<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ----
Act of 1934.
For the quarterly period ended June 30, 1998
-------------
- ---- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------- ----------
Commission File Number 1-7120
------
HARTE-HANKS, INC. (formerly HARTE-HANKS COMMUNICATIONS, INC.)
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1677284
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Concord Plaza Drive, San Antonio, Texas 78216
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code -- 210/829-9000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: $1 par value, 73,299,355 shares as of July 31, 1998.
<PAGE> 2
2
HARTE-HANKS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
June 30, 1998
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations - 4
Three months ended June 30, 1998 and 1997
Consolidated Statements of Operations - 5
Six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows - 6
Six months ended June 30, 1998 and 1997
Consolidated Statements of Stockholders' Equity - 7
Six months ended June 30, 1998 and 1997
Notes to Interim Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signature 17
</TABLE>
<PAGE> 3
3
Harte-Hanks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share and share amounts)
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ........................ $ 57,572 $ 83,675
Short-term investments ........................... 170,408 388,145
Accounts receivable, net ......................... 115,681 109,340
Inventory ........................................ 6,107 7,703
Prepaid expenses ................................. 10,246 8,473
Current deferred income tax benefit .............. 11,738 12,518
Other current assets ............................. 2,647 3,285
--------- ---------
Total current assets ........................... 374,399 613,139
Property, plant and equipment, net ................. 88,332 89,351
Goodwill, net ...................................... 244,645 250,363
Other assets ....................................... 7,165 2,070
--------- ---------
Total assets ................................... $ 714,541 $ 954,923
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................. $ 52,821 $ 49,918
Accrued payroll and related expenses ............. 19,348 23,097
Customer deposits and unearned revenue ........... 20,122 17,944
Income taxes payable ............................. 4,370 270,440
Other current liabilities ........................ 6,922 9,950
--------- ---------
Total current liabilities ...................... 103,583 371,349
Other long term liabilities ........................ 19,376 17,337
--------- ---------
Total liabilities .............................. 122,959 388,686
--------- ---------
Stockholders' equity
Common stock, $1 par value, 250,000,000 shares
authorized. 75,429,883 and 74,842,982 shares
issued at June 30, 1998 and December 31, 1997,
respectively ................................... 75,430 74,843
Additional paid-in capital ....................... 182,363 177,238
Accumulated other comprehensive income ........... -- (577)
Retained earnings ................................ 390,906 362,000
--------- ---------
648,699 613,504
Less treasury stock: 2,092,708 and 1,648,608
shares at cost at June 30, 1998 and December 31,
1997, respectively ............................. (57,117) (47,267)
--------- ---------
Total stockholders' equity ..................... 591,582 566,237
--------- ---------
Total liabilities and stockholders' equity ..... $ 714,541 $ 954,923
========= =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 4
4
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Operating revenues ............................... $ 186,806 $ 150,964
--------- ---------
Operating expenses
Payroll ........................................ 65,422 56,143
Production and distribution .................... 71,896 56,316
Advertising, selling, general and
administrative................................ 15,671 13,543
Depreciation ................................... 5,226 4,072
Goodwill amortization .......................... 1,903 1,125
--------- ---------
160,118 131,199
--------- ---------
Operating income ................................. 26,688 19,765
--------- ---------
Other expenses (income)
Interest expense ............................... 59 1,854
Interest income ................................ (2,766) (7)
Other, net ..................................... 168 (566)
--------- ---------
(2,539) 1,281
--------- ---------
Income from continuing operations before income
taxes .......................................... 29,227 18,484
Income tax expense ............................... 12,217 7,844
--------- ---------
Income from continuing operations ................ 17,010 10,640
Income from discontinued operations,
net of income taxes ............................ -- 5,705
--------- ---------
Net income ....................................... $ 17,010 $ 16,345
========= =========
Basic earnings per common share:
Continuing operations .......................... $ 0.23 $ 0.14
Discontinued operations ........................ -- 0.08
--------- ---------
Basic earnings per common share .............. $ 0.23 $ 0.22
========= =========
Weighted-average common shares outstanding ....... 73,541 74,558
========= =========
Diluted earnings per common share:
Continuing operations .......................... $ 0.22 $ 0.14
Discontinued operations ........................ -- 0.07
--------- ---------
Diluted earnings per common share ............ $ 0.22 $ 0.21
========= =========
Weighted-average common and common equivalent
shares outstanding ........................... 77,212 77,664
========= =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 5
5
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Operating revenues ............................... $ 364,479 $ 289,388
--------- ---------
Operating expenses
Payroll ........................................ 132,256 109,821
Production and distribution .................... 139,077 109,410
Advertising, selling, general and
administrative ............................... 32,912 27,653
Depreciation ................................... 10,592 8,041
Goodwill amortization .......................... 3,829 2,205
--------- ---------
318,666 257,130
--------- ---------
Operating income ................................. 45,813 32,258
--------- ---------
Other expenses (income)
Interest expense ............................... 129 3,765
Interest income ................................ (8,381) (50)
Other, net ..................................... 861 (321)
--------- ---------
(7,391) 3,394
--------- ---------
Income from continuing operations before income
taxes .......................................... 53,204 28,864
Income tax expense ............................... 22,089 12,256
--------- ---------
Income from continuing operations ................ 31,115 16,608
Income from discontinued operations,
net of income taxes ............................ -- 9,754
--------- ---------
Net income ....................................... $ 31,115 $ 26,362
========= =========
Basic earnings per common share:
Continuing operations .......................... $ 0.42 $ 0.22
Discontinued operations ........................ -- 0.13
--------- ---------
Basic earnings per common share .............. $ 0.42 $ 0.35
========= =========
Weighted-average common shares outstanding ....... 73,511 74,410
========= =========
Diluted earnings per common share:
Continuing operations .......................... $ 0.40 $ 0.21
Discontinued operations ........................ -- 0.13
--------- ---------
Diluted earnings per common share ............ $ 0.40 $ 0.34
========= =========
Weighted-average common and common equivalent
shares outstanding ............................. 77,170 77,566
========= =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 6
6
Harte-Hanks, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Cash Flows (in thousands)
- ----------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Operating Activities
Net income .......................................... $ 31,115 $ 26,362
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Income from discontinued operations ............... -- (9,754)
Depreciation ...................................... 10,592 8,041
Goodwill amortization ............................. 3,829 2,205
Amortization of option related compensation ....... 290 406
Deferred income taxes ............................. (601) 1,101
Other, net ........................................ 906 528
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in accounts receivable, net ..... (6,341) 9,386
Decrease in inventory ............................... 1,596 1,545
Increase in prepaid expenses and other
current assets .................................. (1,135) (1,777)
Increase (decrease) in accounts payable ........... 2,903 (1,384)
Decrease in other accrued expenses
and other liabilities ........................... (5,019) (6,121)
Other, net ........................................ 4,411 6,717
--------- ---------
Net cash provided by continuing operations ..... 42,546 37,255
--------- ---------
Net cash (used in) provided by discontinued
operating activities ............................ (265,650) 16,375
--------- ---------
Net cash (used in) provided by operating
activities .................................... (223,104) 53,630
--------- ---------
Investing Activities
Acquisitions ........................................ (2,275) (5,949)
Purchases of property, plant and equipment .......... (10,419) (15,138)
Proceeds from sale of property, plant and equipment . 117 1,760
Net proceeds from sale of and maturities of
available-for-sale short-term investments ....... 217,293 --
Discontinued operations:
Purchases of property, plant and equipment ........ -- (2,288)
Proceeds from sale of property, plant and
equipment ....................................... -- 16
Payments on film contracts ........................ -- (919)
--------- ---------
Net cash provided by (used in) investing
activities .................................... 204,716 (22,518)
--------- ---------
Financing Activities
Long-term borrowings ................................ -- 193,300
Payments on debt, including current maturities ..... -- (217,665)
Issuance of common stock ............................ 4,344 10,372
Purchase of treasury stock .......................... (9,850) (13,494)
Dividends paid ...................................... (2,209) (1,486)
--------- ---------
Net cash used in financing activities ........... (7,715) (28,973)
--------- ---------
Net (decrease) increase in cash ..................... (26,103) 2,139
Cash and cash equivalents at beginning of year ...... 83,675 12,017
--------- ---------
Cash and cash equivalents at end of period .......... $ 57,572 $ 14,156
========= =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 7
7
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders'
In thousands Stock Capital Earnings Stock Income Equity
----------- ----------- --------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ... $ 73,604 $ 149,875 $ 29,213 $ -- $ -- $ 252,692
Common stock issued - employee
benefit plans ............ 154 1,703 -- -- -- 1,857
Exercise of stock options .... 1,902 6,749 -- -- -- 8,651
Tax benefit of options
exercised ................ -- 5,764 -- -- -- 5,764
Dividends paid ($0.02 per
share) ................... -- -- (1,486) -- -- (1,486)
Net income ................... -- -- 26,362 -- -- 26,362
Treasury stock repurchase .... (542) 542 -- (13,494) -- (13,494)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 ..... $ 75,118 $ 164,633 $ 54,089 $ (13,494) $ -- $ 280,346
========= ========= ========= ========= ========= =========
Balance at January 1, 1998 ... $ 74,843 $ 177,238 $ 362,000 $ (47,267) $ (577) $ 566,237
Common stock issued - employee
benefit plans ............ 111 1,982 -- -- -- 2,093
Exercise of stock options .... 476 1,766 -- -- -- 2,242
Tax benefit of options
exercised ................ -- 1,377 -- -- -- 1,377
Dividends paid ($0.03 per
share) ................... -- -- (2,209) -- -- (2,209)
Net income ................... -- -- 31,115 -- -- 31,115
Treasury stock repurchase .... -- -- -- (9,850) -- (9,850)
Change in unrealized loss on
short-term investments
(net of tax) ................. -- -- -- -- 577 577
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 ..... $ 75,430 $ 182,363 $ 390,906 $ (57,117) $ -- $ 591,582
========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 8
8
Harte-Hanks, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited Interim Condensed Consolidated Financial Statements
include the accounts of Harte-Hanks, Inc. and subsidiaries (the "Company").
