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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, 1998 Commission file number 1-9947
TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853807
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Waterside Crossing
Windsor, Connecticut 06095
------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
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, 1998, was approximately $23,141,000.
On September 8, 1998, there were 6,782,202 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 1998 Annual Report to Shareholders (Part II); and
(2) registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held October 23, 1998 (Part III).
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PART I
ITEM 1. BUSINESS
TRC Companies, Inc. (the Company), together with its wholly-owned
subsidiaries, is a strategically focused environmental management,
engineering and remediation business. The Company is nationally known for its
30 years of proven expertise in air pollution control, solid and hazardous
waste management, risk assessment, traffic and process engineering, and
natural and cultural resources management. The Company's focused marketing
strategy, experienced management and dedicated employees are all committed to
providing commercial and government customers with value-added solutions that
consistently meet or exceed expectations.
The Company provides its services through a network of offices in the United
States and Latin America. Business is generated both locally by each office and
nationally according to the following sectors:
<TABLE>
<CAPTION>
<S> <C>
Energy Emphasizing rapidly growing companies
participating in deregulation opportunities.
Government Emphasizing niche segments where the Company has
demonstrated success.
Infrastructure Emphasizing transportation and water resources.
Mining Emphasizing mine closures in the U.S. and
expansions in Latin America.
Solid Waste Emphasizing changes brought about by industry
consolidation and regulatory requirements to
close discontinued facilities.
</TABLE>
Litigation Support and Strategic Management Consulting are also nationwide
business areas.
Much of the Company's business is derived from activities related to
satisfying local, state or federal land use and regulatory requirements.
However, the Company's focus is toward customers who are developing new or
expanded facilities, or outsourcing work to allow them to focus on core
activities. These customers are economically motivated and recognize value
and prefer to hire the most qualified professionals to achieve their own
schedule and financial goals.
Most of the Company's work is performed on a time and materials or unit price
contract basis. In 1997, the Company initiated a new, higher margin program
where profits are more closely related to the actual amount of value realized by
the customer. This "value added, outsourcing" program is trademarked as Exit
Strategies(TM) and provides for the Company to receive added rewards for sharing
site environmental risks by partnering with a customer or accepting the transfer
of risks entirely. The Company manages its own risks through innovative problem
solving, the application of premium charges to eliminate customer administration
costs and, when appropriate, insurance policy partnerships with companies such
as the American International Group (AIG).
Most of the Company's international work is initiated through multinational
corporations with headquarters or major operations in the United States. The
majority of international work has been in Latin America, although projects have
been located in other countries throughout the world. Revenue from
international work is currently less than 10% of gross revenue.
Until July 1998, the Company also manufactured and marketed a line of
specialized pollution control measurement instruments through its
wholly-owned subsidiary, Monitoring Instruments for the Environment, Inc.
(MIE). In July 1998, the Company sold MIE for approximately $2.7 million in
cash.
2
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Customers
The Company's customers 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. Many of the Company's commercial customers are major
multinational corporations.
For fiscal 1998, 1997 and 1996, the federal government (principally the U.S.
Environmental Protection Agency and the U. S. Department of Defense)
accounted for 20%, 22% and 17%, respectively, of the Company's net service
revenue. No other customer 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 customers primarily on the basis of its
reputation for providing cost-effective solutions to customer needs and its
ability to respond to meet customer schedules. The marketing activities for
the Company's services are generally conducted by senior professional staff
members and executives [seller-doers] who regularly meet with existing and
potential customers to solicit new business. These activities are typically
conducted through the Company's network of offices for local customers and by
business sector leaders for national customers. In addition, corporate and
subsidiary marketing departments coordinate representation at trade shows,
prepare sales literature and develop and place advertising.
Backlog
At June 30, 1998, the Company's net contract backlog (excluding the estimated
costs of pass-through charges) was approximately $36.0 million, as compared
to approximately $34.3 million at June 30, 1997. 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 customers 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, 1998, the Company had approximately 625 full and part-time
employees. Approximately 80% of these employees are engaged primarily in
performing environmental engineering and consulting, process and civil
engineering and construction management services for customers. 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, geologists, hydrologists, hydrogeologists, meteorologists,
toxicologists, chemists, industrial hygienists, archaeologists, biologists,
construction specialists and others with degrees and experience that enables
the Company 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 and
marketing resources than the Company. Competitive factors include reputation,
performance, price, geographic location and availability of technically
skilled personnel.
3
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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 by its instrumentation subsidiary, which was sold
in July 1998, and amounted to approximately $187,000 in fiscal 1998, as
compared to approximately $190,000 in fiscal 1997 and $283,000 in fiscal 1996.
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 offices located
nationwide and offices in Lima, Peru and Santiago, Chile. The Company does
not own any real estate and leases approximately 190,000 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.
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.
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 20 of the Company's 1998 Annual
Report to Shareholders and such information is incorporated herein by
reference.
4
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ITEM 6. SELECTED FINANCIAL DATA
Information on "Selected Financial Data" is contained on page 4 of the
Company's 1998 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 6 through 9 of the Company's 1998 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 10 through 20 of the
Company's 1998 Annual Report to Shareholders are incorporated herein by
reference:
Consolidated Statements of Operations, Cash Flows and Changes in
Shareholders' Equity - Years ended June 30, 1998, 1997 and 1996
Consolidated Balance Sheets - June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants, dated August 13, 1998
The supplementary data regarding quarterly results of operations is contained
on page 5 of the Company's 1998 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.
5
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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 9 of the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders to be held October 23, 1998, 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.........(59) 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.....(54) 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...........(49) President, TRC Environmental Senior Vice President and General
Corporation (February 1997) Counsel
and Senior Vice President,
TRC Companies, Inc.
Miro Knezevic..............(48) Executive Vice President, TRC Executive Vice President,
Environmental Solutions, Inc. Environmental Solutions, Inc.
(March 1994) and Senior Vice
President, TRC Companies, Inc.
(August 1998)
Glenn E. Harkness..........(50) Senior Vice President, TRC Vice President, TRC Environmental
Environmental Corporation Corporation
(September 1997)
Harold C. Elston, Jr.......(54) Senior Vice President, Secretary Vice President and Treasurer
and Treasurer (March 1998)
</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 9 of
the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held October 23, 1998, and such information is incorporated herein by
reference.
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 23, 1998,
and such information is incorporated herein by reference.
6
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on "Certain Relationships and Related Transactions" is contained
on page 11 of the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held October 23, 1998 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 10 through 20 of the Company's 1998
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.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial
Statement Schedule 10
Schedule II - Valuation and Qualifying Accounts 11
</TABLE>
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
The Company did not file any reports of Form 8-K for the fourth quarter
of fiscal 1998.
(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 May 6, 1998.
10.3 Third Amended and Restated Revolving Credit Agreement, by and
among TRC Companies, Inc. and its subsidiaries and BankBoston,
N.A., dated July 10, 1998.
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, incorporated by reference to the
Form 10-K for the fiscal year ended June 30, 1997.
7
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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.
13 Annual Report to Shareholders for the fiscal year ended June
30, 1998. (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.
8
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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 28, 1998 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 28, 1998
- ------------------------------ Officer, President and Director
Richard D. Ellison
/s/ Edward G. Jepsen Director September 28, 1998
- ------------------------------
Edward G. Jepsen
/s/ Richard J. McGuire, Jr. Director September 28, 1998
- ------------------------------
Richard J. McGuire, Jr.
/s/ Edward W. Large Director September 28, 1998
- ------------------------------
Edward W. Large
/s/ J. Jeffrey McNealey Director September 28, 1998
- ------------------------------
J. Jeffrey McNealey
/s/ Harold. C. Elston, Jr. Senior Vice President, Secretary and September 28, 1998
- ------------------------------ Treasurer (Principal Financial and
Harold C. Elston, Jr. Accounting Officer)
</TABLE>
9
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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 13, 1998, appearing on page 20 of the 1998 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.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
August 13, 1998
10
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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, 33-87448 and
333-57463) of TRC Companies, Inc. of our report dated August 13, 1998
appearing on page 20 of the 1998 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.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
September 28, 1998
11
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TRC Companies, Inc.
Schedule II - Valuation and Qualifying Accounts
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Charged to Allowances Balance at
beginning costs and from acquired end of
Description of period expenses businesses Deductions * period
- -------------------------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts $ 2,300,000 $ 1,129,000 $ 25,000 $(1,079,000) $ 2,375,000
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
</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, 1998
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------ ----------------------------------------------------------------------- -----------
<S> <C> <C>
10.1 Restated Stock Option Plan, dated May 6, 1998
10.3 Third Amended and Restated Revolving Credit Agreement, by and among TRC
Companies, Inc. and its subsidiaries and BankBoston, N.A., dated July
10, 1998
13 Annual Report to Shareholders for the fiscal year ended June 30, 1998
21 Subsidiaries of the Registrant
27 Financial Data Schedule (for SEC purposes only)
</TABLE>
<PAGE>
2
EXHIBIT 10.1
Restated Stock Option Plan, dated May 6, 1998
<PAGE>
3
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
<PAGE>
4
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 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. 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 conditions specified in the Option
Agreement evidencing such option.
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
<PAGE>
5
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 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.
<PAGE>
6
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.
WITNESS the Seal of the Company and the signatures of its duly authorized
officers.
Dated as of May 6, 1998 and as subsequently amended.
TRC COMPANIES, INC.
By s/s Richard D. Ellison
------------------------------------
Chairman, President and Chief Executive
Officer
(Seal)
ATTEST:
s/s Harold C. Elston, Jr.
----------------------
Secretary
<PAGE>
EXHIBIT 10.3
Third Amended and Restated Revolving Credit Agreement, by and among
TRC Companies, Inc. and its subsidiaries and BankBoston, N.A., dated
July 10, 1998
7
<PAGE>
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of July 10, 1998
among
TRC COMPANIES, INC.,
Certain Subsidiaries Listed on Schedule I
and
BANKBOSTON, N.A.
8
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Section 1. DEFINITIONS. ...................................................................................1
Section 2. THE LOANS. ....................................................................................10
Section 2.1. Commitment to Lend. ................................................................11
Section 2.2. Letters of Credit. .................................................................11
Section 2.3. Commitment Fee. ....................................................................13
Section 2.4. Reduction of Commitment. ...........................................................13
Section 2.5. Note ................................................................................13
Section 2.6. Interest on Loans. .................................................................13
Section 2.7. Interest on Overdue Amounts. .......................................................15
Section 2.8. Requests for Loans and Letters of Credit. ..........................................15
Section 2.9. Termination of Credit. .............................................................16
Section 2.10. Optional Prepayment. ...............................................................16
Section 2.11. Mandatory Prepayment. ..............................................................16
Section 2.12. Mandatory Payment on Maturity. .....................................................16
Section 3. PAYMENTS AND COMPUTATIONS;
JOINT AND SEVERAL LIABILITY; SECURITY .............................................................17
Section 3.1. Payments. ..........................................................................17
Section 3.2. Computations. ......................................................................17
Section 3.3. Interest Limitation. ...............................................................17
Section 3.4. Additional Costs, Etc. .............................................................17
Section 3.5. Capital Adequacy. ..................................................................18
Section 3.6. Concerning Joint and Several Liability of the Borrowers. ...........................19
Section 3.7. Amendment Fee. .....................................................................21
Section 3.8. Security. ..........................................................................21
Section 4. REPRESENTATIONS AND WARRANTIES. ...............................................................21
Section 4.1. Corporate Authority. ...............................................................21
Section 4.2. Governmental Approvals. ............................................................22
Section 4.3. Title to Property; Leases. .........................................................22
Section 4.4. Financial Statements; Solvency. ....................................................22
Section 4.5. No Material Changes, Etc.. .........................................................23
Section 4.6. Franchises, Patents, Copyrights, Etc. ..............................................23
Section 4.7. Litigation. ........................................................................23
Section 4.8. No Materially Adverse Contracts, Etc. ..............................................23
Section 4.9. Compliance With Other Instruments, Laws, Etc ........................................24
Section 4.10. Tax Status. ........................................................................24
Section 4.11. No Event of Default. ...............................................................24
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.12. Holding Company and Investment Company Acts .........................................24
Section 4.13. Absence of Financing Statements, Etc ..............................................24
Section 4.14. Perfection of Security Interest ...................................................25
Section 4.15. Certain Transactions ..............................................................25
Section 4.16. ERISA Compliance ..................................................................25
Section 4.17. Use of Proceeds ...................................................................25
Section 4.18. Environmental Compliance. ..........................................................25
Section 4.19. Year 2000 Problem .................................................................27
Section 5. AFFIRMATIVE COVENANTS OF THE BORROWERS ...................................................... 27
Section 5.1. Records and Accounts. ..............................................................27
Section 5.2. Financial Statements, Certificates and Information ................................28
Section 5.3. Corporate Existence and Conduct of Business .........................................29
Section 5.4. Maintenance of Properties .........................................................29
Section 5.5. Insurance .........................................................................30
Section 5.6. Taxes .............................................................................30
Section 5.7. Inspection of Properties, Books, and Contracts ......................................30
Section 5.8. Compliance with Laws, Contracts, Licenses and Permits ...............................30
Section 5.9. Pension Plans. .....................................................................31
Section 5.10. Further Assurances ................................................................31
Section 5.11. Notice of Potential Claims or Litigation ..........................................31
Section 5.12. Notices ...........................................................................32
Section 5.13. New Borrowers .....................................................................32
Section 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS ...................................................32
Section 6.1. Restrictions on Indebtedness ......................................................32
Section 6.2. Restrictions on Liens .............................................................33
Section 6.3. Restrictions on Investments .......................................................34
Section 6.4. Merger, Consolidation, and Acquisitions ...........................................35
Section 6.5. Sale and Leaseback ................................................................36
Section 6.6. Sales of Assets ...................................................................36
Section 6.7. Collateral Value Ratio ............................................................36
Section 6.8. Debt Service Coverage .............................................................36
Section 6.9. Leverage Ratio ....................................................................37
Section 6.10. Subordinated Debt ................................................................37
Section 6.11. Distributions ....................................................................37
Section 6.12. Exit Strategy Projects ...........................................................37
Section 7. CONDITIONS OF FIRST LOANS ....................................................................37
Section 7.1. Representations and Warranties ....................................................37
Section 7.2. Performance; No Default ............................................................37
Section 7.3. No Adverse Change .................................................................38
Section 7.4. Corporate Action; Corporate Documents .............................................38
Section 7.5. Loan Documents ....................................................................38
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.6. UCC Searches; Perfection of Liens .................................................38
Section 7.7. Opinion of Borrower's Counsel .....................................................38
Section 7.8. No Legal Impediment ...............................................................38
Section 7.9. Governmental Regulation ...........................................................39
Section 7.10. Payment of Fees ..................................................................39
Section 7.11. Proceedings and Documents .........................................................39
Section 8. CONDITIONS OF SUBSEQUENT LOANS ...............................................................39
Section 8.1. Representations True; No Event of Default .........................................39
Section 8.2. Performance; No Event of Default ..................................................39
Section 9. EVENTS OF DEFAULT; ACCELERATION ................................................................40
Section 10. SETOFF .......................................................................................42
Section 11. EXPENSES. ....................................................................................42
Section 12. INDEMNIFICATION .............................................................................42
Section 13. SURVIVAL OF COVENANTS, ETC ..................................................................43
Section 14. SYNDICATION AND PARTICIPATION ...............................................................43
Section 15. PARTIES IN INTEREST .........................................................................43
Section 16. NOTICES, ETC ................................................................................44
Section 17. MISCELLANEOUS ................................................................................44
Section 18. ENTIRE AGREEMENT, ETC .......................................................................44
Section 19. GOVERNING LAW ...............................................................................44
Section 20. CONSENTS, AMENDMENTS, WAIVERS, ETC ..........................................................45
Section 21. NO RESTRICTIONS WITH RESPECT TO MARGIN STOCK ................................................45
Section 22. TRANSITIONAL ARRANGEMENTS ...................................................................45
Section 22.1. Existing Credit Agreement Superseded .............................................45
Section 22.2. Return and Cancellation of Notes .................................................46
Section 22.3. Interest and Fees under Existing Credit Agreement ................................46
</TABLE>
11
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A - Form of Note
Schedule 1 - Borrowers
Schedule 3.7 - Currently Inactive Subsidiaries
Schedule 4.7 - Exceptions to Litigation Representation
Schedule 4.18 - Environmental Compliance Exceptions
Schedule 6.1 - Existing Indebtedness
Schedule 6.3(i) - Existing Investments
</TABLE>
<PAGE>
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as
of the 10th day of July, 1998 among TRC Companies, Inc., a Delaware corporation
("TRC"), the Subsidiaries listed on Schedule 1 hereto (TRC and such Subsidiaries
herein collectively referred to as the "Borrowers"), each of which Borrowers,
unless otherwise listed on Schedule 1, has its principal place of business at 5
Waterside Crossing, Windsor, Connecticut 06095, and BANKBOSTON, N.A. (f/k/a The
First National Bank of Boston) (the "Bank"), a national banking association
having its principal place of business at 100 Federal Street, Boston,
Massachusetts 02110.
WHEREAS, the Borrowers and BKB are parties to the original Revolving
Credit Agreement dated as of September 22, 1989 and amended as of September 6,
1990, June 10, 1992, June 28, 1993, August 5, 1993, March 21, 1994, and October
31, 1994 (as so amended, the "Original Credit Agreement);
WHEREAS, the Original Credit Agreement was amended and restated
pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement
dated as of March 15, 1995 and amended as of August 30, 1995 (as so amended, the
"Prior Credit Agreement");
WHEREAS, the Prior Credit Agreement was amended and restated pursuant
to the Second Amended and Restated Revolving Credit Agreement dated as of August
25, 1997 (as amended and in effect from time to time, the "Existing Credit
Agreement");
WHEREAS, the Borrowers and the Bank wish to increase the Commitment,
restructure the revolving credit facility as a single bank facility, assign all
rights and obligations of the Bank in its capacity as agent under the Existing
Credit Agreement to the Bank in its individual capacity and make certain other
changes and amendments to the Existing Credit Agreement;
NOW THEREFORE, in consideration of the foregoing, the Borrowers and the
Bank, agree that the Existing Credit Agreement is hereby amended and restated in
its entirety as set forth herein.
