þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2004 | ||
or | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware | 95-6021257 | |
(State or Other Jurisdiction
of Incorporation or Organization) |
(I.R.S. Employee
Identification No.) |
|
40 Lane Road, Fairfield, N.J. | 07004 | |
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $0.10 par value
|
American Stock Exchange |
Class | March 9, 2005 | |
Common Stock, $0.10 par value
|
73,214,836 shares |
Page | ||||||||
PART I | ||||||||
Business | 1 | |||||||
Properties | 52 | |||||||
Legal Proceedings | 54 | |||||||
Submission of Matters to a Vote of Security Holders | 56 | |||||||
PART II | ||||||||
Item 5.
|
Market For Registrants Common Equity And Related Stockholder Matters | 57 | ||||||
Item 6.
|
Selected Financial Data | 58 | ||||||
Item 7.
|
Managements Discussion And Analysis of Financial Condition And Results Of Operation | 59 | ||||||
Item 7A.
|
Quantitative And Qualitative Disclosures About Market Risk | 108 | ||||||
Item 8.
|
Financial Statements and Supplementary Data | 113 | ||||||
Item 9.
|
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure | 187 | ||||||
Item 9A.
|
Controls and Procedures | 187 | ||||||
Item 9B.
|
Other Information | 188 | ||||||
PART III | ||||||||
Item 10.
|
Directors and Executive Officers of the Registrant | 189 | ||||||
Item 11.
|
Executive Compensation | 192 | ||||||
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 197 | ||||||
Item 13.
|
Certain Relationships and Related Transactions | 201 | ||||||
Item 14.
|
Principal Accountant Fees and Services | 203 | ||||||
PART IV | ||||||||
Item 15.
|
Exhibits and Financial Statement Schedules | 205 | ||||||
Equity Award Plan for Employees and Officers | ||||||||
Subsidiaries | ||||||||
Consent | ||||||||
302 Certification of Chief Executive Officer | ||||||||
302 Certification of Chief Financial Officer | ||||||||
906 Certification of Chief Executive Officer | ||||||||
906 Certification of Chief Financial Officer |
i
Item 1. | BUSINESS |
1
2
3
Amount of | ||||
Carryforward | ||||
Year | Expiring | |||
2005
|
$ | 12,405 | ||
2006
|
92,355 | |||
2007
|
89,790 | |||
2008
|
31,688 | |||
2009
|
39,689 | |||
2010
|
23,600 | |||
2011
|
19,755 | |||
2012
|
38,255 | |||
2019
|
33,635 | |||
2022
|
26,931 | |||
2023
|
108,331 | |||
$ | 516,434 | |||
4
(i) | Domestic Energy Business |
Waste-to-Energy Projects |
5
Structurally Similar Waste-to-Energy Projects |
| Covanta designs the facility, helps to arrange for financing and then constructs and equips the facility on a fixed price and schedule basis. | |
| Covanta operates the facility and generally guarantees it will meet minimum waste processing capacity and efficiency standards, energy production levels and environmental standards. Covantas failure to meet these guarantees or to otherwise observe the material terms of the Service Agreement (unless caused by the Client Community or by events beyond its control (Unforeseen Circumstances)) may result in liquidated damages charged to Covanta or, if the breach is substantial, continuing and unremedied, the termination of the Service Agreement. In the case of such Service Agreement termination, Covanta may be obligated to pay material damages, including payments to discharge project indebtedness. Covanta or an intermediate holding company typically guarantees performance of the Service Agreement. | |
| The Client Community is generally required to deliver minimum quantities of municipal solid waste to the facility on a put-or-pay basis and is obligated to pay a service fee for its disposal (the Service Fee). A put-or-pay commitment means that the Client Community promises to deliver a stated quantity of waste and pay an agreed amount for its disposal. This payment is due even if the counterparty delivers less than the full amount of waste promised. Portions of the Service Fee escalate to reflect indices of inflation. In many cases the Client Community must also pay for other costs, such as insurance, taxes and transportation and disposal of the residue to the disposal site. If the facility is owned by Covanta, the Client Community also pays as part of the Service Fee an amount equal to the debt service due to be paid on the bonds issued to finance the facility. Generally, expenses resulting from the delivery of unacceptable and hazardous waste on the site are also borne by the Client Community. In addition, the contracts generally require that the Client Community pay increased expenses and capital costs resulting from Unforeseen Circumstances, subject to limits which may be specified in the Service Agreement. | |
| The Client Community usually retains a portion of the energy revenues (generally 90%) generated by the facility, and pays the balance to Covanta. |
6
Other Waste-to-Energy Project Structures |
Haverhill, Massachusetts |
Union, New Jersey |
Alexandria, Virginia |
7
Project Restructurings during 2004 |
Babylon, New York |
Lake County, Florida |
8
Warren County, New Jersey |
Projects under Development |
Hillsborough County, Florida |
9
Lee County, Florida |
Honolulu, Hawaii |
Independent Power Projects |
Hydroelectric |
10
Waste Wood |
Landfill Gas |
Water Operations |
Domestic Project Dispositions in 2004 |
Tampa Bay, Florida |
11
Transfers of Waste Water Project Contracts |
Sales of Certain Landfill Gas Assets |
12
Domestic Project Summaries |
Waste | Gross | |||||||||||||||||||
Processing | Electric | Date of Acquisition/ | ||||||||||||||||||
Capacity | Output | Commencement of | ||||||||||||||||||
Location | (TON/DAY) | (MW) | Nature of Interest(1) | Operations | ||||||||||||||||
A.
|
MUNICIPAL SOLID WASTE | |||||||||||||||||||
1.
|
Marion County | Oregon | 550 | 13.1 | Owner/Operator | 1987 | ||||||||||||||
2.
|
Hillsborough County | Florida | 1,200 | 29.0 | Operator | 1987 | ||||||||||||||
3.
|
Hartford(5)(6) | Connecticut | 2,000 | 68.5 | Operator | 1987 | ||||||||||||||
4.
|
Bristol | Connecticut | 650 | 16.3 | Owner/Operator | 1988 | ||||||||||||||
5.
|
Alexandria/ Arlington | Virginia | 975 | 22.0 | Owner/Operator | 1988 | ||||||||||||||
6.
|
Indianapolis(2) | Indiana | 2,362 | 6.5 | Owner/Operator | 1988 | ||||||||||||||
7.
|
Warren County(5) | New Jersey | 400 | 11.8 | Owner/Operator | 1988 | ||||||||||||||
8.
|
Hennepin County(5) | Minnesota | 1,212 | 38.7 | Operator | 1989 | ||||||||||||||
9.
|
Stanislaus County | California | 800 | 22.4 | Owner/Operator | 1989 | ||||||||||||||
10.
|
Babylon | New York | 750 | 16.8 | Owner/Operator | 1989 | ||||||||||||||
11.
|
Haverhill | Massachusetts | 1,650 | 44.6 | Owner/Operator | 1989 | ||||||||||||||
12.
|
Wallingford(5) | Connecticut | 420 | 11.0 | Owner/Operator | 1989 | ||||||||||||||
13.
|
Kent County | Michigan | 625 | 16.8 | Operator | 1990 | ||||||||||||||
14.
|
Honolulu(4)(5) | Hawaii | 1,851 | 57.0 | Lessee/Operator | 1990 | ||||||||||||||
15.
|
Fairfax County | Virginia | 3,000 | 93.0 | Owner/Operator | 1990 | ||||||||||||||
16.
|
Huntsville(2) | Alabama | 690 | | Operator | 1990 | ||||||||||||||
17.
|
Lake County | Florida | 528 | 14.5 | Owner/Operator | 1991 | ||||||||||||||
18.
|
Lancaster County | Pennsylvania | 1,200 | 33.1 | Operator | 1991 | ||||||||||||||
19.
|
Pasco County | Florida | 1,050 | 29.7 | Operator | 1991 | ||||||||||||||
20.
|
Huntington(3) | New York | 750 | 24.3 | Owner/Operator | 1991 | ||||||||||||||
21.
|
Detroit(2)(4)(5) | Michigan | 2,832 | 68.0 | Lessee/Operator | 1991 | ||||||||||||||
22.
|
Union County(7) | New Jersey | 1,440 | 42.1 | Lessee/Operator | 1994 | ||||||||||||||
23
|
Lee County | Florida | 1,200 | 36.9 | Operator | 1994 | ||||||||||||||
24
|
Onondaga County(3) | New York | 990 | 36.8 | Owner/Operator | 1995 | ||||||||||||||
25.
|
Montgomery County | Maryland | 1,800 | 63.4 | Operator | 1995 | ||||||||||||||
SUBTOTAL | 30,925 | 816.3 | ||||||||||||||||||
B.
|
HYDROELECTRIC | |||||||||||||||||||
26.
|
Koma Kulshan(8) | Washington | 12.0 | Part Owner/Operator | 1997 | |||||||||||||||
27.
|
Weeks Falls(8) | Washington | 5.0 | Part Owner | 1997 | |||||||||||||||
SUBTOTAL | 17.0 | |||||||||||||||||||
C.
|
WOOD | |||||||||||||||||||
28.
|
Burney Mountain | California | 11.4 | Owner/Operator | 1997 | |||||||||||||||
29
|
Pacific Ultrapower | California | 25.6 | Part Owner | 1997 | |||||||||||||||
Chinese Station(8) | ||||||||||||||||||||
30.
|
Mount Lassen | California | 11.4 | Owner/Operator | 1997 | |||||||||||||||
31.
|
Pacific Oroville | California | 18.7 | Owner/Operator | 1997 | |||||||||||||||
SUBTOTAL | 67.1 | |||||||||||||||||||
D.
|
LANDFILL GAS | |||||||||||||||||||
32.
|
Gude | Maryland | 3.0 | Owner/Operator | 1997 | |||||||||||||||
33.
|
Otay | California | 3.7 | Owner/Operator | 1997 | |||||||||||||||
34.
|
Oxnard | California | 5.6 | Owner/Operator | 1997 | |||||||||||||||
35.
|
Salinas | California | 1.5 | Owner/Operator | 1997 | |||||||||||||||
36.
|
Santa Clara | California | 1.5 | Owner/Operator | 1997 | |||||||||||||||
37.
|
Stockton | California | 0.8 | Owner/Operator | 1997 | |||||||||||||||
38.
|
Toyon(9) | California | 3.8 | Operator | 1977 | |||||||||||||||
SUBTOTAL | 19.9 | |||||||||||||||||||
TOTAL DOMESTIC GROSS MW IN OPERATION | 920.3 | |||||||||||||||||||
E.
|
WATER | |||||||||||||||||||
39.
|
Bessemer | Alabama | 24 mgd | Design/ Build/Operate | 2000 | |||||||||||||||
24 mgd |
(1) | Covantas ownership and/or operation interest in each facility listed below extends at least into calendar year 2007. |
(2) | Facility has been designed to export steam for sale. |
13
(3) | Owned by a limited partnership in which the limited partners are not affiliated with Covanta. |
(4) | Operating contracts were acquired after completion. Facility uses a refuse-derived fuel technology and does not employ the Martin technology described below. |
(5) | Covanta subsidiaries were purchased after construction completion. |
(6) | Under contracts with the Connecticut Resource Recovery Authority, Covanta operates only the boilers and turbines for this facility. |
(7) | The facility is leased to a Covanta subsidiary. |
(8) | Covanta has a 50% ownership interest in the project. |
(9) | Covanta owned this project from 1997 until its sale in the fourth quarter of 2004. Covanta continues to operate the project under an contract expiring in 2006. |
(ii) International Energy Business |
General Approach to International Projects |
14
15
The following is a description of Covantas international power projects by fuel type: |
Waste-to-Energy |
Hydroelectric |
Coal |
16
Natural Gas |
Diesel/ Heavy Fuel Oil |
17
18
International Project Dispositions 2004 |
Gross | ||||||||||||||
Electric | Date of Acquisition/ | |||||||||||||
Output | Commencement of | |||||||||||||
Location | (MW) | Nature of Interest(1) | Operations | |||||||||||
A.
|
WASTE TO ENERGY | |||||||||||||
1.
|
Trezzo(2) | Italy | 18 | Part Owner/Operator | 2003 | |||||||||
2.
|
San Vittore(3) | Italy | 10 | Operator | 2005 | (est.) | ||||||||
SUBTOTAL | 28 | |||||||||||||
B.
|
HYDROELECTRIC | |||||||||||||
3.
|
Rio Volcán(4) | Costa Rica | 17 | Part Owner/Operator | 1997 | |||||||||
4.
|
Don Pedro(4) | Costa Rica | 14 | Part Owner/Operator | 1996 | |||||||||
SUBTOTAL | 31 | |||||||||||||
C.
|
COAL | |||||||||||||
5.
|
Quezon(5) | the Philippines | 510 | Part Owner/Operator | 2000 | |||||||||
6.
|
Linan(7) | China | 24 | Part Owner/Operator | 1997 | |||||||||
7.
|
Huantai(6) | China | 36 | Part Owner | 1997 | |||||||||
8.
|
Yanjiang(8) | China | 24 | Part Owner/Operator | 1997 | |||||||||
SUBTOTAL | 594 | |||||||||||||
D.
|
NATURAL GAS | |||||||||||||
9.
|
Haripur(9) | Bangladesh | 126 | Part Owner/Operator | 1999 |
19
Gross | ||||||||||||||
Electric | Date of Acquisition/ | |||||||||||||
Output | Commencement of | |||||||||||||
Location | (MW) | Nature of Interest(1) | Operations | |||||||||||
E.
|
DIESEL/ HEAVY FUEL OIL | |||||||||||||
10.
|
Island Power Corporation(10) | the Philippines | 7 | Part Owner | 1996 | |||||||||
11.
|
Magellan Cogeneration | the Philippines | 63 | Owner/Operator | 1999 | |||||||||
12.
|
Samalpatti(6) | India | 106 | Part Owner/Operator | 2001 | |||||||||
13.
|
Madurai(11) | India | 106 | Part Owner/Operator | 2001 | |||||||||
SUBTOTAL | 282 | |||||||||||||
TOTAL INTERNATIONAL MW IN OPERATION | 1,061 | |||||||||||||
(1) | Covantas ownership and/or operation interest in each facility listed below extends at least into calendar year 2007. |
(2) | Covanta has a 13% interest in this project and a 40% interest in the operator Ambiente 2000 S.r.l. A2000. |
(3) | Operation by A2000 begins one year after the project begins commercial operation provided certain criteria are satisfied. |
(4) | Covanta has a nominal interest in this project. |
(5) | Covanta has an approximate 26% ownership interest in this project. |
(6) | Covanta has a 60% ownership interest in these projects. |
(7) | Covanta has an approximate 64% interest in this project. |
(8) | Covanta has an approximate 96% ownership interest in this project. |
(9) | Covanta has an approximate 45% interest in this project. This project is capable of operating through combustion of diesel oil in addition to natural gas. |
(10) | Covanta has an approximate 19.6% ownership interest in this project. |
(11) | Covanta has an approximate 77% interest in this project. |
(iii) Description of Covanta Reorganization and Related Dispositions of Assets |
20
| Danielson to purchase 100% of the shares of reorganized Covanta (New Common) for $30 million as part of a plan of reorganization (the Danielson Transaction); | |
| agreement as to new revolving credit and letter of credit facilities for Covantas domestic and international operations, provided by certain of the Secured Bank Lenders and a group of additional lenders organized by Danielson; and | |
| execution and consummation of a Tax Sharing Agreement between Danielson and reorganized Covanta (the Tax Sharing Agreement), pursuant to which Covantas share of Danielsons consolidated group tax liability for taxable years ending after consummation of the Danielson Transaction will be computed taking into account Danielsons net operating losses (NOLs) generated before January 1, 2003 to the extent not utilized by any other existing member of the consolidated group, and Danielson will have an obligation to indemnify and hold harmless Covanta for certain excess tax liability. |
| a more favorable capital structure for the Debtors upon emergence from Chapter 11; | |
| the injection of $30 million in equity from Danielson; | |
| enhanced access to capital markets through Danielson; | |
| diminished syndication risk in connection with the reorganized Debtors financing under the exit financing agreements; and | |
| reduced exposure of the Secured Bank Lenders as a result of financing arranged by new lenders. |
(i) Secured Bank Lender and 9.25% Debenture Holder Claims |
| the cash available for distribution after payment by the Debtors of exit costs necessary to confirm the Reorganization Plan and establishment of required reserves pursuant to the Reorganization Plan, | |
| new high-yield secured notes issued by Covanta and guaranteed by its subsidiaries (other than CPIH and its subsidiaries) which are not contractually prohibited from incurring or guaranteeing additional |
21
debt (Covanta and such subsidiaries, the Domestic Borrowers) with a stated maturity of seven years (the High Yield Notes), and | ||
| a term loan of CPIH with a stated maturity of three years. |
(ii) Unsecured Claims against Operating Company Subsidiaries |
(iii) Unsecured Claims against Covanta and Holding Company Subsidiaries |
(iv) Subordinated Claims of holders of Convertible Subordinated Debentures |
(v) Equity interests of Old Common and Old Preferred stockholders |
22
| a letter of credit facility (the First Lien Facility), for the issuance of letters of credit required in connection with one waste-to-energy facility, the current aggregate amount of which was approximately $120 million at December 31, 2004, and | |
| a letter of credit and liquidity facility (the Second Lien Facility), in the aggregate amount of $118 million of which approximately $71 million was outstanding at December 31, 2004, up to $10 million of which shall also be available for cash borrowings on a revolving basis and the balance for letters of credit. Through December 31, 2004, CPIH had not sought to make draws on this facility and the outstanding commitment amount has been reduced to $9.1 million. |
| a revolving credit facility, secured by a first priority lien on substantially all of the CPIH Borrowers assets not otherwise pledged, consisting of commitments for cash borrowings in the initial amount of up to $10 million, which remained undrawn at December 31, 2004, for purposes of supporting the international businesses, and | |
| a term loan facility of up to $95 million, the outstanding amount of which approximately $77 million was outstanding at December 31, 2004, secured by a second priority lien on the same collateral. |
23
Discussion of Business |
24
Commercial Automobile |
Workers Compensation |
25
Property and Casualty |
26
Marketing |
Claims |
Losses and Loss Adjustment Expenses |
| Changes to the Official Medical Fee Schedule Values for Physician Services | |
| Changes to the Official Medical Fee Schedule for Inpatient Services | |
| Pharmaceutical Fee Schedule | |
| Outpatient Surgery Center Fee Schedule | |
| Repeal of the Primary Treating Physician Presumption for Pre-2003 Injuries | |
| Other Medical Treatment Utilization |
27
Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Net unpaid losses and LAE at beginning of year
|
$ | 65,142 | $ | 79,192 | $ | 88,012 | ||||||||
Incurred losses, net, related to:
|
||||||||||||||
Current year
|
10,343 | 23,199 | 49,474 | |||||||||||
Prior years
|
2,518 | 13,485 | 10,407 | |||||||||||
Total net incurred
|
12,861 | 36,684 | 59,881 | |||||||||||
Paid losses, net, related to:
|
||||||||||||||
Current year
|
(5,427 | ) | (10,133 | ) | (22,871 | ) | ||||||||
Prior years
|
(26,348 | ) | (40,601 | ) | (45,830 | ) | ||||||||
Total net paid
|
(31,775 | ) | (50,734 | ) | (68,701 | ) | ||||||||
Net unpaid losses and LAE at December 31
|
46,228 | 65,142 | 79,192 | |||||||||||
Plus: Reinsurance recoverable on unpaid losses, net
|
18,042 | 18,238 | 22,057 | |||||||||||
Gross unpaid losses and LAE at December 31
|
$ | 64,270 | $ | 83,380 | $ | 101,249 | ||||||||
28
Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||||||||||||||||||
Originally reported gross
|
|||||||||||||||||||||||||||||||||||||||||||||
Unpaid Losses and LAE
|
$ | 146,330 | $ | 137,406 | $ | 120,651 | $ | 105,947 | $ | 95,653 | $ | 94,934 | $ | 100,030 | $ | 105,745 | $ | 101,249 | $ | 83,381 | $ | 64,270 | |||||||||||||||||||||||
Originally reported ceded recoverable
|
17,705 | 21,112 | 23,546 | 20,185 | 18,187 | 15,628 | 20,641 | 17,733 | 22,057 | 18,239 | 18,042 | ||||||||||||||||||||||||||||||||||
Originally reported net Unpaid Losses and LAE
|
128,625 | 116,294 | 97,105 | 85,762 | 77,466 | 79,306 | 79,389 | 88,012 | 79,192 | 65,142 | 46,228 | ||||||||||||||||||||||||||||||||||
Net Unpaid Losses and LAE re-estimated as of:
|
|||||||||||||||||||||||||||||||||||||||||||||
One Year Later
|
131,748 | 126,413 | 98,045 | 85,762 | 79,957 | 84,560 | 87,035 | 98,419 | 92,677 | 67,660 | |||||||||||||||||||||||||||||||||||
Two Years Later
|
141,602 | 126,796 | 97,683 | 85,684 | 82,778 | 88,001 | 94,570 | 109,795 | 97,331 | ||||||||||||||||||||||||||||||||||||
Three Years Later
|
141,787 | 127,621 | 98,545 | 87,613 | 83,778 | 92,213 | 100,640 | 112,770 | |||||||||||||||||||||||||||||||||||||
Four Years Later
|
144,491 | 129,792 | 102,053 | 88,238 | 87,160 | 94,895 | 101,486 | ||||||||||||||||||||||||||||||||||||||
Five Years Later
|
146,827 | 133,985 | 102,949 | 89,802 | 89,476 | 95,803 | |||||||||||||||||||||||||||||||||||||||
Six Years Later
|
151,784 | 134,992 | 103,645 | 91,892 | 90,345 | ||||||||||||||||||||||||||||||||||||||||
Seven Years Later
|
152,764 | 135,629 | 105,767 | 92,301 | |||||||||||||||||||||||||||||||||||||||||
Eight Years Later
|
153,459 | 137,886 | 106,108 | ||||||||||||||||||||||||||||||||||||||||||
Nine Years Later
|
155,591 | 138,245 | |||||||||||||||||||||||||||||||||||||||||||
Ten Years Later
|
156,044 | ||||||||||||||||||||||||||||||||||||||||||||
Cumulative (deficiency) redundancy
|
(27,419 | ) | (21,951 | ) | (9,003 | ) | (6,539 | ) | (12,879 | ) | (16,497 | ) | (22,097 | ) | (24,758 | ) | (18,139 | ) | (2,518 | ) | |||||||||||||||||||||||||
29
Years Ended December 31,
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
$
15,849
$
14,464
$
10,559
$
13,801
$
16,170
$
16,527
$
25,360
$
28,631
$
22,870
$
10,263
$
5,427
46,582
46,132
35,696
31,317
43,090
51,608
64,599
74,460
63,343
36,611
80,515
74,543
54,815
43,855
62,577
71,151
86,722
98,827
83,710
101,726
90,818
63,290
56,968
74,267
83,225
97,694
111,535
114,424
97,900
74,306
66,015
82,524
88,524
103,944
119,310
108,061
82,568
72,531
86,278
92,795
128,117
115,721
88,424
75,231
89,696
135,013
121,344
90,776
91,574
140,146
123,477
103,563
141,899
125,575
143,828
156,044
138,245
106,108
92,301
90,345
95,803
101,486
112,770
97,331
67,560
46,228
27,473
29,463
28,441
28,838
23,659
18,506
25,232
33,750
29,798
21,323
18,042
$
183,517
$
167,708
$
134,549
$
121,139
$
114,004
$
114,309
$
126,718
$
146,520
$
127,129
$
88,983
$
64,270
Reinsurance |
30
General Business Conditions |
| regional population and overall waste production rates; | |
| the number of other waste disposal sites (including principally landfills and transfer stations) in existence or in the planning or permitting process; | |
| the available disposal capacity (in terms of tons of waste per day) that can be offered by other regional disposal sites; and | |
| the availability and cost of transportation options (rail, intermodal, trucking) to provide access to more distant disposal sites, thereby affecting the size of the waste shed itself. |
31
Technology |
32
Environmental Regulatory Laws Affecting Covantas Businesses |
Domestic |
33
International |
34
Energy and Water Regulations Affecting Covantas Businesses |
35
Dividends |
Capital Adequacy and Risk-Based Capital |
36
37
38
The market for our common stock has been historically illiquid which may affect your ability to sell your shares. |
Reduced liquidity and price volatility could result in a loss to investors. |
Concentrated stock ownership and charter provision may discourage unsolicited acquisition proposals. |
Future sales of our common stock may depress our stock price. |
Our disclosure controls and procedures may not prevent or detect all acts of fraud. |
39
Failure to maintain an effective system of internal control over financial reporting may have an adverse effect on our stock price. |
We cannot be certain that the net operating loss tax carryforwards will continue to be available to offset our tax liability. |
40
Covanta emerged from bankruptcy with a large amount of domestic debt, and we cannot assure you that its cash flow from domestic operations will be sufficient to pay this debt. |
| its ability to continue to operate and maintain its facilities consistent with historical performance levels; | |
| its ability to maintain compliance with its debt covenants; | |
| its ability to avoid increases in overhead and operating expenses in view of the largely fixed nature of its revenues; | |
| its ability to maintain or enhance revenue from renewals or replacement of existing contracts, which begin to expire in October 2007 and from new contracts to expand existing facilities or operate additional facilities; | |
| market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after its existing contracts expire. | |
| the continued availability to Covanta of the benefit of Danielsons net operating losses under the Tax Sharing Agreement; and | |
| its ability to refinance its domestic corporate debt, whether in conjunction with the Ref-Fuel acquisition or otherwise. |
41
The amount of unsecured claims for which Covanta is liable has not been determined and could exceed our estimates. |
Covanta may not be able to refinance its domestic debt agreements prior to maturity. |
Covantas ability to grow its business is limited. |
Covantas liquidity is limited by the amount of domestic debt issued when it emerged from bankruptcy. |
42
Operation of Covantas facilities and the construction of new or expanded facilities involve significant risks. |
| the inaccuracy of Covantas assumptions with respect to the timing and amount of anticipated revenues; | |
| supply interruptions; | |
| permitting and other regulatory issues, license revocation and changes in legal requirements; | |
| labor disputes and work stoppages; | |
| unforeseen engineering and environmental problems; | |
| unanticipated cost overruns; | |
| weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism; and | |
| performance below expected levels of output or efficiency. |
Expansion of Covantas existing plants or construction of new plants may require Covanta to use additional new technology which may increase construction costs. |
Covantas insurance and contractual protections may not always cover lost revenues, increased expenses or liquidated damages payments. |
Performance reductions could materially and adversely affect Covanta. |
43
Covanta generates its revenue primarily under long-term contracts, and must avoid defaults under its contracts in order to service its debt and avoid material liability to contract counterparties. |
Covanta may face increased risk of market influences on its domestic revenues after its contracts expire. |
44
Concentration of suppliers and customers may expose Covanta to heightened financial exposure. |
Covantas international businesses emerged from bankruptcy with a large amount of debt, and we cannot assure you that its cash flow from international operations will be sufficient to pay this debt. |
45
| its ability to continue to operate and maintain its facilities consistent with historical performance levels; | |
| stable foreign political environments that do not resort to expropriation, contract renegotiations or currency or exchange changes; | |
| the financial ability of the electric and steam purchasers to pay the full contractual tariffs on a timely basis; | |
| the ability of its international project subsidiaries to maintain compliance with their respective project debt covenants in order to make equity distributions to CPIH; and | |
| its ability to sell existing projects in an amount sufficient to repay CPIH indebtedness at or prior to its maturity in March 2007, or to refinance its indebtedness at or prior to such maturity. |
CPIHs debt is due in March 2007, and it will need to refinance its debt or obtain cash from other sources to repay this debt at maturity. |
CPIHs assets and cash flow will not be available to Covanta. |
A sale or transfer of CPIH or its assets may not be sufficient to repay CPIH indebtedness. |
46
Exposure to international economic and political factors may materially and adversely affect Covantas business. |
| changes in law or regulations; | |
| changes in electricity tariffs; | |
| changes in foreign tax laws and regulations; | |
| changes in United States, federal, state and local laws, including tax laws, related to foreign operations; | |
| compliance with United States, federal, state and local foreign corrupt practices laws; | |
| changes in government policies or personnel; | |
| changes in general economic conditions affecting each country, including conditions in financial markets; | |
| changes in labor relations in operations outside the United States; | |
| political, economic or military instability and civil unrest; and | |
| expropriation and confiscation of assets and facilities. |
Exposure to foreign currency fluctuations may affect Covantas costs of operations. |
47
Exposure to fuel supply prices may affect CPIHs costs and results of operations. |
Covantas inability to obtain resources for operations may adversely affect its ability to effectively compete. |
Compliance with environmental laws could adversely affect Covantas results of operations. |
48
Federal energy regulation could adversely affect Covantas revenues and costs of operations. |
Failure to obtain regulatory approvals could adversely affect Covantas operations. |
The energy industry is becoming increasingly competitive, and Covanta might not successfully respond to these changes. |
Changes in laws and regulations affecting the solid waste and the energy industries could adversely affect Covantas business. |
49
Insurance regulations may affect NAICCs operations. |
The insurance products sold by NAICC are subject to intense competition. |
If NAICCs loss experience exceeds its estimates, additional capital may be required. |
Failure to satisfy capital adequacy and risk-based capital requirements would require NAICC to obtain additional capital. |
50
We may be unable to integrate the operations of Ref-Fuel and Danielson successfully and may not realize the full anticipated benefits of the acquisition |
We will incur significant transaction and combination-related costs in connection with the transaction |
Failure to close the Ref-Fuel acquisition may adversely affect the Danielsons financial situation |
Fees payable in Danielsons stock if Ref-Fuel fails to close may have a dilutive effect on your interest |
51
Ref-Fuels business model includes greater risk in the waste disposal market than does Covantas |
Item 2. PROPERTIES |
52
53
(1) | All sizes are in acres unless otherwise indicated. |
(2) | All ownership or leasehold interests relating to projects are subject to material liens in connection with the financing of the related project, except those listed above under item 10, 23-25, 27-32. In addition, all leasehold interests existed at least as long as the term of applicable project contracts, and several of the leasehold interests are subject to renewal and/or purchase options. |
(3) | NAICC entered into a five year lease in July 2004 and lease payments begin in February 2005. |
Item 3. | LEGAL PROCEEDINGS |
54
55
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
Item 5.
