<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1999
REGISTRATION NO. 333-70053
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TETRA TECH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4148514
(State or other jurisdiction (IRS Employer
of Identification
incorporation or organization) No.)
</TABLE>
670 NORTH ROSEMEAD BOULEVARD
PASADENA, CALIFORNIA 91107
(626) 351-4664
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
LI-SAN HWANG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TETRA TECH, INC.
670 NORTH ROSEMEAD BOULEVARD
PASADENA, CALIFORNIA 91107
(626) 351-4664
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
JANIS B. SALIN ALAN K. AUSTIN
Riordan & McKinzie Wilson Sonsini Goodrich & Rosati
300 South Grand Avenue 650 Page Mill Road
29th Floor Palo Alto, California 94304
Los Angeles, California 90071
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 8, 1999
[LOGO]
3,175,000 SHARES
COMMON STOCK
Tetra Tech, Inc. is offering 1,000,000 shares of its Common Stock and the
Selling Stockholders are selling an additional 2,175,000 shares. Tetra Tech,
Inc.'s Common Stock is traded on the Nasdaq National Market under the symbol
"WATR." The last reported sale price of the Common Stock on the Nasdaq National
Market on December 29, 1998 was $26.50 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -------------
<S> <C> <C>
Public Offering Price.................................................................. $ $
Underwriting Discounts and Commissions................................................. $ $
Proceeds to Tetra Tech, Inc. .......................................................... $ $
Proceeds to the Selling Stockholders................................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Tetra Tech, Inc. and the Selling Stockholders have granted the
underwriters a 30-day option to purchase up to an additional 476,250 shares of
Common Stock to cover over-allotments. BancBoston Robertson Stephens Inc.
expects to deliver the shares of Common Stock to purchasers on ,
1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
CLEARY GULL & REILAND INC.
FIRST ANALYSIS SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS JANUARY , 1999
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO
SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS
PROSPECTUS, "TETRA TECH" THE "COMPANY," "WE," "US" AND "OUR" REFER TO TETRA
TECH, INC. AND ITS SUBSIDIARIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.............................. 3
Risk Factors......................... 7
Use of Proceeds...................... 13
Price Range of Common Stock.......... 14
Dividend Policy...................... 14
Capitalization....................... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
<CAPTION>
PAGE
<S> <C>
Business............................. 26
Management........................... 38
Principal and Selling Stockholders... 43
Underwriting......................... 45
Where You Can Find More Information.. 47
Legal Matters........................ 47
Experts.............................. 48
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION APPEARING IN
OTHER SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT. WE URGE
YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU DECIDE WHETHER TO INVEST
IN SHARES OF OUR COMMON STOCK. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS REFLECTS OUR 5-FOR-4 STOCK SPLIT, EFFECTED IN THE FORM OF A 25%
STOCK DIVIDEND IN SEPTEMBER 1998, AND ASSUMES THAT THE UNDERWRITERS WILL NOT
EXERCISE THEIR OVER-ALLOTMENT.
OUR COMPANY
Tetra Tech, Inc. is a leading provider of specialized management
consulting and technical services in three principal business areas: resource
management, infrastructure and communications. As a specialized management
consultant, we assist our clients in defining problems and developing innovative
and cost-effective solutions. Our management consulting services are
complemented by our technical services. These technical services, which
implement solutions, include research and development, applied science,
engineering and architectural design, construction management, and operations
and maintenance. Our clients include a diverse base of public and private
organizations located in the United States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth. We have more than 3,600
employees worldwide, 3,500 of whom are located in North America in more than 100
locations. In addition, we have established a presence in Asia, South America
and Europe. From fiscal 1991 through fiscal 1998, we generated a net revenue
compounded annual growth rate of approximately 34.2% and achieved a net income
compounded annual growth rate of approximately 36.4%. Our net revenue was $297.6
million for the fiscal year ended October 4, 1998, and our backlog on that date
was approximately $405.0 million.
