-----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, Q00WW6pImC/w8RxOIoE9HDt9t6jY8rM5irSOeGck0+oqAKgzjD3OK5GlBkB834ND EI+S3UUclPj/BjGTDAhI1A== 0000950152-98-001531.txt : 19980302 0000950152-98-001531.hdr.sgml : 19980302 ACCESSION NUMBER: 0000950152-98-001531 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980227 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-K SEC ACT: SEC FILE NUMBER: 001-09654 FILM NUMBER: 98551205 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-K 1 OHM CORPORATION FORM 10-K 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, 1997 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant on February 16, 1998, was $333,991,409. The number of shares of common stock outstanding on February 24, 1998, was 28,284,405 shares. 2 OHM CORPORATION 1997 ANNUAL REPORT IN FORM 10-K TABLE OF CONTENTS PART I - -------------------------------------------------------------------------------- Item 1. Business....................................................... 1 Item 2. Properties..................................................... 9 Item 3. Legal Proceedings.............................................. 9 EXECUTIVE OFFICERS OF THE REGISTRANT PART II - -------------------------------------------------------------------------------- Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters............................................ 10 Item 6. Selected Financial Data........................................ 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 12 Item 8. Financial Statements and Supplementary Data.................... 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........................... 38 PART III - -------------------------------------------------------------------------------- Item 10. Directors and Executive Officers of the Registrant............. 38 Item 11. Executive Compensation......................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................... 46 Item 13. Certain Relationships and Related Transactions................. 47 PART IV - -------------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K....................................................... 50 SIGNATURES ............................................................. 57 3 PART I ITEM 1. BUSINESS OVERVIEW OHM Corporation, an Ohio corporation, and its predecessors (the "Company"), is a provider 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 32,000 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 incidental analytical testing. Service is provided through 25 regional offices, nine mobile laboratories, and approximately 2,700 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. (n/k/a/ Waste Management, Inc. and referred to herein as "WMX"). In connection with the Acquisition, the Company and WMX entered into a Guaranty Agreement whereby, in exchange for a warrant (the "Warrants") 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. The Guaranty Agreement and related guarantees will terminate upon consummation of the Merger described below. 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. Key provisions of the Standstill Agreement will terminate upon the occurrence of the Merger described below. On June 17, 1997, the Company acquired all of the issued and outstanding capital stock of Beneco Enterprises, Inc., a Utah corporation ("Beneco"), from Bennie Smith, Jr., Robert Newberry and Scott Doxey, for an aggregate purchase price of $14,700,000. The purchase price was payable at closing as follows: (i) $9,700,000 in cash and (ii) unsecured promissory notes in the aggregate principal amount of $5,000,000. The Company has agreed to make an additional payment in the year 2000 contingent upon the achievement of certain operating results and other contractual conditions. The Company has entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated January 15, 1998, by and among the Company, International Technology Corporation ("Parent") and IT-Ohio, Inc. ("Purchaser"). Pursuant to the Merger Agreement, on February 25, 1998 Purchaser, a wholly owned subsidiary of Parent, completed a tender offer (the "Offer") for 13,933,000 shares of Common Stock (each, a "Share" and collectively, the "Shares") at a price of $11.50 per Share, net to the tendering shareholder in cash. The Offer was described in the Tender Offer Statement on Schedule 14D-1 filed by Purchaser on January 16, 1998 with the Securities and Exchange Commission (the "Commission"). The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions precedent (including the approval of the Merger Agreement by holders of a majority of the outstanding Shares), Purchaser will merge with and into the Company (the "Merger"), and the Company will be the surviving corporation in the Merger, with the result that the Company will become a wholly owned subsidiary of Parent. Based upon the preliminary results of the Offer and on the number 1 4 of shares of Common Stock outstanding on February 24, 1998, at the effective time of the Merger, each remaining Share outstanding will be converted into the right to receive approximately 1.077 shares of the common stock of Parent and approximately $2.61 in cash. James L. Kirk, Joseph R. Kirk, H. Wayne Huizenga and The Huizenga Family Foundation, all shareholders of the Company, have entered into voting agreements whereby they agree to vote their shares of Common Stock in favor of the Merger. Pursuant to the Merger Agreement and the Share Repurchase Agreement, dated as of January 15, 1998 and as amended and restated as of February 11, 1998 and as amended and restated as of February 17, 1998 (the "Repurchase Agreement"), by and among the Company, Parent, WMX, Rust and Rust Remedial Services Holding Company Inc., an affiliate of WMX, the Company repurchased from WMX and its affiliates 2,535,381 Shares for $11.50 per Share, concurrently with the payment for Shares pursuant to the Offer (the "Repurchase"), and WMX and its affiliates tendered 7,111,543 Shares in the Offer. Pursuant to the Repurchase Agreement, WMX and its affiliates also agreed to vote all Shares held by them in favor of the Merger. WMX also agreed to cancel, without payment of any separate consideration, the Warrants and any rights it may have to purchase additional shares of Common Stock. The Company also has an approximately 40% interest in NSC Corporation ("NSC"), a provider of asbestos abatement and specialty contracting services. Pursuant to the Merger Agreement, the Company will pay a pro rata distribution (the "NSC Distribution") to holders of record of the Shares as of the close of business on February 24, 1998 of all of the shares of Common Stock, par value $0.01 per share, of NSC held by the Company (the "NSC Shares"). The payment date for the NSC Distribution is March 6, 1998, which is the earliest date on which the NSC Distribution may be paid under the Company's Regulations. It is anticipated that the NSC Distribution will be treated as a pro rata taxable redemption that qualifies as a sale or exchange for tax purposes. 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 32,000 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 25 regional offices located throughout the country. The Company places its emphasis upon planned work because of its more predictable resource requirements, and because of its larger potential market. In 1997, planned projects accounted for approximately 99% of the Company's revenue. The Company 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. The Company believes that 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. 2 5 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. GOVERNMENT OUTSOURCING MARKET Through the Company's acquisition of Beneco, the Company has entered the government outsourcing market for operations, maintenance and construction at federal facilities. Beneco is a leading provider of project, program and construction management services to the DOD, and state and local government agencies. The Beneco acquisition is the first step to leveraging the Company's core competencies into new, high growth service areas, specifically the outsourcing and privatization trend occurring across federal, state and local levels of government. Through Beneco, the Company may offer a service related business of a recurring nature that is not dependent on regulatory enforcement. 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 a significant number of government term contracts, and several large projects, 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, 1997, 79% 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 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. 3 6 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 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 4 7 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 1997 was $112 million and constituted 21% 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 1997 aggregated $415.1 million and accounted for 79% of revenue, of which the Department of the Navy and the USACE accounted for approximately $158.9 million or 30% and $120.5 million or 23% of revenue, respectively. 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 2,800 employees at December 31, 1997. Five employees of the Company were covered by collective bargaining agreements. The Company considers relations with its employees to be satisfactory. 5 8 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 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 governmental 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 $1.5 billion was appropriated for fiscal year 1998 and the authority to use the funds has been extended through September 30, 1998. 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. In addition, under the Administration's current budget proposal, an additional $650 million will become available whether or not Superfund reauthorization legislation has been passed in Congress. Bills to reauthorize Superfund have been introduced in both the Senate and the House. Support for environmental programs remains strong in the Executive 6 9 Branch. President Clinton's fiscal year 1999 budget included increases in funding for all EPA, Department of Defense and Department of Energy environmental programs. Despite the priority given by the Administration 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 often more 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" 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, ------------ 1997 1996 1995 ---- ---- ---- Backlog $ 332,000 $ 375,000 $ 445,000 Term contracts 1,509,000 1,401,000 1,531,000 ------------ ----------- ----------- Total contract backlog $ 1,841,000 $1,776,000 $1,976,000 ============ ========== ==========
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, 1997 will be realized within the next year. 7 10 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. NSC 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., an affiliate of WMX, in exchange for its industrial cleaning and maintenance business and the issuance of 4,010,000 shares of NSC common stock. 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 manage properly 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. The Company has historically accounted for its investment in NSC on the equity method. The Company now intends to divest its 40% share of NSC and recorded a writedown of the investment in the second quarter of 1997. The investment in NSC is now accounted for as an asset held for sale. 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, 1997, 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. Pursuant to the Merger Agreement, the Company will pay the NSC Distribution of NSC Shares to holders of record of the Shares as of the close of business on February 24, 1998. The payment date for the NSC Distribution is March 6, 1998, which is the earliest date on which the NSC Distribution may be paid under the Company's Regulations. It is anticipated that the NSC Distribution will be treated as a pro rata taxable redemption that qualifies as a sale or exchange for tax purposes. 8 11 ITEM 2. PROPERTIES The Company currently owns property in four states and leases property in 19 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 Salt Lake City, Utah (approximately one third acre of land and a 6,097 square foot building). The Company operates other offices and remediation service centers in the following states: Alaska, Arizona, California, Colorado, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Iowa, Louisiana, Massachusetts, Minnesota, Missouri, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Texas, Utah, 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 $5,000,000. ITEM 3. LEGAL PROCEEDINGS 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 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. Management believes that it has established adequate reserves should the resolution of the above matter be lower than the amounts recorded and for other matters in litigation or other claims and disputes. There is, however, always risk and uncertainty in pursuing and defending litigation and arbitration proceedings in the course of the Company's remediation 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. 9 12 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 ---- --- 1997 First 9 7 3/4 Second 8 5/8 7 3/8 Third 8 7/16 6 13/16 Fourth 9 5/16 7 7/16 1996 First 8 1/8 7 Second 9 1/4 7 1/4 Third 7 7/8 6 1/2 Fourth 9 7
NOTE: (1) As of December 31, 1997, the Company has approximately 739 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." 10 13 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, ------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands, Except Per Share Data) Revenue $526,691 $550,984 $457,925 $323,381 $242,401 Cost of services 454,556 478,924 393,149 296,159 202,341 -------- -------- -------- -------- -------- Gross Profit 72,135 72,060 64,776 27,222 40,060 Claims settlement cost and other 37,877 ---- ---- ---- ---- Selling, general and administrative expenses 46,060 49,250 45,223 32,281 27,110 -------- -------- Operating (Loss) Income (11,802) 22,810 19,553 (5,059) 12,950 -------- -------- -------- -------- -------- Other (Income) Expenses: Investment income (389) (124) (849) (28) (28) Interest expense 5,186 7,087 10,413 9,177 7,748 Equity in net earnings of affiliates' continuing operations (185) (748) (287) (1,032) (1,600) Write-down of investment in NSC Corporation 14,949 ---- ---- ---- ---- Miscellaneous (income) expense 276 (296) (72) 898 341 -------- -------- -------- -------- -------- 19,837 5,919 9,205 9,015 6,461 (Loss) Income From Continuing Operations Before Income Taxes (Benefit) (31,639) 16,891 10,348 (14,074) 6,489 Income taxes (benefit) (10,442) 5,376 3,541 (6,458) 2,082 -------- -------- -------- -------- -------- Net (Loss) Income $(21,197) $ 11,515 $ 6,807 $ (7,616) $ 4,407 ======== ======== ======== ======== ======== Net (Loss) Income Per Common Share $ (0.78) $ 0.43 $ 0.31 $ (0.49) $ 0.36 ======== ======== ======== ======== ======== Weighted Average Common Shares 27,210 26,820 22,211 15,582 12,250 ======== ======== ======== ======== ======== Net (Loss) Income Per Common Share--Assuming Dilution $ (0.78) $ 0.43 $ 0.30 $ (0.49) $ 0.35 ======== ======== ======== ======== ======== Adjusted Weighted Average Common Shares--Assuming Dilution 27,210 26,840 22,413 15,582 12,454 ======== ======== ======== ======== ========
NOTES: (1) Special charges include: (i) for the year ended December 31, 1997, the Company recorded a $22,726,000 charge (net of income tax benefit of $15,151,000) for the settlement and write-down of certain claims and litigation, establishment of reserves for the consolidation of certain laboratory and operational functions. In addition, the Company recorded a $12,089,000 (net of $2,860,000 income tax benefit) charge to reduce the carrying value of its NSC investment to reflect the likely value to be realized given the Company's intention to divest this investment; (ii) 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"); and (iii) 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. (2) Effective June 1, 1997, the Company acquired all of the outstanding stock of Beneco Enterprises, Inc., a Utah corporation ("Beneco"), for an aggregate purchase price of $14,700,000. The acquisition of Beneco 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 June 1, 1997. The Company's consolidated financial statements for the year ended December 31, 1997 include the results of Beneco since June 1, 1997. See "Note 2 to the Consolidated Financial Statements." (3) On May 30, 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of the Division of 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. The acquisition of the Division has been accounted for using the purchase method and, accordingly, the acquired assets and assumed liabilities, including 11 14 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, ------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Working capital $ 77,058 $ 94,342 $ 129,156 $ 116,464 $ 69,985 Total assets 319,779 336,537 376,506 272,546 215,357 Long-term debt 50,041 52,972 104,111 127,279 71,113 Shareholders' equity 156,896 174,572 160,492 76,920 82,743
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." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) RESULTS OF OPERATIONS GENERAL The Company is a diversified services firm which provides a broad range of outsourced services including environmental remediation and project, program and construction management services to government and private sector 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. See Part I, Item 1 for a description of the Merger, the Offer and the NSC Distribution. In connection with the Company's entry into the Merger Agreement and by resolution of the Company's Board of Directors, the Company's 1986 Stock Option Plan and the Company's Nonqualified Stock Option Plan for Directors were amended to immediately vest each non-vested stock option issued under such plans and to give each of the option holders the right to cancel their options in exchange for a cash payment equal to the difference between $11.50 per share and the respective exercise price of each option. In addition, the Company's Board of Directors took action to allow holders of the restricted stock issued under the Company's Incentive Stock Plan to tender such stock in the Offer. As a result of the above actions, the Company will incur up to $9,400,000 of compensation expense during the first quarter of 1998 if all of the stock option holders elect to receive the cash payment for their outstanding options. The consummation of the transactions contemplated by the Merger Agreement is subject to the satisfaction of various conditions, including, without limitation: (i) the approval by the stockholders of Parent for the issuance of shares of Parent Common Stock pursuant to the Merger Agreement, and (ii) the approval of the Merger Agreement and the Merger by the shareholders of the Company. The Company received early termination of the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act during January 1998. See "Business -- Overview." The accompanying financial statements were prepared assuming the Company would continue operations independently and do not anticipate adjustments which may be required as a result of the Merger. The Merger will be accounted for using the purchase method and as a result may impact the carrying value of certain of the Company's assets and liabilities. Effective June 1, 1997, the Company acquired all of the outstanding stock of Beneco Enterprises, Inc. ("Beneco"), a Utah corporation, for an aggregate purchase price of $14,700,000. The purchase price consisted of a $9,700,000 cash payment and $5,000,000 of unsecured promissory notes. The Company has agreed to make an additional payment in the year 2000 contingent upon the achievement of certain operating results and other contractual conditions. Beneco is a provider of project, program and construction management services to the Department of Defense ("DOD") and other government agencies throughout the United States. The acquisition of Beneco has been accounted for using the purchase method and, accordingly, 12 15 the acquired assets and assumed liabilities, including goodwill, have been recorded at their estimated fair values as of June 1, 1997. The Company's consolidated statements of operations include the results of operations for Beneco since June 1, 1997. See "Note 2 to the Consolidated Financial Statements." 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 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 the Warrants 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 operations for the Division since May 30, 1995. See Item 1 and Item 13 for a discussion of the Standstill Agreement. TWELVE MONTHS ENDED DECEMBER 31, 1997 VS. TWELVE MONTHS ENDED DECEMBER 31, 1996 Revenue. The following table sets forth the Company's revenue by client type for the twelve months ended December 31, 1997 and 1996 (in thousands, except percentages):
1997 1996 ---- ---- Federal, State, and Local Government $414,735 79% $426,256 77% Industrial 111,956 21 124,728 23 -------- ---- --------- ---- Total Revenue $526,691 100% $550,984 100% ======== === ======== ===