Market for The Registrants Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity
Securities
2004
2003
High
Low
Close
High
Low
Close
$
10.03
$
2.87
$
9.30
$
1.55
$
0.64
$
0.74
10.40
5.40
6.91
1.60
0.71
1.60
7.15
5.52
6.09
1.80
1.27
1.37
8.60
6.00
8.45
3.25
1.26
2.91
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Item 6.
Selected Financial Data
Years Ended
2004(1)
2003(2)
2002(3)
2001
2000
(In thousands, except per share amounts)
$
578,555
$
41,123
$
531,501
$
92,104
$
84,331
501,200
54,029
528,168
106,365
85,073
77,355
(12,906
)
3,333
(14,261
)
(742
)
2,793
(1,906
)
41,881
1,424
38,735
35,474
(14,330
)
(32,609
)
(14,261
)
1,164
6,869
11,101
18
346
73
134
19,455
(54,877
)
36,959
(69,225
)
(32,955
)
(14,334
)
1,030
0.58
(1.46
)
(0.82
)
(0.48
)
0.04
0.56
(1.46
)
(0.82
)
(0.48
)
0.04
$
96,148
$
17,952
$
25,183
$
17,866
$
12,545
239,918
65,042
71,057
93,746
148,512
147,667
821,400
254
654,575
131
56
177,290
84,733
1,999,335
162,648
1,032,945
208,871
210,829
166,854
64,270
83,380
101,249
105,745
100,030
312,896
40,000
597,246
944,737
(6)
37,910
83,350
137,680
27,791
77,360
74,463
81,330
1.87
0.50
1.63
2.48
2.74
73,430
55,105
47,459
30,039
29,716
(1)
For the year ended December 31, 2004, Covantas
results of operations are included in Danielsons
consolidated results since March 10, 2004. As a result of
the consummation of the Covanta acquisition on March 10,
2004, the future performance of Danielson will predominantly
reflect the performance of Covantas operations which are
significantly larger than Danielsons insurance operations.
As a result, the nature of Danielsons business, the risks
attendant to such business and the trends that it will face have
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been significantly altered by the acquisition of Covanta.
Accordingly, Danielsons historic financial performance and
results of operations will not be indicative of its future
performance.
(2)
ACL, which was acquired on May 29, 2002, and certain of its
subsidiaries, filed a petition on January 31, 2003 with the
U.S. Bankruptcy Court for the Southern District of Indiana,
New Albany Division to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. As a result of this filing, Danielson
no longer maintained control of the activities of ACL and
Danielsons equity interest in ACL was cancelled when
ACLs plan of reorganization was confirmed on
December 30, 2004 and it emerged from bankruptcy on
January 11, 2005. Accordingly, Danielson no longer includes
ACL and its subsidiaries as consolidated subsidiaries in
Danielsons financial statements. Danielsons
investments in these entities are presented using the equity
method effective as of the beginning of the year ending
December 31, 2003. Other (loss) income above consists of
Danielsons equity in the net loss of ACL, GMS and Vessel
Leasing in 2003.
(3)
In 2002, Danielson purchased 100% of ACL, 5.4% of GMS and 50% of
Vessel Leasing.
(4)
Does not give effect to currently exercisable options, and, in
2001, and 2000, warrants to purchase shares of Danielsons
common stock.
(5)
Basic and diluted earnings per share and the average shares used
in the calculation of basic and diluted earnings per share and
book value per share of common stock and shares of common stock
outstanding for all periods have been adjusted retroactively to
reflect the bonus element contained in the rights offering
issued on May 18, 2004.
(6)
Includes $38 million of unamortized debt premium.
Item 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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Cash Flow Parent
(In millions)
$
42.0
40.0
(13.4
)
2.6
(29.2
)
(1.0
)
$
11.8
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Liquidity and Capital Resources Parent
Parent Expenses 2004 vs. 2003
Parent Expenses 2003 vs. 2002
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Segment Cash Flow Information
Year Ended December 31, 2004
Energy
Insurance
Corporate
Total
$
113,831
$
(18,715
)
$
(7,050
)
$
88,066
59,509
10,852
(550
)
69,811
(95,228
)
(1,436
)
16,983
(79,681
)
78,112
(9,299
)
9,383
78,196
Year Ended December 31, 2003
Energy
Insurance
Corporate
Total
$
$
(23,207
)
$
36
$
(23,171
)
23,535
(33,801
)
(10,266
)
5,436
36,014
41,450
5,764
2,249
8,013
(1)
Includes cash acquired of $57,795 in Energy segment
Covantas Business Segments
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Optimizing Covantas Cash
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Refinancing Covantas and CPIHs Corporate
Debt
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Covantas Earnings
Covanta Operating Performance and Seasonality
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Seasonal or long-term changes in market prices for waste,
energy, or scrap metals, for projects where Domestic Covanta
sells into those markets;
Seasonal, geographic and other variations in the heat content of
waste processed, and thereby the amount of waste that can be
processed by a waste-to-energy facility;
Its ability to avoid unexpected increases in operating and
maintenance costs while ensuring that adequate facility
maintenance is conducted so that historic levels of operating
performance can be sustained;
Contract counter parties ability to fulfill their obligations,
including the ability of Domestic Covantas various
municipal customers to supply waste in contractually committed
amounts, and the availability of alternate or additional sources
of waste if excess processing capacity exists at Domestic
Covantas facilities; and
The availability and adequacy of insurance to cover losses from
business interruption in the event of casualty or other insured
events.
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CPIH Operating Performance and Seasonality
Changes in project efficiency due to equipment performance or
auxiliary load;
Changes in fuel price for projects in which such costs are not
completely passed through to the electricity purchaser through
tariff adjustments, or delays in the effectiveness of tariff
adjustments;
The amounts of electricity actually requested by purchasers of
electricity, and whether when such requests are made,
CPIHs facilities are then available to deliver such
electricity;
Its ability to avoid unexpected increases in operating and
maintenance costs while ensuring that adequate facility
maintenance is conducted so that historic levels of operating
performance can be sustained;
The financial condition and creditworthiness of purchasers of
power and services provided by CPIH;
Fluctuations in the value of the domestic currency against the
value of the U.S. dollar for projects in which CPIH is paid
in whole or in part in the domestic currency of the host country;
Restrictions in repatriating dividends from the host
country; and
Political risks associated with international projects.
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Recent Developments Agreement to Acquire
American Ref-Fuel Holdings Corp.
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2004 vs. 2003
The application of fresh start and purchase accounting following
Covantas emergence from bankruptcy, which are described in
Note 2 to the Consolidated Financial Statements;
The exclusion of revenue and expense after March 10, 2004
relating to the operations of the Remaining Debtors (which prior
to August 6, 2004 included subsidiaries involved with the
Tampa Bay Project and prior to December 14, 2004 included
the subsidiaries involved with the Lake County facility), which
were no longer included as consolidated subsidiaries after such
date;
The exclusion of revenue and expense after May 2004 relating to
the operations of the MCI facility, which commenced a
reorganization proceeding under Philippine law on such date, and
is no longer included as a consolidated subsidiary after such
date;
The reduction of revenue and expense during 2004 from one
hydroelectric facility because of the scheduled expiration of an
operating agreement relating to such facility; and
The reduction of revenue and expense as a result of project
restructurings effected during 2003 and the first quarter of
2004 as part of Covantas overall restructuring and
emergence from bankruptcy.
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For the Period
For the Period
Combined Results
January 1,
March 11,
for the Year
Results for the Year
through
through
Ended
Ended
March 10, 2004
December 31, 2004
December 31, 2004
December 31, 2003
$
89,867
$
374,622
$
464,489
$
499,245
53,307
181,074
234,381
277,766
58
1,506
1,564
13,448
9
143,232
557,202
700,434
790,468
100,774
352,617
453,391
500,627
73
1,925
1,998
20,479
13,426
55,821
69,247
71,932
13,407
32,586
45,993
76,770
(209
)
1,366
1,157
2,209
(175
)
(245
)
(420
)
7,246
7,597
38,076
45,673
35,639
(1,923
)
(1,952
)
(3,875
)
(1,119
)
16,704
132,970
480,194
613,164
730,487
10,262
77,008
87,270
59,981
935
1,858
2,793
2,948
(6,142
)
(34,706
)
(40,848
)
(39,938
)
(58,282
)
(58,282
)
(83,346
)
510,680
510,680
(399,063
)
(399,063
)
58,390
44,160
102,550
(60,355
)
(30,240
)
(23,637
)
(53,877
)
18,096
(2,511
)
(6,919
)
(9,430
)
(8,905
)
3,924
17,535
21,459
24,400
78,814
(8,538
)
$
29,563
$
31,139
$
60,702
$
43,512
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Domestic Segment
For the Period
For the Period
January 1,
March 11,
Combined Results
Results for the Year
through
through
for the Year Ended
Ended
March 10, 2004
December 31, 2004
December 31, 2004
December 31, 2003
$
88,697
$
369,531
$
458,228
$
492,065
18,942
81,894
100,836
113,584
58
1,506
1,564
13,448
4
$
107,697
$
452,931
$
560,628
$
619,101
$
7,132
$
62,232
$
69,364
$
35,846
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International Segment
For the Period
For the Period
January 1,
March 11,
Combined Results
Results for the Year
through
through
for the Year Ended
Ended
March 10, 2004
December 31, 2004
December 31, 2004
December 31, 2003
$
1,170
$
5,091
$
6,261
$
7,180
34,365
99,180
133,545
164,182
5
$
35,535
$
104,271
$
139,806
$
171,367
$
3,130
$
14,776
$
17,906
$
24,135
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Payments Due by Period
Less Than
After
Total
One Year
1 to 3 Years
4 to 5 Years
5 Years
$
842,154
$
84,718
$
269,019
$
144,213
$
344,204
102,583
24,983
43,839
28,543
5,218
944,737
109,701
312,858
172,756
349,422
207,736
207,736
28,000
11,700
7,800
8,500
76,852
76,852
308
112
196
1,257,633
109,813
401,606
180,556
565,658
(944,737
)
(109,701
)
(312,858
)
(172,756
)
(349,422
)
(76,852
)
(76,852
)
$
236,044
$
112
$
11,896
$
7,800
$
216,236
(1)
Includes $38 million of Domestic Covantas unamortized
project debt premium.
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Designation
Principal Amount
Interest
Principal Payments
Security
$207.7 million (as of December 31, 2004) accreting to
an aggregate principal amount of $230 million
Payable semi- annually in arrears at 8.25% per annum on $230
million
Due on maturity in March 2011
Third priority lien in substantially all of the assets of the
domestic borrowers (including Covanta) not subject to prior
liens. Guaranteed by Covantas domestic subsidiaries which
are borrowers.
Designation
Principal Amount
Interest
Principal Payments
Security
$28 million (est.), based on determination of allowed
pre-petition unsecured obligations
Payable semi- annually in arrears at 7.5% per annum
Annual amortization payments of $3.9 million beginning
March 2006 with the remaining balance due at maturity in
March 2012
Unsecured and subordinated in right of payment to all senior
indebtedness of Covanta including, the First Lien Facility and
the Second Lien Facility, the High Yield Notes; will otherwise
rank equal with, or be senior to, all other indebtedness of
Covanta.
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Designation
Principal Amount
Interest
Principal Payments
Security
$76.9 million (as of December 31, 2004)
Payable monthly in arrears at 10.5% per annum, 6.0% of such
interest to be paid in cash and the remaining 4.5% to the extent
available and otherwise payable as increase to the principal
amount of the loan
Due on maturity in March 2007
Second priority lien on substantially all of the CPIH
borrowers assets not otherwise pledged.
restrictions on the payment of dividends, the repurchase of
stock, the incurrence of indebtedness and liens and the
repayment of subordinated debt, unless certain specified
financial and other conditions are met;
restrictions on the sale of certain material amounts of assets
or securities, unless specified conditions are met;
restrictions on material transactions with affiliates;
limitations on engaging in new lines of business; and
preserving its corporate existence and its material rights and
franchises.
a failure by Covanta to pay amounts due under the High Yield
Notes or certain other debt instruments;
a judgment or judgments are rendered against Covanta that
involve an amount in excess of $10 million, to the extent
not covered by insurance; and
a failure by Covanta to comply with its obligations under the
indenture relating to the High Yield Notes.
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restrictions on the payment of dividends, the repurchase of
stock, the incurrence of indebtedness and liens and the
repayment of subordinated debt, unless certain specified
financial and other conditions are met;
restrictions on the sale of certain material amounts of assets
or securities, unless specified conditions are met;
restrictions on material transactions with affiliates; and
preserving its corporate existence and its material rights and
franchises.
a failure by Covanta to pay amounts due under the High Yield
Notes or certain other debt instruments; and
a failure by Covanta to comply with its obligations under the
indenture pertaining to the Unsecured Notes.
Other Commitments.
Commitments Expiring by Period
Less Than
More Than
Total
One Year
One Year
$
192,946
$
21,463
$
171,483
19,444
19,444
$
212,390
$
21,463
$
190,927
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December 31,
2005
2006
2007
2008
2009
$
108,967
$
89,775
$
90,918
$
44,466
$
60,487
60,487
55,487
50,487
50,487
2,029
1,728
1,500
1,500
1,500
$
171,483
$
151,990
$
147,905
$
96,453
$
51,987
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Designation
Purpose
Term
Security
Domestic Covanta Facilities
Facility
To provide for letter of credit required for a Covanta waste-to-
energy facility
Expires March 2009
First priority lien in substantially all of the assets of the
domestic borrowers (including Covanta) not subject to prior
liens. Guaranteed by Covantas subsidiaries which are
domestic borrowers. Also, to the extent that no amounts have
been funded under the revolving loan or letters of credit,
Covanta is obligated to apply excess cash to collateralize its
reimbursement obligations with respect to outstanding letters of
credit, until such time as such collateral equals 105% of the
maximum amount that may at any time be drawn under outstanding
letters of credit.
To provide for certain existing and new letters of credit and up
to $10 million in revolving credit for general corporate
purposes
Expires March 2009
Second priority lien in substantially all of the assets of the
domestic borrowers not subject to prior liens. Guaranteed by
domestic borrowers. Also, to the extent that no amounts have
been funded under the revolving loan or letters of credit,
Covanta is obligated to apply excess cash to collateralize its
reimbursement obligations with respect to outstanding letters of
credit, until such time as such collateral equals 105% of the
maximum amount that may at any time be drawn under outstanding
letters of credit.
Up to $9.1 million
Expires March 2007
First priority lien on the stock of CPIH and substantially all
of the CPIH borrowers assets not otherwise pledged.
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incur indebtedness, or incur liens on its property, subject to
specific exceptions;
pay any dividends on or repurchase any of its outstanding
securities, subject to specific exceptions;
make new investments, subject to specific exceptions;
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deviate from specified financial ratios and covenants, including
those pertaining to consolidated net worth, adjusted EBITDA, and
capital expenditures;
sell any material amount of assets, enter into a merger
transaction, liquidate or dissolve;
enter into any material transactions with shareholders and
affiliates; amend its organization documents; and
engage in a new line of business.
a failure by Covanta to pay amounts due under the Domestic
Covanta Facilities or other debt instruments;
breaches of representations, warranties and covenants under the
Domestic Covanta Facilities;
a judgment or judgments are rendered against Covanta that
involve an amount in excess of $5 million, to the extent
not covered by insurance;
any event that has caused a material adverse effect on Covanta;
a change in control;
the Intercreditor Agreement or any security agreement pertaining
to the Domestic Covanta Facilities ceases to be in full force
and effect;
certain terminations of material contracts; or
any securities issuance or equity contribution which is
reasonably expected to have a material adverse effect on the
availability of NOLs.
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DOMESTIC
CPIH
CONSOLIDATED
$
62,232
$
14,776
$
77,008
48,805
7,016
55,821
11,221
11,221
(42,535
)
(25,408
)
(67,943
)
14,488
14,488
(7,871
)
(5,968
)
(13,839
)
65,681
65,681
(65,681
)
(65,681
)
(2,545
)
(459
)
(3,004
)
(5,272
)
(2,989
)
(8,261
)
14,705
14,705
3,106
3,106
(10,457
)
(10,457
)
1,799
1,799
(10,083
)
(1,794
)
(11,877
)
(3,947
)
12,636
8,689
Table of Contents
DOMESTIC
CPIH
CONSOLIDATED
39,548
31,908
71,456
(2,779
)
(2,779
)
(2,926
)
(2,926
)
(1,000
)
(1,100
)
(2,100
)
35,622
28,029
63,651
45,307
12,488
57,795
80,929
40,517
121,446
(17,759
)
(5,902
)
(23,661
)
(47
)
(19,626
)
(19,673
)
$
63,123
$
14,989
$
78,112
$
63,651
11,877
(14,488
)
(14,705
)
8,261
13,839
67,943
(23,661
)
1,114
$
113,831
Table of Contents
Table of Contents
$100 million revolving loan facility, expiring 2011;
$340 million letter of credit facility expiring
2011; and
$250 million variable rate term loan facility due 2012.
successful closing of the Ref-Fuel Rights Offering;
receipt of all regulatory approvals; and
the absence of material adverse changes to Covantas and
Ref-Fuels businesses.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
DOMESTIC
CPIH
CONSOLIDATED
(In thousands of dollars)
$
452,931
$
104,271
$
557,202
48,805
7,016
55,821
23,786
8,800
32,586
318,108
73,679
391,787
390,699
89,495
480,194
62,232
14,776
77,008
(26,911
)
(5,937
)
(32,848
)
(15,381
)
(8,256
)
(23,637
)
(3,966
)
(2,953
)
(6,919
)
1,216
16,319
17,535
$
17,190
$
13,949
$
31,139
DOMESTIC
CPIH
CONSOLIDATED
(In thousands of Dollars)
$
17,190
$
13,949
$
31,139
48,805
7,016
55,821
10,202
2,133
12,335
(1,216
)
(16,319
)
(17,535
)
3,106
3,106
2,736
2,736
(10,457
)
(10,457
)
3,966
2,953
6,919
4,007
(119
)
3,888
11,221
11,221
65,681
65,681
(6,321
)
14,003
7,682
(65,681
)
(65,681
)
5,156
1,820
6,976
85,289
28,542
113,831
Table of Contents
DOMESTIC
CPIH
CONSOLIDATED
(In thousands of Dollars)
(10,083
)
(1,794
)
(11,877
)
1,799
1,799
14,705
14,705
(1,665
)
(1,248
)
(2,913
)
(11,748
)
13,462
1,714
14,488
14,488
(7,871
)
(5,968
)
(13,839
)
(42,535
)
(25,408
)
(67,943
)
(47
)
(19,626
)
(19,673
)
(5,272
)
(2,989
)
(8,261
)
(55,725
)
(39,503
)
(95,228
)
17,816
2,501
20,317
45,307
12,488
57,795
$
63,123
$
14,989
$
78,112
Insurance Operating Results
Table of Contents
Insurance Operating Results
Table of Contents
Table of Contents
Cash Flow from Insurance Operations
Liquidity and Capital Resources of Insurance
Operations
Unpaid Losses and Loss Adjustment Expenses
NAICCS Investments
Table of Contents
Amortized
Cost
Fair Value
$
27,024
$
27,070
13,625
13,440
15,533
15,588
1,082
1,112
57,264
57,210
1,324
1,432
$
58,588
$
58,642
Letters of Credit
Contractual Obligations and Commitment Summary
Purchase Accounting
Table of Contents
Long-lived Assets
Net Operating Loss Carryforwards Deferred Tax
Assets
Table of Contents
Loss Contingencies
Revenue Recognition
Electricity and Steam Sales
Construction Revenues
Table of Contents
Unpaid Losses and Loss Adjustment Expenses
Table of Contents
Range of Reserves by Line of Business
Low
Reported
High
$
5,706
$
6,006
$
6,452
644
678
728
9,238
9,724
10,454
18,021
18,970
20,867
2,506
2,638
2,836
8,212
$
46,228
Table of Contents
Table of Contents
Table of Contents
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk
Table of Contents
Interest Rate Risk
Foreign Currency Exchange Rate Risk
Table of Contents
Commodity Price Risk and Contract Revenue Risk
Risk Related to the Investment Portfolio
Table of Contents
Fixed Maturities
Table of Contents
Equity Securities
Economic Conditions
Table of Contents
Item 8.
