, Obligor agrees to pay the Basic Payments and Supplemental Payments with respect to the Item(s) of Equipment covered by such assignment to such Assignee in accordance with the instructions specified in such notice without any abatement, defense, setoff, counterclaim or recoupment whatsoever, and to otherwise comply with all notices, directions and demands which may be given by Obligee or such Assignee with respect to such Item(s), in accordance with the provisions of this Agreement. Notwithstanding any such assignment, all obligations of Obligee to Obligor under this Agreement shall be and remain enforceable by Obligor against Obligee and any Assignee to whom an assignment hereunder has been made. 17 18 (c) CONSOLIDATIONS AND MERGERS BY OBLIGOR. OBLIGOR SHALL NOT CONSOLIDATE WITH OR MERGE INTO ANY OTHER CORPORATION OR CONVEY, TRANSFER OR LEASE SUBSTANTIALLY ALL OF ITS ASSETS AS AN ENTIRETY TO ANY PERSON UNLESS: (I) THE CORPORATION FORMED BY SUCH CONSOLIDATION OR INTO WHICH OBLIGOR IS MERGED, OR THE PERSON WHICH ACQUIRES BY CONVEYANCE, TRANSFER OR LEASE SUBSTANTIALLY ALL OF THE ASSETS OF OBLIGOR AS AN ENTIRETY, SHALL BE A SOLVENT CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR THE DISTRICT OF COLUMBIA AND SHALL EXECUTE AND DELIVER TO OBLIGEE AND EACH ASSIGNEE AN AGREEMENT CONTAINING AN EFFECTIVE ASSUMPTION BY SUCH SUCCESSOR, TRANSFEREE OR LESSEE CORPORATION OF THE DUE AND PUNCTUAL PERFORMANCE AND OBSERVANCE OF EACH COVENANT AND CONDITION OF THIS EQUIPMENT AGREEMENT; PROVIDED ANY LEASE OF SUBSTANTIALLY ALL OF ITS ASSETS SHALL NOT RELEASE OBLIGOR FROM ITS OBLIGATIONS UNDER THIS EQUIPMENT AGREEMENT, WHICH OBLIGATIONS SHALL AT ALL TIMES REMAIN PRIMARY AND DIRECT; (II) IMMEDIATELY AFTER GIVING EFFECT TO SUCH TRANSACTION, NO EVENT OF DEFAULT, AND NO EVENT WHICH, AFTER NOTICE OR LAPSE OF TIME, OR BOTH, WOULD BECOME AN EVENT OF DEFAULT, SHALL HAVE OCCURRED AND BE CONTINUING; (III) IMMEDIATELY AFTER GIVING EFFECT TO SUCH TRANSACTION, THE TANGIBLE NET WORTH (HEREINAFTER DEFINED) OF THE CORPORATION FORMED BY SUCH CONSOLIDATION OR INTO WHICH OBLIGOR IS MERGED OR THE PERSON WHICH ACQUIRED BY CONVEYANCE, TRANSFER OR LEASE SUBSTANTIALLY ALL THE ASSETS OF OBLIGOR AS AN ENTIRETY, AS THE CASE MAY BE, SHALL NOT BE LESS THAN THE TANGIBLE NET WORTH OF OBLIGOR AS REFLECTED IN THE THEN MOST RECENT OF OBLIGOR'S LATEST CERTIFIED FINANCIAL STATEMENTS FURNISHED BY OBLIGOR PURSUANT TO SECTION 30 HEREOF PRIOR TO SUCH CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE; AND (IV) OBLIGOR SHALL HAVE DELIVERED TO OBLIGEE, AND ASSIGNEE A CERTIFICATE SIGNED BY TWO OFFICERS, ONE OF WHOM SHALL BE THE PRESIDENT OR A VICE PRESIDENT, AND ONE OF WHOM SHALL BE THE TREASURER OR THE SECRETARY OR AN ASSISTANT SECRETARY OF OBLIGOR, AND AN OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE ADDRESSEES THEREOF OF OBLIGOR'S COUNSEL, EACH STATING THAT SUCH CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE AND THE ASSUMPTION AGREEMENT MENTIONED IN CLAUSE (I) ABOVE COMPLIES WITH THIS SECTION 14(c) AND THAT ALL CONDITIONS PRECEDENT HEREIN PROVIDED FOR RELATING TO SUCH TRANSACTION HAVE BEEN COMPLIED WITH. UPON ANY CONSOLIDATION OR MERGER, OR ANY CONVEYANCE, TRANSFER OR LEASE OF SUBSTANTIALLY ALL THE ASSETS OF OBLIGOR AS AN ENTIRETY IN ACCORDANCE WITH THIS SECTION 14(c), THE SUCCESSOR CORPORATION FORMED BY SUCH CONSOLIDATION OR INTO WHICH OBLIGOR IS MERGED OR TO WHICH SUCH CONVEYANCE, TRANSFER OR LEASE IS MADE 18 19 SHALL SUCCEED TO, AND BE SUBSTITUTED FOR (BUT WITHOUT RELEASE OF OBLIGOR TO THE EXTENT THE PROVISION TO CLAUSE (I) ABOVE IS APPLICABLE), AND MAY EXERCISE EVERY RIGHT AND POWER OF, OBLIGOR UNDER THIS EQUIPMENT AGREEMENT WITH THE SAME EFFECT AS IF SUCH SUCCESSOR CORPORATION HAD BEEN NAMED AS A OBLIGOR HEREIN. FOR PURPOSES OF THIS SECTION 14(c) "TANGIBLE NET WORTH" MEANS THE TOTAL OF THE PAR VALUE OF COMMON STOCK AND ANY CLASS OR SERIES OF PREFERRED STOCK (AFTER DEDUCTION FOR TREASURY STOCK), ADDITIONAL PAID-IN CAPITAL, GENERAL CONTINGENCY RESERVES AND RETAINED EARNINGS OR DEFICIT, DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, MINUS THE FOLLOWING ITEMS (WITHOUT DUPLICATION OF DEDUCTIONS), IF ANY, APPEARING ON THE BALANCE SHEET: (I) THE BOOK VALUE OF ALL ASSETS (INCLUDING, WITHOUT LIMITATION, GOODWILL) WHICH WOULD BE TREATED AS INTANGIBLES UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; AND (II) ANY WRITE-UP IN THE BOOK AMOUNT OF ANY EXISTING ASSET RESULTING FROM A RE-EVALUATION THEREOF FROM THE BOOK AMOUNT ENTERED UPON ACQUISITION IN EXCESS OF THAT PERMITTED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. 15. LIENS. Obligor will not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to (i) the Equipment or any part or Item thereof, Obligee's interest therein, or (ii) any of Obligee's interests in, to or under this Agreement, except any Lien granted or placed thereon by Obligee or any Assignee. Obligor, at its own expense, will promptly pay, satisfy and otherwise take such actions as may be necessary to keep this Agreement and the Equipment free and clear of, and to duly discharge or eliminate or bond in a manner satisfactory to Obligee and each Assignee, any such Lien not excepted above if the same shall arise at any time. Obligor will notify Obligee and each Assignee in writing promptly upon becoming aware of any tax or other Lien (other than any lien excepted above) that shall attach to the Equipment or any Item of Equipment, and of the full particulars thereof. 16. LOSS, DAMAGE OR DESTRUCTION. (a) RISK OF LOSS, DAMAGE OR DESTRUCTION. Obligor hereby assumes all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to each Item of Equipment, however caused or occasioned, such risk to be borne by Obligor with respect to each Item of Equipment from the date of this Agreement, and continuing until such Item of Equipment has been delivered to Obligee in accordance with the provisions of Section 6 hereof or Obligee's interest therein has been purchased by Obligor in accordance with the provisions of Section 28 hereof. Obligor agrees that no occurrence specified in the preceding sentence shall impair, in whole or in part, any obligation of Obligor under this Agreement, including, without limitation, the obligation to pay Basic Payments. 19 20 (b) PAYMENT OF CASUALTY LOSS VALUE UPON AN EVENT OF LOSS. If an Event of Loss occurs with respect to an Item of Equipment during the Term thereof, Obligor shall give Obligee prompt written notice thereof and shall pay to Obligee on the Casualty Loss Value Payment Date next following the date of such Event of Loss (or on the last day of the Term if there is no succeeding Casualty Loss Value Payment Date) the sum of (i) all unpaid Basic Payments payable for such Item of Equipment for any Payment Period prior to the Payment Period in which the Event of Loss has occurred, plus (ii) (x) if Basic Payments for such Item of Equipment are payable in advance, the Casualty Loss Value of such Item of Equipment determined as of the Casualty Loss Value Payment Date next preceding or coincident with the date of such Event of Loss, plus the Basic Payment payable for such Item for the Payment Period in which such Event of Loss has occurred if such Basic Payment was not paid on the Payment Date therefor, or (y) if Basic Payments for such Item are payable in arrears, the Casualty Loss Value of such Item of Equipment determined as of the Casualty Loss Value Payment Date next following the date of such Event of Loss, plus the Basic Payment payable for such Item of Equipment for the Payment Period in which such Event of Loss has occurred if such Casualty Loss Value Payment Date for such Item is a Payment Date, plus (iii) all other Supplemental Payments due for such Item of Equipment as of the date of payment of the amounts specified in the foregoing clauses (i) and (ii), for such Item determined as of the Casualty Loss Value Payment Date. Any payments received at any time by Obligee or by Obligor from any insurer or other party (except Obligor) as a result of the occurrence of such Event of Loss will be applied in reduction of Obligor's obligation to pay the foregoing amounts, if not already paid by Obligor, or, if already paid by Obligor, will be applied to reimburse Obligor for its payment of such amount, unless an Event of Default shall have occurred and be continuing. Upon payment in full of such Casualty Loss Value, Basic Payments and Supplemental Payments, (A) the obligation of Obligor to make Basic Payments hereunder with respect to such Item of Equipment shall terminate and the Term of such Item shall terminate, and (B) Obligor shall, as agent for Obligee, as soon as practicable, dispose of such Item or Items of Equipment in a manner reasonably acceptable to Obligee. (c) APPLICATION OF BASIC PAYMENTS NOT RELATING TO AN EVENT OF LOSS. Any payments (including, without limitation, insurance proceeds) received at any time by Obligee or Obligor from any governmental authority or other party with respect to any loss or damage to any Item or Items of Equipment not constituting an Event of Loss, will be applied directly in payment of repairs or for replacement of property in accordance with the provisions of Section 11 and 12 hereof, if not already paid by Obligor, or if already paid by Obligor and no Event of Default shall have occurred and be continuing, shall be applied to reimburse Obligor for such payment, and any balance remaining after compliance with the provisions of said Sections with respect to such loss or damage shall be retained by Obligor. 