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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________
Commission File Number: 0-29292
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HAGLER BAILLY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 54-1759180
(State or other jurisdiction of incorporation or organization) I.R.S. Employer
Identification Number
1530 Wilson Boulevard, Suite 400, Arlington, VA 22209
(Address of principal executive offices) (Zip Code)
703-351-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes {xx} No{ }
As of July 31, 1999, the Registrant had 16,503,866 shares of its common stock
outstanding.
<PAGE>
ii
i
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS 1
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31,
1998 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (UNAUDITED) 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND 1998 (UNAUDITED) 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 6
PART II
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 21
<PAGE>
1
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
Hagler Bailly, Inc.
Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1999 1998
-----------------------------------------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash & cash equivalents $ 11,587 $ 16,165
Accounts receivable, net of allowance of $3,895 and $3,888
in 1999 and 1998, respectively 60,376 59,092
Note receivable - 382
Prepaid expenses 2,845 2,620
Other current assets 649 304
------------------- ---------------------
Total current assets 75,457 78,563
Property and equipment, net 7,020 6,463
Software development costs, net 462 898
Intangible assets, net 16,798 14,208
Other assets 1,409 1,290
------------------- ---------------------
Total assets $ 101,146 $ 101,422
=================== =====================
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $ 7,027 $ 8,476
Accrued compensation and benefits 10,092 8,713
Billings in excess of cost 2,268 2,288
Current portion of long-term debt 333 345
Income taxes payable 1,123 2,547
Deferred taxes 1,900 1,900
------------------- ---------------------
Total current liabilities 22,743 24,269
Long-term debt, net of current portion 674 681
Minority interest 257 177
Deferred income taxes 927 927
Other deferred 1,804 1,769
------------------- ---------------------
Total liabilities 26,405 27,823
Stockholders' equity:
Common stock, $0.01 par value, 50,000 shares authorized;
16,504 and 16,483 issued and outstanding at June 30, 1999 and December 165 165
31, 1998, respectively
Additional capital 70,889 72,322
Retained earnings 3,898 1,206
Foreign currency translation (211) (94)
------------------- ---------------------
Total stockholders' equity 74,741 73,599
------------------- ---------------------
=================== =====================
Total liabilities and stockholders' equity $ 101,146 $ 101,422
=================== =====================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hagler Bailly, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
----------------- ----------------- ----------------- -----------------
Revenues:
Consulting revenues $ 44,237 $45,207 $ 83,924 $ 83,138
Other revenues 320 1,139 863 2,454
----------------- ----------------- ----------------- -----------------
Total revenues 44,557 46,346 84,787 85,592
Cost of services 33,718 32,914 64,341 61,681
----------------- ----------------- ----------------- -----------------
Gross profit 10,839 13,432 20,446 23,911
Merger related and other non-recurring costs - 1,352 - 1,719
Selling, general and administrative expenses 8,161 6,509 15,744 11,393
Stock and stock option compensation - 430 - 2,595
----------------- ----------------- ----------------- -----------------
Income from operations 2,678 5,141 4,702 8,204
Other income (expenses), net 4 (31) 91 (79)
----------------- ----------------- ----------------- -----------------
Income before income tax expense and loss from equity
investment in joint venture 2,682 5,110 4,793 8,125
Income tax expense 1,085 2,220 1,871 4,294
----------------- ----------------- ----------------- -----------------
Income before loss from equity investment in joint
venture 1,597 2,890 2,922 3,831
Loss from equity investment in joint venture, net of tax (87) - (230) -
----------------- ----------------- ----------------- -----------------
Net income $ 1,510 $ 2,890 $2,692 $ 3,831
================= ================= ================= =================
================= ================= ================= =================
Net income per share:
Basic $ 0.09 $ 0.18 $ 0.16 $ 0.25
Diluted $ 0.09 $ 0.17 $ 0.16 $ 0.23
Weighted average shares outstanding:
Basic 16,508 15,777 16,533 15,599
================= ================= ================= =================
Diluted 16,701 16,619 17,041 16,415
================= ================= ================= =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six months ended June 30,
1999 1998
------------------- --------------------
<S> <C> <C>
Operating activities
Net income $ 2,692 $ 3,831
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization expense 2,865 3,459
Stock and stock option compensation - 2,595
Provision for deferred income taxes - 722
Provision for accounts receivable 850 133
Loss on equity investment in joint venture 230 -
Minority interest 80 -
Changes in operating assets and liabilities:
Accounts receivable (1,658) (10,923)
Note receivable 382 -
Prepaid expenses (1,075) (3,542)
Other current assets (319) 1,170
Other assets (337) 171
Deferred compensation - 85
Accounts payable and accrued expenses (1,563) 950
Accrued compensation and benefits 1,083 (329)
Billings in excess of cost (138) (132)
Income taxes payable (1,457) (1,952)
Other deferred 37 1,248
------------------- --------------------
Net cash provided by (used in) operating activities 1,672 (2,514)
Investing activities
Acquisition of property and equipment (1,506) (3,484)
Purchase of investments - (777)
Amount received in liquidation of subsidiary - 160
Purchase of acquired companies (903) (1,239)
------------------- --------------------
Net cash used in investing activities (2,409) (5,340)
Financing activities
Issuance of common stock 125 12,215
Purchase of treasury stock (3,947) -
Dividends paid by foreign subsidiary - (333)
Net payments on bank line of credit - (1,260)
Payments on long term debt (19) (627)
------------------- --------------------
Net cash (used in) provided by financing activities (3,841) 9,995
Net (decrease) increase in cash and cash equivalents (4,578) 2,141
Cash and cash equivalents, beginning of period 16,165 5,261
------------------- --------------------
Cash and cash equivalents, end of period $ 11,587 $ 7,402
=================== ====================
See accompanying notes.
</TABLE>
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Hagler Bailly, Inc. (the "Company") have been prepared pursuant to the rules of
the Securities and Exchange Commission ("SEC") for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
reflects all adjustments, of a normal recurring nature, which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods.
The interim results of operations are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 1999.
Note 2. Earnings per Share
Basic earnings per share is computed based on the weighted average
number of shares of common stock outstanding during the respective periods.
Diluted earnings per share is inclusive of the dilutive effect of unexercised
stock options using the treasury stock method. Weighted average share figures
are as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $1,510 $2,890 $2,692 $3,831
----------------- ------------------- ---------------- ------------------
----------------- ------------------- ---------------- ------------------
Weighted average shares of common
stock outstanding during the period
16,508 15,777 16,533 15,599
Effect of dilutive securities:
Stock options 193 842 508 816
----------------- ------------------- ---------------- ------------------
----------------- ------------------- ---------------- ------------------
Weighted average shares of common
stock and dilutive securities
16,701 16,619 17,041 16,415
================= =================== ================ ==================
</TABLE>
Note 3. Business Combinations
On April 30, 1999, the Company acquired all of the outstanding stock of
Washington International Energy Group, Ltd. ("WIEG"), a Washington D.C. based
worldwide provider of energy and environmental policy consulting research
services, in exchange for 144,210 shares of the Company's common stock and
approximately $850,000 in cash. The transaction was accounted for as a purchase.
Accordingly, the consolidated financial statements reflect the results of
operations of WIEG since the date of acquisition. As a result of the
transaction, the Company recorded intangible assets of approximately $1.5
million.
On June 1, 1999, the Company acquired the remaining minority interest
of its joint venture Hagler Bailly Risk Advisors LLC, a limited liability
company located in Houston, Texas, from Objective Resources Risk Advisors LLC
bringing the Company's ownership to 100%.
Note 4. Stock Repurchase Plan
The Company is authorized to repurchase up to 1.5 million shares of the
Company's common stock in the open market or in privately negotiated
transactions. As of June 30, 1999, the Company had repurchased 536,600 shares.
<PAGE>
Note 5. Components of Comprehensive Income
Comprehensive income includes the Company's net earnings adjusted for
changes, net of tax, of cumulative translation adjustments. Comprehensive income
for the three and six months ended June 30, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Comprehensive Income:
Net income $ 1,510 $ 2,890 $ 2,692 $ 3,831
Foreign translation
adjustment (42) (53) (71) (148)
----------------- --------------- ---------------- -----------------
Total comprehensive income
$ 1,468 $ 2,837 $ 2,621 $ 3,683
================= =============== ================ =================
================= =============== ================ =================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as, "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended by Public Law 104-67.
Forward-looking statements may be identified by words including "anticipate,"
"believe," "estimate," "expect" and similar expressions. The Company cautions
readers that forward-looking statements, including without limitation, those
relating to the Company's future business prospects, revenues, working capital,
liquidity, and income, are subject to certain risks and uncertainties that would
cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important factors such as
concentration of the Company's revenues from a relatively limited number of
public and private clients involved in the energy and network industries, the
Company's ability to attract, retain and manage professional and administrative
staff, fluctuations in quarterly results, risks related to acquisitions, and the
fact that historical operations and performance are not necessarily indicative
of future operations and performance, among others, and other risks and factors
identified from time to time in the Company's reports filed with the SEC,
including the risk factors identified in the Company's Registration Statement
(No. 333-22207) on Form S-1 and the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
The Company, together with its wholly owned subsidiaries PHB Hagler
Bailly Inc., Hagler Bailly Services, Inc., and its domestic and foreign wholly
owned subsidiaries, is a leading provider of professional services to corporate
and government clients on energy, network industries, and the environment. As of
June 30, 1999, Hagler Bailly employed a staff of 845, of which over two-thirds
were consulting and technical professionals. The Company's common stock is
quoted on the NASDAQ National Market under the symbol, "HBIX".