Total revenue for the year ended December 31, 1997, decreased 4% to $526,691,000 from $550,984,000 in 1996. Such decrease in revenue is primarily due to decreased environmental remediation revenues from government and industrial sector clients, partially offset by revenue from Beneco which was acquired effective June 1, 1997 and has been included in the results of operations since such time. The Company derives a substantial portion of its revenue from the government sector and believes that such revenue will continue to be its primary source of revenue for the foreseeable future. See "Business -- Backlog and Potential Value of Term Contracts" and "Environmental Matters and Government Contracting" in Management's Discussion and Analysis of Financial Condition and Results of Operations. Revenue from government agencies for the twelve months ended December 31, 1997 decreased $11,521,000 or 3% from $426,256,000 in 1996. Revenues from government agencies was negatively impacted by a decline in revenue from the Company's environmental remediation services business, which was offset by the acquisition of Beneco. The environmental remediation business experienced a decrease in revenue from the Company's term contracts with the United States Air Force ("Air Force") and the United States Navy ("Navy"). In addition, the Company has experienced a significant decrease in revenue from its site specific thermal incineration project in Holbrook, Massachusetts with the United States Army Corps of Engineers ("USACE") as the project nears its completion. Such decreases were partially offset by an increase in revenue from the Company's term contracts with the USACE and various state and local governments. The Company expects to continue to receive funding under its federal contracts in the foreseeable future and is experiencing a significant amount of proposal activity for new contracts with the various DOD agencies, as well as the Department of Energy ("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 $12,772,000 or 10% decrease in revenue from industrial clients for the year ended December 31, 1997 as compared to 1996. The Company believes that demand for its services 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 will continue to have a material adverse 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. The result of decreased demand from the industrial sector has increased the competitive pressures on the contracts available for bid from the industrial market. The Company has been very selective in bidding industrial contracts and has established specific minimum criteria on profitability and risk in determining whether or not to compete for any given contract. The Company expects the current market conditions to continue in the industrial sector into the foreseeable future. 13 16 Cost of Services and Gross Profit. Cost of services for the year ended December 31, 1997 decreased 5% to $454,556,000 from $478,924,000 in 1996. Cost of services as a percentage of revenue decreased to 86% for the year ended December 31, 1997 from 87% for 1996. Gross profit increased $75,000 to $72,135,000 in 1997 from $72,060,000 in 1996. Gross profit as a percentage of revenue increased to 14% for the year ended December 31, 1997 from 13% in 1996. The Company's cost of services and gross profit during 1997 was favorably impacted by the following: (i) actions taken by the Company to lessen the use of subcontractors on its government cost reimbursable projects as the amount of mark-up the Company receives on subcontractors is minimal, (ii) cost reduction actions taken during the second quarter of 1997 to reduce the indirect cost of services through the consolidation of certain of the Company's operational and laboratory functions, and (iii) the acquisition of Beneco. Such improvements were partially offset by decreased gross profit from competitive market conditions on projects performed for the industrial sector. Claims Settlement Costs and Other. During the second quarter of 1997, the Company settled litigation that was pending involving Citgo Petroleum Corporation ("Citgo"), Oxy USA Inc., and Occidental Oil & Gas (collectively "Oxy") relating to a remediation project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and 1994. Under the terms of the settlement with Citgo and Oxy, the Company received a cash payment of $14,346,000. As a result of an unfavorable binding arbitration decision on the dispute between the Company and Separation and Recovery Systems, Inc. ("SRS") arising out of the Company's termination of SRS' subcontract for services at a project in Cincinnati, Ohio, SRS was awarded $2,400,000 in damages. The settlement and write-down of the aforementioned claims and litigation, together with other receivables and the establishment of reserves for the consolidation of certain laboratory and operational functions, resulted in the Company recording a charge of $37,877,000 pre-tax, $22,726,000 after-tax. Selling, General and Administrative Expenses. Selling, general and administrative ("SGA") expenses for the year ended December 31, 1997 decreased 7% to $46,060,000 from $49,250,000 in 1996. SGA expense as a percentage of revenue was 9% for both the years ended December 31, 1997 and 1996. SGA expense was favorably impacted during 1997 by the consolidation of certain operational functions during the second quarter of 1997. During 1997 and 1996, the Company made substantial investments in personnel and systems in support of its government contracts and related compliance issues. Such investments will continue in light of the Company's dependence on federal government contracts. Interest expense. Interest expense, net of investment income, decreased 31% to $4,797,000 for the year ended December 31, 1997 from $6,963,000 for 1996. The decrease in interest expense is a result of a decrease in the average borrowings outstanding under the Company's revolving credit agreement during 1997 when compared to 1996. Such decease is primarily the result of the Company utilizing lease lines of credit for purchases and financing of certain of its operational equipment as well as improvements made in the Company's cash management procedures and systems which decreased its working capital investment. Write-down of Investment in NSC. During the second quarter of 1997, the Company wrote down its investment in NSC to the expected net realizable value and plans to divest its 40% share of NSC. As a result, the Company recorded a $14,949,000 pre-tax, $12,089,000 after tax, charge during the second quarter of 1997, to reduce the carrying value of its NSC investment and to account for it as an asset held for sale. Subsequently, the Company has decided to distribute to its common stock shareholders its shares of NSC common stock pursuant to the Merger Agreement. Net (loss) Income. Net loss for the year ended December 31, 1997 was $21,197,000 or $0.78 per share compared to net income of $11,515,000 or $0.43 per share in 1996. The decrease in net income is primarily due to the settlement of claims and the write-down of the Company's investment in NSC, partially offset by other factors discussed above. 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. 14 17 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 Air Force, the USACE, the DOE and the 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 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. 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. Selling, General and Administrative Expenses. SGA expense increased 9% to $49,250,000 from $45,223,000 in 1995. SGA expenses for the year ended December 31, 1995 included a $3,854,000 pre-tax, $2,312,000 after-tax, charge for integration costs related to the acquisition of the Division. The charge 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. 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 recorded 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. Upon successful completion of the aforementioned merger with IT, such debt guarantee will be terminated. 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 as well as the other factors discussed above. (b) LIQUIDITY AND CAPITAL RESOURCES 15 18 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. Upon successful completion of the Merger, such debt guarantee will be terminated. 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 Company had no cash borrowing under the revolving credit facility at December 31, 1997 and 1996. Aggregate letters of credit outstanding at December 31, 1997 and 1996 were $13,300,000 and $12,223,000, respectively. Capital expenditures for the years ended December 31, 1997, 1996, and 1995 were $18,036,000, $23,279,000, and $14,276,000, respectively. The Company's capital expenditures are primarily related to the purchase of heavy construction equipment the fabrication of custom equipment by the Company for the execution of remediation projects and the installation of computer systems and related equipment. Capital expenditures for fiscal year 1998 are expected to range between $10,000,000 and $15,000,000. The Company's long-term capital expenditure requirements are dependent upon the type and size of future remediation projects awarded to the Company. The Company believes that the government sector will continue to be its primary source of revenue for the foreseeable future in light of its contract backlog with federal 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 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 working capital needs and capital expenditures in the short term through a combination of cash flows from operations, borrowing under its revolving credit facility, proceeds from permitted asset sales and other external sources. 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) RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statements No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 130 requires separate reporting of certain items, already disclosed by the Company, affecting shareholders' equity outside of those included in arriving at net earnings. Statement No. 131, effective for fiscal 1999, establishes requirements for reporting information about operating segments in annual and interim statements. This statement may require a change in the Company's financial reporting, however, the extent of this change, if any, has not been determined. (e) 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 $67,000,000 necessary to realize 16 19 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 "Business -- Backlog and Potential Value of Term Contracts" and "Environmental Matters and Government Contracting" in Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company evaluates the realizability of its deferred tax assets quarterly and assesses the need for any change in the valuation allowance. See "Note 9 to the Consolidated Financial Statements." (f) IMPACT OF YEAR 2000 Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as year 1900 rather than the year 2000. This could cause a system failure or miscalculations, causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has completed an assessment and will have to modify or replace portions of its software. The Company believes the cost to modify or replace such software will be minimal and will not have a material adverse impact upon the Company's future results of operations or financial condition. (g) 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. (h) 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 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, and (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. 17 20 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 revise publicly 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. 18 21 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, 1997, 1996 and 1995, are set forth on pages 19 through 37. OHM CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, ------------ 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 31,784 $ 14,002 Accounts receivable 70,627 85,461 Costs and estimated earnings on contracts in process in excess of billings 47,774 56,303 Materials and supply inventory, at cost 13,285 13,899 Prepaid expenses and other assets 10,950 17,274 Deferred income taxes 11,166 10,513 Refundable income taxes 259 493 --------- --------- 185,845 197,945 --------- --------- Property and Equipment, net 56,610 70,521 --------- --------- Other Noncurrent Assets: Investment in affiliated company 8,421 23,185 Intangible assets relating to acquired businesses, net 46,364 33,534 Deferred debt issuance and financing costs 1,114 1,412 Deferred income taxes 15,677 3,563 Other assets 5,748 6,377 --------- --------- 77,324 68,071 --------- --------- Total Assets $ 319,779 $ 336,537 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 72,692 $ 69,230 Billings on contracts in process in excess of costs and estimated earnings 1,530 897 Accrued compensation and related taxes 8,646 6,528 Federal, state and local taxes 86 150 Other accrued liabilities 17,769 21,477 Current notes payable 5,000 ---- Current portion of noncurrent liabilities 3,064 5,321 --------- --------- 108,787 103,603 --------- --------- Noncurrent Liabilities: Long-term debt 50,041 52,972 Deferred gain from sale leaseback of equipment 2,890 4,484 Capital leases 65 32 Pension agreement 1,100 874 --------- --------- 54,096 58,362 --------- --------- 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: 1997 - 27,425,046; 1996 - 26,992,140 2,742 2,699 Additional paid-in capital 142,453 138,989 Retained earnings 11,701 32,884 --------- --------- 156,896 174,572 --------- --------- Total Liabilities and Shareholders' Equity $ 319,779 $ 336,537 ========= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 19 22 OHM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, ------------------------ 1997 1996 1995 ---- ---- ---- Revenue $ 526,691 $ 550,984 $ 457,925 Cost of services 454,556 478,924 393,149 --------- --------- --------- Gross Profit 72,135 72,060 64,776 Claims settlement costs and other 37,877 -- -- Selling, general and administrative expenses 46,060 49,250 45,223 --------- --------- --------- Operating (Loss) Income (11,802) 22,810 19,553 --------- --------- --------- Other (Income) Expenses: Investment income (389) (124) (849) Interest expense 5,186 7,087 10,413 Equity in net earnings of affiliate (185) (748) (287) Write-down of investment in NSC Corporation 14,949 -- -- Miscellaneous (income) expenses 276 (296) (72) --------- --------- --------- 19,837 5,919 9,205 --------- --------- --------- (Loss) Income Before Income Taxes (Benefit) (31,639) 16,891 10,348 Income taxes (Benefit) (10,442) 5,376 3,541 --------- --------- --------- Net (Loss) Income $ (21,197) $ 11,515 $ 6,807 ========= ========= ========= Net (Loss) Income Per Common Share $ 0.43 $ 0.31 $ (0.78) ========= ========= ========= Weighted-Average Common Shares 27,210 26,820 22,211 ========= ========= ========= Net (Loss) Income Per Common Share--Assuming Dilution $ (0.78) $ 0.43 $ 0.30 ========== ========= ========= Adjusted Weighted-Average Common Shares--Assuming Dilution 27,210 26,840 22,413 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 20 23 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, 1995 15,848,089 $1,584 $ 63,294 $14,656 $ (58) $(2,556) Proceeds from sale of 1,000,000 shares 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) -- Shares issued for 401(k) plan funding 326,711 32 2,658 Shares issued for stock options 106,195 11 806 Deferred translation adjustments 14 Net income (21,197) ---------- ------ -------- ------- ----- ------ BALANCE AT DECEMBER 31, 1997 27,425,046 $2,742 $142,453 $11,781 $ (80) $ -- ========== ====== ======== ======= ===== ======
The accompanying notes are an integral part of these consolidated financial statements. 21 24 OHM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ------------------------ 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net (loss) income $ (21,197) $ 11,515 $ 6,807 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 13,131 19,963 10,652 Amortization of other noncurrent assets 3,139 3,332 2,916 Deferred income taxes (10,442) 5,335 3,483 (Gain) loss on sale of property and equipment (1,705) (206) 423 Equity in net earnings of affiliate, net of dividends received (185) (147) 314 Writedown of investment in affiliated company 14,949 -- -- Deferred translation adjustments and other (568) (1,305) (1,881) Changes in current assets and liabilities: Accounts receivable 19,034 13,622 10,049 Costs and estimated earnings on contracts in process in excess of billings 8,529 11,972 (10,278) Materials and supply inventory 614 (2,068) (1,732) Prepaid expenses and other assets 6,324 (8,125) (206) Refundable income taxes and other 234 (92) (196) Accounts payable (1,864) 2,949 3,907 Billings on contracts in process in excess of costs and estimated earnings 633 (490) (1,019) Accrued compensation and related taxes 1,638 (512) 476 Federal, state and local income taxes (64) (50) 98 Other accrued liabilities (7,504) (11,286) (4,416) --------- --------- --------- Net cash flows provided by operating activities 24,696 44,407 19,397 --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (18,036) (23,279) (14,276) Proceeds from sale of property and equipment 1,908 4,612 3,813 Proceeds from sale and leaseback of equipment 21,800 12,850 -- Cash (used) acquired from purchase of business, net of acquisition costs (7,092) -- 13,527 Decrease (increase) in receivable from affiliated company -- 15,000 (6,695) Increase in other noncurrent assets (1,090) (1,140) (589) --------- --------- --------- Net cash (used in) provided by investing activities (2,510) 8,043 (4,220) --------- --------- --------- Cash flows from financing activities: Increase in long-term debt 8 204 2,209 Payments on long-term debt and capital leases (7,802) (10,230) (8,691) Proceeds from borrowing under revolving credit agreement 187,554 202,300 159,900 ------------- Payments on revolving credit agreement (187,554) (244,400) (175,500) Proceeds from private placement of common stock -- -- 9,975 Common Stock issued for 401(k) funding and stock options 3,507 2,597 1,612 Payments on pension agreement (117) (124) (102) Reissuance of treasury stock -- -- 1,695 --------- --------- --------- Net cash (used in) financing activities (4,404) (49,653) (8,902) --------- --------- --------- Net increase in cash and cash equivalents 17,782 2,797 6,275 Cash and cash equivalents at beginning of year 14,002 11,205 4,930 --------- --------- --------- Cash and cash equivalents at end of year $ 31,784 $ 14,002 $ 11,205 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 22 25 OHM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 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's investment in 40% of the outstanding common stock of NSC Corporation ("NSC") has historically been accounted for on the equity method until the second quarter of 1997 and is now accounted for as an asset held for sale. See "Note 17 - Special Charges" and "Note 19 - Subsequent Events" regarding disposition of the NSC investment. All material intercompany transactions and balances among the consolidated group have been eliminated in consolidation. RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statements No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 130 requires separate reporting of certain items, already disclosed by the Company, affecting shareholders' equity outside of those included in arriving at net earnings. Statement No. 131, effective for fiscal 1999, establishes requirements for reporting information about operating segments in annual and interim statements. This statement may require a change in the Company's financial reporting, however, the extent of this change, if any, has not been determined. 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 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 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 79%, 77% and 76% of revenue for the years ended December 31, 1997, 1996 and 1995, 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 any federal budget reductions. 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 - Acquisitions" 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." 23 26 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 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 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. 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 straight-line method. 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 $6,104,000, $8,085,000 and $11,205,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Total interest capitalized was $918,000, $998,000 and $792,000 for the years ended December 31, 1997, 1996 and 1995, 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 five to ten years. The accumulated amortization of intangible assets, including goodwill, relating to acquired businesses, was $3,061,000 and $1,938,000 at December 31, 1997 and 1996, 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, 1997, 1996 and 1995 was $603,000, $482,000 and $986,000, respectively. Cash paid for interest was $6,159,000, $8,137,000 and $10,937,000 for each of the years ended December 31, 1997, 1996 and 1995, respectively. With respect to non-cash investing and financing activities, the Company acquired $2,564,000, $1,870,000 and $29,000 of fixed assets under financial obligations for the years ended December 31, 1997, 1996 and 1995, respectively. In addition, the Company issued $5,000,000 of unsecured promissory notes in connection with an acquisition in fiscal 1997 and 9,668,000 shares of its common stock in fiscal 1995 for an acquisition. See Note 2 - Acquisitions. NET INCOME (LOSS) PER SHARE. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which was required to be adopted on December 31, 1997. The Company has changed the method used to compute earnings per share and restated all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options is excluded. Shares of common stock issuable upon conversion of the 8% Convertible Subordinated Debentures due 2006 were antidilutive in each of the years presented; therefore, they were excluded from the calculation of net income per share. See Note 11 - Earnings Per Share. RECLASSIFICATION. Certain amounts presented for the years ended December 31, 1996 and 1995 have been reclassified to conform to the 1997 presentation. NOTE 2 - ACQUISITIONS 24 27 Effective June 1, 1997, the Company acquired all of the outstanding stock of Beneco Enterprises, Inc., a Utah corporation (Beneco), for an aggregate purchase price of $14,700,000. The purchase price was paid as follows: (i) $9,700,000 in cash and (ii) unsecured promissory notes in the aggregate of $5,000,000, bearing interest at 7.25%, due and payable June 17, 1998. The Company has agreed to make an additional payment in the year 2000 contingent upon the achievement of certain operating results and other contractual conditions. Beneco is a provider of project, program and construction management services to the Department of Defense and other government agencies throughout the United States. The estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition of Beneco are as follows (in thousands): Current assets $ 8,208 Property and equipment 615 Goodwill 13,179 Current liabilities 8,024
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 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. See "Note 19 - Subsequent Events". The acquisitions of Beneco and the Division have 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 June 1, 1997 for Beneco and May 30, 1995 for the Division. The Company's consolidated financial statements for the twelve months ended December 31, 1997 include the results of Beneco since June 1, 1997. The following table sets forth the unaudited combined pro forma results of operations of the Company for the twelve months ended December 31, 1997 and 1996, giving effect to the acquisition of Beneco as if such acquisition had occurred on January 1, 1996. The Company's consolidated financial statements also 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 giving effect to the acquisition of the Division as if such acquisition had occurred on January 1, 1995.