20 21 17. INSURANCE. Obligor will cause to be carried and maintained, at its sole expense, with respect to the Equipment at all times during the Term thereof and until the Equipment has been delivered to Obligee (a) physical damage insurance insuring against all risks of physical loss or damage to the Equipment, in an amount not less than the greater of the Casualty Loss Value of the Equipment or the replacement value of the Equipment, and (b) comprehensive insurance against general liability for bodily injury, death and property damage resulting from the use and operation of the Equipment in an amount not less than $10,000,000 per occurrence, in each case with exclusions and deductibles acceptable to Obligee and no greater than those applicable to insurance on similar equipment owned or operated by Obligor, and (c) contractor's pollution liability insurance in an amount not less than $7,500,000 per occurrence or such higher amount as Obligee may, at any time reasonably request, in each case with exclusions and deductibles acceptable to Obligee and no greater than those applicable to insurance on similar equipment owned or operated by Obligor. Such insurance policy or policies will name Obligee and each Assignee as the loss payees, as their interests may appear, on all policies referred to in clause (a) of the preceding sentence, and will name Obligee and each Assignee as additional insureds on all policies referred to in clause (b) of the preceding sentence. Such policies will provide that the same may not be invalidated against Obligee or any Assignee by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Obligor, that the policies may be cancelled or materially altered or reduced in coverage (except as otherwise permitted under the terms of this Agreement) by the insurer only after thirty (30) days' prior written notice to Obligee and each Assignee, and that the insurer will give written notice to Obligee and each Assignee in the event of nonpayment of premium by Obligor when due. The policies of insurance required under this Section shall be valid and enforceable policies issued by insurers of recognized responsibility acceptable to Obligee and each Assignee and authorized to do an insurance business in the state in which each Item of Equipment is located. In the event that any of such policies referred to in clause (b) of the first sentence of this Section shall now or hereafter provide coverage on a "claims-made" basis, Obligor shall continue to maintain such policies in effect for a period of not less than three (3) years after the expiration of the Term of the last Item of Equipment under this Agreement. Upon the execution of this Agreement and thereafter not less than thirty (30) days prior to the expiration dates of any expiring policies theretofore furnished under this Section, certificates of the insurance coverage required by this Section and, if requested by Obligee or any Assignee, copies of the policies evidencing such insurance coverage, shall be delivered by Obligor to Obligee and each other named loss payee and/or additional insured. Any certificate of insurance issued with respect to a blanket policy covering other equipment not subject to this Agreement shall specifically describe the Equipment as being included therein and covered thereby to the 21 22 full extent of the coverages and amounts required hereunder. If Obligor shall fail to cause the insurance required under this Section to be carried and maintained, Obligee or any Assignee may provide such insurance and Obligor shall reimburse Obligee or any such Assignee, as the case may be, upon demand for the cost thereof as a Supplemental Payment hereunder. 18. GENERAL TAX INDEMNITY. Obligor agrees to pay, defend and indemnify and hold Obligee, each Assignee and their respective successors and assigns harmless on an after-tax basis from any and all Federal, state, local and foreign taxes, fees, withholdings, levies, imposts, duties, assessments and charges of any kind and nature whatsoever, together with any penalties, fines or interest thereon (herein called "taxes or other impositions") howsoever imposed, whether levied or imposed upon or asserted against Obligee, any Assignee, Obligor, the Equipment, any Item of Equipment, or any part thereof, by any Federal, state or local government or taxing authority in the United States, or by any taxing authority or governmental subdivision of a foreign country, upon or with respect to (a) the Equipment, or any Item of Equipment or any part thereof, (b) the manufacture, construction, ordering, purchase, ownership, delivery, financing, leasing, subleasing, re-leasing, possession, use, maintenance, registration, re-registration, titling, re-titling, licensing, documentation, delivery, repossession, sale or other application or disposition of the Equipment, or any Item of Equipment or any part thereof, (c) the rentals, receipts or earnings arising from the Equipment or any Item of Equipment or any part thereof, or (d) this Agreement, each other Obligor Document, the Basic Payments and/or Supplemental Payments payable by Obligor hereunder and any amounts payable by Obligor under any other Obligor Document; provided, however, that the foregoing indemnity shall not apply to any taxes or other impositions based upon or measured solely by Obligee's or any Assignee's net income, and which are imposed or levied by any Federal, state or local taxing authority in the United States. Obligor will promptly notify Obligee of all reports or returns required to be made with respect to any tax or other imposition with respect to which Obligor is required to indemnify hereunder, and will promptly provide Obligee with all information necessary for the making and timely filing of such reports or returns by Obligee. Obligor will prepare and file the same if permitted by applicable law to file the same, or if not so permitted, Obligor shall prepare such reports or returns for signature by Obligee, and shall forward the same, together with immediately available funds for payment of any tax or other imposition due, to Obligee, at least ten (10) days in advance of the date such payment is to be made. Upon written request, Obligor shall furnish Obligee with copies of all paid receipts or other appropriate evidence of payment for all taxes or other impositions paid by Obligor pursuant to this Section 18. All of the indemnities contained in this Section 18 shall continue in full force and effect notwithstanding the expiration or earlier termination of this Agreement in whole or in part, including the expiration or 22 23 termination of the Term with respect to any Item (or all) of the Equipment, and are expressly made for the benefit of, and shall be enforceable by, Obligee and each Assignee. 19. INDEMNIFICATION. (a) Obligor hereby assumes liability for, and does hereby agree to indemnify, protect, save, defend, and hold harmless Obligee, each Assignee, and their respective officers, directors, stockholders, successors, assigns, agents and servants (each such party being herein, for purposes of this Section 19, called an "indemnified party") on an after-tax basis from and against any and all obligations, fees, liabilities, losses, damages, penalties, claims, demands, actions, suits, judgments, costs and expenses, including legal expenses, of every kind and nature whatsoever, imposed on, incurred by, or asserted against any indemnified party, in any way relating to or arising out of (i) the manufacture, construction, ordering, purchase, acceptance or rejection, ownership, titling or retitling, registration or re-registration, delivery, financing, leasing, subleasing, re-leasing, possession (other than by Obligee or any Assignee), use (other than by Obligee or any Assignee), operation (other than by Obligee or any Assignee), storage, removal, delivery, return, repossession, sale or other disposition of the Equipment or any Item of Equipment, or any part thereof, including, without limitation, any of such as may arise from (A) loss or damage to any property or death or injury to any persons, (B) patent or latent defects in the Equipment (whether or not discoverable by Obligor or any indemnified party), (C) any claims based on absolute or strict liability in tort, (D) any claims based on patent, trademark, tradename or copyright infringement; or (ii) any failure on the part of Obligor to perform or comply with any of the terms of this Agreement or any other Obligor Document, and (E) any towing charges, parking tolls, fines, parking and speeding tickets, odometer certifications and other civil and criminal motor vehicle violations with respect to any such Item; and all penalties and interest applicable to any of the foregoing, except as set forth in the exception to Section 23(a) hereof in the case of any repossession of the Equipment. Obligor shall give each indemnified party prompt notice of any occurrence, event or condition known to Obligor as a consequence of which any indemnified party may be entitled to indemnification hereunder. Obligor shall forthwith upon demand of any such indemnified party reimburse such indemnified party for amounts expended by it in connection with any of the foregoing or pay such amounts directly. Obligor shall be subrogated to an indemnified party's rights in any matter with respect to which Obligor has actually reimbursed such indemnified party for amounts expended by it or has actually paid such amounts directly pursuant to this Section 19. In case any action, suit or proceeding is brought against any indemnified party in connection with any claim indemnified against hereunder, such indemnified party will, promptly after receipt of notice of the commencement of such action, suit or proceeding, notify Obligor thereof, 23 24 enclosing a copy of all papers served upon such indemnified party, but failure to give such notice or to enclose such papers shall not relieve Obligor from any liability hereunder. Obligor may, and upon such indemnified party's request will, at Obligor's expense, resist and defend such action, suit or proceeding, or cause the same to be resisted or defended by counsel selected by Obligor and reasonably satisfactory to such indemnified party and in the event of any failure by Obligor to do so, Obligor shall pay all costs and expenses (including, without limitation, attorney's fees and expenses) incurred by such indemnified party in connection with such action, suit or proceeding. (b) To the full extent permitted by applicable law, the Obligor hereby agrees to defend, indemnify and hold harmless the Obligee, any Assignee and each of their respective affiliates and directors, officers, employees and agents from and against any and all loss, cost, expense or liability (including all costs of legal representation and all fines or penalties) incurred in connection with any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any Hazardous Material located upon or migrating into, from or through the property of the Obligor (including without limitation, the Equipment)(whether or not the release of such Hazardous Materials was caused by any of such Persons, a tenant or subtenant or a prior owner or tenant on any such property and whether or not the alleged liability is attributable to the handling, storage, generation, remediation, transportation or disposal of such substance or the mere presence of the substance on any such property), which any such indemnified party may incur due to acquisition of its interest in the Equipment, the financing of the Equipment for Obligor, the exercise of any of its rights under this Agreement (except, in the event of any foreclosure upon and repossession of the Equipment, to the extent caused by the gross negligence or willful misconduct of Obligee or its agents), or otherwise, including without limitation, any loss, cost, expense or liability relating to (i) any Release or threatened Release of any Hazardous Material at a Site (other than a release which is permitted pursuant to applicable Environmental Laws), (ii) any violation of any Environmental Laws with respect to conditions at a Site or the operations conducted thereon, or (iii) the investigation or remediation of offsite locations at which Obligor or its predecessors are alleged to have directly or indirectly Disposed of Hazardous Materials from a Site. (c) The provisions of this Section 19, and the obligations of Obligor under this Section 19, shall apply from the date of the execution of this Agreement notwithstanding that the Term may not have commenced with respect to any Item of Equipment, and shall survive and continue in full force and effect notwithstanding the expiration or earlier termination of this Agreement in whole or in part, including the expiration of 24 25 termination of the Term with respect to any Item (or all) of the Equipment and any foreclosure or any modification, release or discharge or any or all of the obligations of Obligor under this Agreement, and are expressly made for the benefit of, and shall be enforceable by, each indemnified Person. 