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K
for the year ended December 31, 1997.
Certain prior period amounts have been reclassified for comparative purposes.
NOTE B - DISCONTINUED NEWSPAPER AND TELEVISION OPERATIONS
On October 15, 1997, the Company sold its newspaper operations, KENS-TV, the CBS
affiliate in San Antonio, and KENS-AM radio to the E.W. Scripps Company (NYSE:
SSP) for a cash price of $775 million plus approximately $15 million for working
capital.
Because the newspaper and television operations represent entire business
segments that were divested, their results are reported as "discontinued
operations" for January 1, 1997 through October 15, 1997.
NOTE C - INCOME TAXES
The Company's quarterly and six month income tax provision of $12.2 million and
$22.1 million, respectively, was calculated using an effective income tax rate
of approximately 42%. The Company's effective income tax rate is derived by
estimating pretax income and income tax expense for the year ended December 31,
1998. The effective income tax rate calculated is higher than the federal
statutory rate of 35% due to the addition of state taxes and to certain expenses
recorded for financial reporting purposes (primarily goodwill amortization)
which are not deductible for federal income tax purposes.
NOTE D - EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." This statement requires the
presentation of basic earnings per share (EPS) and diluted EPS for reporting
periods of all public companies ending after December 15, 1997, instead of the
primary and fully diluted EPS previously reported. The new standard requires the
restatement of EPS for all periods presented. EPS is calculated as follows:
<PAGE> 9
9
<TABLE>
<CAPTION>
Three Months Ended June 30,
In thousands, except per share amount 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EPS
Income from continuing operations .................................... $ 17,010 $ 10,640
Income from discontinued operations .................................. -- 5,705
-------- --------
Net Income ........................................................... $ 17,010 $ 16,345
======== ========
Weighted-average common shares outstanding
used in net earnings per share computations ..................... 73,541 74,558
======== ========
Basic earnings per common share:
Continuing operations ........................................... $ 0.23 $ 0.14
Discontinued operations ......................................... -- 0.08
-------- --------
Net income ...................................................... $ 0.23 $ 0.22
======== ========
DILUTED EPS
Income from continuing operations .................................... $ 17,010 $ 10,640
Income from discontinued operations .................................. -- 5,705
-------- --------
Net Income ........................................................... $ 17,010 $ 16,345
======== ========
Shares used in net earnings per share computations ................... 77,212 77,664
======== ========
Diluted earnings per common share:
Continuing operations ........................................... $ 0.22 $ 0.14
Discontinued operations ......................................... -- 0.07
-------- --------
Net income ...................................................... $ 0.22 $ 0.21
======== ========
Computation of shares used in net earnings per share computations:
Average outstanding common shares .................................... 73,541 74,558
Average common equivalent shares -
dilutive effect of option shares ................................ 3,671 3,106
-------- --------
Shares used in net earnings per share computations ................... 77,212 77,664
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
In thousands, except per share amount 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EPS
Income from continuing operations .................................... $ 31,115 $ 16,608
Income from discontinued operations .................................. -- 9,754
-------- --------
Net Income ........................................................... $ 31,115 $ 26,362
======== ========
Weighted-average common shares outstanding
used in net earnings per share computations ..................... 73,511 74,410
======== ========
Basic earnings per common share:
Continuing operations ........................................... $ 0.42 $ 0.22
Discontinued operations ......................................... -- 0.13
-------- --------
Net income ...................................................... $ 0.42 $ 0.35
======== ========
DILUTED EPS
Income from continuing operations .................................... $ 31,115 $ 16,608
Income from discontinued operations .................................. -- 9,754
-------- --------
Net Income ........................................................... $ 31,115 $ 26,362
======== ========
Shares used in net earnings per share computations ................... 77,170 77,566
======== ========
Diluted earnings per common share:
Continuing operations ........................................... $ 0.40 $ 0.21
Discontinued operations ......................................... -- 0.13
-------- --------
Net income ...................................................... $ 0.40 $ 0.34
======== ========
Computation of shares used in net earnings per share computations:
Average outstanding common shares .................................... 73,511 74,410
Average common equivalent shares -
dilutive effect of option shares ................................ 3,659 3,156
-------- --------
Shares used in net earnings per share computations ................... 77,170 77,566
======== ========
</TABLE>
<PAGE> 10
10
NOTE E - COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income." This statement requires the reporting of comprehensive income and its
components in the financial statements, or in the notes to interim financial
statements, for reporting periods ending after December 15, 1997. Comprehensive
income is defined as the total non-owner changes in equity, which includes net
income and all revenues, expenses, gains and losses that are excluded from net
income under generally accepted accounting principles, but do not result from
investments by owners or distributions to owners. The Company's total
comprehensive income for the second quarter 1998 was $0.6 million greater than
net income, whereas comprehensive income for the second quarter 1997 was equal
to net income. Total comprehensive income for the six months ending June 30 of
1998 was also $0.6 million greater than net income, whereas comprehensive
income was equal to net income for the same period of 1997.
NOTE F - STOCKHOLDERS' EQUITY
On March 16, 1998, the Company effected a two-for-one split of its common stock
in the form of a 100% stock dividend paid to holders of record on March 2, 1998.
All share, per share and common stock amounts have been restated to
retroactively reflect the stock split.
In May 1998, the Company amended its Certificate of Incorporation to increase
its total authorized common stock to 250,000,000 shares. The financial
statements reflect this increase in authorized shares of common stock.
NOTE G - RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1997, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 provides guidance on the
timing and amount of revenue recognition when licensing, selling, leasing or
otherwise marketing computer software and is effective for transactions entered
into during fiscal years beginning after December 15, 1997. The adoption of the
provisions of SOP 97-2, which were effective as of January 1, 1998, have not
materially affected the Company's financial condition or results of operations.
<PAGE> 11
11
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
As described in Note B of the Notes to Interim Condensed Consolidated Financial
Statements included herein, on October 15, 1997, the Company sold its newspaper
and television operations. Therefore, the newspaper and television operations
results are excluded from management's discussion and analysis of financial
condition and results of operations below.
Operating results from continuing operations -- direct marketing and shoppers --
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $186,806 $150,964 23.7% $364,479 $289,388 25.9%
Operating expenses 160,118 131,199 22.0% 318,666 257,130 23.9%
-------- -------- -------- --------
Operating income $ 26,688 $ 19,765 35.0% $ 45,813 $ 32,258 42.0%
======== ======== ======== ========
Net income $ 17,010 $ 10,200 66.8% $ 31,115 $ 16,168 92.4%
======== ======== ======== ========
Diluted earnings
per share $ 0.22 $ 0.13 69.2% $ 0.40 $ 0.21 90.5%
======== ======== ======== ========
</TABLE>
(The results above exclude second quarter 1997 and six months ended June 30,
1997 non-recurring income of $0.8 million, or $0.4 million net of income taxes.
This represents a gain on the sale of stock in another company partially offset
by other non-recurring items. Including this gain, net income was $10.6 million
or 14 cents per share.)
Consolidated revenues grew 23.7% to $186.8 million and operating income grew
35.0% to $26.7 million in the second quarter of 1998 when compared to the second
quarter of 1997. The Company's overall growth resulted from increased business
with both new and existing customers and from the sale of new products and
services. Overall operating expenses compared to 1997 increased 22.0% to $160.1
million.
Net income grew 66.8% to $17.0 million, or 22 cents per share, compared to 13
cents per share on a diluted basis. The net income growth resulted from the
growth in operating income as well as from $2.8 million interest income in the
second quarter of 1998 compared to $1.9 million interest expense (allocated
based upon percentage of net assets) for the same period in 1997.