The Company's revenues consist of consulting revenues and other
revenues. Consulting revenues represent revenues associated with professional
staff, subcontractors and independent consultants, and client reimbursable
expenses. These revenues are derived from the Company's primary business of
offering corporate clients strategy and business operations consulting, economic
counsel and litigation support, and market research and survey analysis. Other
revenues include those derived from information-based products and services, and
publication of newsletters, reference manuals and data series for the energy and
transportation industries. The Company's client base includes both the public
and commercial rate sector. Revenue from the commercial rate sector is typically
characterized by higher gross margins than the public sector, yet generally
requires a higher relative level of infrastructure support. Consequently, the
Company's operating performance is affected by its public sector / commercial
rate sector business mix. Through strategic acquisitions and internal growth,
the Company has increased its commercial rate sector client base, and will
continue to pursue such opportunities in the future.
On April 30, 1999, the Company acquired all of the outstanding stock of
WIEG, in a cash and stock transaction. The transaction was accounted for as a
purchase.
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
The following table presents for the periods indicated the percentage
of revenues represented by certain income and expense items, and the percentage
period-to-period increase (decrease) in such items:
% Period-to-Period
Percentage of Revenues Increase (Decrease) of Dollars
--------------------------------------------- -----------------------------------
Three months Six months
ended June ended June
30, 1999 30, 1999
compared to compared to
three months six months
ended June ended June
30, 1998 30, 1998
---------------- ---------------
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
---------------- ---------------
Revenues:
Consulting 99.3 97.5 99.0 97.1 (2.1) 0.9
Total revenues 100.0 100.0 100.0 100.0 (3.9) (.9)
Cost of services 75.7 71.0 75.9 72.1 2.4 4.3
Merger related and other
non-recurring costs - 2.9 - 2.0 (100.0) (100.0)
Selling, general, and administrative
expenses 18.3 14.0 18.6 13.3 25.4 38.2
Stock and stock option compensation
- 1.0 - 3.0 (100.0) (100.0)
Income from operations 6.0 11.1 5.6 9.6 (61.3) (62.4)
Other income (expenses), net 0.0 (0.1) 0.1 (0.1) 114.4 215.3
Income before income tax expense and
loss from equity investment in
joint venture 6.0 11.0 5.7 9.5 (61.1) (61.5)
Income tax expense 2.4 4.8 2.2 5.0 (60.5) (62.2)
Income before loss from equity
investment in joint venture 3.6 6.2 3.5 4.5 (61.5) (61.0)
Loss from joint venture (0.2) - (0.3) - (100.0) (100.0)
Net income 3.4 6.2 3.2 4.5 (63.6) (64.1)
</TABLE>
Three months ended June 30, 1999 compared with three months ended June 30, 1998
Revenues for the three months ended June 30, 1999, decreased by
approximately $1.8 million, or 3.9%, to $44.6 million from the three months
ended June 30, 1998. Of this decrease, approximately $1.0 million was
attributable to consulting revenues and approximately $0.8 million was
attributable to other revenues. Consulting revenues decreased 2.1% for the three
months ended June 30, 1999, as compared to the comparable period of the prior
year. This decrease was primarily the result of the sale of certain assets of
the Company's public sector consulting practice in September 1998, partially
offset by increases resulting from acquisitions and internal growth in the
commercial rate sector. Other revenues decreased by 71.9 % for the three months
ended June 30, 1999 as compared to the comparable period of the prior year. This
decrease was the result of the Company's decision to cease operations in its
financial advisory services. In the three months ended June 30, 1999,
approximately 99.3% of the Company's revenues were derived from consulting
revenues, as compared with 97.5% in the three months ended June 30, 1998.
Cost of services for the three months ended June 30, 1999, increased by
approximately $0.8 million or 2.4%, to $33.7 million from the three months ended
June 30, 1998. Cost of services as a percentage of revenue increased from 71.0%
in the three months ending June 30, 1998, to 75.7% in the three months ending
June 30, 1999, primarily the result of an increase in staffing costs to support
an anticipated increase of business and an increase in cash compensation paid to
consulting staff.
Selling, general and administrative expenses ("SG&A") for the three
months ended June 30, 1999, increased by approximately $1.7 million or 25.4%, to
$8.2 million from the three months ended June 30, 1998. Expressed as a
percentage of total revenues, SG&A expenses increased from 14.0% in the three
months ended June 30, 1998 to 18.3% in the three months ended June 30, 1999.
This increase is reflective of increased business development costs and
duplication of certain administrative costs related to the Company's recent
business combinations.
There were no merger related and other non-recurring costs for the
three months ended June 30, 1999, compared with approximately $1.4 million in
the three months ended June 30, 1998. The majority of these costs in the
comparable period were associated with the Company's business combination with
Putnam Hayes & Bartlett, Inc. ("PHB") as well as the Company's business
combinations with TB&A Group, Inc. and its wholly-owned subsidiary Theodore
Barry & Associates (collectively "TB&A") and Izsak, Grapin et Associes ("IGA").
There were no stock and stock option compensation expenses for the
three months ended June 30, 1999, compared with approximately $430,000 in the
three months ended June 30, 1998. All of these costs in the prior period were
related to the Company's business combination with PHB and included non-cash,
non-tax deductible compensation based on the difference between the fair market
value and book values of PHB common stock issuable under subscriptions within
one year of the companies' merger.
Other income (expenses), net includes interest expense, interest
income, minority interest and other income and expenses. For the three months
ended June 30, 1999, other income (expenses), net increased approximately
$35,000 to income of approximately $4,000 from the three months ended June 30,
1998.
The Company's effective tax rate decreased to 40.5% in the three months
ended June 30, 1999 from 43.4% in the three months ended June 30, 1998. The
effective tax rate for the comparable period was higher than the provisional
rate as a result of the non-deductibility for tax purposes of the stock
compensation charge discussed above.
Net income for the three months ended June 30, 1999, decreased by
approximately $1.4 million, or 47.8%, to $1.5 million from the three months
ended June 30, 1998, due to reasons discussed above.
<PAGE>
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues for the six months ended June 30, 1999, decreased by
approximately $0.8 million or 0.9%, to $84.8 million from the six months ended
June 30, 1998. An increase of approximately $0.8 million in consulting revenues
was offset by a decrease of approximately $1.6 million in other revenues.
Consulting revenues increased 0.9% for the six months ended June 30, 1999, as
compared to the comparable period of the prior year. This increase was primarily
the result of acquisitions and internal growth in the commercial rate sector,
partially offset by the sale of certain assets of the Company's public sector
consulting practice in September 1998. Other revenues decreased by 64.8% for the
six months ended June 30, 1999, as compared to the comparable period of the
prior year. The decrease in other revenues was driven by the Company's decision
to cease operations in its financial advisory services business. In the six
months ended June 30, 1999, approximately 99.0% of the Company's revenues were
derived from consulting revenues, as compared with 97.1% in the six months ended
June 30, 1998.
Cost of services for the six months ended June 30, 1999, increased by
$2.7 million, or 4.3%, to $64.3 million from the six months ended June 30, 1998.
Cost of services as a percentage of revenue increased from 72.1% in the six
months ending June 30, 1998, to 75.9% in the six months ending June 30, 1999,
primarily the result of an increase in staffing costs to support an anticipated
increase of business and an increase in cash compensation paid to consulting
staff.
SG&A for the six months ended June 30, 1999, increased by approximately
$4.4 million, or 38.2%, to $15.7 million from the six months ended June 30,
1998. Expressed as a percentage of total revenues, SG&A expenses increased from
13.3% in the six months ended June 30, 1998, to 18.6% in the six months ended
June 30, 1999. This increase is reflective of increased business development
costs, an increase in administrative staff in anticipation of increased business
and duplication of certain administrative costs related to the Company's recent
business combinations.
There were no merger related and other non-recurring costs for the six
months ended June 30, 1999, compared with approximately $1.7 million in the six
months ended June 30, 1998. The majority of these costs in the comparable period
were associated with the Company's business combination with PHB as well as the
Company's business combinations with TB&A and IGA.
There were no stock and stock option compensation expenses for the six
months ended June 30, 1999, compared with approximately $2.6 million in the six
months ended June 30, 1998. All of these costs in the prior period were related
to the business combination and included non-cash, non-tax deductible
compensation based on the difference between the fair market value and book
values of PHB common stock issuable under subscriptions within one year of the
companies' merger.
Other income (expenses), net includes interest expense, interest
income, minority interest and other income and expenses. For the six months
ended June 30, 1999, other income (expenses), net increased approximately
$169,000 to income of approximately $91,000 from the six months ended June 30,
1998.
The Company's effective tax rate decreased to 39.0% in the six months
ended June 30, 1999 from 52.9% in the six months ended June 30, 1998. The
effective tax rate for the comparable period was higher than the provisional
rate as a result of the non-deductibility for tax purposes of the stock
compensation charge discussed above.
Net income for the six months ended June 30, 1999, decreased by
approximately $1.1 million, or 29.7%, to $2.7 million from the six months ended
June 30, 1998, due to reasons discussed above.
Liquidity and Capital Resources
As of June 30, 1999, working capital was $52.7 million as compared to
$54.3 million at December 31, 1998.
Net cash of approximately $1.7 million was provided by operating
activities during the six months ended June 30, 1999. The primary sources
of cash provided by operating activities were net income of approximately
$2.7 million, non-cash depreciation of approximately $2.9 million and an
increase in accrued compensation and benefits of approximately $1.1
million. These cash flows were partially offset by increases in accounts
receivable and prepaid expenses as well as the payment of income taxes and
accounts payable.
Investment activities used $2.4 million during the six months ended
June 30, 1999. The Company invested $1.5 million in the purchase of office and
computer related equipment, leasehold improvements, and other resources
necessary for the growth of the Company, as well as $0.9 million for the
purchase of acquired companies.