20. NO WARRANTIES. OBLIGEE HEREBY FINANCES THE EQUIPMENT FOR OBLIGOR AS-IS AND OBLIGEE EXPRESSLY DISCLAIMS AND MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY, MERCHANTABILITY, DURABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR ANY OTHER MATTER CONCERNING, THE EQUIPMENT. OBLIGOR HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR INFRINGEMENT) IT MIGHT HAVE AGAINST OBLIGEE FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY OBLIGOR'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER, INCLUDING COMPLIANCE WITH ENVIRONMENTAL LAWS. So long and only so long as an Event of Default shall not have occurred and be continuing, and so long and only so long as the Equipment shall be subject to this Agreement and Obligor shall be entitled to possession of the Equipment hereunder, Obligee authorizes Obligor, at Obligor's expense, to assert for Obligee's account, all rights and powers of Obligee under any manufacturer's, vendor's or dealer's warranty on the Equipment or any part thereof; provided, however, that Obligor shall indemnify, protect, save, defend and hold harmless Obligee from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by Obligee in connection therewith, as a result of, or incident to, any action by Obligor pursuant to the foregoing authorization. 21. OBLIGOR'S REPRESENTATIONS AND WARRANTIES. Obligor hereby represents and warrants that (a) Obligor is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation set forth above, and is qualified to do business in, and is in good standing in, each state or other jurisdiction in which the nature of its business makes such qualification necessary (including each state or other jurisdiction in which the Equipment or any part thereof will be located); (b) Obligor has the corporate power and authority to execute and perform this Agreement and each other Obligor Document and to finance the Equipment hereunder and thereunder, and has duly authorized the execution, delivery and performance of this Agreement and each other Obligor Document; (c) the financing of the Equipment by Obligee for Obligor, the execution and delivery of this Agreement and each other Obligor Document, and the compliance by the Obligor with the terms hereof and thereof, and the payments and performance by Obligor of all of its obligations hereunder and thereunder (i) have been duly and legally authorized by appropriate corporate action taken by Obligor, (ii) are not in contravention of, and will not result in a violation or breach of, any of the terms of Obligor's Certificate of Incorporation (or equivalent document), its 25 26 By-Laws, or of any provisions relating to shares of the capital stock of Obligor, and (iii) will not violate or constitute a breach of any provision of law, any order of any court or other agency of government, or any indenture, agreement or other instrument to which Obligor is a party, or by or under which Obligor or any of Obligor's property is bound, or be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or instrument, or result in the creation or imposition of any Lien upon any of Obligor's property or assets; (d) this Agreement and each other Obligor Document have each been executed by the duly authorized officer or officers of Obligor and delivered to Obligee and constitutes, and when executed by the duly authorized officer or officers of Obligor and delivered to Obligee each Supplement and related instruments, documents and agreements with respect to each Item of Equipment will constitute, the legal, valid and binding obligations of Obligor, enforceable in accordance with their terms; (e) neither the execution and delivery of this Agreement or any other Obligor Document by Obligor, nor the payment and performance by Obligor of all of its obligations hereunder and thereunder, requires the consent or approval of, the giving of notice to, or the registration, filing or recording with, or the taking of any other action in respect of, any Federal, state, local or foreign government or governmental authority or agency or any other Person, other than the filings referred to in Section 26 of this Agreement, or if required, such consent has been obtained and forwarded to Obligee; (f) no mortgage, deed of trust, or other Lien which now covers or affects, or which may hereafter cover or affect, any property or interest therein of Obligor, now attaches or hereafter will attach to the Equipment or any Item of the Equipment, the proceeds thereof or this Agreement, or in any manner affects or will affect adversely Obligee's rights and security interest therein; (g) Obligor holds all licenses, certificates and permits from governmental authorities necessary to use and operate the Equipment in accordance with the provisions of this Agreement; (h) except as disclosed in Guarantor's report on Form 10Q for the quarter ended September 30, 1996, there is no litigation or other proceeding now pending or, to the best of Obligor's knowledge, threatened, against or affecting the Obligor, in any court or before any regulatory commission, board or other administrative governmental agency which would directly or indirectly adversely affect or impair Obligee's rights and security interest in and to the Equipment, or which, if decided adversely to Obligor, would have a material adverse effect on the financial condition or operations of Obligor taken as a whole; (i) all balance sheets, statements of profit and loss and other financial data that have been delivered to Obligee with respect to Obligor (x) are complete and correct in all material respects, (y) accurately present the financial condition of Obligor on the dates for which, and the results of its operations for the periods for which, the same have been furnished, and (z) have been prepared in accordance with generally accepted accounting principles consistently followed 26 27 throughout the periods covered thereby; and there has been no material adverse change in the condition of Obligor, financial or otherwise, since the date of the most recent financial statements delivered to Obligee with respect to Obligor, (j) Obligor holds all licenses, certificates and permits (including any applicable environmental permits) from governmental authorities necessary to use and operate the Equipment in accordance with the provisions of this Agreement; (k) Obligor is in compliance in all material respects with all applicable laws, rules, regulations and orders, including, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges and liens imposed upon it or upon its property except to the extent contested in good faith and by appropriate proceedings; (l)(i) without limiting the generality of the foregoing, the retention of possession by Obligor of any Item of Equipment to be subject to this Equipment Agreement, following the transfer of an interest therein to Obligee, shall not be deemed fraudulent or void as against any present or future creditor of the Obligor under the laws of the states where such Item will, at the time of such transfer of an interest, be located, nor would any subsequent bona fide purchaser from the Obligor of such Item, in the event of any attempted subsequent sale thereof by the Obligor, acquire any title to or rights therein superior to Obligee's interest and rights therein, and (ii) payment in full has been made by Obligor for each Item of Equipment to the original seller thereof; (m) Obligor is in compliance in all material respects with all Environmental Laws and health and safety statutes and regulations; (n) there are no material governmental investigations of the environmental matters of Obligor; (o) there are no contingent liabilities which could reasonably be expected to have a material adverse effect on the financial condition or operations of Obligor taken as a whole; and (p) the transactions set forth herein and contemplated hereby shall not subject the Obligee or any of its affiliates or properties to any Environmental Law (including without limitation, any cleanup responsibility law or restrictive transfer law or regulation). 22. EVENTS OF DEFAULT. Any of the following events shall constitute an Event of Default: (a) Obligor shall fail to make any Basic Payment or any Supplemental Payment, or any payment under any other Obligor Document, within five (5) days after the same is due and payable; or (b) Obligor shall fail to observe or perform any of the covenants, agreements or obligations of Obligor set forth in any other Obligor Document or Section 6, the first, third and fifth sentences of Section 10, Section 10A, the last sentence of Section 12(a), or Sections 14(a), 14(c), 15, 17, 28 or 29 hereof; or 27 28 (c) Obligor or Guarantor shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under this Agreement or the Guaranty, and such failure shall continue unremedied for thirty (30) days after written notice to Obligor specifying such failure and demanding the same to be remedied; or (d) Obligor (or Guarantor) shall be in default (i) under any lease, loan agreement or other agreement, instrument or document heretofore, now or hereafter entered into between Obligor or Guarantor and Obligee, or in any material respect, under any lease, loan agreement or other agreement, instrument or document heretofore, now or hereafter entered into between Obligor or Guarantor and any parent, subsidiary or affiliate of Obligee, and such default shall have been declared by the party entitled to declare the same, or (ii) under any promissory note heretofore, now or hereafter executed by Obligor or Guarantor and delivered to any party referred to in clause (i) above evidencing a loan made by any such party to Obligor or Guarantor; or any obligation of Obligor or Guarantor to any Person (other than Obligee, or any parent, subsidiary or affiliate of Obligee, and other than Guarantor) in excess of $1,000,000 relating to the payment of borrowed money or the payment of rent or hire under any lease agreement, shall