DIRECT MARKETING
Direct marketing operating results were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $121,565 $100,413 21.1% $235,992 $194,203 21.5%
Operating expenses 105,001 87,685 19.7% 205,352 170,985 20.1%
-------- -------- -------- --------
Operating income $ 16,564 $ 12,728 30.1% $ 30,640 $ 23,218 32.0%
======== ======== ======== ========
</TABLE>
Direct marketing revenues increased $21.2 million, or 21.1%, in the second
quarter of 1998 when compared to 1997. Revenues were lead by database marketing,
which had significant revenue growth for the quarter, followed by response
management and marketing services, both of which experienced good internal
revenue growth. Database marketing revenues increased primarily due to the
growth in database processing and in hardware sales. Database marketing revenues
were also impacted by the November 1997 acquisition of Mercantile Software
Systems, which contributed significantly to the increased hardware sales.
Response management revenues increased due to increased telemarketing and
<PAGE> 12
12
internet business with existing customers, new customer gains, the November 1997
acquisition of Tele Support Services and to a lesser extent the May 1997 opening
of the Langhorne, PA call center. Marketing services' revenues, led by its
logistics operations, increased due to increased product sales as well as new
product sales to new and existing customers, primarily in the retail industry.
Operating expenses increased $17.3 million, or 19.7%, in the second quarter of
1998 when compared to 1997. Payroll costs increased $5.3 million due to expanded
hiring to support revenue growth. Also contributing to the increased operating
expenses were additional production costs of $8.5 million due to increased
volumes. General and administrative expense increased $2.3 million due to
increased professional and outside services fees and increased employee expenses
related to growth. Depreciation expense increased $1.0 million due to higher
levels of capital investment to support growth. Operating expenses were also
impacted by the acquisitions noted above.
Direct marketing revenues increased $41.8 million, or 21.5%, in the first six
months of 1998 compared to the first six months of 1997. Database marketing,
response management and marketing services all experienced significant revenue
growth. Overall, revenue growth resulted from increased business with both new
and existing customers, particularly in services provided to the retail,
financial services, high technology and insurance industries.
Operating expenses rose $34.4 million, or 20.1%, in the first half of 1998 when
compared to the first half of 1997. Payroll costs increased $12.3 million due to
expanded hiring to support revenue growth. In addition, production costs
increased $14.5 million due to increased volumes. General and administrative
expense increased $5.0 million due to increased professional and outside
services fees as well as an increased provision for bad debt related to the
increased revenues. Depreciation expense increased $2.1 million due to the
higher levels of capital investment. The acquisitions mentioned above also
contributed to the increased operating expenses.
SHOPPERS
Shopper operating results were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 65,241 $ 50,551 29.1% $128,487 $ 95,185 35.0%
Operating expenses 52,785 41,488 27.2% 108,724 81,922 32.7%
-------- -------- -------- --------
Operating income $ 12,456 $ 9,063 37.4% $ 19,763 $ 13,263 49.0%
======== ======== ======== ========
</TABLE>
Shopper revenues increased $14.7 million, or 29.1%, in the second quarter of
1998 as compared to 1997. The increase was primarily due to the September 1997
acquisition of the ABC Shopper Group, which accounted for $16.0 million of the
revenue increase, partially offset by the sale of the Dallas-Fort Worth Shoppers
Guide in April 1998 which resulted in a $1.3 million revenue decrease. The
increased revenues were influenced by increased employment-related in-book
revenues and increased distribution product revenues partially offset by
decreased in-book ROP advertising, automotive and real estate in particular, and
declines in standard print and delivery products. Distribution product revenues
increased due to higher volumes in four color glossy print and deliver products
and preprinted inserts.
Operating expenses increased $11.3 million, or 27.2%, in the second quarter of
1998 when compared to 1997. The acquisition of the ABC Shopper Group accounted
for a $13.9 million increase in operating expenses. The sale of the Dallas-Fort
Worth Shoppers Guide resulted in a $1.3 million reduction in operating expenses.
Excluding the acquisition and divestiture mentioned above, operating costs
declined primarily due to decreased labor costs of $1.2 million which were
influenced by improved
<PAGE> 13
13
production efficiencies and staff reductions.
Shopper revenues increased $33.3 million, or 35.0%, in the first six months of
1998 compared to the first six months of 1997. The ABC Shopper Group acquisition
accounted for $32.0 million of this increase while the sale of the Dallas-Fort
Worth Shoppers Guide in April 1998 resulted in a $1.2 million revenue decrease.
Excluding the effects of the acquisition and the divestiture discussed above,
revenues grew 2.3% due to growth in preprinted inserts, four-color glossy print
and deliver products, in-book employment related advertising and improved trade
sales. Gains in these categories were partially offset by declines in standard
print and deliver products and in automotive and real estate related in-book
advertising.
Operating expenses rose $26.8 million, or 32.7%, in the first half of 1998 when
compared to the first half of 1997. The acquisition of the ABC Shopper Group
accounted for a $28.5 million increase in operating costs. The sale of the
Dallas-Fort Worth Shoppers Guide resulted in a $1.2 million reduction in
operating expenses. Excluding the acquisition and divestiture mentioned above,
operating costs declined primarily due to decreased labor costs of $1.3 million
which were influenced by improved production efficiencies, staff reductions and
lower fringe benefit costs.
Other Income and Expense
The company realized a loss of approximately $0.4 million in the first quarter
1998 on the sale of equity securities that were held in its short-term
investment portfolio.
Interest Expense/Interest Income
Total Company interest income and expense were allocated to continuing and
discontinued operations based on percentage of net assets through October 15,
1997. The percentage allocated to continuing operations was approximately 58%
for the second quarter and first six months of 1997.
Interest expense decreased $1.8 million in the second quarter of 1998 and $3.6
million in the first six months of 1998 over the same periods in 1997 due to the
extinguishment of debt with the proceeds from the October 15, 1997 sale of the
Company's newspaper and television operations.
Interest income increased $2.8 million in the second quarter of 1998 and $8.3
million in the first six months of 1998 over the same periods in 1997 due to the
short-term investment of the proceeds from the sale of newspaper and television
operations, after debt extinguishment, operational fundings and income tax
payments.
Income Taxes
The Company's income tax expense increased $4.4 million in the second quarter
and $9.8 million in first six months of 1998, when compared to the second
quarter and first six months of 1997. This increase was due primarily to the
higher pre-tax income levels. The effective tax rate was 41.8% for the second
quarter and 41.5% for the first six months of 1998 compared to 42.4% and 42.5%,
respectively for the same periods of 1997.
Liquidity and Capital Resources
Cash used in operating activities for the six months ended June 30, 1998 was
$223.1 million. The cash outflow from operating activities related primarily to
the first quarter 1998 payment of $265.7 million in income taxes, resulting from
the gain on the October 15, 1997 sale of newspaper and television operations.
<PAGE> 14
14
Net cash inflows from investing activities were $204.7 million for the first
half of 1998 compared to net cash outflows of $22.5 million for the first half
of 1997. The increase of cash inflows from investing activities was primarily
attributable to sales and maturities of marketable securities totaling $217.3
million, the proceeds of which were used to help fund the Company's tax payments
made in the first quarter of 1998. Net cash outflows from financing activities
were $7.7 million compared to $29.0 million in 1997. The decrease in cash
outflows from financing activities from 1997 is attributed primarily to the
extinguishment of debt in October 1997.
Capital resources were available from and provided through the Company's
unsecured credit facility through October 15, 1997. All borrowings under the
revolving credit facility were to be repaid by December 31, 2001. However, these
outstanding borrowings ($306.3 million) were retired on October 15, 1997, funded
primarily through the proceeds received from the sale of the Company's newspaper
and television operations as described in Note B of the Notes to Interim
Condensed Consolidated Financial Statements included herein.
Management believes that the proceeds from the Company's sale of newspaper and
television operations remaining after the retirement of debt and the payment of
income taxes related to the sale, together with cash provided from operating
activities, will be sufficient to fund operations and anticipated capital
service needs for the foreseeable future.
Divestiture
On May 1, 1998, the Company sold three of its smallest shopper publications,
located in Dallas, TX, Wichita, KS and Springfield, MO, to Central States
Publishing, LLC.
Recent Developments
On July 30, 1998, the Company signed a definitive agreement to acquire
Cornerstone Integrated Services of Austin, Texas, a leading provider of
technical and marketing support to the high-tech industry. The transaction
closed on August 3, 1998.
Factors That May Affect Future Results and Financial Condition
From time to time, in both written reports and oral statements by senior
management, the Company may express its expectations regarding its future
performance. These "forward-looking statements" are inherently uncertain, and
investors should realize that events could turn out to be other than what senior
management expected. Set forth below are some key factors which could affect the
Company's future performance.
