SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended May 31, 1999
or
[ ] 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 0-16169
HARDING LAWSON ASSOCIATES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0132062
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
707 17th Street, Suite 2400, Denver, Colorado 80202
(Address of principal executive office)
Registrant's telephone number, including area code: (303) 293-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $0.01 par value The NASDAQ Stock Market
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ X]
Aggregate market value of the voting stock held by non-affiliates
of the registrant on August 2, 1999: $41,661,158
Number of shares of the registrant's Common Stock outstanding as of
August 2, 1999: 4,981,828
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on September 17, 1999, to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, are incorporated by
reference in Part III.
Page 1 of 70 pages
The Index to Exhibits is located at page 44.
<PAGE>
PART I
ITEM 1. BUSINESS.
Cautionary Statement Regarding Forward-Looking Statements
The statements in this business section that are forward-looking are based on
current expectations and actual results may differ materially. The
forward-looking statements include those regarding future adoption of
regulations and statutes having an impact on the Company's business, the impact
of current regulations and statutes, the possible impact of current and future
claims against the Company based upon negligence and other theories of
liability, and the ability to successfully complete one or more acquisitions as
part of the Company's growth strategy. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ
materially, including, but not limited to, the possibilities that the demand for
the Company's services may decline as a result of possible changes in general
and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may result in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
Harding Lawson Associates Group, Inc. provides comprehensive environmental
engineering, infrastructure and construction services. Environmental services
may be related to the development and implementation of environmental management
systems for maintaining compliance with environmental regulations, limiting the
potential for unplanned discharges, and managing, minimizing or eliminating
waste streams from industrial and agricultural operations, and the assessment
and remediation of contaminated sites. Infrastructure services may be related to
civil, transportation and geotechnical engineering services, and services during
construction, either independently or in support of the Company's environmental,
waste management, and civil services. Construction services may be related to
environmental remediation and heavy construction, which could include the
capping of landfills and construction of water/wastewater treatment facilities.
The Company was originally incorporated in California in 1959, and
reincorporated in Delaware in July 1987. As of August 1, 1999, its principal
executive offices are located at 707 17th Street, Suite 2400, Denver, Colorado
80202, and its telephone number is (303) 293-6100. Unless the context otherwise
requires, the term "Company" as used herein refers to Harding Lawson Associates
Group, Inc. and its wholly owned subsidiaries Harding Lawson Associates, Inc.
and its subsidiaries HLA Environmental Services of Michigan, Inc. and Regional
Engineers, Planners & Surveyors, Inc. ("REPS"); Harding Lawson Associates
International, Inc. and its subsidiaries Harding Lawson Australia Pty. Ltd.,
Harding Lawson Singapore Pte Ltd, Harding Lawson de Mexico S.A. de C.V., Harding
Lawson Australia Pty. Ltd.'s, 90% ownership in HLA-Envirosciences Pty Limited,
and Harding Lawson de Mexico's 51% ownership in Grupo Industrial de Ingenieria
Ecologica ("GRIECO"). During the fiscal year ended May 31, 1999 ("Fiscal Year"),
Harding Lawson Associates ES, Inc. and Harding Lawson Associates Infrastructure,
Inc. were merged into Harding Lawson Associates, Inc.
The Company provides its clients a full range of environmental services to
comprehensively support management of hazardous materials, hazardous wastes,
solid wastes and waste waters, and effects the remediation of environmental
problems related to the management of these types of wastes. The Company
provides these services to clients that are constructing, operating or closing
facilities and/or properties, and also to clients that have ownership or
responsibility for abandoned or historical industrial operations or hazardous
waste disposal sites. These services may be performed for new, expanding, or
discontinued operations or in connection with the transfer of ownership. The
Company's management concluded in May 1999 that it would close GRIECO, and
management is currently evaluating the potential sale of its interests in
HLA-Envirosciences Pty. Limited.
During the early stage of a project, the Company might be asked to perform site
assessments or audits and to prepare site characterization reports or
environmental planning and permitting documents in response to federal, state or
local regulations. Following site characterization, the Company may assist its
clients to evaluate cleanup options, select and negotiate remedies with
regulatory agencies, and provide a design for site remediation. Once a
remediation plan is established, the Company is able to provide its clients with
construction and/or construction management services and may provide operation
and maintenance of remedial systems.
The Company also provides its clients engineering services with a focus on civil
engineering related to infrastructure including civil, transportation, process,
sanitary, structural, electrical, and mechanical engineering disciplines from
planning through construction administration. The Company's engineering services
are most frequently applied to the design of highways, bridges and other
transportation systems, and to the design and construction of industrial waste
water treatment and air pollution control equipment.
The Company's services are provided to private and public sector clients through
a staff of approximately 1,100 professional and support personnel located in 40
U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri,
Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania,
Tennessee, Texas, Utah, Virginia, and Washington, and five cities in Australia.
During fiscal 1999 the Company performed services for over 1,400 industrial and
governmental clients.
The Company often provides services for its major clients under arrangements
involving continuing service agreements. Such arrangements are usually on a
"Time-and-Materials," "Cost-Plus-Fixed-Fee," or a "Fixed-Price" basis, and are
usually terminable on advance notice by either party. The majority of the
Company's projects are on a Time-and-Materials basis, under which the Company
bills its clients at fixed hourly rates plus subcontracted services and
materials used. Fixed-Price arrangements, under which the Company agrees to
perform a stated service for a set price regardless of the time and materials
cost involved, carry the risk that the cost to the Company for performing the
agreed-upon services may exceed the set price, but also carry the benefit of
potentially higher profit. The Company's growing construction practice may
increase the percentage of fixed price projects in the firm.
The Company provides consulting and engineering services to clients through its
staff of engineers and scientists who possess a diverse range of education and
professional experience. Project teams are organized to utilize applicable
talent from the Company's staff. Qualified subcontractors are utilized to
provide special technical resources that the Company either does not possess or
has determined not to develop internally in a specific geographic area.
A more detailed description of the Company's services is listed below; revenues
resulting from these services for fiscal years 1999, 1998 and 1997 are reflected
in Note 13 of the financial statements contained in this Annual Report on Form
10-K:
Environmental Services
The Company's clients require engineering, environmental, and construction
services to comply with environmental regulations, manage risk associated with
environmental emissions, and/or reduce their cost of operations. From 1980 until
the early 1990s, the demand for the Company's services was largely driven by the
need to comply with environmental regulations. Since that time, as enforcement
of environmental regulations has decreased and environmental regulations have
been relaxed, the Company's services are more frequently required in response to
risk management or economic drivers. Because the U.S. regulatory framework is
still the dominant driver for the Company's environmental services, the primary
environmental statutes causing this demand are described below.
Regulatory Background--Public concern over human health and the environment has
led federal, state and local governments to enact legislation to correct and
prevent environmental problems with particular emphasis on the generation,
handling, disposal and cleanup of hazardous waste and hazardous substances.
These laws and their implementing regulations affect industries and governmental
bodies that manufacture, use, store, or dispose of toxic substances and other
waste materials. Significant changes in policies affecting these programs or
administrative actions affecting the sponsorship or funding of these programs
could have a material adverse effect on the Company's business. The following
federal legislation most affects the Company's business:
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA," also known as "Superfund") and Superfund Amendments and
Reauthorization Act of 1986 ("SARA"). Superfund addresses problems created by
past waste disposal practices by providing a means for identifying and cleaning
up hazardous substances at designated sites. Superfund authorizes the
Environmental Protection Agency ("EPA") to compel responsible parties to
remediate hazardous substances and places responsibility for this remediation on
the owners and operators of such sites and generators of the waste (identified
as potentially responsible parties, or "PRPs") and provides for penalties for
non-compliance with EPA orders.
Superfund was reauthorized as part of the 1991 federal budget appropriating $5.1
billion through 1994. Since then, funding has been authorized by Congress
annually while debate over reauthorization has carried on. Significant changes
to the statute are expected when or if reauthorized. The Company is not able at
this time to ascertain the effect of any such reauthorization or of Congress'
failure to reauthorize Superfund.
Resource Conservation and Recovery Act of 1976 ("RCRA") and Hazardous and Solid
Waste Amendments of 1984 ("HSWA"). RCRA was the first federal effort to regulate
the treatment, storage and disposal of hazardous waste. It places
"cradle-to-grave" responsibility for hazardous waste on the generators of such
wastes and provides regulations for permitting, transporting, treating, storing
and disposing of hazardous wastes in controlled facilities.
The Clean Air Act ("CAA") and the Clean Air Act Amendments ("CAAA"). The CAA
empowered the EPA to establish and enforce national air quality standards and to
require states to set toxic air emission limits on facilities not meeting these
national standards. The CAAA of 1990 require certain facilities that emit air
pollutants to obtain operating permits and mandate that the EPA develop
guidelines and procedures relating to acid rain, urban air pollution, and air
toxic emissions by the year 2000.
Other Federal and State Regulations. The Company's services are also utilized by
its clients in complying with, among others, the following federal laws: the
Toxic Substances Control Act, the Clean Water Act, the National Environmental
Policy Act, the Safe Drinking Water Act, the Occupational Safety and Health Act
and the Hazardous Material Transportation Act. Many other federal regulations
and policies have been established to cover more detailed aspects of hazardous
waste legislation. Complimentary state laws have also been enacted. The State of
California, for example, has consistently been a leader in passing and
implementing state hazardous waste legislation. Similar laws in other states
address such topics as air pollution control, underground storage tanks, water
quality, solid waste, hazardous materials, surface impoundments, site cleanup
and waste discharge.
Hazardous Waste Management--The Company performs services domestically relating
to the restoration (assessment and remediation) of contaminated sites. Projects
where Superfund, RCRA or similar enforcement regulations are driving the need
for site restoration comprise the majority of these revenues, while sites where
"leaking underground tank" regulations are causing the need for remediation
comprise a smaller portion of these revenues. The Company's hazardous waste
management services include the following:
o Site Characterization. The Company provides a range of services needed to
determine the nature and extent of contamination at hazardous waste sites.
o Risk Assessment. Assessing the risks that hazardous chemicals pose to human
health and the environment is critical to selecting appropriate remedial
technologies. Risk assessment involves quantifying the hazard posed by the
presence and movement of chemicals in disposal or release areas, and
expected concentrations to which people or the environment may be exposed.
o Remedial Design Engineering. The Company has extensive experience in
designing and implementing systems for removing contaminants from soil and
water. The Company utilizes data acquired in site characterization and risk
assessment studies to design integrated remedial systems, prepare detailed
construction drawings and specifications, and develop operating manuals and
maintenance programs for remedial systems.
o Construction and Construction Management. The Company self performs or
manages construction of remedial and pollution control systems and waste
disposal facilities. The Company also performs selected construction on
projects where it has not been involved with the design of the project.
Other Environmental Services--The Company also provides a broad range of other
environmental services, which include:
o Operating Facilities Services. The Company provides a broad range of
services to industrial clients to help them comply with federal or state
environmental regulations, to reduce their costs of environmental
compliance, and to employ more efficient processes to reduce, recover, or
recycle industrial waste or by-products.
o Waste Disposal Facility Permitting, Design and Closure. The Company
provides a comprehensive range of services related to siting, permitting,
designing, operating, closing and post closure monitoring of solid and
hazardous waste disposal facilities such as landfills, landfarms and
incinerators.
o Applied Information Technology. Drawing on the Company's past experience in
collecting and managing environmental data for our clients, this service
involves applying data management skills, spatial data management
technologies such as geographic information systems ("GIS"), statistical
techniques, numerical modeling and sophisticated two-and three-dimensional
imaging technology to solve technical problems and to address general
management issues.
o Environmental Planning, Permitting and Monitoring. The Company's services
are frequently required to comply with the National Environmental Policy
Act and other state and local regulations related to the assessment of
environmental impacts or anticipated environmental impacts. The Company
performs environmental resource investigations and monitoring, prepares
environmental documents and reports, and secures environmental permits on
behalf of its clients.
o Air Quality Management. Air pollution is increasingly recognized as the
type of contamination that has the greatest impact on human health and the
environment. The Clean Air Act Amendments of 1990 are expected to increase
the market for air quality related services that are provided by the
Company. The Company provides air quality planning, permitting, monitoring,
reporting, and process engineering services.
o Water Resources and Wastewater Services. The Company provides a
comprehensive range of services relating to water resource protection,
hydrologic analysis and engineering, wetlands/stream restoration,
stormwater management, water supply engineering and advanced water
treatment, recycling and conservation.
o Site Assessments and Site Audits. The site assessment market is large but
fluctuates with the real estate market. It is highly competitive and price
driven. The Company seeks to provide these services only to responsible
clients where the scope of the engagement and fees can be negotiated, and
liability risks properly managed. The Company performs records searches,
site investigations, due diligence evaluations, and audits.
o Regulatory Compliance. Regulatory compliance, evaluations, audits and
support are a viable market that the Company expects will show modest
growth as more facilities are brought under regulatory controls and more
companies decide that an ongoing environmental auditing program will reduce
environmental liabilities. The Company assists clients with strategic
compliance planning, develops environmental management systems, and
performs compliance permitting, monitoring, and reporting.
o Asbestos/Lead-Paint Management. The asbestos and lead-based paint markets
are highly competitive with limited barriers for new entrants. The Company
performs asbestos/lead paint surveys, inspections, and abatement. The
Company offers these services to select clients as part of its
comprehensive environmental services.
International Services--The Company also performs environmental services outside
the United States which include contaminated site assessment and remediation,
occupational health and hygiene, mine rehabilitation, environmental management
systems, and environmental planning and permitting and are primarily performed
through the Company's Australian and Mexican operations.
Due to a shift in the Company's strategic focus toward domestic opportunities in
the infrastructure and environmental markets, the Company is closing its
operation in Mexico City and has devalued the net assets of its operations in
Australia with a view to the potential sale of the Australian operations.
Infrastructure Services
Infrastructure and geotechnical services include:
o Infrastructure/Transportation Engineering. The Company's civil engineers
provide services relating to transportation including street, road and
highway design, traffic engineering and traffic signal design, corridor
studies, and a construction administration; design of structures including
bridges, piers and marine terminal facilities and other structures; design
services including drainage basin studies and hydrologic analysis and storm
water treatment; and railroad engineering including design of railroad
trackage, railroad bridges, railroad yard design, and intermodal
facilities. The Company believes that these services will be in increasing
demand in the future as the country moves to repair its deteriorating
infrastructure and as funding becomes available as a result of the TEA21
bill adopted in 1998 authorizing $219 billion of funding over a six-year
period. This bill is an increase of nearly 40% over the previous funding
bill (ISTEA) signed in 1991. The Company anticipates that its
civil/infrastructure practice may benefit from this legislation and
additional proposed legislation in the future.
o Geotechnical Engineering. The Company's geotechnical engineers use advanced
exploration tools, laboratory testing and analytical methods to evaluate
soil and rock for foundations and for use in construction.
Customers and Marketing
The Company's client base includes private-sector companies that comprised 57%
of gross revenue in fiscal 1999. Federal governmental bodies, primarily
non-regulatory, provided 24% of gross revenue, including Department of Defense
agencies, 17% of gross revenue was derived from state and local governments, and
2% from international clients. The Company's 15 largest clients accounted for
approximately 44% of the Company's gross revenue in fiscal 1999, 34% in fiscal
1998 and 44% in fiscal 1997. Approximately 29% of gross revenue during fiscal
1999 was derived from the Company's five largest clients compared to 24% and 32%
in fiscal 1998 and 1997, respectively.
In fiscal 1999, the Department of the Army accounted for approximately 12% of
the Company's gross revenue. Revenue from this client, which accounted for 12%
of gross revenue in fiscal 1998 and 19% in fiscal 1997, was generated under
various contracts in various locations that were negotiated independently of
each other. While the loss of all work related to this client could have a
material adverse effect on the Company, the contracts are with separate
divisions or units of the Army and the loss of one contract would not
necessarily affect other contracts at other locations. No other client accounted
for 10% or more of gross revenue in fiscal 1999, 1998 or 1997.
The Company's marketing efforts are carried out by a full-time staff of
marketing and sales personnel and by senior technical and management
professionals. The Company also participates in industrial trade shows and
technical conferences, and publishes certain technical literature to support its
marketing program.
Backlog
The Company often provides services on major long-term contracts or continuing
service agreements that provide for authorization of funding on a task or fiscal
period basis. At the end of fiscal 1999, the Company had approximately $92
million of authorized gross revenue backlog. Backlog was $105 million at May 31,
1998 and $70 million at May 31, 1997. Authorized gross revenue backlog, most of
which is expected to be completed within the next 12 months, includes only such
contracts where work authorization has been received. There can be no
assurances, however, that work represented by backlog will not be delayed or
canceled. Because the backlog figures include only those portions of contracts
where spending has been authorized to date, the Company does not feel that
backlog figures are necessarily indicative of future revenue. In addition to
authorized backlog, the Company has certain contracting vehicles that include
substantial unauthorized amounts not included in backlog. Tasks under these
contracts may or may not be authorized during fiscal 2000.
Seasonal Factors
Due primarily to more holidays and inclement weather conditions, the Company's
third quarter operating results are generally lower in comparison to other
quarters.