be declared to be due and payable or otherwise accelerated prior to the maturity thereof by reason of a default in payment or performance by Obligor; or an attachment or other Lien shall be filed or levied against a substantial part of the property of Obligor or Guarantor, and such judgment shall continue unstayed and in effect, or such attachment or Lien shall continue undischarged or unbonded, for a period of 30 days; or (e) Obligor or Guarantor shall become insolvent or make an assignment for the benefit of creditors or consent to the appointment of a trustee or receiver; or a trustee or a receiver shall be appointed for Obligor or for Guarantor or for a substantial part of its property without its consent and shall not be dismissed for a period of 60 days; or any petition for the relief, reorganization or arrangement of Obligor or Guarantor, or any other petition in bankruptcy or for the liquidation, insolvency or dissolution of Obligor or Guarantor, shall be filed by or against Obligor or Guarantor and, if filed against Obligor or Guarantor, shall be consented to or be pending and not dismissed for a period of 60 days, or an order for relief under any bankruptcy or insolvency law shall be entered by any court or governmental authority of competent jurisdiction with respect to Obligor or Guarantor; or any execution or writ or process shall be issued under any action or proceeding against Obligor whereby any of the Equipment may be taken or restrained; or Obligor's or Guarantor's corporate existence shall cease; or Obligor or Guarantor shall (whether in one transaction or a series of transactions), sell, transfer, dispose of, pledge or otherwise encumber, all or substantially all of its assets or property, or consolidate or merge with any other entity, or become the subject of, or engage in, a leveraged buy-out or any other form of 28 29 corporate reorganization, except in accordance with Section 14(c) and the Guaranty; or (f) any representation, warranty, statement or certification made by Obligor under this Agreement or in any Supplement or in any document or certificate furnished Obligee or any Assignee in connection herewith or pursuant hereto (or made by any Guarantor under any Guaranty or other document or certificate furnished to Obligee or any Assignee by any Guarantor), shall prove to be untrue or incorrect in any material respect when made, or shall be breached in any material respect; or (g) any Lien purported to be created hereunder or by the Supplement shall cease to be a valid and perfected first priority lien in the Equipment (except, in the case of Equipment subject to motor vehicle titling laws and only before the Basic Term Commencement Date, in respect of any failure to provide a certificate of title showing Obligee as lienholder); or (h) the Guarantor shall cease to own a majority of the issued and outstanding shares of capital stock of Obligor; (i) there shall have occurred any event which, in the reasonable judgment of the Obligee, has had a material adverse effect on the properties, executive management (taken as a whole), condition (financial or otherwise), operations or business of the Obligor taken as a whole or of Guarantor taken as a whole, or in Obligee's reasonable opinion, Obligee's interest in the Equipment is materially impaired; or (j) the Guarantor shall repudiate or contest the enforceability of the Guaranty, or the Guaranty shall be unenforceable in whole or in part, or the Guarantor shall fail to perform its obligations under the Guaranty. 23. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing, Obligee may exercise one or more of the following remedies as Obligee in its sole discretion shall elect: (a) Obligee may terminate or cancel this Agreement, without prejudice to any other remedies of Obligee hereunder, with respect to all or any Item of Equipment, and whether or not this Agreement has been so terminated or cancelled, may enter the premises of Obligor or any other party to take immediate possession of the Equipment and remove all or any Item of Equipment by summary proceedings or otherwise, or may cause Obligor, at Obligor's expense, to store, maintain, surrender and deliver possession of the Equipment or such Item in the same manner as provided in Section 6 hereof, all without liability to Obligee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such 29 30 taking or otherwise, except to the extent caused by the gross negligence or willful misconduct of Obligee or its agents; (b) Obligee may hold, keep idle or lease to others the Equipment or any Item of Equipment, as Obligee in its sole discretion may determine, free and clear of any rights of Obligor and without any duty to account to Obligor with respect to such action or inaction or for any proceeds with respect thereto, except that Obligor's obligation to make Basic Payments for any Payment Periods commencing after Obligor shall have been deprived of possession pursuant to this Section 23 shall be reduced by the net proceeds, if any, received by Obligee from leasing the Equipment or such Item to any Person other than Obligor for the same Payment Periods or any portion thereof; (c) Obligee may sell the Equipment or any Item of Equipment at public or private sale as Obligee may determine, free and clear of any rights of Obligor, and Obligor shall pay to Obligee, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Payment due for the Equipment or Item(s) so sold for any Payment Period commencing after the date on which such sale occurs), the sum of (i) all unpaid Basic Payments payable for each Item of Equipment for all Payment Periods through the date on which such sale occurs, plus (ii) an amount equal to the excess, if any, of (x) the Casualty Loss Value of the Equipment or Item(s) so sold, computed as of the Payment Date coincident with or next preceding the date of such sale, over (y) the net proceeds of such sale, plus interest at the rate specified in Section 25 hereof on the amount of such excess from the Payment Date as of which such Casualty Loss Value is computed until the date of actual payment, plus (iii) all unpaid Supplemental Payments due with respect to each Item of Equipment so sold, including a Reinvestment Premium, computed as of the Payment Date coincident with or next preceding the date of such sale; and (d) whether or not Obligee shall have exercised, or shall thereafter at any time exercise, any of its rights under subsection (a) or (b) above with respect to any Item(s) of Equipment, Obligee, by written notice to Obligor specifying a payment date, may demand that Obligor pay to Obligee, and Obligor shall pay to Obligee, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Payment due for any Item(s) of Equipment for any Payment Period commencing after the payment date specified in such notice and in lieu of the exercise by Obligee of its remedies under subsection (b) above in the case of a re-lease of such Item(s) or under subsection (c) above with respect to a sale of such Item(s)), the sum of (i) all unpaid Basic Payments payable for such Item(s) for all Payment Periods through the payment date specified in such notice, plus (ii) all unpaid Supplemental Payments due with respect to such Item(s) as of the payment date specified in such notice, including a Reinvestment Premium computed as of the payment date specified in 30 31 such notice, plus (iii) an amount, with respect to each such Item, equal to the Casualty Loss Value of such Item(s) computed as of the Payment Date coincident with or next preceding the payment date specified in such notice; provided, however, that in the event of a sale of any such Item(s) delivered to or repossessed by Obligee, if Obligor has paid in full the amounts described in this paragraph Obligee shall refund to Obligor the aggregate Net Proceeds of Sale of such Item(s) of Equipment as defined in Section 29(d)(ii); and (e) Obligee may exercise any other right or remedy which may be available to it under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Agreement. At any sale pursuant to this Section 23, the purchaser shall take the Equipment free and clear of all rights and interest of Obligor in the Equipment. In addition, Obligor shall be liable for all costs and expenses, including attorney's fees, incurred by Obligee or any Assignee by reason of the occurrence of any Event of Default or the exercise of Obligee's remedies with respect thereto, including all costs and expenses incurred in connection with the delivery of the Equipment in accordance with Section 6 hereof or in placing the Equipment in the condition required by said Section including, without limitation, decontamination expenses. Except as otherwise expressly provided above, no remedy referred to in this Section 23 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Obligee at law or in equity; and the exercise or beginning of exercise by Obligee of any one or more of such remedies shall not constitute the exclusive election of such remedies and shall not preclude the simultaneous or later exercise by Obligee of any or all of such other remedies. No express or implied waiver by Obligee of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. To the extent permitted by applicable law, Obligor hereby waives any rights now or hereafter conferred by statute or otherwise which may require Obligee to sell, lease or otherwise use the Equipment in mitigation of Obligee's damages as set forth in this Section or which may otherwise limit or modify any of Obligee's rights and remedies in this Section 23. 24. OBLIGEE'S RIGHT TO PERFORM FOR OBLIGOR. If Obligor fails to make any Supplemental Payment required to be made by it hereunder or fails to perform or comply with any of its agreements contained herein, Obligee may itself, after notice to Obligor, make such payment or perform or comply with such agreement, and the amount of such payment and the amount of the reasonable expenses of Obligee incurred in connection with such payment or the performance of or compliance with such agreement, 31 32 as the case may be, together with interest thereon at the rate specified in Section 25 hereof, shall, if not paid by Obligor to Obligee on demand, be deemed a Supplemental Payment hereunder; PROVIDED, HOWEVER, that no such payment, performance or compliance by Obligee shall be deemed to cure any Event of Default hereunder. 