Acquisitions -- In recent years the Company has made a number of acquisitions in
its direct marketing and shopper businesses, and it expects to pursue additional
acquisition opportunities. Acquisition activities, even if not consummated,
require substantial amounts of management time and can distract from normal
operations. In addition, there can be no assurance that the synergies and other
objectives sought in acquisitions will be achieved.
Competition -- Direct marketing is a rapidly evolving business, subject to
periodic technological advancements, high turnover of customer personnel who
make buying decisions, and changing customer needs and preferences.
Consequently, the Company's direct marketing business faces competition in each
of its three sectors -- response management/teleservices, database marketing,
and marketing services. The Company's shopper business competes for advertising,
as well as for readers, with other print and electronic media. Competition comes
from local and regional newspapers, magazines, radio, broadcast and cable
television,
<PAGE> 15
15
shoppers and other communications media that operate in the Company's markets.
The extent and nature of such competition are, in large part, determined by the
location and demographics of the markets targeted by a particular advertiser,
and the number of media alternatives in those markets.
Postal Rates -- The Company's shoppers are delivered by standard mail, and
postage is the second largest expense, behind payroll, in the Company's shopper
business. The present standard postage rates went into effect in July 1995, and
the next increase is expected in 1999. Postal rates also influence the demand
for the Company's direct marketing services even though the cost of mailings is
borne by the Company's customers and is not directly reflected in the Company's
revenues or expenses.
Newsprint Prices -- Newsprint represents a substantial expense in the Company's
shopper operations. In recent years newsprint prices have fluctuated widely, and
such fluctuations can materially affect the results of the Company's operations.
Economic Conditions -- Changes in national economic conditions can affect levels
of advertising expenditures generally, and such changes can affect each of the
Company's businesses. In addition, revenues from the Company's shopper business
is dependent to a large extent on local advertising expenditures in the markets
in which they operate. Such expenditures are substantially affected by the
strength of the local economies in those markets. Direct marketing revenues are
dependent on national and international economics.
Year 2000 Issue -- The Year 2000 issue is a result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has conducted a comprehensive review of its computer systems to identify
those that could be affected by the Year 2000 issue and has developed an
implementation plan to resolve the issue. The Company is utilizing both internal
and external resources to correct or reprogram, and test the systems for the
year 2000 compliance. It is anticipated that all reprogramming efforts will be
complete by December 31, 1998, allowing adequate time for testing. The Company
is also in the process of obtaining confirmations, from primary processing
vendors and customers, that plans are being developed to address processing of
transactions in the year 2000. The Company does not expect the amounts required
to be expensed over the next eighteen months to have a material effect on its
financial position or results of operations.
<PAGE> 16
16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 5, 1998. At the
meeting the stockholders were requested to vote on the following:
1. To elect Larry Franklin and James L. Johnson as Class II directors for
a three-year term. The result of the vote was as follows:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Larry Franklin 55,222,507 177,048
James L. Johnson 55,222,507 177,048
</TABLE>
The names of each director whose term of office continued are: David L.
Copeland, Dr. Peter T. Flawn, Christopher M. Harte, Houston H. Harte
and Richard M. Hochhauser.
2. To approve an amendment to the Company's Certificate of Incorporation
to change the name of the Company to "Harte-Hanks, Inc." The result of
the vote was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
---------- ------- -----------
<S> <C> <C>
55,355,837 17,271 26,447
</TABLE>
3. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock from
125,000,000 to 250,000,000. The result of the vote was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
---------- ------- -----------
<S> <C> <C>
54,799,965 568,516 31,074
</TABLE>
4. To approve the adoption of the Company's 1998 Director Stock Plan.
The result of the vote was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
---------- ------- -----------
<S> <C> <C>
54,904,051 388,399 107,105
</TABLE>
5. To approve amendments to the Company's 1991 Stock Option Plan. The
result of the vote was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
---------- ------- -----------
<S> <C> <C>
54,071,120 1,215,050 113,385
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 14.
(b) No Form 8-K has been filed during the three months ended
June 30, 1998.
<PAGE> 17
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HARTE-HANKS, INC.
August 13, 1998 /s/ Jacques D. Kerrest
--------------- -------------------------------------
Date Jacques D. Kerrest
Senior Vice President, Finance and
Chief Financial and Accounting Officer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ----------------------
<S> <C>
2(a) Certificate of Ownership and Merger (filed as Exhibit 2(a) to
the Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
2(b) Agreement and Plan of Merger dated as of February 4, 1996 among
Harte-Hanks Communications, Inc., HHD Acquisition Corp. and
DiMark, Inc. (filed as Appendix A to the Company's Registration
Statement No. 333-02047 and incorporated by reference herein).
2(c) Agreement and Plan of Merger and Reorganization, dated as of May
16, 1997, by and between The E.W. Scripps Company and
Harte-Hanks Communications, Inc. (filed as Exhibit 2.1 to the
Company's Form 8-K dated May 22, 1997 and incorporated by
reference herein).
2(d) Acquisition Agreement, dated as of May 16, 1997, by and between
The E.W. Scripps Company and Harte-Hanks Communications, Inc.
(filed as Exhibit 2.2 to the Company's Form 8-K dated May 22,
1997 and incorporated by reference herein).
2(e) Stock Purchase Agreement dated as of July 26, 1997 between ABC,
Inc. and Harte-Hanks Communications, Inc. (filed as Exhibit 2(e)
to the Company's Form 10-Q for the nine months ended September
30, 1997 and incorporated by reference herein).
3(a) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(a) to the Company's Form 10-K for the year ended
December 31, 1993 and incorporated by reference herein).
3(b) Amended and Restated Bylaws (filed as Exhibit 3(b) to the
Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
3(c) Amendment dated April 30, 1996 to Amended and Restated
Certificate of Incorporation (filed as Exhibit 3(c) to the
Company's Form 10-Q for the six months ended June 30, 1996 and
incorporated by reference herein).
*3(d) Amendment dated May 5, 1998 to Amended and Restated
Certificate of Incorporation.
*3(e) Amended and Restated Certificate of Incorporation as
amended through May 5, 1998.
4(a) Long term debt instruments are not being filed pursuant to
Section (b)(4)(iii) of Item 601 of Regulation S-K. Copies of
such instruments will be furnished to the Commission upon
request.
</TABLE>
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ----------------------
<S> <C>
10(a) 1984 Stock Option Plan (filed as Exhibit 10(d) to the Company's
Form 10-K for the year ended December 31, 1984 and
incorporated herein by reference).
10(b) Registration Rights Agreement dated as of September 11, 1984
among HHC Holding Inc. and its stockholders (filed as Exhibit
10(b) to the Company's Form 10-K for the year ended December
31, 1993 and incorporated by reference herein).
10(c) Severance Agreement between Harte-Hanks Communications, Inc.
and Larry Franklin, dated as of July 23, 1993 (filed as Exhibit
10(f) to the Company's Registration Statement No. 33-69202
and incorporated by reference herein).
10(d) Form of Severance Agreement between Harte-Hanks
Communications, Inc. and certain Executive Officers of the
Company, dated as of July 7 or December 28,1997 (filed as
Exhibit 10(f) to the Company's Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein).
10(e) Harte-Hanks, Inc. Pension Restoration Plan (filed as Exhibit
10(j) to the Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
10(f) Harte-Hanks Communications, Inc. 1996 Incentive Compensation
Plan (filed as Exhibit 10(p) to the Company's Form 10-Q for the
six months ended June 30, 1996 and incorporated by reference
herein).
*10(g) Harte-Hanks, Inc. Amended and Restated 1991 Stock Option Plan.
*10(h) Harte-Hanks, Inc. 1998 Director Stock Plan.
*11 Statement Regarding Computation of Net Income (Loss) Per Common
Share
*21 Subsidiaries of the Company.
*27 Financial Data Schedule.
</TABLE>
- -----------------
*Filed herewith
<PAGE> 1
20
EXHIBIT 3(d)
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
HARTE-HANKS COMMUNICATIONS, INC.
Harte-Hanks Communications, Inc., a corporation organized and existing
under the Delaware General Corporation Law (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: that the Board of Directors of the Corporation, at a meeting of
the Board of Directors held on January 28, 1998, duly adopted resolutions
setting forth proposed amendments to the Certificate of Incorporation of said
corporation, declaring said amendments to be advisable, and directing that said
amendments be submitted to the stockholders of said corporation for approval at
the Annual Meeting of Stockholders. The resolution setting forth the proposed
amendments is as follows:
RESOLVED, that the Board of Directors of the Corporation
hereby adopts, approves and recommends a proposal to amend the
Certificate of Incorporation of the Corporation to amend ARTICLE I
thereto, as follows:
"ARTICLE I
The name of the corporation is Harte-Hanks, Inc."