Financing activities used approximately $3.8 million for the six months
ended June 30, 1999. Substantially all of these funds were used for the
repurchase of 536,600 shares of the Company's common stock by the Company. At
June 30, 1999, the Company was authorized to repurchase approximately 963,400
additional shares.
The Company's primary source of liquidity for the past 12 months has
been funds generated from operations periodically supplemented by borrowings
under a bank line of credit. During the year ended December 31, 1998, the
Company established $50.0 million in revolving credit with NationsBank. The
amount available under the line of credit at June 30, 1999 was $50.0 million.
The Company believes that current projected levels of cash flows and the
availability of financing, including borrowings under the Company's credit
facility, will be adequate to fund its anticipated cash needs, which may include
future acquisitions of complementary businesses, for at least the next 12
months. The Company, depending on market conditions, may consider other sources
of financing, including equity financing.
Year 2000
The Year 2000 issue is the result of a computer hardware and software
design that defines the year field as two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900. As a result, the programs
could fail or yield incorrect results. The Company's business, as well of those
of its principal suppliers and clients, is dependent on the ability of its
software and hardware systems to properly function. Failure of one or more of
these systems of the Company or a material client or supplier could disrupt the
Company's operations and cause a material adverse impact on the Company's
business, results of operations and financial condition.
The Company's Year 2000 Strategy
The Company has established the Year 2000 Readiness Plan (the "Plan") to
prepare for the Year 2000 issue. This Plan is comprised of the following
elements:
1. Audit, assessment, remediation, and testing of internal systems.
2. Obtaining assurance or information on the state of Year 2000
readiness of our material clients and suppliers who exchange
information electronically with us or upon whom our work product
may depend.
3. Developing contingency plans, when practical, to address potential Year 2000
failures.
Except where noted below, the Company's goal is to complete
implementation of the Plan by September 30, 1999.
<TABLE>
<CAPTION>
Audit and Remediation Testing Implementation
Assessment
<S> <C> <C> <C> <C>
------------------------------ ------------------ --------------------- --------------- --------------------
IT - Domestic Complete In Progress In Progress 3rd Quarter
------------------------------ ------------------ --------------------- --------------- --------------------
------------------------------ ------------------ --------------------- --------------- --------------------
IT - International 75% In Progress In Progress 4th Quarter
------------------------------ ------------------ --------------------- --------------- --------------------
------------------------------ ------------------ --------------------- --------------- --------------------
Business Operations Complete Complete In Progress 3rd Quarter
------------------------------ ------------------ --------------------- --------------- --------------------
------------------------------ ------------------ --------------------- --------------- --------------------
Embedded Complete In Progress N/A 4th Quarter
------------------------------ ------------------ --------------------- --------------- --------------------
------------------------------ ------------------ --------------------- --------------- --------------------
3rd Party Complete 3rd - 4th Quarter N/A 4th Quarter
</TABLE>
Year 2000 Readiness Report
The Company made several acquisitions in 1998 and 1999. It undertook a
comprehensive due diligence examination that identified general Year 2000
Readiness issues for itself and the companies it acquired. The Company
formalized its efforts by establishing a Year 2000 Working Committee (the
"Committee") led by its Chief Information Officer to oversee the integration of
its Year 2000 efforts and to implement the Plan. The Committee includes the CEO,
CFO, General Counsel, and other Company executives and outside consultants as
required. The Company engaged consultants to complete the assessment of its
domestic offices and to assist in the assessment of its major international
offices.
The Company's front office systems (used for the delivery of services
to clients), both hardware and software, were replaced or significantly upgraded
in 1997 and 1998 and were manufactured to be Year 2000 ready (with minor,
vendor-identified problems). Due to the release of new Year 2000 "software"
fixes from Microsoft, the principal supplier of the Company's front office
software, the Company currently expects that the process of updating those
systems that are not Year 2000 ready will be performed in the 3rd quarter of
1999.
With some exceptions, the Company does not employ significant custom
programming in its front office, work product, or back office systems. The
Company's work product is generated for the most part with commercially
available statistical, econometric, word processing, spreadsheet, database, or
mathematical software for which the Company has obtained Year 2000 Readiness
assurances. These software products have been audited and have been or will be
updated where appropriate. In the cases where the Company has supplemented these
commercially available softwares with custom programming, teams are being
established to assess the software. These situations do not represent a
significant percentage of the Company's work product. The Company is
implementing a software application to aide the monitoring of Year 2000
compliance of new work product and to provide a testing mechanism for the re-use
of models, spreadsheets, or databases. This application is a commercially
available Year 2000 audit and remediation product specifically designed for
Microsoft Windows compliant software applications.
A conversion was undertaken in 1998 to replace a significant and
non-compliant analytic system (used to service client analysis needs), including
hardware and software, with a compliant system. The implementation is complete
and the conversion of active analytic applications will be complete by September
30, 1999.
Back office systems including financial accounting, project accounting,
fixed asset management, human resources, payroll, and conflict management have
been replaced, updated with vendor supplied Year 2000 fixes, or converted to
compliant versions of the software. The Company has undertaken tests of its back
office systems and expects these systems to present no material problem due to
Year 2000 issues. Certain models of personal computers have been identified as
non-compliant and will be replaced in 1999. The number of Year 2000 replacements
will not exceed the normal annual personal computer turnover.
The Company contacted the vendors of its principal office systems in
order to obtain proof of Year 2000 readiness. The Company's material office
systems include its telephone, communications and networking equipment, security
and facilities systems, copiers, pagers, voicemail, and faxing systems. Because
the Company is highly decentralized with 21 domestic and international offices,
it does not expect the audit and remediation of these office systems to be
complete before September 30, 1999. Some office systems in the Company's
international offices will not be corrected by December 31, 1999, but the
Company does not expect such systems to materially affect the Company's ability
to complete its engagements.
Clients
The Company's clients include domestic and international companies,
private law firms, the United States and state, local and foreign governments
and governmental agencies and government-owned enterprises. The Company has
responded to Year 2000 compliance surveys from over 50 of its major clients and
shared the readiness information disclosed here. In April 1999, the Company
initiated a survey of a cross section of its largest clients (measured by
revenue generated for the Company in 1998) to determine their Year 2000
readiness. The Company plans to survey other clients if circumstances warrant
and, where practical, to survey new clients upon new engagements. To date the
Company has not received responses from all the clients surveyed. Based on the
responses received, the Company does not beleive that any client failure to
comply with Year 2000 compliance requirements will have a material adverse
effect on it
Material Vendors
The Company performs analytic work on time sensitive matters. Certain
vendors have been identified as critical to implementing the Plan. These vendors
include payroll, credit, transportation, information resources, and certain
maintenance providers of mission critical hardware and software. If one or more
of the Company's principal vendors experiences significant business disruption
as a result of the Year 2000 issue, it could have a material adverse effect on
the Company's business, results of operations and financial condition. For
example, if the Company's principal suppliers of real-time electricity data are
not functioning properly, the Company may be unable to perform analytic work for
clients. Similarly, if hardware used to perform modeling cannot be supported
because of a Year 2000 issue at the vendor, the Company's ability to meet client
demands for time sensitive analysis might be jeopardized. The Committee
continues to monitor the Company's principal vendors and may need to develop
contingency plans to replace those vendors whose ability to certify Year 2000
readiness is in doubt. The Committee expects that the process of evaluating and
working with outside vendors will continue into the third and fourth quarters of
1999.
Contingency Planning
The Committee is developing a contingency plan in the event that a
material system or vendor will not be Year 2000 ready by December 31, 1999. This
contingency plan is scheduled to be substantially complete by the end of the
third quarter of 1999, although it will be reviewed and refined thereafter as
the Committee continues to evaluate the Company's systems and vendors. The
Company is considering other contingency initiatives with respect to office
systems, personnel, and new engagements.
Costs
The Company budgeted $300,000 in fiscal years 1999 and 2000 to cover
the costs of evaluating systems, acquiring Year 2000 remediation software,
additional testing of hardware and software, hiring an outside Year 2000
consultant and administrative costs associated with implementing the Plan.
Although the Company believes this amount will be sufficient to meet the costs
of the Company's Year 2000 readiness efforts, there can be no assurance that the
costs to implement the Plan will not significantly exceed the Company's current
estimates. To date, expenditures for Year 2000 readiness have been nominal and
associated with the rapid implementation of already planned front office and
back office systems upgrades.
Risks
At present, the Company perceives that its greatest Year 2000 risk is
its dependence on an external network of information providers, vendors, and
experts to complete its engagements. Even if the Company can satisfy itself that
the systems of its material suppliers and partners are Year 2000 ready, those
suppliers and partners in turn rely on a myriad of suppliers to operate their
businesses. Year 2000-related failures far removed from the Company could
trigger a chain of events that could materially harm the Company's business.
Certain clients, despite their best efforts, may suffer the effects of Year 2000
failures of others and thus delay, cancel, or substantially alter work in
progress resulting in a negative effect on the operations of the Company,
including the failure to meet financial expectations or the loss of key
personnel. Such a chain of events could also lead to litigation against the
Company. The Company also performs work in regions deemed at high risk for Year
2000 disruptions, specifically, Latin America, Eastern Europe, and Asia. Lastly,
the Company perceives that the stability of technical and critical office staff
is important to the Plan and is considering steps to decrease the risk of losing
critical resources. Notwithstanding these efforts, there can be no assurance
that Year 2000 problems will not have a material adverse effect on the Company's
business, results of operations, or financial condition.
<PAGE>
PART II
Item 1. Legal Proceedings
One of the Company's subsidiaries, Apogee Research, Inc. ("Apogee")
has received a subpoena from the Office of the Inspector General of the
Environmental Protection Agency (the "EPA") requesting records for the
period from April 1993 through October 1995 pertaining to a contract
between Apogee and the EPA. Apogee has provided records in response to the
subpoena. The work under this contract has been completed. The subpoena was
served in connection with an EPA investigation relating to the submission
of potential false statements and false claims under the contract. Hagler
Bailly is unable to determine at this time what effect, if any, the
investigation will have on its business, financial condition or results of
operations.