25. LATE CHARGES. Obligor shall pay to Obligee, upon demand interest on any Basic Payment not paid when due, and on any Supplemental Payment or other amount payable under this Agreement which is not paid when due, for any period for which any of the same is overdue (without regard to any grace period) at a rate equal to the lesser of (a) nine and 76/100 percent (9.76%) per annum, or (b) the maximum rate of interest permitted by law. 26. FURTHER ASSURANCES. Obligor will promptly and duly execute and deliver to Obligee and any Assignee such other documents and assurances, including, without limitation, such amendments to this Agreement as may be reasonably required by Obligee and by any Assignee, and Uniform Commercial Code financing statements and continuation statements (it being understood and agreed that such financing statements and continuation statements will not be requested for a jurisdiction other than those in which the chief executive office of the Obligor is located or a jurisdiction in which a mobile filter press is located), and will take such further action as Obligee or any Assignee may from time to time reasonably request in order to carry out more effectively the intent and purposes of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of Obligee and of any Assignee and their respective rights and interests in and to the Equipment. 27. NOTICES. All notices provided for or required under the terms and provisions hereof shall be in writing, and any such notice shall be deemed given when personally delivered or when deposited in the United States mails, with proper postage prepaid, for first class certified mail, return receipt requested, addressed (i) if to Obligee or Obligor, at their respective addresses as set forth herein or at such other address as either of them shall, from time to time, designate in writing to the other, and (ii) if to any Assignee, to the address of such Assignee as such Assignee shall designate in writing to Obligee and Obligor. 28. OBLIGOR'S RENEWAL AND PURCHASE OPTIONS; THIRD PARTY SALE. (a) OBLIGOR'S RENEWAL OPTION. If (i) no Event of Default shall have occurred and be continuing and (ii) this Agreement shall not have been earlier terminated, Obligor shall be entitled, at its option, to renew this Agreement with respect to all, but not less than all, Items of Equipment then subject to 32 33 this Agreement for the Renewal Term(s) specified on the Related Exhibit A for such Item. The first Renewal Term with respect to each such Item of Equipment will commence at the expiration of the Basic Term of such Item, and each succeeding Renewal Term will commence at the expiration of the next preceding Renewal Term. All of the provisions of this Agreement, including the Basic Payment Percentage, shall be applicable during each Renewal Term for each such Item of Equipment, except that Basic Payments during each Renewal Term shall be payable at the times and on the Payment Dates set forth on said Related Exhibit A. If Obligor intends not to exercise said renewal option with respect to any of said Renewal Terms, Obligor shall give written notice to Obligee to such effect at least one hundred eighty (180) days prior to the expiration of the Basic Term of the Item(s) of Equipment whose Basic Term first expires hereunder, in the case of the first Renewal Term, and at least one hundred eighty (180) days prior to the expiration of the then current Renewal Term of the Item(s) of Equipment whose Basic Term first expires hereunder, in the case of the then next succeeding Renewal Term. If Obligor fails to give such written notice to Obligee with respect to any of said Renewal Terms, it shall be conclusively presumed that Obligor has elected to exercise said renewal option with respect to said Renewal Term. In the event Obligor elects not to exercise said renewal option (unless Obligee has otherwise agreed in writing or Obligor has exercised its purchase option under Section 28(b) hereof) each such Item of Equipment shall be delivered to Obligee in accordance with the provisions of Section 6(a) hereof (unless delivered to a bidder in accordance with Section 28(c) hereof) and until each such Item has been so delivered Obligor shall continue to pay Obligee the Basic Payments for each such Item as specified in Section 6(b) hereof. (b) OBLIGOR'S PURCHASE OPTION. If (i) no Event of Default shall have occurred and be continuing, and (ii) this Agreement shall not have been earlier terminated, Obligor shall be entitled, at its option, upon written notice to Obligee, as hereinafter provided, to purchase Obligee's interest in all, but not less than all, Items of Equipment then subject to this Agreement, on the Termination Date for each such Item of Equipment, for an amount (the "Purchase Option Amount"), with respect to each Item of Equipment, payable in immediately available funds, equal to the sum of (w) the Estimated Residual Value of such Item of Equipment applicable to the Basic Term or Renewal Term thereof then ending, plus (x) the Basic Payment due and payable for such Item of Equipment on the Termination Date, if Basic Payments for such Item are payable in arrears, plus (y) any applicable sales, excise or other taxes imposed as a result of such sale (other than gross or net income taxes attributable to such sale), plus (z) any Supplemental Payments then due and owing to Obligee hereunder including, in the event that Obligor exercises its purchase option hereunder prior to the end of the Maximum Term, the Reinvestment Premium. Obligee's sale of its interest in each Item of Equipment shall be on an as-is, where-is basis, without any representation or warranty by, or recourse to, 33 34 Obligee. If Obligor intends to exercise said purchase option, Obligor shall give written notice to Obligee to such effect at least one hundred eighty (180) days prior to the expiration of the Basic Term of the Item(s) of Equipment whose Basic Term first expires hereunder, or, if Obligor has renewed this Agreement pursuant to Section 28(a) hereof, then at least one hundred eighty (180) days prior to the expiration of the then current Renewal Term of the Item(s) of Equipment whose Basic Term first expires hereunder. If Obligor gives such written notice to Obligee same shall constitute a binding obligation of Obligor to purchase Obligee's interest in all of such Items of Equipment and to pay Obligee the Purchase Option Amount on the Termination Date thereof. (c) THIRD PARTY SALE OF EQUIPMENT. (i) REMARKETING OBLIGATIONS. In the event Obligor does not exercise either its option to renew this Agreement or to purchase Obligee's interest in the Equipment pursuant to this Section, then Obligor shall have the obligation during the last one hundred eighty (180) days of the Basic Term, or the then current Renewal Term, if applicable (the "Remarketing Period"), to obtain bona fide bids for Obligee's interest in not less than all Items of Equipment then subject to this Agreement from prospective purchasers who are financially capable of purchasing such interest for cash on an as-is, where-is basis, without recourse or warranty. All bids received by Obligor prior to the end of the Basic Term, or Renewal Term if applicable, of such Item(s) of Equipment shall be immediately certified to Obligee in writing, setting forth the amount of such bid and the name and address of the person or entity submitting such bid. Notwithstanding the foregoing, Obligee shall have the right, but not the obligation, to seek bids for its interest in the Equipment during the Remarketing Period. (ii) SALE OF OBLIGEE'S INTEREST IN THE EQUIPMENT TO THIRD PARTY BUYER. On the Termination Date, provided that all the conditions hereof have been met, Obligee shall sell (or cause to be sold) its interest in all Items of Equipment then subject to this Agreement, for cash to the bidder, if any, who shall have submitted the highest bid during the Remarketing Period on an as-is, where-is basis and without recourse or warranty, and upon receipt by Obligee of the sales price Obligee shall instruct Obligor to deliver and Obligor shall deliver such Item(s) of Equipment to such bidder; PROVIDED, that (x) any such sale to a third party shall be consummated, and the sales price for Obligee's interest in such Item shall be paid to Obligee in immediately available funds, on or before the Termination Date; and (y) Obligee shall not be obligated to sell its interest in such Equipment (I) if the Net Proceeds of Sale of its interest in such Item(s) is less than the aggregate Maximum Obligee Risk Amount applicable to such Item(s) as of the Termination Date or (II) if Obligee has not received the amounts, if any, payable by Obligor pursuant to Section 29(a) and, if applicable, Section 34 35 29(c). Such third party purchaser shall take the Equipment free and clear of all rights and interest of Obligor in the Equipment. 29. END OF TERM ADJUSTMENT. (a) THIRD PARTY SALE OF EQUIPMENT. This Section 29(a) shall apply only if, with respect to any Item(s) of Equipment, a sale of Obligee's interest in such Item(s) to a third party pursuant to Section 28(c) hereof has been consummated on the Termination Date. If the Net Proceeds of Sale of Obligee's interest in such Item(s) is less than the aggregate Estimated Residual Value of such Item(s) as of such Termination Date, Obligor shall, on the Termination Date, pay to Obligee as an End of Term Adjustment, in immediately available funds, an amount equal to such deficiency (a "Deficiency") as an adjustment to the Basic Payments payable under this Agreement for such Item, plus the Basic Payment due and payable for such Item(s) of Equipment on the Termination Date, if Basic Payments for such Item(s) are payable in arrears, plus any Supplemental Payments then due and owing to Obligee hereunder; PROVIDED, HOWEVER, that if no Event of Default or event which, with notice or passage of time or both would constitute an Event of Default, shall have occurred and be continuing hereunder, the amount of the Deficiency payable by Obligor with respect to such Item(s) shall not exceed the aggregate Maximum Obligor Risk Amount then applicable to such Item(s). If the Net Proceeds of Sale of such Item(s) of Equipment exceeds the aggregate Estimated Residual Value of such Item(s) and if no Event of Default or event which, with notice or passage of time or both would constitute an Event of Default, shall have occurred and be continuing hereunder and Obligor shall have paid Obligee on or before the Termination Date the Basic Payment due and payable for such Item(s) of Equipment on the Termination Date, if Basic Payments for such Item(s) are payable in arrears, plus all Supplemental Payments then due and owing with respect to such Item(s), plus any amounts due pursuant to Section 29(c) hereof, Obligee shall pay to Obligor an amount equal to such excess as an adjustment to the Basic Payments payable under this Agreement for such Item(s). (b) OBLIGOR PAYMENT. If a sale of Obligee's interest in all Items of Equipment then subject to this Agreement either to the Obligor pursuant to Section 28(b) hereof or to a third party pursuant to Section 28(c) hereof has not been consummated on the Termination Date with respect thereto for any reason, then the Obligor shall, on the Termination Date of such Items, pay to