INDUSTRY OVERVIEW
Due to increased competition, changing regulatory environments and rapid
technological advancement in the resource management, infrastructure and
communications business areas, many organizations in these areas face new and
complex challenges. Increasingly, these organizations seek professional services
firms like Tetra Tech to assist them with addressing these challenges. The
business areas that we serve and the challenges they face are as follows:
RESOURCE MANAGEMENT. Public concern over environmental issues,
especially water quality and availability, has been a driving force behind
numerous laws and regulations that are designed to prevent environmental
degradation and mandate restorative measures. To comply with environmental laws
and regulations, respond to public pressure and attain operating efficiencies,
public and private organizations are increasing their focus on resource
management and searching for ways to improve their business.
INFRASTRUCTURE. Continued population and economic growth places
significant strain on an overburdened infrastructure, thereby requiring
additional development. Additionally, as existing facilities age, they require
upgrading and replacement. Infrastructure development related to water and
wastewater treatment plants, roads, pipelines, communication and power networks,
and educational, recreational and correctional facilities often requires
extensive planning. In addition, cost structure and project efficiencies are
becoming more important to both public and private organizations.
COMMUNICATIONS. Technological change and government deregulation have
spurred sweeping changes in the communications industry. Local and long-distance
telephone companies, cable operators and wireless service providers are
penetrating each other's markets and trying to establish a foothold in new
markets created by new technologies. At the same time, various service providers
are consolidating
3
<PAGE>
in order to offer their subscribers a comprehensive set of services and to
maintain dominance in their markets. We believe that as the communications
industry undergoes consolidation and expansion, the need for consulting and
technical services will increase.
Organizations within each of the above business areas face unique
problems but often lack the internal resources and experience necessary to
identify issues and evaluate possible solutions. As a result, many of these
organizations rely on advice from outside management consultants, but must seek
technical services elsewhere. We believe a significant opportunity exists for
consulting companies such as Tetra Tech that not only develop, but also
implement, solutions.
OUR SOLUTION
Our specialized management consulting services help clients identify
problems and develop appropriate solutions while our broad range of technical
services enable us to implement the various solutions. We believe that our 32
years of experience, involvement in thousands of projects, vast technical
experience and diverse geographic presence throughout the United States and
internationally help us understand and meet the needs of our clients regardless
of their size or location.
OUR STRATEGY
Our objective is to become the leading provider of management consulting
and technical services in our chosen business areas. To achieve this objective,
we plan to continue the following primary strategies that we believe have been
integral to our success:
- Identify new business areas through our management consulting services
and expand vertically into additional business areas as we broaden our
industry expertise;
- Expand our service offerings and geographic presence through
acquisitions;
- Focus on government projects to stay on the leading edge of policy
development;
- Manage our internal financial controls to improve our cash position and
maximize our return on investment; and
- Leverage our existing client base by offering our clients additional
services.
OUR ADDRESS
Our principal executive offices are located at 670 North Rosemead
Boulevard, Pasadena, California 91107, and our telephone number is (626)
351-4664. Our website is located at www.tetratech.com. Information contained in
our website is not a part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................. 1,000,000 shares
Common Stock offered by the Selling Stockholders................ 2,175,000 shares
Common Stock to be outstanding after the Offering............... 29,666,131 shares(1)
Use of proceeds................................................. For the partial repayment of outstanding
indebtedness, possible acquisitions of
businesses and general corporate purposes.