Pro Forma Year Ended December 31, ----------------------- 1997 1996 1995 ---- ---- ---- (In Thousands, Except Per Share Data) Revenue $555,271 $622,814 $520,465 Net income (loss) (21,099) 13,007 8,142 Net income (loss) per share $ (0.78) $ 0.48 $ 0.31
The combined pro forma results of operations for the years ended December 31, 1997, 1996 and 1995 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 transactions been consummated on January 1, 1996 for Beneco and January 1, 1995 for the Division, nor are they necessarily indicative of results which will be reported in the future. 25 28 NOTE 3 - ACCOUNTS RECEIVABLE AND COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS Accounts receivable are summarized as follows:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) Accounts billed and due currently $ 43,982 $ 45,573 Unbilled receivables 37,827 59,649 Retainage 4,265 5,167 --------- --------- 86,074 110,389 Allowance for uncollectible accounts (15,447) (24,928) --------- --------- $ 70,627 $ 85,461 ========= =========
The consolidated balance sheets include the following amounts:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) Costs incurred on contracts in process $ 306,314 $ 442,923 Estimated earnings 63,128 90,442 --------- --------- 369,442 533,365 Less billings to date (323,198) (477,959) -------- --------- $ 46,244 $ 55,406 ========= ========= Costs and estimated earnings on contracts in process in excess of billings $ 47,774 $ 56,303 Billings on contracts in process in excess of costs and estimated earnings (1,530) (897) --------- --------- $ 46,244 $ 55,406 ========= =========
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 38%, 58%, and 4%, respectively, of total accounts receivable and costs and estimated earnings on contracts in process at December 31, 1997. NOTE 4 - PROPERTY AND EQUIPMENT
December 31, ------------ Useful 1997 1996 Lives ---- ---- ----- (In Thousands) Land $ 284 $ 257 -- Buildings and improvements 21,798 21,698 1-40 Years Machinery and equipment 72,326 89,831 3-15 Years Construction in progress 1,823 8,385 -- --------- --------- 96,231 120,171 Less accumulated depreciation and amortization (39,621) (49,650) $ 56,610 $ 70,521 ========= =========
26 29 NOTE 5 - INVESTMENT IN AFFILIATED COMPANY The combined summarized financial information of the Company's 40% owned asbestos abatement and specialty contracting subsidiary, NSC, is set forth below:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) Current assets $ 34,906 $ 41,123 Noncurrent assets 39,583 44,102 Total assets 74,489 85,225 Current liabilities 18,080 19,969 Noncurrent liabilities 5,253 7,610 Years Ended December 31, ------------------------ 1997 1996 1995 ---- ---- ---- (In Thousands) Revenue $ 115,955 $ 129,043 $124,529 Gross profit 11,027 22,589 19,447 Operating (loss) income (7,785) 4,361 1,859 Net (loss) income (4,994) 1,861 715 Company's interest in net income 185 748 287
During the second quarter of 1997, the Company wrote down its investment in NSC to the expected net realizable value based on its plans to divest its 40% share of NSC. As a result, the Company recorded a $12,089,000 (net of $2,860,000 income tax benefit) charge to earnings. The Company has historically accounted for NSC in accordance with the equity method, however as a result of the Company's current intentions, it now accounts for NSC under statement of Financing Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" as securities available-for-sale. See "Note 19 - Subsequent Events". The Company received cash dividends from NSC aggregating $602,000 for each of the years ended December 31, 1997 and 1996. NOTE 6 - OTHER ACCRUED LIABILITIES Other accrued liabilities are summarized as follows:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) Reserve for loss projects $ 4,328 $ 5,839 Reserve for legal settlements 2,694 5,490 Reserve for self-insurance 4,360 4,212 Accrued insurance 2,411 2,601 Other 3,976 3,335 -------- -------- $ 17,769 $ 21,477 ======== ========
NOTE 7 - LONG-TERM DEBT The long-term debt of the Company is summarized below:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) 8% Convertible Subordinated Debentures due October 1, 2006 $ 46,764 $ 46,764 Notes payable to financial institutions 2,806 8,434 Notes payable 3,494 3,066 -------- -------- 53,064 58,264 Less current portion (3,023) (5,292) -------- -------- $ 50,041 $ 52,972 ======== ========
27 30 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. The fair value of the convertible subordinated debentures, based on a quoted market price, approximates $45,325,000 at December 31, 1997. The amortization of debt issuance costs related to the convertible subordinated debentures was $88,000, $97,000 and $108,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 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. There were no cash borrowings outstanding at December 31, 1997 or 1996. 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 $13,300,000 and $12,223,000 of letters of credit outstanding under its revolving credit facility at December 31, 1997 and 1996, respectively. Notes payable to financial institutions consist of a $2,806,000 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. The above agreement provides the respective financial institution with a security interest in the equipment financed with the proceeds from such note. Notes payable include: (i) a $143,000 interest bearing note at a rate of 9.50% payable in equal monthly installments of $48,000, due in April 1998, (ii) a $66,000 interest bearing note at a rate of 9.22% payable in equal monthly installments of $13,000, due in June 1998, (iii), a $79,000 interest bearing note at a rate of 7.50% payable in equal monthly installments of $8,000, due in December 1998, (iv) a $717,000 interest bearing note at a rate of 8.67% payable in equal monthly installments of $48,000, due in July 1999, (v) a $72,000 interest bearing note at a rate of 8.70% payable in equal installments of $5,000, due in June 1999, (vi) a $187,000 interest bearing note at a rate of 7.51% payable in equal monthly installments of $8,000, due in July 1999, (vii) a $1,637,000 interest bearing note at a rate of 8.50% payable in equal monthly installments of $61,000, due in May 2000 and (viii) a $593,000 interest bearing note at a rate of 7.96% payable in equal monthly installments of $20,000, due in October 2000. Current Notes payable include $5,000,000 of unsecured promissory notes bearing interest of 7.25% due June 17, 1998 to the former shareholders of Beneco. The aggregate maturity of long-term debt for the five years ending December 31 is: 1998, $5,226,000; 1999, $7,099,000; 2000, $4,804,000; 2001, $4,313,000; 2002, $4,313,000; 2003 and thereafter, $27,309,000. NOTE 8 - LEASES Future minimum lease payments under noncancelable operating leases total $15,744,000, $13,264,000, $10,659,000, $7,532,000 and $3,308,000 for the years ended December 31, 1998, 1999, 2000, 2001 and 2002, respectively. Lease payments under noncancelable operating leases subsequent to the year ended December 31, 2002 aggregate $6,510,000. In addition to the above, the Company has entered into agreements for the sale and leaseback of certain of the Company's thermal destruction units located at various project sites. The leases are for one or two years with annual renewals at the option of the Company with a maximum term of four or five years each. The leases call for rental payments which total $8,002,000, $8,106,000, $8,106,000, $5,696,000 and $1,223,000 for the years ended December 31, 1998, 1999, 2000, 2001 and 2002, respectively, with required early termination payments of up to $19,986,000, $19,561,000, $12,710,000 or $4,269,000 in the event that some or all of the leases are canceled on or before expiration of the full lease terms in 1998, 1999, 2000 or 2001, respectively. The leases are classified as operating leases in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases". For the year ended December 31, 1997, the total cost and accumulated depreciation 28 31 of $29,701,000 and $13,080,000, respectively, were removed from the accounts and total gains realized on the sales of $2,979,000 were deferred. For the year ended December 31, 1996, the total cost and accumulated depreciation of $11,579,000 and $4,181,000, respectively, were removed from the accounts and total gain realized on the sale of $5,452,000 was deferred. The deferred gains are being amortized to income as adjustments to lease expense over the terms of the leases. Rental expense under operating leases totaled $23,177,000, $14,029,000 and $8,858,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 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, 1997 and 1996 are as follows:
December 31, ------------ 1997 1996 ---- ---- (In Thousands) Long-term deferred tax liabilities: Property and equipment $ 9,410 $ 10,470 Intangible assets 1,726 1,131 Investments 8 2,784 -------- -------- Total long-term deferred tax liabilities 11,144 14,385 Long-term deferred tax assets: Net operating loss ("NOL") carryforwards 22,457 7,571 Intangible assets 1,446 1,840 Research and development tax credits 7,307 5,832 Other tax credit carryforwards 2,421 2,431 Other, net 1,837 3,474 -------- -------- Total long-term deferred tax assets 35,468 21,148 Valuation allowance for long-term deferred tax assets (8,808) (3,358) -------- -------- Total long-term deferred tax assets - net of valuation allowance 26,660 17,790 -------- -------- Net long-term deferred tax assets - domestic operations 15,516 3,405 Foreign tax NOL carryforwards 167 167 Valuation allowance for foreign deferred tax assets (6) (9) -------- -------- Net long-term deferred tax assets $ 15,677 $ 3,563 ======== ======== Current deferred tax liabilities: Revenue recognition $ 2,779 $ -- Prepaid expenses 1,047 1,095 Tax reserves 55 366 -------- -------- Total current deferred tax liabilities 3,881 1,461 Current deferred tax assets: Bad debt reserves 5,941 9,722 Project accruals 4,282 8,709 NOL carryforwards 5,787 1,950 Other, net 3,193 1,196 -------- -------- Total current deferred tax assets 19,203 21,577 Valuation allowance for current deferred tax assets (4,156) (9,603) -------- -------- Total current deferred tax assets - net of valuation allowance 15,047 11,974 -------- -------- Net current deferred tax assets $11,166 $ 10,513 ======= ========
The net foreign long-term deferred tax assets of $161,000 and $158,000 at December 31, 1997 and 1996, 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. 29 32 The provisions for income taxes (benefit) consist of the following:
Years Ended December 31, ------------------------ 1997 1996 1995 ---- ---- ---- (In Thousands) Current: Federal $ -- $ -- $ -- State -- 41 58 --------- ------ ------ -- 41 58 Deferred: Federal (9,429) 4,569 3,036 State (1,013) 766 447 --------- ------ ------ (10,442) 5,335 3,483 --------- ------ ------ $ (10,442) $5,376 $3,541 ========= ====== ======
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, ------------------------ 1997 1996 1995 ---- ---- ---- Federal statutory rate 34.0% 34.0% 34.0% Add (deduct): State income taxes, net of federal benefit 3.2 4.8 3.2 Research and development tax credits 4.3 (8.6) (4.5) Goodwill (1.3) 2.4 1.2 Write-down of investment in NSC Corporation (7.0) -- -- Equity in net earnings of affiliates 0.2 (1.2) (0.8) Other, net (0.4) 0.4 1.1 ---- ----- ----- 33.0% 31.8% 34.2% ==== ==== ====
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 $73,208 2006 through 2012 State net operating losses in excess of federal 14,420 1998 through 2010 Research and development tax credits 7,307 2002 through 2012 Alternative minimum tax credits 1,218 Indefinite Miscellaneous credits 482 1998 through 2005 Foreign tax net operating losses 427 1998
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 $188,000, $1,774,000 and $981,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In the normal course of business, NSC has provided the Company with subcontract services on certain of its projects for asbestos abatement and industrial maintenance services. The costs for such services were $233,000, $40,000 and $212,000 for the years ended December 31, 1997, 1996 and 1995, 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 $23,664,000, $12,959,000 and $10,242,000 for the years ended December 31, 1997, 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 $6,868,000, $7,536,000 30 33 and $6,636,000 for the years ended December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, 1996 and 1995, the Company has $2,831,000, $6,873,000 and $3,871,000 of accounts receivable and $1,385,000, $968,000 and $806,000 of accounts payable, respectively, recorded related to such activities. In addition to the above, WMX paid $15,000,000 to the Company in 1996, which was related to final payments due under terms of the Reorganization Agreement, as amended March 22, 1996. The Company rents certain buildings and contracts certain services from The KDC Company and Findlay Machine and Tool, Inc. Such expenses totaled $318,000, $348,000 and $94,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The principal shareholders of the companies are officers and directors of the Company. The Company has purchased general contractor services and equipment from Alvada Construction, Inc. which totaled $7,000, $957,000 and $226,000 for the years ended December 31, 1997, 1996 and 1995, 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 $1,161,000, $2,265,000 and $615,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The principal shareholders of the company are directly related to certain officers and directors of the Company. 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 $118,000, $124,000 and $102,000 pursuant to this agreement during the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 11 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) NUMERATOR Net income (loss) $ (21,197) $ 11,515 $ 6,807 $ (7,616) $ 4,407 =========== ========== ========= ========== ========= DENOMINATOR Denominator for basic earnings per share -weighted-average shares 27,210 26,820 22,211 15,582 12,250 Effect of dilutive employee stock options -- 20 202 -- 204 --------- --------- --------- --------- --------- Denominator for diluted earnings per share -adjusted weighted-average shares and assumed conversions 27,210 26,840 22,413 15,582 12,454 ========== ========== ========== ========== ========== Net (loss) income per common share $ (0.78) $ 0.43 $ 0.31 $ (0.49) $ 0.36 ========= ========= ========= ========= ========= Net (loss) income per common share - assuming dilution $ (0.78) $ 0.43 $ 0.30 $ (0.49) $ 0.35 ========= ========= ========= ========= =========
See "Note 19 - Subsequent Events" for additional disclosure regarding employee stock options, warrants and repurchase of outstanding shares. 31 34 NOTE 12 - CAPITAL 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, 1997. 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. 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. See "Note 19-Subsequent Events." NOTE 13 - STOCK OPTION PLANS 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 666,441 and 1,161,674 at December 31, 1997 and 1996, 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, 1997 and 1996 was 785,000 and 805,000, 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. Total expense recognized for the year ended December 31, 1997 in connection with shares issued under this plan is $226,844. See "Note 19 - Subsequent Events" for disclosure of disposition of shares in the aforementioned plans. 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 had 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. The following assumptions were used in the valuation, and no dividends were assumed: 32 35
1997 1996 1995 ---- ---- ---- Average expected life (years) 6 7 7 Expected volatility 0.41 0.46 0.46 Risk free interest rate 6% 6% 6% Weighted average fair value of options granted during the year $3.83 $4.20 $5.40
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, ------------------------ 1997 1996 1995 ---- ---- ---- (In Thousands, Except Per Share Data Net (loss) income $ (22,284) $ 10,901 $ 6,428 Net (loss) income per share $ (0.82) $ 0.41 $ 0.29
The following is a summary of the stock option activity:
Number Weighted Average of Shares Exercise Price --------- -------------- 1986 PLAN Outstanding at January 1, 1995 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 Granted 807,000 8.20 Exercised (106,195) 7.69 Canceled (311,767) 8.28 ----------- Outstanding at December 31, 1997 2,496,028 8.36 =========== Exercisable at December 31, 1996 1,037,008 8.44 =========== Exercisable at December 31, 1997 1,221,738 8.54 =========== DIRECTORS' PLAN Outstanding at January 1, 1995 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 Granted 35,000 7.50 Canceled (15,000) 11.75 ----------- Outstanding at December 31, 1997 215,000 9.48 =========== Exercisable at December 31, 1996 180,000 10.20 =========== Exercisable at December 31, 1997 215,000 9.48 ===========
33 36 Exercise prices for options outstanding as of December 31, 1997 for the 1986 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 7.5 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 $2,718,000, $2,691,000 and $1,643,000 to the Plan for the years ended December 31, 1997, 1996 and 1995, 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. Total expense was $564,000 and $154,000 for the years ended December 31, 1997 and 1996, respectively. NOTE 15 - LITIGATION AND CONTINGENCIES 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 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. Management believes that it has established adequate reserves should the resolution of the above matter be lower than the amounts recorded and for other matters in litigation or other claims and disputes. There is, however, always risk and uncertainty in pursuing and defending litigation and arbitration proceedings in the course of the Company's remediation 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. NOTE 16 - MAJOR CUSTOMERS Revenue from federal government agencies accounted for 72%, 72% and 71% of total revenue from continuing operations for the years ended December 31, 1997, 1996 and 1995, respectively. Revenue from state and local government agencies accounted for 7%, 5% and 5% of total revenue from continuing operations for the years ended December 31, 1997, 1996 and 1995, respectively. There were no industrial customers which accounted for more than 10% of total revenue for the years ended December 31, 1997, 1996 and 1995. NOTE 17 - SPECIAL CHARGES During June 1997, the Company settled litigation that was pending involving Citgo Petroleum Corporation ("Citgo") and Occidental relating to a remediation project which was performed by the Company for Citgo at its Lake Charles, Louisiana refinery during 1993 and 1994. Under the terms of the settlement with Citgo and Occidental, the Company received a cash payment of $14,346,000. In addition, as a result of an unfavorable binding arbitration decision on the dispute between the Company and Separation and Recovery Systems, Inc. ("SRS") arising out of the Company's termination of SRS' subcontract for services at a project in Cincinnati, Ohio, the Company paid SRS $2,400,000 in damages. The settlement and write-down 34 37 of the aforementioned claims and litigation, together with other receivables and the establishment of reserves for the consolidation of certain laboratory and operational functions resulted in the Company recording a $22,726,000 (net of $15,151,000 income tax benefit), charge during the second quarter of 1997. The Company plans to divest its 40% share of NSC Corporation. As a result, the Company recorded, in addition to the charge described above, a $12,089,000 (net of $2,860,000 income tax benefit), charge during the second quarter of 1997, to reduce the carrying value of its NSC investment to reflect the likely value to be realized given the Company's current intentions. See "Note 19 - Subsequent Events". 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), 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. NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth the Company's condensed consolidated statements of operations by quarter for 1997 and 1996.
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In Thousands, Except Per Share Data) 1997 - ---- Revenue $ 108,498 $ 129,313 $ 143,656 $ 145,224 Gross profit 13,851 17,874 20,909 19,501 Selling, general and administrative expenses 10,409 49,368 11,972 12,188 Operating income (loss) 3,442 (31,494) 8,937 7,313 Net income (loss) (1) $ 1,438 $ (31,609) $ 4,914 $ 4,060 ========= ========= ========= ========= Basic and diluted net income (loss) per share $ 0.05 $ (1.16) $ 0.18 $ 0.15 ========= ========= ========= ========= 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 ========= ========= ========= ========= Basic and diluted net income per share $ 0.05 $ 0.09 $ 0.15 $ 0.14 ========= ========= ========= =========
NOTES: (1) During the second quarter of 1997, the Company recorded a $34,815,000 charge (net of income tax benefit of $18,011,000) or $1.28 per share, charge for the settlement and write-down of certain claims and litigation, establishment of reserves for the consolidation of certain laboratory and operational functions, and the reduction of the carrying value of its NSC investment. NOTE 19 - SUBSEQUENT EVENTS (UNAUDITED) The Company has entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated January 15, 1998, by and among the Company, International Technology Corporation ("Parent") and IT-Ohio, Inc. ("Purchaser"). Pursuant to the Merger Agreement, on February 25, 1998 Purchaser, a wholly owned subsidiary of Parent, completed a tender offer (the "Offer") for 13,933,000 shares of Common Stock (each, a "Share" and collectively, the "Shares") by purchasing such Shares at a price of $11.50 per Share, net to the tendering shareholder in cash. The Offer was described in the Tender Offer Statement on Schedule 14D-1 filed by Purchaser on January 16, 1998 with the Securities and Exchange Commission (the "Commission"). The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions precedent (including the approval of the Merger Agreement by holders of a majority of the outstanding Shares), Purchaser will merge with and into 35 38 the Company (the "Merger"), and the Company will be the surviving corporation in the Merger, with the result that the Company will become a wholly owned subsidiary of Parent. Based upon the preliminary results of the Offer and on the number of shares of Common Stock outstanding on February 24, 1998, at the effective time of the Merger, each remaining Share outstanding will be converted into the right to receive approximately 1.077 shares of the common stock of Parent and approximately $2.61 in cash. James L. Kirk, Joseph R. Kirk, H. Wayne Huizenga and The Huizenga Family Foundation, all shareholders of the Company, have entered into voting agreements whereby they agree to vote their shares of Common Stock in favor of the Merger. Pursuant to the Merger Agreement and the Share Repurchase Agreement, dated as of January 15, 1998 and as amended and restated as of February 11, 1998 and as amended and restated as of February 17, 1998 (the "Repurchase Agreement"), by and among the Company, Parent, WMX, Rust and Rust Remedial Services Holding Company Inc., an affiliate of WMX, the Company repurchased from WMX and its affiliates 2,535,381 Shares for $11.50 per Share, concurrently with the payment for Shares pursuant to the Offer (the "Repurchase"), and WMX and its affiliates tendered 7,111,543 Shares in the Offer. Pursuant to the Repurchase Agreement, WMX and its affiliates also agreed to vote all Shares held by them in favor of the Merger. WMX also agreed to cancel, without payment of any separate consideration, the Warrants and any rights it may have to purchase additional shares of Common Stock. In addition, the Guaranty Agreement and related guarantees as well as key provisions of the Standstill Agreement will terminate upon consummation of the Merger. The Company also has an approximately 40% interest in NSC Corporation ("NSC"), a provider of asbestos abatement and specialty contracting services. Pursuant to the Merger Agreement, the Company will pay a pro rata distribution (the "NSC Distribution") to holders of record of the Shares as of the close of business on February 24, 1998, of all of the shares of Common Stock, par value $0.01 per share, of NSC held by the Company (the "NSC Shares"). The payment date for the NSC Distribution is March 6, 1998, which is the earliest date on which the NSC Distribution may be paid under the Company's Regulations. It is anticipated that the NSC Distribution will be treated as a pro rata taxable redemption that qualifies as a sale or exchange for tax purposes. In connection with the Company's entry into the Merger Agreement and by resolution of the Company's Board of Directors, the Company's 1986 Stock Option Plan and the Company's Nonqualified Stock Option Plan for Directors were amended to immediately vest each non-vested stock option issued under such plans and to give each of the option holders the right to cancel their options in exchange for a cash payment equal to the difference between $11.50 per share and the respective exercise price of each option. In addition, the Company's Board of Directors took action to allow holders of the restricted stock issued under the Company's Incentive Stock Plan to tender such stock in the Offer. As a result of the above actions, the Company will incur up to $9,400,000 of compensation expense during the first quarter of 1998 if all of the stock option holders elect to receive the cash payment for their outstanding options. In addition, pursuant to that certain letter agreement, dated as of January 15, 1998, by and between H. Wayne Huizenga and the Company, all of the outstanding options held by H. Wayne Huizenga were cancelled as of February 25, 1998 in consideration of $1,500,000. The consummation of the transactions contemplated by the Merger Agreement is subject to the satisfaction of various conditions, including, without limitation: (i) the approval by the stockholders of Parent for the issuance of shares of Parent Common Stock pursuant to the Merger Agreement, and (ii) the approval of the Merger Agreement and the Merger by the shareholders of the Company. The Company received early termination of the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act during January 1998. The accompanying financial statements were prepared assuming the Company would continue operations independently and do not anticipate adjustments which may be required as a result of the Merger. The Merger will be accounted for using the purchase method and as a result may impact the carrying value of certain of the Company's assets and liabilities. 36 39 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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. /s/ ERNST & YOUNG LLP Columbus, Ohio February 12, 1998 37 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Other Relationships Name Age with the Company and Business Experience ---- --- ---------------------------------------- Herbert A. Getz 42 Director and member of the Compensation and Stock Option Committee. Mr. Getz has been Senior Vice President of WMX since May 1995 and General Counsel of WMX since August 1992. Mr. Getz also served as Vice President from May 1990 to May 1995 and as Secretary of WMX since January 1988. Mr. Getz served as Assistant General Counsel from December 1985 until August 1992. Mr. Getz has also held the offices of Vice President, General Counsel and Secretary of Waste Management of North America, Inc., a provider of solid waste management services, from April 1989 until December 1993, and Vice President and Secretary of Rust, a provider of engineering, construction, environmental, infrastructure, consulting services and other on-site industrial and related services, from January 1993 to May 1994. He has also served as Vice President and Secretary of Wheelabrator Technologies Inc. ("WTI") a provider of environmental products and services, from July 1995 until January 1997, as well as being the General Counsel of WTI from November 1990 until May 1993. Mr. Getz is a director of NSC. Ivan W. Gorr 68 Director and Chairman of the Audit Committee and member of the Compensation and Stock Option and Executive Committees. Mr. Gorr retired as Chairman of the Board of Directors and Chief Executive Officer of Cooper Tire & Rubber Company of Findlay, Ohio, a manufacturer of tires and other rubber products. Mr. Gorr is a director of Amcast Industrial Corporation, Arvin Industries, Inc., The Fifth Third Bancorp and Borg-Warner Automotive. Dr. Charles D. Hollister 60 Director and member of the Audit Committee. Since 1979, Dr. Hollister has been Senior Scientist and Vice President of Woods Hole Oceanographic Institution, Woods Hole, Massachusetts, a non-profit oceanographic research institution William P. Hulligan 54 Director and member of the Executive Committee. Mr. Hulligan served as Vice President of WMX from February 1997 until his retirement in November 1997 and now serves as a consultant to WMX. Prior to this position, he was Executive Vice President of WMX from January, 1996 until February, 1997, President of the Midwest Group of Waste Management, Inc., from March 1993 until January 1996, and President of the East Group of Waste Management, Inc. from 1992 until March 1993. Mr. Hulligan is a director of National Seal Company and NSC. James L. Kirk (1) 48 Chairman of the Board of Directors, President and Chief Executive Officer and Chairman of the Executive Committee. Mr. Kirk has been President and Chief Executive Officer of the Company since July 1986 and, in addition, was elected Chairman of the Board in January 1987. He has served as Chairman of the Board and President of OHMR, a wholly-owned subsidiary of the Company, 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 (1) 46 Director. Mr. Kirk has served as a Director of the Company since July, 1986. Mr. Kirk also served as Executive Vice President from July 1986 until February, 1998. Mr. Kirk served as Vice Chairman of OHMR from April 1985 until July 1986 and continues to serve as Executive Vice President of OHMR. He is a founder of OHMR and has served in various capacities as an officer and director of OHMR.