Competition
The Company competes with many companies of all sizes. Some of these companies
are much larger and have substantially greater resources than the Company.
Although no company currently dominates any particular market segment, the
market in general suffers from over capacity and as a result can be
characterized as intensely competitive. While the Company competes primarily on
the basis of its reputation, a significant proportion of its projects are
competitively bid and the Company believes its services to be price competitive.
Other competitive factors include proximity to clients, breadth of service
offerings and perceived financial strength.
Potential Liability and Insurance
In performing consulting and engineering services for its clients, the Company
could potentially be liable for breach of contract, personal injury, property
damage, or negligence. The Company generally indemnifies its clients for losses
and expenses incurred by them as a result of the Company's negligence and, in
certain instances, the concurrent negligence of such clients. A significant
portion of the Company's activities relate to environmental and waste services.
These services involve significant risks to the Company for environmental
damage, personal injury, and fines and costs imposed by regulatory agencies.
Although liabilities arising from environmental regulations are more directly
applicable to the Company's clients, such regulations under certain
circumstances could impose liability on the Company resulting, for example, from
a release or exacerbation of contamination or the improper handling of
contaminants during the course of the Company's work. Such liabilities can be
joint and several where other parties are involved. The Company maintains both a
health and safety program and a quality assurance and quality control program to
assist in reducing the risk of damage to persons and property and the potential
for resulting losses. In the opinion of management, adequate provision has been
made for all known liabilities that are currently expected to result from these
matters, and, in the aggregate, such claims are not expected to have a material
adverse impact on the financial position of the Company. The estimates used in
establishing these provisions could differ from actual results and there can be
no assurances that the Company will not be materially affected by existing or
future claims. Should these provisions change significantly, the effect on
operations for any quarterly or annual reporting period could be material.
The Company is provided a $15 million per occurrence/$25 million aggregate
contractor's operations and professional services policy through an unrelated,
rated carrier. The Company also maintains general liability insurance with an
unrelated, rated carrier.
Personnel
At the end of fiscal 1999, the Company employed approximately 1,100 regular,
full-time employees including 605 engineers, scientists, and construction
contractors, 340 production support staff and 155 administrative and clerical
personnel. In addition to its full-time staff, the Company employs approximately
125 temporary or variable personnel at any time as required, most of whom are
technical support personnel. Temporary or variable personnel constitute
approximately 77 full-time equivalents. Although the Company has undergone
selective downsizing over the past few years, it nevertheless maintains a
continuous recruiting program to attract key personnel.
None of the Company's employees are presently represented by a labor union. The
Company believes it has good employee relations.
ITEM 2. PROPERTIES.
The Company leases facilities at various locations in Alabama, Alaska, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine,
Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico,
North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia,
Washington, and in Australia and Mexico. At the end of fiscal 1999, these
facilities had a combined area of approximately 370,000 square feet. Aggregate
lease expense for all of the Company's facilities during fiscal 1999 was
approximately $5.9 million. The lease terms expire at various times through
February 2004. Historically, the Company has not experienced any difficulty in
renewing leases that have expired.
The Company owns, as a result of its acquisition of REPS during fiscal 1999, a
13,900 square foot building in Florida from which it conducts some of its
business.
In May 1999, the Company's management decided to relocate its corporate
headquarters into its Denver, Colorado location.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, adequate provisions
have been made in the Company's Consolidated Financial Statement for all known
liabilities that are currently expected to result from these claims and
lawsuits, and in the aggregate such claims are not expected to have a material
effect on the financial position of the Company. The estimates used in
establishing these provisions could differ from actual results. Should these
provisions change significantly, the effect on operations for any quarterly or
annual reporting period could be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of the security holders through the solicitation of
proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's common stock is traded on the NASDAQ Stock Market under the symbol
HRDG. The following table sets forth the range of high and low sale prices of
the Company's common stock.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal year ended May 31, 1998:
First Quarter $ 8.50 $ 6.38
Second Quarter 10.75 8.00
Third Quarter 10.25 8.88
Fourth Quarter 10.50 9.00
Fiscal year ended May 31, 1999:
First Quarter $10.13 $ 6.25
Second Quarter 8.25 5.13
Third Quarter 8.25 5.00
Fourth Quarter 9.00 5.38
</TABLE>
Holders
As of August 2, 1999 there were 669 record holders of the Company's common
stock.
Dividends
The Company has not paid any cash dividends on its common stock during the last
ten years. The Board of Directors currently intends to retain all earnings for
reinvestment in the Company's business and has no present intention of paying
cash dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company for the
years ended May 31, 1995 through 1999. The data presented below should be read
in conjunction with the consolidated financial statements of the Company,
including notes thereto.
<TABLE>
Summary Financial Information
(In thousands, except per share data)
<CAPTION>
Fiscal Years Ended May 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross revenue $162,096 $123,270 $123,412 $120,708 $130,554
Net revenue 108,758 83,451 84,276 85,655 92,455
Operating income/(loss) (1,019) (1) 3,220 4,112 839 4,595
Income/(loss) before
provision for income
taxes and minority interest (568) (1) 4,262 4,288 1,647 4,907
Net income/(loss) (842) (1) 2,488 2,404 953 2,972
Basic net income/(loss)
per share $(0.17) $0.50 $0.49 $0.20 $0.63
Shares used in computing
basic net income/(loss)
per share 4,839 4,959 4,926 4,824 4,684
Diluted net income/(loss)
per share $(0.17) $0.49 $0.49 $0.20 $0.63
Shares used in computing
diluted net income
per share 4,839 5,087 4,950 4,844 4,700
Balance Sheet Data:
Working capital $32,697 $34,680 $37,780 $35,521 $33,369
Total assets 87,141 76,618 67,366 60,364 60,788
Short-term debt --- --- --- --- ---
Shareholders' equity 47,455 49,788 46,602 44,357 42,685
<FN>
(1) Includes charges of $4,383 recorded in the fourth quarter related to (i)
the write-down of its investment in its Australia and the closure of its
operations in Mexico City; (ii) corporate restructuring and (iii) the
write-down of goodwill related to an acquisition made by the Company in
1993.
</FN>
</TABLE>
Dividends
The Company has not paid any cash dividends on its common stock during the last
ten years. The Board of Directors currently intends to retain all earnings for
reinvestment in the Company's business and has no present intention of paying
cash dividends in the foreseeable future.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements
This report contains forward-looking statements made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
statements are identified by words such as "will," "expect," "anticipate,"
"plans," or "intends" and by other descriptions of future circumstances or
conditions. Such statements are based on current expectations and actual results
may differ materially. The forward-looking statements include those regarding
the continued growth of the construction division, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, the possibility of the Company's making acquisitions
during the next 12 to 18 months, and the impact of becoming year 2000 compliant.
Forward-looking statements involve numerous risks and uncertainties that could
cause actual results to differ materially, including, but not limited to, the
possibilities that the demand for the Company's services may decline as a result
of possible changes in general and industry specific economic conditions and the
effects of competitive services and pricing; one or more current or future
claims made against the Company may result in substantial liabilities; and such
other risks and uncertainties as are described in reports and other documents
filed by the Company from time to time with the Securities and Exchange
Commission.
1999 Restructuring
In the fourth quarter of fiscal 1999, the Company provided $4.4 million for the
cost of restructuring its operations ("Restructuring Charges"). The
restructuring includes its reorganization of the Company's management and
operating structure, including the relocation of its corporate office in order
to reduce costs as well as the layers of management involved in corporate and
operational functions. Further, due to a shift in the Company's strategic focus
toward domestic opportunities in the infrastructure and environmental markets,
the Company is closing its operations in Mexico City and has devalued the net
assets of its operations in Australia with a view to the potential sale of the
Australian operations. These actions are intended to streamline the Company's
operations and to put senior management closer to the Company's operations and
its customers and to focus attention on operating the Company in a way as to
increase shareholder value.
Of the $4.4 million in Restructuring Charges, approximately $1.9 million and
$0.3 million relate to anticipated losses associated with the disposal of the
Company's operations in Australia and Mexico City, respectively. The book value
of goodwill written off in connection with the international operations was $0.8
million, related entirely to the Company's Australian operations.
The Restructuring Charges also consist of approximately $2 million in severance
and other costs resulting from the relocation of the corporate offices and
certain severance and other related costs associated with streamlining the
management of the Company.
The remaining $0.2 million of Restructuring Charges relates to the write-down of
goodwill associated with the Company's purchase, in February 1993, of EEC
Environmental, Inc.
<PAGE>
Results of Operations
General--The following table sets forth, for the periods indicated, (i) the
percentage that certain items in the consolidated income statements of the
Company bear to net revenue, and (ii) the percentage increase (decrease) in the
dollar amount of such items from year to year.
<TABLE>
<CAPTION>
Percentage of Percentage
Net Revenue Increase/(Decrease)
Fiscal Year Fiscal Year
1999 1998
vs. vs.
1999 1998 1997 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 30.3% (1.0)%
Costs and expenses
Payroll and benefits 69.1 68.2 67.2 32.0 0.5
General expenses 27.8 27.9 27.9 29.8 (0.8)
Restructuring Charges 4.0 --- --- --- ---
Operating income/(loss)/margin (0.9) 3.9 4.9 (131.7) (21.7)
Interest in loss of unconsolidated
subsidiaries 0.0 (0.1) (0.6) (100.0) (90.8)
Net interest income 0.4 1.3 0.8 (58.7) 51.4
Income/(loss) before provision for
taxes and minority interest (0.5) 5.1 5.1 (113.3) (0.6)
Provision for taxes/minority interest 0.3 2.1 2.2 (84.6) (5.9)
Net income/(loss) (0.8) 3.0 2.9 (133.8) 3.5
</TABLE>
Gross Revenue--Gross revenue, not presented in the table above, includes the
revenue on services subcontracted to third parties that will be reimbursed under
terms of the Company's contracts and revenue from the utilization of certain
non-labor items. Gross revenue related to outside services as a percent of total
gross revenue was 34.8%, 34.5%, and 33.2% in 1999, 1998, and 1997, respectively.
The increase in outside services revenue as a percent of total gross revenue in
1999 and 1998, compared to 1997 is due primarily to an increase in construction
services. The Company believes that its construction services will continue to
grow and represent a larger percentage of gross revenue. Net revenue, which is a
more accurate measure of revenue earned for services provided directly by the
Company, is recorded by deducting from gross revenue the costs of services
contracted to third parties.
Net Revenue--Net revenue totaled $108.8 million in fiscal 1999, an increase of
$25.3 million or 30.3% from 1998. The increase in net revenue was attributable
to the acquisition of ABB Environmental Services, Inc. ("ABB-ES") on May 8,
1998. Net revenue for ABB-ES declined $6.4 million in fiscal 1999 compared to
its prior twelve-month period due primarily to the wind down of certain federal
projects.
Excluding the effects of the ABB-ES acquisition, net revenue was 2% lower than
the prior fiscal year. The decrease in net revenue in fiscal 1999 was due
primarily to a 19% decline in international and an 8% decline in domestic
environmental net revenue, partially offset by a 34% increase in infrastructure
net revenue and a 48% increase in construction net revenue. The Company
experienced lower demand partially offset by higher prices for its services
compared to 1998 and 1997. Net revenue derived from public sector clients in
fiscal 1999 was down 9% from the prior year and accounted for 39% of total net
revenue for fiscal 1999 compared to 43% and 46% for fiscal 1998 and 1997,
respectively. Within the public sector, net revenue from the federal sector
declined by 10% from fiscal 1998 while revenue from state and local sources
declined by 8% over the same period. Net revenue from private sector clients
increased by 6% over 1998. International sales accounted for 5% of the Company's
net revenue in fiscal 1999 compared with 6% and 7% in fiscal 1998 and 1997
respectively. Virtually all international revenue was attributable to operations
in Australia.
Net revenue totaled $83.5 million in fiscal 1998, a decrease of $0.8 million or
1.0% from 1997. The decrease in net revenue in fiscal 1998 was due primarily to
a 13% decline in international and a 21% decline in infrastructure net revenue
respectively, partially offset by an increase of 4% in domestic environmental
net revenue. The Company experienced lower demand partially offset by higher
prices for its services compared to 1997 and 1996. Net revenue derived from
public sector clients in fiscal 1998 was down 9% from the prior year and
accounted for 43% of total net revenue for fiscal 1998 compared to 46% and 45%
for fiscal 1997 and 1996, respectively. Net revenue from the federal sector
declined by 14% from fiscal 1997 while revenue from state and local sources
declined by 2% over the same period. Net revenue from private sector clients
increased by 7% over 1997. International sales accounted for 6% of the Company's
net revenue in fiscal 1998 compared with 7% and 6% in fiscal 1997 and 1996
respectively. Virtually all international revenue was attributable to operations
in Australia.
Costs, Expenses and Operating Income--The operating loss for fiscal 1999 of $1.0
million resulted primarily from the Restructuring Charges described above.
Excluding the effect of such charges, operating income would have been $3.4
million and an operating margin of 3.1%, compared to fiscal 1998's operating
income and operating margin of $3.2 million and 3.9%, respectively; excluding
the effect of the ABB-ES acquisition, the Company would have incurred an
operating loss of $0.6 million and a negative margin of 0.8%. The operating loss
resulted primarily from both higher payroll costs and indirect expenses. The
higher indirect expenses were primarily due to the write-down of excess premise
leases and, to a lesser extent, external consulting and bad debt expenses.
In fiscal 1999, the Company entered into three Executive Retention Agreements.
As a result of the hiring of a new Chief Executive Officer in March of 1999 and
the 1999 restructuring, the parties to these agreements could opt to terminate
their employment with the Company prior to December 31, 1999 and receive
severance payments, benefits and option acceleration provided for under the
agreements.
Operating income for fiscal 1998 of $3.2 million and an operating margin of 3.9%
were both lower than fiscal 1997 results. Operating income in fiscal 1998 was
lower by $0.9 million or approximately 22% compared to the prior year. The
decrease in operating income and margin primarily reflects lower net revenue as
the Company's total operating cost remained essentially unchanged from the prior
fiscal year. Labor expense in fiscal 1998 was negatively impacted by $0.5
million in severance expenses, incurred primarily during the Company's fourth
quarter of fiscal 1998. The Company's international operations improved over
fiscal 1997 and contributed slightly to the Company's operating income but still
negatively impacted the operating margin.
Interest in Loss of Unconsolidated Subsidiaries--There was no loss from
unconsolidated subsidiaries in fiscal 1999. Losses from unconsolidated
subsidiaries were $50,000 in fiscal 1998. The loss was the final investment in
Standards Training Corporation ("STC") a limited liability company focused on
ISO 14000 training that was made and expensed in the first fiscal quarter of
fiscal 1998. Losses from unconsolidated subsidiaries were $0.5 million in fiscal
1997. The loss recorded in fiscal 1997 consisted of $0.3 in losses from
operations and $0.2 in write-downs of impaired assets. The losses resulted from
the operations of STC and Integrated Software Systems, LLC, which specialized in
software for the mining industry. There was no activity in these subsidiaries
prior to 1997. The Company's investment in both entities was accounted for using
the equity method.
Interest Income (Expense)--Net interest income in fiscal 1999 of $0.5 million
was $0.6 million lower than fiscal 1998. The decrease in net interest income
primarily reflects lower average cash balances throughout the fiscal year and,
to a lesser extent, lower interest rates on invested cash. Net interest income
in 1998 and 1997 was $1.1 million and $0.7 million, respectively.
Income Taxes--The Company has provided taxes of $0.4 million on a pretax loss of
$0.6 million for fiscal 1999. The relative increase in the Company's tax expense
for fiscal 1999 primarily reflects the impact of certain foreign components of
the Restructuring Charges which provide no tax benefit. The effective tax rates
for fiscal years 1998 and 1997 were 39.8% and 44.1%, respectively. The effective
tax rate in fiscal 1998 reflects the improvement in the Company's foreign
operations and a corresponding realization of prior year tax losses for which no
tax benefit had been accrued and to a lesser extent an increase in the Company's
non-taxable interest income. The effective tax rate in 1997 reflects the impact
of losses from the start-up of certain international operations for which no tax
benefit was recorded.
Net Income/(Loss)--The net loss in fiscal 1999 was $842,000 compared to net
income of $2.5 million in the prior year. The loss was primarily due to the
Restructuring Charges. Net income of $2.4 million in 1997 was $1.4 million
higher than the prior year primarily due to lower labor and general expenses.
Net income/(loss) per diluted common share was ($0.17) in fiscal 1999 compared
to $0.49 in fiscal 1998 and fiscal 1997. Diluted shares used in the per share
calculation were 4,838,620, 5,087,255 and 4,949,700 in 1999, 1998, and 1997,
respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $7.4 million in fiscal 1999
compared to $5.1 million in 1998 and $8.7 million in 1997. The increase in cash
provided by operations in fiscal 1999 compared to fiscal 1998 related primarily
to an increase in certain current liabilities, particularly accounts payable and
accrued expenses related to the Restructuring Charges. The increase in cash
provided was partially offset by an increase in accounts receivable. The
decrease in cash provided by operations in fiscal 1998 compared to 1997 was
primarily related to a decrease in certain current liabilities. The decrease in
certain current liabilities reflect, in part, payment under the incentive
compensation program in fiscal 1998 for fiscal 1997 performance and increases in
payments of income taxes, partially offset by increases in billings in excess of
costs and estimated earnings on uncompleted contracts.