Section 1. DEFINITIONS. (a) The following terms shall have the
meanings set forth in this Section 1 or elsewhere in the provisions of
this Agreement referred to below:
Accounts Receivable. All rights of the Borrowers to payment for goods
sold, leased or otherwise marketed in the ordinary course of business and all
rights of the Borrowers to payment for services rendered in the ordinary course
of business and all sums of money or other proceeds due thereon pursuant to
transactions with account debtors, except for that portion of the sum of money
or other proceeds due thereon that relate to sales, use or property taxes in
conjunction with such transactions, recorded on books of account in accordance
with Generally Accepted Account Principles.
Agreement. This Second Amended and Restated Revolving Credit Agreement,
including the Exhibits and Schedules hereto, as amended from time to time.
Amendment Date. See Section 7.
Amendment Fee. See Section 3.7.
2
<PAGE>
Applicable Commitment Rate. The applicable rate with respect to the
Commitment Fee as set forth in the following table:
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee
-------------- --------------
<S> <C>
Less than 2.00:1.00 0.25%
Greater than or equal to 2.00:1.00 0.375%
</TABLE>
Any change in the Applicable Commitment Rate shall become effective on the first
day after receipt by the Bank of financial statements delivered pursuant to
Section 5.2 which indicate a change in the Leverage Ratio. If at any time such
financial statements are not delivered within the time periods specified in
Section 5.2, the Applicable Commitment Rate shall be the highest rate set forth
in the respective column of the table above, subject to adjustment upon actual
receipt of such financial statements.
Applicable Letter of Credit Rate. The applicable rate per annum with
respect to Letter of Credit Fees set forth in the following table:
<TABLE>
<CAPTION>
Applicable Rate for
Leverage Ratio Letters of Credit
--------------- -------------------
<S> <C>
Less than 2.00:1.00 1.75%
Greater than or equal to 2.00:1.00 2.00%
</TABLE>
Any change in the Applicable Letter of Credit Rate shall become effective on the
first day after receipt by the Bank of financial statements delivered pursuant
to Section 5.2 which indicate a change in the Leverage Ratio. If at any time
such financial statements are not delivered within the time periods specified in
Section 5.2, the Applicable Letter of Credit Rate shall be the highest rate set
forth in the respective column of the table above, subject to adjustment upon
actual receipt of such financial statements.
Applicable Rate. The applicable rate per annum of interest on the Loans
set forth in the following table:
<TABLE>
<CAPTION>
Applicable Rate for Applicable Rate for
Leverage Ratio Base Rate Loans Eurodollar Loans
-------------- ------------------- ---------------------------
<S> <C> <C>
Less than 2.00:1.00 Base Rate Eurodollar Rate plus 1.75%
Greater than or equal to 2.00:1.00 Base Rate plus 0.25% Eurodollar Rate plus 2.00%
</TABLE>
Any change in the Applicable Rate shall become effective (a) with respect to
Base Rate Loans, on the first day after receipt by the Bank of financial
statements delivered pursuant to Section 5.2 which indicate a change in the
Leverage Ratio or (b) with respect to Eurodollar Loans, on the first day of each
Interest Period which begins after receipt by the Bank of such financial
statements. If at any time such financial statements are not delivered within
the time periods specified in Section 5.2, the Applicable Rate shall be the
highest rate set forth in the respective column of the table above, subject to
adjustment upon actual receipt of such financial statements.
Balance Sheet Date. June 30, 1997.
3
<PAGE>
Bank. See Preamble.
Bank's Head Office. The Bank's head office is located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Bank may
designate from time to time.
Base Rate. A rate per annum (rounded upward, if necessary, to the next
higher 1/100 of 1%) equal to the greater of: (a) the annual rate of interest
announced from time to time by the Bank at the Bank's Head Office, as its "Base
Rate," or (b) the Federal Funds Effective Rate plus one percent (1%). If for any
reason the Bank shall have determined (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the Federal Funds
Effective Rate for any reason, including, without limitation, the inability or
failure of the Bank to obtain sufficient bids or publications in accordance with
the terms thereof, the rate announced by the Bank at its head office as its
"Base Rate" shall be the Base Rate until the circumstances giving rise to such
inability no longer exist.
Base Rate Loans. All or any portion of any Loans hereunder, the
interest rate on which is calculated by reference to the Base Rate.
Borrowers. TRC and each Person listed on Schedule 1 hereto as such
schedule may be amended from time to time.
Business Day. Any day on which commercial banking institutions in
Boston, Massachusetts are open for the transaction of banking business, and, if
the applicable Business Day relates to a Eurodollar Loan, a day on which
dealings are carried on in the Eurodollar interbank market and dollar
settlements of such dealings may be effected in New York City.
Collateral. All of the property, rights and interest of the Borrowers
that are or are intended to be subject to the security interests and mortgages
created by the Security Documents.
Collateral Value Ratio. See Section 6.7.
Commitment. The obligation of the Bank to make Loans to, and to issue,
extend and renew Letters of Credit for the account of, the Borrowers up to an
aggregate principal amount not to exceed $10,000,000, as such amount may be
reduced from time to time or terminated hereunder.
Commitment Fee. See Section 2.3.
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrowers,
consolidated in accordance with Generally Accepted Accounting Principles, after
eliminating all intercompany items.
Consolidated EBITDA. For any period, the consolidated net income (or
deficit) of the Borrowers, determined in accordance with Generally Accepted
Accounting Principles, plus to the extent deducted in computing consolidated net
income (or deficit) for such period (a) interest expense, (b) income taxes and
(c) depreciation and amortization.
Consolidated Funded Debt. With respect to the Borrowers, all
Indebtedness, including obligations under capitalized leases and indebtedness in
respect of standby letters of credit to support financial obligations, incurred
through the borrowing of money or the obtaining of credit, whether or not the
same may appear on a consolidated balance sheet of the Borrowers prepared in
accordance with Generally Accepted Accounting Principles.
4
<PAGE>
Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrowers during such
period on all Indebtedness of the Borrowers outstanding during all or any part
of such period, whether such interest was or is required to be reflected as an
item of expense or capitalized.
Default. See Section 9.
Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of any Borrower, other than
dividends payable solely in shares of common stock of a Borrower; or the
purchase, redemption, or other retirement of any shares of any class of capital
stock of any Borrower, directly or indirectly through a Subsidiary or otherwise;
the return of capital by any Borrower to its shareholders as such; any other
distribution on or in respect of any shares of any class of capital stock of any
Borrower.
Drawdown Date. The date on which any Loan is made or is to be made or
on which any Letter of Credit is issued or to be issued.
Eligible Receivables. The aggregate of the unpaid portions of Accounts
Receivable (net of any credits, rebates, offsets, holdbacks or other adjustments
or commissions payable to third parties that are adjustments to such Accounts
Receivables) that are not outstanding for more than one hundred twenty (120)
days past the earlier to occur of (i) the date of the respective invoices
therefor and (ii) with respect to services, the end of the calendar month
following the provision thereof.
Environmental Laws. Any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including those arising under
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control
Act, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act or any United States, state or local or any other
statute, regulation, ordinance, order or decree relating to health, safety or
the environment.
Environmental Services Contracts. All contracts or agreements of any
Borrower or any of their Subsidiaries to provide consultation, work or services
with respect to matters related to any Environmental Laws.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
from time to time.
Eurodollar Loans. In relation to any Interest Period, any portions of
the principal amount of the Loans on which a Borrower has elected pursuant to
Section 2.6(b) hereof to pay interest based on the Eurodollar Rate.
Eurodollar Offered Rate. The rate per annum at which deposits of
dollars are offered to the Bank by prime banks in whatever Eurodollar interbank
market may be selected by the Bank in its sole discretion, acting in good faith,
at or about 10:00 a.m. local time in such interbank market, two Business Days
prior to the commencement of an Interest Period for a period equal to such
Interest Period in an amount substantially equal to the principal amount
requested to be loaned at or converted to a rate based on the Eurodollar Offered
Rate.
Eurodollar Rate. With respect to any Interest Period, the rate per
annum, rounded upwards to the nearest 1/16 of 1%, determined by the Bank two
Business Days prior to the commencement of such Interest Period, in accordance
with the following formula:
5
<PAGE>
Eurodollar Rate = Eurodollar Offered Rate
-------------------------
1 - Reserve Rate
Event of Default. See Section 9.
Existing Credit Agreement. See Preamble.
Exit Strategy Projects. Environmental clean-up projects (including so
called "brownfield projects") in which TRC or a Subsidiary assumes the liability
of Potentially Responsible Parties ("PRPs") for the cleanup of a Superfund or
state hazardous work site, and takes title to the property, provided that PRPs
have funded the cost of such cleanup pursuant to a fixed fee arrangement,
provided that the assumed liability is covered by an environmental insurance
policy issued by an insurance company having an A or better Best rating.
Federal Funds Effective Rate. For any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers as published for such day by
the Federal Reserve Bank of New York, or for any day on which such rate is not
so published for such day by the Federal Reserve Bank of New York, the average
of the quotations for such day for such transactions received by the Bank from
three federal funds brokers of recognized standing selected by the Bank.
Generally Accepted Accounting Principles. (i) When used in general,
Generally Accepted Accounting Principles means principles which are (1)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors or successors, in effect for the
fiscal year ended on the Balance Sheet Date and (2) such that a certified public
accountant would, insofar as the use of accounting principles is pertinent, be
in a position to deliver an unqualified opinion (other than a qualification
regarding changes in Generally Accepted Accounting Principles) as to financial
statements in which such principles have been properly applied; and (ii) when
used with reference to the Borrowers and/or any of their Subsidiaries such
principles shall include (to the extent consistent with such principles) the
accounting practice of the Borrowers reflected in their financial statements for
the year ended on the Balance Sheet Date.
Guaranteed Pension Plan. Any pension plan maintained by any Borrower or
any of their Subsidiaries, or to which any Borrower or any of their Subsidiaries
contributes, which is required to pay plan termination insurance premiums to the
Pension Benefit Guaranty Corporation.
Hazardous Substances. See Section 4.17(b).
Indebtedness. All obligations, contingent and otherwise, which in
accordance with Generally Accepted Accounting Principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should
be made by footnotes thereto, including, without limitation, in any event and
whether or not so classified: (i) all debt and similar monetary obligations,
whether direct or indirect; (ii) all liabilities secured by any mortgage,
pledge, security interest, lien, charge, or other encumbrance existing on
property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; and (iii) all guarantees,
endorsements and other contingent obligations whether direct or indirect in
respect of Indebtedness of others, including any obligation to supply funds
to or in any manner to invest in, directly or indirectly, the debtor, to
purchase Indebtedness, or to assure the owner of Indebtedness against loss,
through an agreement to purchase goods, supplies, or services for the purpose
of enabling the debtor to make payment of the Indebtedness held by such owner
or otherwise, and the obligations to
6
<PAGE>
reimburse the issuer of any letters of credit, excluding obligations under
leases classified as operating leases under Generally Accepted Accounting
Principles.
Intercreditor Agreement. The Amended and Restated
Intercreditor Agreement dated as of August 25, 1997, by and among
the Parent, R&M, the shareholders of R&M, and the Bank.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of a conversion from a
Base Rate Loan into a Eurodollar Loan or the making of a Eurodollar Loan, and
ending one (1), two (2), three (3), or six (6) months thereafter, as the case
may be, as the Borrowers may select; and
(b) thereafter, each subsequent Interest Period shall begin on the last
day of the preceding Interest Period, and end one (1), two (2), three (3), or
six (6) months thereafter, as the case may be, as the Borrowers may select;
(c) provided that any Interest Period which would otherwise end on a
day which is not a Business Day shall be deemed to end on the next preceding
Business Day.
Investments. All cash expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock, all or substantially
all of the assets of, or Indebtedness of, or for loans, advances, capital
contributions or transfers of property to, or in respect of any guaranties (or
other commitments as described under Indebtedness), or obligations of, any
Person. In determining the aggregate amount of Investments outstanding at any
particular time, (i) the amount of any Investment represented by a guaranty
shall be taken at not less than the principal amount of the obligations
guaranteed and still outstanding; (ii) there shall be included as an Investment
all interest accrued with respect to Indebtedness constituting an Investment
unless and until such interest is paid, (iii) there shall be deducted in respect
of each such Investment any amount received as a return of capital (but only by
repurchase, redemption, retirement, repayment, liquidating dividend or
liquidating distribution); (iv) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (iii) may be deducted when paid; and (v) there
shall not be deducted from the aggregate amount of Investments any decrease in
the value thereof.
Letters of Credit. Letters of credit issued or to be issued
by the Bank under Section 2.2 hereof for the account of any Borrower.
Letter of Credit Agreements. Letter of Credit Agreements in such form
as may be agreed upon by any Borrower and the Bank from time to time which are
entered into pursuant to Section 2.2 hereof, as such Letter of Credit Agreements
are amended, varied or supplemented from time to time.
Letter of Credit Fee. See Section 2.2(f).
Leverage Ratio. For any period, the ratio of (a) Consolidated Funded
Debt as of the end of such period to (b) Consolidated EBITDA for such period.
The Leverage Ratio shall be calculated for all periods ending on or prior to
July 10, 1998 for the fiscal quarter then ended and, for all periods ending
thereafter, for the period of four consecutive fiscal quarters then ended.
Liens. Any encumbrance, mortgage, pledge, hypothecation, charge,
restriction or other security interest of any kind securing any obligation of
any Person.
7
<PAGE>
Loan Documents. Collectively, this Agreement, the Note, the Security
Documents, the Intercreditor Agreement and the Letter of Credit Agreements.
Loan Request. The Notice any Borrower must give the Bank, pursuant to
Section 2.8, for each Loan or Letter of Credit requested hereunder.
Loans. The revolving credit loans made or to be made to the Borrowers
as contemplated by Section 2 hereof.
Maturity Date. July 10, 2001.
Maximum Drawing Amount. With respect to any Letter of Credit, the
maximum amount from time to time which the beneficiary may draw under such
Letter of Credit, as may be reduced from time to time pursuant to the Letter of
Credit.
MIE. Monitoring Instruments for the Environment, Inc., a Massachusetts
corporation.
Net Cash Proceeds. With respect to any sale of any assets of any of the
Borrowers, the gross consideration received by any of the Borrowers (in cash)
from such sale, net of the commissions, direct sales costs, normal closing
adjustments, income taxes attributable to such sale and professional fees and
expenses incurred directly in connection therewith to the extent the foregoing
are actually paid in connection with such sale.
Note. The amended and restated promissory note of the Borrowers in
favor of the Bank evidencing the Loans dated as of the date hereof, in
substantially the form of Exhibit A hereto.
Notice. Fulfillment of any of the conditions set forth in Section 18.
Obligations. All indebtedness, obligations and liabilities of the
Borrowers, individually or collectively, to the Bank, existing on the date of
this Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or a Letter of Credit Agreement or in
respect of Loans made and the Note or other instruments at any time evidencing
any thereof.
Original Credit Agreement. See Preamble.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Prior Credit Agreement. See Preamble.
Reimbursement Obligation. The Borrowers' obligation to reimburse the
Bank on account of any drawing under any Letter of Credit as provided in Section
2.2(d).
Reserve Rate. The rate in effect from time to time, expressed as a
percentage, at which the Bank would be required to maintain reserves under
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor or similar regulation relating to such reserve requirements) against
"Eurocurrency Liabilities" (as such term is used in Regulation D) if such
liabilities were outstanding.
R&M. R&M Corporation (f/k/a Environmental Solutions, Inc.), a
California corporation.
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R&M Note. Promissory note of the Parent dated as of July 1, 1997 in
favor of R&M having an outstanding principal amount, as of the date hereof, of
not more than $7,000,000.
Security Agreement. The Amended and Restated Security Agreement, dated
as of the date hereof among the Borrowers and the Bank and in form and substance
satisfactory to the Bank.
Security Documents. The Security Agreement and all other instruments
and documents, including, without limitation, Uniform Commercial Code financing
statements, required to be executed or delivered pursuant to the Security
Agreement.
Subordinated Debt. Indebtedness owing to R&M pursuant to the terms of
the R&M Note and obligations in respect of Section 2.4 of the Asset Purchase
Agreement dated as of March 21, 1994 by and among TRC, R&M (then known as
Environmental Solutions, Inc.) and the shareholders of R&M.
Subsidiary. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority of the
outstanding capital stock or other interest entitled to vote generally.
TRC. See Preamble.
Unpaid Reimbursement Obligations. Any Reimbursement Obligation for
which the Borrowers do not reimburse the Bank on the date specified in, and in
accordance with, Section 2.2(d).
Wells Project. The Exit Strategy Project located in Wells, Maine.
(b) All terms of an accounting character not specifically defined
herein shall have the meanings assigned thereto by Generally Accepted Accounting
Principles. All terms not specifically defined herein which are defined in the
Uniform Commercial Code as in effect in the Commonwealth of Massachusetts shall
have the same meanings herein as therein. Each reference herein to a particular
Person (including, without limitation, the Bank) shall include a reference to
such Person's successors and permitted assigns. The words "herein", "hereof",
"hereunder" and words of like import shall refer to this Agreement as a whole
and not to any particular Section or subdivision of this Agreement.
Section 2. THE LOANS.