Financial Statements and Supplementary Data Index
Table of Contents
Anthony J. Orlando
President and Chief Executive Officer
Craig D. Abolt
Senior Vice President and
Chief Financial Officer
Table of Contents
Table of Contents
Table of Contents
/s/ Ernst & Young LLP
Table of Contents
Years Ended
December 31,
December 31,
December 27,
2004
2003
2002
(In thousands, except per share amounts)
$
374,622
$
$
181,074
1,506
557,202
354,542
52,632
32,586
1,366
(245
)
38,076
(1,953
)
477,004
80,198
17,998
35,851
62,164
2,405
3,999
5,603
201
990
1,007
264
283
623
20,868
41,123
69,397
12,861
36,684
59,881
4,420
7,947
14,115
4,398
6,664
5,893
21,679
51,295
79,889
(811
)
(10,172
)
(10,492
)
455,499
6,605
462,104
195,794
32,847
108,132
49,954
41,785
15,934
444,446
17,658
Table of Contents
Years Ended
December 31,
December 31,
December 27,
2004
2003
2002
(In thousands, except per share amounts)
233
344
640
252
1,090
438
8,402
(2,517
)
(4,168
)
(4,911
)
(2,032
)
(2,734
)
4,569
77,355
(12,906
)
11,735
1,858
(43,739
)
(1,424
)
(38,735
)
(5,609
)
(41,881
)
(1,424
)
(44,344
)
35,474
(14,330
)
(32,609
)
(11,535
)
(18
)
(346
)
(6,869
)
17,024
(54,877
)
$
34,094
$
(69,225
)
$
(32,955
)
$
0.54
$
(1.46
)
$
(0.82
)
$
0.52
$
(1.46
)
$
(0.82
)
Table of Contents
Table of Contents
December 31,
2004
2003
(In thousands, except per
share amounts)
LIABILITIES AND STOCKHOLDERS EQUITY
$
112
$
109,701
16,199
118,998
32,805
13,965
291,780
312,784
835,036
109,465
97,848
1,646,913
64,270
83,380
1,254
4,595
1,186
1,516
400
40,000
1,436
3,421
3,530
3,872
74,003
134,857
1,720,916
134,857
83,350
7,344
3,579
194,783
123,446
(3,489
)
(289
)
583
(445
)
(64,340
)
(98,434
)
(66
)
(66
)
134,815
27,791
$
1,939,081
$
162,648
Table of Contents
For the Years Ended December,
2004
2003
2002
(In thousands)
$
34,094
$
(69,225
)
$
(32,955
)
(13,614
)
(360
)
(2,080
)
2,799
52,783
375
42,359
7,045
1,024
(10,457
)
2,736
733
1,425
521
920
433
4,184
(156
)
6,037
511
54,877
(17,535
)
3,106
6,919
12,335
(344
)
318
242
336
65,681
10,947
(13,743
)
11,221
955
5,377
7,238
668
1,676
(983
)
196
3,819
(4,323
)
508
583
986
577
(15,591
)
(5,034
)
1,784
6,178
(19,110
)
(17,869
)
(4,496
)
(3,341
)
(6,027
)
(10,496
)
(237
)
(8,053
)
1,910
8,034
(65,681
)
(1,395
)
(400
)
400
15,378
10,135
1,508
(7,667
)
4,244
88,066
(23,171
)
48
Table of Contents
For the Years Ended December,
2004
2003
2002
(In thousands)
37,026
(37,026
)
(36,400
)
57,795
(42,665
)
21,839
6,035
27,307
47,598
33,043
1,661
10,768
2,904
(24,828
)
(36,624
)
(19,378
)
(11,999
)
(96
)
(18,152
)
14,705
58
3,311
3,116
1,233
(979
)
(670
)
69,811
(10,266
)
(19,963
)
(1,436
)
1,436
(1,785
)
14
40,000
41,021
42,228
9,500
7,000
3,206
3,474
1,088
(26,612
)
14,488
(19,673
)
(31,502
)
(67,943
)
(13,839
)
(8,261
)
(900
)
(1,035
)
(1,468
)
(79,681
)
41,450
27,232
78,196
8,013
7,317
17,952
25,183
17,866
(15,244
)
$
96,148
$
17,952
$
25,183
Table of Contents
Accumulated
Common Stock
Additional
Other
Treasury Stock
Paid-In
Unearned
Comprehensive
Retained
Shares
Amount
Capital
Compensation
(Loss) Income
(Deficit)
Shares
Amount
Total
(In thousands)
19,517
$
1,952
$
63,115
$
5,716
$
3,746
11
$
(66
)
$
74,463
265
26
1
,
061
1,087
2,002
200
9
,
300
9,500
8,705
871
41,357
42,228
339
34
1,661
(1,695
)
920
920
(266
)
266
297
297
(32,955
)
(32,955
)
(1,989
)
(1,989
)
68
68
(355
)
(355
)
453
453
(15,485
)
(15,485
)
(872
)
(872
)
(18,180
)
(32,955
)
(51,135
)
30,828
3,083
117,148
(1,132
)
(12,464
)
(29,209
)
11
(66
)
77,360
5,121
512
6,657
7,169
137
137
384
384
(156
)
(16
)
(496
)
459
(53
)
Table of Contents
Accumulated
Common Stock
Additional
Other
Treasury Stock
Paid-In
Unearned
Comprehensive
Retained
Shares
Amount
Capital
Compensation
(Loss) Income
(Deficit)
Shares
Amount
Total
(In thousands)
(69,225
)
(69,225
)
(426
)
(426
)
(2,877
)
(2,877
)
15,322
15,322
12,019
(69,225
)
(57,206
)
35,793
3,579
123,446
(289
)
(445
)
(98,434
)
11
(66
)
27,791
181
181
1,345
1,345
(41
)
(4
)
(200
)
68
(136
)
27,438
2,744
38,277
41,021
(12
)
(1
)
(18
)
(19
)
966
96
5,520
5,616
(89
)
(9
)
(785
)
(794
)
8,750
875
12,513
13,388
636
64
4,549
(4,613
)
11,300
11,300
34,094
34,094
549
549
1,225
1,225
(746
)
(746
)
1,028
34,094
35,122
73,441
$
7,344
$
194,783
$
(3,489
)
$
583
$
(64,340
)
11
$
(66
)
$
134,815
Table of Contents
1.
Basis of Presentation
Table of Contents
2.
Covanta Acquisition and Financing Agreements
Table of Contents
property, plant, and equipment, intangibles, debt, and equity
investments, all of which may change based on consideration of
additional analysis by the Company and its valuation consultants;
accrued expenses which may change based on identification of
final fees and costs associated with Covantas emergence
from bankruptcy resolution of disputed claims;
the final principal amount of the unsecured notes (recorded as
an estimated principal amount of $28 million, which
estimate excludes any notes that may be issued if and when
Remaining Debtors emerge from bankruptcy), and which will be
adjusted based upon the resolution of claims of creditors
entitled to such notes as distributions; and
tax liabilities and deferred taxes, which may be adjusted based
upon additional information to be received from taxing
authorities and which result from changes in the allocated book
basis of items for which deferred taxes are provided.
Table of Contents
$
521,295
813,895
191,761
326,027
$
1,852,978
$
362,061
328,053
850,591
87,940
176,808
$
1,805,453
$
47,525
December 31,
2004
2003
ProForma
ProForma
$
715,485
$
791,662
$
39,634
$
(7,330
)
$
(8,538
)
$
39,634
$
(15,868
)
$
0.66
$
(0.12
)
(0.13
)
$
0.66
$
(0.25
)
$
0.64
$
(0.25
)
Table of Contents
Table of Contents
3.
ACL Chapter 11 Filing
Table of Contents
4.
Summary of Significant Accounting Policies
Parent and Consolidated Entity
Principles of Consolidation
Table of Contents
Use of Estimates
Cash and Cash Equivalents
Deferred Financing Costs
Income Taxes
Pension and Postretirement Plans
Incentive Compensation Plans
Table of Contents
2004
2003
2002
$
34,094
$
(69,225
)
$
(32,955
)
(987
)
(970
)
(2,274
)
128
137
920
$
33,235
$
(70,058
)
$
(34,309
)
$
0.54
$
(1.46
)
$
(0.82
)
$
0.52
$
(1.48
)
$
(0.85
)
$
0.52
$
(1.46
)
$
(0.82
)
$
0.50
$
(1.48
)
$
(0.85
)
Energy
Revenue Recognition
1) Fees earned under contract to operate and maintain
waste-to-energy, independent power and water facilities are
recognized as revenue when earned, regardless of the period they
are billed;
2) Fees earned to service project debt (principal and
interest) where such fees are expressly included as a component
on the service fee paid by the Client Community pursuant to
applicable waste-to-energy Service Agreements. Regardless of the
timing of amounts paid by Client Communities relating to project
debt principal, Covanta records service revenue with respect to
this principal component on a levelized basis over the term of
the Service Agreement. Unbilled service receivables related to
waste-to-energy operations are discounted in recognizing the
present value for services performed currently in order to
service the principal component of the Project debt. Such
unbilled receivables amounted to $156 million
December 31, 2004, respectively;
3) Fees earned for processing waste in excess of Service
Agreement requirements are recognized as revenue beginning in
the period Covanta processes waste in excess of the
contractually stated requirements;
4) Tipping fees earned under waste disposal agreements are
recognized as revenue in the period waste is received; and
5) Other miscellaneous fees such as revenue for scrap metal
recovered and sold are generally recognized as revenue when
scrap metal is sold.
Electricity and Steam Sales
Table of Contents
Construction Revenues
Pass Through Costs
Property, Plant and Equipment
Service and Energy Contracts and Other Intangible Assets
Restricted Funds Held
Table of Contents
Project Development and Contract Acquisition Costs
Interest Rate Swap Agreements
Impairment of LongLived Assets
Foreign Currency Translation
Insurance Services
Investments
Table of Contents
Deferred Policy Acquisition Costs
Unpaid Losses and Loss Adjustment Expenses
Reinsurance
Earned Premiums
Table of Contents
New Accounting Pronouncements
Reclassification
5.
Equity in Net Income and Losses of Unconsolidated
Subsidiaries
Table of Contents
Ownership
Interest at
December 31,
2004
2004
50%
$
5,112
50%
641
50%
4,116
45%
6,983
26%
44,804
$
61,656
Table of Contents
2004
$
219,016
102,908
60,724
17,535
$
145,969
854,014
999,983
76,533
512,759
589,292
2004
2003
$
$
(46,998
)
(8,205
)
(55,203
)
$
156
55
318
271
(985
)
(511
)
(54,877
)
17,535
$
17,024
$
(54,877
)
Year Ended December 31, 2004
Haripur Barge
Quezon Power
Plant
(The Philippines)
(Bangladesh)
$
214,865
$
36,655
105,077
20,080
65,047
9,397
Table of Contents
Year Ended
December 31, 2003
ACL
$
620,071
367
$
(61,576
)
*
Before ACL Reorganization Expenses
For the Period
March 11, 2004
through
December 31, 2004
$
10,801
339
318
6.
Gain (Loss) on Sale of Businesses
Description of Business
Proceeds
Gain (Loss)
$
1,512
$
99
1,844
245
7.
Investments
2004
Cost or
Amortized
Unrealized
Unrealized
Fair
Cost
Gain
Loss
Value
$
3,300
$
$
$
3,300
27,024
174
129
27,070
13,625
22
206
13,440
16,615
216
131
16,700
57,264
412
466
57,210
1,324
110
2
1,432
$
61,888
$
522
$
468
$
61,942
Table of Contents
2003
Cost or
Amortized
Unrealized
Unrealized
Fair
Cost
Gain
Loss
Value
$
453
$
35
$
$
488
22,887
391
70
23,208
15,598
81
231
15,448
30,902
716
106
31,512
69,387
1,188
407
70,168
367
34
401
$
70,207
$
1,257
$
407
$
71,057
Fair
Unrealized
Description of Investments
Value
Losses
$
13,579
$
129
10,583
206
6,096
131
148
2
$
30,406
$
468
Table of Contents
Amortized Cost
Fair Value
$
3,977
$
4,039
48,431
48,374
4,857
4,797
3,300
3,300
$
60,564
$
60,510
2004
2003
2002
$
(874
)
$
(4,284
)
$
(907
)
74
1,407
(1,082
)
$
(800
)
$
(2,877
)
$
(1,989
)
2004
2003
2002
$
(500
)
$
(797
)
$
(1,445
)
(300
)
(2,080
)
(544
)
$
(800
)
$
(2,877
)
$
(1,989
)
c.
whether the unrealized loss is creditdriven or a result of
changes in market interest rates,
d.
a fundamental analysis of the business prospects and financial
condition of the issuer, and
e
Danielsons ability and intent to hold the investment for a
period of time sufficient to allow for any anticipated recovery
in fair value.
Table of Contents
2004
2003
2002
$
252
$
1,090
$
8,740
100
$
252
$
1,090
$
8,840
$
219
$
952
$
6,087
(18
)
38
(5,080
)
$
201
$
990
$
1,007
2004
2003
2002
$
199
$
302
$
594
34
42
46
$
233
$
344
$
640
$
2,497
$
3,951
$
5,467
146
134
40
32
42
107
44
95
2,644
4173
5,738
239
174
135
$
2,405
$
3,999
$
5,603
Table of Contents
Energy Services
Cost or
Unrealized
Unrealized
Fair
Amortized Cost
Gain
Loss
Value
$
3,100
$
$
$
3,100
1,321
2,325
53
2,378
$
3,646
$
53
$
$
3,699
8.
Energy Service Revenues and Unbilled Service Receivables
For the Period
March 11, through
December 31,
2004
$
313,543
36,029
25,050
$
374,622
9.
Restricted Funds Held in Trust
Table of Contents
2004
Current
Non-Current
$
46,655
$
112,012
20,530
3,970
264
44,673
11,814
$
116,092
$
123,826
10.
Reinsurance
2004
2003
2002
$
15,165
$
32,733
$
56,462
(2,325
)
(3,807
)
$
15,165
$
30,408
$
52,655
$
18,506
$
38,805
$
66,958
(508
)
(2,954
)
(4,794
)
$
17,998
$
35,851
$
62,164
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11.
Property, Plant and Equipment Energy Services
Useful Lives
2004
$
4,725
3-50 years
782,965
3-50 years
51,464
3-50 years
5,514
7,614
5,403
857,685
(38,510
)
$
819,175
12.
Service and Energy Contracts and Other Intangibles Assets
Accumulated
December 31, 2004
Gross
Amortization
Net
$
192,058
$
(15,121
)
$
176,937
442
(89
)
353
$
192,500
$
(15,210
)
$
177,290
$
17,627
17,627
17,535
15,868
15,868
92,765
$
177,290
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2004
$
1,321
1,736
5,275
2,325
14,920
5,439
$
31,016
Note 14.
Accrued Expenses Energy Services
2004
$
30,803
1,605
17,628
36,897
18,027
8,478
1,025
3,673
2,877
$
121,013
15.
Energy Services Deferred Revenue
2004
$
9,064
4,901
$
13,965
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16.
Unpaid Losses and Loss Adjustment Expenses
2004
2003
2002
$
65,142
$
79,192
$
88,012
10,343
23,199
49,474
2,518
13,485
10,407
12,861
36,684
59,881
(5,427
)
(10,133
)
(22,871
)
(26,348
)
(40,601
)
(45,830
)
(31,775
)
(50,734
)
(68,701
)
46,228
65,142
79,192
18,042
18,238
22,057
$
64,270
$
83,380
$
101,249
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17.
Credit Arrangements
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incur indebtedness, or incur liens on its property, subject to
specific exceptions;
pay any dividends on or repurchase any of its outstanding
securities, subject to specific exceptions;
make new investments, subject to specific exceptions;
deviate from specified financial ratios and covenants, including
those pertaining to consolidated net worth, adjusted EBITDA, and
capital expenditures;
sell any material amount of assets, enter into a merger
transaction, liquidate or dissolve;
enter into any material transactions with shareholders and
affiliates; amend its organization documents; and
engage in a new line of business.
a failure by Covanta to pay amounts due under the Domestic
Facilities or other debt instruments;
breaches of representations, warranties and covenants under the
Domestic Facilities;
a judgment or judgments are rendered against Covanta that
involve an amount in excess of $5 million, to the extent
not covered by insurance;
any event that has caused a material adverse effect on Covanta;
a change in control;
the Intercreditor Agreement or any security agreement pertaining
to the Domestic Facilities ceases to be in full force and effect;
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certain terminations of material contracts; or
any securities issuance or equity contribution which is
reasonably expected to have a material adverse effect on the
availability of net operating losses.
18.
Parent Debt
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19.
Covanta Recourse Debt
Successor
2004
$
207,735
28,000
76,852
309
312,896
(112
)
$
312,784
The High Yield Notes are secured by a third priority lien in the
same collateral securing the First Lien Facility and the Second
Lien Facility (See Note 14). The High Yield Notes were
issued in the initial principal amount of $205 million,
which will accrete to $230 million at maturity in seven
years. Interest is payable at a rate of 8.25% per annum,
semi-annually on the basis of the principal at final maturity;
no principal is due prior to maturity of the High Yield Notes.
Unsecured Notes in a principal amount of $4 million were
issued on the effective date of the Reorganization Plan. The
Company issued additional Unsecured Notes in the principal
amount of $20 million after emergence and recorded
additional Unsecured Notes in a principle amount of
$4 million in 2004 which it expects to issue in 2005.
Additional Unsecured Notes also may be issued to holders of
allowed claims against the Remaining Debtors if and when they
emerge from bankruptcy, and if the issuance of such notes is
contemplated by the terms of any plan of reorganization
confirmed with respect to such Remaining Debtors. The final
principal amount of all Unsecured Notes will be equal to the
amount of allowed unsecured claims against the Companys
operating subsidiaries which
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were reorganizing Debtors, and such amount will be determined
when such claims are resolved through settlement or further
proceedings in the Bankruptcy Court. The principal amount of
Unsecured Notes indicated in the table above represents the
expected liability upon completion of the claims process,
excluding any additional Unsecured Notes that may be issued if
and when Remaining Debtors reorganize and emerge from
bankruptcy. Notwithstanding the date on which Unsecured Notes
are issued, interest on the Unsecured Notes accrues from
March 10, 2004. Interest is payable semi-annually on the
Unsecured Notes at a rate of 7.5% per annum; principal is
paid annually in equal installments beginning in March, 2006.
The Unsecured Notes mature in eight years.
The CPIH Borrowers entered into the CPIH Term Loan Facility
in the principal amount of up to $95 million, of which
$76.9 million was outstanding as of December 31, 2004.
The CPIH Term Loan Facility is secured by a second priority
lien on the same collateral as the CPIH Revolving Credit
Facility, and bears interest at 10.5% per annum, 6.0% of
such interest to be paid in cash and the remaining 4.5% to be
paid in cash to the extent available and otherwise payable by
adding it to the outstanding principal balance. The interest
rate increases to 12.5% per annum in specified default
situations. The CPIH Term Loan Facility matures in March
2007. The CPIH Term Loan Facility is non-recourse to
Covanta and its other domestic subsidiaries. While the existing
CPIH term loan and revolver are outstanding CPIHs cash
balance is not available to be transferred to Domestic Covanta.
$
112
4,024
80,824
3,900
3,900
220,136
312,896
(112
)
$
312,784
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20.
Project Debt
2004
$
319,050
223,518
127,237
30,301
72,954
69,094
102,583
944,737
(109,701
)
$
835,036
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$40 million due to financial institutions, of which
$12.2 million is denominated in U.S. dollars and
$27.8 million is denominated in Indian rupees at
December 31, 2004. This debt relates to the construction of
a heavy fuel oil fired diesel engine power plant in India. The
U.S. dollar debt bears interest at the three-month LIBOR,
plus 4.5% (6.51% at December 31, 2004). The Indian rupee
debt bears interest at 7.75% at December 31, 2004. The debt
extends through 2011, is non-recourse to Covanta,
and is
secured by the project assets. The power off-taker has failed to
fund the escrow account or post the letter of credit required
under the energy contract which failure constitutes a technical
default under the project finance documents. The project lenders
have not declared an event of default due to this matter and
have permitted continued distributions of project dividends.
$37.6 million at December 31, 2004, due to a financial
institution which relates to the construction of a second heavy
fuel oil fired diesel engine power plant in India. It is
denominated in Indian rupees and bears interest at rates ranging
from 7.5% to 16.15% in 2004. The debt extends through 2010, is
non-recourse to Covanta and is secured by the project assets.
The power off-taker has failed to fund the escrow account or
post the letter of credit required under the energy contract
which failure constitutes a technical default under the project
finance documents. The project lenders have not declared an
event of default due to this matter and have permitted continued
distributions of project dividends.
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$
109,701
105,156
103,734
103,967
82,319
439,860
944,737
(109,701
)
$
835,036
21.
Interest Expense and Net Interest on Project Debt
December 31,
December 31,
2004
2003
$
9,033
$
1,424
34,706
$
43,739
$
1,424
For the Period
March 1,
through
December 31,
2004
$
33,492
(906
)
$
32,586
22.
Leases
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2004
2003
2002
$
15,823
$
$
1,273
1,229
1,387
29,896
$
17,096
$
1,229
$
31,283
$
19,744
19,722
18,231
21,312
25,038
211,475
$
315,522
$
15,392
15,555
15,749
19,278
23,062
190,660
$
279,696
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$
33
94,612
936
1,464
97,045
(6,947
)
$
90,098
23.
Other Liabilities -Energy Services
2004
$
14,920
45,430
18,912
7,873
10,713
$
97,848
24.
Employee Benefit Plans
Energy
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Pension
Other
Benefits
Benefits
2004
2004
$
62,226
$
12,105
6,716
2,783
546
(3,683
)
(230
)
(944
)
(603
)
$
67,098
$
11,818
$
27,240
$
2,852
7,828
603
(944
)
(603
)
$
36,976
$
$
(30,122
)
$
(11,818
)
(4,609
)
(405
)
$
(34,731
)
$
(12,223
)
$
(34,918
)
$
(12,223
)
187
$
(34,731
)
$
(12,223
)
6.25
%
6.25
%
5.75
%
8.00
%
N/A
4.50
%
N/A
6.00
%
6.00
%
4.00
%
N/A
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2004
69
%
25
%
6
%
100
%
40 75
%
25 60
%
0 20
%
Other Benefits
Pension
Post
Other Benefits
Benefits
Medicare
Pre Medicare
$
594
$
1,744
$
1,744
635
1,699
1,826
657
1,766
1,899
815
1,818
1,954
942
1,830
1,967
10,713
9,202
9,892
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Pension
Other
Benefits
Benefits
2004
2004
$
6,716
$
2,783
546
(1,905
)
$
7,594
$
546
One-Percentage
One-Percentage
Point Increase
Point Decrease
$
59
$
(52
)
922
(804
)
Insurance Services
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2004
2003
$
2,177
$
1,822
94
103
(45
)
689
(2
)
(437
)
(872
)
$
1,352
$
2,177
$
1,563
$
1,579
179
244
391
177
(2
)
(437
)
(1,048
)
$
1,083
$
1,563
$
(269
)
$
(614
)
10
14
1,052
1,298
(793
)
$
$
698
$
(269
)
$
(614
)
10
14
259
1,298
$
$
698
6.25
%
6.75
%
7.00
%
7.00
%
N/A
N/A
6.00
%
6.25
N/A
N/A
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2004
2003
20%
32%
8%
14%
72%
54%
100%
100%
0 50
%
0 100
%
0 100
%
Pension Benefits
2004
2003
2002
$
94
$
103
$
149
(75
)
(98
)
(148
)
101
56
30
793
$
913
$
61
$
31
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25.
Income Taxes
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Amount of
Carryforward
Expiring
$
12,405
92,355
89,790
31,688
39,689
23,600
19,755
38,255
33,635
26,931
108,331
$
516,434
2004
2003
2002
$
4,320
$
$
5,392
18
346
5,079
14,791
18
346
(2,030
)
(665
)
(561
)
(3,256
)
$
11,535
$
18
$
346
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2004
2003
2002
$
12,416
$
(23,530
)
$
(11,087
)
3,072
18
346
(15,423
)
(1,976
)
(49,105
)
5,810
8,500
20,188
5,153
20,689
39,690
(138
)
247
398
(3,683
)
314
$
11,535
$
18
$
346
2004
2003
$
2,651
$
3,476
88
278
17,882
180,752
221,659
697
677
50,799
20,350
10,169
1,785
67
6,415
3,140
291,588
229,297
(91,186
)
(211,535
)
200,402
17,762
323
314
8,763
39,041
163,610
70,799
292
283
65
107
11
23
17,035
53
282,957
17,762
$
(82,555
)
$
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26.