Obligee as an End of Term Adjustment, in immediately available funds, as an adjustment to the Basic Payments payable under this Agreement for such Items, an amount equal to (i) the Maximum Obligor Risk Amount of all of such Items, if on the Termination Date no Event of Default or event which, with notice or passage of time or both would constitute an Event of Default, shall have occurred and be continuing hereunder, or (ii) the Estimated Residual Value of all of such Items, if on the Termination Date an Event of Default or event which, with notice or passage of 35 36 time or both would constitute an Event of Default, shall have occurred and be continuing hereunder, plus, in either case, the Basic Payments due and payable for such Item(s) of Equipment on the Termination Date, if Basic Payments for such Item(s) are payable in arrears, plus all Supplemental Payments then due and owing with respect to such Item(s). Obligor shall remain liable for the payment of, and upon the consummation by Obligee of the sale of Obligee's interest in any Item(s) of Equipment after the Termination Date thereof, Obligor shall pay, or reimburse Obligee for the payment of, any applicable sales, excise or other taxes imposed as a result of such sale, other than gross or net income taxes attributable to such sale, and such obligation shall survive the termination of this Agreement. (c) REINVESTMENT PREMIUM. In the event a Termination Date of any Item of Equipment occurs prior to the last day of the Maximum Term hereof relating to such Item, Obligor shall pay to Obligee on the Termination Date of such Item in immediately available funds, in addition to any other obligations hereunder, the Reinvestment Premium relating to such Item. (d) CERTAIN DEFINITIONS. (i) "END OF TERM ADJUSTMENT" means the amounts payable as adjustments to Basic Payments pursuant to Section 29(a) or, as applicable, 29(b). (ii) "NET PROCEEDS OF SALE" means with respect to each Item of Equipment for which Obligee's interest is sold to a third party pursuant to Section 28(c), the net amount of the proceeds of sale of such interest, after deducting from the gross proceeds of such sale (i) any sales taxes and other taxes (excluding income taxes on or measured by Obligee's income) as may be applicable to the sale or transfer of such interest, (ii) all fees, costs and expenses of such sale incurred by Obligee and (iii) any other amounts for which, if not paid, Obligee would be liable or which, if not paid, would constitute a Lien on such Item. (e) TIME OF THE ESSENCE. The provisions of Sections 28 and 29 are of the essence of this Agreement, and time is of the essence for any payment and performance of the obligations of the Obligor set forth therein. 30. FINANCIAL AND EQUIPMENT INFORMATION. Obligor agrees to furnish Obligee (a) as soon as available and in any event within 90 days after the last day of each fiscal year of Guarantor, (i) a copy of the annual report for such year of Guarantor, containing financial statements for such year certified in an unqualified manner by Ernst & Young (or any successor to such firm) or any other independent public accountants of recognized standing, and (ii) the consolidating balance sheets of Guarantor and Obligor as of the end of such year and the consolidating statement of income of Guarantor and Obligor (and a consolidated 36 37 statement of cash flow for Obligor) for such year, each certified by the chief financial officer or chief accounting officer of Guarantor and as applicable, Obligor and each on a comparative basis with corresponding statements for the prior fiscal year, (ii)(A) as soon as available and in any event within 45 days after the last day of each of the first three fiscal quarters of Guarantor, the consolidated and consolidating balance sheets of Guarantor and Obligor as of the end of each such quarter and a consolidated statement of cash flow and consolidated and consolidating statements of income of Guarantor and Obligor (and a consolidated statement of cash flow for Obligor) for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and (B) as soon as available such other financial statements as may be requested from time to time for any unconsolidated subsidiary of Guarantor or Obligor, each certified by the chief financial officer or chief accounting officer of the Guarantor and as applicable, Obligor, and each on a comparative basis with the corresponding period of the prior year; (c) contemporaneously with its transmittal to each stockholder of Obligor, any such other financial statements and reports as Obligor shall send to its stockholders; (d) as soon as available to Obligor, the notice of any material adjustment resulting from any audit of the books and/or records of Obligor by any taxing authority having jurisdiction over Obligor; and (e) such additional financial information as Obligee may reasonably request concerning Obligor. Obligor agrees to furnish to Obligee: (x) within 45 days after the last day of each fiscal quarter, a listing indicating the location of any Item of Equipment that is a mobile filter press as specified in the Supplement; (y) within 60 days after the end of each calendar year, (I) a good faith estimate as to the then current market value of the Equipment certified by its treasurer or chief financial officer, and (II) a listing of the location of each Item; and (z) at any time, upon the written request of the Obligee, a listing of the then current location of all Items of Equipment. 31. EXPENSES. Obligor agrees, whether or not the transactions contemplated by this Agreement are consummated, to pay (or reimburse Obligee or any Assignee for the payment of) fees for lien searches, filing fees, fees and expenses relating to the titling and registration of any Items of Equipment, and all legal fees and expenses of Obligee (other than such legal fees and expenses relating to the initial preparation of this Agreement) and all reasonable legal fees and expenses of any Assignee, incurred by or on behalf of Obligee or any Assignee in connection with the negotiation and documentation of this Agreement and each other Obligor Document, the Guaranty, the further assurances described herein, and the transactions contemplated hereby and thereby. 32. OWNER FOR INCOME TAX PURPOSES. Obligee agrees that Obligor shall be deemed the owner of the Equipment for federal, 37 38 state and local income tax purposes and that, so long as no Event of Default shall have occurred and be continuing, Obligee shall take no action inconsistent with such ownership for income tax purposes. 33. VOLUNTARY TERMINATION FOR OBSOLESCENCE. So long as no Event of Default shall have occurred and be continuing hereunder, Obligor shall have the right at its option on any Payment Date during the Basic Term or any Renewal Term, on at least ninety (90) days' prior written notice to and with the prior written consent of Obligee (not to be unreasonably withheld), to terminate this Equipment Agreement with respect to any Item of Equipment then subject to this Agreement if, in Obligor's good faith opinion, as evidenced by a certificate of its President, treasurer or chief financial officer, such Item shall have become no longer useful, or surplus, to Obligor in its business, with such termination to be effective on the Payment Date specified in such notice (for purposes of this Section 33, called the "termination date"). During the period from the giving of such notice until the date thirty (30) days prior to the termination date, Obligor, as agent for Obligee, shall use its reasonable efforts (but no less effort than used to sell equipment Obligor owns itself) to secure the highest obtainable bids for the purchase of Obligee's interest in such Item and in the event it receives any bid during such period, Obligor shall promptly certify to Obligee in writing the amount and terms of such bid and the name and address of the party submitting such bid. On the termination date (but in no event prior to Obligee's receipt of the amounts specified in the next succeeding sentence), Obligor shall deliver possession of such Item to the bidder, if any, which shall have submitted the highest bid during such period, and Obligee shall, without recourse or warranty, simultaneously therewith transfer its interest in such Item on an "as-is", "where-is" basis for cash to such bidder. The total transfer price realized at such sale shall be paid to and retained by Obligee and, in addition, on the termination date Obligor shall pay to Obligee the sum of the amounts specified in sub-clauses (i) through (v): (i) the Basic Payment due and payable for such Item on the termination date, plus (ii) all accrued and unpaid Basic Payments owing for such Item for all Payment Periods prior to the Payment Period for which the Basic Payment specified in the preceding sub-clause (i) is payable, plus (iii) the excess, if any, of the Termination Value of such Item as of the Payment Date coincident with the termination date, over the aggregate proceeds of sale of Obligee's interest in such Item, after deducting from such proceeds of sale the expenses incurred by Obligee in connection with such sale, plus (iv) any sales or excise taxes on or measured by such sale, plus (v) all accrued and unpaid Supplemental Payments owing by Obligor as of the termination date, including a Reinvestment Premium for such Item determined as of such termination date. Neither Obligor nor any person, firm or corporation, affiliated with Obligor, may purchase the Equipment, or after any such sale, lease or otherwise utilize the Equipment. If no sale shall have occurred 38 39 on or as of the termination date, this Equipment Agreement (including the provisions of this Section 33) shall continue in full force and effect with respect to the Equipment. In the event of any such sale and the receipt by Obligee of the amounts described above, and upon compliance by Obligor with the provisions of this Section 33, the obligations of Obligor to make Basic Payments hereunder with respect to each item of Equipment so sold shall cease for any Payment Period that commences on or after the termination date and the Term with respect to each such Item of Equipment shall end effective as of the termination date. Obligee may, but shall be under no duty to, solicit bids, inquire into the efforts of Obligor to obtain bids or otherwise take any action in connection with any such sale other than the duty to transfer to the purchaser named in the highest bid certified by Obligor to Obligee, without recourse or warranty, on an "as-is", "where-is" basis, all of Obligee's interest in and to the Equipment so sold against receipt by Obligee of the payments provided for herein. Anything herein to the contrary notwithstanding, if Obligor shall exercise its said right to termination as provided in this Section 33, Obligee may, in its sole discretion, elect to receive delivery of all of the Equipment subject to said notice by giving Obligor written notice to such effect within thirty (30) days following Obligee's receipt of the written notice from Obligor hereinabove provided, in which event (a) no sale shall occur pursuant to this Section 33, (b) Obligor shall deliver the Equipment to Obligee in accordance with the provisions of Section 6 hereof and shall continue to make Basic Payments for the Equipment on each Payment Date to and inclusive of (and the Term of the Equipment shall terminate on) the Payment Date next following the date on which such delivery occurs. 