Section 2.1. Commitment to Lend. Subject to the terms and conditions
set forth in this Agreement, the Bank agrees (a) to convert the Loans
outstanding under the Existing Credit Agreement on the Amendment Date, if any,
to Loans hereunder and (b) to lend to the Borrowers and the Borrowers may borrow
and reborrow from time to time between the Amendment Date and the Maturity Date
upon notice to the Bank given in accordance with Section 2.8 hereof, such sums
as requested by the Borrowers up to a maximum aggregate principal amount
outstanding (after giving effect to all amounts requested) at any one time equal
to the Commitment minus the sum of (i) the aggregate Maximum Drawing Amount of
all Letters of Credit issued pursuant to Section 2.2 hereof and (ii) all Unpaid
Reimbursement Obligations. Each request for Loans hereunder shall constitute a
representation by the Borrowers that the conditions set forth in Sections 7 and
8 hereof have been satisfied on the date of such request.
Section 2.2. Letters of Credit.
(a) Subject to the terms and conditions set forth in this Agreement,
upon written request from the Borrowers, the Bank, on reliance upon the
representations and warranties of the Borrowers contained
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herein, agrees to issue stand-by letters of credit, in such form as the
Borrowers and the Bank may agree upon from time to time, for the account of the
Borrowers from time to time prior to the Maturity Date, provided, however, that
(a) the sum of (i) all Unpaid Reimbursement Obligations and (ii) the aggregate
Maximum Drawing Amount of all Letters of Credit, shall not at any time exceed
$2,000,000 and (b) the sum of (i) all Unpaid Reimbursement Obligations, (ii) the
aggregate Maximum Drawing Amount of all Letters of Credit and (iii) the amount
of all Loans outstanding shall not at any time exceed the Commitment. No Letter
of Credit shall have an expiration date later than the earlier of (i) one year
after the date of issuance of the Letter of Credit or (ii) 30 days prior to the
Maturity Date. In the event that any provision of any Letter of Credit Agreement
shall be inconsistent with any provision of this Agreement, then the provisions
of this Agreement shall, to the extent of any such inconsistency, govern.
(b) In order to induce the Bank to issue, extend and renew each Letter
of Credit, the Borrowers hereby agree that on each date that any draft presented
under any Letter of Credit is honored by the Bank or the Bank otherwise makes
payment with respect thereto, the Borrowers will reimburse the Bank, with
respect to each Letter of Credit issued, extended or renewed by the Bank
hereunder (i) the amount paid by the Bank under or with respect to such Letter
of Credit, and (ii) the amount of any taxes, fees, charges or other reasonable
out-of-pocket costs and expenses whatsoever incurred by the Bank in connection
with any payment made by the Bank under, or with respect to, such Letter of
Credit (at the Borrowers' option, any such Reimbursement Obligation may be
satisfied by conversion of such Reimbursement Obligation to the Base Rate Loan
hereunder, provided that the conditions set forth in Section 8 hereof have been
satisfied).
(c) If any draft shall be presented or other demand for payment shall
be made under any Letter of Credit, the Bank shall notify the Borrowers of the
date and amount of the draft presented or demand for payment and of the date and
time when it expects to pay such draft or honor such demand for payment. The
responsibility of the Bank to the Borrowers shall be only to determine that the
documents (including each draft) delivered under each Letter of Credit in
connection with such presentment shall be in conformity in all material respects
with such Letter of Credit.
(d) The Borrowers' joint and several obligations under this Section 2.2
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrowers may have or have had against the Bank or any beneficiary of
a Letter of Credit. Each Borrower further agrees with the Bank that the Bank
shall not be responsible for, and the Reimbursement Obligations shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, fraudulent or forged, or any dispute between or
among any Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of any Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Bank shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit. Each Borrower agrees that any action taken or omitted by the Bank under
or in connection with each Letter of Credit and the related drafts and
documents, if done in good faith, shall be binding upon the Borrowers and shall
not result in any liability on the part of the Bank to the Borrowers.
(e) To the extent not inconsistent with Section 2.2(d), the Bank shall
be entitled to rely, and shall be fully protected in relying upon, any Letter of
Credit, draft, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message, statement,
order or other document believed by it to be genuine and correct and to have
been signed, sent or made by the proper person or entity and upon advice and
statements of legal counsel, independent accountants and other experts selected
by the Bank.
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(f) The Borrowers shall pay a fee (a "Letter of Credit Fee") to the
Bank equal to the Applicable Letter of Credit Rate per annum multiplied by the
Maximum Drawing Amount of all Letters of Credit, payable in advance on the date
of issuance of the applicable letter of credit (but in no case less than
$350.00).
(g) Each such payment shall be made to the Bank at the Bank's Head
Office in immediately available funds. Interest on any and all amounts remaining
unpaid by the Borrowers under this Section 2.2 at any time from the date such
amounts become due and payable (whether as stated in this Section 2.2, by
acceleration or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Bank on demand at the rate specified in
Section 2.7 for overdue amounts.
Section 2.3. Commitment Fee. The Borrowers agree to pay to the Bank a
commitment fee (the "Commitment Fee") at the Applicable Commitment Rate per
annum on the unused portion of the Commitment during each calendar month or
portion thereof from the Amendment Date until the Maturity Date (or to the date
of termination in full of the Commitments, if earlier).
Section 2.4. Reduction of Commitment. The Borrowers shall have the
right at any time and from time to time upon five (5) Business Days' written
notice to the Bank to reduce by $1,000,000 or an integral multiple thereof or
terminate entirely the amount of the unborrowed portion of the Commitment, if
any, which exceeds the aggregate Maximum Drawing Amount of all Letters of Credit
issued pursuant to Section 2.2 hereof, whereupon the Commitment of the Bank
shall be reduced by the amount specified in such notice or terminated, as the
case may be. No reduction or termination of the Commitment once made may be
revoked; the portion of the Commitment reduced or terminated may not be
reinstated; and amounts in respect of such reduced or terminated portion may not
be reborrowed.
Section 2.5. Note. The Loans shall be evidenced by the Note. The
Note shall be payable to the order of the Bank in a principal amount equal to
the Commitment or, if less, the outstanding amount of all Loans made by the
Bank, plus interest accrued thereon, as set forth below. The Borrowers
irrevocably authorize the Bank to make or cause to be made, in connection
with a Drawdown Date of any Loan or at the time of receipt of any payment of
principal on the Bank's Note, an appropriate notation on the Bank's records
reflecting the making of the Loan or the receipt of such payment (as the case
may be). The outstanding amount of the Loans set forth on the Bank's record
shall be prima facie evidence of the principal amount thereof owing and
unpaid to the Bank, but the failure to record, or any error in so recording,
any such amount shall not limit or otherwise affect the obligations of the
Borrowers hereunder or under the Note to make payments of principal of or
interest on the Note when due.
Section 2.6. Interest on Loans.
(a) As of the Amendment Date, the outstanding principal amount of the
Loans shall bear interest at the Applicable Rate. Interest shall be payable (x)
monthly in arrears on the last Business Day of each calendar month for the
immediately preceding month, on all Base Rate Loans, (y) on the last day of the
applicable Interest Period for Eurodollar Loans having an interest period of
three months or shorter, and if such Interest Period is longer than three
months, quarterly in arrears on the last business day for each calendar quarter
for the immediately preceding calendar quarter, and (z) on the Maturity Date for
all Loans.
(b) At the Borrowers' option, so long as no Default or Event of Default
has occurred and is then continuing, the Borrowers may (i) elect to convert any
Base Rate Loan or a portion thereof to a Eurodollar Loan, (ii) at the time of
any Loan Request, specify that such requested Loan shall be a Eurodollar Loan,
or (iii) upon expiration of the applicable Interest Period, elect to maintain an
existing
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Eurodollar Loan as such, provided that the Borrowers give notice to the
Bank pursuant to Section 2.6(c) hereof. Upon determining any Eurodollar Rate,
the Bank shall forthwith provide notice thereof to the Borrowers, and each such
notice to the Borrowers shall be considered prima facie correct and binding,
absent manifest error.
(c) Three (3) Business Days prior to the making of any Loan which will
be a Eurodollar Loan or the conversion of any Base Rate Loan to a Eurodollar
Loan, or, in the case of an outstanding Eurodollar Loan, the expiration date of
the applicable Interest Period, the Borrowers shall give written or telecopy
notice received by the Bank not later than 2:00 p.m. (Boston time) of its
election pursuant to Section 2.6(b). Each such notice delivered to the Bank
shall specify the aggregate principal amount of the Loans to be borrowed or
maintained as or converted to Eurodollar Loans and the requested duration of the
Interest Period that will be applicable to such Eurodollar Loans, and shall be
irrevocable and binding upon the Borrowers. If the Borrowers shall fail to give
the Bank notice of their election hereunder together with all of the other
information required by this Section 2.6(c) with respect to any Loan, whether at
the end of an Interest Period or otherwise, such Loan shall be deemed a Base
Rate Loan.
(d) Notwithstanding anything herein to the contrary, the Borrowers may
not specify an Interest Period that would extend beyond the Maturity Date with
respect to any Loans.
(e) All Eurodollar Loans shall be in a minimum amount of not less than
$1,000,000. In no event shall the Borrowers have more than five (5) different
maturities of Eurodollar Loans outstanding at any time. All requests for Loans
which will be Base Rate Loans shall be in a minimum amount of $100,000 or a
greater integral multiple thereof.
(f) The Borrowers agree to indemnify the Bank and to hold it harmless
from and against any reasonable loss, cost or expense that the Bank may sustain
or incur as a consequence of (a) default by the Borrowers in payment of the
principal amount of or any interest on any Eurodollar Loans as and when due and
payable, including any such loss or expense arising from interest or fees
payable by the Bank to lenders of funds obtained by it in order to maintain its
Eurodollar Loans, (b) default by the Borrowers in making a borrowing or
conversion after the Borrowers have given (or are deemed to have given) notice
pursuant to Section 2.6(c), and (c) the making of any payment of a Eurodollar
Loan or the making of any conversion of any such Eurodollar Loan to a Base Rate
Loan on a day that is not the last day of the applicable Interest Period with
respect thereto. Such loss or reasonable expense shall include an amount equal
to the excess, if any, as reasonably determined by the Bank of (i) its cost of
obtaining the funds for the Loan being paid, prepaid, converted, or not borrowed
(based on the Eurodollar Rate) for the period from the date of such payment,
prepayment, conversion, or failure to borrow to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow, the Interest
Period for the Loan which would have commenced on the date of such failure to
borrow) over (ii) the amount of interest (as reasonably determined by the Bank)
that would be realized by the Bank in reemploying the funds so paid, prepaid,
converted, or not borrowed for such period or Interest Period, as the case may
be.
(g) Notwithstanding any other provisions of this Agreement, if (a) the
introduction of, any change in, or any change in the interpretation of, any law
or regulation applicable to the Bank shall make it unlawful, or any central bank
or other governmental authority having jurisdiction thereof shall assert that it
is unlawful, for the Bank to perform its obligations in respect of any
Eurodollar Loans, or (b) if the Bank shall reasonably determine with respect to
Eurodollar Loans that (i) by reason of circumstances affecting any Eurodollar
interbank market, adequate and reasonable methods do not exist for ascertaining
the Eurodollar Rate which would otherwise be applicable during any Interest
Period, or (ii) deposits of Dollars in the relevant amount for the relevant
Interest Period are not available to the Bank in any Eurodollar interbank
market, or (iii) the Eurodollar Rate does not or will not accurately reflect the
cost to the Bank for obtaining or maintaining the applicable Eurodollar Loans
during any Interest Period, then the Bank shall
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promptly give telephonic or telecopy notice of such determination to the
Borrowers (which notice shall be conclusive and binding upon the Borrowers
absent manifest error). Upon such notification by the Bank, the obligation of
the Bank to make Loans which will become Eurodollar Loans shall be suspended
until the Bank determines that such circumstances no longer exist, and the
outstanding Eurodollar Loans shall continue to bear interest at the Applicable
Rate based on the Eurodollar Rate until the end of the applicable Interest
Period, and thereafter shall be deemed converted to Base Rate Loans in equal
principal amounts.
Section 2.7. Interest on Overdue Amounts. Except as otherwise limited
by Section 3.3 hereof, overdue principal and interest on the Loans and all other
overdue amounts payable hereunder shall bear interest payable on demand at a
rate per annum equal to one percent (1%) above the Applicable Rate, until such
amount shall be paid in full (after as well as before judgment).
Section 2.8. Requests for Loans and Letters of Credit. The Borrowers
shall give to the Bank written notice (or telephonic notice confirmed in a
writing or a telecopy) of each Loan requested hereunder (a "Loan Request") not
later than 11:00 a.m. (a) on the proposed Drawdown Date of any Base Rate Loan,
or (b) two (2) Business Days prior to the requested date of issuance of any
Letter of Credit. Any Loan Request for a Eurodollar Rate Amount shall be given
within the time frame specified in Section 2.6(c). Each such notice shall
specify the principal amount of the Loan requested and shall reflect the Maximum
Drawing Amount of all Letters of Credit outstanding. Each Loan Request shall be
irrevocable and binding on the Borrowers, and shall obligate the Borrowers to
accept the Loan requested from the Bank on the proposed Drawdown Date.
Section 2.9. Termination of Credit. If any Event of Default shall
occur, any unused portion of the Commitment hereunder shall forthwith terminate
and the Bank shall be relieved of all obligations to make Loans to, and to issue
Letters of Credit for the account of, the Borrowers; or if on any Drawdown Date
the conditions precedent to the making of the Loans to be made on such Drawdown
Date or the issuance of any Letters of Credit to be issued on such date are not
satisfied (except as a consequence of a default on the part of the Bank), the
Bank may by Notice to the Borrowers, terminate the unused portion of the
Commitment hereunder, and upon such Notice being given such unused portion of
the Commitment hereunder shall terminate immediately and the Bank shall be
relieved of all further obligations to make Loans to, and to issue Letters of
Credit for the account of, the Borrowers hereunder. No termination of any
portion of the Commitment hereunder shall relieve the Borrowers of any of their
existing Obligations to the Bank hereunder or elsewhere.
Section 2.10. Optional Prepayment. The Borrowers shall have the right
to prepay Eurodollar Loans made to the Borrowers hereunder as a whole or in
part, on the last day of the Interest Period relating thereto, without premium
or penalty. The Borrowers shall also have the right at any time to prepay Base
Rate Loans at any time, as a whole or in part, without premium or penalty;
provided that the Bank may require one (1) Business Day's Notice of such
prepayments and, provided, further that each partial prepayment shall be in the
aggregate principal amount of $100,000 or a multiple thereof. Subject to the
conditions of Section 2.1 hereof, amounts so prepaid may be reborrowed. In
addition, the Borrowers may, upon three (3) Business Day's Notice, prepay all,
but not less than all, of the Eurodollar Loans subject to a particular Interest
Period on a date other than the last day of the Interest Period relating thereto
subject to the terms and conditions of Section 2.6(f) hereof.
Section 2.11. Mandatory Prepayment. If at any time the sum of (i) the
outstanding Loans and (ii) the aggregate Maximum Drawing Amount of all Letters
of Credit issued pursuant to Section 2.2 shall exceed the Commitment then in
effect, the Borrowers shall immediately make a payment to the Bank in the amount
required to eliminate any such excess, together with all amounts, if any, due
under Section 2.9 hereof.
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Section 2.12. Mandatory Payment on Maturity. The Borrowers jointly and
severally promise to pay on the Maturity Date, and there shall become absolutely
due and payable on the Maturity Date, all of the Loans outstanding on such date,
together with any and all accrued and unpaid interest thereon.
Section 3. PAYMENTS AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY;
SECURITY.
Section 3.1. Payments. All payments of principal, interest, commitment
fees, letter of credit fees and any other amounts due hereunder shall be made by
the Borrowers to the Bank in immediately available funds at the Bank's Head
Office. The Bank shall be entitled to debit the Borrowers' account with the Bank
in the amount of each such payment when due in order to effect timely payment
thereof.
Section 3.2. Computations. All computations of interest on the Loans
and of commitment fees, and letter of credit fees shall be based on a 360-day
year and paid for the actual number of days elapsed. Whenever a payment
hereunder or under the Note becomes due on a day which is not a Business Day,
the due date for such payment shall be extended to the next succeeding Business
Day, and interest shall accrue during such extension.
Section 3.3. Interest Limitation. Notwithstanding any other term of
this Agreement or the Note or any other document referred to herein or therein,
the maximum amount of interest which may be charged to or collected from any
person liable hereunder or under the Note by the Bank shall be absolutely
limited to, and shall in no event exceed, the maximum amount of interest which
could lawfully be charged or collected under applicable law (including, to the
extent applicable, the provisions of Section 5197 of the Revised Statutes of the
United States of America, as amended, 12 U.S.C. Section 85, as amended), so that
the maximum of all amounts constituting interest under applicable law, howsoever
computed, shall never exceed as to any person liable therefor such lawful
maximum, and any term of this Agreement, the Note, the Letter of Credit
Agreements or any other document referred to herein or therein which could be
construed as providing for interest in excess of such lawful maximum shall be
and hereby is made expressly subject to and modified by the provisions of this
paragraph.