Insurance Regulation, Dividend Restrictions and Statutory
Surplus
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27.
Stockholders Equity and Stock Option Plans
Stockholders Equity
Table of Contents
Stock Option Plans
Award Plans
1995 Stock Option Plan
Table of Contents
2004
2003
2002
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
2,564,543
$
4.79
3,343,918
$
4.89
1,718,500
$
4.67
50,000
1.45
1,890,000
4.98
965,991
4.27
264,582
4.11
802,875
5.14
829,375
5.00
795,677
$
4.87
2,564,543
$
4.79
3,343,918
$
4.89
715,675
$
5.04
1,783,708
$
4.84
1,412,254
$
4.85
2,141,048
1,632,355
1,124,449
$
7.43
1,124,449
$
7.43
104,449
$
7.47
1,475,551
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Options Outstanding
Weighted Average
Options Exercisable
Remaining
Number of
Weighted Average
Contractual Life
Number
Weighted Average
Exercise Price Range
Shares
Exercise Price
(Years)
of Shares
Exercise Price
308,502
$
3.48
6.6
238,500
$
3.60
349,675
$
5.27
6.7
339,675
$
5.25
137,500
$
6.99
2.0
137,500
$
6.99
1,124,449
$
7.43
9.8
104,449
$
7.47
1,920,126
820,124
28.
Accumulated Other Comprehensive Income (Loss)
2004
2003
$
549
$
104
850
(70
)
(1,295
)
$
583
$
(445
)
29.
Earnings (Loss) Per Share
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2004
2003
2002
Income
Per
Income
Per
Income
Per
(Loss)
Shares
Share
(Loss)
Shares
Share
(Loss)
Shares
Share
(Numerator)
(Denominator)
Amount
(Numerator)
(Denominator)
Amount
(Numerator)
(Denominator)
Amount
-
$
34,094
63,469
$
0.54
$
(69,225
)
47,362
$
(1.46
)
$
(32,955
)
40,400
$
(0.82
)
302
(A
)
(A
)
187
(A
)
(A
)
1,784
(A
)
(A
)
(A
)
(A
)
$
34,094
65,742
$
0.52
$
(69,225
)
47,362
$
( 1.46
)
$
(32,,955
)
40,400
$
(0.82
)
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30.
Financial Instruments
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2004
Carrying
Estimated
Amount
Fair Value
$
78,112
$
78,112
3,100
3,100
301,553
299,480
272,723
272,877
14,920
14,920
Liabilities:
312,896
290,538
944,737
936,926
14,920
14,920
$
$
(a)
additionally guarantees include approximately $9 million of
guarantees related to international energy projects.
(b)
see Note 2 to the Notes to the Consolidated Financial
Statements
Carry Amount
Fair Value
$
3,300
$
3,300
57,210
57,210
1,432
1,432
2004
2003
2002
$
66,917
$
$
24,207
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2004
2003
2002
$
452,931
$
$
104,271
557,202
20,868
41,123
69,397
462,104
$
578,070
$
41,123
$
531,501
$
65,001
$
$
15,197
80,198
(811
)
(10,172
)
(10,492
)
17,658
(2,032
)
(2,734
)
(3,833
)
77,355
(12,906
)
3,333
8,402
1,858
(43,739
)
(1,424
)
(38,735
)
(5,609
)
$
35,474
$
(14,330
)
$
(32,609
)
Depreciation
Identifiable
and
Capital
Assets
Amortization
Additions
$
1,814,042
$
52,632
$
11,877
85,679
544
121
39,360
$
1,939,081
$
53,176
$
11,998
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Depreciation
Identifiable
and
Capital
Assets
Amortization
Additions
$
110,012
$
339
$
96
52,636
36
$
162,648
$
375
$
96
$
41,785
$
18,126
479
26
95
$
42,359
$
18,152
2004
2003
2002
$
473,799
$
35,851
$
524,268
69,118
34,164
989
$
578,070
$
35,851
$
524,268
2004
2003
$
1,674,636
$
162,648
93,462
100,655
70,328
$
1,939,081
$
162,648
2004
1st
2nd
3rd
4th
Total
$
45,961
$
185,240
$
172,801
174,553
578,555
3,885
30,942
21,763
20,765
77,355
(2,173
)
15,195
12,815
8,257
34,094
(0.04
)
0.26
0.18
0.11
0.54
(0.04
)
0.24
0.17
0.11
0.52
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2003
1st
2nd
3rd
4th
Total
$
11,076
$
11,837
$
8,909
9,301
$
41,123
(2,650
)
(4,578
)
(3,546
)
(2,132
)
(12,906
)
(57,836
)
(4,501
)
(3,442
)
(3,446
)
(69,225
)
(1.22
)
(0.09
)
(0.07
)
(0.07
)
(1.46
)
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1. As part of the investment and purchase agreement with
Covanta, Danielson was obligated to arrange the Second Lien
Facility. Covanta paid a fee shared by the Bridge Lenders, among
others, to the agent bank for the Second Lien Facility. In order
to finance its acquisition of Covanta and to arrange the Second
Lien Facility, Danielson entered into a note purchase agreement
with SZ Investments, L.L.C., a Danielson stockholder, TAVF, a
Danielson stockholder, and D.E. Shaw Laminar Portfolios, L.L.C.,
a creditor of Covanta and a Danielson stockholder. In addition,
in connection with such note purchase agreement, Laminar
arranged for a $10 million revolving loan facility for CPIH
secured by CPIHs assets. Subsequent to the signing of the
investment and purchase agreement, each of TAVF, Laminar and SZ
Investments assigned approximately 30% of their participation in
the second lien letter of credit facility to Goldman Sachs
Credit Partners, L.P. and Laminar assigned the remainder of its
participation in the second lien letter of credit facility to
TRS Elara, LLC.
2. Danielson and Covanta have entered into a corporate
services agreement, pursuant to which Danielson provides to
Covanta, at Covantas expense, certain administrative and
professional services and Covanta pays most of Danielsons
expenses, which totaled $3 million for the period
March 11, 2004 through December 31, 2004. In addition,
Danielson and Covanta have entered into an agreement pursuant to
which Covanta provides, at Danielsons expense, payroll and
benefit services for Danielson
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employees which totaled $0.5 million for the period
March 11, 2004 through December 31, 2004. The amounts
accrued but not paid under these arrangements totaled
$0.9 million for the period March 11, 2004 through
December 31, 2004.
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For the Year Ended
December, 31
December 31,
December 27,
2004
2003
2002
(Dollars in thousands)
$
233
$
344
$
826
252
1,090
438
8,402
485
1,434
9,666
306
611
2,828
99
163
248
1,664
1,044
567
296
978
778
237
152
1,372
787
2,517
4,168
5,445
(2,032
)
(2,734
)
4,221
(9,033
)
(1,424
)
13,273
1
77
2,208
(4,157
)
4,298
33,276
(879
)
(10,191
)
(15,432
)
5,212
(511
)
(54,877
)
(27,033
)
31,886
(65,068
)
(37,253
)
$
34,094
$
(69,225
)
$
(32,955
)
$
2,517
$
4,168
$
5,445
(297
)
(237
)
$
2,517
$
4,168
$
4,911
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Table of Contents
For the Year Ended
December, 31
December 31,
December 27,
2004
2003
2002
(Dollars in thousands)
$
34,094
$
(69,225
)
$
(32,955
)
(8,402
)
(159
)
(1,090
)
(438
)
36
95
7,045
1,024
39
18
3
1,425
521
920
(400
)
(16,693
)
(2,016
)
(33,276
)
511
44,898
27,033
879
20,198
10,220
289
(1,723
)
1,730
(1,413
)
3,224
1,926
(195
)
(7,050
)
36
(4,843
)
6,035
58
(36,400
)
(42,665
)
1,512
612
4,110
1,100
37,026
(37,026
)
(3,300
)
(2,163
)
(978
)
(6,035
)
(6,000
)
(550
)
(33,801
)
(49,763
)
(4,000
)
40,000
(900
)
(26,612
)
41,021
42,228
3,474
10,588
14
16,983
36,014
52,816
9,383
2,249
(1,790
)
3,529
1,280
3,070
$
12,912
3,529
1,280
Table of Contents
Additions
Balance at
Charged to
Charged to
Balance At
Beginning
Costs and
Other
End of
of Period
Expense
Accounts
Deductions
Period
(Dollars in thousands)
$
462
$
(40
)
$
$
(294
)
$
128
1,623
228
(1,389
)
462
1,431
734
(542
)
1,623
$
1,328
$
(103
)
$
$
(332
)
$
893
1,328
1,328
$
176
$
60
$
$
$
236
116
60
176
20
96
116
$
$
733
$
$
299
$
434
(170
)
170
$
$
733
$
$
129
$
604
$
$
1,070
$
2,037
(1)
$
(761
)
$
2,346
(1) | Acquired with purchase of ACL and GMS |
Subtractions | ||||||||||||||||||||
Credits | ||||||||||||||||||||
Balance at | (Charges) | Charged to | Balance At | |||||||||||||||||
Beginning | to Tax | Other | End of | |||||||||||||||||
of Period | Expense | Accounts | Deductions | Period | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Tax valuation allowance
|
||||||||||||||||||||
2004
|
$ | 211,535 | $ | 15,423 | $ | 104,926 | (1) | $ | | $ | 91,186 | |||||||||
2003
|
213,511 | 1,976 | | | 211,535 | |||||||||||||||
2002
|
260,727 | 49,105 | (1,889 | ) | | 213,511 |
(1) | Primarily attributable to purchase accounting adjustments related to the Covanta acquisition. |
186
Reserves for
Discount
Unpaid Claims
from
Other Policy
Deferred
and Claim
Reserves
Claims and
Net
Acquisition
Adjustment
for Unpaid
Unearned
Benefits
Earned
Investment
Affiliation with Registrant
Costs
Expenses
Claims
Premiums
Payable
Premiums
Income
$
256
$
64,270
$
$
1,254
$
$
17,998
$
2,405
833
83,380
4,595
35,851
3,999
1,612
101,249
10,622
62,164
5,603
Claims and Claim
Adjustment Expenses
Amortization
Paid Claims
Incurred Related to
of Deferred
Other
and Claim
Net
Acquisition
Operating
Adjustment
Written
Affiliation with Registrant
Current Year
Prior Years
Costs
Expenses
Expenses
Premiums
$
10,343
$
2,518
$
4,255
$
165
$
31,775
$
15,165
23,199
13,485
6,610
1,337
50,734
30,408
49,474
10,407
11,437
2,678
68,701
52,655
187
Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
| Standardization of Accounting Policies and Procedures Danielson had several accounting policies and procedures that required updating, standardization and/or formalization. This updating was important as beginning in the fourth quarter, Danielsons accounting operations were moved to and consolidated with Covantas principal executive offices in Fairfield, New Jersey. With such transfer, new process and control owners were established for the existing treasury, procurement and close the book controls. | |
| Implementation of Additional Payroll Controls Additional payroll controls were implemented in the fourth quarter of 2004, including creation of a new control to monitor changes to payroll and benefits data, and enhanced access security controls over payroll input data. | |
| Implementation of Additional Information Systems Controls Additional information system controls were implemented during the third and fourth quarters of 2004, including modifications of system access to general ledger related applications, strengthening the review of access modifications to general ledger related applications, and the strengthening of controls monitoring payroll program changes. |
188
| Hiring Additional Permanent Accounting Personnel. During 2004, following the acquisition of Covanta and in connection with the integration and transition of accounting functions to Danielsons principal executive offices in Fairfield, New Jersey, Covanta hired a new Chief Financial Officer. |
1. | Subsequent to the period with respect to which this report relates, in the first quarter of 2005 hired a controller, with the expectation that he will be promoted to chief accounting officer following an introductory and integration period; | |
2. | Danielson will continue to recruit additional in-house accounting personnel with requisite knowledge of complex technical accounting issues to improve and expand its depth in the accounting function; and | |
3. | Danielson will review and improve the integration of the new personnel it hires within the accounting function, including the training and supervision to be provided to such new hires. |
Item 9B. | Other Information |
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
Director
Name
Age
Position
Since
41
Chairman of the Board
1999
42
Director
1996
64
Director
2004
53
Director
2004
68
Director
2002
47
Director
2004
49
Director
2003
71
Director
2002
74
Director
2002
Table of Contents
Table of Contents
Age as of
Officer
Name
Position and Office Held
March 9, 2005
Since
45
2004
44
2004
46
2004
Table of Contents
Long-Term
Compensation
Awards
Annual Compensation
Restricted
Securities
Other Annual
Stock
Underlying
All Other
Name and Principal Position
Year
Salary
Bonus(6)
Compensation
Awards(7)
Options
Compensation(8)
2004
$
380,769
$
393,750
$
0
$
360,000
$
0
$
79,837
2004
$
245,708
$
372,720
$
0
$
0
$
0
$
1,467,409
Chief Executive Officer(3)
2004
$
65,000
$
0
$
0
$
0
$
0
$
0
2003
$
200,000
$
0
$
0
$
0
$
0
$
0
2002
$
87,949
$
0
$
0
$
0
$
0
$
0
2004
$
206,250
$
75,000
$
0
$
150,000
$
0
$
199,633
2004
$
240,180
$
150,000
$
0
$
125,000
$
0
$
38,058
(1)
The compensation included in the table above for
Messrs. Orlando, Abolt and Simpson includes compensation
for their services to both Danielson and Covanta as they are
compensated for their services as an officer of both Danielson
and Covanta under the employment agreements they each entered
into on October 5, 2004 with both Danielson and Covanta.
These employment agreements are further described in this
Item 11. Under the employment agreements entered into and
dated October 5, 2005, Messrs. Orlando, Abolt and
Simpson initial base annual salaries are $400,000, $325,000 and
$240,180, respectively. Mr. Orlandos prior employment
agreement with Covanta entitled him to a base annual salary of
$375,000, which contract was rejected by Covanta in March 2004
pursuant to Covantas
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emergence from Chapter 11. Messrs. Abolt and Simpson
did not have prior employment agreements with Covanta.
(2)
$290,000 of Mr. Orlandos salary was paid by Covanta
prior to his appointment on October 5, 2004 as an officer
of both Danielson and Covanta.
(3)
Mr. Horowitz served as President and Chief Executive
Officer of Danielson from April 2004 until October 5, 2004.
Mr. Zell served as President and Chief Executive Officer of
Danielson from July 2002 until March 2004.
(4)
$132,500 of Mr. Abolts salary was paid by Covanta
prior to his appointment on October 5, 2004 as an officer
of both Danielson and Covanta.
(5)
$185,678 of Mr. Simpsons salary was paid by Covanta
prior to his appointment on October 5, 2004 as an officer
of both Danielson and Covanta.
(6)
The amounts shown represent the full amount of the annual
bonuses attributable to each year, which were generally paid in
the first fiscal quarter of the following year.
(7)
Reflects the value of the restricted stock awarded pursuant to
the terms and conditions of the employment agreements as
described in this Item 11 under Employment Contracts,
Termination of Employment and Change-in-Control
Arrangements on the date of grant. Messrs. Orlando,
Abolt and Simpson received 49,656, 20,690 and 17,242 shares of
restricted common stock of Danielson, respectively, under such
employment agreements. The restricted stock vests, subject to
forfeiture and meeting certain performance- based metrics of
Covanta as approved by the Board of Directors, under their
respective employment agreements in equal installments over
three years, with the first 1/3 having vested on
February 28, 2005.
(8)
Includes for the fiscal year ending December 31, 2004:
(i) contributions in the amount of $8,200 credited to the
account balances of each of Messrs. Orlando, Horowitz and
Simpson under Danielsons 401(k) Savings Plan; (ii) a
cash payment to Messrs. Orlando, Horowitz and Simpson in
the amount of $16,971, $14,117 and $6,858, respectively,
representing the excess of the contribution that could have been
made to each such individuals Covanta 401(k) Savings Plan
account pursuant to the formula applicable to all employees over
the maximum contribution to such plan permitted by the Internal
Revenue Code of 1976, as amended; (iii) a cash payment to
Messrs. Orlando, Horowitz and Simpson in the amount of
$54,667, $58,116 and $23,000, respectively, representing
retention bonuses paid by Covanta during 2004;
(iv) payments and reimbursements for relocation expenses of
Mr. Abolt; and (v) special pay of $66,923, severance
of $1,317,746, and sellback of current vacation of $2,307 paid
to Mr. Horowitz.
Potential Realizable
Value at Assumed Annual
Number of
% of Total
Rates of Stock Price
Securities
Options/SARs
Appreciation for Option
Underlying
Granted to
Exercise
Term
Options/SARs
Employees in
Price per
Expiration
Name
Granted
2004
Share
Date
5%
10%
200,000
19.6
%
$
7.43
10/05/2014
$
934,537
$
2,368,301
85,000
8.3
%
$
7.43
10/05/2014
$
397,178
$
1,006,528
75,000
7.4
%
$
7.43
10/05/2014
$
350,452
$
888,113
Table of Contents
Shares
Number of Securities
Value of Unexercised
Acquired
Value
Underlying at Year End
Year End
Name
on Exercise
Realized
Exercisable/Unexercisable
Exercisable/Unexercisable
$
0
0/200,000
0/$
204,000
$
0
0/85,000
0/$
86,700
$
0
0/75,000
0/$
76,500
Table of Contents
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beneficial ownership of Danielsons common stock by SZ
Investments LLC, Third Avenue Management LLC and D. E. Shaw
Laminar Portfolios, L.L.C., which are the only beneficial owners
of five percent or more of Danielsons common stock;
beneficial ownership of Danielsons common stock by
(i) all of Danielsons current directors,
(ii) the Named Executive Officers; and (iii) all of
the current directors and Named Executive Officers of Danielson
together as a group.
Number of Shares
Approximate
Name and Address
Beneficially Owned (1)
Percent of Class
11,796,442
16.1
%
Two North Riverside Plaza
Chicago, Illinois 60606
4,535,622 (4
)
6.2
%
622 Third Avenue, 32nd floor
New York, New York 10017
13,629,222
18.6
%
120 West Forth Fifth Street, Floor 39, Tower 45
New York, New York 10036
(1)
In accordance with provisions of Danielsons certificate of
incorporation, all certificates representing shares of common
stock beneficially owned by holders of five percent or more of
the common stock of Danielson are owned of record by Danielson,
as escrow agent, and are physically held by Danielson in that
capacity.
(2)
This includes the shares owned as follows: 10,031,736 shares
that SZ Investments beneficially owns with shared voting and
dispositive power; and (ii) 1,764,706 shares that EGI-Fund
(05-07) Investors, L.L.C. (Fund 05-07)
beneficially owns with shared voting and dispositive power. This
does not include an option to acquire 155,000 shares that
is held by Equity Group Investments, L.L.C. Chai
Trust Company, L.L.C. (Chai Trust) beneficially
owns 11,951,442 shares with shared voting and dispositive power;
however, these 11,951,442 shares are the same shares represented
by the aggregate of the shares beneficially owned by SZ
Investments, Fund 05-07 and EGI.
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(3)
Third Avenue Management LLC, a registered investment advisor
under Section 203 of the Investment Advisors Act of 1940,
as amended, invests funds on a discretionary basis on behalf of
investment companies registered under the Investment Company Act
of 1940, as amended, and on behalf of individually managed
separate accounts. David M. Barse has served as a director of
Danielson since 1996 and was Danielsons President and
Chief Operating Officer from July 1996 until July 2002. Since
February 1998, Mr. Barse has served as President, and since
June 2003, Chief Executive Officer of Third Avenue Management
LLC. Mr. Barse is also the Chief Executive Officer of TAVF.
(4)
The shares beneficially owned by Third Avenue Management LLC are
held by Third Avenue Value Fund Series of the Third Avenue
Trust (collectively Third Avenue Value Fund Series and Third
Avenue Trust, TAVF). These shares do not include the
following shares held by each of Messrs. Whitman and Barse:
(i) 1,254,145 shares beneficially owned by Mr. Whitman
(including 166,426 shares owned by Mr. Whitmans wife
and 318,496 shares beneficially owned by a private investment
company of which Mr. Whitman is the principal shareholder),
and (ii) 486,932 shares beneficially owned by
Mr. Barse (including shares underlying currently
exercisable options to purchase an aggregate of 138,425 shares
of common stock).
(5)
Laminar shares voting and dispositive power with D. E. Shaw
& Co., L.P. (Shaw LP), D. E. Shaw & Co.,
L.L.C. (Shaw LLC) and David Shaw. Each of Shaw LP,
Shaw LLC and Mr. Shaw disclaims beneficially ownership of
such 13,629,222 shares beneficially owned by Laminar.
This does not include the number of shares of common stock which
Laminar will have the right to purchase in the 9.25% Offering of
up to 3 million shares of Danielsons common
stock at a purchase price of either $1.53 per share which
Danielson is required to conduct in order to satisfy its
obligations as the sponsor of the plan of reorganization of
Covanta. The 9.25% Offering will be made solely to holders of
the $100 million of principal amount of 9.25% Debentures
due 2002 issued by Covanta that voted in favor of Covantas
second reorganization plan on January 12, 2004. On
January 12, 2004, holders of $99.6 million in
principal amount of 9.25% Debentures voted in favor of the plan
of reorganization and are eligible to participate in the rights
offering. As of January 12, 2004, Laminar held
approximately $10.4 million of the 9.25% Debentures and
would be entitled to purchase up to approximately
313,253 shares of common
Table of Contents
stock. Danielson has filed a registration statement with the SEC
with respect to such rights offering and the statements
contained herein shall not constitute an offer to sell or the
solicitation of an offer to buy shares of Danielsons
common stock. Any such offer or solicitation will be made in
compliance with all applicable securities laws.
Number of Shares
Approximate
Name
Beneficially Owned (1)
Percent of Class
163,142
*
49,656
*
Two North Riverside Plaza, Suite 600
Chicago, IL 60606
Two North Riverside Plaza, Suite 600
Chicago, IL 60606
11,938,684
16.5
%
20,690
*
4,884,129
6.8
%
1,500
*
1,500
*
77,097
*
1,250
*
17,242
*
7,500
*
88,165
*
38,165
*
17,284,903
(8)
23.5
%
*
Percentage of shares beneficially owned does not exceed one
percent of the outstanding common stock.
(1)
In accordance with provisions of Danielsons certificate of
incorporation, all certificates representing shares of common
stock beneficially owned by holders of five percent or more of
the common stock are owned of record by Danielson, as escrow
agent, and are physically held by Danielson in that capacity.
(2)
Includes restricted stock awarded pursuant to the terms and
conditions of the employment agreements as described in
Item 11 under Employment Contracts, Termination of
Employment and Change-in-
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Control Arrangements on the date of grant.
Messrs. Orlando, Abolt and Simpson received 49,656, 20,690
and 17,242 shares of restricted common stock of Danielson,
respectively, under such employment agreements. The restricted
stock vests, subject to forfeiture and meeting certain
performance-based metrics of Covanta as approved by the Board of
Directors, under their respective employment agreements in equal
installments over three years, with the first 1/3 having vested
on February 28, 2005.
(3)
Includes the shares owned as follows: 10,031,736 shares that SZ
Investments beneficially owns with shared voting and dispositive
power; and (ii) 1,764,706 shares that Fund 05-07
beneficially owns with shared voting and dispositive power. SZ
Investments and Fund 05-07 are indirectly owned by trusts
for the benefit of Mr. Zell and members of his family. Also
includes shares underlying currently exercisable options to
purchase 129,166 shares of common stock at an exercise price of
$3.37 per share owned by EGI, also indirectly owned by trusts
for the benefit of Mr. Zell and members of his family and
13,076 shares owned by the Helen Zell Revocable Trust, as to
which Mr. Zell disclaims beneficial ownership except to the
extent of his pecuniary interest therein.
(4)
Includes 4,535,622 shares beneficially owned by TAVF, which is
affiliated with Mr. Barse. Mr. Barse disclaims
beneficial ownership of these shares. Also includes shares
underlying currently exercisable options to purchase 50,000
shares of common stock at an exercise price of $5.69, shares
underlying currently exercisable options to purchase 50,000
shares of common stock at an exercise price of $7.06 and shares
underlying currently exercisable options to purchase 38,425
shares of common stock at an exercise price of $5.31.
(5)
Includes 12,453 shares of vested restricted stock and 12,453
unvested shares of restricted stock issued to Mr. Huber.
Also includes shares underlying currently exercisable options to
purchase 13,333 shares of common stock at an exercise price of
$4.26.