The Company currently has a $20 million line of credit with a commercial bank,
at prime or LIBOR rates, that expires in November 2000. At May 31, 1999, 1998
and 1997 the Company had no borrowings under the line of credit. Had the Company
borrowed under its line at May 31 of fiscal 1999, 1998 and 1997, the interest
rate would have been 5.6%, 5.7% and 5.7% respectively. The Company's credit
agreement has certain covenants relating to, among other things, financial
performance and the maintenance of certain financial ratios. At May 31, 1999, as
a result of the Restructuring Charges, the Company was in violation of certain
financial performance covenants. Such violation was waived by the bank. The
Company was in compliance with all covenants pertaining to the line of credit
agreement at May 31, 1998 and 1997.
The Company invested $3.3 million and $14.4 million in the purchase of capital
assets, including the cost of acquisitions, in fiscal 1999 and 1998,
respectively. The Company used $1 million in fiscal 1999 for the acquisition of
REPS. The Company used $12.4 million in fiscal 1998 for the acquisition of
ABB-ES. The Company paid $0.4 and $0.2 million in fiscal 1999 and 1998
respectively, as additional purchase price under the terms of fiscal 1994 and
1995 acquisition agreements, respectively.
In fiscal 1999, the Company used net cash of $2.2 million in financing
activities that primarily consisted of the repurchase of common stock, partially
offset by the sale of common stock to employees under certain employee benefit
plans. In fiscal 1998, the Company generated net cash of $0.1 million from
financing activities, which primarily consisted of the sale of common stock to
employees offset by the repurchase of common stock. In fiscal 1997, the Company
used net cash of $0.9 million for financing activities that primarily consisted
of the repurchase of common stock. On March 7, 1996, the Board of Directors of
the Company approved a Common Stock Repurchase Program that authorizes the
Company to purchase up to a maximum of 500,000 shares of stock on the open
market from time to time for the purpose of providing shares for the Company's
various employee stock plans. The Company repurchased, under this plan, (i)
310,000 shares for $2.7 million in fiscal 1999; (ii) 46,300 shares for $0.4
million in fiscal 1998 and (iii) 139,200 shares for $1.0 million in fiscal 1997.
There are 4,500 shares which remain available to be repurchased under the 1996
Program. On September 25, 1998, the Board authorized management to repurchase up
to an additional 500,000 shares over the next four years.
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure and geotechnical related services, and encounters
potential liability including claims for errors and omissions resulting from
construction defects, construction cost overruns, or environmental or other
damage in the normal course of business. The Company is a party to lawsuits and
is aware of potential exposure related to certain claims. In the opinion of
management, adequate provisions have been made for all known liabilities that
are currently expected to result from these matters and, in the aggregate, such
claims are not expected to have a material impact on the financial position and
liquidity of the Company. The estimates used in establishing these provisions
could differ from actual results. Should these provisions change significantly,
the effect on operations for any quarter or annual reporting period could be
material. Currently, the Company is provided $15 million per occurrence, $25
million aggregate contractor's operations and professional services insurance
policy through an unrelated rated carrier. The Company also maintains general
liability insurance with an unrelated, rated carrier.
The Company believes that its available cash and cash equivalents as well as
cash generated from operations and its available credit line will be sufficient
to meet the Company's operating cash requirements for fiscal 2000. During fiscal
2000, the Company intends to actively continue its search for acquisitions to
expand its geographical representation and enhance its technical capabilities.
The Company expects to utilize a portion of its liquidity over the next 12 to 18
months for capital expenditures, including acquisitions. There can be no
assurances that the Company will be able to identify suitable acquisition
candidates, and if such are identified, that the Company will be able to
successfully negotiate and consumate a transaction.
Year 2000 Compliance
Overview
Computer systems and software have historically been coded to accept only two
digit entries for the year. If computers cannot properly distinguish between the
years 1900 and 2000, computers may shutdown or perform incorrect calculations.
Scope & Status
In late 1997, the Company established a Year 2000 Project Team ("Project Team").
The Project Team was established to address the following key components related
to the Year 2000 issue:
o Information applications, including the Company's project management and
accounting systems
o Computer hardware, software, operating systems and network infrastructure
including telecommunications systems
o Facility and administrative systems
o Digital systems and devises with embedded processors installed on client
projects
o Major suppliers and customers' systems
During the second quarter of fiscal 1999, the Company completed the upgrade of
its major information technology system (a project management and accounting
system). This version of the third party business application is warranted as
Year 2000 compliant. The Company is performing specific Year 2000 compliance
testing.
The Company has completed the inventory and assessment of its hardware for Year
2000 compliance. It is also conducting an inventory and assessment of its
software for Year 2000 compliance, which is expected to be completed by August
31, 1999. Other network and infrastructure upgrades of equipment and software
are scheduled as part of normal business operations. Facility and administrative
systems that support the Company (such as telephone, security systems, etc.) are
also being assessed for Year 2000 compliance and required upgrades to such
hardware and software are being prioritized for resolution. The assessment and
remediation of the Company's facility and administrative systems is scheduled to
be completed prior to December 31, 1999. The Company considers risks in these
areas to be minimal. Contingency plans will be developed if the Company
determines that compliance is not likely to occur.
The Company has undertaken an analysis of its vendors and suppliers to determine
potential areas of risk with regard to their failure to achieve Year 2000
compliance. Written requests have been sent to appropriate vendors and suppliers
to determine their Year 2000 readiness. Evaluation of the responses to those
requests will determine future verification procedures. The Company is currently
inventorying and contacting vendors of software and equipment that such vendors
have supplied under contracts or relationships with the Company's clients.
Contingency plans will also be developed as appropriate to address any potential
problems that may be identified.
Costs
The costs associated with Year 2000 compliance have not been material and
generally fall within normally anticipated operating and capital spending. The
Company currently estimates the costs of becoming Year 2000 compliant will not
be material to the financial position of the Company. Although the Company does
not currently anticipate the costs of Year 2000 compliance to be material, it
cannot ensure Year 2000 compliance by third parties.
Risks
The upgrade of the Company's project management and accounting systems to a Year
2000 compliant version mitigates the risk that the Company would be unable to
maintain accurate client records and billings. Technical deliverables provided
by the Company for client sites could cause potential interruption in services
provided by those clients. The Company's efforts to evaluate and remediate
software and equipment supplied to its clients are expected to mitigate such
potential service interruptions. There can be no assurance nontheless that such
mitigation will be effective to avoid such service interruptions.
The Company cannot predict with accuracy the extent to which its vendors and
clients will become compliant. The Company's financial position could be
adversely affected if major vendors or clients do not adequately complete Year
2000 requirements. The Company believes that the most significant risk it faces
with regard to Year 2000 compliance issues would be if disruptions occurred to a
significant portion of the Company's client base that could cause delayed
contracting for and/or payment of the Company's services.
Other Matters
On May 8, 1998, the Company acquired all the outstanding shares of ABB-ES, a
consulting and engineering firm. The acquisition was accounted for as a purchase
and the operating results of ABB-ES were included in the Company's consolidated
results from the date of the acquisition (see Note 8 to the Company's audited
financial statements).
On December 18, 1998, the Company acquired REPS. The acquisition was accounted
for as a purchase and the operating results of REPS were included in the
Company's consolidated results from the date of the acquisition (see Note 8 to
the Company's audited financial statements).
Inflation
The Company's operations have not been, and in the foreseeable future are not
expected to be, materially affected by inflation.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold derivative financial investments, derivative commodity
investments or other financial investments or engage in foreign currency hedging
or other transactions that exposes it to material market risk. The Company has
also evaluated the risk associated with its Rabbi Trust investments in mutual
funds and has deemed such risk minimal.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Income
(In thousands, except per share data)
<CAPTION>
Years Ended May 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $162,096 $123,270 $123,412
Less: Cost of outside services 53,338 39,819 39,136
- -------------------------------------------------------------------------------------------------------------------
Net revenue 108,758 83,451 84,276
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 75,114 56,911 56,647
General expenses 30,280 23,320 23,517
Restructuring charges 4,383 --- ---
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 109,777 80,231 80,164
- -------------------------------------------------------------------------------------------------------------------
Operating income/(loss) (1,019) 3,220 4,112
Interest in loss of unconsolidated
subsidiaries --- (50) (545)
Interest income,
net of interest expense of
$44 in 1999, $34 in 1998 and
$38 in 1997 451 1,092 721
- -------------------------------------------------------------------------------------------------------------------
Income/(loss) before provision for income
taxes and minority interest (568) 4,262 4,288
Provision for income taxes 412 1,696 1,892
Minority interests in net income/(loss)
of subsidiaries (138) 78 (8)
- -------------------------------------------------------------------------------------------------------------------
Net income/(loss) $ (842) $2,488
===================================================================================================================
$2,404
Basic net income/(loss) per share $(0.17) $0.50 $0.49
===================================================================================================================
Shares used in computing basic
net income/(loss) per share 4,839 4,959 4,926
===================================================================================================================
Diluted net income/(loss) per share $(0.17) $0.49 $0.49
===================================================================================================================
Shares used in computing diluted
net income/(loss) per share 4,839 5,087 4,950
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
May 31, 1999 May 31, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $17,108 $15,118
Investments - Rabbi Trust 3,629 ---
Accounts receivable,
less allowance for doubtful accounts of
$1,764 in 1999 and $1,085 in 1998 and including
retentions of $3,468 in 1999 and $981 in 1998 28,679 27,891
Unbilled work in progress,
less allowance for amounts unbillable of $700 in
1999 and of $751 in 1998 14,985 13,112
Prepaid expenses 1,282 1,196
Deferred income taxes 5,017 2,708
- -------------------------------------------------------------------------------------------------------------------
Total current assets 70,700 60,025
- -------------------------------------------------------------------------------------------------------------------
Equipment 27,947 24,892
Less accumulated depreciation (22,056) (19,571)
- -------------------------------------------------------------------------------------------------------------------
Net equipment 5,891 5,321
- -------------------------------------------------------------------------------------------------------------------
Other assets 10,550 11,272
- -------------------------------------------------------------------------------------------------------------------
Total assets $87,141 $76,618
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,290 $6,381
Accrued expenses 10,558 5,350
Accrued compensation 7,967 7,794
Deferred compensation - Rabbi Trust 4,236 ---
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,558 5,352
Income taxes payable 1,394 468
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 38,003 25,345
- -------------------------------------------------------------------------------------------------------------------
Other liabilities 1,635 1,084
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 39,638 26,429
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
Minority interests in subsidiaries 48 401
- -------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock--$.01 par value;
authorized 1,000,000 shares;
issued and outstanding--none --- ---
Common stock--$.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,892,982
in 1999 and 5,009,018 in 1998 50 50
Additional paid-in capital 18,066 18,891
Stockholder note receivable (243) ---
Rabbi Trust shares (607) ---
Retained earnings 30,189 30,847
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 47,455 49,788
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $87,141 $76,618
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
<CAPTION>
Additional Total
Common Stock Paid-in Contra- Retained Shareholders'
Shares Amount Capital Equity Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1996 4,845,207 $48 $18,142 --- $26,167 $44,357
- -------------------------------------------------------------------------------------------------------------------
Stock options exercised 6,000 --- 24 --- --- 24
Common stock issued to
employees or to a defined
contribution pension plan for
the benefit of employees 152,496 2 786 --- --- 788
Shares repurchased
and retired (139,200) (1) (970) --- --- (971)
Net income --- --- --- --- 2,404 2,404
Balance May 31, 1997 4,864,503 $49 $17,982 --- $28,571 $46,602
- -------------------------------------------------------------------------------------------------------------------
Stock options exercised 59,750 --- 433 --- --- 433
Common stock issued to
employees, directors or to a
defined contribution pension
plan for the benefit of
employees 131,065 1 880 --- --- 881
Shares repurchased and
retired (46,300) --- (404) --- --- (404)
Foreign currency translation
adjustment --- --- --- --- (212) (212)
Net income --- --- --- --- 2,488 2,488
Balance May 31, 1998 5,009,018 $50 $18,891 --- $30,847 $49,788
- -------------------------------------------------------------------------------------------------------------------
Stock options exercised 38,500 1 234 --- --- 235
Common stock issued to
employees, directors or to a
defined contribution pension
plan for the benefit of
employees 165,888 2 1,217 --- --- 1,219
Common stock issued in
connection with acquisition 24,930 --- 180 --- --- 180
Stockholder note receivable 35,000 --- 243 (243) --- ---
Rabbi Trust shares (70,354) --- --- (607) --- (607)
Shares repurchased and
retired (310,000) (3) (2,699) --- --- (2,702)
Foreign currency translation
adjustment --- --- --- --- 184 184
Net loss --- --- --- --- (842) (842)
Balance May 31, 1999 4,892,982 $50 $18,066 (850) $30,189 $47,455
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Years Ended May 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income/(loss) $(842) $2,488 $2,404
Adjustments to reconcile net income/(loss)
to net cash provided by
operating activities:
Depreciation and amortization 3,253 2,589 2,566
Deferred income tax (1,626) 68 (922)
Changes in operating assets and liabilities:
Receivables and billings on uncompleted contracts (2,593) 3,315 (238)
Prepaid expenses (86) 76 242
Accrued compensation 122 (1,289) 1,546
Accounts payable 2,881 (1,017) 1,785
Accrued expenses 6,064 739 (457)
Income taxes payable 549 (1,495) 1,962
Other, net (342) (328) (184)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,380 5,146 8,704
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (2,324) (2,045) (2,267)
Investment in acquisitions, net of cash acquired (1,020) (12,350) (122)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,344) (14,395) (2,389)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 472 519 108
Repurchase of common stock (2,702) (404) (971)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,230) 115 (863)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents 184 (212) ---
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,990 (9,346) 5,452
Cash and cash equivalents at beginning of year 15,118 24,464 19,012
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $17,108 $15,118 $24,464
===================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash financing activities:
Stockholder note receivable $243 --- ---
Rabbi Trust shares 607 --- ---
Stock issued in connection with acquisition 180
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Consolidated Financial Statements, May 31, 1999
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
Revenue Recognition -- Gross revenue is principally recognized as in-house labor
hours are incurred on projects. It also includes the revenue from services
subcontracted to third parties that will be reimbursed under terms of the
Company's contracts and revenue from the utilization of certain non-labor items.
Net revenue represents gross revenue excluding the cost of services
subcontracted to third parties. Revenue from fixed price contracts are
recognized on a percentage of completion basis which is determined using the
percentage of the costs incurred to the total costs expected. Overruns or
efficiencies on all contracts are recognized in the period when such results are
reasonably determinable.
Depreciation - Equipment is recorded at cost. Depreciation is computed by the
straight-line method based on the estimated useful lives of the assets,
primarily between three and seven years.
Income Taxes - The Company accounts for income taxes pursuant to the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under
which the liability method is used to account for deferred income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Segment Information - The Company is a single segment entity providing primarily
environmental and infrastructure engineering consulting services. The Company
also provides construction management, construction and geotechnical services.
Approximately 4% of the Company's net revenue was recognized in foreign
countries in fiscal 1999, 6% in fiscal 1998, and 7% in fiscal 1997.
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 supersedes SFAS 14 "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
Management has evaluated (i) the Company's operations and its methodology for
making operating decisions and (ii) the provisions of SFAS 131, and has
concluded that the services provided by the Company represent one reportable
segment.
SFAS 131 also requires additional enterprise-wide disclosures about products and
services, geographical areas and major customers. This information is included
in Note 13 of these Financial Statements. The adoption of SFAS 131 did not
affect the results of operations or financial position of the Company.
Net Income per Share - The Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share" ("SFAS 128") in the third quarter of
fiscal 1998. SFAS 128 requires companies to present both basic net income per
share and diluted net income per share. Basic net income per share excludes
dilutive common stock equivalents and is calculated as net income divided by the
weighted average number of common shares outstanding. Diluted net income per
share is computed using the weighted average number of common shares outstanding
and dilutive common stock equivalents outstanding during the period.
<PAGE>
Reporting Comprehensive Income - The Company adopted Financial Accounting
Standard Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130")
in the third quarter of fiscal 1999. SFAS 130 established standards for
reporting comprehensive income and its components. At present, comprehensive
income for the Company includes net income and translation adjustments on
foreign currency.
Comprehensive income (in thousands) for the years ending May 31 is as follows:
<TABLE>
<CAPTION>
12 months ending May 31,
1999 1998
<S> <C> <C>
Net income/(loss) $(842) $2,488
Foreign currency translation adjustment 184 (212)
------- -------
Comprehensive income/(loss) $(658) $2,276
===== ======
</TABLE>
Cash and Cash Equivalents - Cash and cash equivalents include bank demand
deposits and short-term AAA rated investments with an effective maturity of less
than three months.