The Company and its subsidiaries are from time to time parties to
litigation arising in the ordinary course of business. Neither the Company nor
any of its subsidiaries is a party to any pending material litigation nor are
any of them aware of any pending or threatened litigation that would have a
material adverse effect on the Company or its business, financial condition or
results of operations.
Item 2. Changes in Securities
On April 30, 1999, the Company acquired WIEG, a provider of energy and
environmental policy, for cash and stock. The Company issued 144,210 shares
of the Company's common stock to the shareholders of WIEG. The shares of
common stock issued in connection with the acquisition were exempt from
registration pursuant to Section 4[2] of the Securities Act of 1933 and
Regulation D promulgated thereunder.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 13, 1999,
the stockholders voted on the (i) election of three directors to serve
three-year terms ending at the 2002 Annual Meeting of Stockholders; (ii)
ratification and approval of an amendment to the Hagler Bailly, Inc.
Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan
(the "Stock Option Plan"); and (iii) the ratification of Ernst & Young LLP
as independent auditors for the fiscal year ending December 31, 1999.
The voting for each item was as follows:
The Election of Directors
NAME FOR WITHHELD
William E. Dickenson 9,937,397 626,244
Robert W. Fri 9,937,397 626,244
Richard H. O'Toole 9,937,397 626,244
The Ratification of the Amendment to the Stock Option Plan
FOR AGAINST ABSTAIN
9,414,575 1,147,357 1,709
The Ratification of Selection of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 1999.
------------------- -------------------- -----------------------------
FOR AGAINST ABSTAIN
------------------- -------------------- -----------------------------
------------------- -------------------- -----------------------------
9,653,188 473,806 436,647
------------------- -------------------- -----------------------------
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
2 Sale Agreement between RCG International, Inc., and Hagler Bailly
Consulting, Inc. (1)
2.1 Agreement and Plan of Merger by and among Hagler Bailly, Inc., PHB
Acquisition Corp. and Putnam, Hayes and Bartlett, Inc., dated as of June 11,
1998. (5)
3.1 By-Laws of the Company, as amended. (6)
3.2 Amended Restated Certificate of Incorporation of the Company. (7)
4 Specimen Stock Certificates. (1)
4.1 Registration Rights Agreement dated November 18, 1997 by and between
Hagler Bailly, Inc. and Richard R. Mudge, acting as Stockholders'
Representation. (3)
4.2 Form of Escrow Agreement by and among the Company, PHB Acquisition
Corp., William E. Dickenson as Stockholders' Representative and State Street
Bank and Trust Company, as Escrow Agent. (5)
4.3 Registration Rights Agreement dated February 23, 1998 by and between
Hagler Bailly, Inc. and Michael J. Beck, acting as Stockholders' Representative.
(9)
4.4 Registration Rights Agreement dated November 17, 1998 by and between
Hagler Bailly, Inc. and the stockholders of Fieldston Publications, Inc. and The
Fieldston Company. (9)
10.2 Form of Non-Compete, Confidentiality and Registration Rights Agreement
between the Company and each stockholder. (1)
10.3 Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly,
Inc. dated October 25, 1991. (1)
10.4 First Amendment to Lease by and between Wilson Boulevard Venture and
RCG/Hagler Bailly, Inc., dated February 26, 1993. (1)
10.5 Second Amendment to Lease by and between Wilson Boulevard Venture and
RCG/Hagler Bailly, Inc., dated December 12, 1994. (1)
10.6 Lease by and between Bresta Futura V.B.V. and Hagler Bailly
Consulting, Inc. dated May 8, 1996. (1)
10.7 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler Bailly,
Inc. dated December 14, 1994. (1)
10.8 Lease by and between University of Research Park Facilities Corp. and
RCG/Hagler Bailly, Inc., dated April 1, 1995. (1)
10.9 Credit Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated May 17, 1995. (1)
10.10 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company, dated as of June 20,
1996. (1)
10.11 Extension Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of August 1, 1996. (1)
10.12 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company, dated as of November
12, 1996. (1)
10.13 Term Note by and between Hagler Bailly Consulting, Inc., and State
Street Bank and Trust Company, dated May 26, 1995. (1)
10.14 Revolving Credit Note by and between Hagler Bailly Consulting, Inc.
and State Street Bank and Trust Company dated May 26, 1995. (1)
10.15 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc., and State Street Bank and Trust Company, dated as of June 12,
1997. (1)
10.16 Credit Agreement by and among Hagler Bailly Consulting, Inc., Hagler
Bailly Services, Inc. and State Street Bank and Trust Company, dated as of
September 30, 1997. (2)
10.17 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly
Services, Inc. to State Street Bank and Trust Company, dated September 30, 1997.
(2)
10.18 Security Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.19 Security Agreement by and between Hagler Bailly Services, Inc. and
State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.20 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust
Company, dated September 30, 1997. (2)
10.21 Guaranties by HB Capital, Inc. to State Street Bank and Trust
Company, dated September 30, 1997. (2)
10.22 Subordination Agreement and Negative Pledge/Sale Agreement by and
between Hagler Bailly, Inc. and State Street Bank and Trust Company for Hagler
Bailly Consulting, Inc., dated September 30, 1997. (2)
10.23 Subordination Agreement and Negative Pledge/Sale Agreement by and
between Hagler Bailly, Inc. and State Street Bank and Trust Company for Hagler
Bailly Services, Inc., dated September 30, 1997. (2)
10.24 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler
Bailly, Inc., dated July 23, 1997. (2)
10.25 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company dated May 18, 1998. (6)
10.26 Sublease Agreement by and between Coopers and Lybrand L.L.P. and
Hagler Bailly, Inc. dated December 5, 1997. (6)
10.27 Employment Agreement between the Company and Henri-Claude A. Bailly,
dated August 27, 1998. (7)
10.28 Employment Agreement between the Company and William E. Dickenson,
dated August 27, 1998. (7)
10.29 Employment Agreement between the Company and Howard W. Pifer III,
dated June 10, 1998. (7)
10.30 Amended and Restated Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan.
10.31 Credit Agreement by and between Hagler Bailly, Inc. and The Lenders
From Time to Time a Party thereto, as Lenders and NationsBank, N.A., dated
November 20, 1998. (8)
10.32 Revolving Note by and between Hagler Bailly, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.33 Swing Line Note by and between Hagler Bailly, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.34 Subsidiary Guarantee by and among Hagler Bailly Services, Inc.,
Hagler Bailly Consulting, Inc., HB Capital, Inc., Putnam, Hayes & Bartlett,
Inc., TB&A Group, Inc., Theodore Barry & Associates, Private Label Energy
Services, Inc., Fieldston Publications, Inc. and NationsBank, N.A., dated
November 20, 1998. (8)
10.35 Form of Security Agreement by and between Hagler Bailly, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.36 Security Agreement by and between Hagler Bailly Consulting, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.37 Security Agreement by and between Hagler Bailly Services, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.38 Security Agreement by and between HB Capital, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.39 Security Agreement by and between Putnam, Hayes & Bartlett, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.40 Security Agreement by and between TB&A Group, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.41 Security Agreement by and between Theodore Barry & Associates and
NationsBank, N.A., dated November 20, 1998. (8)
10.42 Security Agreement by and between PHB Hagler Bailly, Inc. and
NationsBank, N.A., dated February 22, 1999. (8)
10.43 Security Agreement by and between Private Label Energy Services, Inc.
and NationsBank, N.A., dated November 20, 1998. (8)
10.44 Security Agreement by and between Fieldston Publications, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.45 Lease by and between One Memorial Drive Limited Partnership and
Putnam, Hayes & Bartlett, Inc. dated January 1, 1998. (8)
10.46 Lease by and between George H. Beuchert, Jr., Trustee, Thomas J.
Egan, Trustee, Oliver T. Carr, Jr., Trustee, William Joseph H. Smith, Trustee,
and the Kiplinger Washington Editors, Inc., Trustee, acting collectively as
trustee on behalf of the beneficial owner, The Greystone Square 127 Associates,
and Putnam, Hayes & Bartlett, Inc. dated March 31, 1997. (8)
10.47 First Amendment to Lease by and between Greystone Square 127 Limited
Liability Company, as successor in interest collectively to The Greystone Square
127 Associates, and George H. Beuchert, Jr., Trustee, and The Kiplinger
Washington Editors, Inc., Trustee, the owners of record who held legal title to
the Building as trustees on behalf of the Greystone Square 127 Associates, the
former beneficial owners of the Building, and Putnam, Hayes & Bartlett, Inc.
dated February 10, 1998. (8)
10.48 Employment agreement between Hagler Bailly Consulting, Inc. and
Jasjeet S. Cheema, dated February 2, 1998. (9)
10.49 First amendment to revolving credit agreement between Hagler Bailly,
Inc, the lenders from time to time a party thereto, as lenders, and NationsBank,
N.A., dated as of March 22, 1999. (9)
24 Powers of Attorney (included on Signature Pages) (1)
27.1 Financial Data Schedule - June 30, 1999
- --------------------------------------------------------------------------------
(1) Included in the Company's Registration Statement on Form S-1 filed on July
1, 1997 (No. 333-22207) and incorporated herein by reference thereto.
(2) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, filed on November 14, 1997 and incorporated
herein by reference thereto.
(3) Included in the Company's Current Report on Form 8-K filed on December 16,
1997 and incorporated herein by reference thereto.
(4) Included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed on March 31, 1998 and incorporated herein by
reference thereto.