(6)
Includes shares underlying currently exercisable options to
purchase 50,000 shares of common stock at an exercise price of
$5.78 and shares underlying currently exercisable options to
purchase 13,333 shares of common stock at an exercise price of
$4.26.
(7)
Includes shares underlying currently exercisable options to
purchase 13,333 shares of common stock at an exercise price of
$4.26.
(8)
Includes shares underlying currently exercisable options to
purchase 228,424 shares of common stock that our directors and
executive officers have the right to acquire within 60 days
of the date of this table.
Number of securities remaining
Number of securities to be
Weighted average
available for future issuance
issued upon exercise of
exercise price of
under equity compensation plans
outstanding options,
outstanding options,
(excluding securities
warrants and rights
warrants and rights
reflected in column a)
Plan category
(A)
(B)
(C)
1,933,460
$
6.38
2,862,217(1
)
N/A
N/A
N/A
1,933,460
$
6.38
2,862,217
(1)
Of the 2,862,217 shares that remain available for future
issuance, 1,462,217 are currently reserved for issuance under
Danielsons equity compensation plans.
Table of Contents
Table of Contents
Table of Contents
Services
2004
2003
$
4,172
$
845
2,067
292
183
407
$
6,422
$
1,544
Table of Contents
Table of Contents
206
207
208
209
210
211
212
213
214
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
(1)
Consolidated Financial Statements of Danielson
Holding Corporation:
Included in Part II of this Report:
Consolidated Statement of Operations, for the years ended
December 31, 2004 and 2003 and December 27, 2002
Consolidated Statement of Financial Position, as of
December 31, 2004 and December 31, 2003
Consolidated Statement of Cash Flows, for the years ended
December 31, 2004 and 2003 and December 27, 2002
Consolidated Statement of Stockholders Equity, for the
years ended December 31, 2004 and 2003 and
December 27, 2002
Notes to Consolidated Financial Statements, for the years ended
December 31, 2004 and 2003 and December 27, 2002
Report of Ernst & Young LLP, Independent Auditors, on
the consolidated financial statements of Danielson Holding
Corporation for the years ended December 31, 2004 and 2003
and December 27, 2002
(2)
Financial Statement Schedules of Danielson Holding
Corporation:
Included in Part II of this report:
Schedule I Condensed Financial Information of
Registrant
Schedule II Valuation and Qualifying Accounts
Schedule V
Supplemental Information Concerning Property
Casualty Insurance Operations
Included as Exhibit F in this Part IV:
Separate financial statements of fifty percent or less owned
persons. See Appendix F-1 through F-26
All other schedules are omitted because they are not applicable,
not significant or not required, or because the required
information is included in the financial statement notes thereto.
(3)
Exhibits:
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Exhibit No.
Description
4
.2
Credit Agreement, dated as of March 10, 2004, by and among
Covanta Energy Corporation and each of its Subsidiaries party
thereto, the Lenders listed therein, Bank of America, N.A., and
Deutsche Bank AG, New York Branch (incorporated by
reference to Exhibit 4.18 of Danielsons Annual Report
on Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.3
First Amendment to Credit Agreement, dated December 15,
2004, by and among Covanta Energy Corporation, certain of its
subsidiaries, certain lenders, Bank of America, N.A., as
Administrative Agent, and Deutsche Bank Securities Inc., as
Documentation Agent (incorporated by reference to
Exhibit 10.1 of Danielsons Current Report on
Form 8-K dated December 15, 2004 and filed with the
SEC on December 17, 2005).
4
.4
Credit Agreement, dated as of March 10, 2004, by and among
Covanta Energy Corporation and each of its Subsidiaries party
thereto, the Lenders listed therein, and Bank One, NA.
(incorporated by reference to Exhibit 4.19 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.4
First Amendment to Credit Agreement, dated December 15,
2004, by and among Covanta Energy Corporation, certain of its
subsidiaries, certain lenders and Bank One, N.A., as
Administrative Agent (incorporated by reference to
Exhibit 10.2 of Danielsons Current Report on
Form 8-K dated December 15, 2004 and filed with the
SEC on December 17, 2004).
4
.5
Indenture dated as of March 10, 2004 by and among Covanta
Energy Corporation, the Guarantors named therein, and
U.S. Bank National Association, as trustee, for the
8.25% Senior Secured Notes due 2011 (incorporated by
reference to Exhibit 4.20 of Danielsons Annual Report
on Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.6
Indenture dated as of March 10, 2004 by and among Covanta
Energy Corporation and U.S. Bank Trust National
Association, as trustee for the 7.5% Unsecured Notes due 2012
(incorporated by reference to Exhibit 4.21 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.7
Registration Rights Agreement dated November 8, 2002 among
Danielson Holding Corporation and S.Z. Investments, LLC
(incorporated by reference to Exhibit 10.6 of
Danielsons Annual Report on Form 10-K for the year
ended December 27, 2002 and filed with the SEC on
March 27, 2003).
4
.8
Registration Rights Agreement, dated as of December 2,
2003, by and between Danielson Holding Corporation,
D.E. Shaw Laminar Portfolios, L.L.C., S.Z. Investments,
L.L.C., and Third Avenue Trust, on behalf of the Third Avenue
Value Fund Series, a Delaware business trust (incorporated by
reference to Exhibit 4.1 of Danielsons Current Report
on Form 8-K dated December 2, 2003 and filed with the
SEC on December 5, 2003).
4
.9
Pledge Agreement, dated March 10, 2004, by and between
Danielson Holding Corporation and Bank of America, N.A. in its
capacity as collateral agent for and representative of the
Secured Parties as defined therein (incorporated by reference to
Exhibit 4.24 of Danielsons Annual Report on
Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.10
Intercreditor Agreement, dated March 10, 2004, by and among
Covanta Energy Corporation, the Subsidiaries listed therein, the
Detroit L/ C Lenders listed therein, the New L/C Lenders listed
therein, Bank of America, N.A., Bank One, NA, Deutsche Bank
Securities, Inc., Danielson Holding Corporation, U.S. Bank
National Association, and the Companies listed therein
(incorporated by reference to Exhibit 4.25 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.11
Intercreditor Agreement, dated March 10, 2004, by and among
Covanta Power International Holdings, Inc., the Subsidiaries
listed therein, Covanta Energy Americas, Inc., Revolver Lenders
listed therein, the Term Loan Lenders listed therein, Bank of
America, N.A., Deutsche Bank Securities, Inc., Deutsche Bank AG,
New York Branch, U.S. Bank National Association, Wells
Fargo Bank, N.A., and the Companies listed therein (incorporated
by reference to Exhibit 4.26 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
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Exhibit No.
Description
4
.12
Security Agreement, dated March 10, 2004, by and among
Covanta Energy Corporation, the Other Borrowers listed therein,
any Additional Grantors, and Bank of America, N.A. (incorporated
by reference to Exhibit 4.27 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
4
.13
Security Agreement, dated March 10, 2004, by and among
Covanta Power International Holdings, Inc., the Other Borrowers
listed therein, and Bank of America, N.A. (incorporated by
reference to Exhibit 4.28 of Danielsons Annual Report
on Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.14
Pledge Agreement, dated March 10, 2004, by and between
Covanta Energy Americas, Inc., and Bank of America, N.A.
(incorporated by reference to Exhibit 4.29 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.15
Security and Pledge Agreement, dated January 31, 2003, by
and among ACL, the Subsidiaries listed therein, the Debtor-in
Possession listed therein, and JPMorgan Chase Bank (incorporated
by reference to Exhibit 4.30 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
4
.16
Revolving Credit and Guaranty Agreement, dated January 31,
2003, by and among ACL, ACL Holdings, the Guarantors listed
therein, the Lenders listed therein, JPMorgan Chase Bank,
J.P. Morgan Securities Inc., General Electric Capital
Corporation, and Bank One, NA (incorporated by reference to
Exhibit 4.31 of Danielsons Annual Report on
Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.17
First Amendment to Revolving Credit and Guaranty Agreement,
dated March 13, 2003, by and among ACL, ACL Holdings, the
Guarantors listed therein, the Lenders listed therein, JPMorgan
Chase Bank, General Electric Capital Corporation, and Bank One,
NA (incorporated by reference to Exhibit 4.32 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.18
Second Amendment to Revolving Credit and Guaranty Agreement,
dated March 13, 2003, by and among ACL, ACL Holdings, the
Guarantors listed therein, the Lenders listed therein, JPMorgan
Chase Bank, General Electric Capital Corporation, and Bank One,
NA (incorporated by reference to Exhibit 4.33 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.19
Third Amendment to Revolving Credit and Guaranty Agreement,
dated December 22, 2003, by and among ACL, ACL Holdings,
the Guarantors listed therein, the Lenders listed therein,
JPMorgan Chase Bank, General Electric Capital Corporation, and
Bank One, NA (incorporated by reference to Exhibit 4.34 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.20
Fourth Amendment to Revolving Credit and Guaranty Agreement,
dated February 24, 2004, by and among ACL, ACL Holdings,
the Guarantors listed therein, the Lenders listed therein,
JPMorgan Chase Bank, General Electric Capital Corporation, and
Bank One, NA (incorporated by reference to Exhibit 4.35 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
4
.21
First Preferred Fleet Mortgage, dated February 3, 2003, by
ACL in favor of JPMorgan Chase Bank (incorporated by reference
to Exhibit 4.36 of Danielsons Annual Report on
Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
4
.22
First Preferred Fleet Mortgage, dated February 3, 2003, by
Houston Fleet LLC in favor of JPMorgan Chase Bank (incorporated
by reference to Exhibit 4.37 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
4
.23
First Preferred Fleet Mortgage, dated February 3, 2003, by
Louisiana Dock Company LLC in favor of JPMorgan Chase Bank
(incorporated by reference to Exhibit 4.38 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
Table of Contents
Exhibit No.
Description
Material Contracts.
10
.1
Stock Purchase and Sale Agreement dated as of April 14,
1999 by and between Samstock, L.L.C. and Danielson Holding
Corporation (incorporated by reference to Exhibit 10.1 of
Danielsons Report on Form 10-Q for the period ended
June 30, 1999 and filed with the SEC on August 13,
1999).
10
.2
Amendment No. 1, Assignment and Consent to Assignment of
Stock Purchase and Sale Agreement dated May 7, 1999 among
Samstock, L.L.C., S.Z. Investments, LLC and Danielson Holding
Corporation (incorporated by reference to Exhibit 10.2 of
Danielsons Report on Form 10-Q for the period
ended June 30, 1999 and filed with the SEC on
August 13, 1999).
10
.3
Termination of Investment Agreement dated November 8, 2002
among Danielson Holding Corporation, Martin J. Whitman and S.Z.
Investments, LLC (incorporated by reference to Exhibit 10.5
of Danielsons Annual Report on Form 10-K for the year
ended December 27, 2002 and filed with the SEC on
March 27, 2003).
10
.4
Equity Commitment for Rights Offering between Danielson Holding
Corporation and SZ Investments L.L.C. dated February 1,
2005 (incorporated by reference to Exhibit 10.2 of
Danielsons Current Report on Form 8-K dated
January 31, 2005 and filed with the SEC on February 2,
2005).
10
.5
Equity Commitment for Rights Offering between Danielson Holding
Corporation and EGI-Fund (05-07) Investors, L.L.C. dated
February 1, 2005 (incorporated by reference to
Exhibit 10.3 of Danielsons Current Report on
Form 8-K dated January 31, 2005 and filed with
the SEC on February 2, 2005).
10
.6
Equity Commitment for Rights Offering between Danielson Holding
Corporation and Third Avenue Trust, on behalf of The Third
Avenue Value Fund Series dated February 1, 2005
(incorporated by reference to Exhibit 10.4 of
Danielsons Current Report on Form 8-K dated
January 31, 2005 and filed with the SEC on February 2,
2005).
10
.7
Equity Commitment for Rights Offering between Danielson Holding
Corporation and D.E. Shaw Laminar Portfolios, L.L.C. dated
February 1, 2005 (incorporated by reference to
Exhibit 10.5 of Danielsons Current Report on
Form 8-K dated January 31, 2005 and filed with
the SEC on February 2, 2005).
10
.8
Letter Agreement between Danielson Holding Corporation and D.E.
Shaw Laminar Portfolios, L.L.C. dated January 31, 2005
(incorporated by reference to Exhibit 10.6 of
Danielsons Current Report on Form 8-K dated
January 31, 2005 and filed with the SEC on February 2,
2005).
10
.9
Stock Purchase Agreement among American Ref-Fuel Holdings Corp.,
the Sellers party thereto and Danielson Holding Corporation
dated as of January 31, 2005 (incorporated by reference to
Exhibit 2.1 of Danielsons Current Report on
Form 8-K dated January 31, 2005 and filed with the SEC
on February 2, 2005).
10
.10
Engagement Letter, dated July 28, 2003, by and between
Danielson Holding Corporation and Credit Suisse First Boston LLC
(incorporated by reference to Exhibit 10.20 of
Danielsons Annual Report on Form 10-K for the year
ended December 31, 2003 and filed with the SEC on
March 15, 2004).
10
.11
Investment and Purchase Agreement by and between Danielson
Holding Corporation and Covanta Energy Corporation, dated
December 2, 2003 (incorporated by reference to
Exhibit 2.1 of Danielsons Current Report on
Form 8-K dated December 2, 2003 and filed with the SEC
on December 5, 2003), as amended by that certain Amendment
to the Investment and Purchase Agreement, made and entered into
on February 23, 2004, by and between the same parties
(incorporated by reference to Exhibit 2.3 of
Danielsons Current Report on Form 8-K dated
March 10, 2004 and filed with the SEC on March 11,
2004).
Table of Contents
Exhibit No.
Description
10
.12
Note Purchase Agreement by and among Danielson Holding
Corporation, S.Z. Investments, L.L.C., Third Avenue Trust, on
behalf of Third Avenue Value Fund, and D. E. Shaw Laminar
Portfolios, L.L.C. dated December 2, 2003 (incorporated by
reference to Exhibit 2.2 of Danielsons Current Report
on Form 8-K dated December 2, 2003 and filed with the
SEC on December 5, 2003), as amended by that certain First
Amendment to Note Purchase Agreement and Consent, made and
entered into as of February 23, 2004, by and among the same
parties (incorporated by reference to Exhibit 2.4 of
Danielsons Current Report on Form 8-K dated
March 10, 2004 and filed with the SEC on March 11,
2004).
10
.13
Letter Agreement by and between Danielson Holding Corporation
and D.E. Shaw Laminar Portfolios, L.L.C. dated
December 2, 2003 (incorporated by reference to
Exhibit 10.1 of Danielsons Current Report on
Form 8-K dated December 2, 2003 and filed with the SEC
on December 5, 2003).
10
.14
Letter Agreement by and between Danielson Holding Corporation
and Equity Group Investments, L.L.C. dated December 1, 2003
(incorporated by reference to Exhibit 10.2 of
Danielsons Current Report on Form 8-K dated
December 2, 2003 and filed with the SEC on December 5,
2003).
10
.15
Tax Sharing Agreement, dated as of March 10, 2004, by and
among Danielson Holding Corporation, Covanta Energy Corporation,
and Covanta Power International Holdings, Inc. (incorporated by
reference to Exhibit 10.25 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
10
.16
Corporate Services Reimbursement Agreement, dated as of
March 10, 2004, by and between Danielson Holding
Corporation and Covanta Energy Corp. (incorporated by reference
to Exhibit 10.26 of Danielsons Annual Report on
Form 10-K for the year ended December 31, 2003 and
filed with the SEC on March 15, 2004).
10
.17
Corporate Services Reimbursement Agreement, dated as of
September 2, 2003, by and between Danielson Holding
Corporation and Equity Group Investments, L.L.C. (incorporated
by reference to Exhibit 10.1 of Danielsons Quarterly
Report on Form 10-Q for the period ended September 30,
2003 and filed with the SEC on November 7, 2003).
10
.18
Credit Agreement, dated as of March 10, 2004, by and among
Covanta Power International Holdings, Inc. and each of its
Subsidiaries party thereto, the Lenders listed therein, Bank of
America, N.A., and Deutsche Bank Securities, Inc. (incorporated
by reference to Exhibit 10.28 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
10
.19
Covanta Power International Holdings, Inc. First Amendment to
Credit Agreement dated as of April 20, 2004 among Covanta
Power International Holdings, Inc. (CPIH), the
subsidiaries of CPIH listed on the signature pages thereto,
Wells Fargo Bank, N.A. as Debenture Disbursing Agent, Bank of
America, N. A. as Administrative Agent for the Lenders and
Deutsche Bank Securities, Inc. as Documentation Agent for the
Lenders (incorporated by reference to Exhibit 10.2 of
Danielson Holding Corporations Registration Statement on
Form S-3/ A filed with the SEC on August 20, 2004).
10
.20
Credit Agreement, dated as of March 10, 2004, by and among
Covanta Power International Holdings, Inc. and each of its
Subsidiaries party thereto, the Lenders listed therein, and
Deutsche Bank AG, New York Branch (incorporated by
reference to Exhibit 10.29 of Danielsons Annual
Report on Form 10-K for the year ended December 31,
2003 and filed with the SEC on March 15, 2004).
10
.21
First Amendment to Credit Agreement, dated as of August 13,
2004 among CPIH and the subsidiaries of CPIH listed on the
signature pages thereto, Covanta Energy Americas, Inc.
(CEAI) as a Loan Party, the Lenders party thereto
and Deutsche Bank Securities, Inc., as Administrative Agent for
the Lenders. (incorporated by reference to Exhibit 10.3 of
Danielsons Registration Statement on Form S-3/ A
filed with the SEC on August 20, 2004).
Table of Contents
Table of Contents
Not filed herewith, but incorporated herein by reference. In
accordance with Rule 12b-32 of the General Rules and
Regulations under the Securities and Exchange Act of 1934,
reference is made to the document previously filed with the SEC.
Table of Contents
Danielson Holding
Corporation
(Registrant)
By:
/s/
Anthony J. Orlando
Anthony J. Orlando
President and Chief Executive Officer
Name
Title
Date
/s/
Anthony J. Orlando
President and Chief Executive Officer
March 14, 2005
/s/
Craig D. Abolt
Chief Financial Officer (Principal Financial and
Accounting Officer)
March 14, 2005
/s/
William C. Pate
Chairman of the Board
March 14, 2005
/s/
David M. Barse
Director
March 14, 2005
/s/
Ronald J. Broglio
Director
March 14, 2005
/s/
Peter C. B. Bynoe
Director
March 14, 2005
/s/
Richard L. Huber
Director
March 14, 2005
/s/
Robert S. Silberman
Director
March 14, 2005
/s/
Jean Smith
Director
March 14, 2005
Table of Contents
Name
Title
Date
/s/
Joseph P. Sullivan
Director
March 14, 2005
/s/
Clayton Yeutter
Director
March 14, 2005
Table of Contents
Table of Contents
/s/ Sycip Gorres Velayo & Co.
A Member Practice of Ernst & Young Global
Table of Contents
Table of Contents
Years Ended December 31
2004
2003
2002
$
214,865,088
$
217,869,232
$
208,132,957
40,822,798
36,002,310
35,800,748
36,770,262
29,479,164
35,559,352
19,263,376
18,776,557
18,750,151
16,768,912
18,095,761
15,414,227
113,625,348
102,353,792
105,524,478
101,239,740
115,515,440
102,608,479
731,751
702,954
937,337
105,899
94,789
384,772
(39,502,726
)
(42,321,405
)
(45,180,633
)
(6,362,934
)
(6,995,001
)
(7,705,161
)
(409,779
)
(281,928
)
3,903,685
(45,437,789
)
(48,800,591
)
(47,660,000
)
55,801,951
66,714,849
54,948,479
(216,786
)
(220,889
)
(465,018
)
2,005,684
2,864,359
(681,804
)
1,784,795
2,864,359
55,120,147
68,499,644
57,812,838
(1,292,540
)
(1,606,129
)
(1,355,518
)
53,827,607
66,893,515
56,457,320
(295,004
)
$
53,827,607
$
66,598,511
$
56,457,320
Table of Contents
Table of Contents
Additional
Capital Stock
Paid-in
Retained
(Note 7)
Capital
Earnings
Total
$
1,001
$
207,641,266
$
28,887,758
$
236,530,025
(26,789,000
)
(26,789,000
)
56,457,320
56,457,320
1,001
207,641,266
58,556,078
266,198,345
(20,658,400
)
(20,658,400
)
66,598,511
66,598,511
1,001
207,641,266
104,496,189
312,138,456
(75,849,060
)
(75,849,060
)
53,827,607
53,827,607
$
1,001
$
207,641,266
$
82,474,736
$
290,117,003
Table of Contents
1.
Organization and Business
(b) Allocation of Earnings
(c) The Project
Table of Contents
(d) Principal Business Risks
2.
Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
Use of Estimates
Inventories
Property, Plant and Equipment
Table of Contents
Category
Number of Years
50
25
3 to 5
Deferred Financing Costs
Derivative Instruments and Hedging
Activities
Prepaid Input Value-Added Taxes
Revenue Recognition
Table of Contents
Income Taxes
Functional Currency
Valuation of Long-lived Assets
Asset Retirement Obligation
Table of Contents
2004
2003
$
3,298,498
$
3,130,990
182,600
167,508
$
3,481,098
$
3,298,498
Impact of Recently Issued Accounting
Standards
(a) A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of
SFAS No. 123 (revised 2004) for all share-based
payments granted after the effective date and (b) based on
the requirements of SFAS No. 123 for all awards
granted to employees prior to the effective date of
SFAS No. 123 (revised 2004) that remain unvested on
the effective date.
(b) A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously
Table of Contents
recognized under SFAS No. 123 for purposes of pro
forma disclosures either (i) all prior periods presented or
(ii) prior interim periods of the year of adoption.
3.
Property, Plant and Equipment
2004
2003
$
680,241,476
$
676,929,577
86,593,717
86,593,717
4,061,433
4,035,677
336,602
336,602
184,033
184,033
771,417,261
768,079,606
85,681,516
66,418,140
$
685,735,745
$
701,661,466
Table of Contents
4.
Income Taxes
2004
2003
$
9,027,394
$
7,376,376
3,081,554
2,191,365
313,173
237,844
12,422,121
9,805,585
3,081,554
$
9,340,567
$
9,805,585
2004
2003
2002
32
%
32
%
32
%
6
5
5
6
(42
)
(40
)
(44
)
1
1
%
(3
)%
(5
)%
Table of Contents
5.
Debt Financing Agreements
(a) Term Loan
Agreement
$
35,389,726
35,389,726
35,389,726
35,389,726
35,389,726
106,169,178
(b) Uninsured Alternative
Credit Agreement
Table of Contents
$
4,612,584
5,615,320
3,409,301
(c) Trust and Retention Agreement
(d) Bonds Payable
Table of Contents
$
6,450,000
7,525,000
10,750,000
12,900,000
12,900,000
146,200,000
6.
Related Party Transactions
2004
2003
2002
$
40,564,370
$
18,483,011
$
20,266,893
2,400,924
1,731,011
3,216,152
7.
Capital Stock
2004
2003
Number of
Number of
Shares
Amount
Shares
Amount
1,000,000
1,000,000
26,151
$
262
26,151
$
262
1,000,000
1,000,000
2,002
20
2,002
20
1,000,000
1,000,000
71,947
719
71,947
719
10
10
$
1,001
$
1,001
Table of Contents
8.
Commitments and Contingencies
Table of Contents
(i) Payment by the Partnership of higher shortfall
penalties in the event the Partnership fails to meet the minimum
guaranteed electrical quantity (MGEQ) due to the fault or
negligence of the Partnership;
(ii) Recovery from and payment by Meralco to the
Partnership of certain variable operating, maintenance and fuel
costs incurred by the Partnership due to the Plant being
dispatched at less than the nominated capacity;
(iii) Payment of rebates by the Partnership to Meralco over
a six year period subject to the satisfaction of certain
conditions;
(iv) Sharing with Meralco revenues earned for deliveries in
excess of the MGEQ;
(v) Payment by Meralco of U.S. dollar-denominated
portions of fixed and variable payments in U.S. dollars; and
(vi) The Partnership will be deemed to have delivered
electricity under circumstances where the Plant is declared
available but is not dispatched at the load declared as
available.
Table of Contents
(i) Deemed generation;
(ii) Excess generation;
(iii) Credits against excess generation;
(iv) Generation shortfall recovery mechanisms;
(v) Forced outage allowance;
(v) Variable operating payments;
(vii) Rebate program;
(viii) Deferred transmission line CCRP;
(ix) Third party delivery;
(x) Fuel inventory;
(xi) Local business taxes;
(xii) Community development; and
(xiii) Effectivity date of the amendment.
Table of Contents
(1) Recovery of $60.7 million of transmission line
costs out of the total $88.8 million actual costs incurred
by the Partnership. The portion disallowed by ERC amounting to
$28.1 million is composed mainly of schedule extension
costs.
(2) Reduction of annual CCRP to be recovered by Meralco
from its consumers. Annual recoverable payments were reduced
from $13.2 million to $9.0 million to reflect the
amount disallowed by the ERC.
