<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1997 Commission file number 1-9947
TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853807
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Waterside Crossing
Windsor, Connecticut 06095
- ------------------------------- ------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (860) 289-8631
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------- ------------------------------------
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
The registrant has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve
(12) months and has been subject to such filing requirements for the past
ninety (90) days.
The aggregate market value of the registrant's voting stock held by
non-affiliates on September 8, 1997, was approximately $20,745,452.
On September 8, 1997, there were 6,688,102 shares of Common Stock of the
registrant outstanding.
Documents incorporated by reference:
Portions of the following documents are incorporated by reference into
this Report: (1) registrant's 1997 Annual Report to Shareholders (Part II);
and (2) registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held October 24, 1997 (Part III).
<PAGE>
PART I
Item 1. Business
TRC Companies, Inc. (the Company) together with its wholly-owned subsidiaries,
provides a full range of environmental management, engineering and remediation
services and specialized pollution control measurement instrumentation to
industry and government.
Significant events in the development of the Company's business include: (i)
the acquisition in March 1994 of the business assets, liabilities and
obligations of Environmental Solutions, Inc. of Irvine, California, a firm
providing a broad range of solid and hazardous waste engineering and
consulting services, specializing in remedial design and construction
management; and (ii) the acquisition in May 1994 of the capital stock of
Mariah Associates, Inc. (Mariah) of Laramie, Wyoming, a full-service
environmental consulting firm serving primarily the western United States
with a focus on cultural resource consulting and environmental impact
statements. The acquisition of Environmental Solutions, Inc. was treated as
a purchase for accounting purposes and Mariah was accounted for as a
pooling-of-interests. Accordingly, the Company's consolidated financial
statements issued prior to May 1994 have been restated to include the
financial results of Mariah.
Environmental Management, Engineering and Remediation Services
The Company provides environmental management, engineering and remediation
services through a network of offices primarily across the United States. The
Company has expertise in all areas of air quality and hazardous waste
management, regulatory compliance and permitting, environmental consulting,
pollution control engineering, and cultural and natural resources management.
The Company's air quality services incorporate all technical aspects of
facility permitting, control engineering, regulatory compliance and air
quality analyses and measurement. The Company also provides a broad range of
solid and hazardous waste management and engineering services, specializing
in all aspects of planning, design, permitting and construction for all
classes of landfills and solid waste disposal facilities, remedial designs
and construction management of on-site remediation facilities, as well as all
aspects of site evaluation, permitting and solid and groundwater remediation
engineering.
The Company provides a wide range of cultural and natural resource management
services, with a special focus on environmental impact statements,
permitting, and ecological, archaeological, and historical studies and
reclamation planning.
Additionally, the Company provides risk management services that assess
toxicological, exposure and clinical data to protect human health and
determine risk-based controls. The Company's industrial hygienists and
asbestos engineers address indoor environment problems and assist in managing
workplace risks. The Company also develops, organizes and assesses major
databases used by government agencies and industry to make strategic
decisions. The Company also provides site/civil and transportation/traffic
engineering services that include the analyses of traffic conditions and
development of highway improvements; and, weather modification services to
water districts, municipalities, irrigation companies and other organizations
that utilize water.
Specialized Air Pollution Measurement Instruments
The Company's wholly-owned subsidiary, Monitoring Instruments for the
Environment, Inc., Inc. (MIE), develops, manufactures and markets a line of
specialized pollution control measurement instruments that provide
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real-time measurement of airborne dust, smoke, fumes, asbestos fibers and
other particulates. These instruments have diverse applications including
worker's health protection, asbestos remediation monitoring, energy
conservation and particulate monitoring.
Clients
The Company's clients include companies in the chemical, automotive, petroleum,
construction, transportation, mining, waste management and other industries,
financial institutions, public utilities, and state and federal government
agencies.
For fiscal 1997, 1996 and 1995, the federal government (principally the U.S.
Environmental Protection Agency and the U.S. Department of Defense) accounted
for 22%, 17% and 15%, respectively, of the Company's net service revenue. No
other client represented 10% or more of the Company's net service revenue in
any of those years.
Marketing and Sales
The Company believes that it attracts clients primarily on the basis of its
reputation for quality work and the ability to respond quickly to client needs.
The marketing activities for the Company's service businesses are conducted by
senior professional staff members and executives who regularly meet with
existing and potential clients to solicit new business. These activities are
typically conducted through the Company's network of offices. In addition,
corporate and subsidiary marketing departments coordinate representation at
trade shows, prepare sales literature and develop and place advertising. MIE
sells its instruments through its direct sales force and a network of
manufacturer's representatives in the United States, Europe and Asia.
Backlog
At June 30, 1997, the Company's net contract backlog (excluding the estimated
costs of pass-through charges) was approximately $34.3 million, as compared to
approximately $35.6 million at June 30, 1996. The Company expects that
approximately 75% of this backlog will be completed in fiscal 1998. In addition
to this net contract backlog, the Company holds open order contracts from
various clients and government agencies. As work under these contracts is
authorized and funded, the Company includes this portion in its net contract
backlog. There can be no assurance that any work included in backlog will not
be canceled or delayed.
Employees
As of June 30, 1997, the Company had approximately 675 full and part-time
employees. Approximately 80% of these employees are engaged primarily in
performing environmental engineering and consulting, and process and civil
engineering services for clients. Many of these employees have master's degrees
or their equivalent and a number have Ph.D. degrees. The Company's professional
staff includes registered professional engineers, civil, environmental and
chemical engineers, meteorologists, geologists, hydrologists, hydrogeologists,
toxicologists, chemists, industrial hygienists, archaeologists, biologists and
others with degrees and experience that enable them to provide a full range of
services. The balance of the Company's employees are engaged primarily in
executive, administrative and support activities. None of the Company's
employees are represented by a union. The Company considers its relations with
its employees to be very good.
Competition
The markets for the Company's services are highly competitive. There are
numerous professional architectural, engineering and consulting firms and other
organizations which offer many of the services offered by the Company. The
Company is subject to direct competition with respect to the services it
provides from many other firms, ranging from small local firms to large national
firms having substantially greater financial, management
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and marketing resources than the Company. Competitive factors include
reputation, performance, price, geographic location and availability of
technically skilled personnel.
MIE's products have few direct competitors; however, MIE often competes with
firms which offer alternative technologies. Such competition is based on price,
performance and regulatory requirements.
Regulatory Matters
The Company's businesses are subject to various rules and regulations at the
federal, state and local government levels. The Company believes that it is in
compliance with these rules and regulations. On occasion, the Company has not
bid on projects in certain jurisdictions due to licensing requirements. In
addition, some projects are not bid due to bonding or insurance requirements
which the Company elects not to meet. While the Company has not experienced any
significant limitations on its business as a result of regulatory, bonding or
insurance requirements, there can be no assurance that future changes in law or
changes in industry practice will not impose conditions to bidding on certain
projects which the Company may not be able to satisfy.
Patents, Trademarks and Licenses
The Company has a number of patents, trademarks, service marks, copyrights and
licenses, none of which are considered material to the Company's business as a
whole.
Research and Development
During the past year the Company continued work both on programs relating to its
hazardous and toxic waste services and on development of new products for
monitoring airborne contaminants. Research and development costs are charged to
operations as incurred and amounted to approximately $190,000 in fiscal 1997, as
compared to approximately $283,000 in fiscal 1996 and $204,000 in fiscal 1995.
Environmental and Other Considerations
The Company does not believe that its own compliance with federal, state and
local laws and regulations relating to the protection of the environment will
have any material effect on capital expenditures, earnings or competitive
position.
Item 2. Properties
The Company provides its services through a network of twenty-one offices
located nationwide and an office in Santiago, Chile. The Company does not
own any real estate and leases approximately 225,000 square feet of office
and laboratory space to support these operations. The Company owns
substantially all of the analytical, chemical monitoring, emissions testing
and other specialized equipment required to render its various services. In
addition, the Company leases certain computers and office equipment. The
Company also leases approximately 15,000 square feet of space in Bedford,
Massachusetts for MIE's manufacturing operation.
Item 3. Legal Proceedings
The Company and its subsidiaries are not a party to any pending legal
proceedings in which an adverse decision, in the opinion of the Company, would
have a material adverse effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information on "Market for the Registrant's Common Equity and Related
Stockholder Matters" is contained on page 24 of the Company's 1997 Annual Report
to Shareholders and such information is incorporated herein by reference.
Item 6. Selected Financial Data
Information on "Selected Financial Data" is contained on page 8 of the Company's
1997 Annual Report to Shareholders and such information is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" is contained on pages 9 through 12 of the Company's 1997 Annual
Report to Shareholders and such information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements of TRC Companies, Inc. and
Report of Independent Accountants set forth on pages 13 through 23 of the
Company's 1997 Annual Report to Shareholders are incorporated herein by
reference:
Consolidated Statements of Operations, Cash Flows and Changes in
Shareholders' Equity - Years ended June 30, 1997, 1996 and 1995
Consolidated Balance Sheets - June 30, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants, dated August 26, 1997
The supplementary data regarding quarterly results of operations is contained on
page 8 of the Company's 1997 Annual Report to Shareholders and such information
is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information on the Company's Directors and Executive Officers is contained on
pages 3 through 11 of the Company's Proxy Statement for its 1997 Annual Meeting
of Shareholders to be held October 24, 1997, and such information is
incorporated herein by reference.
The following table presents the name and age of each of the Company's
executive officers, their present positions with the Company and date of
appointment thereto, and other positions held during the past five years,
including positions held with other companies and with subsidiaries of the
Company:
<TABLE>
<CAPTION>
PRESENT POSITION AND OTHER POSITIONS HELD
NAME AND AGE DATE OF APPOINTMENT DURING LAST FIVE YEARS
<S> <C> <C>
Richard D. Ellison......(58) Chairman, Chief Executive Officer Senior Vice President and Chief
and President (April 1997) Engineer, TRC Companies, Inc.;
President, Environmental Solutions,
Inc.
Richard J. McGuire, Jr. (53) Director of the Company (April President, TRC Environmental
1997) and President, TRC Mariah Corporation; President, Mariah
Associates, Inc. (May 1994) Associates, Inc.
John H. Claussen........(48) President, TRC Environmental Senior Vice President and General
Corporation (February 1997) Counsel, TRC Companies, Inc.;
Managing Environmental Counsel and
Manager, Remediation Programs,
General Electric Company
Miro Knezevic...........(47) Executive Vice President, TRC Executive Vice President,
Environmental Solutions, Inc. Environmental Solutions, Inc.
(March 1994)
Martin H. Dodd..........(44) Senior Vice President and General Vice President and Deputy General
Counsel (February 1997) Counsel, TRC Companies, Inc.;
Counsel - Environmental Programs,
General Electric Company
Glenn E. Harkness.......(49) Senior Vice President, TRC Vice President, TRC Environmental
Environmental Corporation Corporation; Vice President of
(September 1997) Environmental Permitting, ENSR
Corporation
Harold C. Elston, Jr....(53) Vice President and Treasurer Same
(October 1991)
</TABLE>
No family relationship exists between any of the individuals named above.
Item 11. Executive Compensation
Information on "Executive Compensation" is contained on pages 6 through 11 of
the Company's Proxy Statement for its Annual Meeting of Shareholders to be held
October 24, 1997, and such information is incorporated herein by reference.
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Item 12. Security Ownership of Certain Beneficial Owners and Management
Information on "Security Ownership of Certain Beneficial Owners and Management"
is contained on pages 2 through 5 of the Company's Proxy Statement for its
Annual Meeting of Shareholders to be held October 24, 1997, and such information
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information on "Certain Relationships and Related Transactions" is contained on
page 13 of the Company's Proxy Statement for its Annual Meeting of Shareholders
to be held October 24, 1997 and such information is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements and Schedule
1. The Consolidated Financial Statements and Report of Independent
Accountants set forth on pages 13 through 23 of the Company's 1997
Annual Report to Shareholders are incorporated by reference into this
report by Item 8 herein.