RESOLVED FURTHER, that the Board of Directors of the
Corporation hereby adopts, approves and recommends a proposal to amend
the Certificate of Incorporation of the Corporation to amend the first
sentence of ARTICLE FOURTH as follows:
"Fourth: The aggregate number of shares of capital stock that
the Corporation shall have the authority to issue is two hundred
fifty-one million (251,000,000), of which two hundred fifty million
(250,000,000) shares shall be common stock of the Corporation, par
value $1.00 per share and one million (1,000,000) shares shall be
Preferred Stock, par value $1.00 per share".
SECOND: that thereafter, the stockholders of said corporation, which
hold the necessary number of shares as required by statute, duly adopted and
approved said amendments at the Annual Meeting of the Stockholders on Tuesday,
May 5, 1998.
THIRD: that said amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate of Amendment is signed by Donald
R. Crews, Senior Vice President, Legal and Secretary of the Corporation, as of
May 5, 1998, and the undersigned acknowledges that the above statements are
true.
/s/ Donald R. Crews
------------------------------------------
Donald R. Crews
Senior Vice President, Legal and Secretary
<PAGE> 1
21
EXHIBIT 3(e)
AS AMENDED
THROUGH 5/5/98
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HARTE-HANKS, INC.
The undersigned, Larry D. Franklin certifies that he is the President
and Chief Executive Officer of Harte-Hanks, Inc., a Delaware corporation (the
"Corporation"), and further certifies as follows:
1. The name of the Corporation is Harte-Hanks, Inc.
2. The name under which the Corporation was originally incorporated was
Harte-Hanks Newspapers, Inc., and the original certificate of incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on October 1, 1970.
This Amended and Restated Certificate of Incorporation was duly adopted
by written consent of the holders of not less than a majority of the outstanding
stock of the Corporation entitled to vote, and written notice of the Corporation
action has been given to the stockholders of the Corporation who have not so
consented in writing, all in accordance with the provisions of the Sections 228,
245 and 242 of the Delaware General Corporation Law ("DGCL").
4. The text of the Restated Certificate of Incorporation of the
Corporation as amended hereby is restated to read in its entirety, as follows:
FIRST. The name of the Corporation is HARTE-HANKS, INC.
SECOND. The name of its registered agent and the address of its
registered office in the State of Delaware are The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD. The purpose of the Corporation is to engage in any lawful
activity for which corporations may be organized under the DGCL.
FOURTH. The aggregate number of shares of capital stock that the
Company shall have the authority to issue is two hundred fifty-one million
(251,000,000), of which two hundred fifty million (250,000,000) shares shall be
Common Stock of the Corporation, par value $1.00 per share, and one million
(1,000,000) shares shall be Preferred Stock, par value $1.00 per share. Shares
of Preferred Stock may be issued from time to time in one or more series, each
such series to have such distinctive designation or title as may be fixed by the
Board of Directors prior to the issuance of any shares thereof. Each share of
any series of Preferred Stock shall be identical with all other shares of such
series, except as to the date from which accumulated preferred dividends, if
any, shall be cumulative. Each such series shall have such voting powers, if
any, and such preferences and relative, participating, optional or other special
rights, with such qualifications, limitations or restrictions of such
preferences and/or rights, and the benefit of such affirmative or negative
covenants as shall be stated in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such series of Preferred Stock,
including, but without limiting the generality of the foregoing, the following:
(a) The rates and times at which, and the terms and conditions on
which, dividends on Preferred Stock or series thereof shall be paid;
<PAGE> 2
22
(b) The right, if any, of the holders of Preferred Stock or series
thereof to convert the same into, or exchange the same for, shares of other
classes or series of stock of the Corporation and the terms and conditions of
such conversion or exchange;
(c) The redemption price or prices, if any, and the time or times at
which, and the terms and condition of which, Preferred Stock or series thereof
may be redeemed;
(d) The rights of the holders of Preferred Stock or series thereof, if
any, upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or winding up of the Corporation;
(e) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock or series thereof; and
(f) Such other relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, all as may be
stated in a resolution or resolutions providing for the issue of such Preferred
Stock.
After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of this Article FOURTH)
shall have been met and after the Corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as sinking funds
or redemption or purchase accounts (fixed in accordance with the provisions of
this Article FOURTH), then, and not otherwise, the holders of Common Stock shall
be entitled to receive such dividends as may be declared from time to time by
the Board of Directors.
After distribution in full of the preferential amount (fixed in
accordance with the provisions of this Article FOURTH) to be distributed to the
holders of Preferred Stock in the event of the voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or winding-up, of the
Corporation, the holders of the Common Stock shall be entitled to receive
ratably all of the remaining assets of the Corporation available for
distribution to stockholders.
Except as may otherwise be required by law or provided herein, each
holder of Common Stock shall have one vote in respect of each share of stock
held by such holder on all matters voted upon by stockholders.
No holder of stock of any class of the Corporation shall be entitled as
of right to subscribe for or purchase any shares of stock of any class whether
now or hereafter authorized, or any bonds, debentures, or other evidences of
indebtedness whether or not convertible into or exchangeable for stock.
FIFTH. (a) Classified Board of Directors. The number of directors of
the Corporation shall be as from time to time fixed by, or in the manner
provided in, the By-laws of the Corporation. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The term of the initial
Class I directors shall terminate on the date of the 1994 annual meeting of
stockholders; the term of the initial Class II directors shall terminate on the
date of the 1995 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 1996 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1994,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a
<PAGE> 3
23
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors,
however resulting, may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy shall hold office for a term that shall coincide with
the term of the class to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation or the resolution or
resolutions adopted by the Board of Directors pursuant to Article FOURTH
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH unless expressly provided by such terms.
(b) Removal of Directors. Subject to the rights, if any, of the holders
of shares of Preferred Stock then outstanding, any or all of the directors of
the Corporation may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of a majority of votes represented
by the outstanding shares of the Corporation then entitled to vote generally in
the election of directors, considered for purposes of this Article FIFTH as one
class.
SIXTH. (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit,
or proceeding whether civil, criminal, administrative, or investigative
("proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation or as its representative in a partnership,
joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, representative or in any other
capacity while serving as a director, officer, or representative, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
excise taxes under the Employee Retirement Income Security Act or penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer or representative and shall
inure to the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) hereof with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such person seeking indemnity in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. Such rights shall
be contract rights and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the DGCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in
<PAGE> 4
24
advance of the final disposition of such proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should ultimately be
determined by final judicial decision from which there is no further right to
appeal that such director or officer is not entitled to be indemnified under
this paragraph (a) or otherwise.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) is
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part in any such suit, or in a suit brought by the Corporation
against the claimant to recover an advancement of expenses pursuant to the terms
of an undertaking referred to in paragraph (a) hereof, the claimant shall be
entitled to be paid also the expense of prosecuting or defending such claim. In
any suit brought by the claimant to enforce a right to indemnification
hereunder, and in any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover any advanced expenses upon a final adjudication that the
claimant has not met the standards of conduct that make it permissible under the
DGCL for the Corporation to indemnify the claimant for the amount claimed, but
the burden of providing such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the DGCL, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that the
claimant had not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant had not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The rights conferred on any person by
paragraphs (a) and (b) shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the Amended
and Restated Certificate of Incorporation, By-laws, agreement, vote of
stockholders or disinterested directors, or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any such director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
(e) Continuance. Any repeal or modification of the foregoing paragraphs
of this Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of an officer, director or representative of the
Corporation existing at the time of such repeal or modification.
SEVENTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the
<PAGE> 5
25
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
EIGHTH. The Bylaws of the Corporation may be adopted, repealed,
altered, amended, or rescinded by (a) a majority of the authorized number of
directors and, if one or more interested stockholders (as defined in Section 203
of the DGCL) exists, by a majority of the directors who are Continuing Directors
or (b) the affirmative vote of the holders of not less than 66 2/3% of the
voting power of the Company's capital stock and if such adoption, repeal,
alteration, amendment, or rescission is proposed by or on behalf of an
interested stockholder or a director affiliated with an interested stockholder,
by a majority of the disinterested shares. "Continuing Director" means a
director of the corporation who (i) was a member of the Board of the Corporation
as of September 20, 1993, or (ii) is a beneficial owner, or affiliate of such
beneficial owner, of less than 20% of the Common Stock of the Corporation and
who became a director of the Corporation subsequent to September 20, 1993 and
whose initial election or initial nomination for election was approved by a
majority of the Continuing Directors then on the Board of Directors of the
Corporation. The provisions of this Amended and Restated Certificate of
Incorporation may be altered, amended or repealed by the affirmative vote of the
holders a majority of the issued and outstanding stock having voting power
provided, that with respect to the provisions of Articles Fifth, Seventh,
Eighth, Tenth and Eleventh, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the issued and outstanding stock
having voting power shall be required.
NINTH. The Corporation may in its Bylaws by amendment thereto make any
lawful restriction upon the sale or transfer of stock of the Corporation held by
its stockholders; and all persons subscribing for stock of the Corporation or
purchasing stock, whether from the Corporation itself or from any stockholder,
shall take notice of and be bound by such lawful restrictions, and shall be
deemed to agree thereto.