38 41 James E. Koenig 50 Director and member of the Audit Committee. Mr. Koenig served as Executive Vice President of WMX and President of Waste Management Shared Services from February 1997 until October 1997 and remains an employee of WMX. Prior to this position, he was Senior Vice President of WMX from May 1992 until February 1997, Chief Financial Officer of WMX since 1989 and Vice President and Treasurer of WMX since December 1986. Mr. Koenig served as Vice President, Chief Financial Officer and Treasurer of WTI from November 1990 to May 1993 and Vice President, Chief Financial Officer and Treasurer of Rust from January 1993 to August 1993. Richard W. Pogue 69 Director and member of the Executive Committee. Mr. Pogue is a consultant with Dix & Eaton, a public relations firm. Effective June 30, 1994, Mr. Pogue retired as Senior Partner of the law firm of Jones, Day, Reavis & Pogue, Cleveland, Ohio, of which he had been a partner since 1961. Mr. Pogue is also a director of Continental Airlines, Inc., Derlan Industries Limited, M.A. Hanna Company, KeyCorp, LAI Associates, Inc., Rotek Incorporated and TRW Inc. Charles W. Schmidt 68 Director and Chairman of the Compensation and Stock Option Committee and member of the Executive Committee. Mr. Schmidt retired in 1991 as Senior Vice President, External Affairs of Raytheon Company, a broadly diversified manufacturer of industrial and consumer products, and was formerly President and Chief Executive Officer of SCA Services, Inc., a company that provided waste management-related services. Mr. Schmidt also serves as a director of the Massachusetts Financial Services Family of Mutual Funds and Mohawk Paper Company.
(1) James L. Kirk and Joseph R. Kirk are brothers. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under the securities laws of the United States, the Company's directors, executive officers, and any persons holding more than ten percent of the Company's Common Stock are required to report their initial ownership of the Company's Common Stock and any subsequent changes in that ownership to the Commission. Specific due dates for these reports have been established and the Company is required to disclose in its Proxy Statement any failure to file by these dates. All of these filing requirements were satisfied except that James L. Kirk failed to report a September 26, 1997 sale of 25,900 shares in his September, 1997 Form 4, but did report that sale in an amended Form 4 filed on February 10, 1998, and Pamela K. M. Beall, Vice President, Treasurer and Assistant Secretary and Fred H. Halvorsen, Vice President, Health and Safety, each filed one late Form 4 reporting an exercise of stock option. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are listed below:
NAME AGE POSITIONS - ---- --- --------- James L. Kirk 48 Chairman of the Board, President and Chief Executive Officer Joseph R. Kirk 46 Executive Vice President and a Director Pamela K.M. Beall 41 Vice President, Treasurer and Assistant Secretary Robert J. Blackwell 41 Vice President, Marketing and Strategic Planning Fred H. Halvorsen 56 Vice President, Health and Safety Kris E. Hansel 40 Vice President and Controller Steven E. Harbour 49 Vice President, Legal and Secretary Phillip V. Petrocelli 39 Vice President, Western Operations Philip O. Strawbridge 43 Vice President, Chief Financial and Administrative Officer Michael A. Szomjassy 47 Vice President, Eastern Operations
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. 39 42 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 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 in November 1988 as General Accounting Manager 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. 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 Region 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. In addition, Mr. Strawbridge has served as Senior Vice President and Director of OHMR since October 1996. Prior to joining the Company, Mr. Strawbridge was Senior Director of Contracts and Finance with Fluor Daniel, Inc. and an acting Vice President of Fluor Daniel Fernald. 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. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following table shows, for the fiscal years ended December 31, 1997, 1996 and 1995, the cash compensation paid by the Company and its subsidiaries, as well as certain other compensation paid or accrued for those years, to each of the five most highly compensated executive officers of the Company in 1997, including the Chief Executive Officer of the Company, in all capacities in which they served: 40 43 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS STOCK OPTIONS ANNUAL COMPENSATION GRANTED (#) ------------------- --------------------------------------------------------- RESTRICTED SECURITIES SALARY BONUS OTHER ANNUAL STOCK UNDERLYING ALL OTHER ------ ----- COMPENSATION AWARDS OPTIONS COMPENSATION NAME OF PRINCIPAL POSITION YEAR ($) ($) ($) (1) ($) (2) (#) (3) ($) (4) - -------------------------- ---- --- --- ------- ------- ------- ------- James L. Kirk 1997 452,830 256,750 0 0 125,000 23,883 Chairman, President 1996 376,747 0 44,841 351,750 68,279 17,568 and Chief Executive Officer 1995 330,013 0 0 0 70,000 5,347 Michael A. Szomjassy 1997 281,363 155,995 0 0 50,000 41,748 Vice President, 1996 288,093 25,000 0 150,750 65,275 14,682 Eastern Operations 1995 256,266 0 0 0 25,000 5,184 Philip V. Petrocelli 1997 274,122 125,500 0 0 50,000 110,677 Vice President, 1996 264,040 65,476 0 143,375 100,489 76,528 Western Operations 1995 232,513 50,000 50,839 25,000 25,000 19,435 Philip O. Strawbridge 1997 262,376 119,000 0 0 75,000 109,817 Vice President and 1996 187,321 0 0 108,875 22,967 47,305 Chief Financial Officer 1995 0 0 0 0 0 0 Robert J. Blackwell 1997 251,708 114,000 0 0 42,000 108,000 Vice President, Marketing 1996 225,349 28,125 25,505 125,625 66,092 36,621 and Strategic Planning 1995 193,768 30,000 0 0 25,000 29,591
(1) Amounts in 1996 include $37,392 and 0 for financial planning services; $2,126 and $3,377 for country club dues; and $5,323 and $11,845 representing earnings on the contributions made to the retirement deferral accounts in accordance with the Company's Retirement and Incentive Compensation Plan for Messrs. James L. Kirk and Robert J. Blackwell, respectively. Amount in 1996 for Mr. Blackwell includes $7,583 for miscellaneous perquisites and $2,700 for imputed interest. Amount in 1995 for Mr. Petrocelli includes $43,938, $4,466, and $2,435 paid to him for reimbursement of tax costs in connection with the relocation of his principal residence, imputed interest and miscellaneous perquisites, respectively. (2) Represents 42,000, 18,000, 17,000, 13,000 and 15,000 shares of restricted stock which were granted to Messrs. James L. Kirk, Szomjassy, Petrocelli, Strawbridge and Blackwell, respectively, the value of which was $8.375 per share as of December 31, 1996. (3) Amounts in 1996 include 69,453, 31,135, and 38,092 stock options which were granted to Messrs. Petrocelli, Szomjassy, and Blackwell, respectively, on May 9, 1996 in exchange for the surrender of previously granted options. (4) Amounts in 1995 for Messrs. Petrocelli and Blackwell include $14,286 and $25,000, respectively, in loans forgiven by the Company. Amount in 1996 for Mr. Strawbridge includes $47,261 for a relocation expenses. Amount in 1996 for Mr. Petrocelli includes $19,048 for a loan forgiven by the Company. Amounts in 1996 include matching contributions to each individual's Retirement and Incentive Compensation Plan account of $17,568, $14,682, $57,480, and $36,561, on behalf of Messrs. James L. Kirk, Szomjassy, Petrocelli, and Blackwell, respectively. Amounts in 1997 for Messrs. Petrocelli, Strawbridge, and Blackwell include $14,285, $10,000 and $20,000, respectively, in loans forgiven by the Company. See 'Certain Relationships and Related Transactions -- Transactions with Management." Amounts in 1997 include matching contributions to each individual's Retirement and Incentive Compensation Plan account of $22,347, $35,320, $89,165, $92,600, and $79,931; and matching contributions to each individual 401(k) account of $0, $5,712, $6,352, $6,352 and $6,352, on behalf of Messrs. Kirk, Szomjassy, Petrocelli, Strawbridge, and Blackwell, respectively. On December 30, 1997, pursuant to resolutions approved by the Board of Directors, the vested portion of each individual's Retirement and Incentive Compensation Plan account was distributed to Messrs. James L. Kirk, Szomjassy, Petrocelli, Strawbridge, and Blackwell, in the amounts of $109,896,$95,489,$312,464, $123,894, and $257,233, respectively. 41 44 STOCK OPTIONS The following table sets forth information with respect to grants of options pursuant to the Company's 1986 Stock Option Plan made to the executive officers named in the Summary Compensation Table during the 1997 fiscal year.
STOCK OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS --------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF SECURITIES OPTIONS EXERCISE STOCK PRICE UNDERLYING GRANTED TO OR APPRECIATION FOR OPTIONS EMPLOYEES BASE OPTION TERM GRANTED IN FISCAL PRICE EXPIRATION 5% 10% NAME (#) YEAR ($/SH) DATE ($) ($) - ---- ----- ------ -------- ------ -------- ------ James L. Kirk 125,000 15.49 8.500 02/12/07 $668,200.54 $1,693,351.36 Philip O. Strawbridge 75,000 9.29 8.500 02/12/07 $400,920.32 $1,018,010.82 Michael A. Szomjassy 50,000 6.20 8.500 02/12/07 $267,280.22 $677,340.55 Robert J. Blackwell 42,000 5.20 8.500 02/12/07 $224,515.38 $568,966.06 Philip V. Petrocelli 50,000 6.20 8.500 02/12/07 $267,280.22 $677,340.55
OPTION EXERCISES AND HOLDINGS The following table sets forth information with respect to the executives named in the Summary Compensation Table concerning the exercise of options during the last fiscal year and the value of unexercised options held as of the end of the fiscal year. 42 45 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Name Number of Securities - ---- Underlying Value of Unexercised Unexercised in-the-Money Options Shares Value Realized Options at FY-End (#) at FY-End ($) acquired (Market price at --------------------- ------------- on exercise exercise less (#) exercise price) Exercisable Unexercisable Exercisable Unexercisable --- --------------- ----------- ------------- ----------- ------------- James L. Kirk --- --- 249,070 214,209 21,000 14,000 Michael A. Szomjassy --- --- 110,558 89,717 7,500 5,000 Philip V. Petrocelli --- --- 89,901 85,558 7,500 5,000 Philip O. Strawbridge --- --- 11,992 110,975 1,563 4,688 Robert J. Blackwell --- --- 49,530 83,562 7,500 5,000
Pursuant to the Merger Agreement, each holder of an option to purchase a share of Company Common Stock was required to elect how their options would be treated as a result of the Merger Agreement. Option-holders could elect that each option, whether vested or unvested, exercisable or unexercisable, be converted into the right to receive an amount in cash equal to the excess of $11.50 over the exercise price per share subject to the option, multiplied by the number of shares subject to the option. Alternatively, option-holders could elect to receive an option to acquire, on the same terms and conditions as were applicable to the option-holder's existing option, a number of shares of Parent Common Stock equivalent to the number of shares that could have been purchased under the option-holder's option multiplied by 1.394 (rounded up to the nearest whole number of shares of Parent Common Stock). The exercise price under the new Parent options would be equal to the exercise price for the shares under the existing Company options divided by 1.394 (rounded up to the nearest whole cent). In the case of any Company option to which Section 422 of the Internal Revenue Code of 1986, as amended applied, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option was determined in accordance with the foregoing, subject to such adjustments as were necessary in order to satisfy the requirements of Section 424(a) of the Internal Revenue Code of 1986, as amended (the "Code") RETIREMENT AND INCENTIVE COMPENSATION PLAN Effective January 1, 1996, the Board of Directors of the Company adopted the Executive Retirement Plan and subsequently amended it on June 21, 1996 and renamed the plan as the Retirement and Incentive Compensation Plan ("RICP"). The RICP is administered by the Compensation and Stock Option Committee. The principal purpose of the RICP is to allow executive officers to defer current federal income taxation of their compensation and, along with the Company's matching contribution, accumulate monies towards retirement in the absence of any Company retirement plan, other than the Company's Retirement Saving Plan which severely restricts officer participation due to certain Internal Revenue Service limitations. Pursuant to the terms of the RICP, executive officers may defer up to 50% of their compensation during any year, provided that such executive officer may not defer more than 30% of his or her compensation during any year to such individual's Retirement Deferral Account (as described below). The Company matches 50% of the amounts deferred by the participant and deposited into the Retirement Deferral Account and matches 100% of the amounts deferred by the participant and deposited into the OHM Common Stock Deferral Account. The participant's contribution, plus the Company match, remain unfunded by the Company until paid to the participant at retirement or other termination of employment. Any amounts deferred by the participant and deposited into the Retirement Deferral Account, and Company matching contributions, are credited monthly with interest at the prime rate and are increased yearly by the annual increase in the S&P 500 index if such increase exceeds the interest credited monthly to the participant during the calendar year. Any amounts deferred by the participant and deposited into the OHM Common Stock Deferral 43 46 Account, and Company matching contributions, are credited monthly in units on the basis of the average of the market value of the Company's Common Stock during the preceding calendar month. OHM CORPORATION RETIREMENT SAVINGS PLAN The Company's Retirement Savings Plan (the "Retirement Plan") was established in 1986. Officers of the Company, together with substantially all full-time salaried employees and certain other employees of the Company and its subsidiaries, are eligible to participate in the Retirement Plan. Participants may make basic contributions of up to a combination of 15% of their compensation, as defined in the Retirement Plan, which qualify for deferred tax treatment under Section 401(k) of the Code. The Company makes matching contributions of 100% of the first two percent of the participant's compensation contributed to the Retirement Plan and 50% of the next four percent of the participant's compensation contributed to the Retirement Plan. Matching contributions are allocated to the accounts of participants in the Retirement Plan who have completed two years of service. The Company also may, in its discretion, make profit sharing contributions to the Retirement Plan which will be allocated to all eligible employees. All participant contributions are invested at the direction of the participant, and all profit sharing contributions are invested at the direction of the Retirement Plan committee. Matching contributions are made in Company stock and, upon allocation to a participant's account, may be reinvested at the direction of the participant. Amounts attributable to the Company's matching contributions vest upon the earlier of (i) the completion of two years of service, or (ii) the participant's death, disability or attaining age 65 while an employee. During 1997, an aggregate of $46,472 was contributed as matching contributions under the Retirement Plan to the accounts of all executive officers as a group. Matching contributions for the five most highly compensated executed officers named are shown above under the heading "Executive Compensation and Other Information, Summary of Cash and Certain Other Compensation." The Company made no profit sharing contributions to the retirement plan during 1997. DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN The Company recognizes the importance of attracting and retaining outstanding individuals as directors and of stimulating the active interest of these persons in the development and financial success of the Company. In addition, the Company endorses the position that stock ownership arrangements are beneficial in aligning Directors' and shareholders' interests in the enhancement of shareholder value. The Board of Directors believes that the Directors' Non-Qualified Stock Option Plan (the "Director Option Plan") is a significant factor in furtherance of these objectives and intends, through the Director Option Plan, to increase the Company's profits by providing such persons with opportunities to acquire shares of the Common Stock of the Company on advantageous terms. Only Directors who are not employees of the Company and its subsidiaries are eligible to participate in the Director Option Plan. The Director Option Plan provides that the total number of shares that may be sold upon the exercise of stock options shall not exceed 1,000,000 shares of Common Stock. The Director Option Plan is of indefinite duration and will continue in effect until all shares reserved for options thereunder have been sold or until earlier termination of the Director Option Plan. The Director Option Plan provides for automatic grants of options to purchase shares of Common Stock of the Company to Directors of the Company who are not employees of the Company or its subsidiaries. Under the Director Option Plan, each person who was an incumbent non-employee Director of the Company received an option to purchase 15,000 shares of Common Stock, as of August 6, 1992, the effective date of the Director Option Plan, provided that the total number of shares each optionee was eligible to receive was reduced by the number of shares of Common Stock subject to prior option grants to such Director. Each person who first becomes a non-employee Director of the Company after the effective date is entitled to receive an option to purchase 15,000 shares of Common Stock as of the date such person first became a non-employee Director. Each person who is a non-employee Director of the Company is entitled to receive an option to purchase 5,000 shares of Common Stock immediately after each of the Company's annual meetings of shareholders. An option is exercisable in full upon six months of continuous service as a non-employee Director. Options granted under the Director Option Plan are options that do not qualify under particular provisions of the Code. The Director Option Plan is administered by employee directors who are not eligible to participate in the Director Option Plan. DIRECTORS' DEFERRED FEE PLAN The Board of Directors has adopted the Directors' Deferred Fee Plan (the "Deferred Fee Plan"), the purpose of which is to help solidify the common interest of Directors and shareholders in enhancing the value of the Company's Common Stock. It is also intended that the Deferred Fee Plan will assist in attracting and retaining qualified individuals to serve as Directors. The Deferred Fee Plan will give those Directors who are not also employees of the Company an opportunity to defer current federal income taxation of all or a portion of their annual retainer and meeting fees payable by the Company for their services as a Director. 