Rabbi Trust--The Company has a grantor trust to fund deferred compensation for
certain employees (a "Rabbi Trust"). The assets in the trust, consisting of cash
equivalents and equity securities, are quoted at current market prices as
determined by the trustee, principally based upon national exchange and
over-the-counter markets, and are available to satisfy claims of the Company's
general creditors in the event of its bankruptcy. Previously, these assets were
not consolidated in the Company's financial statements. During 1998, the
Emerging Issues Task Force of the Financial Accounting Standards Board issued
EITF 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts
Earned Are Held in a Rabbi Trust and Invested". This pronouncement states that
assets held by a Rabbi Trust and the related deferred compensation obligation
should be consolidated with those of the employer. The trust's assets and the
corresponding deferred compensation obligation are included in the accompanying
balance sheet at May 31, 1999.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Unconsolidated Subsidiaries - The Company uses the equity method of accounting
for investments in unconsolidated subsidiaries. During fiscal 1999, there was no
activity with respect to unconsolidated subsidiaries. During fiscal 1998 and
1997, the Company reported $50,000 and $500,000 in losses, respectively.
Accounting for Stock-Based Compensation - The Company accounts for its employee
stock plans under the intrinsic-value-based method under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Intangible Assets - Goodwill represents the excess of the purchase price over
the fair value of the net assets of various entities acquired by the Company.
The Company currently amortizes goodwill on a straight line basis over 15 to 40
years. Other intangible assets, if any, recorded in connection with acquisitions
are amortized on a straight line basis over the estimated useful lives of the
respective assets, but not exceeding 15 years. The Company evaluates the
realizability and the related periods of amortization of these assets on a
regular basis.
Concentrations of Credit Risk - The Company's receivables reflect its client
mix, which includes a variety of industrial concerns and various agencies of the
Federal Government. Services to one client, the Department of the Army,
accounted for approximately 12%, 12%, and 19% of the Company's gross revenue in
fiscal 1999, 1998 and 1997, respectively. Credit is extended based on an
evaluation of the client's financial condition and generally collateral is not
required. Credit losses are provided for in the financial statements and
consistently have been within management's expectations. Services to Federal
Government bodies (excluding services provided to the Federal Government by
ABB-ES during fiscal 1999), primarily non-regulatory, amounted to 18%, 21% and
25% of gross revenue in fiscal 1999, 1998 and 1997, respectively. Services to
the Federal Government, including those provided by ABB-ES, during fiscal 1999
amounted to 24% of gross revenue.
Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31.
Fiscal years 1999, 1998, and 1997 consisted of 52 weeks.
Reclassifications - Certain prior year amounts have been reclassified to conform
to current year presentations.
Note 2 - Line of Credit
Bank Credit Line - The Company has a line of credit with a bank under which it
can borrow amounts up to $20 million. At May 31, 1999, 1998, and 1997, there
were no borrowings under the Company's line of credit.
Under the terms of the line of credit, which expires in November 2000, the
Company is required, among other things, to maintain minimum working capital,
current ratio and tangible net worth levels and is not to exceed a defined
maximum debt to tangible net worth ratio. Borrowings under the line will be
secured by certain of the Company's assets and will be at either the bank's
prime rate or LIBOR at the Company's option. The interest rate at which the
Company could borrow funds was 6.4% at May 31, 1999 and 5.7% at May 31, 1998 and
May 31, 1997.
At May 31, 1999, as a result of Restructuring Charges (see Note 11), the Company
was in violation of certain financial performance covenants. Such violation was
waived by the bank. The Company was in compliance with all debt covenants
relating to its credit agreements at May 31, 1998 and 1997.
Interest paid by the Company was $44,000, $34,000 and $38,000 in fiscal years
1999, 1998, and 1997, respectively.
<PAGE>
Note 3 - Valuation and Qualifying Accounts
The activity for the past three fiscal years in the allowance for doubtful
accounts, which is deducted from accounts receivable, and the allowance for
amounts unbillable, which is deducted from unbilled work in progress, is as
follows (in thousands):
<TABLE>
<CAPTION>
Write-offs Balance
Balance at Charged of at
Beginning to Uncollectable End
Description of Period Expense Accounts of Period
<S> <C> <C> <C> <C>
Year ended May 31, 1999
Allowance for doubtful accounts $1,085 796 (117) $1,764
Allowance for amounts unbillable 751 --- (51) 700
Year ended May 31, 1998
Allowance for doubtful accounts $1,087(1) $30 $(32) $1,085
Allowance for amounts unbillable 751 --- --- 751
Year ended May 31, 1997
Allowance for doubtful accounts $725 $160 $(248) $637
Allowance for amounts unbillable 751 --- --- 751
<FN>
(1) The beginning balance for fiscal 1998 was adjusted to reflect $450 of acquired reserves from the acquisition of
ABB-ES.
</FN>
</TABLE>
Note 4 - Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,598 $1,295 $2,104
Foreign 16 61 177
State and Local 424 272 533
- -------------------------------------------------------------------------------------------------------------------
2,038 1,628 2,814
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (1,281) 94 (756)
Foreign (38) (28) (30)
State and Local (307) 2 (136)
- -------------------------------------------------------------------------------------------------------------------
(1,626) 68 (922)
- -------------------------------------------------------------------------------------------------------------------
TOTAL $412 $1,696 $1,892
===================================================================================================================
</TABLE>
Income (loss) before provision for income taxes and minority interest is as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
<S> <C> <C> <C>
Domestic $1,306 $4,107 $4,331
Foreign (1,874) 155 (43)
- -------------------------------------------------------------------------------------------------------------------
Total $(568) $4,262 $4,288
===================================================================================================================
</TABLE>
A reconciliation between the statutory federal income tax rate and the effective
income tax rates is as follows:
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State and local income taxes, net of
federal tax benefits (18.6) 5.9 6.1
Foreign taxes (75.6) (0.4) 3.0
Tax exempt interest 18.8 (5.3) (3.0)
Goodwill amortization (20.2) 0.8 0.6
Other, net (10.9) 4.8 3.4
- -------------------------------------------------------------------------------------------------------------------
Effective income tax rates (72.5)% 39.8% 44.1%
===================================================================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998
<S> <C> <C>
Deferred Tax Liabilities:
Prepaid expenses $(56) $(32)
Deferred revenue (585) ---
Deferred state income taxes (339) (328)
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities (980) (360)
- -------------------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Deferred revenue $--- $36
Allowances for doubtful accounts
and amounts unbillable 1,012 535
Depreciation and amortization of intangibles 540 449
Employee benefits 3,354 2,250
Claims reserves 685 627
Rental inducements 310 346
Deferred tax assets resulting from the acquisition
of ABB Environmental Services, Inc. 1,332 1,391
Other, net 877 289
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 8,110 5,923
- -------------------------------------------------------------------------------------------------------------------
Less: Valuation allowance on deferred tax
assets resulting from the acquisition of
ABB Environmental Services, Inc. (1,332) (1,391)
- -------------------------------------------------------------------------------------------------------------------
Net Deferred Assets $5,798 $4,172
===================================================================================================================
</TABLE>
<PAGE>
The Company has recorded a valuation allowance of $1.3 million and $1.4 million
for the years ended May 31, 1999 and May 31, 1998 respectively. The valuation
allowance represents a full reserve against the deferred tax assets resulting
from the acquisition of ABB-ES. Realization of ABB-ES's underlying tax assets
would result in a decrease of the goodwill associated with this acquisition.
Income taxes paid were as follows (in thousands):
1999 $1,448
1998 1,947
1997 945
Note 5 - Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other intangible assets, net of
accumulated amortization of 3,419 in 1999
and $3,150 in 1998 $9,279 $9,287
Non-current deferred income taxes 781 1,464
Deposits and other 490 521
- ------------------------------------------------------------------------------------------------------------------
Total $10,550 $11,272
===================================================================================================================
</TABLE>
Note 6 - Other Liabilities and Accrued Expenses
Other liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Claims reserves $1,119 $1,084
Note payable 516 ---
- -------------------------------------------------------------------------------------------------------------------
Total $1,635 $1,084
===================================================================================================================
</TABLE>
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued restructuring charges $2,768 $---
Accrued employee benefits and related charges 2,769 2,174
Other 5,021 3,176
- -------------------------------------------------------------------------------------------------------------------
Total $10,558 $5,350
===================================================================================================================
</TABLE>
Note 7 - Defined Contribution Pension Plan
The Company has a defined contribution pension plan that covers substantially
all of its employees. The Company's contributions to the plan are discretionary
and may be in the form of cash payments or the Company's common stock. The
amounts charged to operations for this plan were $1,264,000 for fiscal 1999,
$824,000 for fiscal 1998, and $615,000 for fiscal 1997. The increase in fiscal
1999 compared to 1998 was due to the addition of, for a full year, employees
eligible for the Company match due to the acquisitions of ABB-ES and REPS. The
contribution for 1999 was made in cash, while the contributions for 1998 and
1997 were made with the Company's common stock.
Note 8 - Acquisitions
On May 8, 1998 the Company acquired all the outstanding shares of ABB-ES, a
consulting and engineering firm, from ABB Services, Inc. Total consideration of
$12 million, excluding transaction costs, was paid entirely in cash. The
acquisition was accounted for using the purchase method and accordingly the
purchase price was allocated to the assets and liabilities acquired based upon
their fair market value. The excess of purchase price of the acquisition over
the fair market value of the net assets acquired was recorded as goodwill. The
final determination of such excess amount is subject to a final assessment of
the value of the consideration paid and the net assets acquired.
Goodwill of $5.7 million will be amortized on a straight line basis over 20
years.
The results of operation for ABB-ES have been included in the Company's
financial statements for the period of May 9, 1998 through May 31, 1998. The
following table presents summarized unaudited pro forma operating results
assuming that the Company had acquired ABB-ES on June 1, 1996 (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenue $116,788 $123,564
Income/(loss) before income taxes 6,250 4,465
Net income/(loss) 3,560 2,413
Basic net income/(loss) per share $0.72 $0.49
Shares used in computing basic net income/(loss)
per share 4,959 4,926
Diluted net income/(loss) per share $0.70 $0.49
Shares used in computing diluted net income/(loss)
per share 5,087 4,950
</TABLE>
On December 18, 1998, the Company acquired REPS located in Florida. Total
consideration, excluding transaction costs, was $1.2 million in cash and 24,930
shares of common stock of the Company. The acquisition was accounted for using
the purchase method and accordingly, the purchase price was allocated to the
assets and liabilities acquired based upon their fair market value. The excess
of purchase price of the acquisition over the fair market value of the net
assets acquired was recorded as goodwill. Goodwill of $884 will be amortized on
a straight-line basis over 15 years. The results of REPS' operations from the
date of acquisition were included in the Company's consolidated financial
statements. Had the acquisition taken place on June 1, 1998, the Company's 1999
results of operations would not have been materially different.
Note 9 - Shareholders Equity
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of
option valuation models that were developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable
and not for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Stock Option Plans - In July 1987, the Company adopted, and the shareholders
approved, the 1987 Stock Option Plan that provided for the granting of stock
options to employees and non-employee directors at no less than the fair market
value of the common stock on the grant date. A total of 525,000 shares of the
Company's common stock was reserved for issuance under this plan. The 1987 plan
expired in July 1997 and no further options may be granted under that plan. As
of May 31, 1999, 15,000 options remained outstanding and unexercised.
In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock
Option Plan that provided for the granting of stock options to employees. In
November 1989, the plan was amended to provide for the granting of options to
non-employee directors. Stock options could have been incentive or
non-statutory. Non-statutory stock options could have been either restricted or
non-restricted. All incentive stock options and non-restricted non-statutory
stock options are to be granted at no less than the fair market value of the
common stock on the grant date. Restricted stock options may be granted at a
price determined by the Board of Directors, but shall not be less than $1.00 per
share. A total of 1,050,000 shares of the Company's common stock has been
reserved for issuance under this plan. The 1988 Plan expired in August 1998 and
no further options may be granted under that Plan. As of May 31, 1999, 600,250
options remained outstanding and unexercised.
In November 1998, the Company's shareholders approved the 1998 Stock Option Plan
that provides for the grant of stock options to employees and non-employee
directors. A total of 500,000 shares of the Company's common stock has been
reserved for issuance under this plan. All options granted under the stock
option plans have 10 year terms, and vest and become fully exercisable after
three or four years of continued employment.
Following is a summary of options granted under the Company's stock option
plans:
<TABLE>
<CAPTION>
Optioned Shares
Range Weighted
Number of Average
of Exercise Exercise
Shares Prices Price
<S> <C> <C> <C> <C> <C> <C>
BALANCE MAY 31, 1996 1,010,000 $1.00 $14.30 $8.90
- -------------------------------------------------------------------------------------------------------------------
Options granted 10,500 6.25 7.25 6.63
Options canceled (174,063) 5.50 14.13 9.13
Options exercised (6,000) 1.00 5.50 4.00
- -------------------------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1997 840,437 $1.00 $14.30 $8.85
- -------------------------------------------------------------------------------------------------------------------
Options granted 171,000 6.75 9.94 7.10
Options canceled (149,187) 6.13 14.13 8.63
Options exercised (59,750) 1.00 8.17 7.26
- -------------------------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1998 802,500 $1.00 $14.30 $8.64
- -------------------------------------------------------------------------------------------------------------------
Options granted 416,500 5.06 9.13 6.25
Options canceled (160,750) 5.06 14.30 8.72
Options exercised (38,500) 1.00 7.50 6.11
- -------------------------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1999 1,019,750 $5.06 $14.30 $8.05
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Company's stock option plans, 460,750 and 550,375 options were
exercisable at May 31, 1999 and 1998, respectively, at exercise prices ranging
from $5.06 to $14.30. The contractual life at May 31, 1999, was two to ten
years, with a weighted average contractual life of seven years.
The following is a summary of fixed stock options outstanding and exercisable by
price range at May 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Shares Average Shares
Out- Remaining Weighted Exer- Weighted
standing Contrac- Average cisable Average
Range of as of tual Exercise as of Exercise
Exercise Prices 5/31/99 Life Price 5/31/99 Price
<S> <C> <C> <C> <C> <C> <C>
$5.0630 - $5.5000 217,000 8.36 $5.1899 61,500 $5.5000
5.8750 - 6.7500 186,500 7.58 6.5452 49,000 6.1317
6.8750 - 6.9375 133,000 9.72 6.9361 3,000 6.8750
7.0000 - 7.6250 154,000 4.74 7.4943 141,000 7.4823
8.7500 - 10.0000 129,000 9.46 9.8838 6,000 9.2500
11.1250 - 12.5000 169,750 2.23 12.2496 169,750 12.2496
14.1250 - 14.3000 30,500 2.96 14.1480 30,500 14.1480
------ ---- ------- ------ -------
$5.0630 - $14.3000 1,019,750 6.81 $8.0504 460,750 $9.2908
</TABLE>
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan ("ESPP
Plan") was approved and subsequently amended by the Company's Board of Directors
and Shareholders. A total of 250,000 shares of the Company's common stock has
been reserved for issuance pursuant to this plan at a price that is 85% of the
stock's fair market value.
As of May 31, 1999, a total of 203,038 shares has been purchased through this
plan.
1995 Executive Stock Incentive Plan - In November 1995, the Company's
shareholders approved a stock incentive plan that reserved 200,000 shares of
common stock to be awarded to selected executives of the Company in lieu of, or
in addition to, regular or bonus compensation. As of May 31, 1999, a total of
60,797 shares have been issued through this plan.
Non-employee Directors Stock Compensation Plan - In December 1996, the Company
established a non-employee directors stock compensation plan that reserved
100,000 shares to be issued to non-employee directors of the Company. Directors
can elect to have all or a portion of their director compensation paid in the
form of common stock of the Company in lieu of cash compensation. A total of
53,339 shares has been issued under this plan as of May 31, 1999.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and is determined as if the Company had accounted for its employee
stock options under the fair value method of SFAS No. 123. The fair value of
each option grant under the fixed price option plans and the fair value of the
employee's purchase rights under the employee stock purchase plan were estimated
at the date of grant using a Black-Scholes option-pricing model. The dividend
yield was assumed to be zero for both periods below. The weighted-average of all
other significant assumptions and the weighted-average fair value of grants made
during the years ended May 31, 1999 and 1998 are as follows:
<PAGE>
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
Option Plan ESPP Plan Option Plan ESPP Plan
<S> <C> <C> <C> <C>
Volatility 63.88% 63.88% 48.10% 48.10%
Risk-free interest rate 5.39 % 4.90% 6.52% 5.69%
Expected lives 5.09 yrs 0.5 yrs 5.0 yrs 0.5 yrs
Fair value of grants $3.54 $3.78 $3.56 $3.55
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income/(loss) in thousands and earnings per share would have been
($1,104) or ($0.23) basic and diluted net income per share, and $2,291 or $0.46
basic and $0.45 diluted net income per share for the fiscal years 1999 and 1998,
respectively.
Note 10 - Commitments and Contingencies
The Company leases certain premises and equipment under operating lease
agreements. Future minimum commitments under leasing arrangements at May 31,1999
were as follows (in thousands):
Operating
Leases
Year ending May 31:
1999 $ 6,007
2000 4,065
2001 2,942
2002 2,310
2003 and thereafter 933
- --------------------------------------------------------------------------------
Minimum commitments $16,257
Rental expense was $5.9 million in 1999, $5.5 million in 1998, and $5.4 million
in 1997. Lease terms expire between June 1999 and May 2004. Most leases contain
a renewal option at fair market value.