Section 3.4. Additional Costs, Etc. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall:
(a) subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the other
Loan Documents, the Bank's Commitment, the Loans or the Letters of Credit (other
than taxes based upon or measured by the income or profits of the Bank), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Bank of the principal or of the
interest on any Loans or any other amounts payable to the Bank under this
Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held by, or deposits in
or for the account of, or loans by, or commitments of, or letters of credit
issued by, an office of the Bank, or
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(d) impose on the Bank any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loans, the Bank's
Commitment, the Letters of Credit or any class of loans or commitments or
letters of credit of which any of the Loans, the Bank's Commitment or the
Letters of Credit forms a part, and the result of any of the foregoing is
(i) to increase the cost to the Bank of making, funding,
issuing, renewing, extending or maintaining the Loans, the Bank's Commitment, or
the Letters of Credit; or
(ii) to reduce the amount of principal, interest or other
amount payable to the Bank hereunder on account of the Bank's Commitment, the
Loans, drawings under the Letters of Credit, or
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or foregone
interest or other sum is calculated by reference to the gross amount of any sum
receivable or deemed received by the Bank from the Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by the Bank at
any time and from time to time and as often as the occasion therefor may arise,
pay to the Bank such additional amounts as will be sufficient to compensate the
Bank for such additional cost, reduction, payment or foregone interest or other
sum (after the Bank shall have allocated the same fairly and equitably among all
customers of any class generally affected thereby).
Section 3.5. Capital Adequacy. If any present or future applicable law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required or expected to be maintained by the Bank or any corporation
controlling the Bank determines that the amount of capital required to be
maintained by it is increased by or based upon the Bank's commitment to make, or
maintenance of, Loans or Letters of Credit hereunder, then the Bank may notify
the Borrowers of such fact. To the extent that the costs of such increased
capital requirements are not reflected in the Base Rate, the Borrowers and the
Bank shall thereafter attempt to negotiate in good faith, within thirty (30)
days of the day on which the Borrowers receive such notice, an adjustment
payable hereunder that will adequately compensate the Bank in light of these
circumstances. If the Borrowers and the Bank are unable to agree to such
adjustment within thirty (30) days of the date on which the Borrowers receive
such notice, then commencing on the date of such notice (but not earlier than
the effective date of any such increased capital requirement), the rate payable
hereunder shall increase by an amount that will, in the Bank's reasonable
determination, provide adequate compensation, such amount to be considered prima
facie correct and binding, absent manifest error. The Bank shall allocate such
cost increases among its customers in good faith and on an equitable basis.
Section 3.6. Concerning Joint and Several Liability of the
Borrowers.
(a) Each of the Borrowers is accepting joint and several
liability hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Bank under this Agreement, for
the mutual benefit, directly and indirectly, of each of the Borrowers and in
consideration of the undertakings of each other Borrower to accept joint and
several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrowers, with respect to
the payment and performance of all of the Obligations (including, without
limitation, any Obligations arising under this Section 3.6), it being the
intention of the parties hereto that all the
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Obligations shall be the joint and several Obligations of each of the Borrowers
without preferences or distinction among them.
(c) If and to the extent that any of the Borrowers shall fail
to make any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then in
each such event the other Borrowers will make such payment with respect to, or
perform, such Obligation.
(d) The Obligations of each of the Borrowers under the
provisions of this Section 3.6 constitute full recourse Obligations of each of
the Borrowers enforceable against each such corporation to the full extent of
its properties and assets, irrespective of the validity, regularity or
enforceability of this Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this Agreement,
each of the Borrowers hereby waives notice of acceptance of its joint and
several liability, notice of any Loans made under this Agreement, notice of any
action at any time taken or omitted by the Bank under or in respect of any of
the Obligations, and, generally, to the extent permitted by applicable law, all
demands, notices and other formalities of every kind in connection with this
Agreement. Except as otherwise expressly provided in this Agreement, each of the
Borrowers hereby assents to, and waives notice of, any extension or postponement
of the time for the payment of any of the Obligations, the acceptance of any
payment of any of the Obligations, the acceptance of any partial payment
thereon, any waiver, consent or other action or acquiescence by the Bank at any
time or times in respect of any default by any of the Borrowers in the
performance or satisfaction of any term, covenant, condition or provision of
this Agreement, any and all other indulgences whatsoever by the Bank in respect
of any of the Obligations, and the taking, addition, substitution or release, in
whole or in part, at any time or times, of any security for any of the
Obligations or the addition, substitution or release, in whole or in part, of
any of the Borrowers. Without limiting the generality of the foregoing, each of
the Borrowers assents to any other action or delay in acting or failure to act
on the part of the Bank with respect to the failure by any of the Borrowers to
comply with any of its respective Obligations, including, without limitation,
any failure strictly or diligently to assert any right or to pursue any remedy
or to comply fully with applicable laws or regulations thereunder, which might,
but for the provisions of this Section 3.6, afford grounds for terminating,
discharging or relieving any of the Borrowers, in whole or in part, from any of
its Obligations under this Section 3.6, it being the intention of each of the
Borrowers that, so long as any of the Obligations hereunder remain unsatisfied,
the Obligations of such Borrowers under this Section 3.6 shall not be discharged
except by performance and then only to the extent of such performance. The
Obligations of each of the Borrowers under this Section 3.6 shall not be
diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, reconstruction or similar proceeding with respect to
any of the Borrowers or the Bank. The joint and several liability of the
Borrowers hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
membership, constitution or place of formation of any of the Borrowers, the
Bank.
(f) The provisions of this Section 3.6 are made for the
benefit of the Bank and its successors and assigns, and may be enforced by it or
them from time to time against any or all of the Borrowers as often as occasion
therefor may arise and without requirement on the part of the Bank first to
marshall any of their claims or to exercise any of its rights against any other
Borrower or to exhaust any remedies available to them against any other Borrower
or to resort to any other source or means of obtaining payment of any of the
Obligations hereunder or to elect any other remedy. The provisions of this
Section 3.6 shall remain in effect until all of the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or any
part thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by the Bank upon the insolvency, bankruptcy or
reorganization of any of
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the Borrowers, or otherwise, the provisions of this Section 3.6 will forthwith
be reinstated in effect, as though such payment had not been made.
(g) Each Borrower hereby agrees that it will not enforce any
of its rights of contribution or subrogation against any other Borrower with
respect to any liability incurred by it hereunder or under any of the other Loan
Documents, any payments made by it to the Bank with respect to any of the
Obligations or any collateral security therefor until such time as all
Obligations have been paid in full or such other Borrower shall be released of
all Obligations by the Bank. If, notwithstanding the foregoing, any payment
shall be made to any Borrower on account of such subrogation or contribution
rights at any time when the Obligations shall not have been paid in full, each
and every amount so paid will forthwith be paid over to the Bank to be credited
and applied to the Obligations.
Section 3.7. Amendment Fee. The Borrowers shall pay to the Bank, an
amendment fee in the amount of $15,000 (the "Amendment Fee"), payable in four
consecutive installments of $3,750 each, commencing on the Amendment Date and
thereafter September 30, 1998, December 31, 1998 and March 31, 1999.
Section 3.8. Security. The Obligations shall be secured by a perfected
first priority security interest (subject only to liens permitted under Section
6.2 entitled to priority under applicable law) in each Borrower's accounts
receivables, whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which such Borrower is a party.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and
severally represent and warrant to the Bank that on and as of the date of this
Agreement:
Section 4.1. Corporate Authority.
(a) Incorporation; Good Standing. Each of the Borrowers and their
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation, (ii) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated, and (iii) is in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
in which its property or business as presently conducted or contemplated makes
such qualification necessary except where a failure to be so qualified would not
have a material adverse effect on the business, assets or financial condition of
such Borrower or Subsidiary.
(b) Authorization. The execution, delivery and performance of the Loan
Documents and the transactions contemplated hereby and thereby (i) are within
the corporate authority of each of the Borrowers and their Subsidiaries, (ii)
have been duly authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any material breach or contravention of any provision
of law, statute, rule or regulation to which any of the Borrowers or any of
their Subsidiaries is subject or any judgment, order, writ, injunction, license
or permit applicable to any of the Borrowers or any of their Subsidiaries so as
to materially adversely affect the assets, business or any activity of any of
the Borrowers or any of their Subsidiaries, and (iv) do not conflict with any
provision of the corporate charter or bylaws of any of the Borrowers or any of
their Subsidiaries or any agreement or other instrument binding upon any of the
Borrowers or any of their Subsidiaries.
(c) Enforceability. The execution, delivery and performance of the Loan
Documents will result in valid and legally binding obligations of each of the
Borrowers enforceable against each in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific
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performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
Section 4.2. Governmental Approvals. The execution, delivery and
performance by the Borrowers of the Loan Documents and the transactions
contemplated hereby and thereby do not require any approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
Section 4.3. Title to Properties; Leases. The Borrowers and their
Subsidiaries own all of their respective assets reflected in the consolidated
balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet
Date or acquired since that date (except property and assets sold or otherwise
disposed of in the ordinary course of business since that date), subject to no
mortgages, capitalized leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except those permitted by Section 6.2
hereof.
Section 4.4. Financial Statements; Solvency. (a) There has been
furnished to the Bank a consolidated balance sheet of the Borrowers and their
Subsidiaries dated the Balance Sheet Date, and a consolidated statement of
operations for the fiscal year then ended, certified by the Borrowers'
independent certified public accountants. Such balance sheet and statement of
operations have been prepared in accordance with Generally Accepted Accounting
Principles and fairly present the financial condition of the Borrowers as at the
close of business on the date thereof and the results of operations for the
period then ended. There are no contingent liabilities of the Borrowers or any
of their Subsidiaries as of such date involving material amounts, known to the
officers of any of the Borrowers not disclosed in said balance sheet and the
related notes thereto.
(b) The Borrowers (both before and after giving effect to the
transactions contemplated by this Agreement) are solvent, have assets having a
fair value in excess of the amount required to pay their probable liabilities on
their existing debts as they become absolute and matured, and have, and will
have, access to adequate capital for the conduct of their business and the
ability to pay their debts from time to time incurred in connection therewith as
such debts mature.
Section 4.5. No Material Changes, Etc. Since the Balance Sheet Date,
there have occurred no material adverse changes in the financial condition or
business of the Borrowers and their Subsidiaries as shown on or reflected in the
consolidated balance sheet of the Borrowers and their Subsidiaries as at the
Balance Sheet Date, or the consolidated statement of operations for the fiscal
year then ended other than changes in the ordinary course of business which have
not had any material adverse effect either individually or in the aggregate on
the business or financial condition of the Borrowers or their Subsidiaries.
Since the Balance Sheet Date, there has not been any Distribution by any of the
Borrowers.
Section 4.6. Franchises, Patents, Copyrights, Etc. Each of the
Borrowers and their Subsidiaries possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
Section 4.7. Litigation. Except as set forth on Schedule 4.7 hereto,
there are no actions, suits, proceedings or investigations of any kind pending
or threatened against any of the Borrowers or any of their Subsidiaries before
any court, tribunal or administrative agency or board which, if adversely
determined, might, either in any case or in the aggregate, materially adversely
affect the properties, assets, financial condition or business of the Borrowers
and their Subsidiaries, considered as a whole, or materially impair the right of
the Borrowers and their Subsidiaries, considered as a whole, to carry on
business substantially as now conducted, or result in any substantial liability
not adequately covered by insurance, or for which adequate reserves are not
maintained on the consolidated balance sheets of the Borrowers, or which
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question the validity of any of the Loan Documents, or any action taken or to be
taken pursuant hereto or thereto.
Section 4.8. No Materially Adverse Contracts, Etc. None of the
Borrowers nor any of their Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Borrowers' officers has or is expected in the
future to have a materially adverse effect on the business, assets or financial
condition of the Borrowers and their Subsidiaries as a whole. None of the
Borrowers nor any of their Subsidiaries is a party to any contract or agreement
which in the judgment of the Borrowers' officers has or is expected to have any
materially adverse effect on the business of the Borrowers and their
Subsidiaries as a whole, except as otherwise reflected in adequate reserves.
Section 4.9. Compliance With Other Instruments, Laws, Etc. None of the
Borrowers nor any of their Subsidiaries is violating any provision of their
charter documents or bylaws or any agreement or instrument by which any of them
may be subject or by which any of them or any of their properties may be bound
or any decree, order, judgment, or any statute, license, rule or regulation, in
a manner which could result in the imposition of substantial penalties or
materially and adversely affect the financial condition, properties or business
of any of the Borrowers or any of their Subsidiaries.
Section 4.10. Tax Status. The Borrowers and their Subsidiaries have
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which any of them are subject
(unless and only to the extent that such Borrower or such Subsidiary has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes); and have paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith; and have set aside on their books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Borrowers and their Subsidiaries know of no basis for
any such claim.
Section 4.11. No Event of Default. No Default or Event of Default has
occurred and is continuing as of the date of this Agreement.
Section 4.12. Holding Company and Investment Company Acts. None of the
Borrowers nor any of their Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor
are any of them a "registered investment company", or an "affiliated company" or
a "principal underwriter" of a "registered investment company", as such terms
are defined in the Investment Company Act of 1940, as amended.
Section 4.13. Absence of Financing Statements, Etc. Except as
contemplated by Section 6.2 of this Agreement, there is no financing statement,
security agreement, chattel mortgage, real estate mortgage or other document
filed or recorded with any filing records, registry, or other public office,
which purports to cover, affect or give notice of any present or possible future
lien on, or security interest in, any assets or property of any of the Borrowers
or any of their Subsidiaries or rights thereunder.
Section 4.14. Perfection of Security Interest. All filings,
assignments, pledges and deposits of documents or instruments required to be
made by the Borrowers hereunder have been made and all other actions have been
taken to the satisfaction of the Bank required to be taken by the Borrowers
hereunder to establish and perfect the Bank's security interest in the
Collateral. The Collateral and the Bank's rights with respect to the Collateral
are not subject to any setoff, claims, withholdings or other defenses. The
Borrowers are the
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owners of the Collateral free from any lien, security interest, encumbrance and
any other claim or demand, except for liens permitted under Section 6.2.
Section 4.15. Certain Transactions. Except as may be disclosed in the
Borrowers' proxy statements, none of the officers, directors, or employees of
the Borrowers nor their Subsidiaries is presently a party to any transaction
with any other Borrower or Subsidiary (other than for services as employees,
officers and directors), including, without limitation, any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of any of the Borrowers, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
Section 4.16. ERISA Compliance. To the best of the Borrowers'
knowledge, the Borrowers and their Subsidiaries have complied in all material
respects with ERISA, including without limitation, the provisions thereof
respecting funding requirements for, and the termination of, plans and
respecting prohibited transactions thereunder, and the funding of any Guaranteed
Pension Plan of any of the Borrowers and their Subsidiaries complies with the
minimum funding standards of Section 412 of the Internal Revenue Code for 1954,
as amended.
Section 4.17. Use of Proceeds. The proceeds of the Loans shall be used
to pay a portion of the Subordinated Debt, for working capital and other general
corporate purposes and to finance acquisitions to the extent such acquisitions
are permitted under Section 6.4 of this Agreement. No proceeds of the Loans or
Letters of Credit shall be used in any way that will violate Regulations G, T, U
or X of the Board of Governors of the Federal Reserve System.
Section 4.18. Environmental Compliance. The Borrowers have taken all
necessary steps to investigate the past and present condition and usage of their
and their Subsidiaries' properties and the operations conducted thereon and,
based upon such diligent investigation, have determined that,
(a) Except as set forth on Schedule 4.18 attached hereto, none of the
Borrowers, their Subsidiaries or any operator of their properties is in
violation, or alleged violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act,
the Toxic Substances Control Act, or any state or local statute, regulation,
ordinance, order or decree relating to health, safety or the environment
(hereinafter "Environmental Laws"), which violation would have a material
adverse effect on the environment or the business, assets or financial condition
of the Borrowers on a consolidated basis.
(b) Except as set forth on Schedule 4.18 attached hereto, neither the
Borrowers nor their Subsidiaries has received notice from any third party
including, without limitation: any federal, state or local governmental
authority, (i) that any one of them has been identified by the United States
Environmental Protection Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities List, 40
C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste, as defined by
42 U.S.C. Section 6903(5), any hazardous substances as defined by 42 U.S.C.
Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C. Section
9601(33) and any toxic substance, oil or hazardous materials or other chemicals
or substances regulated by any Environmental Laws ("Hazardous Substances") which
any one of them has generated, transported or disposed of has been found at any
site at which a federal, state or local agency or other third party has
conducted or has ordered that any Borrower or any of their Subsidiaries conduct
a remedial investigation, removal or other response action pursuant to
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any Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, legal or administrative proceeding
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Substances.
(c) Except as set forth on Schedule 4.18 attached hereto: (i) no
portion of any Borrower's or any of their Subsidiaries' properties has been used
for the handling, processing, storage or disposal of Hazardous Substances except
in accordance with applicable Environmental Laws; and no underground tank or
other underground storage receptacle for Hazardous Substances is located on such
properties; (ii) in the course of any activities conducted by any of the
Borrowers, their Subsidiaries or operators of their properties, no Hazardous
Substances have been generated or are being used on such properties except in
accordance with applicable Environmental Laws; (iii) there have been no
unpermitted releases (i.e. any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Substances on, upon,
into or from the properties of any of the Borrowers or any of their
Subsidiaries, which releases would have a material adverse effect on the value
of such properties or adjacent properties or the environment; (iv) to the best
of the Borrowers' knowledge, there have been no releases on, upon, from or into
any real property in the vicinity of the real properties of any of the Borrowers
or any of their Subsidiaries which, through soil or groundwater contamination,
may have come to be located on, and which would have a material adverse effect
on the value of, any properties of any of the Borrowers or any of their
Subsidiaries; and (v) in addition, any Hazardous Substances that have been
generated on the properties of the Borrowers or any of their Subsidiaries, have
been transported offsite only by carriers having an identification number issued
by the EPA, treated or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Borrowers'
knowledge, operating in compliance with such permits and applicable
Environmental Laws.
(d) Except as set forth on Schedule 4.18 attached hereto, none of the
properties of the Borrowers or any of their Subsidiaries are or shall be subject
to any applicable environmental clean up responsibility law or environmental
restrictive transfer law or regulation, by virtue of the transactions set forth
herein and contemplated hereby.