44 47 Under the terms of the Deferred Fee Plan, a Director may elect to have his or her Director's fees credited to an account in either cash or units (an accounting unit equal in value to one share of Common Stock). Deferred fees that a Director elects to have credited in cash will be credited to the Director's account as they become payable to the Director. A Director's account to which fees have been credited in cash will earn interest annually at the rate of interest payable on one-year U.S. Treasury Bills or such other rate as the Committee designated by the Deferred Fee Plan may establish. In no event, however, will the rate of interest be more than five percent higher than the rate payable on such U.S. Treasury Bills. Deferred fees payable in units will be credited, together with an amount equal to 10% of such deferred fees, to a Director's account after the end of the fiscal year on the basis of the average of the market values of the Common Stock on the last trading day in each calendar month during the year. Each account to which fees have been credited in units shall be credited annually after the end of each fiscal year with additional units equal in value to the amount of cash dividends paid by the Company during such year on Common Stock equivalent to the average daily balance of units in such account during the year. The maximum number of units that may be granted under the Deferred Fee Plan during its term is 100,000 in the aggregate. The Deferred Fee Plan is administered by a Committee consisting of the Chairman of the Board (provided he is an employee-director) and two Company officers or directors who are employee-directors appointed by the Chairman of the Board. EMPLOYMENT AND INDEMNIFICATION AGREEMENTS The Company has entered into agreements with the executive officers named in the Summary Compensation Table and certain other executive officers providing that in the event of any "change in control" of the Company, such officers would continue their employment with the Company in their present position for terms of approximately three years following such change in control. During such term of employment, each such officer would be entitled to receive base compensation and to continue to participate in incentive and employee benefit plans at levels no less favorable to him than prior to commencement of the term or to receive a lump sum payment, following the termination of his employment. Benefits under these agreements are subject to an overall limitation which assures that payments will not constitute "excess golden parachute payments" under federal income tax law. While each of such agreements is presently in effect, none become operative until a change in control of the Company has occurred, prior to which time the Company and such officer each reserves the right at any time with or without cause to terminate their employment relationship. The transactions that are deemed to result in a change in control for the purposes of these agreements include (a) merger or consolidation of the Company with, or sale of all or substantially all its assets to another corporation, as a result of which less than a majority of the voting shares of the surviving entity are owned by former stockholders of the Company; (b) any person becoming the beneficial owner of 25% or more of the voting stock of the Company; (c) reporting by the Company under specified provisions of the federal securities laws that a change in control has occurred; and (d) when within any two-year period, a majority of directors at the beginning of such period (not including persons approved by at least two-thirds of the Directors still in office who were directors at the beginning of such period) cease to be directors of the Company. Effective December 12, 1995, the Company terminated the employment agreements in effect as of such date and, effective as of January 1, 1996, entered into revised employment agreements with the executive officers of the Company. The revised employment agreements include the provisions described above, except that the Board of Directors may, by vote of three-quarters of the members, determine that a change in control described in (b) above will not cause the employment agreement to become operative. The Company has also entered into indemnification agreements (the "Indemnification Agreements") with each current member of the Board of Directors as well as with each executive officer of the Company. The form and execution of the Indemnification Agreements were approved by the Company's shareholders. The Indemnification Agreements were amended as of January 1, 1996 to provide that Ohio law determines the rights and responsibilities of the Company and the indemnitee. The amendment was necessary to reflect the Company's reincorporation under Ohio law previously approved by the shareholders. Such agreements essentially provide that, to the extent permitted by Ohio law, the Company will indemnify the indemnitee against all expenses, costs, liabilities and losses (including attorney's fees, judgments, fines or settlements) incurred or suffered by the indemnitee in connection with any suit in which the indemnitee is a party or otherwise involved as a result of his service as a member of the Board or as an officer. The Company also has entered into certain employment agreements with twelve officers and employees of subsidiaries of the Company for up to one year in the form of severance and retention agreements to assist in the transition resulting from the Merger. COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Gorr, Getz and Schmidt are members of the Compensation and Stock Option Committee of the Board of Directors of the Company. Mr. Getz is employed by WMX, which beneficially owns 37.63% of the Company's Common Stock. WMX and its affiliates and the Company are parties to various agreements, including the Guaranty Agreement, the Warrant Agreement and the Standstill and Non-Competition Agreement discussed below. See "Certain Relationships and Related Transactions." 45 48 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's Common Stock is the Company's only outstanding class of voting securities. The following table sets forth certain information as of January 10, 1998 with respect to the beneficial ownership of the Company's Common Stock by (i) holders of 5% or more of the outstanding Common Stock, (ii) each Director of the Company, (iii) the executive officers named in the Summary Compensation Table under "Executive Compensation and Other Information" and (iv) all Directors and executive officers of the Company as a group.
AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE NAME OWNERSHIP (1) OF CLASS - ---- ------------- -------- WMX Technologies, Inc. (2) 3003 Butterfield Road Oak Brook, Illinois 60521 10,368,000 37.63% State of Wisconsin Investment Board (3) P.O. Box 7842 Madison, Wisconsin 53707 1,517,000 5.51% H. Wayne Huizenga (4) 200 South Andrews Avenue Fort Lauderdale, Florida 33301 1,500,000 5.25% James L. Kirk (5)(6)(7) 2,280,960 8.14% Joseph R. Kirk (5)(6)(7) 2,569,138 9.25% Herbert A. Getz (6) 25,000 * Ivan W. Gorr (6)(8) 50,606 * Dr. Charles D. Hollister (6) 40,000 * William P. Hulligan(6) 20,000 * James E. Koenig (6)(7) 25,150 * Richard W. Pogue (6)(7) 53,000 * Charles W. Schmidt (6)(7)(8) 78,190 * Robert J. Blackwell (6) 173,076 * Philip V. Petrocelli (6)(8) 212,735 * Philip O. Strawbridge (5)(6)(8) 148,274 * Michael A. Szomjassy (5)(6)(8) 223,159 * All Directors and executive officers as a group (17 persons) (5)(6) 6,122,185 20.87%
* less than 1%. (1) Information with respect to beneficial ownership is based on information furnished to the Company by each shareholder included in this table. Except as indicated in the notes to the table, each shareholder included in the table has sole voting and investment power with respect to the shares shown to be beneficially owned. Beneficial ownership is calculated in accordance with the rules and regulations of the Commission. (2) According to a Schedule 13D dated June 8, 1995 jointly filed by WMX , Chemical Waste Management, Inc., Rust Holding Company Inc., and Rust International Inc. Assumes the exercise of warrants currently exercisable to purchase 700,000 shares of Common Stock pursuant to that certain Warrant Agreement between the Company and WMX described below. (3) According to an Amendment No. 8 to Schedule 13G filed by the State of Wisconsin Investment Board. (4) According to a Schedule 13D, dated April 1, 1995, filed by Mr. Huizenga. Assumes the exercise of options currently exercisable or exercisable within 60 days to purchase 1,000,000 shares of Common Stock, but does not include 500,000 shares of Common Stock owned by the Huizenga Family Foundation, Inc. as to which Mr. Huizenga disclaims beneficial ownership. 46 49 (5) The address of the shareholder is c/o OHM Corporation, 16406 U.S. Route 224 East, Findlay, Ohio 45840. (6) Assumes the exercise of options to purchase 463,279, 210,000, 25,000, 40,000, 40,000, 20,000, 25,000, 40,000, 30,000, 133,092, 175,489, 122,967, 200,275, and 1,737,494 by Messrs. James L. Kirk, Joseph R. Kirk, Getz, Gorr, Hollister, Hulligan, Koenig, Pogue, Schmidt, Blackwell, Petrocelli, Strawbridge, Szomjassy, respectively, and all directors and executive officers as a group, respectively. (7) Includes 20,562 shares of Common Stock held in three trusts by Mr. James L. Kirk's wife as trustee for the benefit of the Kirk's children, and 2,600 held in trust by Mr. James L. Kirk's daughter as trustee for the benefit of Mr. Kirk's grandchild, as to which Mr. James L. Kirk disclaims beneficial ownership. Includes 30,201 shares of Common Stock held in three trusts by Mr. Joseph R. Kirk's wife as trustee for the benefit of the Kirk's children, as to which Mr. Joseph R. Kirk disclaims beneficial ownership. Includes 150 shares of Common Stock held in trust for the benefit of Mr. Koenig's brother as to which he disclaims beneficial ownership. Includes 1,000 shares of Common Stock held in trust for the benefit of Mr. Pogue's wife as to which he disclaims beneficial ownership. Includes 10,000 shares of Common Stock held in trust for the benefit of Mr. Schmidt's wife as to which he disclaims beneficial ownership. (8) Includes 8,606, 8,190, 5,479, 7,083, 11,537, and 3,130 phantom stock units held by Messrs. Gorr, Schmidt, Blackwell, Petrocelli, Strawbridge, and Szomjassy, respectively. (9) The information set forth in this table predates the consummation of the Offer. James L. Kirk and Joseph R. Kirk are brothers, each of whom disclaims beneficial interest in the shares owned by the other. CHANGES IN CONTROL The Company has entered into the Merger Agreement pursuant to which the Purchaser, a wholly owned subsidiary of Parent, is making the Offer to purchase the Shares at a price of $11.50 per Share, net to the tendering shareholder in cash, subject to the terms and conditions set forth in the Offer to Purchase, dated January 16, 1998, and the related Letter of Transmittal. The Offer is described in the Tender Offer Statement on Schedule 14D-1 filed by Purchaser on January 16, 1998 with the Commission. The Merger Agreement provides that, regardless of whether Shares are accepted for payment or paid for in the Offer, but subject to the satisfaction or waiver of certain conditions precedent (including the approval of the Merger Agreement by holders of a majority of the outstanding Shares), Purchaser will merge with and into the Company , and the Company will be the surviving corporation in the Merger, with the result that the Company will become a wholly owned subsidiary of Parent. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT The Company provides Robert W. Kirk, a former officer and stockholder of the Company and father of James L. Kirk and Joseph R. Kirk, with a pension arrangement pursuant to which the Company is to make payments of $96,000 per year, subject to further cost of living adjustments, for the remainder of his life and that of his spouse if she survives him. During 1997, the Company made payments totaling $117,955 to Robert W. Kirk under this pension arrangement. The Company has entered into a five-year employment agreement with Mr. Joseph Kirk during 1996, pursuant to which he will be entitled to a salary of $250,000 payable in the initial year, and decreasing $25,000 during each of the four succeeding years. Under the agreement, Mr. Kirk is eligible to receive other benefits and perquisites payable to senior employees. In the normal course of business, the Company has purchased subcontractor services on certain of its projects from Kirk Brothers Co., Inc. ("KBC") which totaled $1,161,000, $2,265,000 and $615,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The principal shareholders of KBC are directly related to certain officers and directors of the Company. During 1997, OHMR paid $471,593 to KBC. This amount represents payments made to KBC for subcontract services. OHMR leases a building with approximately 5,400 square feet for a monthly rental of $2,500 on a month-to-month basis from The KDC Company ("KDC"), the principal shareholders of which are James L. Kirk and Joseph R. Kirk. OHMR utilizes the building, located near its headquarters in Findlay, Ohio, for the storage of equipment and inventory and made rental payments to KDC aggregating $20,000 during 1997 under this arrangement. 47 50 OHMR leases office and storage space from Findlay Machine and Tool, Inc. ("FMT"), of which Joseph R. Kirk is the principal shareholder pursuant to a lease. The rate and other terms of the lease were approved by the Board of Directors on November 7, 1995 and amended on March 6, 1996 and August 13, 1996. During 1997, OHMR made payments to FMT totaling $297,860 under the lease. In connection with the commencement of his employment, Mr. Philip V. Petrocelli, Vice President, Western Operations, received a $100,000 interest free loan to be forgiven in equal installments on the anniversary date of his employment over seven consecutive years. The balance of the loan becomes due and payable immediately in the event Mr. Petrocelli voluntarily leaves the employment of the Company or is terminated for cause before August 30, 2000. During 1997, $14,286 of the principal balance was forgiven. As of December 31, 1997, the aggregate principal amount outstanding was $38,095. In November 1997, the Company entered into an agreement to purchase a new aircraft for use in the Company's business. In connection with such agreement, the Company deposited the sum of $100,000 with the seller of such aircraft. The Company has determined not to complete the purchase of the aircraft. James L. Kirk has proposed that an entity in which he has a personal interest assume the Company's obligations under the foregoing purchase agreement and reimburse the Company in the amount of the deposit made. 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 $188,000, $1,774,000 and $981,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In the normal course of business, NSC has provided the Company with subcontract services on certain of its projects for asbestos abatement and industrial maintenance services. The costs for such services were $233,000, $40,000 and $212,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company has provided remediation services to NSC in the amount of $121,000 for the year ended December 31, 1996. TRANSACTIONS WITH SHAREHOLDERS In connection with the Reorganization Agreement (the "Reorganization Agreement") entered into in connection with the Company's purchase of Rust Environmental, Inc., the Company and Rust, the parent of Rust Environmental, Inc., entered into certain business agreements. First, Rust agreed that the Company would provide all environmental remediation services under Rust's governmental Total Environmental Restoration Contracts ("TERCs"), and a portion of all fees earned under such contracts. 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 $23,664,000, $12,959,000 and $10,242,000 for the years ended December 31, 1997, 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 $6,868,000, $7,536,000 and $6,636,000 for the years ended December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, 1996 and 1995, the Company has $2,831,000, $6,873,000 and $3,871,000 of accounts receivable and $1,385,000, $968,000 and $806,000 of accounts payable, respectively, recorded related to such activities. In addition to the above, WMX paid $15,000,000 to the Company in 1996, which was related to final payments due under terms of the Reorganization Agreement, as amended March 22, 1996. Rust also agreed to maintain, at its cost, certain payment, performance and surety bonds in connection with certain Rust projects acquired in connection with the transaction, and to assist the Company in preparing documents and favorable pricing from Rust and affiliated Company vendors. 48 51 THE GUARANTY AGREEMENT In connection with the Reorganization Agreement, WMX, the majority stockholder of Rust, and the Company entered into a Guaranty Agreement, which provides that in exchange for a Warrant (described below), WMX guaranteed indebtedness of the Company in an amount not to exceed $62,000,000. The guaranty amount may be increased from time to time, up to an amount not to exceed $75,000,000 in the event the Warrant is, in whole or in part, exercised by WMX or transferred to a third party. On May 31, 1995, WMX guaranteed certain indebtedness under the Company's Revolving Credit Agreement and the Company, in consideration thereof, executed a Reimbursement Agreement in favor of WMX obligating the Company to reimburse WMX for any payments by WMX under the Guaranty. The Guaranty Agreement and related guarantees will terminate upon consummation of the Merger. THE WARRANT AGREEMENT In consideration for the Guaranty, the Company issued a Warrant to WMX which is exercisable, in whole or in part, until May 31, 2000, for an aggregate of 700,000 shares of Common Stock (the "Warrant Shares") at an exercise price of $15.00 per Warrant Share (the "Exercise Price"). The Warrant provides further that the acquisition by WMX of any of the Warrant Shares upon exercise of all or any portion of the Warrant is subject to the ownership limitation on WMX and its affiliates (the "WMX Group") set forth in the Standstill and Non-Competition Agreement (the "Standstill Agreement") described below. The Warrant provides for certain adjustments to the Exercise Price and/or the number of Warrant Shares purchasable upon exercise in the event of a stock combination, stock split, a capital reorganization or reclassification, a merger or consolidation, or a sale or conveyance of all or substantially all of the Company's assets. In connection with the Merger, WMX agreed to cancel without any separate consideration, the Warrant Agreement and any rights it may have to purchase additional Common Stock thereunder effective as of the repayment of the Company's obligations under the Guaranty Agreement. THE STANDSTILL AND NON-COMPETITION AGREEMENT Pursuant to the Reorganization Agreement, the Company, WMX and Rust entered into a Standstill Agreement providing that the WMX Group will not acquire any of the Company's Common Stock or any of the Company's other securities entitled to vote generally for the election of directors ("Voting Securities") other than pursuant to exercise of the Warrant, or in acquisitions, including exercise of the Warrant, that do not result in the aggregate ownership by the WMX Group of more than 40% of the Company's Voting Securities, or such lesser percentage as may exist from time to time as the result of voluntary dispositions by the WMX Group (the "Ownership Limit"). Pursuant to the Standstill Agreement, no member of the WMX Group shall acquire Voting Securities which would result in the WMX Group owning Voting Securities beyond the Ownership Limit unless the acquisition is (i) made pursuant to an offer for all of the Company's outstanding Voting Securities at the same price, and (ii) is approved by either the Company's independent directors or the Company's shareholders, other than the WMX Group and certain other shareholders, pursuant to the Control Share Acquisition provisions of the Company's Amended and Restated Articles of Incorporation. The Standstill Agreement also provides that if the WMX Group's ownership level falls below 20% of the outstanding Voting Securities, the WMX Group shall have an option to purchase from the Company sufficient Voting Securities at fair market value to raise its ownership to not more than 21% of the outstanding Voting Securities. The WMX Group, pursuant to the Standstill Agreement, agrees, among other things, not to solicit proxies in opposition to any matter recommended by a majority of the Company's directors not representing WMX (the "Non-WMX Directors"), or to solicit a tender offer or business combination. As long as the WMX Group owns at least 20% of the Voting Securities, the Company will include as nominees to the Board of Directors a number of WMX Group designees proportionate to the WMX Group's ownership interest (to the lowest corresponding whole directorship). Furthermore, so long as the WMX Group owns at least 20% of the outstanding Voting Securities, WMX shall take all actions in its control to include at least three independent Directors on the Company's Board of Directors. The Standstill Agreement provides that the WMX Group shall vote its Common Stock for the Company's nominees to the Board of Directors selected by a majority of the Non-WMX Directors. The WMX Group shall vote on all other matters (i) in accordance with the recommendations of the majority of the Non-WMX Directors, or (ii) if no recommendation is made, in the same proportion as other shareholders of the Company shall vote. Pursuant to the Standstill Agreement, WMX, Rust and their respective wholly-owned subsidiaries (the "WMX Affiliates") have agreed not to engage in the business of providing field services for the on-site remediation of hazardous substances in North America for seven years after the closing except as otherwise provided in the Standstill Agreement. The Standstill Agreement also provides that for so long as the WMX Group owns at least 20% of the outstanding Voting Securities, (i) the Company shall be a preferred provider of certain environmental remediation services to the WMX Affiliates, and (ii) the WMX Affiliates shall be preferred providers of engineering, consulting and design environmental and waste management services to the Company. Also, Rust will provide the Company access to its engineering, consulting, design and project management services personnel on the same 49 52 terms and conditions as Rust provides them to WMX Affiliates. Additionally, the Standstill Agreement provides that the WMX Affiliates will contract with the Company for $20 million of environmental remediation services prior to December 31, 1996, which was extended to December 31, 1997. Key provisions of the Standstill Agreement will terminate upon the occurrence of the Merger. Pursuant to the Merger Agreement and the Repurchase Agreement, the Company repurchased from WMX and its affiliates 2,535,381 Shares for $11.50 per share, concurrently with the payment for Shares pursuant to the Offer (the "Repurchase"), and WMX and its affiliates tendered 7,111,543 Shares in the Offer. Pursuant to the Repurchase Agreement, WMX and its affiliates also agreed to vote all Shares held by them in favor of the Merger. WMX also agreed to cancel, without payment of any separate consideration, the Warrants and any rights it may have to purchase additional shares of Common Stock. OTHER SERVICES In 1997, OHMR received from WMX and its affiliates $23,663,946 for remediation and construction services performed by OHMR. OHMR paid $6,867,570 to WMX and its affiliates for engineering-related and disposal services under the preferred provider provisions of the Standstill Agreement. 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, 1997 and 1996 Consolidated Statements of Operations -For the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Shareholders' Equity -For the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows -For the Years Ended December 31, 1997, 1996 and 1995 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, 1997, 1996 and 1995 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 50 53 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]. 