2. The Consolidated Financial Statement Schedule and Report of
Independent Accountants on such schedules are included in this report
on the pages indicated.
Page
Report of Independent Accountants on Financial Statement Schedule 10
Schedule II - Valuation and Qualifying Accounts 12
All other schedules are omitted because they are not applicable, not
required or the information required is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K
On June 9, 1997, the Company filed a Current Report on Form 8-K pursuant to
Item 5 thereof, reporting that the Special Committee of outside board
members, created on March 28, 1997 had completed its investigation of the
exercise of stock options by the Company's former Chairman and Chief
Executive Officer, Vincent A. Rocco, and former President, Bruce D. Cowen,
in excess of those the Board had authorized as well as other matters. The
investigation revealed no circumstances that had any material effect on the
Company's historical audited financial statements.
(c) Exhibits
3.1 Restated Certificate of Incorporation, dated November 18, 1994,
incorporated by reference to the Company's Form 10-K for the fiscal
year ended June 30, 1995.
3.2 Bylaws of the Company, as amended, incorporated by reference to the
Company's Form S-1 as filed on April 16, 1986, Registration No.
33-4896.
10.1 Restated Stock Option Plan, dated October 25, 1996.
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10.3 Amended and Restated Revolving Credit and Term Loan Agreement, by
and among TRC Companies, Inc. and its subsidiaries and The First
National Bank of Boston, dated March 15, 1995, incorporated by
reference to the Company's Form 10-Q for the quarterly period
ended March 31, 1995.
10.3.1 Amendment, dated August 6, 1996, to the Amended and Restated
Revolving Credit and Term Loan Agreement by and among TRC
Companies, Inc. and its subsidiaries, The First National Bank of
Boston and BayBank, N.A.
10.4 Asset Purchase Agreement, dated March 21, 1994, by and among TRC
Companies, Inc., Environmental Solutions, Inc., Richard D.
Ellison and Miro Knezevic; Registration Rights Agreement among
TRC Companies, Inc. and Environmental Solutions, Inc., dated
March 21, 1994; and 5.75% Subordinated Note, due March 21, 1997,
incorporated by reference to the Company's Form 8-K, dated April
1, 1994.
10.4.1 Amendment, dated July 1, 1997, to Subordinated Note, by and
among TRC Companies, Inc., R & M Corporation, Richard D. Ellison
and Miro Knezevic.
10.5 Stock Purchase Agreement, dated May 27, 1994, by and among TRC
Companies, Inc., Richard J. McGuire, Jr., W. Thomas Turner and
Stephen B. Goppert; Registration Rights Agreement, dated May 27,
1994, by and among TRC Companies, Inc., Richard J. McGuire, Jr.,
W. Thomas Turner and Stephen B. Goppert, incorporated by
reference to the Company's Form 8-K, dated June 10, 1994.
10.7 Termination Agreement, Dated April 1, 1997, between TRC
Companies, Inc. and Vincent A. Rocco, incorporated by reference
to the Company's Form 8-K, dated June 9, 1997.
10.7.1 Termination Agreement, Dated April 1, 1997, between TRC
Companies, Inc. and Bruce D. Cowen, incorporated by reference to
the Company's Form 8-K, dated June 9, 1997.
10.8 Executive Incentive Compensation Plan, as adopted June 20, 1988,
incorporated by reference to the Company's Form 10-K for the
fiscal year ended June 30, 1988.
13 Annual Report to Shareholders for the fiscal year ended June 30,
1997. (Only those portions expressly incorporated by reference
are deemed to be filed herewith.)
21 Subsidiaries of the Registrant.
27 Financial Data Schedule (for SEC purposes only).
As to any security holder requesting a copy of this Form 10-K, the Company will
furnish any exhibit indicated above as being filed with the Form 10-K upon
payment to the Company of its expenses in furnishing such exhibit.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRC COMPANIES, INC.
Dated: September 25, 1997 By: /s/Richard D. Ellison
---------------------
Richard E. Ellison
Chairman, Chief Executive Officer
and President (Principal
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Richard D. Ellison Chairman, Chief Executive September 25, 1997
- ------------------------------- Officer, President and Director
Richard D. Ellison
/s/ Edward G. Jepsen Director September 25, 1997
- -------------------------------
Edward G. Jepsen
/s/ Richard J. McGuire, Jr. Director September 25, 1997
- -------------------------------
Richard J. McGuire, Jr.
/s/ Edward W. Large Director September 25, 1997
- -------------------------------
Edward W. Large
/s/ J. Jeffrey McNealey Director September 25, 1997
- -------------------------------
J. Jeffrey McNealey
/s/ Harold C. Elston, Jr. Vice President and Treasurer September 25, 1997
- ------------------------------- (Principal Financial and
Harold C. Elston, Jr. Accounting Officer)
</TABLE>
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Report of Independent Accountants on
Financial Statement Schedule
To the Shareholders and Board of Directors
of TRC Companies, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 26, 1997, appearing on page 23 of the 1997 Annual Report to
Shareholders of TRC Companies, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Hartford, Connecticut
August 26, 1997
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Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-84660) and
in the Registration Statements on Form S-8 (Nos. 2-66247, 2-77690, 33-18771,
33-26748, 33-38810, 33-45169, 33-70662, 33-87446 and 33-87448) of TRC Companies,
Inc. of our report dated August 26, 1997 appearing on page 23 of the 1997 Annual
Report to Shareholders which is incorporated by reference in this Annual Report
on Form 10-K. We also consent to the incorporation by reference of our report
on the Financial Statement Schedule, which appears on page 10 of this Form 10-K.
PRICE WATERHOUSE LLP
Hartford, Connecticut
September 25, 1996
11
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TRC Companies, Inc. Schedule II--Valuation and Qualifying Accounts For the
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ALLOWANCES RECLASSIFICATION BALANCE AT
BEGINNING COSTS AND FROM ACQUIRED FROM OTHER END OF
DESCRIPTION OF PERIOD EXPENSES BUSINESSES ACCRUALS DEDUCTIONS * PERIOD
- ---------------------------------- ---------- ----------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts.. $2,500,000 $999,000 $73,000 $ -- $(1,272,000) $2,300,000
---------- ----------- ------------ ------------ -------------- ------------
1996
Allowance for doubtful accounts.. $1,700,000 $2,660,000 $ -- $ -- $(1,860,000) $2,500,000
---------- ----------- ----------- ------------- -------------- ------------
1995
Allowance for doubtful accounts.. $1,788,000 $824,000 $ -- $1,332,000 $(2,244,000) $1,700,000
---------- ----------- ----------- -------------- -------------- ------------
</TABLE>
- ------------------------
* Uncollectable accounts written off, net of recoveries.
12
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TRC Companies, Inc.
Form 10-K Exhibit Index
Fiscal Year Ended June 30, 1997
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description Number
- ------------ ------------------------------------------------------- ---------------
<S> <C> <C>
10.1 Restated Stock Option Plan, dated October 25, 1996. 14 - 19
10.4.1 Amendment, dated July 1, 1997, to Subordinated Note, 20 - 31
by and among TRC Companies, Inc.,
R & M Corporation, Richard D. Ellison and Miro Knezevic.
13 Annual Report to Shareholders for the fiscal year ended 32 - 55
June 30, 1997.
21 Subsidiaries of the Registrant. 56
27 Financial Data Schedule (for SEC purposes only). 57
</TABLE>
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EXHIBIT 10.1
Restated Stock Option Plan, dated October 25, 1996.
<PAGE>
TRC Companies, Inc.
Restated Stock Option Plan
The Stock Option Plan originally called the "Stock Option Plan for Key
Employees" (the "Plan") was adopted by the Board of Directors of TRC Companies,
Inc., a Delaware corporation (the "Company") on August 29, 1979.
1. Purpose. The purpose of this Plan is to increase the interest in the
welfare of the Company of those individuals who bear the primary responsibility
for the management, growth and protection of the business of the Company, to
furnish such individuals with an incentive to continue their services to the
Company, and to attract able management personnel to the employ of the Company
by enabling such individuals to acquire a proprietary interest in the Company
through the grant to such individuals of options to purchase shares of the
Company's Common Stock.
2. Administration. This Plan shall be administered either by the full
Board of Directors or by the Compensation Committee (the "Committee") of not
less than three members of the Board of Directors of the Company (the "Board").
Reference herein to the Committee shall refer either to the Committee or the
Board.
3. Shares Subject to Plan. Options may be granted from time to time
under this Plan providing for the purchase of up to 2,243,500 shares of Common
Stock, $0.10 par value per share, of the Company ("Common Stock"), subject to
adjustment pursuant to Section 13, including such number of shares as may become
available for re-offering pursuant to Section 15. For the purposes of this
Plan, shares of authorized and unissued Common Stock or Common Stock reacquired
by the Company and held in its treasury, as from time to time determined by the
Board, may be sold upon exercise of options granted hereunder.
4. Eligible Personnel. Only those key employees and directors of the
Company, its present Subsidiaries, and any Subsidiary which the Company may
organize or acquire, who in the judgment of the Committee, bear the primary
responsibility for the management, growth and protection of the business of the
Company and/or a Subsidiary shall be eligible to be granted options under this
Plan. For the purposes of this Plan, the term "Subsidiary" shall mean any
Corporation, the stock of which possessing more than 50% of the total combined
voting power of all classes of stock is at the time owned by the Company or
another Subsidiary of the Company.
5. Restrictions on Eligibility. No option shall be granted under this
Plan to any one individual if the number of shares which are made the subject of
options to such individual exceeds in the aggregate 5% of the total number of
shares of stock outstanding at the time such option is granted.
6. Allotment of Shares. The Committee shall from time to time determine
the key personnel of the Company and its Subsidiaries to whom options may be
granted under this Plan and the number
<PAGE>
of shares of Common Stock to be offered to each by the grant of an option. The
grant of an option to an eligible person under this Plan shall not be deemed
either to entitle such person to, or to disqualify such person from,
participation in any other grant of options under this Plan.
7. Grant of Option. Grants of options under this Plan shall be made only
by resolutions adopted by the Committee whose written reports shall be duly
filed with the Minutes of Board meetings. The grant of such options shall be
evidenced by such Committee resolutions and, in addition, by Option Agreements
substantially in the form of the Option Agreement which is attached hereto and
made a part hereof ("Option Agreements"). The grant of an option under this
Plan shall commence to have legal force and effect at the time of adoption by
the Committee of the resolutions making the grant, and the person to whom such
option is granted shall become a participant in this Plan at such time. Such
resolutions of the Committee shall specify, subject to Sections 8, 9 and 10
hereof, the option price and the time period or periods over which the option
may be exercised.
8. Option Price and Proceeds from Sale of Shares. The price at which
shares of Common Stock may be purchased upon the exercise of an option granted
under this Plan shall not be less than the fair market value of the Common Stock
of the Company on the date such option is granted nor less than the par value of
the Common Stock. The fair market value of the Common Stock on the date of
grant shall be the mean between the bid and asked prices for the Common Stock on
such date if the Common stock is traded in the over-the-counter market, or the
closing price of the Common Stock on such date if the Common Stock is traded on
a national securities exchange.
9. Option Period. The period for exercising an option granted under this
Plan shall not exceed ten (10) years from the date the option is granted.