(e) The Borrowers further represent that they have provided the Bank
with true and complete copies of all documents, reports, site assessments, data,
communication and other materials in any of their possession or to which they
have access, which contain information with respect to potential environmental
liabilities of the Borrowers or their Subsidiaries related to compliance with
Environmental Laws.
Section 4.19. Year 2000 Problem. The Borrowers have reviewed the areas
within its businesses and operations which could be adversely affected by, and
have developed or are developing a program to address on a timely basis, the
"Year 2000 Problem" (i.e. the risk that computer applications used by the
Borrowers may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based upon such review, the Borrowers reasonably believe taken as a whole
that the "Year 2000 Problem" will not have any materially adverse effect on the
business or financial condition of the Borrowers.
Section 5. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers
jointly and severally covenant and agree that, so long as any Loan or the Note
is outstanding or the Bank has any obligation to make Loans or to issue Letters
of Credit hereunder:
Section 5.1. Records and Accounts. Each of the Borrowers will keep, and
will cause each of its Subsidiaries to keep, true and accurate records and books
of account in which full, true and correct entries will be made in accordance
with Generally Accepted Accounting Principles and with the requirements of all
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regulatory authorities and maintain adequate accounts and reserves for all taxes
(including income taxes), depreciation, depletion, obsolescence and amortization
of its properties and the properties of its Subsidiaries, all other
contingencies, and all other proper reserves.
Section 5.2. Financial Statements, Certificates and Information. The
Borrowers will deliver to the Banks:
(a) as soon as practicable, but, in any event not later than 90 days
after the end of each fiscal year of the Borrowers, the consolidated balance
sheet of the Borrowers as at the end of such year, statements of cash flows, and
the related consolidated statement of operations, each setting forth in
comparative form the figures for the previous fiscal year, all such consolidated
statements to be in reasonable detail, prepared in accordance with Generally
Accepted Accounting Principles, and certified without qualification by Price
Waterhouse LLP or by other independent nationally recognized certified public
accountants, together with a written statement from such accountants to the
effect that they have read a copy of this Agreement, and that, in making the
examination necessary to said certification, they have obtained no knowledge of
any Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default they shall disclose
in such statement any such Default or Event of Default; provided, that such
accountants shall not be liable to the Bank for failure to obtain knowledge of
any Default or Event of Default;
(b) as soon as practicable, but in any event not later than 45 days
after the end of each fiscal quarter of each fiscal year of the Borrowers,
copies of the unaudited consolidated and consolidating balance sheet and
statement of operations of the Borrowers as at the end of such quarter, subject
to year end audit adjustments, and consolidated statement of cash flows, all in
reasonable detail and prepared in accordance with Generally Accepted Accounting
Principles, together with a certification by the principal financial or
accounting officer of the Borrowers that such financial statements have been
prepared in accordance with Generally Accepted Accounting Principles and fairly
present the financial condition of the Borrowers as at the close of business on
the date thereof and the results of operations for the period then ended;
(c) simultaneously with the delivery of the financial statements
referred to in (a) and (b) above, a statement certified by the principal
financial or accounting officer of the Borrowers that the Borrowers are in
compliance with the covenants contained in Sections 5 and 6 hereof as of the end
of the applicable period and setting forth in reasonable detail computations
evidencing such compliance;
(d) when requested by the Bank, within 20 days after the end of each
calendar month, copies of the unaudited consolidated balance sheet and income
statements of the Borrowers as at the end of such calendar month, and statement
of cash flows;
(e) within 20 days after the end of each calendar month, an accounts
receivable aging summary and a statement certified by the principal financial or
accounting officer of the Borrowers that the Borrowers are in compliance with
Section 6.7 as of the end of such month and setting forth in reasonable detail
computations evidencing such compliance;
(f) no later than July 31st of each fiscal year of the Borrowers, the
annual budgets of the Borrowers for the current fiscal year (including the
projected consolidated and consolidating balance sheets for the end of such
fiscal year);
(g) contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and Exchange Commission
or sent to the stockholders of the Borrowers; and
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(h) from time to time such other financial data and information
(including accountants' management letters) as the Bank may reasonably request.
The Borrowers hereby authorize the Bank to disclose any information
obtained pursuant to this Agreement to all appropriate governmental regulatory
authorities where required by law; provided, however, that the Bank shall, to
the extent allowable under law, notify the Borrowers at the time any such
disclosure is made; and provided further, this authorization shall not be deemed
to be a waiver of any rights to object to the disclosure by the Bank of any such
information which any Borrower has or may have under the federal Right to
Financial Privacy Act of 1978 or other applicable laws, as in effect from time
to time.
Section 5.3. Corporate Existence and Conduct of Business. Each Borrower
and its Subsidiaries will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, corporate
rights and franchises; effect and maintain its foreign qualifications,
licensing, domestication or authorization except as terminated by its Board of
Directors in the exercise of its reasonable judgment; use its best efforts to
comply with all applicable laws; and shall not become obligated under any
contract or binding arrangement which, at the time it was entered into would
materially adversely impair the financial condition of the Borrowers, on a
consolidated basis. Each Borrower will, and will cause each of its Subsidiaries
to, continue to engage primarily in the businesses now conducted by them and in
related businesses.
Section 5.4. Maintenance of Properties. Each Borrower will cause all of
its properties and those of its Subsidiaries used or useful in the conduct of
its business or the business of its Subsidiaries to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
such Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this section or in Section 5.3 above shall prevent any
Borrower from discontinuing the operation and maintenance of any of its
properties or those of its Subsidiaries if such discontinuance is, in the
judgment of such Borrower, desirable in the conduct of its or their business and
which do not in the aggregate materially adversely affect the business of the
Borrowers and their Subsidiaries on a consolidated basis.
Section 5.5. Insurance. The Borrowers will maintain, and cause their
Subsidiaries to maintain, with financially sound and reputable insurance
companies, funds or underwriters insurance of the kinds, covering the risks and
in the relative proportionate amounts usually carried by reasonable and prudent
companies conducting businesses similar to that of the Borrowers, including, to
the extent it is commercially available, feasible, and reasonably priced
environmental impairment insurance.
Section 5.6. Taxes. Each Borrower will and will cause each of its
Subsidiaries to duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges (other than taxes, assessments and other governmental
charges imposed by foreign jurisdictions which in the aggregate are not material
to the business or assets of any Borrower on an individual basis or of the
Borrowers and their Subsidiaries on a consolidated basis) imposed upon it and
its real properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or
supplies, which if unpaid might by law become a lien or charge upon any of its
property; provided, however, that any such tax, assessment, charge, levy or
claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and provided, further, that such Borrower and such Subsidiary will pay
all such taxes, assessments, charges, levies or claims forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor.
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Section 5.7. Inspection of Properties, Books, and Contracts. The
Borrowers shall permit the Bank or any of its designated representatives, to
visit and inspect any of the properties of the Borrowers or any of their
Subsidiaries, to examine the books of account of the Borrowers and their
Subsidiaries and contracts under which any of the Borrowers performs services
(and to make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Borrowers and their Subsidiaries with, and to be
advised as to the same by, their officers, all at such reasonable times and
intervals as the Bank may reasonably request.
Section 5.8. Compliance with Laws, Contracts, Licenses and Permits.
Each Borrower will and will cause each of its Subsidiaries to comply with (i)
the provisions of its charter documents and by-laws and all agreements and
instruments by which it or any of its properties may be bound; and (ii) all
applicable laws and regulations (including Environmental Laws), decrees, orders
and judgments ("Applicable Laws") except where noncompliance with such
Applicable Laws would not have a material adverse effect in the aggregate on the
financial condition, properties or business of any Borrower or any Subsidiary.
If at any time while the Note, Loans or Letters of Credit are outstanding or the
Bank has any obligation to make Loans or to issue Letters of Credit hereunder,
any authorization, consent, approval, permit or license from any officer, agency
or instrumentality of any government shall become necessary or required in order
that any Borrower may fulfill any of its obligations hereunder, such Borrower
will immediately take or cause to be taken all reasonable steps within the power
of such Borrower to obtain such authorization, consent, approval, permit or
license and furnish the Bank with evidence thereof.
Section 5.9. Pension Plans. Each Borrower and each Subsidiary shall:
(a) fund each pension plan as required by Section 412 of the Internal
Revenue Code of 1954, as amended (the "Code");
(b) furnish to the Bank a copy of any actuarial statement related to
any pension plan required to be submitted under Section 103(d) of ERISA, no
later than the date on which such statement is submitted to the Department of
Labor or the Internal Revenue Service;
(c) furnish to the Bank forthwith, a copy of (i) any notice of a
pension plan termination sent to the Pension Benefit Guaranty Corporation under
Section 4041(a) of ERISA or (ii) any notice, report or demand sent or received
by a pension plan under Sections 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of
ERISA; and
(d) furnish to the Bank a copy of any request for waiver from the
funding standards or extension of the amortization periods required by Section
412 of the Code no later than the date on which the request is submitted to the
Department of Labor or the Internal Revenue Service, as the case may be.
Section 5.10. Further Assurances. The Borrowers will cooperate with the
Bank and execute such further instruments and documents as the shall reasonably
request to carry out to the Bank's satisfaction the transactions contemplated by
this Agreement.
Section 5.11. Notice of Potential Claims or Litigation. Each of the
Borrowers shall deliver to the Bank, within 30 days of receipt thereof, written
notice of any pending action, claim, complaint, or any other notice of dispute
or potential litigation (including without limitation any alleged violation of
any Environmental Law), wherein the potential liability is unspecified or in
excess of $1,000,000, together with a copy of each such notice received by any
Borrower or its Subsidiary.
Section 5.12. Notices. The Borrowers will promptly notify the Bank in
writing of (i) the change in status of any inactive Subsidiary listed on
Schedule 3.7 hereto, or (ii) the occurrence of any Default or Event of Default.
If any Person shall give any notice or take any other action in respect of a
claimed default
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(whether or not constituting an Event of Default) under this Agreement or any
other note, evidence of indebtedness, indenture or other obligation as to which
any Borrower or any of their Subsidiaries is a party or obligor, whether as
principal or surety, the Borrowers shall forthwith give written notice thereof
to the Bank, describing the notice of action and the nature of the claimed
default.
Section 5.13. New Borrowers. Any newly-created Subsidiaries of any
Borrower shall become Borrowers hereunder by signing the Note, entering into an
amendment to this Agreement with the other parties hereto providing that such
Subsidiary shall become a Borrower hereunder, entering into an amendment to the
Security Agreement to become a party thereto, and providing such other
documentation as the Bank may reasonably request including, without limitation,
documentation with respect to conditions noted in Section 7 hereof. In such
event, the Bank is hereby authorized by the parties to amend Schedule 1 hereto
to include such Subsidiary as a Borrower hereunder.
Section 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. The Borrowers
agree that, so long as any Loan or the Note is outstanding or the Bank has any
obligation to make Loans or to issue Letters of Credit hereunder:
Section 6.1. Restrictions on Indebtedness. The Borrowers will not, and
will not permit any Subsidiary to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Bank arising under this Agreement or the other
Loan Documents;
(b) Existing Indebtedness as listed on Schedule 6.1 hereto, on the
terms and conditions in effect as of the date hereof;
(c) Current liabilities of the Borrowers incurred in the ordinary
course of business not incurred through (i) the borrowing of money, or (ii) the
obtaining of credit except for credit on an open account basis customarily
extended and in fact extended in connection with normal purchases of goods and
services;
(d) Indebtedness in respect of taxes, assessments, governmental charges
or levies and claims for labor, materials and supplies to the extent that
payment therefor shall not at the time be required to be made in accordance with
the provisions of Section 5.6 and Indebtedness secured by liens of carriers,
warehousemen, mechanics and materialmen permitted by Section 6.2;
(e) Indebtedness in respect of judgments or awards which have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which such Borrower shall at
the time in good faith be prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been obtained pending such
appeal or review and in respect of which the Borrowers have maintained adequate
reserves; and Indebtedness in respect of a final judgment against any Borrower
which is undischarged, unsatisfied and unstayed and which, with other
outstanding final judgments, undischarged against the Borrowers does not exceed
$1,000,000 in aggregate amount; and
(f) Other Indebtedness, not to exceed $1,000,000 in the aggregate,
incurred after the date hereof (including existing Indebtedness of any
Subsidiaries of the Borrowers acquired after the date hereof), through the
borrowing of money or the obtaining of credit, incurred in connection with the
lease or acquisition of property or fixed assets useful or intended to be used
in carrying on the business of the Borrowers and their Subsidiaries.
Section 6.2. Restrictions on Liens. No Borrower will, nor will any
Borrower permit any Subsidiary to, create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge,
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charge, restriction or other security interest of any kind 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 any Borrower or any Subsidiary), 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 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:
(a) To the extent permitted under Section 6.1(f) hereof, 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 the
Borrowers or the acquiring Subsidiary, provided that such Liens shall encumber
only the property or assets so acquired and do not exceed the fair market value
thereof; and
(b) Liens to secure taxes, assessments and other government charges or
claims for labor, material or supplies in respect of obligations not overdue;
(c) 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;
(d) Liens in respect of judgments or awards, the Indebtedness with
respect to which is permitted by Section 6.1(e);
(e) 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;
(f) 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 any Borrower or any Subsidiary is a party, and other minor liens or
encumbrances none of which in the opinion of the respective Borrower or
Borrowers interferes materially with the use of the property affected in the
ordinary conduct of the business of such Borrower and its Subsidiaries, which
defects do not individually or in the aggregate have a material adverse effect
on the business of such Borrower individually or of the Borrowers and their
Subsidiaries on a consolidated basis; and
(g) Liens securing the Obligations.
Section 6.3. Restrictions on Investments. No Borrower will, nor will
any Borrower permit any Subsidiary to, make or permit to exist or to remain
outstanding any Investment except the following:
(a) Marketable direct or guaranteed obligations of the United States of
America which mature within one year from the date of purchase by the Borrowers;
(b) Demand deposits, certificates of deposit, bankers' acceptances,
time deposits and variable rate demand obligations of United States banks having
total assets in excess of $1,000,000,000 United States Dollars;
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(c) Securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof which at the time of purchase have been rated and
the ratings for which are less than "P-1" if rated by Moody's Investors
Services, Inc. and less than "A-1" if rated by Standard and Poor's Ratings
Group, provided that such investments shall not exceed $2,000,000;
(d) Debt securities of U.S. corporations or U.S. governmental entities
under which full payment of principal and interest is assured by a letter of
credit issued by United States banks having total assets in excess of
$1,000,000,000 United States Dollars and which at the time of purchase are rated
and the ratings for which are not less than "P-1" if rated by Moody's Investors
Services, Inc. and not less than "A-1" if rated by Standard and Poor's Ratings
Group;
(e) (i) Securities commonly known as "municipal securities" issued by a
municipality organized and existing under the laws of any state of the United
States of America which at the time of purchase have been rated and the ratings
for which are not less than "P-1" if rated by Moody's Investors Services, Inc.,
and not less than "A-1" if rated by Standard and Poor's Ratings Group, and (ii)
securities known as the John Nuveen & Co. MuniPreferred series of tax-exempt
mutual funds, all of which funds have a triple-A rating by Standard and Poor's
Ratings Group and Moody's Investor Services, Inc.;
(f) Trade payables, accrued payroll and vacation, and taxes payable,
all accrued in the ordinary course of business;
(g) Present and future Investments by the Borrowers in any Person which
is a Borrower listed on Schedule 1 hereto;
(h) Other Investments in addition to the existing Investments listed on
Schedule 6.3(i) hereto, provided that such other Investments shall not exceed
$1,000,000 (such amount determined on the basis of cost) at any one time
outstanding;
(i) Existing Investments listed on Schedule 6.3(i) hereto;
(j) Short term money market investments in money market loans or
portions of such loans sold by the Bank; and
(k) Investments in acquisitions permitted by Section 6.4.
Section 6.4. Merger, Consolidation, and Acquisitions. No Borrower will
become a party to any merger, consolidation, or acquisition except (a) for the
merger or consolidation of a Borrower with another Borrower or (b) where (i)
such Borrower is the surviving corporation of a merger; (ii) such merger,
consolidation, or acquisition is of a company in the environmental consulting,
engineering or related field; (iii) the Bank has been provided with a
certificate demonstrating that the Borrowers are in current compliance with and,
after giving effect to the proposed acquisition (including any borrowings made
or to be made in connection therewith), will continue to be in compliance with,
all of the covenants in this Section 6; (iv) all of the assets to be acquired
shall be owned by an existing or newly created Subsidiary of TRC which is a
Borrower or, in the case of a stock acquisition, the acquired company shall
become or shall be merged with a wholly-owned Subsidiary of TRC that is a
Borrower; (v) the required majority of the Board of Directors of the target
company incumbent at the time such acquisition, merger or consolidation is
proposed has acquiesced either voluntarily or by order of a court of competent
jurisdiction, or the transaction is otherwise deemed in the reasonable judgment
of the Bank to be a "friendly" acquisition; and (vi) the total consideration for
such merger, consolidation or acquisition (including cash and assumed
Indebtedness) shall not exceed (A) $2,000,000 for any merger, consolidation or
acquisition or series thereof
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and (B) $6,000,000 in the aggregate for all mergers, consolidations and
acquisitions and provided that both immediately before and after such merger,
consolidation or acquisition no Defaults or Events of Default shall have
occurred or be continuing.
Section 6.5. Sale and Leaseback. None of the Borrowers will enter into
any arrangement, directly or indirectly, whereby any Borrower or any Subsidiary
shall sell or transfer any property owned by it in order then or thereafter to
lease such property or lease other property which any Borrower or any Subsidiary
intends to use for substantially the same purpose as the property being sold or
transferred.