2.10 Agreement and Plan of Merger, dated January 15, 1998, by and among the Registrant, International Technology Corporation and IT-Ohio, Inc. [incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.11 Share Repurchase Agreement, dated as of January 15, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. [incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. - ------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 51 54 EXHIBIT EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.12 Company Voting Agreement, dated as of January 15, 1998, by and among the Registrant, International Technology Corporation, James L. Kirk, Joseph R. Kirk, H. Wayne Huizenga and The Huizenga Family Foundation [incorporated by reference to Exhibit 3 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.13 Parent Voting Agreement, dated as of January 15, 1998, by and among International Technology Corporation, the Registrant and certain stockholders of International Technology Corporation affiliated with The Carlyle Group [incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.14 Letter Agreement, dated January 15, 1998, by and between the Registrant and H. Wayne Huizenga [incorporated by reference to Exhibit 5 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.15 Amended and Restated Share Repurchase Agreement, dated as of February 11, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. 2.16 Second Amended and Restated Share Repurchase Agreement, dated as of February 17, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. 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]. 3.2 Amended and Restated Regulations of the Registrant [incorporated by reference to Annex 1 to the Registrant's Proxy Statement on Schedule 14A for its 1997 Annual Meeting]. 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]. - ------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 52 55 EXHIBIT EXHIBIT NUMBER DESCRIPTION - ------ ----------- 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]. 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]. - ------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 53 56 EXHIBIT EXHIBIT NUMBER DESCRIPTION - ------ ----------- 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 Guaranty 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]. 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]. - ------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 54 57 EXHIBIT EXHIBIT NUMBER DESCRIPTION - ------ ----------- 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]. 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. [incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996]. 10.38 Supplement No. 01 to the Equipment Agreement, dated as of December 24, 1996, between BTM Capital Corporation and OHM Remediation Services Corp. [incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996]. 10.39 Stock Purchase Agreement, dated June 17, 1997, by and among OHM Corporation, Beneco Enterprises, Inc., Bennie Smith, Jr., Robert Newberry and Scott Doxey [incorporated by reference to Exhibit 2.1 to the Registrant's Report on Form 8-K filed on July 2, 1997]. 10.40 Amendment No. 2 and Waiver, dated as of August 12, 1997, to the Revolving Credit Agreement, dated as of May 31, 1995, by and among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois), as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.40 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.41 Third Amendment, dated as of August 12, 1997, to Security Agreement, dated as of May 11, 1993, by and among OHM Corporation, OHM Remediation Services Corp., Beneco Enterprises, Inc., Citicorp USA, Inc. as Administrative Agent and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois) as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.41 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.42 Second Amendment, dated as of August 12, 1997, to Pledge Agreement, dated as of May 11, 1993, by and between OHM Corporation and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois), as Issuing and Paying Agent [incorporated by reference to Exhibit 10.42 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. - ------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 55 58 EXHIBIT EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.43 Guaranty, dated as of August 12, 1997, by Beneco Enterprises, Inc., in favor of the banks under the Revolving Credit Agreement, as amended as of August 12, 1997 by and among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America National Trust and Savings association (successor by merger to bank of American Illinois), as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.43 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.44* OHM Corporation Incentive Stock Plan, effective as of August 15, 1996 [incorporated by reference to Annex 2 to the Registrant's Proxy Statement on Schedule 14A for its 1997 Annual Meeting]. 10.45* OHM Corporation 1986 Option Plan, as amended and restated [incorporated by reference to Annex 3 to the Registrant's Proxy Statement on Schedule 14A for its 1997 Annual Meeting]. 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, 1997. (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. 56 59 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 February 27, 1998 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 February 27, 1998. * JAMES L. KIRK - ----------------------------------------------------- James L. Kirk-Chairman of the Board, President and Chief Executive Officer * PHILIP O. STRAWBRIDGE - ----------------------------------------------------- Philip O. Strawbridge-Vice President and Chief Financial and Administrative Officer (Principal Financial Officer) * 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 * 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 February 27, 1998 - ----------------------------------------------------- Steven E. Harbour, Attorney-in-Fact 57 60 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, 1997 Allowance for Uncollectible Accounts $ 24,928 $ 24,858 $ -- $ 34,339 $ 15,447 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
(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. 58 61 COMMISSION FILE NUMBER 1-9654 ----------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 --------------------- OHM CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------------- EXHIBITS --------------------- 62 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]. 2.10 Agreement and Plan of Merger, dated January 15, 1998, by and among the Registrant, International Technology Corporation and IT-Ohio, Inc. [incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.11 Share Repurchase Agreement, dated as of January 15, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. [incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.12 Company Voting Agreement, dated as of January 15, 1998, by and among the Registrant, International Technology Corporation, James L. Kirk, Joseph R. Kirk, H. Wayne Huizenga and The Huizenga Family Foundation [incorporated by reference to Exhibit 3 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.13 Parent Voting Agreement, dated as of January 15, 1998, by and among International Technology Corporation, the Registrant and certain stockholders of International Technology Corporation affiliated with The Carlyle Group [incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.14 Letter Agreement, dated January 15, 1998, by and between the Registrant and H. Wayne Huizenga [incorporated by reference to Exhibit 5 to the Registrant's Current Report on Form 8-K filed on January 21, 1998]. 2.15 Amended and Restated Share Repurchase Agreement, dated as of February 11, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. 2.16 Second Amended and Restated Share Repurchase Agreement, dated as of February 17, 1998, by and among the Registrant, International Technology Corporation, Waste Management, Inc. and Rust International, Inc. - ---------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 63 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]. 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]. - ---------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 64 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]. 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]. - ---------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 65 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]. 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]. - ---------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 66 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]. 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. [incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996]. 10.38 Supplement No. 01 to the Equipment Agreement, dated as of December 24, 1996, between BTM Capital Corporation and OHM Remediation Services Corp. [incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996]. 10.39 Stock Purchase Agreement, dated June 17, 1997, by and among OHM Corporation, Beneco Enterprises, Inc., Bennie Smith, Jr., Robert Newberry and Scott Doxey [incorporated by reference to Exhibit 2.1 to the Registrant's Report on Form 8-K filed on July 2, 1997]. 10.40 Amendment No. 2 and Waiver, dated as of August 12, 1997, to the Revolving Credit Agreement, dated as of May 31, 1995, by and among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois), as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.40 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.41 Third Amendment, dated as of August 12, 1997, to Security Agreement, dated as of May 11, 1993, by and among OHM Corporation, OHM Remediation Services Corp., Beneco Enterprises, Inc., Citicorp USA, Inc. as Administrative Agent and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois) as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.41 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.42 Second Amendment, dated as of August 12, 1997, to Pledge Agreement, dated as of May 11, 1993, by and between OHM Corporation and Bank of America National Trust and Savings Association (successor by merger to Bank of America Illinois), as Issuing and Paying Agent [incorporated by reference to Exhibit 10.42 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.43 Guaranty, dated as of August 12, 1997, by Beneco Enterprises, Inc., in favor of the banks under the Revolving Credit Agreement, as amended as of August 12, 1997 by and among OHM Corporation and OHM Remediation Services Corp., and the banks named therein, Citicorp USA, Inc., as Administrative Agent and Bank of America National Trust and Savings association (successor by merger to bank of American Illinois), - ---------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. 67 as Issuing and Paying Agent and Co-Agent [incorporated by reference to Exhibit 10.43 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997]. 10.44* OHM Corporation Incentive Stock Plan, effective as of August 15, 1996 [incorporated by reference to Annex 2 to the Registrant's Proxy Statement on Schedule 14A for its 1997 Annual Meeting]. 10.45* OHM Corporation 1986 Option Plan, as amended and restated [incorporated by reference to Annex 3 to the Registrant's Proxy Statement on Schedule 14A for its 1997 Annual Meeting]. 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, 1997. (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. EX-2.15 2 EXHIBIT 2.15 1 EXHIBIT 2.15 AMENDED AND RESTATED SHARE REPURCHASE AGREEMENT AMENDED AND RESTATED SHARE REPURCHASE AGREEMENT (this "Agreement"), dated as of February 11, 1998, among OHM Corporation, an Ohio corporation (the "Company"), Waste Management, Inc., a Delaware corporation ("WMX"), Rust International Inc., a Delaware corporation ("Rust"), Rust Remedial Services Holding Company Inc., a Delaware corporation (the "Shareholder"), and International Technology Corporation, a Delaware corporation ("Parent"). WHEREAS, certain of the parties are party to the Share Repurchase Agreement, dated as of January 15, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc., and International Technology Corporation (the "Original Agreement"), and certain of the parties to this Agreement are also parties to the Standstill and Non-Competition Agreement, dated as of May 30, 1995, among the Company, WMX and Rust (the "Standstill Agreement"); and WHEREAS, concurrently with the execution of the Original Agreement, the Company, Parent and IT-Ohio, Inc., an Ohio corporation ("Merger Sub"), entered into an Agreement and Plan of Merger, dated as of January 15, 1998 (as it may be amended from time to time, the "Merger Agreement"), which provides that Merger Sub will make a tender offer (the "Offer") for 13,933,000 shares of Common Stock, par value $0.10 per share, of the Company ("Shares") and that, subsequent to the consummation of the Offer, Merger Sub will merge with and into the Company (the "Merger" and, collectively with the Offer and the other transactions contemplated by the Merger Agreement, the "Merger Transactions"); and WHEREAS, the Shareholder is the record holder of an aggregate of 9,668,000 Shares (the "Shareholder Shares"); and WHEREAS, Parent, the Company, WMX and the Shareholder wish, as a part of the Merger Transactions, to provide for the repurchase by the Company from the Shareholder, concurrently with the payment to BankBoston, N.A., as Depositary for the Offer on behalf of holders of Shares tendering into the Offer, of the aggregate purchase price for all Shares purchased in the Offer (the "Payment Time"), of 5,235,381 Shareholder Shares (the "Repurchased 2 Shares"), in a manner that will increase the aggregate number of Shares acquired for cash in the Merger Transactions and make it possible for the Merger Consideration (as defined in the Merger Agreement) to consist solely of shares of Parent Common Stock (as defined in the Merger Agreement); and WHEREAS, the parties intend for WMX and the Shareholder, considered together, not to receive any greater consideration per Share in the Merger Transactions than the other holders of Shares, and that for Shareholder not to receive any greater amount of cash consideration per Share in the Merger Transactions than the other holders of Shares; and WHEREAS, in order to facilitate consummation of the Merger Transactions, WMX and the Shareholder wish to agree (i) to vote or cause to be voted the Shareholder Shares and any other shares of capital stock of the Company held by either of them so as to facilitate consummation of the Merger Transactions, (ii) except as provided in this Agreement, not to transfer or otherwise dispose of or permit to be transferred or otherwise disposed of any of the Shareholder Shares, or any other shares of capital stock of the Company, acquired by either of them hereafter and prior to the Effective Time (as defined in the Merger Agreement), (iii) to deliver to Parent an irrevocable proxy to vote the Shareholder Shares and any other shares of capital stock of the Company acquired by the Shareholder or WMX hereafter and prior to the Effective Time, and (iv) to amend or terminate, as the case may be, certain agreements to which certain of the parties hereto are parties, and (v) to make certain other agreements, all as provided for herein. NOW, THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties hereto hereby amend and restate the Original Agreement, ab initio, as follows: ARTICLE I Definitions; Representations and Warranties 1.1 Definitions. Terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Merger Agreement. -2- 3 1.2 Representations of WMX and the Shareholder. WMX and the Shareholder jointly and severally represent and warrant to the Company that (a) the Shareholder owns beneficially and of record (as such term is defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) 9,668,000 Shares free and clear of all liens, claims, charges, security interests or other encumbrances (each, a "Lien") and, except for this Agreement and the warrants to purchase Shares (the "Warrants") issued pursuant to the Warrant Agreement, dated as of May 30, 1995, among the Company and WMX (the "Warrant Agreement"), there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which WMX or the Shareholder is a party relating to the pledge or disposition of any shares of capital stock of the Company and, except for the Standstill Agreement and this Agreement, there are no voting trusts or voting agreements to which WMX or the Shareholder is a party with respect to any shares of capital stock of the Company; (b) neither WMX nor the Shareholder beneficially owns any shares of capital stock of the Company other than the Shareholder Shares, in the case of the Shareholder, and the Warrants, in the case of WMX, and, except for the Warrants held by WMX, neither has any options, warrants or other rights to acquire any additional shares of capital stock of the Company or any security exercisable for or convertible into shares of capital stock of the Company; (c) WMX and the Shareholder have full power and authority to enter into, execute and deliver this Agreement and to perform fully their respective obligations under this Agreement; and (d) this Agreement has been duly executed and delivered by each of WMX, the Shareholder and Rust, constitutes the legal, valid and binding obligation of WMX, the Shareholder and Rust and is enforceable against each of them in accordance with its terms. The foregoing representations shall survive consummation of the Merger Transactions and the other transactions contemplated by this Agreement. 1.3 Representations of the Company. The Company represents and warrants to WMX and the Shareholder that (a) the Company has full power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations under this Agreement, (b) this Agreement has been duly executed and delivered by the Company, constitutes the legal, valid and binding obligation of the Company and is enforceable against it in accordance with its terms, and (c) the Company has obtained all consents, approvals, -3- 4 permits and authorizations required to be obtained by the Company pursuant to any law, regulation, contract, agreement or instrument in connection with the execution and delivery of this Agreement. The foregoing representations shall survive consummation of the Merger Transactions and the other transactions contemplated by this Agreement. ARTICLE II The Repurchase and the Offer 2.1 Repurchase of Shares. (a) Subject to the terms and conditions of this Agreement, including the conditions set forth in Section 2.3, the Company agrees to purchase from the Shareholder, and the Shareholder agrees to sell to the Company (such purchase and sale transaction, the "Repurchase"), the Repurchased Shares, free and clear of any Liens at a purchase price of $11.50 per Repurchased Share, or such greater price per Repurchased Share as may be paid in the Offer (the "Repurchase Price"). (b) If for any reason the Company has not repurchased the Repurchased Shares immediately prior to the Effective Time (as defined in the Merger Agreement), the Company shall take such action as may be necessary at such time to purchase the Repurchased Shares at the Repurchase Price for cash at such time, so that the Repurchased Shares shall have been acquired by the Company, Parent or Merger Sub prior to the Effective Time. 2.2 Repurchase Closing. (a) The delivery of the Repurchased Shares (the "Repurchase Closing") shall take place at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at the Payment Time. (b) At the Repurchase Closing: (i) The Shareholder shall deliver to the Company certificates representing the Repurchased Shares, duly endorsed and in form for transfer to the Company; and (ii) The Company shall pay to the Shareholder, by wire transfer, to an account designated by the Shareholder no fewer than two business days prior to the Repurchase Closing, immediately available -4- 5 funds equivalent to the Repurchase Price multiplied by the number of Repurchased Shares. 2.3 Conditions to the Repurchase. (a) The respective obligations of the Company and the Shareholder to consummate the Repurchase are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by the Company or the Shareholder, as the case may be, to the extent permitted by applicable law: (i) Concurrently with the Repurchase Closing, Merger Sub shall have paid for Shares pursuant to the Offer. (ii) No United States or state court or other Governmental Entity (as defined in the Merger Agreement) of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by the Merger Agreement or this Agreement. (b) The obligation of the Company to consummate the Repurchase is subject to the condition that the representations and warranties of WMX and the Shareholder contained in Section 1.2 are true and accurate in all material respects as of the date hereof and as of the Repurchase Closing, provided, however, that the foregoing condition may be waived in whole or in part by the Company. (c) The obligation of WMX and the Shareholder to consummate the Repurchase is subject to the condition that the representations and warranties of the Company contained in Section 1.3 are true and accurate in all material respects as of the date hereof and as of the Repurchase Closing, provided, however, that the foregoing condition may be waived in whole or in part by WMX by the Shareholder. 