10. Termination of Options. All rights to exercise an option granted
under this Plan shall terminate upon the occurrence of any one of the following
events, in addition to any events as may be specified in the Option Agreement:
(a) Upon termination of employment or directorship by reason of
death, disability or retirement of the participant, provided
that such option, to the extent then exercisable but
unexercised, may be exercised, in whole or in part, by the
participant, his or her conservator or the executor or
administrator of his or her estate, within one year after the
date of death, disability or retirement of the participant; or
(b) Upon termination of employment or directorship for neglect of
duty or other cause, effective immediately upon the first date
on which the participant is no longer an employee or director
of the Company or a Subsidiary; or
(c) Upon termination of employment or directorship for any reason
other than as provided in the foregoing sub-paragraphs (a) and
(b), provided that such option, to the extent then
exercisable, but unexercised, may be exercised, in whole or
in part,
<PAGE>
by the participant within thirty (30) days after the first
date on which the participant is no longer an employee or
director of the Company or a Subsidiary;
(d) Upon the merger, consolidation, dissolution or liquidation of
the Company as provided in Section 13.
11. Payment. Full payment of the purchase price for shares purchased
upon the exercise, in whole or in part, of an option granted under this Plan,
shall be made at the time of such exercise. No such shares shall be issued or
transferred to a participant until full payment therefor has been made, and a
participant shall have none of the rights of a shareholder until shares are
issued or transferred to him. In addition, as a further condition of issuance
or transfer of shares upon exercise of an option to the person exercising the
option, such person (whether an employee or director, former employee, or the
legal representative of a former employee or director, or the estate of a former
employee or director) must pay to the Company the amount of money that the
Company or any Subsidiary is legally required to withhold for Federal or state
tax purposes, as determined by the Company or such Subsidiary, on account of the
income to be realized upon exercise of the option by the holder of the option.
12. Registration of Shares. The Company intends, but shall not be
obligated, to register the shares included in the Plan on Form S-8 under the
Securities Act of 1933, as amended. However, if requested by the Company, the
optionee upon exercise of any option shall make such representations and furnish
such information to the Company as may be necessary or appropriate to permit the
Company to issue such shares in compliance with the provisions of the Securities
Act of 1933, as amended, or with any other applicable law without registration
under such Act or other applicable law. In such event, the certificate for
shares purchased upon exercise of any option issued pursuant to the Plan shall
bear a legend to the effect that such shares have not been registered pursuant
to the Securities Act of 1933 and cannot be transferred unless so registered or
upon delivery to the Company of an opinion of counsel satisfactory to it that
such registration is not required. In no event shall shares be issued pursuant
to an option if any requisite approval or consent of any governmental authority
having jurisdiction over the exercise of options or the issue and sale of the
Common Stock shall not have been secured or if any required registration of such
shares with any governmental authority is not in effect. The Company may,
without incurring any liability to the holder of the option, delay the issuance
of such shares until such approval or consent has been secured or until such
registration is effective.
13. Changes in Capital Structure, etc. In the event of the payment of
any dividend payable in, or the making of any distribution of, stock of the
Company to holders of record of Common Stock of the Company during the period
that any option granted under this Plan is outstanding or in the event of any
stock split, combination of shares or recapitalization of the authorized capital
stock of the Company during such period, participants shall be entitled, upon
the exercise of any unexercised options held by them, to receive such new,
additional or other shares of stock of any class, or other property (including
cash), as they would have been entitled to receive as a matter of law in
connection with such payment, distribution, stock split, combination or
recapitalization, as the case
<PAGE>
may be, had they held the shares of Common Stock being purchased upon exercise
of such options on the record date set for such payment or distribution or on
the date of such stock split, combination or recapitalization, and the option
price under any such option shall be appropriately adjusted. In case any such
event shall occur during the term of this Plan, the number of shares that may be
optioned and sold under this Plan, as provided in Section 3, shall be
appropriately adjusted. The decision of the Board as to all such adjustments,
made in good faith, shall be conclusive and binding upon the holders of options
granted under this Plan. Options granted pursuant to this Plan shall terminate
upon the effective date of the merger or consolidation of the Company into
another corporation in which event the Company is not the surviving corporation,
or the dissolution or liquidation of the Company. The Company shall give
holders of such options at least thirty (30) days prior written notice of such
effective date.
14. Non-Transferability. The Committee shall have the discretion to
grant options which are transferable, but may also in their discretion place
limits on the transferability of options granted.
15. Re-Offering of Shares. Any shares of Common Stock which, by
reason of the expiration or termination of an option, are no longer subject to
purchase pursuant to an option granted under this Plan shall be available for
re-offering under this Plan.
16. Interpretation. The Committee shall interpret this Plan and
prescribe, amend or rescind rules and regulations relating to this Plan and make
any and all other determinations necessary or advisable for the administration
of this Plan.
17. Amendment of the Plan. The Board may terminate or discontinue
this Plan at any time and may suspend this Plan or amend or modify this Plan in
any respect at any time or from time to time, provided that no action of the
Board or Shareholders may, without the consent of a participant, alter or impair
the rights of such participant under any option previously granted under this
Plan to such Participant.
18. Effect of the Plan, etc. Neither the adoption of this Plan nor
any action of the Committee in determining a person as eligible for the grant of
an option or otherwise shall be deemed to give a person any right to be granted
an option to purchase Common Stock of the Company or any other rights hereunder
unless and until the Committee shall have adopted a resolution granting such
person an option, and then only to the extent and on such terms and conditions
as may be set forth in such resolution.
19. Options Granted Prior to Amendment of Plan. Notwithstanding any
amendments to or modification of this Plan made after the granting of any option
under this Plan, such option, including the validity thereof and the effective
date of grant thereof, shall be governed by the provisions of this Plan as in
effect on the date of grant thereof.
<PAGE>
Witness the Seal of the Company and the signatures of its duly authorized
officers.
Dated as of October 25, 1996 and as subsequently amended.
TRC COMPANIES, INC.
/s/Bruce D. Cowen
---------------------
President
(Seal)
ATTEST:
/s/John H. Claussen
- ----------------------------
Secretary
<PAGE>
EXHIBIT 10.4.1
Amendment, dated July 1, 1997, to Subordinated Note, by and among TRC Companies,
Inc., R & M Corporation, Richard D. Ellison and Miro Knezevic.
<PAGE>
July 1, 1997
R&M Corporation
c/o Mr. Richard D. Ellison and
Mr. Miro Knezevic
Re: TRC Companies, Inc.
5.75% Subordinated Note
Due March 21, 1997
Dear Dick and Miro:
This letter constitutes the Agreement between TRC Companies, Inc. ("TRC"), R&M
Corporation ("R&M") and you with respect to the restructuring of the
above-subject Note (the "Subordinated Note"). In consideration of the promises
contained herein and other good and valuable consideration, the parties agree as
follows:
1. TRC will issue to R&M an Amended Subordinated Note in the form
attached hereto as Exhibit A (the "Amended Note"). In return for such
Amended Note, R&M will return the Subordinated Note to TRC marked
"canceled" and waive all rights thereunder, and such Subordinated Note
will be of no further force and effect except for rights as provided
under paragraph 4 of this letter agreement.
2. TRC will issue to R&M a Common Stock Purchase Warrant to purchase
50,000 shares of TRC Common Stock at a purchase price of $4.50 per
share in the form attached as Exhibit B.
3. TRC agrees to deliver the shares of TRC Common Stock to be delivered
as the Contingent Payment as provided under Section 2.4 of the Asset
Purchase Agreement dated March 21, 1994 by and among TRC,
Environmental Solutions, Inc., Richard D. Ellison and Miro Knezevic
(the "Asset Purchase Agreement") six months after the final principal
payment is made as provided under paragraph 2.1 of the Amended Note,
but in no event later than December 21, 1999. Delivery of the
Contingent Payment prior to this date may only be made with the prior
approval of R&M Corporation.
4. The 2% late payment fee as provided for under Section 2.1 (b) of the
Subordinated Note in the amount of $140,000 shall be abated and
forgiven at such time as the final principal payment is timely made as
provided under paragraph 2.1 of the Amended Note.
<PAGE>
5. TRC agrees to pay all reasonable expenses including reasonable
attorney and accounting fees incurred by R&M and Messrs. Ellison and
Knezevic in connection with this transaction within 30 days of
presentation of invoices for such expenses.
6. This Agreement and the documents issued pursuant hereto shall be
governed by the laws of the State of Connecticut without giving effect
to the principles of conflicts of law thereof. This Agreement
including the attachments hereto and all documents incorporated or
referred to herein or therein embodies the entire agreement among the
parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written
with respect thereto and shall inure to the benefit of and shall be
binding upon the parties hereto and their respective legal
representatives, successors and assigns.
Please indicate your acceptance of the foregoing by signing in the space below
and returning a duplicate original of this Agreement.
Sincerely,
/s/ Martin H. Dodd
- ----------------------
Martin H. Dodd
MHD/pah
Attachments
ACCEPTED AND AGREED:
R& M CORPORATION
/s/ Richard D. Ellison
- -------------------------
Richard D. Ellison
/s/ Miro Knezevic
- -------------------------
Miro Knezevic
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR SECURITIES LAWS OF OTHER JURISDICTIONS AND
MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER, SUCH DISPOSITION IS EXEMPT FROM SUCH REGISTRATION
REQUIREMENTS. THIS NOTE IS SUBORDINATED TO THE PRIOR PAYMENT OF THE SENIOR
INDEBTEDNESS IN THE MANNER AND TO THE EXTENT SET FORTH IN THE INTERCREDITOR
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO.
TRC COMPANIES, INC.
AMENDED SUBORDINATED NOTE
DUE JULY 1, 1999
$7,000,000 July 1,1997
FOR VALUE RECEIVED, TRC Companies, Inc., a Delaware corporation ("Maker"),
promises to pay to R&M Corporation, a California corporation of which the
stockholders as of the date of this Note are Richard D. Ellison and Miro
Knezevic ("Payee"), without any right of setoff or counterclaim at the place and
in the manner specified below, or at such other place as Payee may designate
from time to time in writing, the principal sum of SEVEN MILLION AND 00/100
DOLLARS ($7,000,000), subject to reduction as provided herein, together with
interest on the unpaid principal balance hereof payable at the rate per annum
set forth below.
SECTION 1. Definitions.
"Asset Purchase Agreement" means the Asset Purchase Agreement dated March
21, 1994 by and between Payee (then known as Environmental Solutions, Inc.),
Maker, Richard D. Ellison and Miro Knezevic, as amended from time to time.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banks are required or authorized to be closed in the State of Connecticut.
"Default on Senior Indebtedness" means the occurrence of any default or
event of default under Senior Indebtedness.
"Events of Default" is defined in Section 5 of this Note.
"Intercreditor Agreement" means the Intercreditor Agreement dated March 21,
1994, between Payee, the First National Bank of Boston and Maker, a copy of
which is attached as Exhibit A hereto.
"Interest Payment Date" is defined in Section 2.2 (b) of this Note.
"Note" means this Amended Subordinated Note, as the same may be amended
from time to time.
<PAGE>
"Obligations" means all of Maker's liabilities, obligations and
indebtedness to Payee under this Note (including, without limitation, Maker's
obligation to make payments of principal, premium, if any, and interest to Payee
hereunder).
"Person" means any person or entity including without limitation, a
corporation, partnership, trust or joint venture).
"Rate" means the greater of the interest rate paid on the Senior
Indebtedness or seven and three quarters percent (7.75%).
"Revolving Credit Agreement" means the Amended and Restated Revolving
Credit and Term Loan Agreement dated as of March 15, 1995, among Maker and its
subsidiaries and the First National Bank of Boston, as the same may be amended
from time to time.
"Senior Indebtedness" means the principal of, premium, if any, interest on,
and all other obligatins incurred under the Revolving Credit Agreement, any
successor facility or any renewal, extension, modification, refunding or
refinancing of such agreement or any successor facility.
"Stockholder" or "Stockholders" means each of Richard D. Ellison and Miro
Knezevic, individually or collectively, as the case may be.
Unless otherwise defined herein, terms used in the Asset Purchase Agreement
shall have the same meanings when used in this Note.
SECTION 2. Terms.
SECTION 2.1. Repayment of Principal.