(5) Included in the Company's Proxy Statement for Special Meeting of
Stockholders dated July 24, 1998 on Form DEFS 14A and incorporated herein
by reference thereto.
(6) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, filed on August 14, 1998 and incorporated herein by
reference thereto.
(7) Included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, filed on November 13, 1998 and incorporated
herein by reference thereto.
(8) Included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, filed on March 31, 1998 and incorporated herein by
reference thereto.
(9) Included in Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, and incorporated herein by reference thereto.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ William E. Dickenson
----------------------------------------------------
Date: August 10, 1999 William E. Dickenson
President, Chief Executive Officer
Chairman of the Board
/s/ Glenn J. Dozier
-----------------------------------------------------
Date: August 10, 1999 Glenn J. Dozier
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Exhibit 10.20
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
Originally Adopted May 17, 1995
Amended and Restated, Effective as of December 31, 1996
Amended March 11, 1997
Amended July 22, 1998
Amended March 31, 1999
Amended June 16, 1999
<PAGE>
TABLE OF CONTENTS
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
SECTION 1. PURPOSES 1
SECTION 2. DEFINITIONS 1
SECTION 3. PARTICIPATION. 4
SECTION 4. ADMINISTRATION. 5
SECTION 5. ELIGIBILITY 6
SECTION 6. STOCK SUBJECT TO THE PLAN 6
SECTION 7. TERMS AND CONDITIONS OF OPTIONS 6
SECTION 8. RESTRICTED STOCK 10
SECTION 9. DETERMINATION OF FAIR MARKET VALUE PER SHARE OF COMMON STOCK. 11
SECTION 10. ADJUSTMENTS. 11
SECTION 11. RIGHTS AS A STOCKHOLDER 11
SECTION 12. TIME OF AWARDING OPTIONS 12
SECTION 13. MODIFICATION, EXTENSION AND RENEWAL OF OPTION. 12
SECTION 14. PURCHASE FOR INVESTMENT AND OTHER RESTRICTIONS 12
SECTION 15. TRANSFERABILITY 13
SECTION 16. OTHER PROVISIONS 13
SECTION 17. POWER OF BOARD IN CASE OF CHANGE OF CONTROL 13
SECTION 18. AMENDMENT OF THE PLAN 14
SECTION 19. APPLICATION OF FUNDS. 14
SECTION 20. NO OBLIGATION TO EXERCISE OPTION. 14
SECTION 21. APPROVAL OF STOCKHOLDERS. 14
SECTION 22. CONDITIONS UPON ISSUANCE OF SHARES. 14
SECTION 23. RESERVATION OF SHARES. 15
SECTION 24. STOCK OPTION AND STOCK PURCHASE AGREEMENTS. 15
SECTION 25. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES 15
SECTION 26. NOTICE. 16
SECTION 27. NO ENLARGEMENT OF AWARDEE RIGHTS. 16
SECTION 28. INFORMATION TO AWARDEES. 16
SECTION 29. AVAILABILITY OF PLAN 16
SECTION 30. INVALID PROVISIONS 16
SECTION 3 1. APPLICABLE LAW 17
SECTION 32. BOARD ACTION 17
<PAGE>
17
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
Section 1. Purposes.
The Hagler Bailly, Inc. Employee Incentive and Non-Qualified
Stock Option and Restricted Stock Plan (the "Plan") was originally adopted on
May 17, 1995. The Plan was amended and restated, effective December 31, 1996.
The plan was amended further on March 11, 1997 and again on July 22, 1998. The
purposes of the Plan are (a) to recognize and compensate selected key Employees
of Hagler Bailly, Inc. (the "Company") and its Subsidiaries who contribute to
the development and success of the Company and its Subsidiaries; (b) to maintain
the competitive position of the Company and its Subsidiaries by attracting and
retaining key Employees; and (c) to provide incentive compensation to such key
Employees based upon the Company's performance, as measured by the appreciation
in Common Stock. The Options granted pursuant to the Plan are intended to
constitute either Incentive Stock Options within the meaning of section 422 of
the Code, or non-qualified stock options, as determined by the Committee, or the
Board if no Committee has been appointed, at the time of Award. The type of
Options awarded will be specified in the Option Agreement between the Company
and the Optionee. The terms of this Plan shall be incorporated in the Option
Agreement to be executed by the Optionee.
Section 2. Definitions.
(a) "Affiliate" shall mean, with respect to a Person, a Person
that directly or indirectly controls, or is controlled by, or is under common
control with such Person.
(b) "Award" shall mean a grant of an Option or Options or an award of Restricted
Stock to an Employee pursuant to the provisions of this Plan. Each separate
grant of an Option or Options to an Employee, and each separate award of
Restricted Stock, and each group of Options which matures on a separate date, is
treated as a separate Award.
(c) "Awardee" shall mean an Employee to whom an Award is made.
(d) "Board" shall mean the Board of Directors of the Company,
as constituted from time to time.
(e) "Change of Control" shall mean a change in the control of
the Company which shall be deemed to have occurred upon the earliest to occur of
the following: (i) the date the stockholders of the Company (or the Board, if
stockholder action is not required) approve a plan or other arrangement pursuant
to which the Company will be dissolved or liquidated, or (ii) the date the
stockholders of the Company approve a definitive agreement to sell or otherwise
dispose of all or substantially all of the assets of the Company, or (iii) the
date the stockholders of the Company and the stockholders of the other
constituent corporations (or their respective boards of directors, if and to the
extent that stockholder action is not required) have approved a definitive
agreement to merge or consolidate the Company with or into another corporation,
other than, in either case, a merger or consolidation of the Company in which
the Company is the surviving entity, and in which shares of the Company's voting
capital stock outstanding immediately before such merger or consolidation are
exchanged or converted into shares which represent more than 50% of the
Company's voting capital stock after such merger or consolidation, as such
holders' ownership of voting capital stock of the Company immediately before the
merger or consolidation, or (iv) the date any Person, other than (A) the
Company, or (B) any of its Subsidiaries, or (C) any of the holders of the
capital stock of the Company, as determined on the date that this Plan is
adopted by the Board, or (D) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any of its Subsidiaries or (E) any
Affiliate of any of the foregoing, shall have acquired beneficial ownership of,
or shall have acquired voting control over more than 50% of the outstanding
shares of the Company's voting capital stock (on a fully diluted basis), unless
the transaction pursuant to which such Person acquired such beneficial ownership
or control resulted from the original issuance by the Company of shares of its
voting capital stock and was approved by at least a majority of the directors
then in office.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed, in which
event in connection with this Plan, the Committee shall possess all of
the power and authority of, and shall be authorized to take any and all
actions required to be taken hereunder by, and make any and all
determinations required taken hereunder by, the Board.
(g) "Common Stock" shall mean common stock of the Company, $.01 par value per
Share.
(h) "Company" shall mean Hagler Bailly, Inc., a Delaware corporation.
(i) "Covenant Not to Compete" shall mean the noncompetition covenant set forth
in Section 10 of the Stockholders Agreement or (if an Awardee is not a party
thereto) otherwise applicable to the Awardee and the Company or its
Subsidiaries.
(j) "Disability" shall mean a disability of an employee, officer or a director
which renders such employee, officer or director unable to perform the full
extent of his duties and responsibilities by reason of his illness or incapacity
which would entitle that employee, officer or director to receive Social
Security Disability Income under the Social Security Act, as amended, and the
regulations promulgated thereunder. "Disabled" shall mean having a Disability.
The determination of whether an Optionee is Disabled shall be made by the Board,
whose determination shall be conclusive; provided that, (i) if an Optionee is
bound by the terms of an Employment Agreement between the Optionee and the
Company, whether the Optionee is "Disabled" for purposes of the Plan shall be
determined in accordance with the procedures set forth in said Employment
Agreement, if such procedures are therein provided; and (ii) an Optionee bound
by such an Employment Agreement shall not be determined to be Disabled under the
Plan any earlier than he would be determined to be disabled under his Employment
Agreement.
(k) "Employee" shall mean any person employed by the Company or any of its
Subsidiaries on whose behalf wages are reported on IRS Form W-2. Additionally,
solely for purposes of deter-mining those persons eligible under the Plan to be
recipients of Awards of Options, which Options shall be limited to non-qualified
stock options or Restricted Stock, and not for the purpose of affecting the
status of the relationship between such person and the Company, the term
"Employee" shall include independent contractors of and consultants to the
Company, as well as members of the Board or of the board of directors of a
Subsidiary.
(m) "Exchange Act" shall mean The Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value Per Share" shall mean the fair market
value of a share of Common Stock, as determined pursuant to Section 9 hereof.
(o) "Grant Date" means (i) the effective date of registration
under Section 12 of the Exchange Act of a class of equity securities of the
Company; (ii) each date on which a Non-Employee Director is first elected to the
Board by the stockholders or the Board; and (iii) each date thereafter
prescribed under the Company's Articles of Incorporation and By-laws for the
election of directors which falls before the earlier of (A) the date six months
after the termination of such registration, or (B) the tenth anniversary of the
date on which this Plan is adopted by the Board.
(p) "Incentive Stock Option" shall mean an Option which is an incentive stock
option as described in Section 422 of the Code.
(q) "Non-Employee Director" shall have the meaning set forth
in Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission
under the Exchange Act, or any successor definition adopted by the Securities
and Exchange Commission.
(r) "Option(s)" shall mean an Incentive Stock Option or a
non-qualified stock option to purchase Shares that is Awarded pursuant to the
Plan.
(s) "Option Agreement" shall mean a written, or such other form or forms as the
Board or Committee (subject to the terms and conditions of this Plan) may from
time to time approve evidencing and reflecting the terms of an Option.
(t) "Optionee" shall mean an Employee to whom an Option is awarded.
(u) "Participant" shall mean each Employee of the Company or a
Subsidiary to whom an Award is granted pursuant to the Plan.