The Company has a substantial number of U.S. Government contracts, under which
the costs are subject to audit. Management believes that the effect of
disallowed costs, if any, will not have a material adverse effect on the
financial position or results of operations of the Company.
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of its business. In the opinion of management, adequate
provision has been made for all known liabilities that are currently expected to
result from these claims and lawsuits and in the aggregate such claims will not
have a material effect on the financial position of the Company. The estimates
used in establishing these provisions could differ from actual results. Should
these provisions change significantly, the effect on operations for any
quarterly or annual reporting period could be material.
The Company has a $15 million per occurrence, $25 million aggregate contractor's
operations and professional services insurance policy through an unrelated
insurance carrier. The Company also maintains general liability insurance with
an unrelated, rated carrier.
Note 11 - Restructuring Charges
In May 1999, the Company recorded charges for (i) anticipated losses associated
with the planned disposal of its investments in its Australian and Mexican
operations; such investments have been written down to their anticipated net
realizable value, (ii) severance and other costs associated with the corporate
reorganization and corporate office relocation, and (iii) the writedown of
goodwill associated with the Company's acquisition of EEC Environmental, Inc. in
1993.
The following table reflects the components of costs reflected as Restructuring
Charges for fiscal 1999 (in thousands):
Anticipated losses associated
with the planned disposal of
Australian operations $1,904
Mexican operations 250
Severance costs 1,629
Corporate office closure/relocation 400
Write-down of goodwill 200
-------
$4,383
As of May 31, 1999, the accompanying consolidated financial statements reflect
$2,768,000 in Accrued Expenses in connection with the Restructuring Charges.
Since the Restructuring Charges were recorded in May 1999, no offsets or
payments related to such accruals were recorded prior to the end of fiscal 1999.
The remaining charges were recorded as a reduction to the related assets
including a $1 million write-down of goodwill.
Note 12 - Investments in Equity Securities
In accordance with SFAS No. 115 and EITF 97-14 and based on the Company's
intentions regarding these instruments, the Company has classified its
marketable equity securities as trading (included in "Investments - Rabbi Trust"
in the accompanying consolidated balance sheet. At May 31, 1999, the aggregate
fair value of these equity securities was $3,629.
These securities consist solely of mutual funds held entirely with a large
financial management institution. The Company has evaluated the risk associated
with these investments and has deemed such risk minimal.
Note 13 - Segment Information
In fiscal 1999, the Company adopted SFAS 131 and concluded that it has one
reportable segment. The following information is provided as required by the
enterprise-wide provisions of SFAS 131, about the Company's operations.
The table below presents information about net revenue from external customers
for the services provided by the Company (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Products and Services
Environmental Services $95,928 $73,906 $72,210
Infrastructure Services 12,830 9,545 12,066
-------- ------- -------
Company Total $108,758 $83,451 $84,276
======== ======= =======
</TABLE>
The table below presents information (in thousands) about revenue from external
customers attributable to the Company's country of domicile and attributable to
all foreign countries. The method for attributing revenues from particular
countries is based on the location where the service is actually being provided.
Individual countries are not shown because they are not material. The two main
foreign countries in which the Company has operations are Australia and Mexico.
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Country
United States $104,524 $78,205 $77,198
Australia/Mexico 4,234 5,246 7,078
-------- ------- -------
Company Total $108,758 $83,451 $84,276
======== ======= =======
</TABLE>
The table below presents information about long-lived assets attributable to the
Company's country of domicile and attributable to all foreign countries (in
thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Country
United States $86,691 $72,473 $63,244
Australia/Mexico 450 4,145 4,122
------- ------- --------
Company Total $87,141 $76,618 $67,366
======= ======= =======
</TABLE>
The amounts included for net revenue and total assets are based on the financial
information used to produce these financial statements.
<PAGE>
Note 14 - Selected Quarterly Financial Data (Unaudited)
The Company's fiscal quarters end on August 31, November 30, February 28, and
May 31. Selected quarterly financial data for fiscal 1999 and 1998 are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarterly Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
YEAR ENDED MAY 31, 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $27,681 $26,797 $26,295 $27,985
Operating income/(loss) 1,646 120 553 (3,338) (1)
Net income/(loss) 1,013 139 414 (2,408) (1)
Basic net income/(loss) per share $0.21 $0.03 $0.09 $(0.50)
Shares used in computing basic net
Income/(loss) per share 4,896 4,835 4,815 4,852
Diluted net income/(loss) per share $0.20 $0.03 $0.09 $(0.50)
Shares used in computing diluted net
Income/(loss) per share 4,999 4,854 4,830 4,852
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Net revenue $21,681 $21,280 $19,081 $21,409
Operating income 1,327 1,265 202 426
Net income 920 891 254 423
Basic net income per share $0.19 $0.18 $0.05 $0.08
Shares used in computing basic net
income per share 4,887 4,971 4,986 4,992
Diluted net income per share $0.19 $0.17 $0.05 $0.08
Shares used in computing diluted net
income per share 4,928 5,133 5,142 5,145
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) The operating loss and net loss in the fourth quarter of fiscal 1999 result primarily from the Restructuring
Charges.
</FN>
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Harding Lawson Associates Group, Inc.
Novato, California
We have audited the accompanying consolidated balance sheets of Harding Lawson
Associates Group, Inc. as of May 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended May 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Harding
Lawson Associates Group, Inc. at May 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended May 31, 1999, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Francisco, California
July 7, 1999
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "Proposal No. 1: Election of
Directors" under the sections entitled "General," "Security Ownership of
Management," "The Directors," and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" of the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on September 17, 1999, that is to be
filed pursuant to regulation 14A under the Securities Exchange Act of 1934 (the
"Proxy Statement"), is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Proposal No. 1: Election of
Directors -- Compensation of Directors and Executive Officers" of the Proxy
Statement is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Proposal No. 1: Election of
Directors" under the headings "Security Ownership of Management" and "Principal
Shareholders" of the Proxy Statement is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Proposal No. 1: Election of
Directors -- Certain Relationships and Related Transactions" of the Proxy
Statement is incorporated by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (i) Consolidated Financial Statements
The following consolidated financial statements of the Company are
included in Item 8, above.
Consolidated Balance Sheets, May 31, 1999 and 1998
Consolidated Statements of Income for the years ended
May 31, 1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended
May 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Report of Ernst and Young LLP, Independent Auditors
(ii) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(iii) Exhibits
Exhibits marked with a single asterisk are attached as Exhibits to this
Annual Report.
2.1 Stock Purchase Agreement effective May 8, 1998 by and among
the Company and ABB Services, Inc., incorporated by reference
from the Company's Form 8-K, as filed with the Commission on
May 21, 1998, where it appeared as Exhibit 2.1 thereto.
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference from amendment No. 1 to the
Company's Registration Statement on Form S-1 under the 1933
Act, Registration No. 33-15852, that was filed with the
Commission on August 14, 1987 ("Amendment No. 1"), where it
appears as Exhibit 3(a) thereto.
3.2 Amendment to Restated Certificate of Incorporation changing
the Company's name from Harding Associates, Inc. to Harding
Lawson Associates Group, Inc., incorporated by reference from
the Company's 1996 Annual Report on Form 10-K, as filed with
the Commission on August 29, 1996 ("1996 Form 10-K"), where it
appears as Exhibit 3.2 thereto.
3.3 Bylaws of the Company, incorporated by reference from
Amendment No. 1, where they appear as Exhibit 3(c) thereto.
10.1@ Harding Lawson Associates Group, Inc. 1987 Stock Option Plan,
incorporated by reference from the Company's 1988 Annual
Report on Form 10-K, as filed with the Commission on August
28, 1988 ("1988 Form 10-K"), where it appears as Exhibit 4(b)
thereto.
10.2@ Harding Lawson Associates Group, Inc. revised 1988 Stock
Option and Restricted Stock Option Plan incorporated by
reference from the Company's 1994 Annual Report on Form 10-K,
as filed with the Commission on August 25, 1994 ("1994 Form
10-K"), where it appears as Exhibit 10.2 thereto.
10.3 Amendment to the Harding Lawson Associates Group, Inc. 1991
Employee Stock Purchase Plan, incorporated by reference from
the 1996 Form 10-K, where it appears as Exhibit 10.3 thereto.
10.4@* Harding Lawson Associates Group, Inc. 1998 Stock Option Plan.
10.5@ Form of Directors' and Officers' Indemnification Agreements,
incorporated by reference from the Registration Statement
where it appears as Exhibit 10(a) thereto.
10.6 Line of credit agreement with Wells Fargo Bank, N.A.as amended
October 31, 1997.
10.7* Amendment to Line of Credit with Wells Fargo Bank, N.A. dated
December 1, 1998.
10.8@ 1995 Executive Stock Incentive Plan approved by the Company's
Shareholders in November 1995, incorporated by reference from
the 1996 Form 10-K, where it appears as Exhibit 10.9 thereto.
10.9 Non-employee Director Compensation Plan dated April 27, 1997,
incorporated by reference from the 1997 Form 10-K, where it
appears as Exhibit 10.10 thereto.
10.10 Non-qualified Deferred Compensation Plan as amended June 2,
1998, incorporated by reference from the 1998 Form 10-K, where
it appears as Exhibit 10.11 thereto.
10.11*@ Executive Separation and General Release dated December 1,
1998 for Donald L. Schreuder.
10.12@ Employment Agreement dated March 19, 1999 for Robert L.
Costello, Jr., incorporated by reference from the Form 10-Q
for the quarterly period ended February 28, 1999, where it
appears as Exhibit 10.12 thereto.
10.13@ Executive Retention Agreement dated February 17, 1999 for
Claude Corvino, incorporated by reference from the Form 10-Q
for the quarterly period ended February 28, 1999, where it
appears as Exhibit 10.13 thereto.
10.14@ Executive Retention Agreement dated February 17, 1999 for
Arthur C. Riese, incorporated by reference from the Form 10-Q
for the quarterly period ended February 28, 1999, where it
appears as Exhibit 10.14 thereto.
10.15@ Executive Retention Agreement dated February 17, 1999 for
Gregory A. Thornton, incorporated by reference from the Form
10-Q for the quarterly period ended February 28, 1999, where
it appears as Exhibit 10.15 thereto.
10.16*@ Amendment to Retention Agreement effective July 9, 1999
for Claude Corvino.
10.17*@ Amendment to Retention Agreement effective July 9, 1999 for
Arthur C. Riese.
10.18*@ Amendment to Retention Agreement effective July 9, 1999 for
Gregory A. Thornton.
11.* Computation of Per Share Earnings.
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst and Young LLP, Independent Auditors
27. Financial Data Schedule (electronic filing only).
* Exhibits are attached to this Annual Report.
@ Management contracts and compensatory plans or arrangements required to be
filed as Exhibits in compliance with Item 14(a)(3).
The Company will provide a copy of any exhibit upon request and payment of the
Company's reasonable expenses of furnishing such exhibit.
(b) Reports on Form 8-K
Date of Report Item Reported
October 2, 1998 Item 5: Donald L. Schreuder resigns as Chief
Executive Officer.
March 17, 1999 Item 5: Robert L. Costello, Jr. named
as Chief Executive Officer.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HARDING LAWSON ASSOCIATES GROUP, INC.
Date: July 28, 1999 By: /s/ Robert L. Costello, Jr.
-------------------------------------------
Robert L. Costello, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 28, 1999 By: /s/ Gregory A. Thornton
---------------------------------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Ross K. Anderson Director August 2, 1999
- --------------------------
Ross K. Anderson
/s/ Robert L. Costello, Jr. Chief Executive Officer July 28, 1999
- --------------------------- and Director
Robert L. Costello, Jr.
/s/ James M. Edgar Director August 3, 1999
- --------------------------
James M. Edgar
/s/ Richard S. Harding Director and Chairman July 28, 1999
- -------------------------- Emeritus
Richard S. Harding
/s/ Stuart F. Platt Director July 28, 1999
- -------------------------
Adm. Stuart F. Platt (Ret.)
/s/ Richard D. Puntillo Chairman of the Board July 28, 1999
- ------------------------
Richard D. Puntillo
/s/ Donald K. Stager Director July 28, 1999
- ------------------------
Donald K. Stager
<PAGE>
Index to Exhibits
Exhibit No. Exhibit
10.4 Harding Lawson Associates Group, Inc. 1998 Stock Option Plan.
10.7 Amendment to Line of Credit with Wells Fargo Bank, N.A. dated
December 1, 1998.
10.11 Executive Separation and General Release dated December 1, 1998
for Donald L. Schreuder
10.16 Amendment to Retention Agreement effective July 9, 1999 for
Claude Corvino.
10.17 Amendment to Retention Agreement effective July 9, 1999 for
Arthur C. Riese.
10.18 Amendment to Retention Agreement effective July 9, 1999 for
Gregory A. Thornton.
11. Computation of Per Share Earnings.
21. Subsidiaries of the Registrant
23. Consent of Ernst and Young LLP, Independent Auditors
27. Financial Data Schedule (Electronic filing only)
Exhibit 10.4
HARDING LAWSON ASSOCIATES GROUP, INC.
1998 STOCK OPTION PLAN
1. Adoption and Purpose of the Plan. This stock option plan, to be
known as the "Harding Lawson Associates 1998 Stock Option Plan" (but referred to
herein as the "Plan") has been adopted by the board of directors (the "Board")
of Harding Lawson Associates Group, Inc., a Delaware corporation (the
"Company"), and is subject to the approval of its shareholders pursuant to
section 7 below. The purpose of this Plan is to advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
qualified directors, officers, and employees with an opportunity for investment
in the Company. The options that may be granted hereunder ("Options") represent
the right by the grantee thereof (each, including any permitted transferee, an
"Optionee") to acquire shares of the Company's common stock ("Shares," which if
acquired pursuant to the exercise of an Option will be referred to as "Option
Shares") subject to the terms and conditions of this Plan and a written
agreement between the Company and the Optionee to evidence each such Option (an
"Option Agreement").
2. Certain Definitions. The defined terms set forth in Exhibit A
attached hereto and incorporated herein (together with other capitalized terms
defined elsewhere in this Plan) will govern the interpretation of this Plan.
3. Eligibility. The Company may grant Options under this Plan only to
persons who, at the time of such grant, are directors, officers and/or employees
of the Company and/or any of its Subsidiaries (collectively, "Eligible
Participants"). No person will be an Eligible Participant following his or her
Termination of Eligibility Status and no Option may be granted to any person
other than an Eligible Participant. There is no limitation on the number of
Options that may be granted to an Eligible Participant.
4. Shares Reserved for Options. The plan shall consist of 500,000
Option Shares. At all times while Options granted under this Plan are
outstanding, the Company will reserve for issuance for the purposes hereof a
sufficient number of authorized and unissued Shares to fully satisfy the
Company's obligations under all such outstanding Options.
5. Administration. This Plan will be administered and interpreted by
the Board, or by a committee consisting of two or more members of the Board,
appointed by the Board for such purpose (the Board, or such committee, referred
to herein as the "Administrator"). Subject to the express terms and conditions
hereof, the Administrator is authorized to prescribe, amend and rescind rules
and regulations relating to this Plan, and to make all other determinations
necessary or advisable for its administration and interpretation. Specifically,
the Administrator will have full and final authority in its discretion, subject
to the specific limitations on that discretion as are set forth herein and in
the Articles of Incorporation and Bylaws of the Company, at any time:
(a) to select and approve the Eligible Participants to
whom Options will be granted from time to time hereunder;
(b) to determine the Fair Market Value of the Shares
as of the Grant Date for any Option that is granted hereunder;
(c) with respect to each Option it decides to grant, to
determine the terms and conditions of that Option, to be set forth in the Option
Agreement evidencing that Option (the form of which also being subject to
approval by the Administrator), which may vary from the "default" terms and
conditions set forth in section 6 below, except to the extent otherwise provided
in this Plan, including, without limitation, as follows:
(i) the total number of Option Shares that may be
acquired by the Optionee pursuant to the Option;
(ii) if the Option satisfies the conditions under
Section 422(b) of the Code, whether the Option will be treated as an ISO;
(iii) the per share purchase price to be paid to the
Company by the Optionee to acquire the Option Shares issuable upon exercise of
the Option (the "Option Price");
(iv) the maximum period or term during which the
Option will be exercisable (the "Option Term");
(v) the maximum period following any Termination of
Eligibility Status, whether resulting from an Optionee's death, disability or
any other reason, during which period (the "Grace Period") the Option will be
exercisable, subject to Vesting and to the expiration of the Option Term;
(vi) whether to accept a promissory note or other
form of legal consideration in addition to cash as payment of all or a portion
of the Option Price and/or Tax Withholding Liability to be paid by the Optionee
upon the exercise of an Option granted hereunder;
(vii) the conditions (e.g., the passage of time or
the occurrence of events), if any, that must be satisfied prior to the vesting
of the right to exercise all or specified portions of an Option (such portions
being described as the number of Option Shares, or the percentage of the total
number of Option Shares that may be acquired by the Optionee pursuant to the
Option; the vested portion being referred to as a "Vested Option" and the
unvested portion being referred to as an "Unvested Option"); and
(d) to delegate all or a portion of the Administrator's
authority under sections 5(a), (b) and (c) above to one or more members of the
Board who also are executive officers of the Company, and subject to such
restrictions and limitations as the Administrator may decide to impose on such
delegation.