TENTH. (a) A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the DGCL is amended after approval by the stockholders of this article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
(b) Any repeal of modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ELEVENTH. Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the By-laws
<PAGE> 6
26
of the Corporation, and may not be taken by a written consent of the
stockholders.
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the chief executive officer or by a
majority of the members of the Board of Directors. Special meetings of the
stockholders of the Corporation may not be called by any other person or
persons.
IN WITNESS WHEREOF, Harte-Hanks has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officers, this
30th day of September 1993. [as amended through May 5, 1998]
HARTE-HANKS , INC.
By: /s/ Larry D. Franklin
------------------------------------
Larry D. Franklin
President
[SEAL]
ATTEST:
By: /s/ Donald R. Crews
-------------------------------
Donald R. Crews
Secretary
<PAGE> 1
27
EXHIBIT 10(g)
AMENDED AND RESTATED
HARTE-HANKS COMMUNICATIONS, INC.
1991 STOCK OPTION PLAN
1. Purpose of the Plan. This plan shall be known as the Harte-Hanks
Communications, Inc. 1991 Stock Option Plan (the "Plan"). The purpose of the
Plan is to attract and retain the best available personnel for positions of
substantial responsibility and to provide additional incentives to key employees
of Harte-Hanks Communications, Inc. or any present or future Parent or
Subsidiary of Harte-Hanks Communications, Inc. to promote the success of the
business of these corporations. It is intended that options that qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, as well as nonqualified options may be granted
pursuant to the Plan, and the Plan shall be construed accordingly.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Corporation" shall mean Harte-Hanks Communications,
Inc.
(b) "Board" shall mean the Board of Directors of the
Corporation and, subject to such limitations as are
prescribed by the Board of Directors of the Corporation,
the committee, if any, appointed to administer the Plan
pursuant to paragraph 4(a) hereof.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean common stock, par value $1.00 per
share, of the Corporation.
(e) "Employee" shall mean, with respect to Incentive Stock
Options, any person employed by the Corporation or any
present or future Parent or Subsidiary of the Corporation
who would qualify as an "employee" under Treas. Reg.
Section 1.421-7(h)(1) or successor regulation. With respect
to non-qualified options, "Employee" shall also include
consultants and advisors who provide services to the
Corporation or any of its Subsidiaries or its Parent,
including outside directors of the Corporation.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Fair Market Value" shall mean the closing sale price (or
average of the quoted closing bid and asked prices if there
is no closing sale price reported) of the Common Stock on
the date specified as reported by the New York Stock
Exchange or by the principal national stock exchange on
which the Common Stock is then listed. If there is no
reported price information for the Common Stock, the Fair
Market Value will be determined by the Board, in its sole
discretion. In making such determination, the Board may,
but shall not be obligated to, commission and rely upon an
independent appraisal of the Common Stock.
(h) "Incentive Stock Option" or "ISO" shall mean an Option that
constitutes an incentive stock option within the meaning of
Section 422 of the Code. These options shall be designated
as Incentive Stock Options.
<PAGE> 2
28
(i) "Option" shall mean a stock option granted pursuant to this
Plan.
(j) "Parent" shall mean any future corporation which would be a
"parent corporation" of the Corporation as defined in
Section 425(e) and (g) of the Code.
(k) "Participant" shall mean an Employee who receives an
Option.
(l) "Plan" shall mean the Harte-Hanks Communications, Inc. 1991
Stock Option Plan.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(n) "Subsidiary" shall mean any present or future corporation
which would be a "subsidiary corporation" of the
Corporation as defined in Section 425(f) and (g) of the
Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of paragraph 7 hereof, the aggregate number of shares of Common Stock
issuable upon the exercise of Options pursuant to the Plan shall not exceed
8,000,000 shares. Such shares may be either authorized but unissued shares or
treasury shares.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased shares which were subject
thereto shall, unless the Plan shall have been terminated, be available for the
grant of other Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board; provided
however, that the Board at any time can appoint a
committee, consisting solely of non-employee directors, to
administer the Plan.
(b) Powers of the Board. The Board (or a committee appointed
pursuant to Section 4(a) above) is authorized (but only to
the extent not contrary to the express provisions of the
Plan) to select from the persons who are eligible to
receive Options under the Plan the particular persons who
will receive Options, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the
Plan, to determine the form and content of Options to be
issued under the Plan and to make other determinations and
exercise such other power and authority as may be necessary
or advisable for the administration of the Plan. A majority
of the Board members eligible to act shall constitute a
quorum for purposes of acting with respect to the Plan and
the action of a majority of the members present who are
eligible to act at any meeting at which a quorum is present
shall be deemed the action of the Board.
The President or any Vice President of the Corporation is
hereby authorized to execute instruments evidencing duly
granted Options on behalf of the Corporation and to cause
them to be delivered to the Participants.
(c) Effect of Board Decisions. All decisions, determinations
and interpretations of the Board with respect to the Plan
and Options granted thereunder shall be final and
conclusive on all persons affected thereby.
<PAGE> 3
29
(d) Approval of Grants. Each grant of Option must be approved
in one of the following ways:
(i) Board/Committee Approval. The entire Board of the
Corporation or a committee thereof may vote in
advance to approve such grant.
(ii) Stockholder Approval/Ratification. In compliance
with Section 14 of the Exchange Act, a majority of
the stockholders of the Corporation duly entitled
to vote on such matters at meetings held in
accordance with the Delaware Corporation Law, may
either in advance of the grant or no later than
the next annual meeting of stockholders,
affirmatively vote to approve such grant.
5. Eligibility.
(a) All Employees are eligible to receive Options under the
Plan, except that no Employee shall be eligible to receive
an Incentive Stock Option if, on the date of grant, such
Employee owns (including ownership through the attribution
provisions of Section 424 of the Code) in excess of 10% of
the outstanding voting stock of the Company (or of its
parent or subsidiary as defined in Section 424 of the
Code).
(b) No Participant shall be eligible to be granted Options with
respect to more than 1,000,000 shares of Common Stock per
calendar year under the Plan.
6. Term of Plan. The Plan shall continue in effect until terminated
pursuant to Paragraph 12.
7. Effect of Change in Stock Subject to the Plan. In the event that
each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
stock dividend, split-up, combination of shares, or otherwise), then there shall
be substituted for each share of Common Stock then under Option or available for
Option the number and kind of shares of stock into which each outstanding share
of Common Stock (other than shares held by dissenting stockholders) shall be so
changed or for which each such share shall be so exchanged, together with an
appropriate adjustment of the option price.
In the event there shall be any other change in the number of, or kind
of, issued shares of Common Stock, or of any stock or other securities into
which such Common Stock shall have been changed, or for which it shall have been
exchanged, the Board shall make such adjustment, if any, in the number, or kind,
or option price of shares then subject to an Option or available for Option as
is equitably required. Any such adjustment shall be effective and binding for
all purposes of the Plan.
8. Time of Granting Options. The date of grant of an Option under the
Plan shall for all purposes, be the date on which the Board awards the Option
or, if otherwise, the date specified by the Board as the date the award is to be
effective. Notice of the grant shall be given to each Employee to whom an Option
is so granted within a reasonable time after the date of such grant.
9. Manner of Exercise. Payment methods for the exercise of Options
granted under this Plan may include any of the following, as determined by the
Board or a committee at the date of the grant or prior to any exercise, provided
that such
<PAGE> 4
30
method is not prohibited by the applicable Option agreement (or the law
applicable thereto as the same may be amended from time to time):
(a) by check;
(b) in shares of Common Stock owned by the Participant;
(c) partly by check and partly in shares of Common Stock.
Notwithstanding the foregoing, Incentive Stock Options granted prior to
January 1, 1998, may be exercised only by check. If Participant-owned Common
Stock is used to pay the purchase price, the Common Stock used must have been
held by the Participant for at least six months prior to the date of exercise.
Payments made in Common Stock shall be made by tendering to the Company shares
owned by the Participant having an aggregate Fair Market Value per share that is
not greater than the exercise price for the shares with respect to which the
Option is being exercised and by paying any remaining amount of the exercise
price by check. The Board or the committee may, in its discretion, authorize a
constructive exchange of existing shares, as follows: the Participant may
exercise the option by delivering a notarized statement that the Participant has
owned for at least six months the number of shares of Common Stock to be used
for the exercise of the Option (and delivering cash, to the extent the value of
such shares is less than the exercise price), and thereupon, a new certificate
shall be issued to the Participant for the number of shares being acquired
pursuant to the exercise of the Option, less the number of shares being
constructively tendered as set forth in the Participant's notarized statement.
The Board or committee, in its discretion, may also authorize: (a) Participants
to deliver Common Stock as payment for the withholding taxes due upon exercise
of a non-qualified option; or (b) at the request of the Participant, withholding
of a number of shares from the certificate satisfactory to pay the withholding
taxes due on exercise of a non-qualified option.