(a) The principal balance of this Note shall be payable by Maker in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debt, in two (2) consecutive
annual installments of THREE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS
($3,500,000), and THREE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS
($3,500,000) plus accrued interest as provided under Section 2.2 (b) below,
respectively, such installments to be paid on July 1, 1998 and July 1, 1999,
respectively.
(b) Any payment of principal under this Note which is paid more than thirty
(30) days after the date such payment is due and payable hereunder shall be
increased by a penalty equal to two percent (2%) of such principal payment.
(c) Upon any payment of principal of this Note pursuant to this Section
2.1, Payee shall make a notation of such payment on the Schedule of Payments
attached as Exhibit B hereto and deliver a copy of such schedule to Maker.
<PAGE>
SECTION 2.2. Interest; Payments.
(a) Interest shall accrue on the unpaid principal amount of this Note at a
rate per annum equal to the Rate.
(b) Accrued interest on the outstanding principal amount of this Note at
the rate of five and three quarters percent (5.75%) per annum shall be paid
quarterly in arrears on October 1, 1997, and on the first day of each January,
April, July and October thereafter (each an "Interest Payment Date"), until the
Obligations are paid in full. Interest hereunder shall be computed on the basis
of a year of 365 days for the actual number of days elapsed. If any payment of
principal, premium, if any, or interest hereunder shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment. Both
principal and interest hereunder are payable to Payee by wire transfer to such
account as Payee may, from time to time, designate to Maker in writing. Accrued
Interest equivalent to the difference between the Rate and 5.75%, which shall
accrue beginning as of March 21, 1997, shall be added on each Interest Payment
Date to the outstanding principal and shall accrue interest as principal and
shall be paid as part of the final principal payment under Section 2.1 (a)
above.
(c) Notwithstanding subsections (a) or (b) above, should Maker fail to pay
any principal payment or the current portion of any interest installment on this
Note when such installment is due and payable hereunder, Maker shall pay
interest on the unpaid principal amount of this Note at a rate per annum equal
to nine percent (9%) from but not including the date when such installment was
originally due and payable hereunder to and including the date on which such
interest installment is paid.
(d) Notwithstanding Section 2.1 or subsection (b) above, Maker may prepay
the outstanding principal amount of and accrued and unpaid interest on this Note
at any time either in whole or in part, without penalty with the prior written
consent of the Payee which may be withheld by Payee for any reason. Maker shall
deliver written notice of such prepayment to Payee at least thirty (30) days
prior to prepayment. Each notice of prepayment delivered pursuant to this
subsection (d) shall set forth the amount of such prepayment and the proposed
date of such prepayment. Any prepayment of principal shall be applied against
the installments of principal of this Note in order of maturity. Upon
prepayment in whole, Payee shall surrender this Note to Maker for cancellation.
Upon any prepayment in part of principal, Payee shall make a notation of such
prepayment on the Schedule of Payments attached as Exhibit B hereto and deliver
a copy of such schedule to Maker.
SECTION 3. Special Conditions.
SECTION 3.1. Subordination. The payment of principal and interest on this
Note is subordinated to prior payment of the Senior Indebtedness in the manner
and to the extent set forth in the Intercreditor Agreement.
SECTION 3.2. Limitation on Senior Indebtedness. The amount of the Senior
Indebtedness may not exceed $8 million without the prior approval of Payee.
<PAGE>
SECTION 3.3. Notice of Default. In the event Maker receives notice of a
Default on Senior Indebtedness, Maker shall within five (5) business days
provide written notice to Payee.
SECTION 4. Restrictions on Liens. Maker will not create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, charge, restriction or other security interest of any kind
(collectively, "Liens") upon any of its property or assets of any character
(other than upon any margin stock, as defined in Regulation U of the Board of
Governors of the Federal Reserve System, owned by Maker), whether now owned or
hereafter acquired, or upon the income or profits therefrom; or transfer any of
such property or assets or the income or profits therefrom for the purpose of
subjecting the same to the payment of indebtedness or performance of any other
obligation in priority to payment of its general creditors; or acquire, or agree
or have an option to acquire, any property or assets upon conditional sale or
other title retention or purchase money security agreement, device or
arrangement; or suffer to exist for a period of more than thirty (30) days after
the same shall have been incurred any indebtedness or claim or demand against it
which if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be
given any priority whatsoever over its general creditors; or sell, assign,
pledge or otherwise transfer any accounts, contract rights, general intangibles
or chattel paper, with or without recourse, except for the following
(collectively, "Permitted Liens"):
(a) Liens granted to secure obligations of Maker and its subsidiaries under
Senior Indebtedness;
(b) To the extent permitted by the terms of the Senior Indebtedness, Liens
securing the indebtedness incurred in connection with the acquisition of
property or assets useful or intended to be used in carrying on the business of
Maker or any of its subsidiaries, provided that such Liens shall encumber only
the property or assets so acquired and do not exceed the fair market value
thereof;
(c) Liens to secure taxes, assessments and other government charges or
claims for labor, material or supplies in respect of obligations not overdue;
(d) Deposits or pledges made in connection with, or to secure payment of,
workmen's compensation, unemployment insurance, old age pensions or other social
security obligations;
(e) Liens in respect of judgments or awards, the indebtedness with respect
to which is permitted by the terms of the Senior Indebtedness;
(f) Liens of carriers, warehousemen, mechanics and materialmen, and other
like Liens, in existence less than 120 days from the date of creation thereof in
respect of obligations not overdue; and
(g) Encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, landlord's or lessor's Liens under leases
to which Maker or any of its subsidiaries is a party, and other minor Liens none
of which in the reasonable opinion of Maker interferes materially with the use
of the property affected in the ordinary conduct of the business of Maker and
its subsidiaries, which defects do not individually or in the aggregate have a
material adverse effect on the business of Maker on a consolidated basis;
<PAGE>
unless, in the case of any Lien which is not a Permitted Lien, any payments made
or to be made under this Note shall be secured equally and ratably with (or
prior to) any other obligations secured by such Lien.
SECTION 5. Events of Default; Acceleration.
If any of the following events ("Events of Default") shall occur:
(a) if Maker shall fail to make any payment of principal of, premium, if
any, or interest on this Note within thirty (30) days after written notice has
been given to Maker by Payee of Maker's failure to pay such principal, premium,
if any, or interest when the same shall become due and payable, whether at the
stated date of maturity or at any other date fixed for payment;
(b) if Maker shall (i) fail to pay at maturity, or within any applicable
period of grace, any obligation for borrowed money (excluding, however, (x) any
obligation for borrowed money secured solely by real property of Maker and its
subsidiaries and (y) any agreement relating to any pledge of, or restriction on
the pledge or disposition of, margin stock, as defined in Regulation U of the
Board of Governors of the Federal Reserve System, owned by Maker or any of its
subsidiaries), or (ii) fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing or
securing borrowed money if, in the case of either clause (i) or (ii), such
failure results in any obligation of Maker for borrowed money becoming due prior
to its stated maturity; or
(c) if Maker makes an assignment for the benefit of creditors, or admits in
writing its inability to pay or generally fails to pay its debts as they mature
or become due (excluding, however, any agreement relating to any pledge of, or
restriction on the pledge or disposition of, margin stock, as defined in
Regulation U of the Board of Governors of the Federal Reserve System, owned by
Maker), or petitions or applies for the appointment of a trustee or other
custodian, liquidator or receiver of Maker or of any substantial part of the
assets of Maker under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or takes any action to authorize or in
furtherance of any of the foregoing, or if any such petition or application is
filed or any such case or other proceeding is commenced against Maker and Maker
indicates its approval thereof, consent thereto or acquiescence therein;
(d) a decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating Maker bankrupt or insolvent, or approving
a petition in any such case or other proceeding, or a decree or order for relief
is entered in respect of Maker in an involuntary case under Federal bankruptcy
laws as now or hereafter constituted, and such decree or order remains in effect
for more than sixty (60) days, whether or not consecutive;
(e) if Maker shall sell, lease, exchange or otherwise dispose of all or
substantially all of its assets, other than in the ordinary course of business;
(f) if Maker shall become a party to any merger, consolidation or plan of
liquidation, unless Maker will be the surviving or continuing corporation
following such transaction; or
<PAGE>
(g) if Richard D. Ellison no longer holds the office of Chairman of the
Board, Chief Executive Officer and President of Maker as a result of action by
Maker's Board of Directors;
then, subject to Section 3 hereof, Payee may by notice in writing to Maker
declare all amounts owing with respect to this Note to be, and they shall
thereupon forthwith mature and become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by Maker; provided, that in the event of any Event of
Default specified in subsection (c) or (d) hereof, all such amounts shall become
immediately due and payable automatically and without any requirement of notice
from Payee.
Payee's failure at any time or times hereafter to require strict
performance by Maker of any of the terms, conditions and provisions contained in
this Note shall not waive, affect or diminish any right of Payee at any time or
times hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived or modified by any act or knowledge of Payee, its
agents, officers or employees, unless such waiver or modification is contained
in an instrument in writing signed by an officer of Payee and directed to Maker
specifying such waiver or modification. The remedies provided herein are
cumulative and are not exclusive of any other remedies available to Payee at law
or in equity. No waiver by Payee of any Event of Default shall operate as a
waiver of any other Event of Default or the same Event of Default on a future
occasion. No delay on the part of Payee in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Payee of
any right or remedy shall preclude other or future exercise thereof or the
exercise of any other right or remedy.
If any Event of Default occurs, subject to Section 3 hereof, Maker shall
pay on demand all reasonable out-of-pocket expenses incurred or sustained by
Payee in connection with the enforcement or protection of the rights of Payee
under this Note, including costs of collection and the fees and disbursements of
counsel.
SECTION 6. Miscellaneous.
(a) Demand, presentment, protest and notice of nonpayment and protest and
all rights to interpose any defense, setoff or counterclaim of any nature or
description, including but not limited to any claims for indemnification under
the Asset Purchase Agreement, are hereby waived by Maker.
(b) This Note may be assigned by Payee.
(c) The obligations of Maker under this Note may not be assigned or
delegated without the written consent of Payee.
(d) Whenever in this Note there is a reference made to either Payee or
Maker, such reference shall be deemed to include a reference to the successors
and permitted assigns of such party and, except as set forth in subsection (b)
above, the provisions of this Note shall be binding upon and inure to the
benefit of said successors and permitted assigns.
(e) Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by
<PAGE>
certified, registered or express mail, postage prepaid. Any such notice shall
be deemed given when so delivered, personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, two days after the date of deposit in the
United States mails as follows:
To Maker:
TRC Companies, Inc.
5 Waterside Crossing
Windsor, Connecticut 06095
Attention: Martin H. Dodd
Senior Vice President
Fax No. (860) 298-6291
To Payee:
21 Technology Drive
Irvine, California
Attention: Richard D. Ellison
President
and
Miro Knezevic
Executive Vice President
Fax No. (714) 727-7311
or to such other address as any party shall furnish to the other by notice given
in accordance with this Section.
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
(f) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL
BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CONNECTICUT, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
CONSENT TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CONNECTICUT AND OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF
CONNECTICUT (THE "CONNECTICUT COURTS") FOR ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREE NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS),
WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH LITIGATION IN THE
CONNECTICUT COURTS AND AGREE NOT TO PLEAD OR CLAIM IN ANY CONNECTICUT COURT
THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(g) The section and subsection titles contained herein are for convenience
only and shall not control or affect the meaning or construction of any
provision hereof.
<PAGE>
(h) The invalidity or unenforceability of any provision of this Note in any
jurisdiction shall not affect the validity or enforceability of the remainder of
this Note in that jurisdiction or the validity or enforceability of this Note,
including that provision, in any other jurisdiction. If any restriction or
provision of this Note is held unreasonable, unlawful or unenforceable in any
respect, such restriction or provision shall be interpreted, revised or applied
in a manner that renders it lawful and enforceable to the fullest extent
possible under law.