(c) Coal Supply Agreements
Table of Contents
(d) Operations and Maintenance Agreement
Table of Contents
(e) Management Services Agreement
Table of Contents
(f) Project Site Lease, Transmission Line Site Lease
and Foreshore Lease Agreements
(g) Community Memorandum of Agreement
Table of Contents
9.
Fair Value of Financial Instruments
Debt Type
Fair Value Assumptions
Estimated fair value is based on the discounted value of future
cash flows using the applicable risk free rates for similar
types of loans plus a certain margin.
Estimated fair value is based on the discounted value of future
cash flows using the latest available yield percentage of the
Partnerships bonds prior to balance sheet dates.
The carrying value approximates fair value because of recent and
frequent repricing based on market conditions.
2004
2003
$
251.2
$
262.5
183.2
169.3
10.
Other Matters
(a)
Electric Power Industry Reform Act (EPIRA)
(i) The unbundling of the generation, transmission,
distribution and supply and other disposable assets of a
company, including its contracts with independent power
producers and electricity rates;
(ii) Creation of a Wholesale Electricity Spot
Market; and
(iii) Open and non-discriminatory access to transmission
and distribution systems.
Table of Contents
(i) a cap on the concentration of ownership to only 30% of
the installed capacity of the grid and/or 25% of the national
installed generating capacity; and
(ii) VAT zero-rating of sale of generated power.
(b) Clean Air Act
(c) Claims and Litigation
(d) Insurance Coverage Waiver
Table of Contents
(e) PPA Default Waiver
(f) Impact of the Decision of the Supreme Court (SC)
of the Philippines
(g) Tax Assessments
Exhibit 10.25
COVANTA ENERGY SAVINGS PLAN
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS | 1 | |||||
|
||||||
ARTICLE II PARTICIPATION | 8 | |||||
|
||||||
2.1.
|
Admission as a Participant | 8 | ||||
2.2.
|
Termination of Participation | 8 | ||||
|
||||||
ARTICLE III AMOUNTS AND PAYMENT OF BENEFITS | 9 | |||||
|
||||||
3.1.
|
Amount of Benefits | 9 | ||||
3.2.
|
Form of Benefit | 9 | ||||
3.3.
|
Commencement of Benefits | 9 | ||||
3.4.
|
Loan Provisions | 10 | ||||
3.5.
|
Withdrawals | 11 | ||||
3.6.
|
Hardship Withdrawals | 11 | ||||
3.7.
|
Beneficiaries | 13 | ||||
3.8.
|
Special Rules for Participants and Beneficiaries Who Cannot Be Located | 13 | ||||
3.9.
|
Withholding Taxes | 13 | ||||
3.10.
|
Direct Rollovers | 14 | ||||
|
||||||
ARTICLE IV CONTRIBUTIONS | 15 | |||||
|
||||||
4.1.
|
Elective Deferrals | 15 | ||||
4.2.
|
Employer Contributions | 15 | ||||
4.3.
|
Rollover Contributions | 16 | ||||
4.4.
|
Limitations on Elective Deferral Contributions | 17 | ||||
4.5.
|
Limitations on Allocations | 18 | ||||
4.6.
|
Restrictions on Transfers | 19 | ||||
|
||||||
ARTICLE V INVESTMENT AND VALUATION OF ACCOUNTS | 21 | |||||
|
||||||
5.1.
|
Accounts and | 21 | ||||
5.2.
|
Establishment and Objectives of Investment Funds | 21 | ||||
5.3.
|
Investment Elections | 21 | ||||
5.4.
|
Participants Rights to Periodic Reallocation of Accounts | 22 | ||||
5.5.
|
Participants Right to Reallocate Future Contributions | 22 | ||||
5.6.
|
Valuation of Trust Fund | 23 | ||||
5.7.
|
Telephonic Voice Response System | 23 | ||||
5.8.
|
Special Rules Applicable to Employer Stock Fund | 23 | ||||
|
||||||
ARTICLE VI FIDUCIARIES | 25 | |||||
|
||||||
6.1.
|
Named Fiduciaries | 25 | ||||
6.2.
|
Employment of Advisors | 25 | ||||
6.3.
|
Multiple Fiduciary Capacities | 25 | ||||
6.4.
|
Indemnification | 25 | ||||
|
||||||
ARTICLE VII PLAN ADMINISTRATION | 26 | |||||
|
||||||
7.1.
|
The Plan Administrator | 26 | ||||
7.2.
|
Powers, Duties, etc. of the Plan Administrator | 26 | ||||
7.3.
|
Investment Managers | 27 | ||||
7.4.
|
The Trustee | 27 | ||||
7.5.
|
Compensation | 27 | ||||
7.6.
|
Delegation of Responsibility | 28 | ||||
7.7.
|
Claims Procedure | 28 |
i
ARTICLE VIII AMENDMENT | 29 | |||||
|
||||||
ARTICLE IX DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION OF THE PLAN | 30 | |||||
|
||||||
9.1.
|
Right of the Company to Terminate the Plan or Discontinue Contributions | 30 | ||||
9.2.
|
Determination of Date of Complete or Partial Termination or Complete | |||||
|
Discontinuance of Contributions | 30 | ||||
9.3.
|
Effect of Complete or Partial Termination or Complete Discontinuance of Contributions | 30 | ||||
|
||||||
ARTICLE X MISCELLANEOUS PROVISIONS | 31 | |||||
|
||||||
10.1.
|
Exclusive Benefit of Participants | 31 | ||||
10.2.
|
Plan Not a Contract of Employment | 31 | ||||
10.3.
|
Source of Benefits | 31 | ||||
10.4.
|
Benefits Not Assignable | 31 | ||||
10.5.
|
Benefits Payable to Minors, Incompetents and Others | 31 | ||||
10.6.
|
Merger | 32 | ||||
10.7.
|
Participation in the Plan by an Affiliate [Is participation automatic | |||||
|
or by Company designation instead?] | 32 | ||||
10.8.
|
Expenses | 32 | ||||
10.9.
|
Benefits Under Other Plans | 32 | ||||
10.10.
|
No Age Limit | 32 | ||||
10.11.
|
Controlling Law | 33 |
ii
COVANTA ENERGY SAVINGS PLAN
W I T N E S S E T H:
WHEREAS, the Employer intends to establish and maintain for the benefit of its Employees a new 401(k) profit sharing plan; and
WHEREAS, the Employer intends that the plan continue indefinitely; and
WHEREAS, the Employer intends the plan to satisfy the 401(k) safe harbor requirements using a safe harbor matching contribution;
NOW, THEREFORE, the Employer hereby adopts the Covanta Energy Savings Plan (the Plan) effective January 1, 2002, as set forth herein,
ARTICLE I
Definitions
1.1 Account : The Participants account established pursuant to Article V.
1.2 Affiliate : Any corporation (other than the Company) which is a member of a controlled group of corporations (as that term is defined in IRC § 414(b)) of which the Company is a member, any trade or business under common control (as that term is defined in IRC § 414(c)) with the Company, or any organization which is a member of the same affiliated service group (as that term is defined in IRC § 414(m)) with the Company.
1.3 Annual Addition : For each Participant, for any Plan Year, the sum of:
(a) contributions made by any Affiliate allocable with respect to such Participant under any Defined Contribution Plan;
(b) contributions made by such Participant to any Defined Contribution Plan;
(c) forfeitures allocable with respect to such Participant under any Defined Contribution Plan;
(d) amounts derived from contributions which are attributable to post-retirement medical benefits under a welfare benefit plan which are allocated to the account of such Participant as a key employee (as defined in IRC § 419A(d)(3)) under a plan described in IRC § 419A maintained by the Company or an Affiliate; and
(e) contributions allocable with respect to such Participant to a plan described in IRC § 415(l)(2) maintained by an Affiliate.
Rollover Contributions shall not be included in the Annual Addition.
1.4 Beneficiary : Any person designated by a Participant in accordance with Section 3.7 to receive any payments of benefits due after his death, or in the absence of a valid designation, the person entitled to receive such payments pursuant to Section 3.7.
1.5 Board : The Board of Directors of the Company and any person or group empowered by the Companys certificate of incorporation or bylaws to exercise the powers of the Board with respect to the Plan.
1.6 Company : Covanta Energy Corporation, or any successor thereto.
ARTICLE I
1.7 Compensation : For each Participant, for any Plan Year:
(a) For each Participant, for any Plan Year, the Participants wages within the meaning of Section 3401(a)(1) of the Code, including performance bonuses and all other payments of compensation made to a Participant in the course of the Employers trade or business which must be reported on a Form W-2, but excluding any special or irregular payments made to the Participant such as hiring bonuses and income which arises from non-performance based restricted stock awards..
(b) The annual Compensation of each Participant taken into account in determining allocations for any Plan Year shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with IRC § 401(a)(17)(B). Annual Compensation means Compensation during the Plan Year or such other consecutive 12-month period over which Compensation is otherwise determined under the Plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year; provided, however, that if a Participants Compensation for a period prior to January 1, 2002 is used to determine benefits for a Plan Year beginning on or after January 1, 2002, the $200,000 compensation limit may be used for such prior period for the purpose of determining benefits for the 2002 and later Plan Years.
(c) Compensation shall include Compensation which would have been paid during a Participants period of qualified military service, to the extent required by USERRA.
1.8 Defined Contribution Plan : Any defined contribution plan, qualified under IRC § 401, maintained at any time by a corporation, trade or business, or organization which is, or at any time was, an Affiliate (regardless of whether such entity was an Affiliate at such time).
1.9 Determination Date : For any Plan Year, the last day of the preceding Plan Year.
1.10 Disability : A Participants medically determinable physical or mental impairment which entitles, or which would entitle if eligible, such Participant to the receipt of benefits under the long-term disability plan maintained by the Employer.
1.11 Disability Retirement Age : The date a Participant severs his Employment due to a Disability.
1.12 Early Retirement Age : The date a Participant both attains age 55 and has 5 Years of Service.
1.13 Effective Date : January 1, 2002.
1.14 Elective Deferral Account : The sub-account maintained for each Participant established pursuant to Section 5.1 and to which Elective Deferral Contributions are allocated.
ARTICLE I
2
1.15 Elective Deferral Contribution : Contributions made to the Plan during the Plan Year by the Employer at the election of the Participant in lieu of cash Compensation pursuant to Section 4.1.
1.16 Eligible Employee : All Employees of the Employer, except:
(a) | temporary Employees; | |||
(b) | Employees represented by a collective bargaining agreement, unless the bargaining unit and Company or Participating Affiliate agree that such represented Employees shall be eligible to participate in the Plan; | |||
(c) |
Leased Employees; and
|
|||
(d) | Non-resident aliens. |
Any person not considered by the Company or an Affiliate to be an Employee shall not be an Eligible Employee for purposes of the Plan, even if such person is later determined by a court of law to be a common law employee of the Company or the Affiliate.
1.17 Eligible Rollover Distribution : Any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributees designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under IRC § 401(a)(9); the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any hardship distribution described in IRC § 401(k)(2)(B)(i)(IV). A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in IRC § 408(a) or (b), or to a qualified defined contribution plan described in IRC § 401(a) or 403(a), that agrees to separate accounts for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.
1.18 Eligible Retirement Plan : An individual retirement account described in IRC § 408(a), an individual retirement annuity described in IRC § 408(b), an annuity plan described in IRC § 403(a), an annuity contract described in IRC § 403(b), an eligible plan under IRC § 457(b) which is maintained by a state or political subdivision of a state, or a qualified trust described in IRC § 401(a). The definition of Eligible Retirement Plan shall also apply, in the case of an Eligible Rollover Distribution to the Surviving Spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in IRC § 414(p), to an Eligible Retirement Plan that is an individual retirement account or individual retirement annuity.
ARTICLE I
3
1.19 Employee : Any person employed by the Company or an Affiliate, including a Leased Employee to the extent required by Section 1.32, but excluding any person who is employed as an independent contractor.
1.20 Employer : The Company and each Affiliate which elects to adopt the Plan for its Employees pursuant to Section 10.7.
1.21 Employer Contributions : Means Profit Sharing Contributions or Matching Contributions to the Plan made by an Employer, pursuant to Section 4.2.
1.22 Employment : The period of time as an Employee.
1.23 Entry Date : The date which immediately follows the Plan Administrators receipt of the Eligible Employees properly completed application, subject to reasonable delay as described in procedures adopted by the Plan Administrator.
1.24 ERISA : The Employee Retirement Income Security Act of 1974, as amended, and any regulations issued thereunder.
1.25 Excess Deferrals : Those Elective Deferral Contributions that are includible in a Participants gross income pursuant to IRC § 402(g) to the extent such Participants Elective Deferral Contributions for a taxable year exceed the dollar limitation then in effect under said IRC § 402(g).
1.26 Fund : The assets held in the Trust.
1.27 Highly Compensated Employee :
(a) The term Highly Compensated Employee includes highly compensated active employees and highly compensated former employees. A highly compensated active employee means: (i) An employee who was a 5-percent owner (as defined in IRC § 416(i)(1)) of the Company or an Affiliate at any time during the current or the preceding year, or (ii) an employee who for the year (a) had Limitation Compensation from the Company and Affiliates in excess of $80,000 (as adjusted by the Secretary pursuant to IRC § 415(d)), except that the base period shall be the calendar quarter ending September 30, 1996), and (b) if the Employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year. For this purpose, an employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of Limitation Compensation paid during such year.
(b) A former employee shall be treated as a Highly Compensated Employee if such employee was a Highly Compensated Employee when such Employee severed Employment, or such employee was a Highly Compensated Employee at any time after attaining age 55.
ARTICLE I
4
(c) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of employees in the top-paid group, will be made in accordance with IRC § 414(q).
(d) The determination year is the current Plan Year for which the determination of who is highly compensated is being made. The look-back year is the 12-month period immediately preceding the determination year, or, if the Company elects, the calendar year ending with or within the determination year.
1.28 Investment Fund : A fund designated by the Plan Administrator pursuant to Section 5.2 for investment of Plan Accounts.
1.29 Investment Manager : Any person or entity serving as an investment manager under appointment by the Plan Administrator.
1.30 IRC : Internal Revenue Code of 1986, as amended, including any regulations issued thereunder.
1.31 Key Employee : As determined pursuant to IRC § 416(i), any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year containing the Determination Date was:
(a) an officer of the Employer having Limitation Compensation greater than $130,000 (as adjusted under IRC § 416(i)(1) for Plan Years beginning after December 31, 2002);
(b) a five percent (5%) owner of the Employer; or
(c) a one percent (1%) owner of the Employer who has Limitation Compensation of more than $150,000.
For purposes of determining 5% and 1% owners, neither the aggregation rules nor the rules of subsection (b), (c) and (n) of IRC § 415 apply. Beneficiaries of an Employee acquire the character of the Employee who performed service for the Employer. Also, inherited benefits will retain the character of the benefits of the Employees who perform services for the Employer.
1.32 Leased Employees : Any person who is not a common law employee of the Company or an Affiliate and provides services to the Company or Affiliate if:
(a) such services are provided pursuant to an agreement between the Company or Affiliate and any other person;
(b) such person has performed such services for the Company on a substantially full-time basis for a period of at least one year; and
(c) such services are performed under the primary direction or control of the Company or Affiliate.
ARTICLE I
5
Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient Employer.
For purposes of this Plan, a Leased Employee shall be considered an Employee unless: (1) such Employee is covered by a money purchase pension plan providing: (i) a nonintegrated employer contribution rate of at least 10 percent of Limitation Compensation, (ii) immediate participation, and (iii) full and immediate vesting; and (2) Leased Employees do not constitute more than 20 percent of the recipient Employers nonhighly compensated workforce, as defined in IRC § 414(n)(5).
1.33 Limitation Compensation : For each Participant for any Plan Year, compensation within the meaning of IRC § 415(c)(3).
1.34 Matching Contributions : Employer Contributions made to the Plan made pursuant to Section 4.2(a).
1.35 Matching Contributions Account : The sub-account maintained for each Participant established pursuant to Section 5.1 to which Matching Contributions are made.
1.36 Named Fiduciary : A named fiduciary as that term is defined in ERISA § 402(a)(2).
1.37 Non-Highly Compensated Employee : An Employee who is not a Highly Compensated Employee.
1.38 Normal Retirement Age : A Participants 65th birthday.
1.39 Participant : A person who has commenced but not terminated participation in the Plan pursuant to the provisions of Article II hereof.
1.40 Participating Affiliate : Any Affiliate which adopts, and has not terminated participation in or withdrawn from, the Plan as set forth in Section 10.7.
1.41 Plan : The Covanta Energy Savings Plan, as it may be amended from time to time.
1.42 Plan Administrator : The Benefits Committee appointed by the Board.
1.43 Plan Year : The twelve consecutive month period ending on December 31 in which the Plan is in effect.
1.44 Profit Sharing Contribution : An Employer Contribution made to the Plan made pursuant to Section 4.2(b).
1.45 Profit Sharing Contributions Account : The sub-account maintained for each Participant established pursuant to Section 5.1 to which Profit Sharing Contributions are made.
ARTICLE I
6
1.46 Rollover Account : The sub-account maintained for each Participant established pursuant to Section 5.1 to which Rollover Contributions are made.
1.47 Rollover Contribution : A rollover from another qualified plan or IRA pursuant to Section 4.3.
1.48 Spouse Consent : A Spouse Consent is in effect if the Surviving Spouse executes and files with the Plan Administrator a consent to the Participants beneficiary designation acknowledging the effect of such designation and the Surviving Spouse signature is witnessed by a Plan representative or a notary public.
1.49 Surviving Spouse : The person legally married to a Participant on the date of the Participants death.
1.50 Trust : The trust to which contributions are made to fund the Plan.
1.51 Trustee : Any bank or other entity serving as a trustee under appointment by the Plan Administrator.
1.52 USERRA : The Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.
1.53 Valuation Date : Every day of the Plan Year.
ARTICLE I
7
ARTICLE II
Participation
2.1. Admission as a Participant
An Employee shall become a Participant on any Entry Date coincident with or following the date on which the Employee is an Eligible Employee.
2.2. Termination of Participation
A Participant shall cease to be a Participant as of the date his benefits are determined for distribution to the Participant, or if earlier, on the date of the Participants death.
ARTICLE II
8
ARTICLE III
Amounts and Payment of Benefits
3.1. Amount of Benefits
(a) A Participants entire Account shall be 100% vested at all times.
(b) The benefits of a Participant who severs his Employment (or a Beneficiarys benefits upon severance from Employment of a Participant due to death) shall be the value of the Participants Account determined as of the Valuation Date immediately prior to distribution.
3.2. Form of Benefit
Benefits shall be payable in a single lump sum.
3.3. Commencement of Benefits
(a) A Participant shall be entitled to receive a distribution of the amount of benefits in his Account as determined under Section 3.1 upon the earliest to occur of: (i) termination of the Participants Employment, or (ii) the Participants attainment of Early or Normal Retirement Age. Notwithstanding any provision herein to the contrary, if the value of the Participants Account determined as of the date the Participant first becomes entitled to receive a distribution is more than $5,000, no distribution will be made prior to the end of the Plan Year in which the Participant attains age 65 or, if earlier, the end of the Plan Year in which the Plan terminates, unless the Participant consents to such distribution. The value of a Participants Account shall be determined without regard to that portion of the Account that is attributable to rollover contributions (and earnings allocable thereto). If the value of the Participants Account as so determined is $5,000 or less, the Plan shall automatically distribute the Participants entire Account as soon as administratively practicable.
(b) The benefits payable to the Beneficiary of a deceased Participant shall be paid to such Beneficiary on or before the last day of the Plan Year following the Participants death.
(c) An Alternate Payee, pursuant to a qualified domestic relations order, as defined in IRC § 414(p), shall receive a cash distribution as soon as administratively practicable after the qualified domestic relations order has been approved as such, notwithstanding that the benefit is not yet payable to the Participant under the terms of the Plan.
(d) Mandatory Distributions .
Notwithstanding any provision of this Plan to the contrary, a Participants Account shall be distributed to him not later than:
(1) | April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1 / 2 or (ii) the calendar year in which the Participate |
ARTICLE III
9
retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a five (5) percent owner at any time during the five-plan year period ending in the calendar year in which he attains age 70 1 / 2 or, in the case of a Participant who becomes a five (5) percent owner during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. |
(2) | the 60th day after the close of the Plan Year in which the latest of the following events occurs: (i) The attainment by the Participant of Normal Retirement Age; (ii) The tenth anniversary of the year in which the Participant commenced participation; (iii) The Participants severance from Employment; or (iv) The date elected, as permitted herein, by the Participant. If the amount of benefits payable within such 60-day period cannot be determined within such period, then a payment, retroactive to such 60th day, shall be made no later than 60 days after the earliest date on which the amount of such benefits can be determined. |
3.4. Loan Provisions
(a) The Trustee may, in its sole discretion, grant loans to Participants. Loans shall be granted subject to the terms and conditions of this Section 3.4 and the Plans Loan Program (the Participant Loan Program). Any loan granted to a Participant pursuant to this Section shall be no less than $500.
(b) All loans shall:
(1) | be made available to all Participants on a reasonably equivalent basis; | |||
(2) | not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants (provided, however, that the maximum loan amount which may be granted to each Participant may be based upon each such Participants Account balance); | |||
(3) | be at a reasonable rate of interest; | |||
(4) | be adequately secured; and | |||
(5) | provide for repayment over a reasonable period of time. |
(c) All loans shall be made pursuant to the Participant Loan Program, which shall be established by the Plan Administrator in writing and must include, but not be limited to, the following:
(1) | a procedure for applying for loans; | |||
(2) | the basis on which loans will be approved or denied; | |||
(3) | limitations, if any, on the types and amounts of loans offered; | |||
(4) | the procedure under the Loan Program for determining the reasonable rate of interest; and |
ARTICLE III
10
(5) | events constituting default and the steps that will be taken to preserve Plan assets. |
(d) Loan repayments will be suspended under the Plan for periods of unpaid leaves of absence and military leave to the fullest extent permitted by applicable law, including USERRA.
3.5. Withdrawals
No in-service withdrawals shall be permitted from the Plan unless a Participant has attained either Normal or Early Retirement Age.
3.6. Hardship Withdrawals
(a) The Plan may distribute a Participants Elective Deferral Account and Rollover Account in accordance with this Section in the event of a Participants hardship and request for withdrawal. For purposes of this Section, a distribution will be on account of hardship only if the distribution:
(1) | is made on account of an immediate and heavy financial need of the Participant; and | |||
(2) | is necessary to satisfy such immediate and heavy financial need, does not exceed the amount required to relieve such need, and is not reasonably available from other resources of the Participant. |
(b) Immediate and heavy financial needs recognized by the Plan shall be limited to:
(1) | expenses for medical care (as described in IRC § 213(d)) previously incurred by the Participant, the Participants spouse or any dependent of the Participant, or amounts necessary for these persons to obtain medical care described in IRC § 213(d); | |||
(2) | the purchase (excluding mortgage payments) of a principal residence for the Participant; | |||
(3) | payments of tuition and related educational fees for the next twelve months of post-secondary education for the Participant or the Participants spouse, children, or dependents; | |||
(4) | the need to prevent eviction of the Participant from his principal residence, or foreclosure on the mortgage of the Participants principal residence; or | |||
(5) | such other immediate and heavy financial needs as determined by the Commissioner of the Internal Revenue Service and announced by publication of revenue rulings, notices, and other documents of general applicability. |
ARTICLE III
11
(c) A distribution will be deemed necessary to satisfy the immediate and heavy financial need of the Participant if:
(1) | the distribution is not in excess of the amount of the immediate and heavy financial need; | |||
(2) | the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Company or any Affiliate; | |||
(3) | the Plan, and all other plans maintained by the Company and any Affiliate, provide that the Participants Elective Deferral Contributions and employee contributions, if any (except for mandatory after-tax employee contributions to a defined benefit plan) will be suspended for at least 6 months after receipt of the hardship distribution; and | |||
(4) | the Plan, and all other plans maintained by the Company or any Affiliate, provide that the Participant may not make Elective Deferral Contributions for the Participants taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under IRC § 402(g) for such next taxable year less the amount of such Participants Elective Deferral Contributions for the taxable year of the hardship distribution. |
For purposes of this Paragraph (c), the Participants resources shall be deemed to include those assets of the Participants spouse and minor children that are reasonably available to the Participant.
(d) The Plan Administrator may require the submission of such evidence as it may reasonably deem necessary to confirm the existence of such a hardship. A request for distribution pursuant to this Section shall be approved or denied by written instrument given by the Plan Administrator to the Participant not later than sixty (60) days after the date the written request, complete with all evidence with respect thereto requested by the Plan Administrator, is given to the Plan Administrator by the Participant. In the event that such request is approved, the distribution shall be made as soon as administratively possible after approval is given by the Plan Administrator from the Participants Elective Deferral Account and Rollover Account; provided, however, that under no circumstance may earnings on the Participants Elective Deferral Contributions be distributed pursuant to this Section. Any distributions pursuant to this Section shall come first from the Rollover Account and then from the Participants Elective Deferral Account.