Section 6.6. Sales of Assets. None of the Borrowers will, and no
Borrower will permit any Subsidiary to, sell or otherwise dispose of any of
their respective assets consisting of securities (other than any margin stock,
as defined in Regulation U of the Board of Governors of the Federal Reserve
System, held by any Borrower or any Subsidiary), real property or personal
property, including without limitation all or any part of any of any Borrower's
operating divisions (excluding sales of assets in the ordinary course of the
business), without the prior written approval of the Banks, with the following
exceptions: (i) any Borrower may sell obsolete or worn-out property not used or
useful in its business, (ii) so long as no Default or Event of Default has
occurred and is continuing, the Borrowers may sell or otherwise dispose of
assets provided that the aggregate net book value (at the time of disposition
thereof and after giving effect to the contemplated disposition) of all such
assets shall not exceed $250,000 during any fiscal year and (iii) MIE may be
sold at the Borrowers' discretion, provided that, in such event, MIE's rights
under this Agreement and the Notes shall terminate. In connection with any sale
of MIE permitted hereunder, the Bank shall release its lien on the assets of MIE
constituting Collateral and shall, at the Borrowers' sole cost and expense,
deliver to the Borrowers such UCC-3 releases or other release documents as the
Borrowers may reasonably request to effect such release.
Section 6.7. Collateral Value Ratio. The Borrowers will not, at the end
of any month, permit the sum of (i) outstanding Loans plus (ii) the Maximum
Drawing Amount under all Letters of Credit, plus (iii) Unpaid Reimbursement
Obligations to be greater than seventy percent (70%) of Eligible Receivables for
which invoices have been issued and are payable (the "Collateral Value Ratio").
Section 6.8. Debt Service Coverage. The Borrowers will not permit the
ratio of Consolidated EBITDA minus capital expenditures to Consolidated Total
Interest Expense to be less than (a) 3.5:1 for any fiscal quarter ending on or
prior to July 10, 1998 and (b) 3.5:1 for any period of four consecutive fiscal
quarters ending after July 10, 1998.
Section 6.9. Leverage Ratio. The Borrowers will not permit the
Leverage Ratio to be greater than 3.5:1.
Section 6.10. Subordinated Debt. The Borrowers will not (a) amend,
supplement or otherwise modify the terms of any of the Subordinated Debt, (b)
make any payment of principal or other amounts owing with respect thereto (other
than as permitted under the Intercreditor Agreement), or (c) prepay any of the
Subordinated Debt.
Section 6.11. Distributions. None of the Borrowers will make any
Distributions on or in respect of its capital of any nature whatsoever, other
than dividends payable solely in shares of common stock.
Section 6.12. Exit Strategy Projects. The Borrowers will not undertake,
or commit to undertake, any Exit Strategy Project unless (a) the Borrowers have
provided to the Bank a written summary of the scope of such Exit Strategy
Project in form and substance satisfactory to the Bank, including a summary of
the reimbursement mechanics and insurance for such project, and (b) the
Borrowers have provided evidence satisfactory to the Bank that the risks to the
Borrowers associated with such Exit Strategy Project are similar to and in any
event do not exceed the risks associated with the Wells Project.
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Section 7. CONDITIONS OF FIRST LOANS.
The obligation of the Bank to make the first Loan hereunder (including,
without limitation, the obligation of the Bank to convert loans under the
Existing Credit Agreement to Loans hereunder and to issue Letters of Credit) and
otherwise be bound by the terms of this Agreement shall be subject to the
satisfaction of each of the following conditions precedent (the date such
conditions precedent are satisfied being the "Amendment Date"):
Section 7.1. Representations and Warranties. The representations and
warranties contained in Section 4 hereof and otherwise made by the Borrowers in
writing in connection with the transactions contemplated by this Agreement shall
have been correct as of the date on which made and shall also be correct at and
as of the date of the first Loan with the same effect as if made at and as of
such time, except to the extent that the facts upon which such representations
and warranties are based may in the ordinary course be changed by the
transactions permitted or contemplated hereby.
Section 7.2. Performance; No Default. The Borrowers shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by them prior to or at the time of the first Loan,
and at the time of the first Loan, as certified by the chief financial officer
of TRC, there shall exist no Default or Event of Default or condition which
would, with either or both the giving of notice or the lapse of time, result in
a Default or Event of Default upon consummation of the first Loans.
Section 7.3. No Adverse Change. As of the date of the first Loan, no
material adverse change since the Balance Sheet Date shall have occurred since
the date hereof in the business or financial condition of the Borrowers in the
aggregate.
Section 7.4. Corporate Action; Corporate Documents. All corporate
action necessary for the valid execution, delivery and performance by each
Borrower of the Loan Documents shall have been duly and effectively taken, and
evidence thereof satisfactory to the Bank shall have been provided to the Bank.
The Borrowers shall have (a) certified to the Bank that the charter and by-laws
of each Borrower delivered to the Bank in connection with the Prior Credit
Agreement have not been amended, modified or supplemented and are in full force
and effect or shall have provided the Bank certified copies of any amendments,
modifications or supplements thereto and (b) delivered to the Bank copies of the
charter and by-laws of TRC Garrow Associates, Inc. and any Borrower which was
not a party to the Existing Credit Agreement. Each Borrower shall have delivered
to the Bank a certificate of the Secretary of State of the state of
incorporation of each Borrower certifying as to such Borrower's legal existence
and good standing.
Section 7.5. Loan Documents. Each of the Loan Documents shall have been
duly and properly authorized, executed and delivered by the respective party or
parties thereto and shall be in full force and effect on and as of the Amendment
Date and executed original counterparts of each of the Loan Documents shall have
been furnished to the Bank.
Section 7.6. UCC Searches; Perfection of Liens. The Bank shall have
received the results of UCC searches with respect to the Collateral, indicating
no Liens other than Liens permitted under Section 6.2 and otherwise in form and
substance satisfactory to the Bank. The Security Documents shall be effective to
create in favor of the Bank a legal, valid and enforceable first (except for
Liens permitted under Section 6.2 entitled to priority under applicable law)
security interest in and lien upon the Collateral. All filings, recordings,
deliveries of instruments necessary or desirable in the opinion of the Bank to
protect and preserve such security interests shall have been duly effected. The
Bank shall have received evidence thereof in form and substance satisfactory to
the Bank.
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Section 7.7. Opinion of Borrower's Counsel. The Bank shall have
received from Borrowers' counsel a favorable opinion addressed to the Bank,
dated the Amendment Date.
Section 7.8. No Legal Impediment. No change shall have occurred in any
law or regulations thereunder or interpretations thereof which in the reasonable
opinion of the Bank would make it illegal for the Bank to make Loans hereunder.
Section 7.9. Governmental Regulation. The Bank shall have received such
statements in substance and form reasonably satisfactory to the Bank as it shall
require for the purpose of compliance with any applicable regulations of the
Comptroller of the Currency or the Board of Governors of the Federal Reserve
System.
Section 7.10. Payment of Fees. The Borrowers shall have paid to the
Bank that portion of the Amendment Fee payable on the Amendment Date and shall
have paid the Bank's out-of-pocket expenses, including, without limitation, the
legal fees and disbursements of the Bank's counsel, Bingham Dana LLP, incurred
under the Existing Credit Agreement and in connection with this Agreement.
Section 7.11. Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall have been delivered to the Bank as of the date hereof in substance
and in form satisfactory to the Bank, and the Bank shall have received all
information and such counterpart originals or certified or other copies of such
documents as the Bank may reasonably request.
Section 8. CONDITIONS OF SUBSEQUENT LOANS.
The obligation of the Bank to make any Loan or to issue any Letter of
Credit subsequent to the first Loan is subject to the following conditions
precedent:
Section 8.1. Representations True; No Event of Default. Each of the
representations and warranties of the Borrowers contained in this Agreement or
in any document or instrument delivered pursuant to or in connection with this
Agreement shall be true as of the date as of which they were made and shall also
be true at and as of the time of the making of the Loan with the same effect as
if made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Agreement and changes occurring
in the ordinary course of business which singly or in the aggregate are not
materially adverse, and to the extent that such representations and warranties
relate expressly to an earlier date) and no Default or Event of Default shall
have occurred and be continuing.
Section 8.2. Performance; No Event of Default. The Borrowers shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by them prior to or at the time of the Loan, and at
the time of the Loan, there shall exist no Event of Default or condition which
would result in an Event of Default upon consummation of the Loan (including
without limitation any amounts to be drawn under a Letter of Credit).
Each request by any Borrower for a Loan (including without limitation each
request for issuance of a Letter of Credit) subsequent to the first Loan shall
constitute certification by such Borrower that the conditions specified in
Sections 8.1 and 8.2 will be duly satisfied on the date of such Loan or Letter
of Credit issuance.
Section 9. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice and/or lapse of time, "Defaults")
shall occur:
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(a) if the Borrowers shall fail to pay any principal of the Loans when
the same shall become due and payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for payment;
(b) if the Borrowers shall fail to pay any interest, letter of credit
fees, the Amendment Fee or Commitment Fees on the Loans within five (5) Business
Days after the same shall become due and payable whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment;
(c) if the Borrowers shall fail to comply with their covenants
contained in Section 5 (excepting Sections 5.2, 5.4, and 5.9,) or Section 6
hereof;
(d) if the Borrowers shall fail to perform any term, covenant or
agreement herein contained (other than those specified in subsections (a), (b),
and (c) above) within 45 business days after written notice of such failure has
been given to such Borrower by the Bank;
(e) if any representation or warranty contained in this Agreement or in
any document or instrument delivered pursuant to or in connection with this
Agreement shall prove to have been false in any material respect upon the date
when made;
(f) if any Borrower or any Subsidiary shall fail to pay at maturity, or
within any applicable period of grace, any and all obligations for borrowed
money in an aggregate amount greater than $1,000,000 (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 any Borrower), or 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 in an aggregate amount greater
than $1,000,000 for such period of time as would, or would have permitted
(assuming the giving of appropriate notice if required) the holder or holders
thereof or of any obligations issued thereunder to accelerate the maturity
thereof; or
(g) if any Borrower 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 any Borrower), or petitions or applies for the appointment of a trustee
or other custodian, liquidator or receiver of any of the Borrowers or of any
substantial part of the assets of any of the Borrowers or their Subsidiaries or
commences any case or other proceeding relating to any of the Borrowers or their
Subsidiaries 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 any of the
Borrowers or their Subsidiaries and any of the Borrowers or their Subsidiaries
indicates its approval thereof, consent thereto or acquiescence therein;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any of the Borrowers or their
Subsidiaries 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 any
Borrower or any Subsidiary in an involuntary case under Federal bankruptcy laws
as now or hereafter constituted, and such decree or order remains in effect for
more than 30 days, whether or not consecutive; or
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(i) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against any Borrower or any Subsidiary which, with other outstanding
final judgments, undischarged, against the Borrowers exceeds in the aggregate
$1,000,000 after taking into account any insurance coverage;
then, the Bank may by notice in writing to the Borrowers declare all amounts
owing with respect to this Agreement and the 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 the Borrowers; provided, that in the event of any
Event of Default specified in Sections 9(g) or 9(h) hereof, all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Bank. Upon demand by the Bank after the
occurrence of any Event of Default, the Borrowers shall immediately provide to
the Bank cash in an amount equal to the aggregate Maximum Drawing Amount of all
Letters of Credit outstanding, to be held by the Bank as collateral security for
the Obligations. In case any one or more of the Events of Default shall have
occurred and be continuing, and whether or not the Bank shall have accelerated
the maturity of the Loans pursuant to the foregoing, the Bank, if owed any
amount with respect to the Loans may proceed to protect and enforce its rights
by suit in equity, action at law and/or other appropriate proceeding, whether
for the specific performance of any covenant or agreement contained in this
Agreement or any instrument pursuant to which the obligations of the Borrowers
to the Bank hereunder are evidenced, including as permitted by applicable law
the obtaining of the ex parte appointment of a receiver, and, if such amount
shall have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of the Bank. No remedy
herein conferred upon the Bank or the holders of the Note is intended to be
exclusive of any other remedy and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or any other provision of law.
Section 10. SETOFF. Regardless of the adequacy of any collateral,
during the continuance of an Event of Default, any deposits or other sums
credited by or due from the Bank to the Borrowers and any securities or other
property of the Borrowers in the possession of the Bank may be applied to or set
off against the payment of obligations of the Borrowers hereunder and under the
Note and any and all other liabilities, direct, or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, of the
Borrowers to the Bank.
Section 11. EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers hereby promise to reimburse the Bank
for all reasonable out-of-pocket attorneys' fees and disbursements, incurred or
expended in connection with the preparation, syndication or interpretation of
this Agreement, the Note, the Letter of Credit Agreements, the other Loan
Documents or any amendment hereof or thereof, or with the enforcement of any
Obligations or the satisfaction of any indebtedness of the Borrowers hereunder
or thereunder, or in connection with any litigation, proceeding or dispute
hereunder in any way related to the credit hereunder, including without
limitation the so-called "work-out" thereof after the occurrence of a Default or
Event of Default. The Borrowers will pay any taxes (including any interest and
penalties in respect thereof), other than the Bank's federal and state income
taxes, payable on or with respect to the transactions contemplated by this
Agreement (the Borrowers hereby agreeing to indemnify the Bank with respect
thereto). The Borrowers further promise to reimburse the Bank for all such fees
and disbursements incurred or expended in connection with the enforcement of any
Obligations or the satisfaction of any indebtedness of the Borrowers hereunder
or thereunder, or in connection with any litigation, proceeding or dispute in
any way related to the credit hereunder.
Section 12. INDEMNIFICATION. The Borrowers agree to indemnify and hold
harmless the Bank, as well as the Bank's shareholders, directors, agents,
officers, subsidiaries and affiliates, from and against all damages, losses,
settlement payments, obligations, liabilities, claims, actions or causes of
action, whether
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statutorily created or under the common law, and reasonable costs and expenses
incurred, suffered, sustained or required to be paid by an indemnified party by
reason of or resulting from the transactions contemplated hereby and to the
extent not caused by the gross negligence or willful misconduct of the Bank. In
any investigation, proceeding or litigation, or the preparation therefor, the
Bank shall be entitled to select its own counsel and, in addition to the
foregoing indemnity, the Borrowers agree to pay promptly the reasonable fees and
expenses of such counsel. In the event of the commencement of any such
proceeding or litigation, the Borrowers shall be entitled to participate in such
proceeding or litigation with counsel of their choice at their expense, provided
that such counsel shall be reasonably satisfactory to the Bank. The covenants of
this Section 12 shall survive payment or satisfaction of payment of amounts
owing with respect to the Note or any other Loan Document.
Section 13. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the other Loan Documents or in
any documents or other papers delivered by or on behalf of the Borrowers
pursuant hereto shall be deemed to have been relied upon by the Bank,
notwithstanding any investigation heretofore or hereafter made by it, and shall
survive the making by the Bank of the Loans and the issuance of the Letters of
Credit, as herein contemplated, and shall continue in full force and effect so
long as any amount due under this Agreement, and other Loan Document, any Letter
of Credit Agreement or the Note remains outstanding and unpaid or the Bank has
any obligation to make any Loans or issue any Letters of Credit hereunder. All
statements contained in any certificate or other paper delivered to the Bank at
any time by or on behalf of the Borrowers pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrowers hereunder.
Section 14. SYNDICATION AND PARTICIPATION. It is understood and agreed
that the Bank shall have the right to syndicate or participate at any time the
Commitment and interests in the risk relating to any of the Obligations, to
additional banks or other financial institutions, so long as, prior to a Default
or Event of Default, the Borrowers have consented to such assignment (such
consent not to be unreasonably withheld), provided that the Bank shall retain,
free of any such assignment, an amount of its Commitment of not less than
$5,000,000, and provided further that the Bank may syndicate or participate to
an affiliate of the Bank without obtaining consent. Notwithstanding the
foregoing provisions of this section, the Bank may at any time pledge or assign
all or any portion of the Bank's rights under this Agreement and the other Loan
Documents to a Federal Reserve bank; provided, however, that no such pledge or
assignment shall release the Bank from the Bank's obligations hereunder or any
other Loan Document.
Section 15. PARTIES IN INTEREST. All the terms of this Agreement and
the other Loan Documents shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto
and thereto; provided, that no Borrower shall assign or transfer its rights
hereunder without the prior written consent of the Bank.
Section 16. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, all notices and other communications made or required to be
given pursuant to this Agreement or the other Loan Documents shall be in writing
and shall be delivered in hand, mailed by United States first-class mail,
postage prepaid, or sent by telecopier and confirmed by letter, addressed as
follows:
(a) if to the Borrowers, at 5 Waterside Crossing, Windsor, Connecticut
06095, Attention: Harold C. Elston, Jr., Senior Vice President and Treasurer,
telecopy number 860-298-6399, or at such other address for notice as the
Borrowers, shall last have furnished in writing to the Person giving the notice;
or
33
<PAGE>
(b) if to the Bank, at 100 Federal Street, Boston, Massachusetts 02110,
USA, Attention: Arthur J. Oberheim, Vice President, telecopy number
617-434-2160, or such other address for notice as the Bank shall last have
furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand, overnight mail or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile or
(b) if sent by registered or certified first-class mail, postage prepaid, five
(5) Business Days after the posting thereof.
Section 17. MISCELLANEOUS. The rights and remedies herein expressed are
cumulative and not exclusive of any other rights which the Bank would otherwise
have. The captions in this Agreement are for convenience of reference only and
shall not define or limit the provisions hereof. This Agreement and any
amendment hereof may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one instrument. In proving
this Agreement it shall not be necessary to produce or account for more than one
such counterpart signed by the party against whom enforcement is sought.