(i) Nothing in this Note is intended or shall be construed to give any
Person other than the parties hereto any legal or equitable right, remedy or
claim under or in respect of this Note or any provision contained herein.
(j) This Note constitutes the entire agreement among the parties with
respect to the transactions contemplated hereby and thereby, and supersedes all
prior agreements and understandings, written or oral, with respect thereto.
(k) Upon receipt by Maker of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Note, Maker will make and deliver
a new Note of like tenor (payable, in the case of transfer, in the name of the
new holder) in lieu of this Note against receipt of Payee's personal undertaking
to indemnify Maker against and hold it harmless from all reasonable costs
arising as a result of its making and delivery of the new Note.
This Note has been executed and delivered at Windsor, Connecticut,
effective as of the date first above written.
TRC COMPANIES, INC.
/s/ John H. Claussen
------------------------
John H. Claussen
Senior Vice President
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
SCHEDULE OF PAYMENTS
Amount of Payment Pursuant to Remaining
Principal Section 2.1 or Prepayment Pursuant to Principal
Date Balance Section 2.2 Balance
- ---- --------- ------------------------------------- ---------
<S> <C> <C> <C>
July 1, 1997 $7,000,000 N/A $7,000,000
</TABLE>
<PAGE>
EXHIBIT 13
Annual Report to Shareholders for the fiscal year ended June 30, 1997
(Only those portions expressly incorporated by reference are deemed to be
filed herewith.)
<PAGE>
TRC COMPANIES, INC. 1997 ANNUAL REPORT
Revision --9/24/97
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Gross revenue....................................................... $ 68,506,377 $ 76,999,021 $ 93,013,053
Net service revenue................................................. 50,788,433 60,018,195 71,812,673
Income (loss) from operations....................................... 164,270 (1,216,198) 8,457,540
Net income (loss)................................................... $ (504,902) $ (1,315,053) $ 4,421,065
Earnings (loss) per common share.................................... $ (.07) $ (.19) $ .61
Working capital..................................................... $ 20,679,872 $ 19,003,211 $ 24,968,251
Current ratio....................................................... 2.9 to 1 2.5 to 1 2.9 to 1
Debt to total capitalization........................................ 20.4% 21.4% 27.1%
Return on equity.................................................... (1.2)% (2.9)% 10.0%
Book value per share................................................ $ 6.41 $ 6.38 $ 6.56
Common shareholders................................................. 2,500 2,500 2,600
Common shares outstanding........................................... 6,688,102 7,019,002 7,089,552
Employees........................................................... 675 665 823
------------- ------------- -------------
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
TRC Companies, Inc. and subsidiaries
In thousands (except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995 1994 1993
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross revenue.............................................. $ 68,506 $ 76,999 $ 93,013 $ 81,658 $ 67,827
Less subcontractor costs and direct charges.............. 17,718 16,981 21,200 20,655 15,928
--------- --------- --------- --------- ---------
Net service revenue........................................ 50,788 60,018 71,813 61,003 51,899
--------- --------- --------- --------- ---------
Operating costs and expenses:
Salaries and other direct costs of services.............. 44,270 54,388 56,353 51,039 46,554
General and administrative expenses...................... 3,565 3,950 3,965 3,738 3,292
Depreciation and amortization............................ 2,789 2,896 3,037 2,434 1,901
Costs related to disposed business....................... -- -- -- -- 4,149
--------- --------- --------- --------- ---------
50,624 61,234 63,355 57,211 55,896
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. 164 (1,216) 8,458 3,792 (3,997)
Interest expense........................................... 829 906 1,399 466 71
Other income, net.......................................... -- -- (15) (58) (86)
--------- --------- --------- --------- ---------
Income (loss) before taxes................................. (665) (2,122) 7,074 3,384 (3,982)
Federal and state income tax provision (benefit)........... (160) (807) 2,653 1,241 (1,084)
--------- --------- --------- --------- ---------
Net income (loss).......................................... $(505) $(1,315) $ 4,421 $ 2,143 (2,898)
--------- --------- --------- --------- ---------
Earnings (loss) per common share........................... $(.07) $(.19) $.61 $.32 $(.45)
--------- --------- --------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding....................................... 6,741 7,078 7,208 6,789 6,462
--------- --------- --------- --------- ---------
Cash dividends declared.................................... None None None None None
--------- --------- --------- --------- ---------
Balance Sheet at June 30,
Total assets............................................. $ 62,290 $ 64,235 $ 73,815 $ 75,951 $ 46,477
--------- --------- --------- --------- ---------
Long-term debt........................................... $ 7,000 $ 12,200 $ 17,200 $ 22,080 $ 140
--------- --------- --------- --------- ---------
Shareholders' equity..................................... $ 42,844 $ 44,748 $ 46,538 $ 41,984 $ 33,607
--------- --------- --------- --------- ---------
Book value per share..................................... $ 6.41 $ 6.38 $ 6.56 $ 5.94 $ 5.17
--------- --------- --------- --------- ---------
</TABLE>
Revenue and Earnings by Quarter (Unaudited)
<TABLE>
<CAPTION>
IN THOUSANDS (EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal 1997
Gross revenue......................................................... $ 18,029 $ 17,210 $ 15,874 $ 17,393
Net service revenue................................................... 13,385 12,725 11,868 12,810
Income (loss) from operations......................................... 535 395 (786) 20
Income (loss) before taxes............................................ 338 193 (989) (207)
Net income (loss)..................................................... $ 209 $ 120 $ (613) $ (221)
Earnings (loss) per common share...................................... $ .02 $ .03 $ (.09) $ (.03)
Fiscal 1996 (1)
Gross revenue......................................................... $ 20,019 $ 19,960 $ 19,422 $ 17,598
Net service revenue................................................... 16,247 15,380 14,809 13,582
Income (loss) from operations......................................... (1,453) 1,102 (529) (336)
Income (loss) before taxes............................................ (1,708) 869 (741) (542)
Net income (loss)..................................................... $ (1,059) $ 539 $ (455) $ (340)
Earnings (loss) per common share...................................... $ (.15) $ .08 $ (.06) $ (.05)
</TABLE>
<PAGE>
Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read in conjunction with the Selected
Financial Data, the Consolidated Financial Statements and related Notes to
Consolidated Financial Statements.
OVERVIEW
The Company provides a broad range of environmental engineering,
consulting and remediation services, specializing in all areas of air
pollution control, solid and hazardous waste management, risk assessment,
process and traffic engineering, and natural and cultural resources
management, and related services. In addition, the Company, through its
instrumentation subsidiary, develops and manufactures air monitoring
instrumentation. The Company's services and produtcts are provided to
commercial organizations and government agencies primarily in the U.S. market.
RESULTS OF OPERATIONS
The Company, in the course of providing its services, routinely
subcontracts drilling, laboratory analyses and other specialized services.
These costs are passed directly through to clients and, in accordance with
industry practice, are included in gross revenue. Because subcontractor costs
and direct charges can vary significantly from project to project, the change
in gross revenue is not necessarily a true indication of business trends.
Accordingly, the Company considers net service revenue, which is gross
revenue less subcontractor costs and direct charges, as its primary measure
of revenue growth.
The following table presents the percentage relationships of certain
items in the consolidated statements of operations to net service revenue:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1997 1996 1995
- ----------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net service revenue...................................................................... 100.0% 100.0% 100.0%
--------- --------- ---------
Operating costs and expenses:
Salaries and other direct costs of services............................................. 87.2 90.6(1) 78.5
General and administrative expenses..................................................... 7.0 6.6 5.5
Depreciation and amortization........................................................... 5.5 4.8 4.2
--------- --------- ---------
Income (loss) from operations ........................................................... .3 (2.0)(1) 11.8
Interest expense......................................................................... 1.6 1.5 1.9
--------- --------- ---------
Income (loss) before taxes............................................................... (1.3) (3.5) 9.9
Federal and state income tax provision (benefit) ........................................ (.3) (1.3) 3.7
--------- --------- ---------
Net income (loss)........................................................................ (1.0)% (2.2)% 6.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) 83.3% and 5.3%, respectively, before operating charges.
1997 Compared to 1996
Net service revenue decreased by 15.4% in fiscal 1997 to $50.8 million,
from $60 million in fiscal 1996. The decrease was primarily due to the
continued weak environmental services market resulting from regulatory
uncertainty and budget reductions in federal enforcement spending, which has
led to overall lower levels of expenditures by industry for environmental
<PAGE>
engineering and remedial services, coupled with greater competition and
capacity for available work. For the first time in two years, net service
revenue began trending upwards in the fourth quarter of fiscal 1997, compared
to the third quarter of fiscal 1997. The Company believes that the larger
revenue declines experienced during the past two years are not expected to
recur in the near future.
Salaries and other direct costs of services decreased by 18.6% or $10.1
million in fiscal 1997, as compared to fiscal 1996. This decrease was
primarily due to the $4.4 million operating charges recorded in fiscal 1996
and the result of cost reduction efforts. The operating charges were related
to staff reductions, excess lease capacity and increased allowances for
receivables and inventories.
In connection with the $4.4 million operating charges recorded in fiscal
1996, approximately $.4 million and $3.7 million were charged against the
accrual in fiscal 1997 and 1996, respectively. At June 30, 1997, remaining
liabilities of approximately $.3 million were included in other accrued
liabilities.
General and administrative expenses decreased by 9.7% in fiscal 1997, as
compared to fiscal 1996, primarily due to continued cost reduction efforts.
Depreciation and amortization decreased by 3.7% in fiscal 1997, compared
to fiscal 1996. This decrease was due to the comparative reduction in
expenditures for equipment in fiscal 1997 and 1996, combined with the effect
of other equipment that became fully depreciated.
The Company reported income from operations of $.2 million in fiscal
1997, compared to a loss from operations of $1.2 million in fiscal 1996. The
loss in fiscal 1996 included operating charges of $4.4 million, while the
results for fiscal 1997 were adversely affected by the impact of the
continued reduction in net service revenue.
Interest expense decreased in fiscal 1997 by 8.5%, compared to fiscal
1996. This decrease resulted primarily from lower levels of debt outstanding.
The provision (benefit) for federal and state income taxes for fiscal
1997 was recorded at an effective rate of approximately 24%. The effective
tax rate on losses decreased from 38% in fiscal 1996 to 24% in fiscal 1997,
primarily due to foreign taxes paid for which a foreign tax credit was not
available. The tax benefit of fiscal 1997 federal losses will be realized
through the carryback of such losses to prior years. The Company believes
that there will be sufficient taxable income in the carryforward periods to
enable utilization of the deferred tax benefits.
1996 Compared to 1995
The Company reported a net loss in fiscal 1996 of $1.3 million or $.19
per share, compared to net income of $4.4 million or $.61 per share in fiscal
1995. The loss included charges of $4.4 million (approximately $2.8 million
after taxes) related to reductions in staff, the closing of certain offices,
excess lease costs and increased allowances for receivables and inventories.
These charges were necessary because of the continued weak environmental
services market resulting from regulatory uncertainty and anticipated
reductions in federal enforcement spending, which has led to overall lower
levels of expenditures by industry for environmental engineering and remedial
services, coupled with greater competition and capacity for available work.
<PAGE>
Net service revenue decreased by 16.4% in fiscal 1996 to $60 million,
from $71.8 million in fiscal 1995. The decrease was primarily due to the weak
commercial hazardous waste engineering market resulting from regulatory
uncertainty and anticipated reductions in federal enforcement spending and
the reduction in services to the federal government.
Salaries and other direct costs of services decreased by 3.5% or $2.0
million in fiscal 1996, as compared to fiscal 1995. Although partially offset
by the $4.4 million operating charges recorded during the year, this decrease
was the direct result of continued cost reduction efforts taken to align
resources with business conditions.
General and administrative expenses decreased by .4% in fiscal 1996, as
compared to fiscal 1995, primarily due to continued cost reduction efforts.