(e) The minimum withdrawal under this Section shall be the lesser of (i) $500, or (ii) the entire value, to the extent then vested, of the sum of the Participants Elective Deferral Account and Rollover Account. In no event shall the withdrawal be made from the Participants Account attributable to Employer Contributions.
(f) No distribution may be made from the portion of a Participants Rollover Account or Elective Deferral Account which represents collateral for a Plan loan.
ARTICLE III
12
(g) If less than the entire balance of a Participants Rollover Account or Elective Deferral Account is withdrawn by a Participant pursuant to this Section, such withdrawal shall be made on a pro-rata basis from all Investment Funds in which such Account is invested.
(h) A Participant who receives a distribution on account of hardship under this Section shall be prohibited from making Elective Deferrals under this Plan and all other plans of the Employer for a period of six (6) months after receipt of the distribution.
(i) All withdrawals shall be subject to such further rules and regulations as the Plan Administrator shall from time to time prescribe and administer in a nondiscriminatory manner.
3.7. Beneficiaries
(a) A Participant may designate in writing one or more Beneficiaries to whom amounts due after his death shall be paid. In the event a Participant fails to make such a designation, or in the event that no designated Beneficiary survives the Participant, any amounts due after his death shall be paid to his Surviving Spouse, or if there is no Surviving Spouse, to the legal representative of his estate. No Beneficiary shall have any right to benefits under the Plan unless he or she shall survive the Participant.
(b) Any designation of a Beneficiary must be filed with the Plan Administrator in order to be effective. Any such designation of a Beneficiary may be revoked by filing a later designation or an instrument of revocation with the Plan Administrator.
(c) If a Participant has a Surviving Spouse on the date of his death, a beneficiary designation of someone other than the Surviving Spouse shall be effective if, and only if, a Spouse Consent is in effect. If a Participant has a Surviving Spouse on his date of death and no Spouse Consent is in effect, Plan benefits will be paid to the Surviving Spouse, regardless of any other beneficiary designation.
3.8. Special Rules for Participants and Beneficiaries Who Cannot Be Located
Each Participant, or Beneficiary thereof, entitled to benefits under the Plan has the responsibility to advise the Plan Administrator, in writing, of his current address. Any communication, statement, or notice addressed to such person at his latest reported address will be binding on him for all purposes of the Plan and neither the Plan Administrator, the Employer or the Trustee shall be obligated to search for or ascertain his whereabouts. If the Plan Administrator is unable to locate a Participant or Beneficiary one year after a distribution first becomes payable, such Participant or Beneficiarys Account shall be treated as a forfeiture and shall be used to reduce Employer Contributions made pursuant to Section 4.2. However, if the Participant or Beneficiary claims his benefit at a later date prior to the Plans termination, the balance of his or her Account as of the date forfeited (without earnings thereon) will be paid to him or her by the Plan. Employer Contributions shall be used to restore such amounts.
3.9. Withholding Taxes
The Trustee may withhold from any payment hereunder any taxes required to be withheld under applicable local, state or federal laws.
ARTICLE III
13
3.10. Direct Rollovers
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributees election under this Article, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid in a Direct Rollover to an Eligible Retirement Plan that agrees to accept the Direct Rollover and account for such Direct Rollover as required by § 402(c). For purposes of this Section, the following definitions shall be used.
(1) | Distributee: A Distributee includes an Employee or former Employee. In addition, the Employees or former Employees Surviving Spouse and the Employees or former Employees Spouse or former Spouse who is the Alternate Payee under a qualified domestic relations order, as defined in IRC § 414(p), are Distributees with regard to the interest of the Spouse or former Spouse. | |||
(2) | Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. |
(b) Such distribution may commence less than 30 days after the notice required under Treasury Regulations § 1.411(a)-11(c) is given, provided that:
(1) | the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and | |||
(2) | the Participant, after receiving the notice, affirmatively elects a distribution. |
ARTICLE III
14
ARTICLE IV
Contributions
4.1. Elective Deferrals
(a) A Participant may elect to defer from 1% to 20% (in whole increments) of his or her pre-tax Compensation as an Elective Deferral Contribution. Such Elective Deferral Contribution will be contributed to the Plan and allocated to the Participants Elective Deferral Account. No Participant shall be required to make an Elective Deferral Contribution. No after-tax contributions shall be permitted .
(b) A Participant may elect to make or modify an Elective Deferral Contribution by submitting a request in a form approved by the Plan Administrator. Such Elective Deferral Contribution shall be effective as of the next payroll period following the date the properly completed election form is received by the Plan Administrator, or as soon thereafter as administratively feasible.
(c) Except in compliance with loan provisions contained in Section 3.4 and hardship withdrawal provisions contained in Section 3.6, amounts attributable to Elective Deferral Contributions may not be distributed to the Participant earlier than upon the Employees severance from Employment, death or Disability; or the termination of the Plan without establishment or maintenance of another Defined Contribution Plan, other than an ESOP or SEP;
(d) In the case of a Participant previously on qualified military service who returns to work with an Employer, such Participant shall be allowed to make up missed Elective Deferral Contributions in accordance with IRC § 414(u) and USERRA.
4.2. Employer Contributions
(a) Matching Contributions
(1) | The Employer shall credit Matching Contributions to each Participants Matching Contributions Account, as follows: |
(i) | each payroll period, a safe harbor Matching Contribution equal to 100% of the Participants Elective Deferral Contributions, up to the first 3% of the Participants Compensation for such payroll period, and 50% of the Participants Elective Deferral Contributions up to the next 2% (in excess of 3% but not more than 5%) of the Participants Compensation for such payroll period. | |||
(ii) | a year-end true-up Matching Contribution on behalf of each Participant who is employed by the Employer or an Affiliate on the last day of the Plan Year, so that the total Matching Contributions received under subparagraph (i) above is based on the Participants Compensation for the entire Plan Year. Notwithstanding the foregoing, the true-up Matching Contribution described herein shall be made with respect to Participants |
ARTICLE IV
15
who terminate their employment with the Employer during the Plan Year as soon as administratively feasible following the date of such Participants termination of employment.
(b) Profit Sharing Contributions The Employer may in its discretion contribute a Profit Sharing Contribution in an amount or percentage determined by its Board to the Account of each Participant employed by the Employer or an Affiliate on the last day of the Plan Year or severed Employment after his or her Early or Normal Retirement Age or as a result of Disability or Death.
(c) In the case of a Participant previously on qualified military service who returns to work with an Employer, such Participant shall be entitled to all regular and year-end Employer Contributions in accordance with this subsections (a) and (b), to the extent the Participant elects to make up missed Elective Deferral Contributions pursuant to Section 4.1(d) herein.
(d) Employer Contributions shall be made in cash.
(e) Employer Contributions with respect to each Plan Year shall be made and allocated to Participant Accounts no later than the time prescribed by law.
4.3. Rollover Contributions
(a) With the consent of the Plan Administrator and subject to the restrictions of Section 4.6 below, a Participant may make a cash Rollover Contribution (as defined below), provided that the Plan Administrator determines that the Rollover Contribution will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences to the Employer. The amounts transferred shall be allocated to the Participants Rollover Account, which account shall be fully vested at all times and shall not be subject to forfeiture for any reason.
(b) Amounts in a Participants Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan. The amounts held in such Participants Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary under the terms of the Plan.
(c) For purposes of this Section 4.3, Rollover Contribution shall mean Eligible Rollover Distributions transferred to this Plan direct from an Eligible Retirement Plan or received by an Employee from an Eligible Retirement Plan and transferred by the Employee to this Plan within sixty (60) days following receipt thereof;
(d) If it is determined that a Rollover Contribution did not qualify under the IRC for a tax free rollover, then as soon as reasonably possible the balances in the Rollover Account shall be:
(1) | segregated from all other Plan assets; | |||
(2) | treated as a non-qualified trust established by and for the benefit of the Participant; and |
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(3) | distributed to the Participant or re-transferred to the plan or individual retirement account from which it was transferred to this Plan. |
Such a mistaken Rollover Contribution shall be deemed never to have been a part of the Plan and shall not adversely affect the tax qualification of the Plan under the IRC.
4.4. Limitations on Elective Deferral Contributions
(a) Excess Deferrals. In any Plan Year, no Participant shall be permitted to have contributions made pursuant to Section 4.1 in excess of the limitations under IRC § 402(g) ($11,000 in 2002), as adjusted for the cost of living by the Secretary of the Treasury.
(b) In the event that the Participant notifies the Plan Administrator in writing and requests that his Elective Deferral Contributions under this Plan be reduced by his Excess Deferrals as set forth in the notice, then the Plan Administrator shall distribute such Excess Deferrals together with the income allocable to such Excess Deferrals to the Participant not later than the first April 15 th following the close of the Participants taxable year. If a Participant has Excess Deferrals, taking into account only Elective Deferral Contributions under the Plan and other plans of the Company and any Affiliate, the Participant is deemed to have notified the Plan of such Excess Deferrals, and such Excess Deferrals shall be distributed in accordance with the terms of this subsection. For purposes of this subsection, income shall mean the sum of the allocable gain or loss for the taxable year of the Participant. The amount distributed may not exceed the Participants Elective Deferral Contributions under the Plan for the taxable year, plus the income allocable to such Elective Deferral Contributions. Notwithstanding the foregoing, no gain or loss shall be allocated to Excess Deferrals for the period between the end of the taxable year and the date of the corrective distribution. In the event that a corrective distribution is to be made to a Participant during the same taxable year in which the Excess Deferrals were paid to the Plan, such distribution must satisfy the following conditions:
(1) | The Participant shall designate the distribution as Excess Deferrals; | |||
(2) | The distribution shall be made after the date on which the Plan received the Excess Deferrals; and | |||
(3) | The Plan must designate the distribution as a distribution of Excess Deferrals. |
If Excess Deferrals have previously been distributed within the Plan Year, then the Plan shall offset such distribution from the amount of the Participants Excess Contributions to be distributed for such Plan Year pursuant to Section 4.5 hereof. In addition, the Excess Deferrals that may be distributed for a Participant by the Plan for a Plan Year shall be reduced by the amount of Excess Contributions previously distributed for such Plan Year.
(c) In the event that a Participant is also a participant in (1) another qualified cash or deferred arrangement (as defined in IRC § 401(k)), (2) a simplified employee pension (as defined in IRC § 408(k)), or (3) a salary deferral arrangement (within the meaning of IRC § 3121(a)(5)(D)) and the elective deferrals, as defined in IRC § 402(g)(3), made under such other arrangement(s) and this Plan cumulatively exceed $11,000 (or such amount adjusted annually as
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provided in IRC § 415(d)) for such Participants taxable year, the Participant may, not later than March 1 following the close of his or her taxable year, notify the Plan Administrator in writing of such excess and request that his or her Elective Deferral Contributions under this Plan be reduced by an amount specified by the Participant. Such amount may then be distributed in the same manner as provided in Paragraph (b) above.
4.5. Limitations on Allocations
(a) If a Participants Annual Additions in any Plan Year exceed the lesser of (1) $40,000, as adjusted for increases in the cost-of-living under IRC § 415(d), or (2) 100% of the Participants Limitation Compensation for the Plan Year, then such Annual Additions shall be reduced to an amount not in excess of the above limitations by making the adjustments with respect to such Plan Year as provided in Subsection (b) below.
(b) If in any Plan Year, as a result of the allocation of forfeitures, a reasonable error in estimating a Participants Compensation or under other limited facts and circumstances which, in accordance with Treasury Regulations §1.415-6(b)(6), justify the use of this Subsection, a Participants Annual Addition exceeds the limitation determined under Subsection (a) above, (Excess Contributions), such Excess Contributions shall not be allocated to the Participants Account in any Defined Contribution Plan but shall be handled in the following manner and order until such excess is eliminated
(1) | Elective Deferral Contributions shall be distributed to the Participant to the extent that such distribution will reduce the Excess Contributions in the Participants Account. Elective Deferral Contributions returned under this provision shall be disregarded for purposes of IRC § 402(g), 401(k)(3) or 401(m)(2). Any Matching Contribution attributable to such distributed Elective Deferral Contributions shall be forfeited and used to reduce Employer Contributions. | |||
(2) | The Participants portion of Matching Contributions shall be placed in a suspense account and allocated to the Employer Contributions Accounts of other Participants who are not initially affected by the limitation determined under Section 4.5 above, respectively, until the limitations of this Section 4.5 are reached with respect to each Participant. If, after such allocation, Excess Contributions are still not thereby completely eliminated, the amount of such Excess Contributions shall be placed in a suspense account (with earnings on such amounts) which shall be allocated in the next Plan Year until the limitations of this Section are reached, and in each subsequent Plan Year until no amount of such excess remains unallocated; such excess unallocated amount shall be released from the suspense account on a first-in-first-out basis. | |||
(3) | The Participants portion of Profit Sharing Contributions shall be placed in a suspense account and allocated to the Employer Contributions Accounts of other Participants who are not initially affected by the limitation determined under Section 4.5 above, respectively, until the limitations of |
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this Section 4.5 are reached with respect to each Participant. If, after such allocation, Excess Contributions are still not thereby completely eliminated, the amount of such Excess Contributions shall be placed in a suspense account (with earnings on such amounts) which shall be allocated in the next Plan Year until the limitations of this Section are reached, and in each subsequent Plan Year until no amount of such excess remains unallocated; such excess unallocated amount shall be released from the suspense account on a first-in-first-out basis.
(4) | Allocations from the suspense account in existence from prior Plan Years shall be allocated or reallocated to Participants Accounts, subject to the limitations described in Subsection (a) above, before any further Employer Contributions or Elective Deferral Contributions may be made to the Plan. |
(c) All allocations under this Section shall be made on the basis described in this Article either for the current Plan Year or, if applicable, for the Plan Year in which such amount is released from the suspense account.
(d) The above reductions shall be applied to this Plan first, and thereafter to any other Defined Contribution Plan.
4.6. Restrictions on Transfers
Amounts may be transferred directly from other Qualified Plans to this Plan only if the transfer will not jeopardize the tax exempt status of the Plan and Trust or create adverse consequences for the Employer and provided that such transfers shall be subject to the following restrictions:
(a) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under IRC § 401(a)(11)) from a defined benefit plan, a money purchase pension plan (including a target benefit plan) and a stock bonus plan, profit sharing plan or any other individual account plan which is required to provide for qualified joint survivor annuity and qualified preretirement survivor annuity under IRC §§ 401(a)(11) and 417, or any plan which is a transferee of such plan;
(b) A transfer from another Qualified Plan (or having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any benefits to the extent protected under IRC § 411(d)(6); and
(c) Amounts transferred attributable to Elective Deferral Contributions (as defined in Treasury Regulations § 1.401(k)-1(g)(4)), including amounts treated as salary deferrals, which are transferred from another Qualified Plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Treasury Regulations § 1.401(k)-1(d).
For purposes of applying the restrictions of this Section 4.6, a Direct Rollover from an Eligible Retirement Plan in accordance with IRC § 401(a)(31) shall not be considered a direct transfer, but instead shall be treated as a Rollover Contribution to the Plan.
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ARTICLE IV
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ARTICLE V
Investment and Valuation of Accounts
5.1. Accounts and Subaccounts
The assets of the Fund, though credited for bookkeeping purposes to various Accounts and sub-accounts for Participants, shall be invested and administered as one trust fund. Each Participants Account shall have the following sub-accounts:
(a) an Elective Deferral Account to which his Elective Deferral Contributions shall be allocated.
(b) a Matching Contributions Account to which his share of Matching Contributions shall be allocated.
(c) a Profit Sharing Contributions Account to which his share of Profit Sharing Contributions shall be allocated.
(d) a Rollover Account to which his Rollover Contributions are made.
(e) any other sub-accounts which may be created at the discretion of the Plan Administrator.
5.2. Establishment and Objectives of Investment Funds
The contributions allocated for each Plan Year to Accounts of Participants for such Plan Year as provided in Article IV shall be received by the Trustee to be held and administered by it in accordance with the terms of this Plan and the trust agreement. Within the context of the Fund, the Trustee at the direction of the Plan Administrator shall establish one or more Investment Funds having such investment objectives as may be ascribed to each such fund by the Plan Administrator. Such Investment Funds may consist of the Trusts investment in (a) one or more pooled funds established by the Trustee, if it is a bank or trust company, for the investment of the assets of tax qualified pension and/or profit-sharing plans, (b) one or more mutual funds, (c) one or more contracts issued by an insurance company, and/or in (d) any other investment vehicle suitable for the investment of assets of the Trust Fund and designated by the Plan Administrator.
The Trustee shall be empowered to acquire and hold up to and including 100% of the Plans assets in qualifying employer securities (as defined in ERISA), provided that if qualifying employer securities is offered as the default or a mandatory investment choice, no more than 10% of Plan assets shall be invested in such qualifying employer securities.
5.3. Investment Elections
(a) Each Participant shall have the right to designate, in accordance with procedures established by the Plan Administrator, how amounts allocated to his or her Account are to be
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allocated among the Investment Funds. Allocations among Investment Funds may be made in such increments as determined from time to time under written policy established by the Plan Administrator. The Trustee shall invest such amounts among the Investment Funds in accordance with such investment elections or instructions. Until a new investment election or instruction for any Participant is received by the Trustee, the Trustee shall continue to invest such amounts held for a Participant in the manner designated on the most recently received investment election or instruction relating to such Participant.
(b) To the extent permitted by applicable law, including without limitation ERISA 404(c) and Labor Regulations § 2550.404c-1, each Participant shall be solely responsible for his investment elections and no Plan fiduciary shall be liable for investment losses sustained by any Participant or Beneficiary. The Trustee, the Plan Administrator, the Employer and the officers, supervisors and other employees of the Employer are not empowered to advise a Participant as to the manner in which his Account shall be invested. The fact that an Investment Fund is available to a Participant for investment under the Plan shall not be construed as a recommendation for investment in that Investment Fund.
(c) If a Participant fails to make an investment election as provided above, his Account shall be invested in the Investment Fund which is determined by the Plan Administrator in its sole discretion to be best suited for conservation of principal.
(d) If an Investment Fund which was previously available is discontinued by the Plan Administrator, each Participant who has a part of his Account invested in such Investment Fund shall make a new selection, effective as of such date as the Plan Administrator may prescribe. If a Participant fails to make such selection, amounts invested in the discontinued Investment Fund shall be invested in the Investment Fund selected by the Plan Administrator in its sole discretion to be best suited for conservation of principal.
5.4. Participants Rights to Periodic Reallocation of Accounts
Each Participant shall be entitled to direct the Trustee in accordance with procedures established by the Plan Administrator to reallocate all or a portion of his or her Account among one or more of the Investment Funds. Any such reallocation shall be made in such increments as determined from time to time under written policy established by the Plan Administrator and shall relate to the Participants total Account. The Trustee shall, as soon as practical following receipt of such instructions, invest or reinvest the Participants Account, thus directing allocation or reallocation as will (immediately following such investment or reinvestment) result in such Account being invested in the Investment Funds substantially in accordance with the directions of such Participant. However, no transfers between Investment Funds shall be permitted if prohibited by the rules applicable to the particular Investment Fund from or to which a transfer is to be made or by rules adopted by the Plan Administrator and communicated to the Participants.
5.5. Participants Right to Reallocate Future Contributions
Each Participant shall be entitled to direct the Trustee, in accordance with procedures established by the Plan Administrator, as to allocation of future contributions made pursuant to Article IV among the Investment Funds available under the Plan. Any such election shall be
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made in increments of 1% and shall apply uniformly with respect to all contributions subsequently allocated to the Participants Account (except to the extent of a Participants subsequent election pursuant to this Section). The Trustee shall, as soon as practicable following receipt of such instructions, invest amounts subsequently allocated to the Participants Account in such manner as will result in such amounts being invested in the Investment Funds substantially in accordance with the directions of each Participant.
5.6. Valuation of Trust Fund
There shall be determined as of each Valuation Date the fair market value of all assets of each of the Investment Funds maintained pursuant to Section 5.2. Such valuation shall be determined in accordance with the principles of ERISA § 3(26) and shall give effect to brokerage fees, transfer taxes, contributions, earnings, gains and losses, forfeitures, expenses, disbursements, and all other transactions during the valuation period since the preceding Valuation Date. If applicable, as of each Valuation Date, the Trustee shall cause the organization(s) holding the assets of a particular Investment Fund, such as an insurance company or mutual fund, to determine the net earnings or the net loss of each Investment Fund including net capital gains or losses, if any, for the period ending on such date or since the previous Valuation Date, and shall revalue, or cause to be revalued, each Investment Fund so as to reflect the increase or decrease in value of the investments of each Investment Fund as compared to the value of such investments as of the previous Valuation Date. To the extent an Investment Fund is invested in shares or units of participation in a mutual fund or pooled fund maintained by the Trustee, such shares or units of participation shall be valued in the manner they are normally valued by the mutual fund or pooled fund. To the extent an Investment Fund is invested in an annuity or deposit administration contract, including a guaranteed income contract or similar contract issued by an insurance company, it shall be valued in the manner such contract is normally valued by the insurance company.
5.7. Telephonic Voice Response System
If so required by the Plan Administrator, any notice required to effectuate elections of a Participant under this Article V shall be made by the response of the Participant in compliance with the rules established by the Plan Administrator with respect to such telephone voice response service as may be established by the Plan Administrator in compliance with applicable law. Without limitation of the foregoing, responses to such voice response service may be directed to the Trustee or any agent designated by the Trustee or the Plan Administrator, and Participants shall be required to execute such forms as may be required by the Trustee or such agent in connection with establishing and controlling entry to such service.
Any such voice response service, to the extent required by applicable law, shall provide for written confirmation to Participants of elections made thereunder, and elections so made and so confirmed shall be binding on Participants.
5.8. Special Rules Applicable to Employer Stock Fund
With respect to an Investment Fund comprised of qualifying employer securities (as defined in ERISA), the following special rules shall apply:
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(a) Information provided to shareholders of such securities shall be provided to Participants and Beneficiaries with Accounts holding such qualifying employer securities.
(b) Voting, tender and similar rights with respect to such qualifying employer securities will be passed through to Participants and Beneficiaries with Accounts holding such qualifying employer securities. The Trustee will vote only those shares for which the Trustee has received direction from Participants and Beneficiaries, unless failure to vote non-directed shares would be a breach of fiduciary duty or contrary to ERISA § 404(c).
(c) Information relating to the purchase, holding, and sale of securities, and the exercise of voting, tender and similar rights with respect to such securities by Participants and Beneficiaries, shall be maintained in accordance with procedures which are designed to safeguard the confidentiality of such information, except to the extent necessary to comply with Federal laws or state laws not preempted by ERISA.
(d) The Plan Administrator shall be responsible for ensuring that the procedures described in subsection (c) above are sufficient to safeguard the confidentiality of the information described in such subsection and that such procedures are being followed.
(e) The Plan Administrator shall be responsible for appointing an independent fiduciary to carry out activities relating to any situation which the Plan Administrator determines involve a potential for undue Employer influence upon Participants and Beneficiaries with regard to the direct or indirect exercise of shareholder rights. For purposes of this Subsection, a fiduciary is not independent if the fiduciary is affiliated with any sponsor of the Plan.
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ARTICLE VI
Fiduciaries
6.1. Named Fiduciaries
The Plan Administrator shall be the Named Fiduciary of the Plan with authority to control and manage the operation and administration of the Plan, to manage and control Plan assets, and to select the Trustee, the Investment Funds and the Investment Manager. The Plan Administrator shall also be the Administrator and the Plan Administrator with respect to the Plan, as those terms are defined in ERISA § 3(16)(A) and in IRC § 414(g), respectively. The Board shall be the Named Fiduciary with its sole fiduciary responsibility to name the members of the Plan Administrator.
6.2. Employment of Advisors
A Named Fiduciary, and any fiduciary named by a Named Fiduciary, may employ one or more persons to render advice with regard to any responsibility of such Named Fiduciary or fiduciary under the Plan.
6.3. Multiple Fiduciary Capacities
Any Named Fiduciary and any other fiduciary may serve in more than one fiduciary capacity with respect to the Plan.
6.4. Indemnification
To the extent not prohibited by state or federal law, the Company and Affiliates shall indemnify and save harmless any Named Fiduciary or any employee or director of the Company or an Affiliate, from all claims for liability, loss or damage (including payment of expenses in connection with defense against any such claim) which result from any exercise or failure to exercise any responsibilities with respect to the Plan, other than willful misconduct or willful failure to act.
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ARTICLE VII
Plan Administration
7.1. The Plan Administrator
The Board shall appoint a Benefits Committee to be known as the Plan Administrator whose members shall serve at the pleasure of the Board provided, however, the Benefits Committee shall have the authority to appoint new members to the Benefits Committee when vacancies arise for reasons including, but not limited to, resignation, incapacity or death.