Nasdaq National Market Symbol................................... WATR
</TABLE>
- ---------
(1) This information is based on 28,666,131 shares outstanding at December
18, 1998. It excludes 2,441,754 shares of common stock issuable upon the
exercise of stock options outstanding at December 18, 1998 at a weighted
average exercise price of $11.71 per share. It also excludes 107,404
shares reserved for issuance under our stock option plans.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OCT. 2, OCT. 1, SEPT. 29, SEPT. 28, OCT. 4,
1994(2) 1995(3) 1996(4) 1997(5) 1998(6)
--------- ----------- ----------- ----------- ---------
STATEMENTS OF INCOME DATA:
Revenue:
Gross revenue............................................... $ 96,472 $ 120,034 $ 220,099 $ 246,767 $ 382,934
Subcontractor costs......................................... 28,653 32,160 59,062 55,976 85,337
--------- ----------- ----------- ----------- ---------
Net revenue................................................... 67,819 87,874 161,037 190,791 297,597
Cost of net revenue........................................... 51,069 65,484 122,084 141,019 223,871
--------- ----------- ----------- ----------- ---------
Gross profit.................................................. 16,750 22,390 38,953 49,772 73,726
Selling, general and administrative expenses.................. 7,589 10,634 21,218 25,173 33,913
--------- ----------- ----------- ----------- ---------
Income from operations........................................ 9,161 11,756 17,735 24,599 39,813
Net interest income (expense)................................. 354 833 (776) (20) (1,910)
--------- ----------- ----------- ----------- ---------
Income before minority interest and income tax expense........ 9,515 12,589 16,959 24,579 37,903
Minority interest............................................. -- -- -- -- 1,397
--------- ----------- ----------- ----------- ---------
Income before income tax expense.............................. 9,515 12,589 16,959 24,579 36,506
Income tax expense............................................ 3,806 5,036 6,854 10,323 15,920
--------- ----------- ----------- ----------- ---------
Net income.................................................... $ 5,709 $ 7,553 $ 10,105 $ 14,256 $ 20,586
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Basic earnings per share(1)................................... $ 0.28 $ 0.37 $ 0.46 $ 0.61 $ 0.74
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Diluted earnings per share(1)................................. $ 0.27 $ 0.36 $ 0.45 $ 0.58 $ 0.71
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Weighted average common shares outstanding:(1)
Basic(1).................................................... 20,464 20,585 21,851 23,371 27,970
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
Diluted(1).................................................. 20,811 21,146 22,581 24,656 29,191
--------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 4, 1998
-------------------------
ACTUAL AS ADJUSTED(7)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 77,049 $ 77,049
Total assets............................................................................ 266,610 266,610
Long-term obligations, excluding current portion........................................ 33,546 8,920
Stockholders' equity.................................................................... 167,781 192,407
</TABLE>
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(1) Reflects the effect, on a retroactive basis, of a 5-for-4 stock split,
effected in the form of a 25% stock dividend, in September 1998.
(2) We have included the results of operations and financial positions of
Simons, Li & Associates, Inc. (acquired October 4, 1993) and
Hydro-Search, Inc. (acquired June 3, 1994) from the dates set forth in
the related purchase agreements.
5
<PAGE>
(3) We have included the results of operations and financial position of
Tetra Tech EM Inc., formerly known as PRC Environmental Management, Inc.
(acquired September 15, 1995), from the date set forth in the related
purchase agreement.
(4) We have included the results of operations and financial position of
KCM, Inc. (acquired November 7, 1995) from the date set forth in the
related purchase agreement.
(5) We have included the results of operations and financial positions of
IWA Engineers (acquired December 11, 1996), FLO Engineering, Inc.
(acquired December 20, 1996), SCM Consultants, Inc. (acquired March 19,
1997), Whalen & Company, Inc. (acquired June 11, 1997) and CommSite
Development Corporation (acquired July 11, 1997) from the dates set forth
in the related purchase agreements.
(6) We have included the results of operations and financial positions of
Tetra Tech NUS, Inc. (acquired December 31, 1997), CDC Engineering, Inc.
(acquired March 26, 1998), McNamee, Porter & Seeley, Inc. (acquired July
8, 1998), Whalen/Sentrex LLC (formed March 2, 1998) and the Sentrex Group
of Companies (acquired September 22, 1998) from the dates set forth in
the related purchase agreements.
(7) We have adjusted these figures to give effect to our sale of 1,000,000
shares of common stock at an assumed public offering price of $26.50,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses and other fees.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF OUR COMMON STOCK OFFERED BY THIS
PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY REVIEW THE
FOLLOWING RISK FACTORS AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS BEFORE MAKING AN INVESTMENT.