6. Default Terms and Conditions of Option Agreements. Unless otherwise
expressly provided in an Option Agreement based on the Administrator's
determination pursuant to section 5(c) above, the following terms and conditions
will be deemed to apply to each Option as if expressly set forth in the Option
Agreement:
6.1 ISO. No Option will be treated as an ISO unless treatment
as an ISO is expressly provided for in an Option Agreement and such Option
satisfies the conditions of Section 422(b) of the Code.
6.2 Option Term. The Option Term will be for a period
of 10 years beginning on the Grant Date (or 5 years in the case of an ISO
granted to a 10% shareholder).
6.3 Grace Periods. Following a Termination of Eligibility
Status:
(a) Unless the Termination of Eligibility Status is a
result of a Qualified Retirement or Termination for Cause, that portion of the
Option that is a Vested Option will be exercisable for 30 days from the date of
termination, except in the case of death or permanent disability, when such
Vested Options will be exercisable for one year from the date of death or
determination of permanent disability;
(b) If the termination of Eligibility Status is the
result of a Qualified Retirement, that portion of the Option that is a Vested
Option will be exercisable at any time prior to the expiration of the Option
Term; and
(c) the Option will terminate, and there will be no
Grace Period, effective immediately as of the date and time of a Termination for
Cause of the Optionee, regardless of whether the Option is Vested or Unvested.
6.4 Vesting. The Option initially will be deemed an entirely
Unvested Option, but portions of the Option will become a Vested Option on the
following schedule, unless otherwise specified in the Option Agreement:
(a) fifty percent (50%) will become a Vested as of
the second anniversary of the "Grant Date" specified in the Option Agreement;
and
(b) twenty-five percent (25%) of the Option will
become a Vested Option as of the third anniversary of the Grant Date; and
(c) twenty-five percent (25%) of the Option will
become a Vested Option as of the fourth anniversary of the Grant Date;
provided that the Optionee does not suffer a Termination of Eligibility Status
prior to each such vesting date and provided further that additional vesting
will be suspended during any period while the Optionee is on a leave of absence
from the Company or its Subsidiaries, as determined by the Administrator.
6.5 Exercise of the Option; Issuance of Share Certificate.
(a) The portion of the Option that is a Vested Option
may be exercised by giving written notice thereof to the Company, on such form
as may be specified by the Administrator, but in any event stating: the
Optionee's intention to exercise the Option; the date of exercise; the number of
full Option Shares to be purchased; the amount and form of payment of the Option
Price; and such assurances of the Optionee's investment intent as the Company
may require to ensure that the transaction complies in all respects with the
requirements of the 1933 Act and other applicable securities laws. The notice of
exercise will be signed by the person or persons exercising the Option. In the
event that the Option is being exercised by the representative of the Optionee,
the notice will be accompanied by proof satisfactory to the Company of the
representative's right to exercise the Option. The Option may be exercised by a
securities broker acting on behalf of the Optionee pursuant to authorization
instructions approved by the Company. The notice of exercise will be accompanied
by full payment of the Option Price for the number of Option Shares to be
purchased, in United States dollars, in cash, by check made payable to the
Company, or by delivery of such other form of payment (if any) as approved by
the Administrator. Payment may also be made by delivering a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds sufficient to pay the Option Price and, if required, the amount
of any Tax Witholding Liability.
(b) To the extent required by applicable federal,
state, local or foreign law, and as a condition to the Company's obligation to
issue any Shares upon the exercise of the Option in full or in part, the
Optionee will make arrangements satisfactory to the Company for the payment of
any applicable Tax Withholding Liability that may arise by reason of or in
connection with such exercise. Such arrangements may include, in the Company's
sole discretion, that the Optionee tender to the Company the amount of such Tax
Withholding Liability, in cash, by check made payable to the Company, by
delivery of irrevocable instructions to a broker as described in the last
sentence of section (a) above, or in the form of such other payment as may be
approved by the Administrator, in its discretion pursuant to section 5(c)(vi)
above.
(c) After receiving a proper notice of exercise and
payment of the applicable Option Price and Tax Withholding Liability, the
Company will cause to be issued a certificate or certificates or an electronic
transfer of shares, where requested, for the Option Shares as to which the
Option has been exercised, registered in the name of the person rightfully
exercising the Option and the Company will cause such certificate or
certificates or electronic transfer to be delivered to such person.
6.6 Compliance with Law. Notwithstanding any other provision
of this Plan, Options may be granted pursuant to this Plan, and Option Shares
may be issued pursuant to the exercise thereof by an Optionee, only after and on
the condition that there has been compliance with all applicable federal and
state securities laws. The Company will not be required to list, register or
qualify any Option Shares upon any securities exchange, under any applicable
state, federal or foreign law or regulation, or with the Securities and Exchange
Commission or any state agency, or secure the consent or approval of any
governmental regulatory authority, except that if at any time the Board
determines, in its discretion, that such listing, registration or qualification
of the Option Shares, or any such consent or approval, is necessary or desirable
as a condition of or in connection with the exercise of an Option and the
purchase of Option Shares thereunder, that Option may not be exercised, in whole
or in part, unless and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions that are not
acceptable to the Board, in its discretion. However, the Company will seek to
register or qualify with, or as may be provided by applicable local law, file
for and secure an exemption from such registration or qualification requirements
from, the applicable securities administrator and other officials of each
jurisdiction in which an Eligible Participant would be granted an Option
hereunder prior to such grant.
6.7 Restrictions on Transfer.
(a) Options Nontransferable. No Option will be
transferable by an Optionee otherwise than by will or the laws of descent and
distribution. During the lifetime of a natural person who is granted an Option
under this Plan, the Option will be exercisable only by him or her.
Notwithstanding anything else in this Plan to the contrary, no Option Agreement
will contain any provision which is contrary to, or which modifies, the
provisions of this section 6.7(a).
(b) Prohibited Transfers. No Holder of any Option
Shares may Transfer such Shares, or any interest therein: (i) except as
expressly provided in this Plan; and (ii) in full compliance with all applicable
securities laws and any applicable restrictions on Transfer provided in the
Company's Articles of Incorporation and/or Bylaws, which will be deemed
incorporated by reference into this Plan. All Transfers of Option Shares not
complying with the specific limitations and conditions set forth in this section
6.7 are expressly prohibited. Any prohibited Transfer is void and of no effect,
and no purported transferee in connection therewith will be recognized as a
Holder of Option Shares for any purpose whatsoever. Should such a Transfer
purport to occur, the Company may refuse to carry out the Transfer on its books,
attempt to set aside the Transfer, enforce any undertakings or rights under this
Plan, or exercise any other legal or equitable remedy.
(c) Conditions to Transfer. It will be a condition to
any Transfer of any Option Shares that:
(i) the transferee of the Shares will
execute such documents as the Company may reasonably require to ensure that the
Company's rights under this Plan, and any applicable Option Agreement, are
adequately protected with respect to such Shares, including, without limitation,
the transferee's agreement to be bound by all of the terms and conditions of
this Plan and such Agreement, as if he or she were the original Holder of such
Shares; and
(ii) the Company is satisfied that such
Transfer complies in all respects with the requirements imposed by applicable
state and federal securities laws and regulations.
(d) Market Standoff. If in connection with any public
offering of securities of the Company (or any Successor Entity), the underwriter
or underwriters managing such offering so requests, then each Optionee and each
Holder of Option Shares will agree to not sell or otherwise Transfer any such
Shares (other than Shares included in such underwriting) without the prior
written consent of such underwriter, for such period of time as may be requested
by the underwriter commencing on the effective date of the registration
statement filed with the Securities and Exchange Commission in connection with
such offering.
6.8 Change of Control Transactions. Except as otherwise
provided in the Option Agreement, or any contract of employment or engagement
between Optionee and the Company, in the event of a Change of Control
Transaction, the Company shall endeavor to cause the Successor Entity in such
transaction either to assume all of the Options which have been granted
hereunder and which are outstanding as of the consummation of such transaction
("Closing"), or to issue (or cause to be issued) in substitution thereof
comparable options of such Successor Entity (or of its parent or its
Subsidiary). If the Successor Entity is unwilling to either assume such Options
or grant comparable options in substitution for such Options, on terms that are
acceptable to the Company as determined by the Board in the exercise of its
discretion, then with respect to each outstanding Option, that portion of the
Option which remains Unvested will become Vested immediately prior to such
Closing; and the Board may cancel all outstanding Options, and terminate this
Plan, effective as of the Closing, provided that it will notify all Optionees of
the proposed Change of Control Transaction a reasonable amount of time prior to
the Closing so that each Optionee will be given the opportunity to exercise the
Vested portion of his or her Option (after giving effect to the acceleration of
such vesting discussed above) prior to the Closing. For purposes of this section
6.8, the term "Change of Control Transaction" means (a) the sale of all or
substantially all of the assets of the Company to any person or entity that,
prior to such sale, did not control, was not under common control with, or was
not controlled by, the Company, or (b) a merger or consolidation or other
reorganization in which the Company is not the surviving entity or becomes owned
entirely by another entity, unless at least fifty percent (50%) of the
outstanding voting securities of the surviving or parent corporation, as the
case may be, immediately following such transaction are beneficially held by
such persons and entities in the same proportion as such persons and entities
beneficially held the outstanding voting securities of the Company immediately
prior to such transaction, or (c) the sale or other change of beneficial
ownership of the outstanding voting securities of the Company such that any
person or "group" as that term is defined under the Securities Exchange Act of
1934, as amended becomes the beneficial owner of more than 50% of the
outstanding voting securities of the Company.
6.9 Additional Restrictions on Transfer; Investment Intent. By
accepting an Option and/or Option Shares under this Plan, the Optionee will be
deemed to represent, warrant and agree that, unless a registration statement is
in effect with respect to the offer and sale of Option Shares: (i) neither the
Option nor any such Shares will be freely tradeable and must be held
indefinitely unless such Option and such Shares are either registered under the
1933 Act or an exemption from such registration is available; (ii) the Company
is under no obligation to register the Option or any such Shares; (iii) upon
exercise of the Option, the Optionee will purchase the Option Shares for his or
her own account and not with a view to distribution within the meaning of the
1933 Act, other than as may be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (iv) no one else will have any
beneficial interest in the Option Shares; (v) the Optionee has no present
intention of disposing of the Option Shares at any particular time; and (vi)
neither the Option nor the Shares have been qualified under the securities laws
of any state and may only be offered and sold pursuant to an exception from
qualification under applicable state securities laws.
6.10 Stock Certificates; Legends. Certificates representing
Option Shares will bear all legends required by law and necessary or appropriate
in the Administrator's discretion to effectuate the provisions of this Plan and
of the applicable Option Agreement. The Company may place a "stop transfer"
order against Option Shares until full compliance with all restrictions and
conditions set forth in this Plan, in any applicable Option Agreement and in the
legends referred to in this section 6.10.
6.11 Notices. Any notice to be given to the Company under the
terms of an Option Agreement will be addressed to the Company at its principal
executive office, Attention: Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to an Optionee will be
addressed to him or her at the address provided to the Company by the Optionee.
Any such notice will be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, deposited, postage prepaid, in
a post office or branch post office regularly maintained by the local postal
authority.
6.12 Other Provisions. Each Option Agreement may contain such
other terms, provisions and conditions, including restrictions on the Transfer
of Option Shares, and rights of the Company to repurchase such Shares, not
inconsistent with this Plan and applicable law, as may be determined by the
Administrator in its sole discretion.
6.13 Specific Performance. Under those circumstances in which
the Company chooses to timely exercise its rights to repurchase Option Shares as
provided herein or in any Option Agreement, the Company will be entitled to
receive such Shares in specie in order to have the same available for future
issuance without dilution of the holdings of other shareholders of the Company.
By accepting Option Shares, the Holder thereof therefore acknowledges and agrees
that money damages will be inadequate to compensate the Company and its
shareholders if such a repurchase is not completed as contemplated hereunder and
that the Company will, in such case, be entitled to a decree of specific
performance of the terms hereof or to an injunction restraining such holder (or
such Holder's personal representative) from violating this Plan or Option
Agreement, in addition to any other remedies that may be available to the
Company at law or in equity.
7. Term of the Plan. This Plan will become effective on the date of its
adoption by the Board. This Plan will expire on the tenth (10th) anniversary of
the date of its adoption by the Board or its approval by the shareholders of the
Company, whichever is earlier, unless it is terminated earlier pursuant to
section 11 of this Plan, after which no more Options may be granted under this
Plan, although all outstanding Options granted prior to such expiration or
termination will remain subject to the provisions of this Plan, and no such
expiration or termination of this Plan will result in the expiration or
termination of any such Option prior to the expiration or early termination of
the applicable Option Term.
8. Adjustments Upon Changes in Stock. In the event of any change in the
outstanding Shares of the Company as a result of a stock split, reverse stock
split, stock bonus or distribution, recapitalization, combination or
reclassification, appropriate proportionate adjustments will be made in: (i) the
aggregate number of Shares that are reserved for issuance in the Option Pool
pursuant to section 4 above, under outstanding Options or future Options granted
hereunder; (ii) the Option Price and the number of Option Shares that may be
acquired under each outstanding Option granted hereunder; and (iii) other rights
and matters determined on a per share basis under this Plan or any Option
Agreement evidencing an outstanding Option granted hereunder. Any such
adjustments will be made only by the Board, and when so made will be effective,
conclusive and binding for all purposes with respect to this Plan and all
Options then outstanding. No such adjustments will be required by reason of the
issuance or sale by the Company for cash or other consideration of additional
Shares or securities convertible into or exchangeable for Shares.
9. Modification, Extension and Renewal of Options. Subject to the terms
and conditions and within the limitations of this Plan, the Administrator may
modify outstanding Options granted under this Plan, but under no circumstances
may the shares be repriced or surrendered and replaced with other options
bearing a lower exercise price. Notwithstanding the foregoing, however, no
modification of any Option will, without the consent of the Optionee, alter or
impair any rights or obligations under any outstanding Option.
10. Governing Law. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Plan, the construction of its terms and the interpretation of the rights and
duties of the parties hereunder and under any Option Agreement.
11. Amendment and Discontinuance. The Board may amend, suspend or
discontinue this Plan at any time or from time to time; provided that no action
of the Board will, without the approval of the shareholders of the Company,
materially increase (other than by reason of an adjustment pursuant to section 8
hereof) the maximum aggregate number of Option Shares in the Option Pool, or
materially modify the category of, or eligibility requirements for, persons who
are Eligible Participants. However, no such action may alter or impair any
Option previously granted under this Plan without the consent of the Optionee,
nor may the number of Option Shares in the Option Pool be reduced to a number
that is less than the aggregate number of Option Shares (i) that may be issued
pursuant to the exercise of all outstanding and unexpired Options granted
hereunder, and (ii) that have been issued and are outstanding pursuant to the
exercise of Options granted hereunder.
12. No Shareholder Rights. No rights or privileges of a shareholder in
the Company are conferred by reason of the granting of an Option. No Optionee
will become a shareholder in the Company with respect to any Option Shares
unless and until the Option has been properly exercised and the Option Price
fully paid as to the portion of the Option exercised.
13. Copies of Plan. A copy of this Plan will be delivered to each
Optionee at or before the time he, she or it executes an Option Agreement.
Date Plan Adopted by Board of Directors: September 25, 1998
Date Plan Approved by the Shareholders: November 4, 1998
<PAGE>
EXHIBIT A
DEFINITIONS
1. "10% shareholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Company and/or of its Subsidiaries.
2. "1933 Act" means the Securities Act of 1933, as amended.
3. "Administrator" has the meaning set forth in section 5 of the
Plan.
4. "Board" has the meaning set forth in section 1 of the Plan.
5. "Business Combination" has the meaning set forth in section
6.8 of the Plan.
6. "Change of Control Transaction" has the meaning set forth in
section 6.8 of the Plan.
7. "Closing" has the meaning set forth in section 6.8 of the Plan.
8. "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of the Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise).
9. "Company" has the meaning set forth in section 1 of the Plan.
10. "Disability" means any physical or mental disability that results
in a Termination of Eligibility Status under applicable law, except that for
purposes of section 6.1(c) of the Plan, the term "disability" means permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
11. "Donative Transfer" with respect to Option Shares means any
voluntary Transfer by a transferor other than for value or the payment of
consideration to the transferor.
12. "Eligible Participants" has the meaning set forth in section 3
of the Plan.
13. "Fair Market Value" means, with respect to the Shares and as of the
date that is relevant to such a determination (e.g., on the Grant Date), the
market price per share of such Shares determined by the Administrator,
consistent with the requirements of Section 422 of the Code and to the extent
consistent therewith, as follows: (a) if the Shares are traded on a stock
exchange on the date in question, then the Fair Market Value will be equal to
the closing price reported by the applicable composite-transactions report for
such date; (b) if the Shares are traded over-the-counter on the date in question
and are classified as a national market issue, then the Fair Market Value will
be equal to the last-transaction price quoted by The Nasdaq Stock Market for
such date; (c) if the Shares are traded over-the-counter on the date in question
but are not classified as a national market issue, then the Fair Market Value
will be equal to the mean between the last reported representative bid and asked
prices quoted by The Nasdaq Stock Market for such date; and (d) if none of the
foregoing provisions is applicable, then the Fair Market Value will be
determined by the Administrator in good faith on such basis as it deems
appropriate.