10. Effective Date. The Plan became effective on February 28, 1991, the
date it was adopted by the Board of Directors of the Corporation.
11. Modification of Options. At any time and from time to time the
Board may execute an instrument providing for the modification of any
outstanding Option, provided no such modification, extension or renewal shall
confer on the holder of said Option any right or benefit which could not be
conferred on such holder by the grant of a new Option at such time, or impair
the Option without the consent of the holder of the Option.
12. Amendment and Termination of the Plan. The Board may alter, suspend
or discontinue the Plan at any time. However, all Incentive Stock Options must
be granted within ten years of the effective date of the Plan, or the date the
Plan is approved by the shareholders, whichever is earlier. No action of the
Board may impair any then outstanding Option without the consent of the holder
of the Option.
No amendment may be made without the approval of the
stockholders of the Corporation by the affirmative votes of the holders of a
majority of shares of Common Stock casting votes at a duly held stockholder's
meeting which amendment would (i) increase the number of shares available under
the Plan; (ii) change the employees or class of employees eligible to
participate in the Plan; or (iii) change the material terms of the Plan as
construed under Section 162(m) of the Code.
13. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the shares may then be listed.
<PAGE> 5
31
The Corporation shall not be liable for refusing to sell or issue any
shares if the Corporation cannot obtain from the appropriate regulatory
body(ies) authority deemed by the Corporation's counsel to be necessary lawfully
to issue or sell such shares.
As a condition to the exercise of an Option, the Corporation may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
14. Restrictions on Shares. The Board may impose such restrictions on
the ownership and transfer of shares issued pursuant to this Plan as it deems
desirable; any such restrictions shall be set forth in any Option agreement
entered into hereunder.
15. Reservation of Shares. The Corporation during the term of this Plan
will reserve and keep available a number of shares sufficient to satisfy the
requirements of the Plan.
16. Change of Control.
(a) In order to maintain the Participants' rights in the event
of a Change of Control or Potential Change of Control of
the Corporation, as hereinafter defined, the Board, in its
sole discretion, may, in addition to and notwithstanding
anything to the contrary contained in the Plan, either at
the time an Option is granted hereunder or at any time
prior to or upon the occurrence of a Change of Control or
Potential Change of Control, provide, in whole or in part,
for the accelerated exercisability of and/or the waiver of
any conditions to the full and immediate exercisability of,
each Option outstanding at the time of such Change of
Control or Potential Change of Control event. The Board
may, in its discretion, include such further provisions and
limitations in any agreement entered into with respect to
an Option as it may deem equitable and in the best
interests of the Corporation.
(b) For the purposes of this paragraph 16, a "Change of
Control" shall be deemed to have occurred if: (i) any
person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the
"Exchange Act") and as used in Sections 13(d) and 14(d)
thereof), excluding the Corporation, its Subsidiaries and
any employee benefit plan sponsored or maintained by the
Corporation or its Subsidiaries (including any trustee of
such plan acting as trustee), but including a "group" as
defined in Section 13(d)(3) of the Exchange Act (a
"Person"), becomes beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of at least fifty percent
(50%) of the total number of shares which are entitled to
vote for the election of directors of the Corporation (the
"Voting Shares"); or (ii) the stockholders of the
Corporation shall approve any merger or other business
combination of the Corporation, sale of substantially all
the Corporation's assets or a combination of the foregoing
transactions (a "Transaction") other than a Transaction
involving only the Corporation and one or more of its
Subsidiaries, or a Transaction immediately following which
the stockholders of the Corporation immediately prior to
the Transaction continue to have a majority of the voting
power in the resulting entity. Two or more persons owning
in the aggregate fifty percent (50%) or more of the Voting
<PAGE> 6
32
Shares shall not be deemed to be a "group" for the purposes
of paragraph 16(b)(i) hereof solely because such persons
are officers or directors of the Corporation.
(c) For the purposes of this paragraph 16, a Potential Change
of Control shall be deemed to have occurred if: (i) a
Person commences a tender offer for at least fifty percent
(50%) of the Voting Shares; (ii) approval of any
Transaction (excluding any Transaction that is excluded for
purposes of paragraph 16(b)(ii) above) is requested of
stockholders; (iii) proxies for the election of directors
of the Corporation are solicited by anyone other than the
Corporation; or (iv) any other event occurs which is deemed
to be a Potential Change of Control by the Board.
(d) Notwithstanding the foregoing, no Change of Control or
Potential Change of Control shall be deemed to have
occurred for purposes of the Plan with respect to an
Employee by reason of any actions or events in which such
Employee participates in a capacity other than in his or
her capacity as an Employee (or as a director of the
Company, where applicable).
(e) Notwithstanding the foregoing, in no event shall the
acceleration of any option hereunder upon a Change of
Control occur to the extent an "excess parachute payment"
(as defined in Code Sec. 280G) would result. In the event
that the Board or a committee appointed thereby determines
that such an excess parachute payment would result if the
full acceleration provision of this section 16(e) occurred
(when added to any other payments or benefits contingent on
a change of control under any other agreements,
arrangements or plans) then the number of shares as to
which exercisability is accelerated shall be reduced so
that total parachute payments do not exceed 299% of the
optionee's "base amount," as defined in Code Sec.
280G(b)(3).
17. Transferability. All or a portion of the nonqualified options to be
granted to a Participant may, in the discretion of the Board or committee, as
the case may be, be on terms that permit transfer without consideration by such
Participant to (i) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (ii) a trust or trusts, or to a guardian under the
Uniform Gift to Minors Act, for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership or other entity in which such Immediate Family
Members are the only partners, provided that (x) the stock option agreement
pursuant to which such nonqualified options are granted must be approved by the
committee, and must expressly provide for transferability in a manner consistent
with this Section, and (y) subsequent transfers of transferred Options shall be
prohibited except by will or the laws of descent and distribution. Following
transfer, any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of each agreement and Section 9 hereof the term "Participant" shall be
deemed to refer to the transferee (however, the events of termination of
employment, if any, set forth in the agreement and the obligation to pay
withholding taxes shall continue to apply to the transferor). Incentive Stock
Options shall be nontransferable except by will or the laws of descent and
distribution, and may only be exercisable during the Participant's lifetime, by
the Participant.
18. Stock Option Price. The option price per share of Common Stock
deliverable upon the exercise of an Incentive Stock Option shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted. As to nonqualified options awarded to
executive officers whose compensation may otherwise exceed the deduction limit
of Section 162(m) of the
<PAGE> 7
33
Code, if the option price per share is not less than the Fair Market Value of
the Common Stock at the date of the grant, such options shall be deemed to be
"qualified performance based compensation" under Code Section 162(m)(4)(C), and
shall be administered in a manner consistent with that section.
19. Exercise of Incentive Stock Options. No Incentive Stock Option
shall be exercisable at any time after the expiration of ten (10) years from the
date of grant. Otherwise, the Board, or a committee appointed by the Board, will
set the option terms and exercisability schedule. The total fair market value
(determined as of the date of grant) of stock with respect to which ISO's
(whether granted under this Plan or under any other agreement or plan of the
Company or any of its subsidiaries) are first exercisable by a Participant in
any one calendar year shall not exceed $100,000. In the event that the
Participant's total ISO's exceed the $100,000 limit in any year (whether due to
acceleration of exercisability under Section 16 above, miscalculation, error or
otherwise) the amount of ISO's that exceed such limit shall be treated as
non-qualified stock options. The ISO's granted earliest (whether under this Plan
or any other agreement or plan) shall be applied first to the $100,000 limit. In
the event that only a portion of the options granted at the same time can be
applied to the $100,000 limit, the Company shall issue separate share
certificate(s) for such number of shares as does not exceed the $100,000 limit,
and shall designate such shares as ISO stock in its share transfer records.
<PAGE> 1
34
EXHIBIT 10(h)
HARTE-HANKS, INC.
1998 DIRECTOR STOCK PLAN
1. Purposes. The purposes of the 1998 Director Stock Plan (the "Plan")
are to (a) attract and retain highly qualified individuals to serve as directors
of Harte-Hanks, Inc. (the "Company") and (b) to increase the Non-Employee
Directors' (as defined below) stock ownership in the Company.
2. Effective Date. The Plan shall be effective as of May 5, 1998,
subject to the approval of the stockholders of the Company.
3. Participation. Only Non-Employee Directors shall be eligible to
participate in the Plan. A "Non-Employee Director" is a person who is serving as
a director of the Company and who is not an employee of the Company or any
subsidiary of the Company.