SOME OF THE INFORMATION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY
THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR WORDS. YOU SHOULD
READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY: (1) DISCUSS OUR
FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR
OF OUR FUTURE FINANCIAL CONDITION; OR (3) STATE OTHER "FORWARD-LOOKING"
INFORMATION. WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR EXPECTATIONS TO OUR
INVESTORS. THERE MAY BE EVENTS IN THE FUTURE, HOWEVER, THAT WE ARE NOT
ACCURATELY ABLE TO PREDICT OR OVER WHICH WE HAVE NO CONTROL. THE RISK FACTORS
LISTED IN THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS PROSPECTUS,
PROVIDE EXAMPLES OF RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR
FORWARD-LOOKING STATEMENTS. BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE
AWARE THAT THE OCCURRENCE OF ANY OF THE EVENTS DESCRIBED IN THESE RISK FACTORS
AND ELSEWHERE IN THIS PROSPECTUS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS AND THAT UPON THE OCCURRENCE
OF ANY OF THESE EVENTS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND
YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
A significant part of our growth strategy is to acquire other companies
that complement our lines of business or that broaden our geographic presence.
During fiscal 1998, we purchased ten companies in five separate transactions. We
expect to continue to acquire companies as an element of our growth strategy.
Acquisitions involve certain risks that could cause our actual growth or
operating results to differ from our expectations or the expectations of
security analysts. For example:
- We may not be able to identify suitable acquisition candidates or to
acquire additional companies on favorable terms;
- We compete with others to acquire companies. We believe that this
competition will increase and may result in decreased availability or
increased price for suitable acquisition candidates;
- We may not be able to obtain the necessary financing, on favorable terms
or at all, to finance any of our potential acquisitions;
- We may ultimately fail to consummate an acquisition even if we announce
that we plan to acquire a company;
- We may fail to successfully integrate or manage these acquired companies
due to differences in business backgrounds or corporate cultures;
- These acquired companies may not perform as we expect;
- We may find it difficult to provide a consistent quality of service
across our geographically diverse operations; and
- If we fail to successfully integrate any acquired company, our
reputation could be damaged. This could make it more difficult to market
our services or to acquire additional companies in the future.
In addition, our acquisition strategy may divert management's attention away
from our primary service offerings, result in the loss of key clients or
personnel and expose us to unanticipated liabilities.
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Finally, acquired companies that derive a significant portion of their
revenues from the Federal government and that do not follow the same cost
accounting policies and billing procedures as we do may be subject to larger
cost disallowances for greater periods than we are. If we fail to determine the
existence of unallowable costs and establish appropriate reserves in advance of
an acquisition we may be exposed to material unanticipated liabilities, which
could have a material adverse effect on our business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- The seasonality of the spending cycle of our public sector clients,
notably the Federal government;
- Employee hiring and utilization rates;
- The number and significance of client engagements commenced and
completed during a quarter;
- Delays incurred in connection with an engagement;
- The ability of our clients to terminate engagements without penalties;
- The size and scope of engagements;
- The timing and size of the return on investment capital; and
- General economic and political conditions.
Variations in any of these factors could cause significant fluctuations in our
operating results from quarter to quarter and could result in net losses.
POTENTIAL VOLATILITY OF OUR STOCK PRICE
The trading price of our common stock has fluctuated widely. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. The overall market and the price of our common stock may continue
to fluctuate greatly. The trading price of our common stock may be significantly
affected by various factors, including:
- Quarter to quarter variations in our operating results;
- Changes in environmental legislation;
- Changes in investors' and analysts' perception of the business risks and
conditions of our business;
- Broader market fluctuations; and
- General economic or political conditions.
MANAGEMENT OF GROWTH
We are growing rapidly. Our growth presents numerous managerial,
administrative, operational and other challenges. Our ability to manage the
growth of our operations will require us to continue to improve our operational,
financial and human resource management information systems and our other
internal systems and controls. In addition, our growth will increase our need to
attract, develop, motivate and retain both our management and professional
employees. The inability of our
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management to manage our growth effectively or the inability of our employees to
achieve anticipated performance or utilization levels, could have a material
adverse effect on our business.
RELIANCE ON KEY PERSONNEL AND QUALIFIED PROFESSIONALS
We depend upon the efforts and skills of our executive officers, senior
managers and consultants. With limited exceptions, we do not have employment
agreements with any of these individuals. The loss of the services of any of
these key personnel could adversely affect our business. Although we have
obtained non-compete agreements from the principal stockholders of each of the
companies we have acquired, we generally do not have non-compete or employment
agreements with key employees who were not equity holders of these companies. We
do not maintain key-man life insurance policies on any of our executive officers
or senior managers.