(v) "Person" shall mean an individual, partnership,
corporation, limited liability company, trust, joint venture, unincorporated
association, or other entity or association.
(w) "Plan" shall mean the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan, as amended
from time to time.
(x) "Pool" shall mean the pool of Shares of Common Stock subject to the Plan,
as described in Section 6 hereof.
(y) "Restricted Stock" shall mean an Award of Shares of Common
Stock that is subject to restrictions pursuant to Section 8 hereof.
(z) "Securities Act" shall mean The Securities Act of 1933, as
amended.
(aa) "Shares" shall mean shares of Common Stock contained in the Pool, as
adjusted in accordance with Section 10 of the Plan.
(bb) "Stock Purchase Agreement" shall mean an agreement
substantially in the form attached hereto as Exhibit B, or such other form as
the Board or Committee (subject to the terms and conditions of this Plan) may
from time to time approve, which an Optionee shall be required to execute as a
condition of purchasing Shares upon the exercise of an Option.
(cc) "Stockholders Agreement" shall mean the Stockholders
Agreement dated as of May 15, 1995 by and among the Company and its
stockholders, as amended from time to time.
(dd) "Subsidiary" shall mean a subsidiary corporation, whether
now or hereafter existing, as defined in sections 424(f) and (g) of the Code.
Section 3. Participation.
(a) In General. Participants in the Plan shall be selected by
the Board from the Employees. The Board may make Awards at any time and from
time to time to Employees. Any Award may include or exclude any Employee, as the
Board shall determine in its sole discretion.
(b) Non-Employee Directors. In the event the Company has a
class of equity securities registered under Section 12 of the Exchange Act, from
the effective date of such registration until six months after the termination
of such registration, no Awards of Options shall be made under the Plan to any
director of the Company who is a Non-Employee Director except pursuant to this
Section 3(b).
(i) Automatic Award. Awards of Options to directors of the Company who are
Non-Employee Directors shall be granted, without any further action by the
Board or Committee. as follows. Upon the effective date of the Company's
registration of a class of equity securities under Section 12 of the
Exchange Act, and on each Grant Date thereafter, each director of the
Company who is a Non-Employee Director shall receive an Award of a
nonqualified stock Option to purchase 7,500 Shares and each Non-Employee
Director who was elected to the Board by the Board in 1998 shall receive a
nonqualified stock Option to purchase 3,000 shares of Common Stock on June
16, 1999 with immediate vesting and an exercise price of the Fair Market
Value Per Share on June 16, 1999.
(ii) Option Price. The price per Share payable upon the exercise of any Option
granted under this Section 3(b) shall be 100% of the Fair Market Value of
such Share on the Grant Date,
Section 4. Administration.
(a) Procedure. The Plan shall be administered by the Board.
The Board may at any time by a unanimous vote, with each Member voting, appoint
a Committee consisting of not less than two persons, each of whom is a
Non-Employee Director, to administer the Plan on behalf of the Board, subject to
such terms and conditions as the Board may prescribe. Members of the Committee
shall serve for such period of time as the Board may determine. Members of the
Board or the Committee who are eligible for Options or have been Awarded Options
may vote on any matters affecting the administration of the Plan or the Award of
any Options pursuant to the Plan, except that no such member shall act upon the
Award of an Option to himself or herself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board or Committee
during which action is taken with respect to the Award of Options to himself or
herself
From time to time the Board may increase the size of the
Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(b) Powers of the Board and the Committee. Subject to the
provisions of the Plan, the Board or its Committee shall have the authority, in
its discretion: (i) to make Awards; (ii) to deter-mine the Fair Market Value Per
Share; (iii) to determine the exercise price of the Options to be Awarded in
accordance with Sections 7 and 8 of the Plan; (iv) to determine the Employees to
whom, and the time or times at which, Awards shall be made, and the number of
Shares to be subject to each Award; (v) to prescribe, amend and rescind rules
and regulations relating to the Plan; (vi) to determine the terms and provisions
of each Award under the Plan, each Option Agreement and each Stock Purchase
Agreement (which need not be identical with the terms of other Awards, Option
Agreements and Stock Purchase Agreements) and, with the consent of the Optionee,
to modify or amend an outstanding Option, Option Agreement or Stock Purchase
Agreement; (vii) to accelerate the vesting or exercise date of any Award; (viii)
to interpret the Plan or any agreement entered into with respect to an Award or
exercise of Options, (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate an Award or to take such other
actions as may be necessary or appropriate with respect to the Company's rights
pursuant to Awards or agreements relating to the Award or exercise thereof; and
(x) to make such other determinations and establish such other procedures as it
deems necessary or advisable for the administration of the Plan.
(c) Effect of the Board's or Committee's Decision. All
decisions, determinations and interpretations of the Board or the Committee
shall be final and binding with respect to all Awards under the Plan.
(d) Limitation of Liability. Notwithstanding anything herein
to the contrary (with the exception of Section 32 hereof), no member of the
Board or of the Committee shall be liable for any good faith determination, act
or failure to act in connection with the Plan or any Award hereunder.
Section 5. Eligibility.
Awards may be made only to Employees. An Employee who has
received an Award, if he or she is otherwise eligible, may receive additional
Awards.
Section 6. Stock Subject to the Plan.
Subject to the provisions of this Section 6 and the provisions
of Section 10 of the Plan, the maximum aggregate number of Shares which may be
Awarded and sold under the Plan is 5,000,000 Shares of Common Stock
(collectively, the "Pool"). Options Awarded from the Pool may be either
Incentive Stock Options or non-qualified stock options, as determined by the
Board. If an Option should expire or become unexercisable for any reason without
having been exercised in full, or if a Restricted Stock Award shall fail to
become vested, or if Shares are subsequently repurchased by the Company, the
unpurchased or repurchased Shares which were subject thereto shall, unless the
Plan shall have been terminated, be returned to the Plan and become available
for future Award under the Plan.
Section 7. Terms and Conditions of Options.
Each Option Awarded pursuant to the Plan shall be authorized
by the Board and shall be evidenced by an Option Agreement in such form as the
Board may from time to time determine. Each Option Agreement shall incorporate
by reference all other terms and conditions of the Plan, including the following
terms and conditions:
(a) Number of Shares. The number of Shares subject to the
Option, which may include fractional Shares.
(b) Option Price. The price per Share payable on the exercise
of any Option which is an Incentive Stock Option shall be stated in the Option
Agreement and shall be no less than the Fair Market Value Per Share of the
Common Stock on the date such Option is Awarded, without regard to any
restriction other than a restriction which will never lapse. Notwithstanding the
foregoing, if an Option which is an Incentive Stock Option shall be Awarded
under this Plan to any person who, at the time of the Award of such Option, owns
stock possessing more than 10% of the total combined voting power of all classes
of the Company's stock, the price per Share payable upon exercise of such
Incentive Stock Option shall be no less than 110 percent (110%) of the Fair
Market Value Per Share of the Common Stock on the date such Option is Awarded.
The price per Share payable on the exercise of an Option which is a
non-qualified stock option shall be at least $.01 per Share and shall be stated
in the Option Agreement.
(c) Consideration. The consideration to be paid for the Shares
to be issued upon the exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check,
promissory notes or Shares of Common Stock having an aggregate Fair Market Value
Per Share on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, or any combination of such
methods of payment, or such other consideration and method of payment permitted
under any laws to which the Company is subject and which is approved by the
Board. In making its determination as to the type of consideration to accept,
the Board shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company.
(i) if the consideration for the exercise of an Option is a promissory note, it
may, in the discretion of the Board, be either full recourse or nonrecourse
and shall bear interest at a per annum rate which is not less than the
applicable federal rate determined in accordance with section 1274(d) of
the Code as of the date of exercise. In such an instance the Company may,
in its sole discretion, retain the Shares purchased upon exercise of the
Option in escrow as security for payment of the promissory note.
(ii) if the consideration for the exercise of an Option is the surrender of
previously acquired and owned shares of Common Stock, the Optionee will be
required to make representations and warranties satisfactory to the Company
regarding his title to the shares of Common Stock used to effect the
purchase (the "Payment Shares"), including without limitation,
representations and warranties that the Optionee has good and marketable
title to such Payment Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests., options or
restrictions, and has full power to deliver such Payment Shares without
obtaining the consent or approval of any person or governmental authority
other than those which have already given consent or approval in a manner
satisfactory to the Company. The per Share value of the Payment Shares
shall be the Fair Market Value Per Share of such Payment Shares on the date
of exercise as determined by the Board in its sole discretion, exercised in
good faith. If such Payment Shares were acquired upon previous exercise of
Incentive Stock Options granted within two years prior to the exercise of
the Option or acquired by the Optionee within one year prior to the
exercise of the Option, such Optionee shall be required. as a condition to
using the Payment Shares in payment of the exercise price of the Option, to
acknowledge the tax consequences of doing so, In that such previously
exercised Incentive Stock Options may have, by such action, lost their
status as Incentive Stock- Options, and the Optionee may have to recognize
ordinary income for tax purposes as a result.
(d) Form of Option. The Option Agreement will state whether
the Option Awarded is an Incentive Stock Option or a non-qualified stock option,
and will constitute a binding determination as to the form of Option Awarded.
(e) Exercise of Options. Any Option Awarded hereunder shall be
exercisable at such times and under such conditions as shall be set forth in the
Option Agreement (as may be determined by the Board and as shall be permissible
under the terms of the Plan), which may include performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan. Notwithstanding the foregoing, any Option awarded under
Section 3(b) hereunder shall be immediately exercisable in full,
An Option may be exercised in accordance with the provisions of this Plan as
to all or any portion of the Shares then exercisable under an Option from
time to time during the term of the Option. An Option may not be exercised
for a fraction of a Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the
Company at its principal executive office in accordance with the terms of the
Option Agreement by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been received
by the Company, accompanied by any agreements required by the terms of the Plan
and/or Option Agreement, including an executed Stock Purchase Agreement. Full
payment may consist of such consideration and method of payment allowable under
Section 7 of the Plan. No adjustment shall be made for a dividend or other right
for which the record date is prior to the date the Option is exercised, except
as provided in Section 10 of the Plan.