Section 18. ENTIRE AGREEMENT, ETC. This Agreement, together with the
other Loan Documents and any other documents executed in connection herewith or
therewith, express the entire understanding of the parties with respect to the
transactions contemplated hereby. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated orally or in writing, except as
provided in Section 20.
Section 19. GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER LOAN
DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SAID COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW). THE BORROWERS CONSENT TO THE JURISDICTION OF ANY OF THE FEDERAL OR STATE
COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT
TO ENFORCE THE RIGHTS OF THE BANK UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
Section 20. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise
expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement to be given by the Bank may be given, and any term
of this Agreement or of any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrowers of any terms
of this Agreement or such other instrument or the continuance of any Default or
Event of Default may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of the Borrowers and the written consent of the Bank. No waiver shall extend to
or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon any Borrower shall entitle such
Borrower or any other Borrower to other or further notice or demand in similar
or other circumstances.
Section 21. NO RESTRICTIONS WITH RESPECT TO MARGIN STOCK.
Notwithstanding any other provisions of this Agreement, the Note or the other
Loan Documents, and further implementing the exceptions with respect to
margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) from the restrictions on Liens in Section 6.2, the
restrictions on sale of assets in Section 6.6, and certain defaults in
Sections 9(f) and (g), (a) nothing in this Agreement or in the Note shall
prevent any Borrower or any Subsidiary from selling, transferring, pledging
or otherwise disposing of any such margin stock, and (b) no Borrower's or
Subsidiary's right or ability to sell, transfer, pledge or otherwise dispose
of
34
<PAGE>
any such margin stock shall in any way be restricted while any Loan or Note
is outstanding, nor shall any such sale, transfer, pledge or other
disposition ever be the cause for acceleration of the maturity of the Note,
it being the intention of the parties hereto that in no event or manner shall
the Loans, the Note or any obligations of any of the Borrowers under this
Agreement be secured, directly or indirectly, by any such margin stock.
Section 22. TRANSITIONAL ARRANGEMENTS.
Section 22.1. Existing Credit Agreement Superseded. This Agreement
shall on the Amendment Date supersede the Existing Credit Agreement in its
entirety. On the Amendment Date, the rights and obligations of the parties
evidenced by the Existing Credit Agreement shall be evidenced by this Agreement
and the other Loan Documents, the "Loans" as defined in the Existing Credit
Agreement shall be converted to Loans as defined herein and all outstanding
letters of credit issued by the Bank for the account of the Borrowers prior to
the Amendment Date shall, for purposes of this Agreement, be Letters of Credit.
Section 22.2. Return and Cancellation of Notes. As soon as reasonably
practicable after the Closing Date, the Bank will promptly return to the
Borrowers, marked "Substituted" or "Cancelled", as the case may be, any notes of
the Borrowers held by the Bank pursuant to the Existing Credit Agreement.
Section 22.3. Interest and Fees under Existing Credit Agreement. All
interest and fees and expenses, if any, owing or accruing under or in respect of
the Existing Credit Agreement through the Amendment Date shall be calculated as
of the Amendment Date (pro rated in the case of any fractional periods), and
shall be paid on the Amendment Date. Commencing on the Amendment Date, the
Commitment Fees shall be payable by the Borrowers to the Bank in accordance with
Section 2.3.
[Remainder of page intentionally left blank]
35
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
under seal as of the date first set forth above.
TRC COMPANIES, INC.
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Senior Vice President &
Treasurer
MONITORING INSTRUMENTS FOR THE
ENVIRONMENT, INC.
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Treasurer & Clerk
TRC ENVIRONMENTAL
CORPORATION
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Vice President, Secretary
& Treasurer
TRC ENGINEERS, INC. (d/b/a/
Raymond Keyes Associates)
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Secretary & Treasurer
TRC INVESTMENT
CORPORATION
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Secretary & Treasurer
NORTH.AMERICAN WEATHER
CONSULTANTS
By: /s/ Harold C. Elston, Jr
---------------------------------------
Title: Secretary & Treasurer
36
<PAGE>
EXHIBIT 13
Annual Report to Shareholders for the fiscal year ended June 30, 1998
(Only those portions expressly incorporated by reference
are deemed to be filed herewith.)
37
<PAGE>
TRC COMPANIES, INC. 1998 ANNUAL REPORT
Revision -
FINANCIAL HIGHLIGHTS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $ 72,570,001 $ 68,506,377 $ 76,999,021
Net service revenue 52,709,554 50,788,433 60,018,195
Income (loss) from operations 2,436,538 164,270 (1,216,198)
Net income (loss) $ 1,061,420 $ (504,902) $ (1,315,053)
Earnings (loss) per share - basic and diluted $ .16 $ (.07) $ (.19)
Working capital $ 20,475,626 $ 20,679,872 $ 19,003,211
Current ratio 2.8 to 1 2.9 to 1 2.5 to 1
Debt to total capitalization 14.4% 20.4% 21.4%
Return on equity 2.4% (1.2)% (2.9)%
Book value per share $ 6.55 $ 6.41 $ 6.38
Common shareholders 2,600 2,500 2,500
Common shares outstanding 6,782,202 6,688,102 7,019,002
Employees 625 675 665
------------ ------------ ------------
</TABLE>
38
<PAGE>
SELECTED FINANCIAL DATA
TRC Companies, Inc. and
subsidiaries
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross revenue $72,570 $68,506 $76,9 99 $93,013 $81,658
Less subcontractor costs and direct charges 19,861 17,718 16,981 21,200 20,655
------- ------- ------- ------- -------
Net service revenue 52,709 50,788 60,018 71,813 61,003
------- ------- ------- ------- -------
Operating costs and expenses:
Direct labor and fringe benefit costs 23,324 22,680 26,470 29,903 25,091
Indirect costs and expenses 21,796 21,590 27,918(1) 26,450 25,948
General and administrative expenses 2,451 3,565 3,950 3,965 3,738
Depreciation and amortization 2,702 2,789 2,896 3,037 2,434
------- ------- ---------- ------- -------
50,273 50,624 61,234 63,3551 57,211
------- ------- ---------- ------- -------
Income (loss) from operations 2,436 164 (1,216) 8,458 3,792
Interest expense 725 829 906 1,399 466
Other income, net - - - (15) (58)
------- ------- ---------- ------- -------
Income (loss) before taxes 1,711 (665) (2,122) 7,074 3,384
Federal and state income tax provision (benefit) 650 (160) (807) 2,653 1,241
------- ------- ---------- ------- -------
Net income (loss) $1,061 $(505) $(1,315) $4,421 $2,143
Earnings (loss) per share:
------- ------- ---------- ------- -------
Basic $.16 $(.07) $.(19) $.62 $.32
Diluted .16 (.07) (.19) .61 .32
-----------------------------------------------------------------
Average shares outstanding:
Basic 6,715 6,741 7,067 7,081 6,688
Diluted 6,726 6,747 7,078 7,208 6,789
------- ------- ---------- ------- -------
Cash dividends declared None None None None None
------- ------- ---------- ------- -------
Balance Sheet at June 30,
Total assets $61,604 $62,290 $64,235 $73,815 $75,951
------- ------- ---------- ------- -------
Debt $ 7,50 $11,000 $12,200 $17,200 $22,080
------- ------- ---------- ------- -------
Shareholders' equity $44,455 $42,844 $44,748 $46,538 $41,984
------- ------- ---------- ------- -------
$ 6.55 $ 6.41 $ 6.38 $ 6.56 $ 5.94
------- ------- ---------- ------- -------
</TABLE>
(1) Results for fiscal 1996 include operating charges of $4.4 million
(approximately $2.8 million after taxes) related to staff reductions,
excess lease capacity and increased allowances for receivables and
inventories.
39
<PAGE>
Summarized Unaudited Quarterly Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1998 (In thousands, except per share data) 1st 2nd 3rd 4th
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $17,560 $19,054 $16,398 $19,558
Net service revenue 12,990 12,944 12,919 13,856
Income from operations 417 636 562 821
Income before taxes 197 413 423 678
Net income $ 122 $ 256 $ 262 $ 421
Earnings per share - basic and diluted $ .02 $ .04 $ .04 $ .06
Market price per share:
High $ 4.50 $ 4.69 $ 5.13 $ 5.69
Low 3.13 3.56 3.81 4.38
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1997 (In thousands, except per share data) 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 share - basic and diluted $ .02 $ .03 $ (.09) $ (.03)
Market price per share:
High $ 6.00 $ 5.63 $ 4.63 $ 4.63
Low 3.38 3.88 3.75 2.75
</TABLE>
40
<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 management, engineering and
remediation services, and specialized pollution control measurement
instrumentation 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, construction equipment and other 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 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, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net service revenue 100.0% 100.0% 100.0%
------ ------ ------
Operating costs and expenses:
Direct labor and fringe benefit costs 44.2 44.7 44.1
Indirect costs and expenses 41.4 42.5 46.5 (1)
General and administrative expenses 4.7 7.0 6.6
Depreciation and amortization 5.1 5.5 4.8
------ ------ ------
Income (loss) from operations 4.6 .3 (2.0)(1)
Interest expense 1.4 1.6 1.5
------ ------ ------
Income (loss) before taxes 3.2 (1.3) (3.5)
Federal and state income tax
provision (benefit) 1.2 (.3) (1.3)
------ ------ ------
Net income (loss) 2.0% (1.0)% (2.2)%
------ ------ ------
------ ------ ------
</TABLE>
(1) 39.2% and 5.3%, respectively, before operating charges related to staff
reductions, excess lease capacity and increased allowances for receivables
and inventories.
1998 Compared to 1997
Gross revenue increased by 5.9% in fiscal 1998 to $72.6 million, from $68.5
million in fiscal 1997. Net service revenue increased by 3.8% in fiscal 1998 to
$52.7 million, from $50.8 million in fiscal 1997. The Company had revenue growth
in fiscal 1998 after two years of continuous revenue declines. The increase in
revenue resulted primarily from growth in the core businesses. The Company
continues to believe that the revenue declines experienced in the prior two
years are not expected to recur in the near future as the market for the
Company's services improves.
41
<PAGE>
Direct labor and fringe benefit costs increased by 2.8% during fiscal 1998, as
compared to fiscal 1997, primarily due to the increase in revenue. Indirect
costs and expenses increased by 1.0% in fiscal 1998, as compared to fiscal 1997.
However, as a percentage of net service revenue, these costs decreased to 41.4%
from 42.5% in fiscal 1997. This improvement was primarily due to the initiation
of programs to increase staff utilization and reduce operational overhead.
General and administrative expenses decreased by 31.3% in fiscal 1998, as
compared to fiscal 1997. This decrease was the direct result of cost reductions
undertaken in the fourth quarter of fiscal 1997.
Depreciation and amortization expense decreased by 3.1% in fiscal 1998, as
compared to fiscal 1997. This decrease was due to the comparative reduction in
expenditures for equipment in fiscal 1997 and 1996, combined with the effect of
other equipment which became fully depreciated.
The Company reported income from operations of $2.4 million in fiscal 1998,
compared to $.2 million in fiscal 1997. The improvement in fiscal 1998 was
primarily due to the increase in net revenue and cost reduction efforts. In
fiscal 1998 the Company recorded charges aggregating approximately $890,000 to
exit certain non-core businesses. The recording of these charges is consistent
with the Company's objective to focus on its strategic market sectors. These
charges were essentially offset by the inclusion of approximately $900,000 of
non-recurring income related to the settlement agreements with the former
Chairman and Chief Executive Officer and the former President.
Interest expense decreased by 12.5% in fiscal 1998, as compared to fiscal 1997.
The decrease resulted primarily from lower levels of debt outstanding, partially
offset by higher interest rates.
The provision for federal and state income taxes reflects an effective rate of
approximately 38% in fiscal 1998, compared to the benefit in fiscal 1997
recorded at an effective rate of 24%. The benefit in fiscal 1997 was recorded at
a lower effective rate because of foreign taxes paid for which a foreign tax
credit was not available. The Company believes that there will be sufficient
taxable income in future periods to enable utilization of the deferred tax
benefits.
1997 Compared to 1996
Gross revenue decreased by 11% in fiscal 1997 to $68.5 million, from $77 million
in fiscal 1996. Net service revenue decreased by 15.4% in fiscal 1997 to $50.8
million, from $60 million in fiscal 1996. The decreases were primarily due to a
weakening of regulatory driven markets resulting from government agency
uncertainty and budget 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. For the first time in two years, revenue began trending
upwards in the fourth quarter of fiscal 1997, compared to the third quarter of
fiscal 1997. The Company believes that the revenue declines experienced during
the past two years are not expected to recur in the near future.
Direct labor and fringe benefit costs decreased by 14.3% in fiscal 1997, as
compared to fiscal 1996. This decrease was primarily due to the reduction in net
service revenue. Indirect costs and expenses decreased by 22.7% in fiscal 1997,
as compared to fiscal 1996. This decrease was
42
<PAGE>
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 which 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
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
reflects 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.
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.
Operating activities are the principal source of cash flow for the Company.
Operating activities provided over $5.7 million of cash flow during fiscal 1998,
up from $3.3 million last year. The
43
<PAGE>
increase in operating cash flow in fiscal 1998 relates primarily to improved
operating performance and includes approximately $.9 million relating to the
settlement agreements with former executive officers.
Cash used for investing purposes was approximately $1.4 million, up from $.8
million last year. Capital expenditures for equipment to support business growth
increased to $1 million, up from $.6 million last year. The Company expects to
make capital expenditures of approximately $.5 million during fiscal 1999. In
March 1998, the Company completed the acquisition of Hydro-Geo Consultants,
Inc., a Denver-based firm servicing principally the domestic and international
mining and water resource sectors. The firm had annual revenue of approximately
$2 million in fiscal 1997. The purchase consideration of approximately $1.5
million consisted of a combination of cash, a five-year subordinated note and
common stock. In July 1998, the Company sold its instrumentation business for
approximately $2.7 million in cash. The gain from the transaction, which is not
significant, will be reflected in fiscal 1999.
The Company relies on its bank financing arrangement to assist in funding
various operating activities. The Company has available a $10 million revolving
credit facility, secured by accounts receivable, which expires July 2001.
Borrowings under the agreement bear interest at the bank's base rate or the
Eurodollar rate plus 1 3/4%. The agreement requires the Company to meet certain
financial ratios. In fiscal 1998, the Company repaid $4 million of bank debt
from available cash flow. At June 30, 1998, there were no borrowings outstanding
pursuant to the agreement.
At June 30, 1998, the Company had outstanding a $7 million subordinated note
issued in March 1994 in connection with the acquisition of Environmental
Solutions, Inc. and subsequently amended in July 1997. Interest on the note
accrues at the greater of the interest rate paid on the Company's bank debt or 7
3/4%. The outstanding balance is payable in two equal installments of $3.5
million on July 1, 1998 and 1999. The Company also had outstanding at June 30,
1998 a $.5 million 7 3/4% subordinated note issued in connection with the
purchase of Hydro-Geo Consultants, Inc. The note is repayable in five equal
annual installments beginning in March 1999.
The Company expects to increase its available cash flow over the next fiscal
year, primarily from operations, reductions in working capital derived mainly
from the collection of accounts receivable and the $2.7 million received in
fiscal 1999 from the sale of its instrumentation business. The Company believes
that cash generated from operations, the cash on hand at June 30, 1998 and
available borrowings under the bank line of credit will be sufficient to meet
the Company's cash requirements for fiscal 1999.
Other Matters
In December 1997, the Company entered into settlement agreements with the former
Chairman and Chief Executive Officer and the former President. Pursuant to the
agreements, the Company received reimbursement for damages related to the
improper exercise of stock options and other matters, and for the costs of the
investigation conducted by the Special Committee formed by the Board of
Directors in March 1997.
44
<PAGE>
Year 2000 Compliance
The Company recognizes the need to ensure that its critical management,
financial and operating systems will recognize and process transactions for the
year 2000 and beyond. As a result, all computer systems and applications are
being reviewed and, where appropriate, detailed plans have been, or are being,
developed and implemented on a schedule intended to permit the Company's systems
to be fully compliant with Year 2000 requirements. The costs specific to the
Year 2000 issue are not expected to have a material impact on the Company's
future operating results, financial condition or cash flows. Although the
Company expects to be fully Year 2000 compliant on a timely basis, if system
modifications and conversions are not completed on time, or if the Company's
critical suppliers and customers do not address this issue successfully, the
Year 2000 issue could possibly have a material impact on the Company's
operations and financial condition.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS
130). 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, government funding, level of demand
for the Company's services, industry-wide competitive factors and political,
economic or other conditions. Furthermore, market trends are subject to changes
which could adversely affect future results.