34. NO RELIANCE. Obligor hereby acknowledges that in negotiating the terms of this Agreement and all other related agreements and documents, it has sought, obtained and relied exclusively upon such accounting, actuarial, tax and legal advice from its own or other independent sources as it has deemed necessary, and further acknowledges that neither Obligee nor any of Obligee's parent, subsidiaries, affiliates or personnel has represented or warranted the legal, tax economic, accounting, or other consequences of the terms and provisions hereof and of the other related agreements and documents. 35. MISCELLANEOUS. Any provision of this Agreement or any other Obligor Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating or diminishing Obligee's rights under the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Obligor hereby waives any provision of law which renders any provision of this Agreement or any other Obligor Document prohibited or unenforceable in any respect. No 39 40 term or provision of this Agreement or any other Obligor Document may be amended, altered, waived, discharged or terminated orally, but may be amended, altered, waived, discharged or terminated only by an instrument in writing signed by a duly authorized officer of the party against which the enforcement of the REMAINDER OF PAGE LEFT INTENTIONALLY BLANK 40 41 amendment, alteration, waiver, discharge or termination is sought. A waiver on any one occasion shall not be construed as a waiver on a future occasion. All of the covenants, conditions and obligations contained in this Agreement and each other Obligor Document shall be binding upon and shall inure to the benefit of the respective successors and assigns of Obligee and (subject to the restrictions of Section 14(a) hereof) Obligor. This Agreement and the other Obligor Documents collectively constitute the complete and exclusive statement of the terms of the agreement between Obligee and Obligor with respect to the financing of the Equipment, and cancel and supersede any and all prior oral or written understandings with respect thereto. /s/ PKMB - ---------------------------- Obligor's Initials 36. VENUE; GOVERNING LAW. Obligor agrees that at Obligee's sole election any suit, action or proceeding brought by Obligee against Obligor in connection with or arising out of this Agreement or any other Obligor Document may be brought in any federal court in the Commonwealth of Massachusetts, and Obligor waives personal service of all process upon it and consents that service of process may be made by mail or messenger directed to it at its address set forth above and that service so made shall be deemed to be completed upon the earlier of actual receipt or three (3) days after the same shall have been posted to Obligor's said address. Nothing herein contained shall affect Obligee's right to serve legal process in any other manner permitted by law or to bring any suit, action or proceeding against Obligor or its property in the courts of any other jurisdiction. This Agreement and each other Obligor Document shall in all respects be governed by, and constructed in accordance with, the laws of the Commonwealth of Massachusetts, including all matters of construction, validity and performance. 37. NO MERGER. There shall be no merger of this Equipment Agreement or of any leasehold or subleasehold estate created hereby or pursuant hereto, with the fee or any other estate or ownership or security interest in any Item of Equipment, by reason of the fact that the same Person may acquire or own or hold, directly or indirectly, (i) this Equipment Agreement or any leasehold or subleasehold estate or security interest created hereby or hereunder, or any other interest in this Equipment Agreement or any such lease or sublease or in any such leasehold or subleasehold estate, and/or (ii) the fee estate or any other estate or ownership or security interest, or any other interest, in any Item of Equipment; and this Equipment Agreement shall not be terminated for any reason except as expressly provided herein or as may be expressly agreed in writing by the holders of the Obligor's and Obligee's respective interests, and any instrument of transfer shall so provide. 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the date first written above. BTM CAPITAL CORPORATION Attest: (Obligee) /s/ Mark A. Helman By: /s/ Gary L. Christensen - --------------------------- ------------------------------- Assistant Clerk Title: SENIOR VICE PRESIDENT (Corporate Seal) ---------------------------- OHM REMEDIATION SERVICES CORP. Attest: (Obligor) /s/ Steven E. Harbour By: /s/ Pamela K. M. Beall - --------------------------- ------------------------------- Secretary Title: Treasurer ---------------------------- (Corporate Seal) COUNTERPART NO. OF 5 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. 43 EXHIBIT A-1 TO EQUIPMENT AGREEMENT DATED AS OF DECEMBER 24, 1996 Type of Equipment: One (1) used mobile rotary kiln - ----------------- PY*ROX 8212 incineration system Unit Number 842369 Maximum Cost: $12,850,000.00 - ------------ Acquisition Period: From the date hereof to December - ------------------ 31, 1996, both dates inclusive. Number of Months in Basic Term: Twelve (12) - ------------------------------ Basic Term Commencement Date: December 24, 1996 - ---------------------------- Basic Payment Percentage*: 6.252149% - ------------------------ *as a percentage of Equipment Cost Payment Periods for Basic Term: Each calendar quarter. - ------------------------------ Payment Dates for Basic Term: the 24th day of each March, - ---------------------------- June, September and December. Periodicity of Basic Payments During Basic Term: - ------------------------------------------------ Quarterly in arrears on each Payment Date. Maximum Term: Forty-eight (48) months. - ------------ Renewal Term(s): One (1) Renewal Terms of four (4) - -------------- calendar quarters each, followed by four (4) Renewal Terms of two (2) calendar quarters each. Payment Periods For Renewal Term(s): Each calendar quarter. - ----------------------------------- Payment Dates For Renewal Terms(s): - ----------------------------------- the 24th day of each March, June, September and December. 44 Periodicity of Basic Payments During Renewal Term: - ------------------------------------------------- Quarterly in arrears on each Payment Date. Financial Condition Reference Date: September 30, 1996. - -----------------------------------
Certain Values: - -------------- Estimated Maximum Maximum Residual Obligor Obligee Value Risk Risk Expiration Of: Percentage:* Percentage:* Percentage:* - -------------- ------------ ------------ ------------ Basic Term 82.931780% 71.433820% 11.497960% Renewal Term 1 63.596184% 54.178164% 9.418021% (if any) Renewal Term 2 53.356603% 46.353378% 7.003226% (if any) Renewal Term 3 42.715857% 36.857225% 5.858632% (if any) Renewal Term 4 31.658229% 26.989018% 4.669211% (if any) Renewal Term 5 20.000000% 16.734177% 3.265823% (if any) In witness whereof, the undersigned have signed this Exhibit A-1 as of the date first above written.
OHM REMEDIATION SERVICES BTM CAPITAL CORPORATION CORP. (Obligor) (Obligee) By: By: ----------------------------- -------------------------- Title: Title: Senior Vice President -------------------------- ----------------------- Date: Date: --------------------------- ------------------------ 45 EXHIBIT B TO EQUIPMENT AGREEMENT SUPPLEMENT NO. -------------- This Supplement is executed pursuant to, and incorporates by reference all of the terms, conditions and provisions of, the Equipment Agreement dated as of December 24, 1996 between the undersigned Obligee and Obligor (herein, as amended and supplemented from time to time, called the "Equipment Agreement"). Obligor hereby (a) acknowledges and certifies that (i) each Item of Equipment described below or on any Schedule attached hereto has been selected by, delivered to, and inspected by, Obligor, and is located at the location set forth below, (ii) Obligor has reviewed and approved the purchase order, supply contract or purchase agreement covering each such Item, and (iii) that as between Obligee and Obligor, each such Item is of a size, design, capacity and manufacture acceptable to and suitable for Obligor's purposes, has been installed to Obligor's satisfaction, and is in good working order, repair and condition; and (b) unconditionally and irrevocably accepts each such Item for financing under the Equipment Agreement on the date hereof and grants to Obligee a security interest in such Item. Obligee and Obligor hereby agree that each Item of Equipment described below or on any Schedule attached hereto is hereby financed under and subject to all of the terms, conditions and provisions of the Equipment Agreement; that the Term of each such Item commences on the date hereof and that such date is the Acceptance Date thereof; and that the Equipment Cost, Basic Term Commencement Date, Basic Term, Basic Payments and Related Exhibit A for all Items of Equipment covered by this Supplement is as set forth below. Obligor hereby agrees to make the Basic Payments for all Items of Equipment covered by this Supplement in the amounts and at the times specified below, reaffirms its acknowledgments and agreements in Section 8 of the Equipment Agreement and certifies that its representations and warranties set forth in Section 22 of the Equipment Agreement and in any related certificate delivered to Obligee are true and correct in all material respects on the date hereof. All capitalized terms used herein which are not defined herein shall have the meaning given to such terms in the Lease. 1. DESCRIPTION OF ITEM(S) OF EQUIPMENT (include make, model, serial number and quantity): 2. LOCATION: 3. EQUIPMENT COST: $ ----------------------------------------- 4. BASIC TERM COMMENCEMENT DATE: ------------------------------ 5. BASIC TERM: ____________ months, commencing on Basic Term Commencement Date and ending on the date immediately prior to the annual anniversary thereof. 46 6. BASIC PAYMENTS PAYABLE DURING BASIC TERM: $_________________ (plus applicable sales/use tax) payable on the ____________ day of ________________, commencing on ______________. 7. Related Exhibit A: Exhibit A-___ to the Equipment Agreement. Dated: , 199 . --------- COUNTERPART NO____________OF 5 SERIALLY NUMBERED MANUALLY EXECUTED BTM CAPITAL CORPORATION COUNTERPARTS. TO THE EXTENT IF ANY (Obligee) THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM By XXXXXXXXXXXXXXXXXXX COMMERCIAL CODE, NO SECURITY INTEREST -------------------------- IN THIS DOCUMENT MAY BE CREATED Title: Senior Vice THROUGH THE TRANSFER AND POSSESSION ---------------------- OF ANY COUNTERPART OTHER THAN President COUNTERPART NO. 1. --------- OHM REMEDIATION SERVICES CORP. Obligor) By XXXXXXXXXXXXXXXXXX -------------------------- Title: --------------------- 47 SCHEDULE OF CASUALTY LOSS VALUES -------------------------------- [Attached to and made a part of, and relating to the type of Equipment described on, Exhibit A-1 to Equipment Agreement]