As soon as practicable after any proper exercise of an Option in accordance
with the provisions of the Plan, the Company shall, without transfer or
issue tax to the Optionee, deliver to the Optionee at the principal
executive office of the Company or such other place as shall be mutually
agreed upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option shall have been
exercised.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares which thereafter may be available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option
is exercised,
(f) Term and Vesting of Options.
(i) Notwithstanding any other provision of this Plan, no Option shall be (A)
Awarded under this Plan after ten (10) years from the date on which this
Plan is adopted by the Board, or (B) exercisable more than ten (10) years
from the date of Award; provided, however, that if an Option that is
intended to be an Incentive Stock Option shall be Awarded under this Plan
to any person who, at the time of the Award of such Option, owns stock
possessing more than 10% of the total combined voting power for all classes
of the Company's stock, the foregoing clause (B) shall be deemed modified
by substituting "five (5) years" for the term "ten (10) years" that appears
therein.
(ii) No Option Awarded to any Optionee shall be
treated as an Incentive Stock Option, to the extent
such Option would cause the aggregate Fair Market Value Per Share (determined as
of the date of Award of each such Option) of the Shares with respect to which
Incentive Stock Options are exercisable by such Optionee for the first time
during any calendar year to exceed $100,000. For purposes of determining-whether
Incentive Stock Option would cause such aggregate Fair Market Value Per Share to
exceed the $100,000 limitation, such Incentive Stock Options shall be taken into
account in the order Awarded. For proposes of this subsection, Incentive Stock
Options include all Incentive Stock Options under all plans of the Company that
are Incentive Stock Option plans within the meaning of section 422 of the Code.
Except as provided in Section 7(g)(iv), Options Awarded
hereunder shall mature and become exercisable in whole or in part, in accordance
with such vesting schedule as the Board shall determine, which schedule shall be
stated in the Option Agreement. Notwithstanding the preceding sentence, Options
awarded pursuant to Section 3(b) hereunder shall be fully vested at grant.
Options may be exercised in any order elected by the Optionee whether or not the
Optionee holds any unexercised Options under this Plan or any other plan of the
Company.
(g) Termination of Options.
(i) Unless sooner terminated as provided in this Plan, each Option shall be
exercisable for such period of time as shall be determined by the Board and
set forth in the Option Agreement, and shall be void and unexercisable
thereafter.
(ii) Except as otherwise provided herein or by the terms of any Award, no Option
shall be exercisable after termination of the Optionee's employment with or
other engagement by the Company for any reason.
(iii)Except as otherwise provided herein of by the terms of any Award, upon the
Disability or death of an Optionee while in the employ of the Company,
Options held by such Optionee which arc exercisable oil the date of
Disability or death shall be exercisable for a period of twelve (12) months
commencing on the date of the Optionee's Disability or death. by the
Optionee or his legal guardian or representative or. in the case of death,
by his executor(s) or administrator(s),
(iv) Options may be terminated at any time by agreement between the Company and
the Optionee.
(h) Forfeiture. Notwithstanding any other provision of this
Plan, if an Optionee shall engage in any activity in breach of the Covenant Not
to Compete, all Options held by such Optionee which have not yet been exercised
shall terminate immediately upon the commencement thereof. Notwithstanding any
other provision of this Plan, if the Optionee's employment or engagement is
terminated for "cause" (as such term is defined in the Optionee's employment
agreement or non-disclosure agreement with the Company, if any) or if the Board
makes a determination that the Optionee:
(i) has engaged in any type of disloyalty to the Company, including without
limitation, fraud, embezzlement, theft, or dishonesty in the course of his
employment or engagement, or has otherwise breached any fiduciary duty owed
to the Company;
(ii) has been convicted of a felony;
(iii) has disclosed trade secrets or confidential information of the Company;
(iv) has breached any agreement with or duty to the Company in respect of
confidentiality, non-disclosure, non-competition or otherwise, all
unexercised Options shall terminate upon the date of such a finding, or, if
earlier, the date of termination of employment or engagement for "cause."
In the event of such a finding, in addition to immediate
termination of all unexercised Options, the Optionee shall forfeit all Shares
for which the Company has not yet delivered share certificates to the Optionee
and the Company shall refund to the Optionee the Option purchase price paid to
it, if any, in the same form as it was paid (or in cash at the Company's
discretion). Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a finding resulting in forfeiture.
Section 8. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan. The Board
shall determine the persons to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of Shares to be Awarded. the price (if
any) to be paid by the recipient of Restricted Stock, the time or times within
which such Awards may be subject to forfeiture, and all other conditions of the
Awards.
The Board may condition the vesting of Restricted Stock upon
the attainment of specified performance goals or Such other factors as the Board
may determine, in its sole discretion, at the time of the Award.
The provisions of Restricted Stock Awards need not be the same with
respect to each recipient.
(b) Awards. The prospective recipient of a Restricted Stock
Award shall not have any rights with respect to such Award, unless and until
such recipient has executed an agreement evidencing the Award and has delivered
a fully executed copy thereof to the Company, and has otherwise complied with
the applicable terms and conditions of such Award. The purchase price for shares
of Restricted Stock may be zero.
Each Employee receiving a Restricted Stock Award shall be
required, as a condition precedent to receipt of such Award, to execute a
joinder or other counterpart to the Stockholders Agreement.
(c) Restrictions and Conditions. Except as provided in this
Section 8(c), the Employee shall have, with respect to the Shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends. The Board, in its
sole discretion, as deter-mined at the time of Award, may permit or require the
payment of cash dividends in respect of Shares of Restricted Stock Awarded under
the Plan to be deferred and, if the Board so determines, reinvested in
additional Shares of Restricted Stock to the extent Shares are available under
Section 6 of the Plan.
Section 9. Determination of Fair Market Value Per Share of Common Stock.
(a) Except to the extent otherwise provided in this Section 9,
the Fair Market Value Per Share of Common Stock shall be determined by the Board
in its sole discretion.
(b) Notwithstanding the provisions of Section 9(a), in the
event that shares of Common Stock are traded in the over-the-counter market, the
Fair Market Value Per Share of Common Stock shall be the mean of the bid and
asked prices for a share of Common Stock on the relevant valuation date as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotations
("NASDAQ") System), as applicable or, if there is no trading on such date, on
the next trading date. In the event shares of Common Stock are listed on a
national or regional securities exchange or traded through the NASDAQ National
Market, the Fair Market Value of a share of Common Stock shall be the closing
price for a share of Common Stock on the exchange or on the NASDAQ National
Market. as reported in The Wall Street Journal on the relevant valuation date,
or if there is no trading on that date, on the next trading date.
Section 10. Adjustments.
(a) Subject to required action by the stockholders, If any,
the number of Shares as to which Awards may be made under this Plan and the
number of Shares subject to outstanding Options and the Option prices thereof
shall be adjusted proportionately for any increase or decrease in the number of
outstanding Shares of Common Stock of the Company resulting from stock splits,
reverse stock splits. stock dividends, reclassifications and recapitalizations,
merger, consolidation, exchange of shares, or rights offered to purchase shares
of Common Stock at a price substantially below Fair Market Value Per Share or
any similar change affecting Common Stock.
(b) No fractional Shares shall be issuable on account of any
action mentioned in Section 10(a), and the aggregate number of Shares into which
Shares then covered by the Award, when changed as the result of such action,
shall be reduced to the number of whole Shares resulting from such action,
unless the Board, in its sole discretion, shall determine to issue scrip
certificates with respect to any fractional Shares, which scrip certificates, in
such event, shall be in a form and have such terms and conditions as the Board
in its discretion shall prescribe.
Section 11. Rights as a Stockholder.
A recipient of an Option Award shall have no rights as a
stockholder of the Company and shall neither have the right to vote nor receive
dividends with respect to any Shares subject to an Option until such Option has
been exercised and a certificate with respect to the Shares purchased upon such
exercise has been issued to him. A recipient of a Restricted Stock Award shall
have all rights as a stockholder with respect to the Shares of Restricted Stock
Awarded from and after the later to occur of (i) the date of the Award (as
determined under Section 12 hereof) or (ii) the date the Awardee makes payment
of the purchase price, if any, designated by the Board as a condition of such
Award.
Section 12. Time of Awarding Options.
The date of an Award shall, for all purposes, be the date
which the Board specifies when the Board makes its determination that an Award
is made or if none is specified, then the date of the Board's determination.
Notice of the determination shall be given to each Employee to whom an Award is
made within a reasonable time after the date of such Award.
Section 13. Modification, Extension and Renewal of Option.
Subject to the terms and conditions of the Plan, the Board may
modify, extend or renew an Award, or accept the surrender of an Award (to the
extent not theretofore exercised). Notwithstanding the foregoing, (a) no
modification of an Award which adversely affects the Awardee shall be made
without the consent of the Awardee, and (b) no Incentive Stock Option may be
modified, extended or renewed if such action would cause it to cease to be an
"Incentive Stock Option" within the meaning of section 422 of the Code, unless
the Optionee specifically acknowledges and consents to the tax consequences of
such action.
Section 14. Purchase for Investment and Other Restrictions.
(a) The obligation of the Company to issue Shares to an
Awardee upon the exercise of an Option or as part of a Restricted Stock Award
granted under the Plan is conditioned upon (i) the Company obtaining any
required permit or order from appropriate governmental agencies, authorizing the
Company to issue such Shares. and (ii) such issuance complying with all relevant
provisions of the law, including, without limitation, the Securities Act, the
Exchange Act, the rules and regulations promulgated thereunder.