Depreciation and amortization decreased by 4.6% in fiscal 1996, as
compared to fiscal 1995. This decrease was due to the comparative reduction
in expenditures for equipment in fiscal 1996 and 1995, combined with the
effect of other equipment which became fully depreciated.
The Company reported a loss from operations of $1.2 million in fiscal
1996, compared to income from operations of $8.5 million in fiscal 1995. The
loss was the direct result of the operating charges recorded during fiscal
1996 and the impact of the reduction in net service revenue.
Interest expense decreased in fiscal 1996 to $.9 million, from $1.4
million last year. The decrease resulted from lower levels of debt
outstanding at lower rates of interest.
The provision (benefit) for federal and state income taxes for fiscal
1996 was recorded at an effective rate of approximately 38%. The Company
provides for income taxes in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, and
believes that there will be sufficient taxable income in the carryforward
periods to enable utilization of the deferred tax benefits.
IMPACT OF INFLATION
The Company's operations have not been materially affected by inflation
or changing prices because of the short-term nature of many of its contracts,
and the fact that most contracts of a longer term are subject to adjustment
or have been priced to cover anticipated increases in labor and other costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash provided by operations and borrowings based
upon the strength of its balance sheet to fund operations. The Company's
liquidity is assessed in terms of its overall ability to generate cash to
fund its operating and investing activities, and to reduce debt. Of
particular importance in the management of liquidity are cash flows generated
from operating activities, capital expenditure levels and an adequate bank
line of credit.
Cash flows from operating activities decreased by $1.8 million in fiscal
1997, compared to the prior year. Although operating results improved in
fiscal 1997, results in the prior year included $2.6 million of non-cash
charges primarily for receivables and inventories. Additionally, there was a
reduction in accounts receivable collections in fiscal 1997, compared to last
year.
<PAGE>
Cash used for investing activities increased $.4 million in fiscal 1997,
compared to the prior year, primarily related to additions to property and
equipment, net of disposals, and an increase in other assets. The Company
made capital expenditures of approximately $.6 million in fiscal 1997 and
expects to make capital expenditures of approximately $.5 million in fiscal
1998.
Cash used for financing activities decreased by $2.8 million in fiscal
1997, compared to the prior year. The decrease relates to lower repayments of
debt in fiscal 1997, partially offset by the purchase of treasury stock.
The Company relies on its bank financing arrangement to assist in funding
various operating and financing activities. On August 25, 1997, the Company
entered into an amendment to the revolving credit agreement which expires
June 30, 1998. Under the amended terms, the Company has available a $7
million credit facility secured by accounts receivable that will reduce
quarterly to $4 million at June 30, 1998. Borrowings under the amended
agreement will bear interest at the bank's base rate or the Eurodollar rate
plus 2%. The amended agreement requires the Company to meet certain financial
ratios beginning with the quarter ending September 30, 1997. At June 30,
1997, outstanding borrowings pursuant to the agreement were $4 million, at an
average interest rate of 6.5%. The Company expects to repay a substantial
portion of the outstanding balance over the next year from available cash
flow.
The Company did not make the $7 million final principal payment due March
21, 1997 on the 5 3/4% subordinated note issued in March 1994 in connection
with the acquisition of Environmental Solutions, Inc. As a result, the note
has been amended extending the payment term and increasing the interest rate
to the greater of the interest rate paid on the Company's bank debt or
7 3/4%. The outstanding balance at June 30, 1997 will be repaid in two equal
installments of $3.5 million on July 1, 1998 and 1998.
The Company expects to increase its available cash flow over the next
year primarily from cost reduction efforts, which included the elimination of
certain senior management staff and their associated salaries and expenses,
and from reductions in working capital derived mainly from the collection of
accounts receivable. The Company believes that cash generated from
operations, the cash on hand at June 30, 1997 and available borrowings under
the revolving credit agreement will be sufficient to meet the Company's cash
requirements for fiscal 1998. Upon termination of the revolving credit
agreement on June 30, 1998, the Company expects to renew or replace the
agreement.
In fiscal 1997, the Company acquired 381,900 shares of its common stock
for approximately $1.6 million, pursuant to a 500,000 share stock repurchase
program announced in February 1996. A total of 459,000 shares were
repurchased under this program before it was suspended.
OTHER MATTERS
On April 1, 1997, based on the recommendation of a Special Committee of
the outside board members of the Company, the Board elected Richard D.
Ellison, Ph.D., P.E., as Chairman of the Board, President and Chief Executive
Officer. In addition to assuming these new roles at TRC Companies, Inc., Dr.
Ellison continues in his present position as President of TRC Environmental
Solutions, Inc., a subsidiary of the Company. Vincent A. Rocco, former
Chairman and Chief Executive Officer, and Bruce D. Cowen, former President
and Director, had resigned. The Special Committee was formed on March 28,
1997 by the Board to investigate the allegations of improper exercising of
stock options and other matters by Messrs. Rocco and Cowen. The Special
Committee conducted its investigation with the assistance of outside
<PAGE>
counsel and accountants who had no prior affiliation with the Company, and
also consulted with the Company's independent accountants. The investigation
revealed no circumstances that had any material effect on the Company's
historical audited financial statements.
The Company has entered into agreements with Messrs. Rocco and Cowen
under which they have agreed to reimburse the Company fully for the Company's
damages related to their exercise of excess stock options and their travel
and entertainment expenses in excess of Company policy. The final amount of
damages is now being determined by binding arbitration. At June 30, 1997,
costs incurred in connection with the investigation were approximately $.8
million and are included in prepaid expenses and other current assets. The
Company believes that the amount of reimbursement from Messrs. Rocco and
Cowen will be sufficient to recover the costs carried at June 30, 1997.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS
128), which establishes new standards for computing and presenting earnings
per share requiring the presentation of basic and diluted earnings per share.
FAS 128 is effective for the Company beginning with the fiscal quarter ending
December 31, 1997, including restatement of prior periods; earlier
application is not permitted. If earnings (loss) per share for the fiscal
years ended June 30, 1997 and 1996 had been computed under FAS 128, the per
share amounts of basic and diluted earnings (loss) per share would have been
the same as reported.
In June 1997, Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (FAS 130), was issued and establishes
standards for reporting and displaying comprehensive income and its
components. FAS 130 requires comprehensive income and its components, as
recognized under the accounting standards, to be displayed in a financial
statement with the same prominence as other financial statements. The Company
plans to adopt the standard beginning in fiscal 1999, as required. Adoption
is not expected to have a material impact on the financial position or
results of operations of the Company.
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, also issued in June 1997,
establishes new standards for reporting information about operating segments
in annual and interim financial statements. The standard also requires
descriptive information about the way the operating segments are determined,
the products and services provided by the segments and the nature of
differences between reportable segment measurements and those used for the
consolidated enterprise. This standard will be effective for the Company in
fiscal 1999. Adoption in interim financial statements is not required until
the year after initial adoption; however, comparative prior period
information is required. Adoption is not expected to have a material impact
on the financial position or results of operations of the Company.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that describe the
Company's business prospects. These statements involve risks and
uncertainties including, but not limited to, regulatory uncertainty, funding
for government projects, level of demand for the Company's services, product
acceptance, industry-wide competitive factors and political, economic or
other conditions. Furthermore, market trends are subject to changes which
could adversely affect future results.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Gross revenue....................................................... $ 68,506,377 $ 76,999,021 $ 93,013,053
Less subcontractor costs and direct charges........................ 17,717,944 16,980,826 21,200,380
------------- ------------- -------------
Net service revenue................................................. 50,788,433 60,018,195 71,812,673
------------- ------------- -------------
Operating costs and expenses:
Salaries and other direct costs of services........................ 44,270,255 54,388,351 56,353,248
General and administrative expenses................................ 3,565,348 3,949,996 3,964,625
Depreciation and amortization...................................... 2,788,560 2,896,046 3,037,260
------------- ------------- -------------
50,624,163 61,234,393 63,355,133
------------- ------------- -------------
Income (loss) from operations....................................... 164,270 (1,216,198) 8,457,540
Interest expense.................................................... 829,172 905,855 1,399,288
Other income, net................................................... -- -- (15,813)
------------- ------------- -------------
Income (loss) before taxes.......................................... (664,902) (2,122,053) 7,074,065
Federal and state income tax provision (benefit).................... (160,000) (807,000) 2,653,000
------------- ------------- -------------
Net income (loss)................................................... $ (504,902) $ (1,315,053) $ 4,421,065
------------- ------------- -------------
------------- ------------- -------------
Earnings (loss) per common share..................................... $ (.07) $ (.19) $ .61
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common and common equivalent shares
outstanding....................................................... 6,741,131 7,077,845 7,207,650
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 1996
- ------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................................... $ 1,020,065 $ 1,321,524
Accounts receivable, less allowance for doubtful accounts........................... 26,539,226 27,977,190
Inventories......................................................................... 1,092,391 915,336
Income taxes refundable............................................................. 598,677 --
Deferred income tax benefits........................................................ 884,000 1,219,000
Prepaid expenses and other current assets........................................... 1,324,114 444,583
------------- ------------
31,458,473 31,877,633
------------- ------------
Property and equipment:
Furniture and equipment............................................................. 18,839,801 18,304,956
Leasehold improvements.............................................................. 1,455,895 1,362,378
------------- ------------
20,295,696 19,667,334
Less accumulated depreciation and amortization...................................... 15,596,670 13,802,300
------------- ------------
4,699,026 5,865,034
------------- ------------
Costs in excess of net assets of acquired businesses, net of accumulated amortization
of $3,559,985 and $2,648,246, respectively......................................... 25,310,445 25,903,615
------------- ------------
Other assets......................................................................... 822,315 588,407
------------- ------------
$62,290,259 $64,234,689
------------- ------------
------------- ------------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of debt............................................................. $ 4,000,000 $ 7,000,000
Accounts payable.................................................................... 2,740,240 2,209,401
Accrued compensation and benefits................................................... 2,508,369 2,542,809
Income taxes payable................................................................ -- 53,431
Other accrued liabilities........................................................... 1,529,992 1,068,781
------------- ------------
10,778,601 12,874,422
------------- ------------
Non-current liabilities:
Long-term debt...................................................................... 7,000,000 5,200,000
Accrued lease obligations........................................................... -- 96,480
Deferred income taxes............................................................... 1,668,000 1,316,000
------------- ------------
8,668,000 6,612,480
------------- ------------
Commitments and Contingencies (Notes 6 and 8)
Shareholders' equity:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued................... -- --
Common, $.10 par value; 30,000,000 shares authorized, 7,316,755 and 7,265,755 shares
issued at June 30, 1997 and 1996, respectively.................................... 731,675 726,575
Additional paid-in capital.......................................................... 38,093,644 37,894,744
Retained earnings................................................................... 6,915,342 7,420,244
------------- ------------
45,740,661 46,041,563
Less treasury stock, at cost........................................................ 2,897,003 1,293,776
------------- ------------
42,843,658 44,747,787
------------- ------------
$62,290,259 $64,234,689
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $(504,902) $(1,315,053) $ 4,421,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 2,788,560 2,896,046 3,037,260
Change in deferred taxes and other non-cash items......... 367,994 (689,922) 927,446
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable...................................... 1,880,004 4,329,675 88,148
Inventories.............................................. (177,055) 1,015,043 (212,249)
Prepaid expenses and other current assets................ (792,163) (46,396) 263,780
Accounts payable......................................... 397,510 (779,619) 129,480
Accrued compensation and benefits........................ (118,459) (388,121) (500,511)
Income taxes............................................. (652,108) (535,888) (172,957)
Accrued costs related to disposed business............... -- (37,492) (937,471)
Other accrued liabilities................................ 73,349 589,371 (833,228)
------------ ----------- ------------