2.4 The Tender Offer. WMX and the Shareholder agree that they will not, in the aggregate, tender more than 2,142,141 Shares into the Offer. -5- 6 ARTICLE III The Merger 3.1 Agreement to Vote Shares. In addition to and notwithstanding the provisions of Section 1.2 of the Standstill Agreement, WMX and the Shareholder agree that during the term of this Agreement they consent to and approve the voting of the Shareholder Shares and any New Shares (as defined in Section 4.2), (a) in favor of adoption of the Merger Agreement and in favor of consummation of the Merger Transactions at every meeting of the shareholders of the Company at which such matters are considered and at every adjournment thereof or in connection with any written consent of the shareholders of the Company, (b) in favor of the election to the Company's Board of Directors of such number of Parent Representatives as Parent is permitted to cause to be elected to the Company's Board of Directors pursuant to Section 1.4 of the Merger Agreement, (c) against any action or agreement that would compete with, impede, interfere with or attempt to discourage the Merger Transactions, or inhibit the timely consummation of the Merger Transactions, (d) against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement and (e) against any merger, consolidation, business combination, reorganization, recapitalization, liquidation or sale or transfer of any material assets of the Company or its subsidiaries, except for the Merger Transactions. The Shareholder agrees to deliver to Parent upon request a proxy substantially in the form attached hereto as Exhibit A, which proxy shall be irrevocable during the term of this Agreement to the fullest extent permitted under Ohio law. 3.2 No Voting Trusts. WMX and the Shareholder agree that they will not, nor will they permit any entity under their control to, deposit any of the Shareholder Shares or any New Shares held by them or any entity under their control in a voting trust or subject any of the Shareholder Shares or any New Shares held by them or any entity under their control to any arrangement with respect to the voting of the Shareholder Shares that could result in a shareholder's vote or action by consent of the shareholders of the Company in opposition to or in competition with the consummation of the Merger Transactions. -6- 7 3.3 No Proxy Solicitations. WMX and the Shareholder agree that they will not, nor will they permit any entity under their respective control to, (a) solicit proxies or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the 1934 Act) in opposition to or in competition with the consummation of the Merger Transactions or otherwise encourage or assist any party in taking or planning any action which would compete with, impede, interfere with or attempt to discourage the Merger Transactions or inhibit the timely consummation of the Merger Transactions, (b) directly or indirectly encourage, initiate or cooperate in a shareholders' vote or action by consent of the Company's shareholders in opposition to or in competition with the consummation of the Merger Transactions, or (c) become a member of a "group" (as such term is used in Section 13(d) of the 1934 Act) with respect to any voting securities of the Company for the purpose of opposing or competing with the consummation of the Merger Transactions. 3.4 Waiver of Dissenters' Rights. The Shareholder hereby unconditionally and irrevocably waives its rights pursuant to Sections 1701.84 et seq. of the Ohio General Corporation Law to exercise appraisal rights or dissenters' rights with respect to the Offer, the Merger, or the other transactions contemplated by the Merger Agreement. ARTICLE IV Other Agreements 4.1 No Transfer or Encumbrance. In addition to and notwithstanding the provisions of Section 1.8 of the Standstill Agreement, WMX and the Shareholder agree not to transfer, sell, offer, exchange, pledge or otherwise dispose of or encumber any of the Warrants, Shareholder Shares or New Shares on or after the date hereof and during the term of this Agreement, except for tenders in accordance with Section 2.4, unless the transferee agrees in writing in form satisfactory to the Company and Parent to be bound by the terms of this Agreement. 4.2 No Additional Purchases or Acquisitions. In addition to and notwithstanding the provisions of Sections 1.1 and 2.4 of the Standstill Agreement, WMX and the Shareholder agree that they will not purchase or otherwise -7- 8 acquire beneficial ownership of any Shares or any other capital stock of the Company after the execution of this Agreement ("New Shares"), nor will WMX or the Shareholder voluntarily acquire the right to vote or share in the voting of any Shares or any other capital stock of the Company other than the Shareholder Shares, unless (in either case) WMX or the Shareholder, as the case may be, agrees to deliver to the Board of Directors of the Company immediately after such purchase or acquisition an irrevocable proxy in the form attached hereto as Exhibit A with respect to such New Shares. WMX and the Shareholder also agree that any New Shares acquired or purchased by them shall be subject to the terms of this Agreement to the same extent as if they constituted Shareholder Shares. 4.3 First Amendment to Standstill Agreement. The Standstill Agreement is hereby amended ab initio, as of the execution of this Agreement, to amend Section 1.4 thereof by adding the following clause to the end of such Section: ", except the Amended and Restated Share Repurchase Agreement, dated February 11, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc., Rust Remedial Services Holding Company Inc. and International Technology Corporation." 4.4 Second Amendment to Standstill Agreement. The Standstill Agreement is hereby further amended ab initio, as of the occurrence of the Repurchase Closing, to delete therefrom Sections 2.1 through 2.7 thereof in their entirety. 4.5 Third Amendment to Standstill Agreement. The Standstill Agreement is hereby further amended ab initio, as of the Repurchase Closing, to delete therefrom Sections 3.1, 3.2 and 3.3 thereof in their entirety. 4.6 Release from Intercreditor Agreement. WMX and the Shareholder hereby consent to the payment by the Company of a pro rata taxable distribution (the "NSC Distribution") to holders of record of the Shares of all of the shares of common stock, par value $0.01 per share, of NSC Corporation held by the Company (the "NSC Shares") and waive their rights to reimbursement pursuant to the Reimbursement Agreement, dated as of May 31, 1995, among the Company, Remediation and WMX, and the Intercreditor -8- 9 Agreement, dated as of May 31, 1995, among WMX, the Administrative Agent and the Issuing and Paying Agent, and hereby release the NSC Shares from any security interest (pursuant to pledge agreements or otherwise) which WMX may have with respect to such NSC Shares. WMX agrees to execute any documents reasonably necessary to give effect to the provisions of this Section, promptly upon request therefor made by the Company. 4.7 Termination of the Guaranty Agreement. The parties hereby agree that the Guaranty Agreement, dated as of May 30, 1995, between the Company and WMX, shall be terminated effective as of the Common Termination Date. 4.8 Cancellation of The Warrants. (a) The parties hereby agree that the Warrant Agreement shall be terminated and the Warrants shall be canceled effective as of the date on which the Guaranty, made as of May 31, 1995, by WMX in favor of the Banks listed therein (the "Guaranty"), terminates in accordance with Section 10(a) thereof (such date, the "Common Termination Date"), without the payment of any separate consideration therefor. The parties hereby agree to use their reasonable best efforts to cause the events specified in Section 10(a) of the Guaranty to occur prior to the second business day subsequent to the Effective Time. (b) WMX agrees not to exercise its rights pursuant to Sections 3.1 or 3.2 of the Warrant Agreement prior to the earlier to occur of (i) the second business day subsequent to the Effective Time, and (ii) the termination of the Merger Agreement in accordance with its terms. (c) WMX agrees not to exercise its rights pursuant to Section 2.2 of the Warrant Agreement with respect to the Merger Transactions prior to the second business day subsequent to the Effective Time. (d) WMX hereby waives its rights under Sections 2.1 through 2.7 of the Warrant Agreement with respect to the NSC Distribution. -9- 10 ARTICLE V Miscellaneous 5.1 Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. 5.2 Entire Agreement. This Agreement and the Standstill Agreement (as herein amended) supersede all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed by all the parties hereto. No waiver of any provisions hereof by any party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party. 5.3 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: -10- 11 if to WMX, the Shareholder or Rust: Herbert A. Getz Waste Management, Inc. 3003 Butterfield Road Oak Brook, Illinois 60523 Telecopier: (630) 572-9130 with a copy to: John H. Bitner Bell, Boyd & Lloyd Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 Telecopier: (312) 372-2098 if to the Company: Steven E. Harbour OHM Corporation 5445 Triangle Parkway, Suite 400 Norcross, Georgia 30092 Telecopier: (770) 849-3110 with a copy to: Joseph B. Frumkin Sullivan & Cromwell 125 Broad Street New York, New York 10004 Telecopier: (212) 558-3588 and a copy to: Thomas C. Daniels Jones Day Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telecopier: (216) 579-0212 -11- 12 if to Parent: James G. Kirk International Technology Corporation 2790 Mosside Boulevard Monroeville, PA 15146-2792 Telecopier: (412) 858-3978 with a copy to: Peter F. Ziegler Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071 Telecopier: (213) 229-7520 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 5.4 Miscellaneous. (a) This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Ohio applicable to agreements executed in and solely to be performed within such State. (b) If any provision of this Agreement or the application of such provision to any person or circumstances shall be held invalid or unenforceable by a court of competent jurisdiction, such provision or application shall be unenforceable only to the extent of such invalidity or unenforceability and the remainder of the provision held invalid or unenforceable and the application of such provision to persons or circumstances, other than the party as to which it is held invalid, and the remainder of this Agreement, shall not be affected. (c) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (d) This Agreement shall terminate automatically upon the termination of the Merger Agreement. This Agreement may be terminated by the Company at any time if -12- 13 WMX or the Shareholder shall have failed to comply with any of their respective covenants or agreements contained in this Agreement. This Agreement may be terminated by WMX or the Shareholder at any time if the Company shall have failed to comply with any of its covenants or agreements contained in this Agreement. (e) Each party hereto shall execute and deliver such additional documents as may be necessary or desirable to effect the transactions contemplated by this Agreement. (f) All Section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom. (g) The obligations of the parties set forth in this Agreement shall not be effective or binding upon any party hereto until after such time as the Merger Agreement is executed and delivered by the Company, Parent and Merger Sub, and the parties agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein. -13- 14 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. OHM CORPORATION By:__________________________________ Name: Title: WASTE MANAGEMENT, INC. By:__________________________________ Name: Title: RUST INTERNATIONAL INC. By:__________________________________ Name: Title: RUST REMEDIAL SERVICES HOLDING COMPANY INC. By:__________________________________ Name: Title: 15 INTERNATIONAL TECHNOLOGY CORPORATION By:__________________________________ Name: Title: 16 (EXHIBIT A) FORM OF PROXY The undersigned, for consideration received, hereby appoints Anthony J. DeLuca and James G. Kirk and each of them my proxies, with power of substitution and resubstitution, to vote all shares of Common Stock of OHM Corporation, an Ohio corporation (the "Company"), [and [insert any other Shares (as defined in the Amended and Restated Share Repurchase Agreement) or other shares of capital stock of the Company owned by the Shareholder)]] owned by the undersigned at the Special Meeting of Shareholders of the Company to be held [insert date, time and place] and at any adjournment thereof IN FAVOR OF adoption of the Agreement and Plan of Merger, dated as of January 15, 1998 (the "Merger Agreement"), among the Company, International Technology Corporation ("Parent") and IT-Ohio, Inc., IN FAVOR OF consummation of the Merger Transactions, IN FAVOR OF [List such number of Parent Representatives (as defined in Section 1.4 of the Merger Agreement) as Parent is permitted to cause to be elected to the Company's Board of Directors pursuant to Section 1.4 of the Merger Agreement], and AGAINST [insert description of any action or agreement that would compete with, impede, interfere with or attempt to discourage the Merger Transactions or inhibit the timely consummation of the Merger Transactions or any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement or any merger, consolidation, business combination, reorganization, recapitalization, liquidation or sale or transfer of any material assets of the Company or its subsidiaries]. This proxy is coupled with an interest, revokes all prior proxies granted by the undersigned and is irrevocable until such time as the Amended and Restated Share Repurchase Agreement, dated as of February __, 1998 among the undersigned and the Company terminates in accordance with its terms. Dated _________, 1998 RUST REMEDIAL SERVICES HOLDING COMPANY INC. By:__________________________________ Name: Title: EX-2.16 3 EXHIBIT 2.16 1 EXHIBIT 2.16 SECOND AMENDED AND RESTATED SHARE REPURCHASE AGREEMENT SECOND AMENDED AND RESTATED SHARE REPURCHASE AGREEMENT (this "Second Amended and Restated Agreement"), dated as of February 17, 1998, among OHM Corporation, an Ohio corporation (the "Company"), Waste Management, Inc., a Delaware corporation ("WMX"), Rust International Inc., a Delaware corporation ("Rust"), Rust Remedial Services Holding Company Inc., a Delaware corporation (the "Shareholder"), and International Technology Corporation, a Delaware corporation ("Parent"). WHEREAS, certain of the parties are party to that certain Share Repurchase Agreement, dated as of January 15, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc. and International Technology Corporation (the "Original Agreement"), and certain of the parties to this Agreement are also parties to the Standstill and Non-Competition Agreement, dated as of May 30, 1995, among the Company, WMX and Rust (the "Standstill Agreement"); and WHEREAS, the Original Agreement was amended and restated as of February 11, 1998 (the "Amended and Restated Agreement," the Original Agreement, as amended and restated by the Amended and Restated Agreement and this Second Amended and Restated Agreement, being hereinafter referred to as this "Agreement"); and WHEREAS, concurrently with the execution of the Original Agreement, the Company, Parent and IT-Ohio, Inc., an Ohio corporation ("Merger Sub"), entered into an Agreement and Plan of Merger, dated as of January 15, 1998 (as it may be amended from time to time, the "Merger Agreement"), which provides that Merger Sub will make a tender offer (the "Offer") for 13,933,000 shares of Common Stock, par value $0.10 per share, of the Company ("Shares") and that, subsequent to the consummation of the Offer, Merger Sub will merge with and into the Company (the "Merger" and, collectively with the Offer and the other transactions contemplated by the Merger Agreement, the "Merger Transactions"); and WHEREAS, the Shareholder is the record holder of an aggregate of 9,668,000 Shares (the "Shareholder Shares"); and 2 WHEREAS, Parent, the Company, WMX and the Shareholder wish, as a part of the Merger Transactions, to provide for the repurchase by the Company from the Shareholder, concurrently with the payment to BankBoston, N.A., as Depositary for the Offer on behalf of holders of Shares tendering into the Offer, of the aggregate purchase price for all Shares purchased in the Offer (the "Payment Time"), of 5,235,381 Shareholder Shares (the "Repurchased Shares"), subject to the provisions of Section 2.4(c), in a manner that will increase the aggregate number of Shares acquired for cash in the Merger Transactions and make it possible for the Merger Consideration (as defined in the Merger Agreement) to consist solely of shares of Parent Common Stock (as defined in the Merger Agreement); and WHEREAS, the parties intend for WMX and the Shareholder, considered together, not to receive any greater consideration per Share in the Merger Transactions than the other holders of Shares have the opportunity to receive, and that for Shareholder not to receive any greater amount of cash consideration per Share in the Merger Transactions than the other holders of Shares have the opportunity to receive; and WHEREAS, in order to facilitate consummation of the Merger Transactions, WMX and the Shareholder wish to agree (i) to cause to be tendered into the Offer certain of the Shareholder Shares on the terms and in the manner set forth herein, (ii) to vote or cause to be voted the Shareholder Shares and any other shares of capital stock of the Company held by either of them so as to facilitate consummation of the Merger Transactions, (iii) except as provided in this Agreement, not to transfer or otherwise dispose of or permit to be transferred or otherwise disposed of any of the Shareholder Shares, or any other shares of capital stock of the Company, acquired by either of them hereafter and prior to the Effective Time (as defined in the Merger Agreement), (iv) to deliver to Parent an irrevocable proxy to vote the Shareholder Shares and any other shares of capital stock of the Company acquired by the Shareholder or WMX hereafter and prior to the Effective Time, (v) to amend or terminate, as the case may be, certain agreements to which certain of the parties hereto are parties, and (vi) to make certain other agreements, all as provided for herein. NOW, THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which is -2- 3 hereby acknowledged, the parties hereto hereby amend and restate the Original Agreement, ab initio, as follows: ARTICLE I Definitions; Representations and Warranties 1.1 Definitions. Terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Merger Agreement. 1.2 Representations of WMX and the Shareholder. WMX and the Shareholder jointly and severally represent and warrant to the Company that (a) the Shareholder owns beneficially and of record (as such term is defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) 9,668,000 Shares free and clear of all liens, claims, charges, security interests or other encumbrances (each, a "Lien") and, except for this Agreement and the warrants to purchase Shares (the "Warrants") issued pursuant to the Warrant Agreement, dated as of May 30, 1995, among the Company and WMX (the "Warrant Agreement"), there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which WMX or the Shareholder is a party relating to the pledge or disposition of any shares of capital stock of the Company and, except for the Standstill Agreement and this Agreement, there are no voting trusts or voting agreements to which WMX or the Shareholder is a party with respect to any shares of capital stock of the Company; (b) neither WMX nor the Shareholder beneficially owns any shares of capital stock of the Company other than the Shareholder Shares, in the case of the Shareholder, and the Warrants, in the case of WMX, and, except for the Warrants held by WMX, neither has any options, warrants or other rights to acquire any additional shares of capital stock of the Company or any security exercisable for or convertible into shares of capital stock of the Company; (c) WMX and the Shareholder have full power and authority to enter into, execute and deliver this Agreement and to perform fully their respective obligations under this Agreement; and (d) this Agreement has been duly executed and delivered by each of WMX, the Shareholder and Rust, constitutes the legal, valid and binding obligation of WMX, the Shareholder and Rust and is enforceable against each of them in accordance with its terms. The foregoing representations shall survive consummation of the Merger -3- 4 Transactions and the other transactions contemplated by this Agreement. 1.3 Representations of the Company. The Company represents and warrants to WMX and the Shareholder that (a) the Company has full power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations under this Agreement, (b) this Agreement has been duly executed and delivered by the Company, constitutes the legal, valid and binding obligation of the Company and is enforceable against it in accordance with its terms, and (c) the Company has obtained all consents, approvals, permits and authorizations required to be obtained by the Company pursuant to any law, regulation, contract, agreement or instrument in connection with the execution and delivery of this Agreement. The foregoing representations shall survive consummation of the Merger Transactions and the other transactions contemplated by this Agreement. ARTICLE II The Repurchase and the Offer 2.1 Repurchase of Shares. Subject to the terms and conditions of this Agreement, including the conditions set forth in Section 2.3 and the provisions of Section 2.4(c): (a) The Company agrees to purchase from the Shareholder, and the Shareholder agrees to sell to the Company (such purchase and sale transaction, the "Repurchase"), the Repurchased Shares, free and clear of any Liens at a purchase price of $11.50 per Repurchased Share, or such greater price per Repurchased Share as may be paid in the Offer (the "Repurchase Price"). (b) If for any reason the Company has not repurchased the Repurchased Shares immediately prior to the Effective Time (as defined in the Merger Agreement), or the Repurchased Shares have not been purchased in the Offer, the Company shall take such action as may be necessary at such time to purchase the Repurchased Shares at the Repurchase Price for cash at such time, so that the Repurchased Shares shall have been acquired by the Company, Parent or Merger Sub prior to the Effective Time. -4- 5 2.2 Repurchase Closing. (a) Subject to Section 2.4(c), the delivery of the Repurchased Shares (the "Repurchase Closing") shall take place at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at the Payment Time. (b) At the Repurchase Closing: (i) The Shareholder shall deliver to the Company certificates or duly executed stock powers representing the Repurchased Shares not tendered pursuant to a request pursuant to Section 2.4(c) (in the case of certificates, duly endorsed and in form for transfer to the Company); and (ii) The Company shall pay to the Shareholder, by wire transfer, to an account designated by the Shareholder no fewer than two business days prior to the Repurchase Closing, immediately available funds equivalent to the Repurchase Price multiplied by the number of Repurchased Shares. 