Our future growth and success depends on our ability to attract and
retain qualified scientists and engineers. The market for these professionals is
competitive and we may not be able to attract and retain such professionals.
DEPENDENCE UPON EXISTING LAWS AND REGULATIONS
A significant amount of our resource management business is generated
either directly or indirectly as a result of existing Federal and state
governmental laws, regulations and programs. Any changes in these laws or
regulations that reduce funding or affect the sponsorship of these programs
could reduce the demand for our services and could have a material adverse
effect on our business.
CONCENTRATION OF REVENUES
Agencies of the Federal government are among our most significant
clients. During fiscal 1998, approximately 46.8% of our net revenue was derived
from three federal agencies as follows: 26.2% of our net revenue was derived
from the Department of Defense (DOD), 17.1% from the Environmental Protection
Agency (EPA), and 3.5% from the Department of Energy (DOE). Some of our
contracts with Federal government agencies require annual funding approval and
may be terminated at their discretion. A reduction in spending by Federal
government agencies could limit the continued funding of our existing contracts
with them and could limit our ability to obtain additional contracts. These
limitations, if significant, could have a material adverse effect on our
business.
Additionally the failure of clients to pay significant amounts due us for
our services could adversely affect our business. For example, we recently
received notification from a federal government agency that we are entitled to
payments in excess of our billings. However, the agency involved must obtain
specific funding approval for amounts owed to us and there can be no assurance
this funding approval will be obtained.
RISKS ASSOCIATED WITH GOVERNMENTAL AUDITS
Our contracts with the Federal government and other governmental agencies
are subject to audit. Most of these audits are conducted by the Defense Contract
Audit Agency (DCAA), which reviews our overhead rates, operating systems and
cost proposals. The DCAA may disallow costs if it determines that we accounted
for these costs incorrectly or in a manner inconsistent with Cost Accounting
Standards. A disallowance of costs by the DCAA, or other governmental auditors,
could have a material adverse effect on our business.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
EMI also contracts with Federal government agencies and such contracts are also
subject to the same governmental audits. The DCAA has completed audits of EMI's
contracts for the fiscal years 1987
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through 1995. As a result of these audits and our negotiations with the DCAA,
the DCAA disallowed approximately $2.9 million in costs.
FIXED PRICE CONTRACTS
We enter into various contracts with our clients, including fixed-price
contracts. In fiscal 1998, approximately 26.1% of our net revenue was derived
from fixed-price contracts. Fixed-price contracts protect clients and expose us
to a number of risks. These risks include underestimation of costs, problems
with new technologies, unforeseen costs or difficulties, delays beyond our
control and economic and other changes that may occur during the contract
period. If we incur losses under fixed-price contracts it could have a material
adverse effect on our business.
DEPENDENCE ON SUBCONTRACTORS
Under some of our contracts, we depend on the efforts and skills of
subcontractors for the performance of certain tasks. Our reliance on
subcontractors varies from project to project. In fiscal 1998, subcontractor
costs comprised 22.3% of our gross revenue. The absence of qualified
subcontractors with whom we have a satisfactory relationship could adversely
affect the quality of our service and our ability to perform under some of our
contracts.
SIGNIFICANT COMPETITION
We provide specialized management consulting and technical services to a
broad range of public and private sector clients. The market for our services is
highly competitive and we compete with many other firms. These firms range from
small regional firms to large national firms which have greater financial and
marketing resources than we do.
We focus primarily on the resource management, infrastructure and
communications business areas. We provide services to our clients which include
Federal, state and local agencies, and organizations in the private sector.
We compete for projects and engagements with a number of competitors
which can vary from 10 to 100 firms. Historically, clients have chosen among
competing firms based on the quality and timeliness of the firm's service. We
believe, however, that price has become an increasingly important factor.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd.; Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
POTENTIAL LIABILITY AND INSURANCE
Our services involve significant risks of professional and other
liabilities which may substantially exceed the fees we derive from our services.