Net cash provided by operating activities.................... 3,262,730 5,037,644 6,210,763
------------ ----------- ------------
Cash flows from investing activities:
Additions to property and equipment......................... (643,213) (585,304) (1,283,547)
Disposal of equipment, net.................................. 19,744 165,089 148,440
Decrease (increase) in other assets......................... (137,493) 80,847 (176,840)
------------ ----------- ------------
Net cash used in investing activities........................ (760,962) (339,368) (1,311,947)
------------ ----------- -----------
Cash flows from financing activities:
Repayments of debt, net..................................... (1,200,000) (5,000,000) (4,880,000)
Purchase of treasury stock.................................. (1,603,227) (515,550) --
Proceeds from exercise of stock options..................... -- 38,481 94,453
Principal repayments under capitalized lease obligations.... -- (80,447) (176,649)
------------ ----------- -----------
Net cash used in financing activities........................ (2,803,227) (5,557,516) (4,962,196)
------------ ----------- -----------
Decrease in cash and cash equivalents........................ (301,459) (859,240) (63,380)
Cash and cash equivalents, beginning of year................. 1,321,524 2,180,764 2,244,144
------------ ----------- -----------
Cash and cash equivalents, end of year....................... $ 1,020,065 $ 1,321,524 $ 2,180,764
------------ ----------- -----------
Supplemental cash flow information:
Interest paid............................................... $ 757,193 $ 867,467 $ 1,384,156
Income taxes paid (refunded)................................ (118,631) 276,993 1,807,279
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TRC Companies, Inc. and subsidiaries
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ISSUED TREASURY STOCK
---------------------- ADDITIONAL ----------------------
NUMBER PAID-IN RETAINED NUMBER
OF SHARES AMOUNT CAPITAL EARNINGS OF SHARES AMOUNT
---------- ---------- ------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1994.................... 7,241,289 $ 724,129 $ 37,723,430 $ 4,314,232 169,653 $ (778,226)
Exercise of stock options.................. 15,582 1,558 92,895 -- -- --
Income tax benefit from stock option
transactions............................. -- -- 14,000 -- -- --
Issuance of common stock in connection with
business acquired........................ 2,334 233 24,767 -- -- --
Net income................................. -- -- -- 4,421,065 -- --
---------- ---------- ------------- ------------ --------- -----------
Balances, June 30, 1995.................... 7,259,205 725,920 37,855,092 8,735,297 169,653 (778,226)
Purchase of treasury stock................. -- -- -- -- 77,100 (515,550)
Exercise of stock options.................. 6,550 655 37,826 -- -- --
Income tax benefit from stock option
transactions............................. -- -- 1,826 -- -- --
Net loss................................... -- -- -- (1,315,053) -- --
---------- ---------- ------------- ------------ --------- -----------
Balances, June 30, 1996.................... 7,265,755 726,575 37,894,744 7,420,244 246,753 (1,293,776)
Issuance of common stock in connection with
business acquired........................ 51,000 5,100 198,900 -- -- --
Purchase of treasury stock................. -- -- -- -- 381,900 (1,603,227)
Net loss................................... -- -- -- (504,902) -- --
---------- ---------- ------------- ------------ --------- -----------
Balances, June 30, 1997.................... 7,316,755 $ 731,675 $ 38,093,644 $ 6,915,342 628,653 $(2,897,003)
---------- ---------- ------------- ------------ --------- -----------
---------- ---------- ------------- ------------ --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TRC COMPANIES, INC. AND SUBSIDIARIES
Note 1. ACCOUNTING POLICIES
A. The consolidated financial statements include the Company and its
wholly owned subsidiaries, after elimination of intercompany accounts and
transactions. Certain financial statement items have been reclassified to
conform to the current year's format.
B. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
C. Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out (FIFO) method.
The components of inventories at June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Materials and supplies.................................................................. $ 637,147 $ 539,054
Work-in-process......................................................................... 33,552 60,787
Finished goods.......................................................................... 421,692 315,495
------------ ----------
$ 1,092,391 $ 915,336
------------ ----------
------------ ----------
</TABLE>
D. Property and equipment are stated on the basis of cost, including
costs which bring the equipment into operation. Major improvements and
betterments to existing equipment are capitalized. Maintenance and repairs
are charged to expense as incurred.
The Company provides for depreciation of property and equipment on the
straight-line method using estimated useful lives of 3 to 10 years.
Accelerated methods are used for income tax purposes.
E. Leasehold improvements are amortized over the lives of the various
leases or the useful lives of the improvements, whichever is shorter.
F. Costs in excess of the fair value of net assets of acquired businesses
are primarily amortized over 30 years on a straight-line basis. On a periodic
basis, the Company reassesses the appropriateness of both the carrying value
and remaining life of these costs. Such reassessments are computed using
forecasted cash flows, on an undiscounted basis, and other factors.
<PAGE>
G. Revenue on engineering and consulting contracts is recognized as the
services are performed and the related costs are incurred. Revenue is
recognized from sales of instruments when the product is shipped.
The Company makes revisions in its cost estimates as required during the
course of performing contracts; the impact of such revisions is reflected in
the accounting periods in which the relevant facts become known.
H. Research and development costs are charged to operations as incurred
and amounted to approximately $190,000, $283,000 and $204,000 in fiscal 1997,
1996 and 1995, respectively.
I. The Company applies the provisions of Accounting Principles Board
Opinion No. 25, Accounting For Stock Issued to Employees (APB25) and related
interpretations in accounting for stock options
J. The Company provides for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax liabilities and assets are
determined based on the difference between the carrying amounts and tax bases
of assets and liabilities.
K. Earnings per common share are based upon the weighted average number
of common shares outstanding and, when dilutive, outstanding warrants and
stock options are included as common share equivalents using the treasury
stock method.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS
128), which establishes new standards for computing and presenting earnings
per share requiring the presentation of basic and diluted earnings per share.
FAS 128 is effective for the Company beginning with the fiscal quarter ending
December 31, 1997, including restatement of prior periods; earlier
application is not permitted. If earnings (loss) per share for the fiscal
years ended June 30, 1997 and 1996 had been computed under FAS 128, the per
share amounts of basic and diluted earnings (loss) per share would be the
same as reported
L. The Company has 401(k) savings plans covering substantially all
employees. The Company's contributions to the plans were approximately
$543,000, $661,000 and $721,000 in fiscal 1997, 1996, and 1995, respectively.
The Company does not have any employee benefit plans that provide
post-retirement or post-employment benefits.
M. Cash, accounts receivable, accounts payable, accrued liabilities and
the Company's subordinated note as reflected in the financial statements are
reasonable estimates of their fair value because of the short-term maturity
of those instruments.
The carrying amount of the Company's note payable pursuant to its
revolving credit agreement approximates fair value because the interest rate
on this instrument changes with market interest rates.
<PAGE>
Note 2. BUSINESS ACTIVITIES
The Company conducts its activities under one business segment which
involves providing engineering and consulting services primarily in the areas
of air pollution control, solid and hazardous waste management, risk
assessment, process and traffic engineering, and natural and cultural
resources management. In addition, the Company through its instrumentation
subsidiary, develops and manufactures air monitoring instrumentation. The
Company's services and products are provided to commercial organizations and
governmental agencies primarily in the U.S. market.
Note 3. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Amounts billed..................................................................... $ 20,026,212 $ 22,320,356
Unbilled costs..................................................................... 8,103,445 7,402,002
Retainage.......................................................................... 709,569 754,832
------------- -------------
28,839,226 30,477,190
Less allowance for doubtful accounts............................................... 2,300,000 2,500,000
------------- -------------
$ 26,539,226 $ 27,977,190
------------- -------------
------------- -------------
</TABLE>
Management expects that substantially all unbilled costs will be billed
and collected in the subsequent year. Retainage represents amounts billed but
not paid by the client which, pursuant to the contract, are due upon
completion and acceptance by the client.
Net service revenue from contracts with U.S. Government agencies amounted
to approximately $10,998,000, $10,418,000 and $11,135,000 in fiscal 1997,
1996 and 1995, respectively.
Note 4. DEBT
Debt at June 30, 1997 and 1996 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable -- revolving credit agreement............................................ $ 4,000,000 $ 5,200,000
Subordinated note..................................................................... 7,000,000 7,000,000
------------ ------------
11,000,000 12,200,000
Less current portion.................................................................. 4,000,000 7,000,000
------------ ------------
Long-term debt........................................................................ $ 7,000,000 $ 5,200,000
------------ ------------
------------ ------------
</TABLE>
At June 30, 1997, borrowings outstanding pursuant to the revolving credit
agreement with a commercial bank were $4,000,000 at an average interest rate
of 6.5%. The Company did not meet certain financial covenants at June 30,
1997 related to interest coverage and profitability. On August 25, 1997, the
Company entered into an amendment to the agreement, which expires June 30,
1998. Under the amended agreement, the Company has available a $7,000,000
<PAGE>
credit facility secured by accounts receivable that will reduce quarterly to
$4,000,000 at June 30, 1998. Borrowings under the amended agreement will bear
interest at the bank's base rate or the Eurodollar rate plus 2%. The Company
will pay a commitment fee of .5% on the unused portion of the facility. The
amended agreement requires the Company to meet certain financial ratios
beginning with the quarter ending September 30, 1997.
The Company did not make the $7,000,000 final principal payment due March
21, 1997 on the 5 3/4% subordinated note issued in March 1994, in connection
with the acquisition of Environmental Solutions, Inc. As a result, the note
has been amended extending the payment term and increasing the interest rate
to the greater of the interest paid on the bank debt or 7 3/4%. In addition,
warrants to purchase 50,000 shares of the Company's common stock were issued
to the noteholder, exercisable at $4.50 per share and expiring July 11, 2000.
The outstanding balance at June 30, 1997 will be repaid in two equal
installments of $3,500,000 on July 1, 1998 and 1999.
Note 5. FEDERAL AND STATE INCOME TAXES
The federal and state income tax provision (benefit) for fiscal 1997, 1996
and 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- -------------
<S> <C> <C> <C>
Current:
Federal...................................................................... $(798,000) $(375,000) $ 1,116,480
State........................................................................ 10,000 18,000 410,520
Foreign...................................................................... -- 102,000 --
Deferred:
Federal...................................................................... 623,000 (555,000) 987,000
State........................................................................ 5,000 3,000 139,000
------------- ---------- ------------
$(160,000) $(807,000) $ 2,653,000
-------------- ---------- ------------
-------------- ---------- ------------
</TABLE>
Deferred income taxes represent the tax effect of transactions which are
reported in different periods for financial and tax reporting purposes.
Temporary differences and carryforwards which give rise to a significant portion
of deferred income tax benefits (liabilities) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Deferred income tax benefits:
Doubtful accounts and other accruals...................................... $ 719,000 $ 1,026,000 $ 619,875
Costs related to disposed business........................................ -- -- 14,250
Adjustment of inventories and contracts to tax basis...................... 138,000 79,000 171,750
Other, net................................................................ 27,000 114,000 358,827
----------- ------------- ------------
$ 884,000 $ 1,219,000 $ 1,164,702
----------- ------------- ------------
Deferred income tax liabilities:
Depreciation and amortization............................................. $(1,553,000) $(1,422,000) $(1,040,400)
Accrued lease obligations................................................. 97,000 254,000 175,100
Other, net................................................................ (212,000) (148,000) (161,310)
----------- ------------- ------------
$(1,668,000) $(1,316,000) $(1,026,610)
----------- ------------- ------------
----------- ------------- ------------
</TABLE>
<PAGE>
A reconciliation of the federal statutory and the Company's effective income
tax rates follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate............................................................................ (34.0)% (34.0)% 34.0%
Foreign taxes for which a foreign tax credit was not available............................ 10.1 -- --
State taxes, net of federal tax benefit................................................... 1.7 .6 5.2
Other, net................................................................................ (1.8) (4.6) (1.7)
--------- --------- ---------
Effective income tax rate................................................................. (24.0)% (38.0)% 37.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Note 6. LEASE COMMITMENTS
The Company has commitments at June 30, 1997 under noncancelable operating
leases primarily for office and warehouse space and for computer and office
equipment. Rental payments charged to operations in fiscal 1997, 1996 and 1995
were approximately $4,179,000, $4,526,000 and $4,517,000, respectively. Certain
leases for office and warehouse space require payments for expenses under
escalation clauses. In addition, the Company subleases space in certain of its
offices. Sublease receipts credited to operations in fiscal 1997 amounted to
approximately $548,000 and future sublease receipts as of June 30, 1997 are
approximately $1,682,000 in the aggregate.