4. Election to Receive Stock In Lieu Of Eligible Cash Fees. Subject to
the terms and conditions of the Plan, each Non-Employee Director may elect to
forego all or a portion of the cash compensation otherwise payable for services
to be rendered by such Non-Employee Director during the calendar year and to
receive in lieu thereof whole shares of Company common stock (rounded upward or
downward to the nearest whole share), as determined in accordance with Section 6
hereof. Elections shall be made in increments of 25%, 50%, 75% or 100% of such
compensation. An election under this Section 4 to have cash compensation paid in
shares of common stock shall be valid only if it is in writing, signed by the
Non-Employee Director, and filed with the Corporate Secretary of the Company.
Common stock to be received by a Non-Employee Director pursuant to such
director's election shall be distributed to the director as soon as practicable
after the end of each calendar quarter.
5. Cash Compensation. For purposes of the Plan, cash compensation shall
mean the Non-Employee Director's annual director's fees, but shall not include a
Non-Employee Director's expense reimbursement.
6. Equivalent Amount of Stock. The number of whole shares of common
stock to be distributed to a Non-Employee Director in accordance with such
Non-Employee Director's election made under Section 4 above shall be equal to:
(a) the amount of the cash compensation which the Non-Employee
Director has forgone during that calendar quarter in exchange for shares of
common stock, divided by
(b) the closing price for the common stock as reported by the
New York Stock Exchange (or any exchange on which the common stock may be then
listed) on the last day of each calendar quarter, or, if no shares of common
stock were traded on such date, on the next preceding date on which the common
stock was traded.
7. Shares Subject To The Plan. All shares of common stock to be used
for purposes of the Plan shall be treasury shares, that is, shares previously
issued and outstanding which have been reacquired by the Company and have not
been canceled. The shares of common stock issued to a Non-Employee Director
pursuant to the provisions of the Plan may not be sold for at least six months
after having been acquired, except in the case of death or disability of the
Non-Employee Director. The total number of shares of common stock issuable
pursuant to the Plan is 200,000.
8. Nonassignability. No rights under the Plan shall be assignable or
transferable by a Non-Employee Director other than by will or the laws of
descent and distribution.
<PAGE> 2
35
9. Construction; Amendment; Termination. The Plan shall be construed in
accordance with the laws of the State of Delaware and may be amended or
terminated at any time by action of the Board, provided, that the stockholders
of the Company must approve any increase in the number of shares of common stock
issuable under the Plan and provided further that the Plan may not be amended
more than once every six months other than to comport with changes in the
Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
<PAGE> 1
36
EXHIBIT 11
HARTE-HANKS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
In thousands, except per share amount 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EPS
Income from continuing operations .................................... $ 17,010 $ 10,640
Income from discontinued operations .................................. -- 5,705
-------- --------
Net Income ........................................................... $ 17,010 $ 16,345
======== ========
Weighted-average common shares outstanding
used in net earnings per share computations ..................... 73,541 74,558
======== ========
Basic earnings per common share:
Continuing operations ........................................... $ 0.23 $ 0.14
Discontinued operations ......................................... -- 0.08
-------- --------
Net income ...................................................... $ 0.23 $ 0.22
======== ========
DILUTED EPS
Income from continuing operations .................................... $ 17,010 $ 10,640
Income from discontinued operations .................................. -- 5,705
-------- --------
Net Income ........................................................... $ 17,010 $ 16,345
======== ========
Shares used in net earnings per share computations .................. 77,212 77,664
======== ========
Diluted earnings per common share:
Continuing operations ........................................... $ 0.22 $ 0.14
Discontinued operations ......................................... -- 0.07
-------- --------
Net income ...................................................... $ 0.22 $ 0.21
======== ========
Computation of shares used in net earnings per share computations:
Average outstanding common shares .................................... 73,541 74,558
Average common equivalent shares -
dilutive effect of option shares ................................ 3,671 3,106
-------- --------
Shares used in net earnings per share computations ................... 77,212 77,664
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
In thousands, except per share amount 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EPS
Income from continuing operations .................................... $ 31,115 $ 16,608
Income from discontinued operations .................................. -- 9,754
-------- --------
Net Income ........................................................... $ 31,115 $ 26,362
======== ========
Weighted-average common shares outstanding
used in net earnings per share computations ..................... 73,511 74,410
======== ========
Basic earnings per common share:
Continuing operations ........................................... $ 0.42 $ 0.22
Discontinued operations ......................................... -- 0.13
-------- --------
Net income ...................................................... $ 0.42 $ 0.35
======== ========
DILUTED EPS
Income from continuing operations .................................... $ 31,115 $ 16,608
Income from discontinued operations .................................. -- 9,754
-------- --------
Net Income ........................................................... $ 31,115 $ 26,362
======== ========
Shares used in net earnings per share computations .................. 77,170 77,566
======== ========
Diluted earnings per common share:
Continuing operations ........................................... $ 0.40 $ 0.21
Discontinued operations ......................................... -- 0.13
-------- --------
Net income ...................................................... $ 0.40 $ 0.34
======== ========
Computation of shares used in net earnings per share computations:
Average outstanding common shares .................................... 73,511 74,410
Average common equivalent shares -
dilutive effect of option shares ................................ 3,659 3,156
-------- --------
Shares used in net earnings per share computations ................... 77,170 77,566
======== ========
</TABLE>
<PAGE> 1
37
EXHIBIT 21
RESTRICTED SUBSIDIARIES OF
HARTE-HANKS, INC.
As of June 30, 1998
<TABLE>
<CAPTION>
State of % of Stock
Name of Corporation Incorporation Owned
- ------------------- ------------- -----------
<S> <C> <C>
DiMark, Inc. New Jersey 100%
DiMark Marketing, Inc. Pennsylvania 100%(1)
Direct Market Concepts, Inc. Florida 100%
DMK, Inc. Delaware 100%(2)
The Flyer Publishing Corporation Florida 100%
Harte-Hanks Data Technologies, Inc. Massachusetts 100%
Harte-Hanks Delaware, Inc. Delaware 100%
Harte-Hanks Direct, Inc. Delaware 100%
Harte-Hanks Direct Marketing/Baltimore, Inc. Maryland 100%
Harte-Hanks Direct Marketing/Cincinnati, Inc. Ohio 100%
Harte-Hanks Direct Marketing/Dallas, Inc. Delaware 100%
Harte-Hanks Direct Marketing/Fullerton, Inc. California 100%
Harte-Hanks do Brazil Consultoria e Servicos Ltda. Brazil 100%(3)
Harte-Hanks Limited England 100%(3)
Harte-Hanks Market Research, Inc. New Jersey 100%
Harte-Hanks Partnership, Ltd. Texas 100%(7)
Harte-Hanks Pty. Limited Australia 100%(3)
Harte-Hanks Response Management/Boston, Inc. Massachusetts 100%
Harte-Hanks Response Management Call Centers, Inc. Delaware 100%
Harte-Hanks Response Management Europe Belgium 100%
Harte-Hanks Shoppers, Inc. California 100%
Harte-Hanks Stock Plan, Inc. Delaware 100%
H&R Communications, Inc. New Jersey 100%(2)
HTS, Inc. Connecticut 100%
Information for Marketing Limited England 100%(5)
Marketing Communications, Inc. Missouri 100%
Mars Graphic Services, Inc. New Jersey 100%(4)
Mercantile Software Systems, Inc. New Jersey 100%
Northern Comprint Co. California 100%
NSO, Inc. Ohio 100%
Potpourri Shopper, Inc. California 100%
PRO Direct Response Corp. New Jersey 100%(2)
PSP&D, Inc. Delaware 100%(6)
Select Marketing, Inc. Texas 100%
Southern Comprint Co. California 100%
Sutton Industries, Inc. Delaware 100%
</TABLE>
(1) Owned by Mars Graphic Services, Inc.
(2) Owned by DiMark Marketing, Inc.
(3) Owned by Harte-Hanks Data Technologies, Inc.
(4) Owned by DiMark, Inc.
(5) Owned by Harte-Hanks Limited
(6) Owned by Sutton Industries, Inc.
(7) 99.5% Owned by Harte-Hanks Delaware, Inc.
.5% Owned by Harte-Hanks, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 57,572
<SECURITIES> 170,408
<RECEIVABLES> 117,641
<ALLOWANCES> 4,098
<INVENTORY> 6,107
<CURRENT-ASSETS> 374,399
<PP&E> 179,648
<DEPRECIATION> 91,316
<TOTAL-ASSETS> 714,541
<CURRENT-LIABILITIES> 103,583
<BONDS> 0
0
0
<COMMON> 75,430
<OTHER-SE> 516,152
<TOTAL-LIABILITY-AND-EQUITY> 714,541
<SALES> 364,479
<TOTAL-REVENUES> 364,479
<CGS> 271,333
<TOTAL-COSTS> 304,245
<OTHER-EXPENSES> 7,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 53,204
<INCOME-TAX> 22,089
<INCOME-CONTINUING> 31,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,115
<EPS-PRIMARY> .42
<EPS-DILUTED> .40
</TABLE>