14. "Grace Period" has the meaning set forth in section 5(c)(v) of
the Plan.
15. "Grant Date" means, with respect to an Option, the date on which
the Option Agreement evidencing that Option is entered into between the Company
and the Optionee, or such other date as may be set forth in that Option
Agreement as the "Grant Date" which will be the effective date of that Option
Agreement.
16. "Holder" means the holder of any Option Shares.
17. "Involuntary Transfer" with respect to Option Shares includes,
without limitation, any of the following: (A) an assignment of the Shares for
the benefit of creditors of the transferor; (B) a Transfer by operation of law;
(C) an execution of judgment against the Shares or the acquisition of record or
beneficial ownership of Shares by a lender or creditor; (D) a Transfer pursuant
to any decree of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a spouse
(except for bona fide estate planning purposes) under which any Shares are
Transferred or awarded to the spouse of the transferor or are required to be
sold; or (E) a Transfer resulting from the filing by the transferor of a
petition for relief, or the filing of an involuntary petition against the
transferor, under the bankruptcy laws of the United States or of any other
nation.
18. "ISO" means an "incentive stock option" as defined in Section
422 of the Code.
19. "Option Agreement" has the meaning set forth in section 1 of
the Plan.
20. "Option Price" has the meaning set forth in section 5(c)(iii)
of the Plan.
21. "Option Shares" has the meaning set forth in section 1 of the Plan,
provided that for purposes of section 6.7 of the Plan, the term "Option Shares"
includes all Shares issued by the Company to a Holder (or his, her or its
predecessor) by reason of such holdings, including any securities which may be
acquired as a result of a stock split, stock dividend, and other distributions
of Shares in the Company made upon, or in exchange for, other securities of the
Company.
22. "Option Term" has the meaning set forth in section 5(c)(iv) of
the Plan.
23. "Optionee" has the meaning set forth in section 1 of the Plan.
24. "Options" has the meaning set forth in section 1 of the Plan.
25. "Plan" has the meaning set forth in section 1 of the Plan.
26. Qualified Retirement shall mean the voluntary termination of an
employee or director of the Company after the individual has reached age 55 with
not less than 10 years of service with the Company. In order for such
termination to remain a Qualified Retirement under the Plan, the individual must
withdraw from the profession in which that individual was employed with the
Company and shall not during the time of the Grace Period, directly engage in or
have any interest in, any person, firm, corporation or business (whether as an
employee, officer, director, agent, security holder, creditor, consultant or
otherwise) that engages in any activity or service which is the same as, similar
to or competitive with, in whole or in part, the Company.
27. "Shares" has the meaning set forth in section 1 of the Plan.
28. "Subsidiary" has the same meaning as "Subsidiary Corporation"
as defined in Section 424(f) of the Code.
29. "Successor Entity" means a corporation or other entity that
acquires all or substantially all of the assets of the Company, or which is the
surviving or parent entity resulting from a Business Combination, as that term
is defined in section 6.8 of the Plan.
30. "Tax Withholding Liability" in connection with the exercise of any
Option means all federal and state income taxes, social security tax, and any
other taxes applicable to the compensation income arising from the transaction
required by applicable law to be withheld by the Company.
31. "Termination of Eligibility Status" means (i) in the case of any
employee of the Company and/or any of its Subsidiaries, a termination of his or
her employment, whether by the employee or employer, and whether voluntary or
involuntary, including without limitation as a result of the death or disability
of the employee, and (ii) in the case of any director of the Company and/or any
of its Subsidiaries, the death of or resignation by the director or his or her
removal from the board in the manner provided by the articles of incorporation,
bylaws or other organic instruments of the Company or Subsidiary or otherwise in
accordance with applicable law.
32. "Termination for Cause" means (i) in the case of an Optionee who is
an employee of the Company and/or any of its Subsidiaries, a termination by the
employer of the Optionee's employment for "cause" as defined by any applicable
contract of employment, or if not defined therein (or following termination of
any such contract of employment), pursuant to the "For Cause Standard" set forth
below, (ii) in the case of an Optionee who is or which is an advisor, consultant
or independent contractor to the Company and/or any of its Subsidiaries, a
termination of the services relationship by the hiring party for "cause" or
breach of contract, as defined by any applicable contract of engagement between
the parties, or if not defined therein (or following termination of any such
contract of engagement), pursuant to the "For Cause Standard" set forth below,
and (iii) in the case of an Optionee who is a director, but not an employee, of
the Company, removal of him or her from the board of directors by action of the
shareholders or, if permitted by applicable law and the articles, bylaws or
other organic documents of the Company, by the other directors, in connection
with the good faith determination of the board of directors (or of the Company's
shareholders if so required, but in either case excluding the vote of the
subject individual if he or she is a director or a shareholder) that the "For
Cause Standard" set forth below has been satisfied. For purposes hereof, the
"For Cause Standard" means that one or more of the following has occurred: (a)
the commission by Optionee of any act materially detrimental to the Company,
including fraud, embezzlement, theft, bad faith, gross negligence, recklessness
or willful misconduct; (b) incompetence or repeated failure or refusal to
perform the duties required of Optionee by the Company; (c) conviction of a
felony or of any crime of moral turpitude to the extent materially detrimental
to the Company; or (d) any material misrepresentation by Optionee to the Company
regarding the operation of the business, provided that the action or conduct
described in clause (b) above will constitute "Cause" only if such action or
conduct continues after the Company has provided Optionee with written notice
thereof and a reasonable opportunity (to be not less than 30 days) to cure the
same.
33. "Transfer" with respect to Option Shares, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of
those Shares, including any Involuntary Transfer, Donative Transfer or transfer
by will or under the laws of descent and distribution.
34. "Unvested Option" has the meaning set forth in sectio
5(c)(vii) of the Plan.
35. "Vested Option" has the meaning set forth in section
5(c)(vii) of the Plan.
Exhibit 10.7
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of December 1, 1998, by and between HARDING LAWSON ASSOCIATES GROUP,
INC., a Delaware corporation, formerly known as HARDING ASSOCIATES, INC., a
Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of October 31, 1995, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended by deleting "November 30, 1999" as
the last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "November 30, 2000," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and documents required by Bank
to evidence such change.
2. Section 1.1(e) is hereby amended (a) by deleting "November 30, 1999"
as the last day on which bank will issue Letters of Credit under the subfeature
therefor under the Line of Credit, and by substituting for said date "November
30, 2000," and (b) by deleting "May 30, 2000" as the last date any such Letter
of Credit may expire, and by substituting for said date "April 30, 2001."
3. Section 1.2(a) is hereby deleted in its entirety, and the following
substituted therefor:
"(a) Foreign Exchange Facility.
Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make available to Borrower a facility (the
"Foreign Exchange Facility") under which Bank, from time to
time up to and including November 30, 2000, will enter into
foreign exchange contracts for the account of Borrower for the
purchase and/or sale by Borrower in United States dollars of
foreign currencies designated by borrower provided however,
that the maximum amount of all outstanding foreign exchange
contracts shall not at any time exceed an aggregate of One
Million and No/100 United States Dollars (US$1,000,000.00). No
foreign exchange contract shall be executed for a term in
excess of three (3) months or for a term which extends beyond
November 30, 2000. Borrower shall have a "Delivery Limit"
under the Foreign Exchange Facility not to exceed at any time
the aggregate principal amount of Three Hundred Thousand and
No/100 United State Dollars (US$300,000.00), which Delivery
Limit reflects the maximum principal amount of Borrower's
foreign exchange contracts which may mature during any two (2)
day period. All foreign exchange transactions shall be subject
to the additional terms of a Foreign Exchange Agreement,
substantially in the form of Exhibit B attached hereto
("Foreign Exchange Agreement"), all terms of which are
incorporated herein by this reference."
4. The following is hereby added to the Credit Agreement as Section
4.10:
"SECTION 4.10. YEAR 2000 COMPLIANCE.
Perform all acts reasonably necessary to ensure that (a)
Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and
vendors that are material to Borrower's business, become Year
2000 Compliant in a timely manner. Such acts shall include,
without limitation, performing a comprehensive review and
assessment of all of the Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used herein, "Year
2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or
financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000.
Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with
the terms hereof as Bank may from time to time require."
5. Section 4.8(c) is hereby deleted in its entirety, and the following
substituted therefor:
"(c) Tangible Net Worth not at any time less than
$26,000,000.00 up to and including November 29, 1999 and as of
November 30, 1999 not less than $28,000,000.00 at any time
thereafter, with "Tangible Net Worth" defined as the aggregate
of total stockholders' equity plus subordinated debt less any
intangible assets."
6. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
7. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
HARDING LAWSON ASSOCIATES WELLS FARGO BANK,
GROUP, INC. NATIONAL ASSOCIATION
By: /s/ Greg Thornton By: /s/ Peter Gruebele
Gregory A. Thornton Peter Gruebele
Vice President/CFO Vice President
Exhibit 10.11
CONFIDENTIAL
SEPARATION AGREEMENT AND GENERAL RELEASE
This CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE is entered
into by and between DONALD L. SCHREUDER (hereinafter called "Schreuder") and
HARDING ASSOCIATES, INC. a Delaware corporation whose principal corporate office
is Novato, California (hereafter called "the Company").
Recitals
A. Schreuder has been employed by the Company from June 1965 to
September 1966, and after an education sabbatical, from June 1967 until present.
He has served as a member of the Board of Directors of the Company and its
predecessors since 1975, and has been an officer of the Company since 1976.
Since June 1994, he has served as its President and Chief Executive Officer.
B. Schreuder has resigned as President and Chief Executive Officer of
the Company effective September 25, 1998.
C. In consideration for his long and valuable service to the Company
and in recognition of his contributions to the Company, the Company wishes to
provide Schreuder with the severance benefits described below.
NOW, THEREFORE, in consideration of the above Recitals and the mutual
promises and conditions in this Agreement, IT IS AGREED AS FOLLOWS:
1. Date of Termination. Schreuder has resigned his position as
President and Chief Executive Officer effective September 25, 1998 and his
resignation has been accepted by the Company's Board of Directors. However,
Schreuder shall remain as a non-officer employee of the Company until June 30,
1999 ("Date of Termination"), at which time his employment shall terminate.
While Schreuder shall be relieved of all duties and responsibilities except as
may be set forth in this Agreement, he shall receive his current salary and
benefits through November 30, 1998. After that date, the Company shall provide
him compensation as set forth hereafter. Although during the period ending on
the Date of Termination ("the Severance Period") Schreuder shall remain a
non-officer employee of the Company, he shall not be precluded from obtaining
other employment that is in compliance with the terms of this Agreement.
Notwithstanding this Agreement, during the Severance Period and thereafter
Schreuder shall not hold himself out to be an agent or employee of the Company,
and he acknowledges he now has, and shall hereafter have, no authority to engage
in any acts or to enter into any contracts or other obligations on behalf of or
binding on the Company.
2. Severance Pay. Schreuder shall receive severance pay for a
period of 62 weeks counted from November 30, 1998. The severance pay will be
determined on the basis of Schreuder's weekly gross salary in effect at the date
of his resignation (annual salary of $238,000 divided by 52), for a total
severance payment of $283,769.23. Severance pay shall be paid as follows:
two-thirds of the total amount (i.e., $187,287.69) shall be paid prior to
December 31, 1998; one-sixth of the total amount shall be paid on March 31,
1999, and the remaining one-sixth shall be paid on June 30, 1999 (i.e., two
payments of $48,240.77 each). The Company shall deduct from each such payment
federal and state tax withholding and an amount equal to an employee's portion
of FICA payments, and forward such amounts withheld to the appropriate
governmental agencies for Schreuder's account.
3. Treatment of Personal Time Off ("PTO"). During December
1998 the Company shall pay to Schreuder all PTO that has accrued through
November 30, 1998. No additional PTO shall accrue after November 30, 1998, as it
is agreed that the severance payments set forth in paragraph 2 above include any
PTO to which Schreuder would otherwise be entitled as an employee of the Company
for the period from December 1, 1998 through June 30, 1999.
4. Allowance. The Company agrees to fund an allowance of
$18,000 for Schreuder for outplacement, legal services, and other professional
services in connection with his separation from employment with the Company.
Upon presentation of invoices, the Company will pay the service providers
directly until the allowance has been exhausted. If any balance remains in the
allowance fund on June 30, 1999, said balance will be paid to Schreuder in a
lump sum; the unused balance shall be determined on the basis of invoices
received by the Company on or before June 30, 1999. The Company shall have no
other responsibility for expenses incurred by Schreuder except as otherwise set
forth in this Agreement.
5. Medical/Dental/Vision Plans. Schreuder shall continue his
eligibility for the Company's medical, dental and vision plans until the Date of
Termination. After the Date of Termination, Schreuder shall have the option to
convert the Company's medical, dental and vision plans to individual plans
pursuant to the rules and regulations of COBRA (the Consolidated Omnibus Budget
Reconciliation Act). The Company shall reimburse Schreuder the amounts of the
monthly COBRA payments for 11 months from the Date of Termination (i.e., to May
31, 2000) or until Schreuder obtains other coverage, whichever comes first. If
Schreuder obtains other coverage before May 31, 2000 that provides fewer
benefits or less coverage than the coverage provided by the Company, then the
Company shall continue to reimburse Schreuder for his coverage until May 31,
2000. However, if subsequent coverage is obtained by Schreuder that provides
greater benefits or coverage, the Company may discontinue reimbursements for
Schreuder's coverage before May 31, 2000. The Company shall have discretion to
determine whether any other coverage obtained by Schreuder provides fewer or
greater benefits or coverage, which discretion the Company shall exercise
reasonably in good faith. It is Schreuder's responsibility to inform the Company
if and when he obtains subsequent coverage. Failure by Schreuder to inform the
Company he has obtained subsequent coverage shall release the Company from its
obligations under this paragraph.
6. Deferred Compensation Plans. Schreuder's vested rights
under the Company's 401(k) Salary Deferral Plan and the Company's Rabbi Trust
Non-Qualified Salary Deferral Plan shall continue to be governed by the terms
and conditions of the Plan documents and applicable law.
7. Stock Option Plans. Schreuder's rights under the Company's
stock option plans shall continue to be governed by the plan documents,
pre-existing Board of Directors' resolutions regarding stock option plans, and
applicable law.
8. Incentive Compensation. Schreuder will not be entitled to
any compensation or bonuses under the Company's Incentive Compensation Plan for
the fiscal year ending May 31, 1998 or any fiscal year thereafter.
9. Expenses. The Company shall reimburse Schreuder for
reasonable out-of-pocket expenses incurred up to November 30, 1998 in connection
with the Company's business, including travel expenses, food, and lodging while
away from home, subject to such policies as the Company has established for its
employees.
10. Return of Documents. Schreuder will promptly return to the
Company all documents and other materials relating to the Company's business,
together with all copies thereof, including but not limited to Company reports,
job files, operating manuals, technical blueprints or plans, business forecasts,
market summaries, proposals, job notes and customer lists, and any other files
or documents that could reasonably be construed to be of value to the Company.
In the event the Company believes Schreuder has retained materials that should
have been returned to the Company, the Company will promptly notify Schreuder
and provide him a reasonable opportunity to return such materials before the
Company commences any proceeding regarding them.
11. Disclosure of Confidential Client Information. In the
course of his employment, Schreuder has had access to confidential records and
data pertaining to the Company's clients and to the relationship between these
clients and the Company. Schreuder agrees that such information is considered
secret and was disclosed to Schreuder in confidence. Schreuder agrees that he
shall not, directly or indirectly, disclose or use any such information until
such information otherwise becomes public knowledge. Nothing in this paragraph
is intended to preclude Schreuder from obtaining other employment; rather, it is
the intent of this paragraph to protect the Company against the use of its
confidential proprietary information to compete unfairly against it.
12. Solicitation of Customers or Employees.
To protect the confidential, proprietary, and trade secret
information of the Company, the parties agree it is necessary to enter the
following covenants:
a. Schreuder agrees that all customers of the Company
listed on Exhibit A, from whom Schreuder has solicited business during the two
(2) years prior to November 30, 1998 ("the prior two year period") are solely
the customers of the Company and not of Schreuder. Schreuder acknowledges and
agrees that the names and addresses of the customers of the Company listed on
Exhibit A, and all other confidential information relating to those customers,
including their buying habits and special needs, which information Schreuder
acquired during the prior two year period, are considered secret and disclosed
to Schreuder in confidence. Schreuder agrees that for a period of time, ending
November 30, 2000, Schreuder will not solicit business, either directly or
indirectly, as to products or services competitive with those of the Company
from any of the Company's customers listed in the attached Exhibit A, on whom
Schreuder called or with whom Schreuder became acquainted during the two year
period, either for himself or for any other person, firm or corporation for
which he is working either as an employee, consultant or board member. This
restriction applies only to those individuals or divisions of large companies
that Schreuder called on or became acquainted with in connection with Company
business, and will not apply to contact or projects from different locations or
divisions of a listed customer. (For example, the Company has listed "Chevron"
as a customer because of Schreuder's involvement with a project at the El Paso
refinery. It is agreed that Schreuder is restricted from using contacts he made
in connection with that project at that office of Chevron to solicit business
from those contacts at that location. However, he would not be precluded from
soliciting business from Chevron at other locations such as in California or
overseas.)
b. Schreuder agrees that the Company has invested
substantial time and effort and resources in assembling, training and managing
its present staff of personnel, which constitutes a significant asset of the
Company. Accordingly, Schreuder agrees that for a period of two years after
November 30, 1998, Schreuder will not directly or indirectly induce or solicit
any of the Company's employees to leave their employment with the Company for
employment with himself or any other person, firm or corporation for which he is
working either as an employee, consultant or board member. Nothing in this
paragraph shall be construed to create liability or responsibility in Schreuder
in the event a current Company employee on his or her own initiative seeks
employment with an employer or prospective employer of Schreuder or with
Schreuder himself.