Minimum future lease obligations payable in future fiscal years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- ---------------------------------------------------------------------------------------------------
<S> <C>
1998.............................................................................................. $ 3,950,000
1999.............................................................................................. 3,213,000
2000.............................................................................................. 2,548,000
2001.............................................................................................. 1,243,000
2002.............................................................................................. 392,000
2003 and thereafter............................................................................... --
-------------
$ 11,346,000
-------------
-------------
</TABLE>
Note 7. STOCK OPTIONS
The Company's non-qualified stock option plan for employees and
directors, as amended, authorizes the granting of options, including
performance based options, with exercise prices at no less than the fair
market value of the common stock on the date such options are granted. The
exercisable option period is fixed by the Compensation Committee of the Board
of Directors at the time of grant, but cannot exceed ten years and generally
begins one year after the date of grant. No accounting recognition is given
to stock options until they are exercised, at which time the proceeds are
credited to the capital accounts. The Company receives a tax benefit upon
exercise of these options in an amount equal to the difference between the
option price and the fair market value of the common stock. Tax benefits
related to stock options are credited to additional paid-in capital when
realized for financial reporting purposes.
Additionally, in fiscal 1997 the Company granted options to purchase
516,600 shares of common stock that are contingent upon the attainment of
certain performance goals in fiscal 1998, expiring eight years from the grant
date.
<PAGE>
The Company had a separate stock option plan for directors who were not
employees. In fiscal 1997, the stock option plan for directors was terminated
and the stock option plan for employees was amended to include directors. As
a result, the 12,000 options outstanding under the directors' plan at the
time of termination were transferred to the stock option plan for employees.
A summary of stock option activity for the three years ended June 30,
1997 follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE AVERAGE
FOR THE YEARS ENDED JUNE 30, OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ---------------------------------------------------------- ---------- --------- ---------- ----------- --------- -----------
Outstanding options, beginning of year.................... 577,959 $ 6.86 772,311 $ 9.36 693,424 $ 9.20
Granted................................................... 736,600 3.66 401,139 7.06 129,600 9.96
Exercised................................................. -- -- (6,550) 5.88 (15,582) 6.06
Canceled.................................................. (588,207) 6.00 (588,941) 10.28 (35,131) 9.95
Transfer from directors' plan............................. 12,000 8.88 -- -- -- --
---------- --------- ---------- ----- --------- -----
Outstanding options, end of year.......................... 738,352 $ 4.38 577,959 $ 6.86 772,311 $ 9.36
---------- --------- ---------- ----- --------- -----
Options exercisable at end of year........................ 80,536 $ 7.52 226,817 $ 6.58 459,409 $ 9.22
---------- --------- ---------- ----- --------- -----
Options available for future grants....................... 848,591 496,984 309,182
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The following table summarizes information about outstanding stock options
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ------------------------
<S> <C> <C> <C> <C>
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE SHARES PRICE TERM SHARES PRICE
- -------------- --------- ----------- ----------- ----------- -----------
$3.50--$4.25... 574,100 $3.55 7.46 -- --
6.00--10.38... 164,252 7.29 3.28 80,536 $7.52
</TABLE>
In fiscal 1996, the Company gave option holders the right to cancel their
existing options and be issued new options at a ratio of two existing option
shares in exchange for one new option share. The new non-qualified options
were issued at the fair market value of the stock on the date such options
were granted and have terms and conditions consistent with the Company's
stock option plan. The Company canceled 525,178 options and issued 262,589
new options under the program.
In connection with the acquisition of Environmental Solutions, Inc. (ESI)
in fiscal 1994, the Company authorized the issuance of warrants to the
employees of ESI to purchase 100,000 shares of common stock, under the same
terms and conditions as the employee stock option plan. At June 30, 1997
warrants to purchase 22,200 shares of common stock at $6.63 per share were
outstanding.
Since the Company applies the provisions of APB 25 and related
interpretations in accounting for stock options, no compensation cost has
been recognized in the Company's consolidated statements of operations for
the stock option and warrant plans. Had compensation cost for the stock
option and warrant plans been determined based on the fair value at the grant
date for awards under those plans, consistent
<PAGE>
with the requirements of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's pro forma net income
(loss) and earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Net income (loss), as reported................................................................... $(505) $ (1,315)
Net income (loss), pro forma..................................................................... (601) (1,618)
Earnings (loss) per share, as reported .......................................................... (.07) (.19)
Earnings (loss) per share, pro forma ............................................................ (.09) (.23)
</TABLE>
In arriving at the pro forma amounts, the fair value of each option and
warrant grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Risk-free interest rate...................................................................... 6.5% 5.8%
Expected life................................................................................ 5 years 5 years
Expected volatility.......................................................................... 53% 45%
Expected dividend yield ..................................................................... None None
</TABLE>
The weighted average fair values of options granted during fiscal 1997 and
1996 were $2.19 and $3.31, respectively.
Note: 8. CONTINGENCIES
On March 28, 1997, the Board of Directors created a Special Committee of
outside board members of the Company to investigate the exercise of stock
options by then Chairman and Chief Executive Officer, Vincent A. Rocco, and
then President and Director, Bruce D. Cowen, as well as other matters. The
Special Committee conducted its investigation with the assistance of outside
counsel and accountants who had no prior affiliation with the Company, and
also consulted with the Company's independent accountants. The investigation
revealed no circumstances that had any material effect on the Company's
historical audited financial statements.
The Company has entered into agreements with Messrs. Rocco and Cowen
under which they have agreed to reimburse the Company fully for the Company's
damages related to their exercise of excess stock options and their travel
and entertainment expenses in excess of Company policy. At June 30, 1997,
costs incurred in connection with the investigation were approximately
$800,000, and are included in prepaid expenses and other current assets. The
Company believes that the amount of reimbursement from Messrs. Rocco and
Cowen will be sufficient to recover the costs carried at June 30, 1997. The
final amount of damages is being determined by binding arbitration.
The Company's contracts with the U.S. Government are subject to
examination and renegotiation. Contracts and other records of the Company
have been examined through June 30, 1992. The Company believes that
adjustments resulting from such examinations or renegotiation proceedings, if
any, will not have a significant impact on the Company's financial condition
or results of operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of TRC Companies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of TRC Companies, Inc. and its subsidiaries at June 30,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Hartford, Connecticut Price Waterhouse LLP
August 26, 1997
<PAGE>
TRC COMPANIES, INC.
DIRECTORS
Richard D. Ellison
Chairman, President and Chief Executive Officer
TRC Companies, Inc.
Edward W. Large *
Counsel to the law firms of Crowell & Moring
and Day, Berry & Howard; formerly Executive
Vice President and Director of United
Technologies Corporation
Richard J. McGuire, Jr.
President
TRC Mariah Associates, Inc.
J. Jeffrey McNealey *
Partner in the law firm of
Porter, Wright, Morris & Arthur
Edward G. Jepsen *
Executive Vice President and
Chief Financial Officer of
Amphenol Corporation
* Audit Committee Member
OFFICERS
Richard D. Ellison
Chairman, President and Chief Executive Officer
John H. Claussen
Senior Vice President
Martin H. Dodd
Senior Vice President and General Counsel
Harold C. Elston, Jr.
Vice President and Treasurer
<PAGE>
SUBSIDIARY OPERATING OFFICERS
John H. Claussen
President
TRC Environmental Corporation
Richard D. Ellison
President
TRC Environmental Solutions, Inc.
Miro Knezevic
Executive Vice President
TRC Environmental Solutions, Inc.
Richard J. McGuire, Jr.
President
TRC Mariah Associates, Inc.
Pedro Lilienfeld
President
MIE, Inc.
SHAREHOLDER INFORMATION
EXECUTIVE OFFICES
TRC Companies, Inc.
5 Waterside Crossing
Windsor, Connecticut 06095
(860) 289-8631
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
ANNUAL MEETING
The 1997 annual meeting of shareholders will be held on Friday, October 24,
1997, at 10:00 a.m., at the Company's executive offices.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission, Washington, D.C., is available without charge by
writing to:
TRC Companies, Inc.
5 Waterside Crossing
Windsor, CT 06095
Attn: Investor Relations
STOCK EXCHANGE, DIVIDEND AND MARKET INFORMATION
The Company's common stock is traded on the New York Stock Exchange under
the symbol "TRR". On September 16, 1997, the last reported sale price of the
common stock on the exchange was $4.25 per share.
To date the Company has not paid any cash dividends. The payment of
dividends in the future will be subject to the financial condition, capital
requirements and earnings of the Company. However, future earnings are
expected to be used for expansion of the Company's operations, and cash
dividends are not likely for the foreseeable future.
<PAGE>
The following table provides quarterly price ranges of the common stock:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1997:
First Quarter $ 6 $ 3 3/8
Second Quarter 5 5/8 3 7/8
Third Quarter 4 5/8 3 3/4
Fourth Quarter 4 5/8 2 3/4
Fiscal 1996:
First Quarter $ 8 3/4 $ 7
Second Quarter 7 7/8 5 1/2
Third Quarter 7 1/4 6
Fourth Quarter 6 5/8 5 5/8
</TABLE>
REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK
American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York,
New York 10005
Shareholders may call the agent's Shareholder Services Department directly
concerning stock certificates and address changes at (718) 921-8200.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF TRC COMPANIES, INC.
Listed below are the subsidiaries which are included in the consolidated
financial statements of TRC Companies, Inc. Inactive subsidiaries are
excluded.
<TABLE>
<CAPTION>
Percent of Voting Stock
Name of Subsidiary and Jurisdiction in which Incorporated or Organized Owned by Registrant
- ---------------------------------------------------------------------- --------------------
<S> <C>
TRC Environmental Corporation (incorporated in Connecticut) 100%
TRC Investment Corporation (incorporated in Delaware) 100%
TRC Environmental Solutions, Inc. (incorporated in California) 100%
TRC Mariah Associates, Inc. (incorporated in Wyoming) 100%
TRC Engineers, Inc. (incorporated in New Jersey) 100%
TRC Garrow Associates, Inc. (incorporated in Georgia) 100%
TRC North American Weather Consultants (incorporated in Utah),
a subsidiary of TRC Environmental Corporation 100%
Monitoring Instruments for the Environment, Inc., (incorporated in 100%
Massachusetts), a subsidiary of TRC Environmental Corporation
PAKTO, S.A. (incorporated in Poland) 48%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,020,065
<SECURITIES> 0
<RECEIVABLES> 26,539,226
<ALLOWANCES> 0
<INVENTORY> 1,092,391
<CURRENT-ASSETS> 31,458,473
<PP&E> 18,839,801
<DEPRECIATION> 1,455,895
<TOTAL-ASSETS> 62,290,259
<CURRENT-LIABILITIES> 10,778,601
<BONDS> 0
0
0
<COMMON> 731,675
<OTHER-SE> 42,111,983
<TOTAL-LIABILITY-AND-EQUITY> 62,290,259
<SALES> 68,506,377
<TOTAL-REVENUES> 68,506,377
<CGS> 0
<TOTAL-COSTS> 68,342,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829,172
<INCOME-PRETAX> (664,270)
<INCOME-TAX> (160,000)
<INCOME-CONTINUING> (504,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504,902)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