2.3 Conditions to the Repurchase. (a) The respective obligations of the Company and the Shareholder to consummate the Repurchase are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by the Company or the Shareholder, as the case may be, to the extent permitted by applicable law: (i) Concurrently with the Repurchase Closing, Merger Sub shall have paid for Shares pursuant to the Offer. (ii) No United States or state court or other Governmental Entity (as defined in the Merger Agreement) of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by the Merger Agreement or this Agreement. (b) The obligation of the Company to consummate the Repurchase is subject to the condition that the representations and warranties of WMX and the Shareholder -5- 6 contained in Section 1.2 are true and accurate in all material respects as of the date hereof and as of the Repurchase Closing, provided, however, that the foregoing condition may be waived in whole or in part by the Company. (c) The obligation of WMX and the Shareholder to consummate the Repurchase is subject to the condition that the representations and warranties of the Company contained in Section 1.3 are true and accurate in all material respects as of the date hereof and as of the Repurchase Closing, provided, however, that the foregoing condition may be waived in whole or in part by WMX by the Shareholder. 2.4 The Tender Offer. (a) WMX and the Shareholder shall cause to be tendered into the Offer, prior to the expiration or termination of the Offer, 2,142,141 Shares, shall cause such Shares not to be withdrawn from the Offer prior to the expiration or termination of the Offer, and shall not cause more than 2,142,141 Shares to be tendered into the Offer, except to the extent (and only to the extent) that a request is made pursuant to Sections 2.4(b) or (c). (b) Promptly upon WMX's receipt by telecopier of a written request from Parent and the Company therefor, WMX and the Shareholder shall, subject to the terms hereof, cause to be tendered into the Offer an additional 2,290,478 Shares, or such lesser number of Shares as Parent and the Company may request, accompanied by a letter of transmittal and supplemental letter of transmittal in form reasonably satisfactory to Parent and the Company stating that of the Shares accompanying such instruments the holder thereof is tendering only such number of Shares as is necessary to cause the aggregate number of Shares tendered into and accepted for payment in the Offer to be equal to 13,933,000. WMX and the Shareholder shall cause such number of Shares not to be withdrawn from the Offer prior to the expiration or termination of the Offer. (c) Provided that Parent and the Company shall have previously made (or they concurrently make) a request pursuant to Section 2.4(b) with respect to 2,290,478 Shares, promptly upon WMX's receipt by telecopier of a written request from Parent and the Company therefor, WMX and the Shareholder shall cause to be tendered into the Offer such number of Repurchased Shares as Parent and the Company shall reasonably estimate is necessary to be tendered in order to -6- 7 cause the aggregate number of Shares tendered into the Offer to be equal to 13,933,000, accompanied by a letter of transmittal and supplemental letter of transmittal in form reasonably satisfactory to Parent and the Company stating that of the Repurchased Shares accompanying such instruments the holder thereof is tendering only such number of Repurchased Shares as is necessary to cause the aggregate number of Shares tendered into and accepted for payment in the Offer to be equal to 13,933,000 and that such tender is subject to the condition subsequent that all of the 4,432,619 Shares referred to in Sections 2.4(a) and (b) are taken up and paid for in the Offer. WMX and the Shareholder shall cause such number of Repurchased Shares not to be withdrawn from the Offer prior to the expiration or termination of the Offer. In the event that Parent and the Company make a request pursuant to this paragraph, the number of Repurchased Shares repurchased at the Repurchase Closing shall be reduced by the number of Repurchased Shares tendered into the Offer pursuant to this Section 2.4(c), and any Repurchased Shares not accepted for payment in the Offer shall be purchased by the Company, at the Repurchase Price, as promptly as practicable following the payment for Shares in the Offer, but in any event not later than the date on which the payment for Shares tendered by the Shareholder is transmitted to the Shareholder by the Depositary for the Offer. The closing procedures set forth in Section 2.2(b) shall be followed in respect of Repurchased Shares not accepted for payment in the Offer. ARTICLE III The Merger 3.1 Agreement to Vote Shares. In addition to and notwithstanding the provisions of Section 1.2 of the Standstill Agreement, WMX and the Shareholder agree that during the term of this Agreement they consent to and approve the voting of the Shareholder Shares and any New Shares (as defined in Section 4.2), (a) in favor of adoption of the Merger Agreement and in favor of consummation of the Merger Transactions at every meeting of the shareholders of the Company at which such matters are considered and at every adjournment thereof or in connection with any written consent of the shareholders of the Company, (b) in favor of the election to the Company's Board of Directors of such number of Parent Representatives as Parent is permitted to -7- 8 cause to be elected to the Company's Board of Directors pursuant to Section 1.4 of the Merger Agreement, (c) against any action or agreement that would compete with, impede, interfere with or attempt to discourage the Merger Transactions, or inhibit the timely consummation of the Merger Transactions, (d) against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement and (e) against any merger, consolidation, business combination, reorganization, recapitalization, liquidation or sale or transfer of any material assets of the Company or its subsidiaries, except for the Merger Transactions. The Shareholder agrees to deliver to Parent upon request a proxy substantially in the form attached hereto as Exhibit A, which proxy shall be irrevocable during the term of this Agreement to the fullest extent permitted under Ohio law. 3.2 No Voting Trusts. WMX and the Shareholder agree that they will not, nor will they permit any entity under their control to, deposit any of the Shareholder Shares or any New Shares held by them or any entity under their control in a voting trust or subject any of the Shareholder Shares or any New Shares held by them or any entity under their control to any arrangement with respect to the voting of the Shareholder Shares that could result in a shareholder's vote or action by consent of the shareholders of the Company in opposition to or in competition with the consummation of the Merger Transactions. 3.3 No Proxy Solicitations. WMX and the Shareholder agree that they will not, nor will they permit any entity under their respective control to, (a) solicit proxies or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the 1934 Act) in opposition to or in competition with the consummation of the Merger Transactions or otherwise encourage or assist any party in taking or planning any action which would compete with, impede, interfere with or attempt to discourage the Merger Transactions or inhibit the timely consummation of the Merger Transactions, (b) directly or indirectly encourage, initiate or cooperate in a shareholders' vote or action by consent of the Company's shareholders in opposition to or in competition with the consummation of the Merger Transactions, or (c) become a member of a "group" (as such term is used in Section 13(d) of the 1934 Act) with -8- 9 respect to any voting securities of the Company for the purpose of opposing or competing with the consummation of the Merger Transactions. 3.4 Waiver of Dissenters' Rights. The Shareholder hereby unconditionally and irrevocably waives its rights pursuant to Sections 1701.84 et seq. of the Ohio General Corporation Law to exercise appraisal rights or dissenters' rights with respect to the Offer, the Merger, or the other transactions contemplated by the Merger Agreement. ARTICLE IV Other Agreements 4.1 No Transfer or Encumbrance. In addition to and notwithstanding the provisions of Section 1.8 of the Standstill Agreement, WMX and the Shareholder agree not to transfer, sell, offer, exchange, pledge or otherwise dispose of or encumber any of the Warrants, Shareholder Shares or New Shares on or after the date hereof and during the term of this Agreement, except for tenders in accordance with Section 2.4, unless the transferee agrees in writing in form satisfactory to the Company and Parent to be bound by the terms of this Agreement. 4.2 No Additional Purchases or Acquisitions. In addition to and notwithstanding the provisions of Sections 1.1 and 2.4 of the Standstill Agreement, WMX and the Shareholder agree that they will not purchase or otherwise acquire beneficial ownership of any Shares or any other capital stock of the Company after the execution of this Agreement ("New Shares"), nor will WMX or the Shareholder voluntarily acquire the right to vote or share in the voting of any Shares or any other capital stock of the Company other than the Shareholder Shares, unless (in either case) WMX or the Shareholder, as the case may be, agrees to deliver to the Board of Directors of the Company immediately after such purchase or acquisition an irrevocable proxy in the form attached hereto as Exhibit A with respect to such New Shares. WMX and the Shareholder also agree that any New Shares acquired or purchased by them shall be subject to the terms of this Agreement to the same extent as if they constituted Shareholder Shares. -9- 10 4.3 First Amendment to Standstill Agreement. The Standstill Agreement is hereby amended ab initio, as of the execution of this Agreement, to amend Section 1.4 thereof by adding the following clause to the end of such Section: ", except the Share Repurchase Agreement, dated as of January 15, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc. and International Technology Corporation, the Amended and Restated Share Repurchase Agreement, dated as of February 11, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc., Rust Remedial Services Holding Company Inc. and International Technology Corporation and the Second Amended and Restated Share Repurchase Agreement, dated February 17, 1998, among OHM Corporation, Waste Management, Inc., Rust International Inc., Rust Remedial Services Holding Company Inc. and International Technology Corporation." 4.4 Second Amendment to Standstill Agreement. The Standstill Agreement is hereby further amended ab initio, as of the occurrence of the Repurchase Closing, to delete therefrom Sections 2.1 through 2.7 thereof in their entirety. 4.5 Third Amendment to Standstill Agreement. The Standstill Agreement is hereby further amended ab initio, as of the Repurchase Closing, to delete therefrom Sections 3.1, 3.2 and 3.3 thereof in their entirety. 4.6 Release from Intercreditor Agreement. WMX and the Shareholder hereby consent to the payment by the Company of a pro rata taxable distribution (the "NSC Distribution") to holders of record of the Shares of all of the shares of common stock, par value $0.01 per share, of NSC Corporation held by the Company (the "NSC Shares") and waive their rights to reimbursement pursuant to the Reimbursement Agreement, dated as of May 31, 1995, among the Company, Remediation and WMX, and the Intercreditor Agreement, dated as of May 31, 1995, among WMX, the Administrative Agent and the Issuing and Paying Agent, and hereby release the NSC Shares from any security interest (pursuant to pledge agreements or otherwise) which WMX may have with respect to such NSC Shares. WMX agrees to execute any documents reasonably necessary to give effect to the -10- 11 provisions of this Section, promptly upon request therefor made by the Company. 4.7 Termination of the Guaranty Agreement. The parties hereby agree that the Guaranty Agreement, dated as of May 30, 1995, between the Company and WMX, shall be terminated effective as of the Common Termination Date. 4.8 Cancellation of The Warrants. (a) The parties hereby agree that the Warrant Agreement shall be terminated and the Warrants shall be canceled effective as of the date on which the Guaranty, made as of May 31, 1995, by WMX in favor of the Banks listed therein (the "Guaranty"), terminates in accordance with Section 10(a) thereof (such date, the "Common Termination Date"), without the payment of any separate consideration therefor. The parties hereby agree to use their reasonable best efforts to cause the events specified in Section 10(a) of the Guaranty to occur prior to the second business day subsequent to the Effective Time. (b) WMX agrees not to exercise its rights pursuant to Sections 3.1 or 3.2 of the Warrant Agreement prior to the earlier to occur of (i) the second business day subsequent to the Effective Time, and (ii) the termination of the Merger Agreement in accordance with its terms. (c) WMX agrees not to exercise its rights pursuant to Section 2.2 of the Warrant Agreement with respect to the Merger Transactions prior to the second business day subsequent to the Effective Time. (d) WMX hereby waives its rights under Sections 2.1 through 2.7 of the Warrant Agreement with respect to the NSC Distribution. ARTICLE V Miscellaneous 5.1 Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, -11- 12 in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. 5.2 Entire Agreement. This Agreement and the Standstill Agreement (as herein amended) supersede all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed by all the parties hereto. No waiver of any provisions hereof by any party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party. 5.3 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: if to WMX, the Shareholder or Rust: Herbert A. Getz Waste Management, Inc. 3003 Butterfield Road Oak Brook, Illinois 60523 Telecopier: (630) 572-9130 -12- 13 with a copy to: John H. Bitner Bell, Boyd & Lloyd Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 Telecopier: (312) 372-2098 if to the Company: Steven E. Harbour OHM Corporation 5445 Triangle Parkway, Suite 400 Norcross, Georgia 30092 Telecopier: (770) 849-3110 with a copy to: Joseph B. Frumkin Sullivan & Cromwell 125 Broad Street New York, New York 10004 Telecopier: (212) 558-3588 and a copy to: Thomas C. Daniels Jones Day Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Telecopier: (216) 579-0212 if to Parent: James G. Kirk International Technology Corporation 2790 Mosside Boulevard Monroeville, PA 15146-2792 Telecopier: (412) 858-3978 -13- 14 with a copy to: Peter F. Ziegler Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071 Telecopier: (213) 229-7520 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 5.4 Miscellaneous. (a) This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Ohio applicable to agreements executed in and solely to be performed within such State. (b) If any provision of this Agreement or the application of such provision to any person or circumstances shall be held invalid or unenforceable by a court of competent jurisdiction, such provision or application shall be unenforceable only to the extent of such invalidity or unenforceability and the remainder of the provision held invalid or unenforceable and the application of such provision to persons or circumstances, other than the party as to which it is held invalid, and the remainder of this Agreement, shall not be affected. (c) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (d) This Agreement shall terminate automatically upon the termination of the Merger Agreement. This Agreement may be terminated by the Company at any time if WMX or the Shareholder shall have failed to comply with any of their respective covenants or agreements contained in this Agreement. This Agreement may be terminated by WMX or the Shareholder at any time if the Company shall have failed to comply with any of its covenants or agreements contained in this Agreement. -14- 15 (e) Each party hereto shall execute and deliver such additional documents as may be necessary or desirable to effect the transactions contemplated by this Agreement. (f) All Section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom. (g) The obligations of the parties set forth in this Agreement shall not be effective or binding upon any party hereto until after such time as the Merger Agreement is executed and delivered by the Company, Parent and Merger Sub, and the parties agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein. -15- 16 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. OHM CORPORATION By:______________________________ Name: Title: WASTE MANAGEMENT, INC. By:______________________________ Name: Title: RUST INTERNATIONAL INC. By:______________________________ Name: Title: RUST REMEDIAL SERVICES HOLDING COMPANY INC. By:______________________________ Name: Title: -16- 17 INTERNATIONAL TECHNOLOGY CORPORATION By:______________________________ Name: Title: -17- 18 (EXHIBIT A) FORM OF PROXY The undersigned, for consideration received, hereby appoints Anthony J. DeLuca and James G. Kirk and each of them my proxies, with power of substitution and resubstitution, to vote all shares of Common Stock of OHM Corporation, an Ohio corporation (the "Company"), [and [insert any other Shares (as defined in the Second Amended and Restated Share Repurchase Agreement) or other shares of capital stock of the Company owned by the Shareholder)]] owned by the undersigned at the Special Meeting of Shareholders of the Company to be held [insert date, time and place] and at any adjournment thereof IN FAVOR OF adoption of the Agreement and Plan of Merger, dated as of January 15, 1998 (the "Merger Agreement"), among the Company, International Technology Corporation ("Parent") and IT-Ohio, Inc., IN FAVOR OF consummation of the Merger Transactions, IN FAVOR OF [List such number of Parent Representatives (as defined in Section 1.4 of the Merger Agreement) as Parent is permitted to cause to be elected to the Company's Board of Directors pursuant to Section 1.4 of the Merger Agreement], and AGAINST [insert description of any action or agreement that would compete with, impede, interfere with or attempt to discourage the Merger Transactions or inhibit the timely consummation of the Merger Transactions or any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement or any merger, consolidation, business combination, reorganization, recapitalization, liquidation or sale or transfer of any material assets of the Company or its subsidiaries]. This proxy is coupled with an interest, revokes all prior proxies granted by the undersigned and is irrevocable until such time as the Second Amended and Restated Share Repurchase Agreement, dated as of February 17, 1998 among the undersigned and the Company terminates in accordance with its terms. Dated _________, 1998 RUST REMEDIAL SERVICES HOLDING COMPANY INC. By:______________________________ Name: Title: EX-21 4 EXHIBIT 21 1 EXHIBIT 21 2 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT OHM CORPORATION SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 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 Beneco Enterprises, Inc. Utah OHM Environmental Resource Management Corp. Ohio OHM International, Inc. Delaware OHM Energy Services Corp. Ohio
EX-23 5 EXHIBIT 23 1 EXHIBIT 23 2 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 12, 1998, 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, 1997. /s/ Ernst & Young LLP Columbus, Ohio February 25, 1998 EX-24 6 EXHIBIT 24 1 EXHIBIT 24 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, 1997 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 in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. IN WITNESS WHEREOF, the undersigned have subscribed these presents as of the 26th day of February, 1998. /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 - --------------------------------------- /s/ Charles D. Hollister Philip O. Strawbridge, Vice President, --------------------------------------- Chief Financial and Administrative Charles D. Hollister, Director Officer (Principal Financial Officer) /s/ William P. Hulligan --------------------------------------- /s/ Kris E. Hansel William P. Hulligan, Director - --------------------------------------- Kris E. Hansel, /s/ Joseph R. Kirk Vice President and Controller Joseph R. Kirk, Director (Principal Accounting Officer) --------------------------------------- James E. Koenig, Director /s/ Richard W. Pogue --------------------------------------- Richard W. Pogue, Director /s/ Charles W. Schmidt --------------------------------------- Charles W. Schmidt, Director
EX-27 7 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-31-1997 JAN-01-1997 DEC-31-1997 31,784 0 132,268 15,397 13,285 185,845 96,231 39,621 319,779 108,787 50,106 0 0 2,742 154,154 319,779 0 526,691 0 454,556 98,588 0 5,186 (31,639) (10,442) (21,197) 0 0 0 (21,197) (0.78) (0.78)
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