45
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $72,570,001 $68,506,377 $76,999,021
Less subcontractor costs and direct charges 19,860,447 17,717,944 16,980,826
----------- ----------- -----------
Net service revenue 52,709,554 50,788,433 60,018,195
----------- ----------- -----------
Operating costs and expenses:
Direct labor and fringe benefit costs 23,323,769 22,679,953 26,470,290
Indirect costs and expenses 21,795,742 21,590,302 27,918,061
General and administrative expenses 2,451,164 3,565,348 3,949,996
Depreciation and amortization 2,702,341 2,788,560 2,896,046
----------- ----------- -----------
50,273,016 50,624,163 61,234,393
----------- ----------- -----------
Income (loss) from operations 2,436,538 164,270 (1,216,198)
Interest expense 725,118 829,172 905,855
----------- ----------- -----------
Income (loss) before taxes 1,711,420 (664,902) (2,122,053)
Federal and state income tax provision (benefit) 650,000 (160,000) (807,000)
----------- ----------- -----------
Net income (loss) $ 1,061,420 $ (504,902) $(1,315,053)
----------- ----------- -----------
Earnings (loss) per share - basic and diluted $ .16 $ (.07) $ (.19)
----------- ----------- -----------
Average shares outstanding:
Basic 6,715,421 6,740,744 7,067,046
Diluted 6,726,409 6,746,567 7,077,845
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
CONSOLIDATED BALANCE SHEETS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
As of June 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,379,388 $1,020,065
Accounts receivable, less allowance for doubtful accounts 27,775,396 26,539,226
Inventories 1,359,410 1,092,391
Income taxes refundable -- 598,677
Deferred income tax benefits 950,000 884,000
Prepaid expenses and other current assets 588,965 1,324,114
----------- -----------
32,053,159 31,458,473
----------- -----------
Property and equipment:
Furniture and equipment 19,613,270 18,839,801
Leasehold improvements 1,660,109 1,455,895
----------- -----------
21,273,379 20,295,696
Less accumulated depreciation and amortization 17,267,575 15,596,670
----------- -----------
4,005,804 4,699,026
----------- -----------
Costs in excess of net assets of acquired
businesses, net of accumulated amortization of
$4,396,525 and $3,559,998, respectively 24,873,714 25,310,445
----------- -----------
Other assets 670,934 822,315
----------- -----------
$61,603,611 $62,290,259
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of debt $ 3,600,000 $ 4,000,000
Accounts payable 4,133,321 2,740,240
Accrued compensation and benefits 2,684,642 2,508,369
Income taxes payable 578,092 --
Other accrued liabilities 581,478 1,529,992
----------- -----------
11,577,533 10,778,601
----------- -----------
Non-current liabilities:
Long-term debt 3,900,000 7,000,000
Deferred income taxes 1,671,000 1,668,000
----------- -----------
5,571,000 8,668,000
----------- -----------
Commitments and Contingencies (Notes 7 and 9)
Shareholders' equity:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued -- --
Common, $.10 par value; 30,000,000 shares authorized,
7,410,855 and 7,316,755 shares issued at June 30, 1998
and 1997, respectively 741,085 731,675
Additional paid-in capital 38,634,234 38,093,644
Retained earnings 7,976,762 6,915,342
----------- -----------
47,352,081 45,740,661
Less treasury stock, at cost 2,897,003 2,897,003
----------- -----------
44,455,078 42,843,658
----------- -----------
$61,603,611 $62,290,259
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,061,420 $(504,902) $(1,315,053)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,702,341 2,788,560 2,896,046
Change in deferred taxes and other non-cash items 609,061 367,994 (689,922)
Changes in assets and liabilities, net of effects from
acquisitions:
Accounts receivable (661,370) 1,880,004 4,329,675
Inventories (267,019) (177,055) 1,015,043
Prepaid expenses and other current assets 755,924 (792,163) (46,396)
Accounts payable 1,383,830 397,510 (779,619)
Accrued compensation and benefits (40,202) (118,459) (388,121)
Income taxes 1,176,769 (652,108) (535,888)
Other accrued liabilities (998,514) 73,349 551,879
---------- ---------- ----------
Net cash provided by operating activities 5,722,240 3,262,730 5,037,644
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,039,239) (643,213) (585,304)
Acquisition of business, net of cash received (430,839) - -
Decrease (increase) in other assets 98,299 (137,493) 80,847
Disposal of equipment, net 8,862 19,744 165,089
---------- ---------- ----------
Net cash used in investing activities (1,362,917) (760,962) (339,368)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of debt, net (4,000,000) (1,200,000) (5,000,000)
Purchase of treasury stock - (1,603,227) (515,550)
Proceeds from exercise of stock options - - 38,481
Principal repayments under capitalized lease obligations - - (80,447)
---------- ---------- ----------
Net cash used in financing activities (4,000,000) (2,803,227) (5,557,516)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 359,323 (301,459) (859,240)
Cash and cash equivalents, beginning of year 1,020,065 1,321,524 2,180,764
---------- ---------- ----------
Cash and cash equivalents, end of year $1,379,388 $1,020,065 $1,321,524
---------- ---------- ----------
Supplemental cash flow information:
Interest paid $ 611,175 $ 757,193 $ 867,467
Income taxes paid (refunded), net (315,332) (118,631) 276,993
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TRC Companies, Inc. and subsidiaries
<TABLE>
<CAPTION>
Common stock
issued Treasury stock
------------ --------------
Additional
Number paid-in Retained Number
Years ended June 30, 1998, 1997 and 1996 of shares Amount capital earnings of shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Issuance of common stock and
warrant in connection with business
acquired 94,100 9,410 540,590 - - -
Net income - - - 1,061,420 - -
--------- -------- ----------- ----------- ------- -----------
Balances, June 30, 1998 7,410,855 $741,085 $38,634,234 $7,976,762 628,653 $(2,897,003)
--------- -------- ----------- ---------- ------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
49
<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,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Materials and supplies $ 774,645 $ 637,147
Work-in-process 155,443 33,552
Finished goods 429,322 421,692
----------- ----------
$ 1,359,410 $1,092,391
----------- ----------
</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.
50
<PAGE>
G. Revenue on engineering and remediation 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 related to the Company's
instrumentation business are charged to operations as incurred and amounted to
approximately $187,000, $190,000 and $283,000 in fiscal 1998, 1997 and 1996,
respectively.
I. The Company applies the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), 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 (loss) per share is computed in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings per
Share. Basic earnings (loss) per share is based upon the weighted average common
shares outstanding during the year. Diluted earnings per share reflect the
potential dilutive effect of outstanding stock options and warrants.
L. The Company has 401(k) savings plans covering substantially all
employees. The Company's contributions to the plans were approximately $562,000,
$543,000 and $661,000 in fiscal 1998, 1997, and 1996, 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 notes 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 at June 30, 1997, approximates fair value because
the interest rate on this instrument changes with market interest rates.
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,
51
<PAGE>
develops and manufactures air monitoring instrumentation. The Company's services
and products are provided to commercial organizations and government agencies
primarily in the U.S. market.
During fiscal 1998, the Company recorded charges aggregating
approximately $890,000 to exit certain non-core businesses. The recording of
these charges is consistent with the Company's objective to focus on its
strategic market sectors.
Note 3. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Amounts billed $ 22,803,209 $20,026,212
Unbilled costs 6,767,579 8,103,445
Retainage 579,608 709,569
------------ -----------
30,150,396 28,839,226
Less allowance for doubtful accounts 2,375,000 2,300,000
------------ -----------
$ 27,775,396 $26,539,226
------------ -----------
</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, $10,721,000, $10,998,000 and $10,418,000 in fiscal
1998, 1997 and 1996, respectively.
Note 4. ACQUISITION AND DIVESTITURE
In March 1998, a wholly-owned subsidiary of the Company completed the
acquisition of substantially all of the business assets, liabilities and
obligations of Hydro-Geo Consultants, Inc., a Denver-based firm servicing
principally the domestic and international mining and water resource sectors.
The purchase price of approximately $1,500,000 consisted of a combination of
cash, a $500,000 five-year 7 3/4%. subordinated note, 94,100 shares of the
Company's common stock and a warrant to purchase 75,000 shares of the Company's
common stock exercisable at $4.25 per share and expiring March 2003. The
acquisition has been accounted for using the purchase method of accounting. The
purchase price and expenses associated with the acquisition resulted in costs in
excess of the fair value of the net assets acquired of approximately $1,075,000,
which is being amortized over 30 years on a straight-line basis.
In July 1998, the Company sold its instrumentation business for approximately
$2.7 million in cash. The gain from the transaction, which is not significant,
will be reflected in fiscal 1999.
52
<PAGE>
Note 5. DEBT
Debt at June 30, 1998 and 1997 is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Subordinated note, due July 1999 $7,000,000 $7,000,000
7 3/4%. Subordinated note, due March 2003 500,000 --
Note payable - revolving credit agreement -- 4,000,000
---------- ----------
7,500,000 11,000,000
Less current portion 3,600,000 4,000,000
---------- ----------
Long-term debt $3,900,000 $7,000,000
---------- ----------
---------- ----------
</TABLE>
The Company has available a $10,000,000 credit facility secured by
accounts receivable which extends through July 2001. Borrowings under the
agreement bear interest at the bank's base rate or the Euro dollar rate plus
1 3/4%. The Company also pays a commitment fee of .25% on the unused portion of
the facility. The agreement requires the Company to meet certain financial
ratios for the most recent four fiscal quarters. The Company had no borrowings
under this agreement at June 30, 1998.
The subordinated note due July 1999 was issued in March 1994 in
connection with the acquisition of Environmental Solutions, Inc. In exchange for
an extension of the payment term, the note was amended in July 1997 to increase
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 2000. The principal balance outstanding at June 30, 1998 will be repaid in
two equal installments of $3,500,000 on July 1, 1998 and 1999.
The 7 3/4% subordinated note due March 2003 was issued in March 1998 in
connection with the acquisition of Hydro-Geo Consultants, Inc. The principal
balance outstanding at June 30, 1998 will be paid in five equal installments
beginning in March 1999.
Note 6. FEDERAL AND STATE INCOME TAXES
The federal and state income tax provision (benefit) for fiscal 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996
- ------------------- --------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 679,000 $(798,000) $(375,000)
State 34,000 10,000 18,000
Foreign -- -- 102,000
Deferred:
Federal (116,000) 623,000 (555,000)
State 53,000 5,000 3,000
--------- --------- ---------
$ 650,000 $(160,000) $(807,000)
--------- --------- ---------
--------- --------- ---------
</TABLE>
53
<PAGE>
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>
As of June 30, 1998 1997 1996
- ------------- ----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax benefits:
Doubtful accounts and other accruals $ 796,000 $ 719,000 $ 1,026,000
Adjustment of inventories and contracts to tax 70,000 138,000 79,000
basis
Other, net 84,000 27,000 114,000
----------- ----------- -----------
$ 950,000 $ 884,000 $ 1,219,000
----------- ----------- -----------
Deferred income tax liabilities:
Depreciation and amortization $(1,645,000) $(1,553,000) $(1,422,000)
Accrued lease obligations 74,000 97,000 254,000
Other, net (100,000) (212,000) (148,000)
----------- ----------- -----------
$(1,671,000) $(1,668,000) $(1,316,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A reconciliation of the federal statutory and the Company's effective income tax
rates follows:
<TABLE>
<CAPTION>
Years ended June 30, 1998 1997 1996
- ------------------- ----- ----- -----
<S> <C> <C> <C>
Statutory rate 34.0% (34.0%) (34.0)%
Foreign taxes for which a foreign tax credit was -- 10.1 --
not available
State taxes, net of federal tax benefit 4.4 1.7 .6
Other, net (.4) (1.8) (4.6)
----- ----- -----
Effective income tax rate 38.0% (24.0)% (38.0)%
----- ----- -----
----- ----- -----
</TABLE>
Note 7. LEASE COMMITMENTS
The Company has commitments at June 30, 1998 under noncancelable
operating leases primarily for office and warehouse space and for computer and
office equipment. Rental payments charged to operations in fiscal 1998, 1997 and
1996 were approximately $3,674,000, $4,179,000 and $4,526,000, 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 1998 amounted to
approximately $617,000 and future sublease receipts as of June 30, 1998 are
approximately $1,121,000 in the aggregate.
54
<PAGE>
Minimum future lease obligations payable in future fiscal years are as
follows:
<TABLE>
<CAPTION>
Years ending June 30,
- ---------------------
<S> <C>
1999 $ 4,036,000
2000 3,242,000
2001 2,192,000
2002 2,156,000
2003 1,663,000
2004 and thereafter 2,651,000
-----------
$15,940,000
-----------
-----------
</TABLE>
Note 8. 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 within a
specified period 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.
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.
A summary of stock option activity for the three years ended June
30, 1998 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ----------------------- ---------------------
Average Average Average
Options Price Options Price Options Price
--------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, beginning of year 738,352 $4.38 577,959 $6.86 772,311 $9.36
Granted 497,500 4.50 736,600 3.66 401,139 7.06
Exercised -- -- -- -- (6,550) 5.88
Canceled (547,175) 3.67 (588,207) 6.00 (588,941) 10.28
Transfer from directors' plan -- -- 12,000 8.88 --
------- ---- -------- ----- ------- -----
Outstanding options, end of year 688,677 $5.04 738,352 $ 4.38 577,959 $6.86
------- ---- -------- ----- ------- -----
Options exercisable at end of year 120,519 $6.91 80,536 $7.52 226,817 $6.43
------- ---- -------- ----- ------- -----
Options available for future grants 849,492 799,817 410,210
------- -------- -------
</TABLE>
55
<PAGE>
The following table summarizes information about outstanding stock
options at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------------
Average Average Average
Exercise Price Shares Price Term (Years) Shares Price
------------------------- ------------------- --------------- -------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$3.50 - $4.63 547,500 $4.46 9.2 16,667 $4.01
6.63 - 10.38 141,177 7.29 2.0 103,852 7.37
</TABLE>
Grants in fiscal 1998 include 485,000 options granted to certain senior
managers in exchange for a reduction in cash compensation to the grantees over
the next two years, with individuals receiving one option for every two dollars
in aggregate salary reduction over such two year period. Cancellations in fiscal
1998 include 516,600 options granted in fiscal 1997 that were contingent upon
the attainment of certain performance goals. In fiscal 1997, 497,770 options
held by the former Chairman and Chief Executive Officer and the former President
were cancelled in connection with their resignations.
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 issued 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, 1998 warrants to purchase 20,450
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 and warrants, 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 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 for the years ended June 30, 1998, 1997 and 1996 would have been as
follows:
<TABLE>
<CAPTION>
In thousands, except per share data 1998 1997 1996
- ----------------------------------- ------- ------ --------
<S> <C> <C> <C>
Net income (loss), as reported $ 1,061 $ (505) $ (1,315)
Net income (loss), pro forma 903 (601) (1,618)
Earnings (loss) per share - basic and diluted, as reported .16 (.07) (.19)
Earnings (loss) per share - basic and diluted, pro forma .13 (.09) (.23)
</TABLE>
56
<PAGE>
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>
Years ended June 30 1998 1997 1996
- -------------------- --------- ---------- ---------
<S> <C> <C> <C>
Risk-free interest rate 5.8% 6.5% 5.8%
Expected life 8.6 years 5 years 5 years
Expected volatility 51% 53% 45%
Expected dividend yield None None None
</TABLE>
The weighted average fair value of options and warrants granted during
fiscal 1998, 1997 and 1996 was $3.42, $2.19 and $3.31, respectively.
Note 9. CONTINGENCIES
In 1997, the Board of Directors created a Special Committee of outside
board members of the Company to investigate the exercise of stock options by the
former Chairman and Chief Executive Officer and the former President 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. In December 1997, the Company
entered into settlement agreements with those former executive officers. The
Company was fully reimbursed for costs of the investigation and damages
incurred. As a result, the Company recorded income in fiscal 1998 of
approximately $900,000 related to the settlement.
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.
57
<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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, 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 PricewaterhouseCoopers LLP
August 13, 1998
58
<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
Harold C. Elston, Jr.
Senior Vice President, Secretary and Treasurer
John H. Claussen
Senior Vice President
Miro Knezevic
Senior Vice President
59
<PAGE>
SUBSIDIARY OPERATING OFFICERS
John H. Claussen
President
TRC Environmental Corporation
Miro Knezevic
Executive Vice President
TRC Environmental Solutions, Inc.
Richard J. McGuire, Jr.
President
TRC Mariah Associates, Inc.
SHAREHOLDER INFORMATION
EXECUTIVE OFFICES
TRC Companies, Inc.
5 Waterside Crossing
Windsor, CT 06095
(860) 289-8631
60
<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Financial Plaza
Hartford, CT 06103
ANNUAL MEETING
The 1998 annual meeting of shareholders will be held on Friday, October
23, 1998, 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".
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.
REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
Shareholders may call the agent's Shareholder Services Department directly
concerning stock certificates and address changes at (800) 937-5449.
61
<PAGE>
Exhibit 21
61
<PAGE>
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), 100%
a subsidiary of TRC Environmental Corporation
Monitoring Instruments for the Environment, Inc. (incorporated in 100%
Massachusetts), a subsidiary of TRC Environmental Corporation
</TABLE>
62
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<EXCHANGE-RATE> 1 1 1
<CASH> 1,379,388 1,020,065 1,321,524
<SECURITIES> 0 0 0
<RECEIVABLES> 30,150,396 28,839,226 30,477,190
<ALLOWANCES> 2,375,000 2,300,000 2,500,000
<INVENTORY> 1,359,410 1,092,391 915,336
<CURRENT-ASSETS> 32,053,159 31,458,473 31,877,633
<PP&E> 21,273,379 20,295,696 19,667,334
<DEPRECIATION> 17,267,575 15,596,670 13,802,300
<TOTAL-ASSETS> 61,603,611 62,290,259 64,234,689
<CURRENT-LIABILITIES> 11,577,533 10,778,601 12,874,422
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 741,085 731,675 726,575
<OTHER-SE> 43,713,993 42,111,983 44,021,212
<TOTAL-LIABILITY-AND-EQUITY> 61,603,611 62,290,259 64,234,689
<SALES> 72,570,001 68,506,377 76,999,021
<TOTAL-REVENUES> 72,570,001 68,506,377 76,999,021
<CGS> 0 0 0
<TOTAL-COSTS> 70,133,463 68,342,107 78,215,219
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 725,118 829,172 905,855
<INCOME-PRETAX> 1,711,420 (664,902) (2,122,053)
<INCOME-TAX> 650,000 (160,000) (807,000)
<INCOME-CONTINUING> 1,061,420 (504,902) (1,315,053)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,061,420 (504,902) (1,315,053)
<EPS-PRIMARY> .16 (.07) (.19)
<EPS-DILUTED> .16 (.07) (.19)
</TABLE>