Casualty Loss Value Payment Date Percentage of Number Equipment Cost* ---------- --------------- 1 95.688010 2 91.292362 3 86.811430 4 82.243561 5 77.587068 6 72.840232 7 68.001300 8 63.068485 9 58.039965 10 52.913884 11 47.688349 12 42.361430 13 36.931160 14 31.395535 15 25.752509 16 20.000000 and Casualty Loss Value Payment Date thereafter
Prior to Casualty Loss Value Payment Date Number 1, the Casualty Loss Value is 100.000000% of Equipment Cost. *If the Casualty Loss Value Payment Date is a Payment Date, the applicable Percentage of Acquisition Cost assumes that the Basic Payment has been paid on such Payment Date. - ---------------------- --------------------- Obligor's Initials Obligee's Initials 48 SCHEDULE OF TERMINATION VALUES ------------------------------ [Attached to and made a part of, and relating to the type of Equipment described on, Exhibit A-1 to Equipment Agreement]
Percentage of Equipment Cost (after payment of Basic Payment on Payment corresponding Date Number Payment Date) ----------- ------------- 1 95.688009 2 91.292358 3 86.811426 4 82.931780 5 77.587063 6 72.840227 7 68.001295 8 63.596184 9 58.039961 10 53.356603 11 47.688346 12 42.715857 13 36.931159 14 31.658229 15 25.752509 16 20.000000 - ------------------------- ------------------------ Obligor's Initials Obligee's Initials
EX-10.38 3 EXHIBIT 10.38 1 Exhibit 10.38 SUPPLEMENT NO. 01 ----------------- This Supplement is executed pursuant to, and incorporates by reference all of the terms, conditions and provisions of, the Equipment Agreement dated as of December 24, 1996 between the undersigned Obligee and Obligor (herein, as amended and supplemented from time to time, called the "Equipment Agreement"). Obligor hereby (a) acknowledges and certifies that (i) each Item of Equipment described below or on any Schedule attached hereto has been selected by, delivered to, and inspected by, Obligor, and is located at the location set forth below, (ii) Obligor has reviewed and approved the purchase order, supply contract or purchase agreement covering each such Item, and (iii) that as between Obligee and Obligor, each such Item is of a size, design, capacity and manufacture acceptable to and suitable for Obligor's purposes, has been installed to Obligor's satisfaction, and is in good working order, repair and condition; and (b) unconditionally and irrevocably accepts each such Item for financing under the Equipment Agreement on the date hereof and grants to Obligee a security interest in such Item. Obligee and Obligor hereby agree that each Item of Equipment described below or on any Schedule attached hereto is hereby financed under and subject to all of the terms, conditions and provisions of the Equipment Agreement; that the Term of each such Item commences on the date hereof and that such date is the Acceptance Date thereof; and that the Equipment Cost, Basic Term Commencement Date, Basic Term, Basic Payments and Related Exhibit A for all Items of Equipment covered by this Supplement is as set forth below. Obligor hereby agrees to make the Basic Payments for all Items of Equipment covered by this Supplement in the amounts and at the times specified below, reaffirms its acknowledgments and agreements in Section 8 of the Equipment Agreement and certifies that its representations and warranties set forth in Section 22 of the Equipment Agreement and in any related certificate delivered to Obligee are true and correct in all material respects on the date hereof. All capitalized terms used herein which are not defined herein shall have the meaning given to such terms in the Lease. 1. DESCRIPTION OF ITEM(S) OF EQUIPMENT (include make, model, serial number and quantity): One (1) Used PY*ROX 8212 Incineration System Unit No. 842369 more fully described on Schedule A attached hereto and made a part hereof. 2. LOCATION: Lock Haven, Pennsylvania 3. EQUIPMENT COST: $12,850,000.00 4. BASIC TERM COMMENCEMENT DATE: December 24, 1996. 2 5. BASIC TERM: Twelve (12) months, commencing on Basic Term Commencement Date and ending on the date immediately prior to the annual anniversary thereof. 6. BASIC PAYMENTS PAYABLE DURING BASIC TERM: $803,401.15 (plus applicable sales/use tax) payable on the 24th day of March, June, September and December in arrears during the Basic Term, commencing on March 24, 1997. 7. Related Exhibit A: Exhibit A-1 to the Equipment Agreement. Dated: December 24, 1996. COUNTERPART NO.______ OF 5 SERIALLY NUMBERED MANUALLY EXECUTED BTM CAPITAL CORPORATION COUNTERPARTS. TO THE EXTENT IF ANY (Obligee) THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM By: /s/ Gary L. Christensen COMMERCIAL CODE, NO SECURITY INTEREST ------------------------- IN THIS DOCUMENT MAY BE CREATED Title: Sr. Vice President THROUGH THE TRANSFER AND POSSESSION ------------------- OF ANY COUNTERPART OTHER THAN OHM REMEDIATION SERVICES COUNTERPART NO. 1. CORP. (Obligor) By: /s/ Pamela K. M. Beall ------------------------- Title: Treasurer ---------------------- EX-11 4 EXHIBIT 11 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS OHM CORPORATION COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, 1996 1995 1994 ---- ---- ---- PRIMARY: Average Shares Outstanding 26,820 22,283 15,582 Net effect of dilutive stock options and warrants-- based on the treasury stock method 24 242 - ------- ------- -------- Total 26,844 22,525 15,582 ======= ======= ======== Net income (loss) $11,515 $ 6,807 $ (7,616) ======= ======= ======== Per share amount $ 0.43 $ 0.30 $ (0.49) ======= ======= ======== FULLY DILUTED: Average shares outstanding 26,820 22,283 15,582 Net effect of dilutive stock options and warrants-- based on the treasury stock method 43 (2) 242 (2) - (1) ------- ------- -------- Total 26,863 22,525 15,582 ======= ======= ======= Net income (loss) $11,515 $ 6,807 $(7,616) ======= ======= ======== Per share amount $ 0.43 $ 0.30 $ (0.49) ======= ======= ========
(1) Fully dilutive effect of stock options and warrants on per share amounts for the year ended December 31, 1994 were antidilutive. Accordingly, fully diluted per share amounts were not presented in the Company's consolidated statements of operations. (2) Fully dilutive effect of stock options and warrants on per share amounts for the years ended December 31, 1996 and 1995 have not been presented in the statement of operations since any reduction of less than 3% in the aggregate need not be considered as dilution. EX-21 5 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT OHM CORPORATION SUBSIDIARIES OF THE REGISTRANT MARCH 15, 1997 State or Other Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- OHM Remediation Services Corp. Ohio Environmental Financial Services Corp. Delaware Capital National Insurance Company Vermont OHM Savannah River Corp. Ohio OHM of Ohio, Inc. Ohio EX-23 6 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration Statement No. 33-12099 on Form S-8 dated April 11, 1989, Registration Statement No. 33-28025 on Form S-8 dated September 2, 1994, Registration Statement No. 33-24953 on Form S-8 dated September 2, 1994, Registration Statement No. 33-55371 on Form S-8 dated September 2, 1994, Registration Statement No. 33- 55373 on Form S-8 dated September 2, 1994, Registration Statement No. 33-63233 on Form No. S-8 dated October 5, 1995, Registration Statement No. 333-15141 on Form S-8 dated October 30, 1996, and in the Registration Statement No. 333-21227 on Form S-8 dated February 5, 1997, of our report dated February 7, 1997, with respect to the consolidated financial statements and schedule of OHM Corporation and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1996. Ernst & Young LLP Columbus, Ohio March 14, 1997 EX-24 7 EXHIBIT 24 1 POWER OF ATTORNEY The undersigned directors and officers of OHM Corporation, an Ohio corporation (the "Company"), do hereby make, constitute and appoint Pamela K.M. Beall, Kris E. Hansel, and Steven E. Harbour, and each of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, to execute and file, under the Securities Exchange Act of 1934, as amended, the Company's Annual Report on Form 10-K, for the year ended December 31, 1996 and all amendments or exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever necessary, appropriate or desirable to be done in the premises, or in the name, place and stead of the said directors and officers, hereby ratifying and approving the acts of said attorneys and any of them and any substitute. This action may be executed on counterpart. IN WITNESS WHEREOF, the undersigned have subscribed these presents as of the 17th day of March, 1997. /s/ James L. Kirk /s/ Herbert A. Getz - ------------------------------------- ------------------------------ James L. Kirk, Chairman of the Board Herbert A. Getz, Director of Directors, President and Chief Executive Officer /s/ Ivan W. Gorr ------------------------------ Ivan W. Gorr, Director /s/ Philip O. Strawbridge - ------------------------------------- Philip O. Strawbridge, Vice President, /s/ Charles D. Hollister Chief Financial and Administrative ------------------------------ Officer (Principal Financial Officer) Charles D. Hollister, Director /s/ William P. Hulligan ------------------------------ /s/ Kris E. Hansel William P. Hulligan, Director - ------------------------------------- Kris E. Hansel, /s/ Joseph R. Kirk Vice President and Controller ------------------------------ (Principal Accounting Officer) Joseph R. Kirk, Director /s/ James E. Koenig ------------------------------ James E. Koenig, Director /s/ Richard W. Pogue ------------------------------ Richard W. Pogue, Director /s/ Charles W. Schmidt ------------------------------ Charles W. Schmidt, Director EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 14,002 0 165,795 24,928 13,899 197,945 120,171 49,650 336,537 103,603 53,004 2,699 0 0 171,873 336,537 0 550,984 0 478,924 48,082 0 7,087 16,891 5,376 11,515 0 0 0 11,515 0.43 0.43
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