(a) All of the reasonable expenses of the Plan Administrator shall be paid from the Fund unless paid by an Employer. Directors or employees of the Company or an Affiliate shall receive no compensation for their services rendered to or as members of the Plan Administrator if such directors or employees receive compensation as full time employees or directors of the Company or an Affiliate. Any other member of the Plan Administrator may receive compensation for services as a member, to be paid from the Trust to the extent not paid by the Employer.
(b) The Plan Administrator shall act at a meeting by a majority of its members at the time in office who are eligible to vote on any particular matter. Alternatively, the Plan Administrator may act by unanimous written consent. The Plan Administrator may authorize in writing any person to execute any document or documents on its behalf, and any interested person, upon receipt of notice of such authorization directed to it, may thereafter accept and rely upon any document executed by such authorized person until the Plan Administrator shall deliver to such interested person a written revocation of such authorization.
(c) A member of the Plan Administrator who is also a Participant shall not vote or act upon any matter relating specifically to himself.
7.2. Powers, Duties, etc. of the Plan Administrator
(a) The Plan Administrator shall have the power and discretion to construe the Plan, including, but not limited to, determining who is eligible to participate and the amount of a Participants benefits, and to determine all questions of fact that may arise thereunder, and any such construction or determination shall be conclusively binding upon all persons interested in the Plan. The Plan Administrator shall establish and carry out a funding policy and method consistent with the objectives of the Plan and the requirements of ERISA.
(b) Subject to the terms of the Plan, the Plan Administrator shall determine the time and manner in which all elections authorized by the Plan shall be made or revoked.
(c) All applications of the Fund for purposes of payment of benefits or expenses of the Plan shall be made by the Trustee only at the direction of the Plan Administrator.
(d) The Plan Administrator shall have power to make and deal with any investment of the Fund in any manner consistent with the Plan which it deems advisable.
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(e) The Plan Administrator shall have all the rights, powers, duties and obligations granted or imposed upon it elsewhere in the Plan.
(f) The Plan Administrator shall exercise all of its responsibilities hereunder in a uniform and nondiscriminatory manner.
7.3. Investment Managers
The Plan Administrator may, by an instrument in writing, appoint one or more persons (each of whom is hereinafter referred to as an Investment Manager), as adviser to the Plan Administrator with respect to investments and may, subject to any restrictions upon investment imposed upon the Plan Administrator by any regulation of the Treasury Department relating to the qualified status of the Trust as tax exempt, or by ERISA, delegate to an Investment Manager from time to time the power to manage, acquire and dispose of or to direct the Trustee to manage, acquire and dispose of any Plan assets. Each person so appointed shall be an investment adviser registered under the Investment Advisers Act of 1940, a bank as defined in that Act, or an insurance company qualified to manage, acquire, or dispose of any asset of the Plan under the laws of more than one state. Each Investment Manager shall acknowledge in writing that it is a fiduciary with respect to the Plan. Such appointment and delegation shall be upon such terms and conditions as the Plan Administrator shall approve, and the Plan Administrator may enter into an agreement with each Investment Manager specifying the duties and compensation of such Investment Manager and the other terms and conditions under which such Investment Manager shall be retained. The Plan Administrator shall not be liable for any act or omission of any Investment Manager, and shall not be liable for following the advice of any Investment Manager, with respect to any duties delegated to any Investment Manager. The Plan Administrator may, at any time, terminate the appointment of any Investment Manager.
7.4. The Trustee
The Plan Administrator shall, by an instrument in writing, appoint one or more banks or other entities (each of whom is hereinafter referred to as a Trustee) to serve as Trustee of all or a portion of the Trust. Each Trustee shall be subject to direction by the Plan Administrator or an Investment Manager and shall have no discretion with respect to management and control of Plan assets, except to the extent that the instrument appointing such Trustee provides that such Trustee shall have power to manage and control Plan assets. Each Trustee shall accept its appointment by an instrument in writing. The Plan Administrator shall enter into an Agreement with each Trustee specifying the duties and compensation of such Trustee and the other terms and conditions under which such Trustee shall serve. The Plan Administrator shall not be liable for any act or omission of any Trustee with respect to any duties delegated to any Trustee.
7.5. Compensation
Each Investment Manager and Trustee shall be paid such reasonable compensation, in addition to their expense, as shall from time to time be agreed upon by the Plan Administrator and each Investment Manager or Trustee, as the case may be. No individual who receives compensation as a full-time employee of the Company or an Affiliate may receive compensation, other than reimbursement for reasonable expenses, as an Investment Manager or Trustee.
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7.6. Delegation of Responsibility
The Plan Administrator may designate persons, including persons other than Named Fiduciaries, to carry out the responsibilities of the Plan Administrator provided for hereunder. The Plan Administrator shall not be liable for any act or omission of a person so designated.
7.7. Claims Procedure
Benefits under the Plan will be paid only if and to the extent that the Benefits Committee decides in its discretion that the claimant is entitled to them.
(a) If any claim for benefits under the Plan is wholly or partially denied, the claimant shall be given notice in writing within a reasonable period of time after receipt of the claim by the Plan (not to exceed 90 days after receipt of the claim, or if special circumstances require an extension of time, written notice of the extension shall be furnished to the claimant and an additional 90 days will be considered reasonable) by registered or certified mail of such denial, written in a manner calculated to be understood by the claimant, setting forth the following information:
(1) | the specific reasons for such denial; | |||
(2) | specific reference to pertinent Plan provisions on which the denial is based; | |||
(3) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | |||
(4) | an explanation of the Plans claim review procedure. |
(b) The claimant also shall be advised that he or his duly authorized representative may request a review by the Plan Administrator of the decision denying the claim by filing with the Plan Administrator, within 60 days after such notice has been received by the claimant, a written request for such review, and that he may review pertinent documents, and submit issues and comments in writing within the same 60-day period. If such request is so filed, such review shall be made by the Plan Administrator within 60 days after receipt of such request, unless special circumstances require an extension of time for processing, in which case the claimant shall be so notified and a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review.
(c) The claimant shall be given written notice of the decision resulting from such review, which notice shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based.
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ARTICLE VIII
Amendment
The Plan Administrator shall have the right at any time to amend the Plan in whole or in part, by a resolution properly executed in accordance with the state law governing the Plan or by written amendment, effective retroactively or otherwise, provided, however, that no amendment shall:
(a) authorize any part of the Trust to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries (excepting only such amounts as may revert to or become the property of the Company or a Participating Affiliate as provided in Article IX hereof);
(b) decrease the accrued benefits of any Participant or his Beneficiary under the Plan (excepting only such amounts as may revert to or become the property of the Company or a Participating Affiliate as provided in Article IX hereof);
(c) reduce the vesting percentage of any Participant;
(d) change the vesting schedule, unless each Participant having not less than three Years of Service is permitted to elect, within a reasonable period specified by the Plan Administrator after the adoption of such amendment, to have his vesting percentage computed without regard to such amendment; or
(e) eliminate an optional form of benefit to the extent prohibited under IRC § 411(d)(6).
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ARTICLE IX
Discontinuance of Contributions
9.1. | Right of the Company to Terminate the Plan or Discontinue Contributions |
The Company has established the Plan as a permanent plan with the bona fide intention and expectation that from year to year it will be able to and will deem it advisable to continue it in effect and to make contributions as herein provided. However, the Company, acting through its Board in a resolution properly executed in accordance with the state law governing the Plan or by written amendment, reserves the right to terminate the Plan at any time.
9.2. | Determination of Date of Complete or Partial Termination or Complete Discontinuance of Contributions |
The date of complete or partial termination of the Plan, or complete discontinuance of contributions under the Plan, shall be established by the Plan Administrator in accordance with the directions of the Board (if then in existence) and in accordance with applicable law.
9.3. | Effect of Complete or Partial Termination or Complete Discontinuance of Contributions |
(a) As of the date of partial termination of the Plan:
(1) | The accrued benefit of each affected Participant shall be nonforfeitable; and | |||
(2) | no further contributions or allocations of forfeitures shall be made after such date with respect to each affected Participant. |
(b) As of the date of complete termination of the Plan, or the complete discontinuance of contributions under the Plan:
(1) | the accrued benefit of each Participant who is affected on the date of such complete termination of the Plan or such complete discontinuance of contributions under the Plan shall be nonforfeitable; | |||
(2) | no further contributions or allocations of forfeiture shall be made after such date; and | |||
(3) | no Employee shall become a Participant after such date. |
(c) All of the other provisions of the Plan shall remain in effect unless otherwise amended.
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ARTICLE X
Miscellaneous Provisions
10.1. Exclusive Benefit of Participants
All contributions made by an Employer are conditional upon qualification of the Plan under IRC § 401(a) and upon deductibility under IRC § 404. Notwithstanding anything in the Plan to the contrary, it shall be prohibited at any time for any part of the Fund (other than such part as is required to pay taxes and administration expenses) to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries, except that upon the direction of the Plan Administrator (a) any contribution made by an Employer by a mistake of fact shall be returned to an Employer within one year after the payment of the contribution; (b) any contribution shall be returned to the Employer within one year after the denial of initial qualification of the Plan under IRC § 401(a), if the application for initial qualification determination is filed by the due date of the Employers return for the taxable year in which the Plan is adopted; (c) any contribution shall be returned to the extent disallowed as a deduction under IRC § 404 within one year after the disallowance of the deduction; and (d) any contribution which would otherwise be an Excess Contribution (as defined in Code § 4979(c)) may be returned to the extent necessary as a correcting distribution to avoid payment of an excise tax on such Excess Contributions.
10.2. Plan Not a Contract of Employment
The Plan is not a contract of employment, and the terms of Employment of any Employee shall not be affected in any way by the Plan or related instruments except as specifically provided therein.
10.3. Source of Benefits
Benefits under the Plan shall be paid or provided for solely from the Trust, and the Employers assume no liability therefor.
10.4. Benefits Not Assignable
Benefits provided under the Plan may not be assigned or alienated except to the extent provided in a qualified domestic relations order under IRC § 401(a)(13) or as otherwise provided by regulations or rulings issued by the Treasury Department (to the extent not inconsistent with IRC § 401(k) and the regulations issued pursuant thereto).
10.5. Benefits Payable to Minors, Incompetents and Others
In the event any benefit is payable to a minor or an incompetent or to a person otherwise under a legal disability, or who, in the sole discretion of the Plan Administrator, is by reason of advanced age, illness or other physical or mental incapacity incapable of handling and disposing of his property, or otherwise is in such position or condition that the Plan Administrator believes
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that he could not utilize the benefit for his support or welfare, the Plan Administrator shall have discretion to apply the whole or any part of such benefit directly to the care, comfort, maintenance, support, education or use of such person, or pay the whole or any part of such benefit to the parent of such person, the guardian, committee, conservator or other legal representative, wherever appointed, of such person, the person with whom such person is residing, or to any other person having the care and control of such person. The receipt by any such person to whom any such payment on behalf of any Participant or Beneficiary is made shall be a sufficient discharge therefor.
10.6. Merger
The merger or consolidation of the Company with any other person, or the transfer of the assets of the Company to any other person, or the merger of the Plan with any other plan shall not constitute a termination of the Plan.
The Plan may not merge or consolidate with, or transfer any assets or liabilities to, any other plan, unless each Participant would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated).
10.7. Participation in the Plan by an Affiliate
(a) By appropriate corporate action, any Affiliate designated by the Compensation Committee of the Board may adopt the Plan.
(b) By appropriate corporate action, a Participating Affiliate may terminate its participation in the Plan.
(c) A Participating Affiliate shall have no power with respect to the Plan except as specifically provided herein.
10.8. Expenses
All expenses of the Plan and the Trust shall be paid from the Fund unless paid by an Employer.
10.9. Benefits Under Other Plans
The benefits of a Participant who terminates participation under other plans shall be determined under the provisions of such plans.
10.10. No Age Limit
A Participant will not be excluded from participation under the Plan on account of the attainment of a specified age, nor will benefit accruals or allocations to a Participants account be reduced or discontinued on account of attainment of a specified age.
ARTICLE VII
32
10.11. Controlling Law
The Plan is intended to qualify under IRC § 401(a) and comply with ERISA and its terms shall be interpreted accordingly. Otherwise, the laws of the State of New Jersey shall control the interpretation and performance of the terms of the Plan.
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COVANTA ENERGY CORPORATION | |||
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By | |||
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Its |
ARTICLE VII
33
DECEMBER 2003 AMENDMENT TO THE
COVANTA ENERGY SAVINGS PLAN
This December 2003 Amendment to the Covanta Energy Savings Plan (the Plan) is made pursuant to Article VIII of the Plan and is made effective as of the dates specified below.
1. Effective November 1, 2003, a new paragraph 1.54 shall be added to Article I of the Plan which shall read in its entirety as follows:
1.54 Voluntary Contributions Account . A Participants Voluntary Contributions Account consists of the amount of the Participants Voluntary Contributions Account transferred from the Resource Recovery 401(k) Plan as a result of the merger of the Resource Recovery 401(k) Plan into the Plan pursuant to Article XIV, and any earnings which are credited to such account.
2. Effective January 1, 2003, a new Section 3.11 shall be added to Article III of the Plan which shall read in its entirety as follows:
Section 3.11. Minimum Distribution Requirements .
(a) General Rules .
(1) Effective Date . The provisions of this Section will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.
(2) Precedence . The requirements of this Section will take precedence over any inconsistent provisions of the Plan.
(3) Requirements of Treasury Regulations Incorporated . All distributions required under this Section will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Internal Revenue Code.
(4) TEFRA Section 242(b)(2) Elections . Notwithstanding the other provisions of this Section, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.
(b) Time and Manner of Distribution .
(1) Required Beginning Date . The Participants entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participants Required Beginning Date.
(2) Death of Participant Before Distributions Begin . If the Participant dies before distributions begin, the Participants entire interest will be distributed, or begin to be distributed, no later than as follows:
ARTICLE VII
34
(i) If the Participants Surviving Spouse is the Participants sole Designated Beneficiary, then distributions to the Surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1 / 2 , if later.
(ii) If the Participants Surviving Spouse is not the Participants sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.
(iii) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participants death, the Participants entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participants death.
(iv) If the Participants Surviving Spouse is the Participants sole Designated Beneficiary and the Surviving Spouse dies after the Participant but before distributions to the Surviving Spouse begin, this paragraph (b)(2), other than paragraph (b)(2)(i), will apply as if the Surviving Spouse were the Participant.
For purposes of this paragraph (b)(2) and paragraph (d), unless paragraph (b)(2)(iv) applies, distributions are considered to begin on the Participants Required Beginning Date. If paragraph (b)(2)(iv) applies, distributions are considered to begin on the date distributions are required to begin to the Surviving Spouse under paragraph (b)(2)(i). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participants Required Beginning Date (or to the Participants Surviving Spouse before the date distributions are required to begin to the Surviving Spouse under paragraph (b)(2)(i)), the date distributions are considered to begin is the date distributions actually commence.
(3) Forms of Distribution . Unless the Participants interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with paragraph (c) and (d) of this Section. If the Participants interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations.
(c) Required Minimum Distributions During Participants Lifetime .
(1) Amount of Required Minimum Distribution For Each Distribution Calendar Year . During the Participants lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:
ARTICLE VII
35
(i) the quotient obtained by dividing the Participants Account Balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participants age as of the Participants birthday in the Distribution Calendar Year; or
(ii) if the Participants sole Designated Beneficiary for the Distribution Calendar Year is the Participants spouse, the quotient obtained by dividing the Participants Account Balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participants and spouses attained ages as of the Participants and spouses birthdays in the Distribution Calendar Year.
(2) Lifetime Required Minimum Distributions Continue Through Year of Participants Death . Required minimum distributions will be determined under this paragraph (c) beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participants date of death
(d) Required Minimum Distributions After Participants Death .
(1) Death On or After Date Distributions Begin .
(i) Participant Survived by Designated Beneficiary . If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participants death is the quotient obtained by dividing the Participants Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participants Designated Beneficiary, determined as follows:
(A) The Participants remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
(B) If the Participants Surviving Spouse is the Participants sole Designated Beneficiary, the remaining Life Expectancy of the Surviving Spouse is calculated for each Distribution Calendar Year after the year of the Participants death using the Surviving Spouses age as of the spouses birthday in that year. For Distribution Calendar Years after the year of the Surviving Spouses death, the remaining Life Expectancy of the Surviving Spouse is calculated using the age of the Surviving Spouse as of the spouses birthday in the calendar year of the spouses death, reduced by one for each subsequent calendar year.
(C) If the Participants Surviving Spouse is not the Participants sole designated beneficiary, the Designated Beneficiarys remaining Life Expectancy is calculated using the age of the beneficiary in the year following the year of the Participants death, reduced by one for each subsequent year.
ARTICLE VII
36
(ii) No Designated Beneficiary . If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participants death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participants death is the quotient obtained by dividing the Participants Account Balance by the Participants remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
(2) Death Before Date Distributions Begin .
(i) Participant Survived by Designated Beneficiary . Except as provided in the adoption agreement, if the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participants death is the quotient obtained by dividing the Participants Account Balance by the remaining Life Expectancy of the Participants Designated Beneficiary, determined as provided in paragraph (d)(1).
(ii) No Designated Beneficiary . If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participants death, distribution of the Participants entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participants death.
(iii) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin . If the Participant dies before the date distributions begin, the Participants Surviving Spouse is the Participants sole Designated Beneficiary, and the Surviving Spouse dies before distributions are required to begin to the Surviving Spouse under paragraph (b)(2)(i), this paragraph (d)(2) will apply as if the Surviving Spouse were the Participant.
(e) Definitions .
(1) Designated Beneficiary . The individual who is designated as the Beneficiary under Section 3.7 of the Plan and is the Designated Beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
(2) Distribution Calendar Year . A calendar year for which a minimum distribution is required. For distributions beginning before the Participants death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participants Required Beginning Date. For distributions beginning after the Participants death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under paragraph (b)(2) of this Section 3.11. The required minimum distribution for the Participants first Distribution Calendar Year will be made on or before the Participants Required Beginning Date. The
ARTICLE VII
37
required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participants Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.
(3) Life Expectancy . Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations.
(4) Participants Account Balance . The Account Balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account Balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The Account Balance for the valuation calendar year includes any amounts rolled over or transferred to the plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.
(5) Required Beginning Date . The date specified in Section 3.3(d) of the Plan.
3. Effective November 1, 2003, Section 3.5 of the Plan shall be amended by adding the following to the end thereof:
Notwithstanding any provision of the Plan to the contrary, each Participant may withdraw all or any portion of the aggregate amount of his Voluntary Contributions Account, provided, however, that no amount in a Participants Voluntary Contributions Account that is deemed invested in an outstanding loan under Section 3.4 may be withdrawn, that the minimum amount that may be withdrawn is $500 or, if the Voluntary Contributions Account is equal to less than $500, then the entire amount of the Voluntary Contributions Account must be withdrawn. The Participant shall be responsible for the payment of all fees, if any, associated with the granting of a withdrawal pursuant to this Section 3.5.
ARTICLE VII
38
All the provisions of the Plan not specifically mentioned in this December 2003 Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this December 2003 Amendment.
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COVANTA PROJECTS, INC. | |
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Date:
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By: | |
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Its: |
ARTICLE VII
39
Exhibit 21.1
DANIELSON HOLDING CORPORATION LIST OF SUBSIDIARIES
Unless stated otherwise the subsidiaries of Danielson Holding Corporation (Danielson) set forth
below are owned, directly or indirectly, by Danielson or a subsidiary of Danielson.
%OWNER
STATE OF
COMPANY NAME
SHIP
INCORP.
100
California
40
(a)
Italy
100
Delaware
100
Mauritius
100
California
100
Uruguay
100
Delaware
100
Virginia
100
New York
95
(b)
Bangladesh
100
Denmark
100
Delaware
100
Connecticut
100
Cayman
100
Cayman
100
Mauritius
100
New York
100
Thailand
100
Delaware
100
(c)
Hong Kong
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
Delaware
100
Delaware
100
United Kingdom
100
Delaware
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
India
100
Delaware
100
Philippines
100
Delaware
100
Delaware
100
Delaware
100
New Jersey
100
Virginia
100
Mauritius
100
Mauritius
100
Delaware
100
Delaware
100
Mass
100
Mass
%OWNER
STATE OF
COMPANY NAME
SHIP
INCORP.
100
Delaware
100
Florida
100
Delaware
100
Delaware
100
Alabama
100
Delaware
100
Delaware
100
Tennessee
100
California
90
India
100
Indiana
100
Michigan
100
Florida
100
Delaware
100
Pennsylvania
100
Florida
100
Delaware
100
(d)
Oregon
100
Oregon
100
Connecticut
100
Maryland
100
Delaware
100
West Virginia
100
California
100
Delaware
100
Mauritius
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
New York
100
Spain
100
(e)
New Jersey
100
Connecticut
100
Delaware
100
Florida
100
Cayman
100
New Jersey
100
Delaware
100
Delaware
100
Delaware
100
(f)
Delaware
100
California
100
California
100
Hawaii
100
Delaware
100
Delaware
100
Calcutta
100
Delaware
100
California
100
Delaware
100
California
100
California
100
Delaware
100
Florida
100
Delaware
%OWNER
STATE OF
COMPANY NAME
SHIP
INCORP.
100
Mauritius
100
Mauritius
100
New Jersey
100
Connecticut
100
Virginia
100
California
100
Mauritius
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Missouri
100
California
100
California
100
Missouri
90
(g)
New York
100
Philippines
100
Spain
100
Netherlands
100
Delaware
100
Delaware
100
Mauritius
100
Mass
100
Delaware
100
Costa Rica
20
(h)
Philippines
100
Delaware
100
New York
100
Mass
100
Philippines
100
California
100
California
100
Uruguay
100
Delaware
100
California
100
California
100
California
99.98
India
100
Mauritius
100
Mauritius
100
India
100
Cayman
100
Mauritius
100
Bermuda
100
Cayman
100
Cayman
100
Cayman
100
Delaware
100
California
100
California
100
California
100
California
100
California
%OWNER | STATE OF | |||||
COMPANY NAME | SHIP | INCORP. | ||||
Pacific Wood Fuels Company
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100 | California | ||||
Pacific Wood Services Company
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100 | California | ||||
Penstock Power Company
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100 | California | ||||
Power Operations and Maintenance Ltd.
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100 | Bermuda | ||||
Prima S.r.l
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13 | (i) | Italy | |||
Quezon Power, Inc.
|
27.5 | (j) | Cayman | |||
Three Mountain Operations, Inc.
|
100 | Delaware | ||||
Three Mountain Power, LLC.
|
100 | Delaware | ||||
Valor Insurance Company, Incorporated
|
100 | Montana |
(a) | 40% of the stock of Ambiente 2000 S.r.l is owned by Covanta Waste to Energy of Italy, Inc. and 60% by Ecosesto S.p.A. | |
(b) | 95% of the stock of Covanta Bangladesh Operating Limited is owned by Covanta Energy India Investments and the other 5% is owned by five Covanta employees. | |
(c) | Covanta Energy Asia Pacific Limiteds stock is owned 50% by Covanta Power International Holdings Inc. and 50% by Covanta Power Development, Inc. | |
(d) | 100% of the common stock of Covanta Marion Land Corp. is owned by a Covanta subsidiary and 100% of the outstanding shares of its preferred stock are owned by an individual stockholder. | |
(e) | 99% of the stock of Covanta Martin Operations of Union LLC is owned by Covanta Projects, Inc. and 1% is owned by Covanta Waste to Energy, LLC. | |
(f) | 100% of the common stock of Covanta Power International Holdings Inc, is owned by Covanta Energy Americas, Inc. and 100% of the outstanding shares of its preferred stock are owned by an individual stockholder. | |
(g) | 90% of the stock of DSS Environmental, Inc. is owned by Covanta Water Systems, Inc. and the other 10% is owned by individual shareholders. | |
(h) | 20% of the stock of Island Power Corporation is owned by Covanta Power International Holdings, Inc. and 80% is owned by various stockholders. | |
(i) | Covanta Waste to Energy of Italy, Inc. has a 13% interest in Prima S.r.l and the other 87% is held by Tecno Trattamento Rifiuti S.r.l. | |
(j) | Quezon Power, Inc. is owned 27.5% by Covanta Power Development Cayman, Inc., and 72.5% by Quezon Generating Company, Ltd. |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and | |
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect the registrants internal control over financial reporting. |
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Anthony J. Orlando | |
|
|
Anthony J. Orlando | |
Chief Executive Officer |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose sin accordance with generally accepted accounting principles; | |
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and | |
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect the registrants internal control over financial reporting; and |
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Craig D. Abolt | |
|
|
Craig D. Abolt |
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; | |
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company; and |
/s/ Anthony J. Orlando | |
|
|
Anthony J. Orlando | |
Chief Executive Officer |
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; | |
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company; and |
/s/ Craig D. Abolt | |
|
|
Craig D. Abolt | |
Chief Financial Officer |