(b) At the option of the Board, the obligation of the Company
to issue Shares to an Awardee upon the exercise of an Option granted, or upon a
Restricted Stock Award made, under the Plan may be conditioned upon obtaining
appropriate representations, warranties, restrictions and agreements of the
Awardee as set forth in the applicable Stock Purchase Agreement. Among other
representations, warranties, restrictions and agreements, the Awardee may be
required to represent and agree that the purchase of Shares shall be for
investment, and not with a view to the public resale or distribution thereof,
unless the Shares are registered under the Securities Act and the issuance and
sale of the Shares complies with all other laws, rules and regulations
applicable thereto. Unless the issuance of such Shares is registered under the
Securities Act, the Awardee shall acknowledge that the Shares purchased are not
registered under the Securities Act and may not be sold or otherwise transferred
unless the Shares have been registered under the Securities Act in connection
with the sale or other transfer thereof, or that counsel satisfactory to the
Company has issued an opinion satisfactory to the Company that the sale or other
transfer of such Shares is exempt from registration under the Securities Act,
and unless said sale or transfer is in compliance with all other applicable
laws, rules and regulations, including all applicable federal and state
securities laws, rules and regulations. Additionally, the Shares, when issued,
shall be subject to other transfer restrictions, rights of first refusal and
rights of repurchase as set forth in Stockholders Agreement. Unless the Shares
subject to an Award are registered under the Securities Act, the certificates
representing such Shares issued shall contain the following legend in
substantially the following form:
THE SHAR.ES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY
ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR
A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO HAGLER BAILLY, INC. THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS.
Section 15. Transferability.
No Option shall be assignable or transferable otherwise than
by will or by the laws of descent and distribution. During the lifetime of the
Optionee, his Options shall be exercisable only by such Optionee, or, in the
event of his or her legal incapacity or Disability, then by the Optionee's legal
guardian or representative.
Section 16. Other Provisions.
The Option Agreement and Stock Purchase Agreement may contain
such other provisions as the Board in its discretion deems advisable and which
are not inconsistent with the provisions of this Plan, including, without
limitation, restrictions upon or conditions precedent to the exercise of the
Option.
Section 17. Power of Board in Case of Change of Control.
Notwithstanding anything to the contrary set forth in this
Plan (with the exception of Section 32 hereof), in the event of a Change of
Control, the Board shall have the right to accelerate the vesting of all
unmatured Options or Restricted Stock Awards. In addition, in the event of a
Change of Control of the Company by reason of a merger, consolidation or tax
free reorganization or sale of all or substantially all of the assets of the
Company, the Board shall have the right to terminate this Plan and to (a)
exchange all Options or Restricted Stock Awards for options to purchase common
stock in the successor corporation or (b) distribute to each Awardee cash and/or
other property in an amount equal to and in the same form as the Optionee would
have received from the successor corporation if the Optionee had owned the
Shares subject to the Option rather than the Option at the time of the Change of
Control, The form of payment or distribution to the Optionee pursuant to this
Section shall be determined by the Board.
Section 18. Amendment of the Plan.
Insofar as permitted by law and the Plan. the Board may from
time to time suspend. terminate or discontinue the Plan or revise or amend it in
any respect whatsoever ,vith respect to any Shares at the time not subject to an
Option; provided, however, that without approval of the stockholders, no such
revision or amendment may change the aggregate number of Shares for which
Options may be awarded hereunder, change the designation of the class of
Employees eligible to receive Options or decrease the price at which Options may
be awarded.
Any other provision of this Section 18 notwithstanding, the
Board specifically is authorized to adopt any amendment to this Plan deemed by
the Board to be necessary or advisable to assure that the Incentive Stock
Options or the non-qualified stock options available under the Plan continue to
be treated as such, respectively, under all applicable laws.
Section 19. Application of Funds.
The proceeds received by the Company from the sale of Shares
pursuant to the exercise of Options or the purchase of Restricted Stock shall be
used for general corporate purposes or such other purpose as may be determined
by the Board.
Section 20. No Obligation to Exercise Option.
The Awarding of an Option shall impose no obligation upon the
Optionee to exercise such Option.
Section 21. Approval of Stockholders.
This Plan shall become effective on the date that It is
adopted by the Board; provided, however, that it shall become limited to a
non-qualified stock option plan if it is not approved by the holders of a
majority of the Company's outstanding voting stock within one year (365 days) of
its adoption by the Board. The Board may make Awards hereunder prior to approval
of the Plan or any material amendments thereto by the holders of a majority of
the Company's outstanding voting stock; provided, however, that any and all
Options so Awarded automatically shall be converted into non-qualified stock
options if the Plan is not approved by such stockholders within 365 days of its
adoption or material amendment.
Section 22. Conditions Upon Issuance of Shares.
Shares shall not be issued pursuant to the exercise of an
Option or Award of Restricted Stock unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto or the issuance of
Restricted Stock shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, arid shall be further subject to the
approval of counsel for the Company with respect to such compliance.
Section 23. Reservation of Shares.
The Company, during the term of this Plan, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best
efforts to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain from any such regulatory agency having jurisdiction the requisite
authorizations deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
Section 24. Stock Option and Stock Purchase Agreements.
Options shall be evidenced by an Option Agreement in such form
or forms as the Board shall approve from time to time. Upon the exercise of an
Option, the Optionee shall sign and deliver to the Company a Stock Purchase
Agreement in such form or forms as the Board shall approve from time to time.
Section 25. Taxes, Fees, Expenses and Withholding of Taxes.
(a) The Company shall pay all original issue and transfer
taxes (but not income taxes, if any) with respect to the Award of Options and/or
the issue and transfer of Shares pursuant to the exercise thereof, and all other
fees arid expenses necessarily incurred by the Company in connection therewith,
and will from time to time use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) The Award of Options or Restricted Stock hereunder and the
issuance of Shares pursuant to the exercise of Options is conditioned upon the
Company's reservation of the right to withhold in accordance with any applicable
law, from any compensation or other amounts payable to the Awardee, any taxes
required to be withheld under federal, state or local law as a result of the
Award or exercise of such Option or the sale of the Shares issued upon exercise
thereof. To the extent that compensation or other amounts, if any, payable to
the Awardee is insufficient to pay any taxes required to be so withheld, the
Company may, in its sole discretion, require the Awardee (or such other person
entitled herein to exercise the Option), as a condition of the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
Section 26. Notice.
Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal executive office, and any notice to be given to an Awardee
shall be delivered personally or addressed to him or her at the address given
beneath his or her signature on his or her Option Agreement, or at such other
address as such Awardee or his or her permitted transferee (upon the transfer of
the Shares) may hereafter designate in writing to the Company. Any such notice
shall be deemed duly given on the date and at the time delivered via personal,
courier or recognized overnight delivery service or, if sent via telecopier, on
the date and at the time telecopied with confirmation of delivery or, if mailed,
on the date five (5) days after the date of the mailing (which shall be by
regular, registered or certified mail). Delivery of a notice by telecopy (with
confirmation) shall be permitted and shall be considered delivery of a notice
notwithstanding that it is not an original that is received. It shall be the
obligation of each Optionee and each permitted transferee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or her direct
mailing address.
Section 27. No Enlargement of Awardee Rights.
This Plan is purely voluntary on the part of the Company, and
the continuance of the Plan shall not be deemed to constitute a contract between
the Company and any Awardee, or to be consideration for or a condition of the
employment or service of any Awardee. Nothing contained in this Plan shall be
deemed to give any Awardee the right to be retained in the employ or service of
the Company or any Subsidiary, or to interfere with the right of the Company or
any such corporation to discharge or retire any Awardee thereof at any time
subject to applicable law. No Awardee shall have any right to or interest in
Awards authorized hereunder prior to the Award thereof to such Awardee, and upon
such Award he shall have only such rights and interests as are expressly
provided herein, subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from time to time.
Section 28. Information to Awardees.
The Company, upon request, shall provide without charge to
each Awardee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
Section 29. Availability of Plan.
A copy of this Plan shall be delivered to the Secretary of the
Company and shall be shown by him to any eligible person making reasonable
inquiry concerning it.
Section 30. Invalid Provisions.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same
extent as though the invalid or unenforceable provision was not
contained herein.
Section 3 1. Applicable Law.
This Plan shall be governed by and construed in accordance with the laws of the
State of Delaware. Section 32. Board Action.
Notwithstanding anything to the contrary set forth in this Plan, any
and all actions of the Board or Committee, as the case may be, taken under or in
connection with this Plan and any agreements, instruments, documents,
certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
stockholders of the Company or other persons required pursuant to (i) the
Company's Certificate of Incorporation (as the same may be amended and/or
restated from time to time), (ii) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (iii) any other agreement,
instrument, document or writing now or hereafter existing, between or among the
Company and its stockholders or other persons (as the same may be amended from
time to time).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(in thousands)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 11,587
<SECURITIES> 0
<RECEIVABLES> 64,271
<ALLOWANCES> 3,895
<INVENTORY> 0
<CURRENT-ASSETS> 75,457
<PP&E> 22,343
<DEPRECIATION> 15,323
<TOTAL-ASSETS> 101,146
<CURRENT-LIABILITIES> 22,743
<BONDS> 0
0
0
<COMMON> 165
<OTHER-SE> 74,575
<TOTAL-LIABILITY-AND-EQUITY> 101,146
<SALES> 84,787
<TOTAL-REVENUES> 84,787
<CGS> 64,341
<TOTAL-COSTS> 80,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 4,793
<INCOME-TAX> 1,871
<INCOME-CONTINUING> 2,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,692
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