13. Disclosure of Confidential Company Information. Schreuder
agrees that he will regard and preserve as confidential and will not divulge to
unauthorized persons, or use or permit persons who are under his direction or
supervision to divulge or use, for any purposes other than those related to the
business of the Company, either during or after the term of his employment, any
information, matter or thing of a secret, confidential or private nature
connected with the business of the Company, or any of its suppliers, customers
or affiliates, without the written consent of the Board of Directors, until such
time as such information otherwise becomes public knowledge. Included within the
meaning of the foregoing are matters of a technical nature, such as know-how,
formulae, computer programs, software and documentation, processes or machines,
inventions and research projects; and matters of a business nature such as
information about costs, profits, markets, sales, customers, suppliers and
employees (including salary, evaluation and other personnel data), and plans for
further development or marketing; and any other information of a similar nature
to the extent not available to the public.
14. Company's Ownership of Intangibles. All processes,
techniques, trade secrets, computer programs or applications, formulae,
inventions, copyrights, trademarks and other intangible rights that have been
conceived or developed by Schreuder, either alone or with others, during the
term of Schreuder's employment with the Company (hereafter "work products"),
whether or not conceived or developed during Schreuder's working hours, whether
or not reduced to writing, and with respect to which the equipment, supplies,
facilities, premises or property of the Company were used, or that relate to the
business of the Company or the Company's actual or demonstrable and anticipated
research and development, or that result from any work performed by Schreuder
for or on behalf of the Company, were and shall be the sole property of the
Company.
Schreuder acknowledges and agrees that all such work products
are the sole property of the Company, and Schreuder hereby assigns to the
Company Schreuder's entire right and interest in all such work products.
Schreuder shall execute all documents, including patent applications and
assignments, required by the Company to establish the Company's rights under
this section; provided, however, that such assignment does not apply to any
invention which qualifies fully under the provisions of Section 2870 of the
California Labor Code.
15. Indemnification. The Company shall, to the maximum extent
permitted by law, indemnify and hold Schreuder harmless against all cost and
expenses, including reasonable attorney's fees, judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding arising in whole or in part by reason of Schreuder's employment by
the Company while acting within the course and scope of such employment.
Schreuder shall, to the maximum extent permitted by law, indemnify and hold the
Company harmless against all costs and expenses, including reasonable attorney's
fees, judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising from any claim or allegation
against the Company based on any conduct of Schreuder during the Severance
Period.
16. Waiver of Employment Related Claims. This Agreement
resolves all claims directly or indirectly arising out of the employment
relationship between Schreuder and the Company, which claims could have been
alleged by Schreuder against the Company or any of its successors, assigns,
subsidiaries, affiliates, officers, directors, shareholders, employees,
attorneys, and agents. In return for the severance payments and other benefits
provided by this Agreement, Schreuder fully releases the Company, its officers,
directors, shareholders, employees, attorneys, agents, subsidiaries, and
affiliates from any and all claims and actions (whether known or unknown) which
he may have against the Company, including but not limited to any and all
matters arising out of his employment, including but by no means limited to
claims of employment discrimination or bias, wrongful termination, infliction of
emotional distress, any form of negligence, violation of any statute or
regulation, breach of any express or implied agreements, defamation, fraud or
misrepresentation, violation of public policy, pain and suffering, any claim for
unpaid compensation or benefits or severance pay, any alleged violation of the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964,
Sections 1981 through 1988 of Title 42 of the United States Code, the California
Fair Employment and Housing Act, any provision of the California Labor Code, the
Employee Retirement Income Security Act ("ERISA"), the Age Discrimination in
Employment Act of 1967 ("ADEA"), and any other alleged violation of any local,
state or federal law, regulation or ordinance, or public policy, contract or
tort or common-law having any bearing on the terms and conditions or
modification of his employment with the Company, which he ever had, now has, or
shall have as of the date of this Agreement, and except for any obligation the
Company has to Schreuder under this Agreement.
This Agreement shall be binding on and shall inure to the
benefit of the executors, heirs, administrators, successors and assigns of
Schreuder and shall inure to the benefit of the respective executors, heirs,
administrators, successors and assigns of the Company.
17. Mutual Release. The Company and Schreuder agree that there
is adequate consideration for all of the obligations, releases and other
agreements set forth herein. The Company and Schreuder generally release,
absolve, disclaim and forever discharge each other from any and all claims,
demands and actions (whether known or unknown), liability, damage or loss
arising from, alleged to arise from, or related to Schreuder's employment by the
Company, the terms of any employment agreement, or the termination of
Schreuder's employment.
This release includes all claims, known and unknown, which
have arisen prior to the date of this Release, or which may arise after the date
of this Release, that are based upon any act, omission, or condition which
happened or existed prior to the date of this Release. To implement and create a
fully effective waiver and release, the Company and Schreuder each expressly
waive all of their rights and remedies that are provided by Section 1542 of the
California Civil Code, which states:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
In entering this waiver and release, Schreuder and the Company
each acknowledge they may hereafter discover facts different from those either
now knows or believes to be true, and notwithstanding such possibility Schreuder
and the Company each agree to the foregoing general release of any and all
claims whether known or unknown. Schreuder and the Company each assume the risk
of any such subsequently discovered facts or any information related to them.
18. Effect of Combination or Dissolution. This Agreement shall
not be terminated by the Company's voluntary or involuntary dissolution or by
any merger in which the Company is not the surviving or resulting corporation,
or on any transfer of all or substantially all of the Company's assets. In the
event of any such merger or transfer of assets, the provisions of this Agreement
shall be binding on and inure to the benefit of the surviving business entity or
the business entity to which assets shall be transferred.
19. Representation, Advice and Understanding. The parties have
read and fully considered this Agreement and are mutually desirous of entering
into this Agreement. The terms of this Agreement are the product of mutual
negotiation and compromise between Schreuder and the Company. Schreuder has been
advised in writing to consult with an attorney of his choice prior to execution
of this Agreement. This Agreement is executed by Schreuder without reliance on
any representation by the Company or its agents, attorneys, officers, and
directors regarding the nature and extent of Schreuder's rights,
responsibilities, claims, and liabilities. Schreuder affirms he has carefully
read and understands the contents of this Agreement, and in particular his
waiver of rights under California Civil Code section 1542, that he has had up to
21 days to consider whether to enter into this Agreement, and signs the same as
his own free and voluntary act with the full intent of forever releasing the
Company and any other person described in this Agreement from all claims arising
out of or relating to his employment by the Company.
20. Confidentiality. The parties agree that the terms and
conditions of this Agreement will remain confidential between the parties hereto
and will not be disclosed to any other person or entity other than counsel and
accountants of the parties, and to such employees of the Company to whom
disclosure must be made to implement the terms of this Agreement, except as
required by law.
21. Beneficiaries. The parties intend the Company, its past
and present parent corporations, affiliated corporations, subsidiary
corporations, predecessors, successors, and assigns as well as their officers,
directors, employees, stockholders, agents, attorneys, and representatives be
beneficiaries of this Agreement.
22. Waiver of Rights under the Age Discrimination in
Employment Act. Schreuder understands that this Agreement includes claims and
rights Schreuder might have under the Age Discrimination in Employment Act
("ADEA"). The waiver of Schreuder's rights under the ADEA does not extend to
claims or rights that might arise after the date this Agreement is executed. The
monies to be paid to Schreuder in this Agreement are in addition to any sums to
which he would be entitled without signing this Agreement. For a period of seven
(7) days following execution of this Agreement, Schreuder may revoke his waiver
of rights under the ADEA by a written document received by the Company on or
before the end of the seven (7) day period. The Agreement will not be final
until said revocation period has expired. Company will make the severance
payment to Schreuder as described above only if this Agreement is not revoked by
Schreuder.
23. Cooperation. Schreuder agrees to cooperate with the
Company with regard to the business of Company that Schreuder participated in
during the course of Schreuder's employment with the Company, including, but not
limited to, providing Company with information requested by Company with regard
to such business.
24. Duplicate Originals. This Agreement may be executed in
duplicate, with one fully executed copy delivered to the Company and one fully
executed copy delivered to Schreuder.
25. Interpretation. Counsel for the respective parties have
participated in the negotiation and preparation of this Agreement. Therefore,
the normal rule that ambiguities are resolved against the drafter shall not be
used in the interpretation or construction of this Agreement.
26. Arbitration of Controversies. Any dispute over the
interpretation or application of this Agreement shall be resolved in binding
arbitration under the rules and procedures of the American Arbitration
Association. Any request for arbitration must be made in writing no later than
120 days following the date the dispute arises. The cost of arbitration shall be
borne equally by the parties. Each party shall pay its own attorney's fees. The
arbitrator's decision will be final, and the arbitrator will have no power to
add to, subtract from, or modify this Agreement.
27. Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings, commitments and practices between the parties,
including all prior employment agreements. No amendments to this Agreement may
be made except by a writing signed by both parties.
28. Severability. If any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall nevertheless
remain in full force and effect. If any provision is held invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
29. Choice of Law. The formation, construction, and
performance of this Agreement shall be construed in accordance with the laws of
the State of California.
30. Board of Directors. The execution of this Agreement has
been duly approved by the Company's Board of Directors, and the undersigned have
been duly authorized to execute this Agreement on behalf of the Company.
Executed by the parties on December 1, 1998.
COMPANY:
HARDING ASSOCIATES, INC.
a Delaware Corporation
By: /s/ Donald K. Stager
Donald K. Stager
Chairman of the Board's Compensation
Committee
HARDING ASSOCIATES, INC.
a Delaware Corporation
By: /s/ Gregory P. Klein
Gregory P. Klein
Vice President Human Resources
EMPLOYEE:
By: /s/ Donald L. Schreuder
Donald L. Schreuder
Exhibit 10.16
AMENDMENT TO RETENTION AGREEMENT
Pursuant to this Amendment, effective July 9, 1999, the Retention
Agreement between Claude Corvino (you) and Harding Lawson Associates Group Inc.
is amended as follows:
It is agreed that the Corporate Reorganization on or about June 1, 1999
is deemed to constitute an event that is or would constitute Good Reason as
defined in Paragraph 19(k). The time within which you may terminate employment
for the June 1, 1999 Good Reason and trigger Severance Benefits under the
Agreement is hereby extended to December 31, 1999. All other provisions of the
Agreement remain in full force and effect.
Date July 29, 1998 /s/ Robert Costello
Robert Costello
President - Chief Executive Officer
Date August 3, 1999 /s/ Claude Corvino
Claude Corvino
Exhibit 10.17
AMENDMENT TO RETENTION AGREEMENT
Pursuant to this Amendment, effective July 9, 1999, the Retention
Agreement between Arthur C. Riese (you) and Harding Lawson Associates Group Inc.
is amended as follows:
It is agreed that the Corporate Reorganization on or about June 1, 1999
is deemed to constitute an event that is or would constitute Good Reason as
defined in Paragraph 19(k). The time within which you may terminate employment
for the June 1, 1999 Good Reason and trigger Severance Benefits under the
Agreement is hereby extended to December 31, 1999. All other provisions of the
Agreement remain in full force and effect.
Date July 29, 1999 /s/ Robert Costello
Robert Costello
President - Chief Executive Officer
Date July 30, 1999 /s/ Arthur C. Riese
Arthur C. Riese
Exhibit 10.18
AMENDMENT TO RETENTION AGREEMENT
Pursuant to this Amendment, effective July 9, 1999, the Retention
Agreement between Gregory A. Thornton (you) and Harding Lawson Associates Group
Inc. is amended as follows:
It is agreed that the Corporate Reorganization on or about June 1, 1999
is deemed to constitute an event that is or would constitute Good Reason as
defined in Paragraph 19(k). The time within which you may terminate employment
for the June 1, 1999 Good Reason and trigger Severance Benefits under the
Agreement is hereby extended to December 31, 1999. All other provisions of the
Agreement remain in full force and effect.
Date July 30, 1999 /s/ Robert Costello
Robert Costello
President - Chief Executive Officer
Date August 2, 1999 /s/ Greg Thornton
Gregory A. Thornton
Exhibit No. 11
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<CAPTION>
Years Ended May 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average basic shares outstanding 4,839 4,959 4,926
Effect of dilutive stock options based
on the treasury stock method --- 128 24
- -------------------------------------------------------------------------------------------------------------------
Diluted shares outstanding 4,839 5,087 4,950
===================================================================================================================
Net income/(loss) $(842) $2,488 $2,404
===================================================================================================================
Basic net income/(loss) per share $(0.17) $0.50 $0.49
===================================================================================================================
Diluted net income/(loss) per share $0.17) $0.49 $0.49
===================================================================================================================
</TABLE>
Exhibit No. 21
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
State or Country
Name of Incorporation Doing Business Under
<S> <C> <C>
Harding Lawson Associates, Inc. Delaware Harding Lawson Associates, Inc.
HLA Environmental Services Delaware Harding Lawson Associates
of Michigan, Inc. (wholly owned
subsidiary of Harding Lawson Associates, Inc.)
Regional Engineers, Planners Florida Regional Engineers, Planners
& Surveyors, Inc. (wholly owned & Surveyors, Inc.
subsidiary of Harding Lawson Associates, Inc.)
Harding Lawson Associates Delaware Harding Lawson Associates
International, Inc. International, Inc.
Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty.
(wholly owned subsidiary of Australia Ltd.
Harding Lawson Associates
International, Inc.)
HLA-Envirosciences Pty Limited New South Wales, HLA-Envirosciences Pty Limited
(majority owned subsidiary of Australia
Harding Lawson Australia, Pty. Ltd.)
Harding Lawson de Mexico S.A. de C.V. City of Mexico Harding Lawson de Mexico S.A.
(wholly owned subsidiary of Federal District de C.V.
Harding Lawson Associates
International, Inc.)
Grupo Industrial de Ingenieria Ecologica III, City of Mexico GRIECO
HLA & Iconsa S.A. de C.V. Federal District
(majority owned subsidiary of
Harding Lawson de Mexico S.A. de C.V.)
Harding Lawson Singapore Pte Ltd Singapore Dormant
(wholly owned subsidiary of
Harding Lawson Associates
International, Inc.)
PT. Harding Lawson Indonesia Jakarta Dormant
(wholly owned subsidiary of
Harding Lawson Associates
International, Inc.)
Harding Lawson Associates Sakhalin, LLC Washington Harding Lawson Associates Sakhalin, LLC
(wholly owned subsidiary of
Harding Lawson Associates
International, Inc.)
HLA Venture, Inc. Delaware HLA Venture, Inc.
Standards Training Corporation, LLC Ohio Dormant
(HLA Venture, Inc. has a 50% ownership
interest in LLC)
</TABLE>
Exhibit No. 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Form S-8 dated October 19, 1998 pertaining to the Non-Employee Director
Compensation Stock Plan; Form S-8 dated April 12, 1999 pertaining to the 1998
Stock Option Plan and the Non Qualified Stock Option Agreement; Form S-8 dated
August 15, 1998 pertaining to the 1987 Stock Option Plan; Form S-8 dated April
14, 1989, as amended on July 25, 1990 and December 24, 1991, pertaining to the
1998 Stock Option and Restricted Stock Option Plan; Form S-8 dated June 5, 1996
pertaining to the Executive Stock Incentive Plan; Form S-8 dated April 17, 1988
pertaining to the Employee Stock Purchase Plan as amended on December 24, 1991
and June 5, 1996; Form S-8 dated August 15, 1988 pertaining to the Deferred
Compensation and Profit Sharing Plan of Harding Lawson Associates Group, Inc.,
of our report dated July 7, 1999, with respect to the consolidated financial
statements of Harding Lawson Associates Group, Inc., included in its Annual
Report on Form 10-K for the year ended May 31, 1999.
San Francisco, California
July 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 17108
<SECURITIES> 3629
<RECEIVABLES> 46128
<ALLOWANCES> 2464
<INVENTORY> 0
<CURRENT-ASSETS> 70700
<PP&E> 27947
<DEPRECIATION> 22056
<TOTAL-ASSETS> 87141
<CURRENT-LIABILITIES> 38003
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 47405
<TOTAL-LIABILITY-AND-EQUITY> 87141
<SALES> 0
<TOTAL-REVENUES> 162096
<CGS> 0
<TOTAL-COSTS> 53338
<OTHER-EXPENSES> 109777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (568)
<INCOME-TAX> 412
<INCOME-CONTINUING> (842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (842)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