Our business activities could expose us to potential liability under various
environmental laws such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. We believe that our insurance
policies are adequate for our business operations. These policies are "claims
made" policies. Thus, only claims made during the term of the policy are
covered. If we terminate our policies and do not obtain retroactive coverage, we
would be uninsured for claims made after termination even if these claims are
based on events or acts that occurred during
10
<PAGE>
the term of the policy. Our insurance may not protect us against liability
because our policies typically have various exclusions and retentions. In
addition, if we expand into new markets, we may not be able to obtain insurance
coverage for such activities or, if insurance is obtained, the dollar amount of
any liabilities incurred could exceed our insurance coverage. A partially or
completely uninsured claim, if successful and of significant magnitude, could
have a material adverse affect on our business.
CONFLICTS OF INTEREST
Many of our clients are concerned about potential or actual conflicts of
interest in retaining management consultants. Federal government agencies have
formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor.
These policies, among other things, may prevent us from bidding for or
performing contracts resulting from or relating to certain work we have
performed for the government. In addition, services performed for a private
client may create a conflict of interest that precludes or limits our ability to
obtain work from other public or private organizations. We have, on occasion,
declined to bid on projects because of these conflicts of interest issues.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In fiscal 1998, approximately 3.2% of our net revenue was derived from
the international marketplace. Some contracts with our international clients are
denominated in foreign currencies. As such, these contracts contain inherent
risks including foreign currency exchange risk and the risk associated with
expatriating funds from foreign countries. If our international revenue
increases, our exposure to foreign currency fluctuations will also increase. We
have entered into forward exchange contracts to address foreign currency
fluctuations.
YEAR 2000
We are working to resolve the potential impact of the year 2000 on our
business operations and the ability of our computerized information systems to
accurately process information that may be date-sensitive. Any of our programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology systems we utilize are the accounting and
financial and human resource information management systems. We began our risk
assessment in 1995. Since that time we have procured and implemented certain
accounting and financial reporting systems as well as contract administration
and billing systems that have been certified as year 2000 compliant by our
vendors. Currently, approximately 72% of our gross revenue is recognized on
these year 2000 compliant systems. We believe that our financial and accounting
and human resource management information systems will be year 2000 compliant in
a timely manner and will not be materially impacted by the year 2000. We may
fail, however, in updating our various systems to be year 2000 compliant in a
timely manner.
We have extensive business with the Federal government. Should the
Federal government, especially the Department of Defense, experience significant
business interruptions relating to non-year 2000 compliance, our business could
be materially impacted. To the extent that other third parties which we rely
upon, such as banking institutions, clients and vendors, are unable to address
their year 2000 issues in a timely manner, our business could be materially
impacted. We believe that the worst case scenario relating to the year 2000
would be an extensive period of time in which the Federal government and other
third parties could not process payments promptly, in addition to our financial
institutions not being able to supply us with our working capital needs.
11
<PAGE>
Additional risks associated with non-year 2000 compliance include:
- Our inability to invoice and process payments;
- Our inability to produce accurate and timely financials;
- The impact on our profitability; and
- Our potential liability to third parties for not meeting contracted
deliverables.
IMPACT OF ANTI-TAKEOVER PROVISIONS ON OUR STOCK PRICE
Our certificate of incorporation and by-laws and the Delaware General
Corporation Law include provisions that may be deemed to have anti-takeover
effects. These anti-takeover effects could delay or prevent a takeover attempt
that you or our other stockholders might consider in your or their best
interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval, up to 2,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares without
any further stockholder action. The existence of this "blank-check" preferred
stock could make more difficult or discourage an attempt to obtain control of us
by means of a tender offer, merger, proxy contest or otherwise.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated
stockholders. Certain of these measures may be adopted without any further vote
or action by the stockholders.
OFFERING BENEFITS TO CERTAIN SELLING STOCKHOLDERS
The selling stockholders will receive substantial proceeds from selling
their shares of common stock in this offering. We will pay the offering expenses
of the selling stockholders in this offering, other than underwriting discounts
and commissions. After deducting underwriting discounts and commissions, the net
proceeds (at an assumed offering price of $26.50 per share) to the selling
stockholders, all of whom are our affiliates, are approximately $54.3 million.
These selling stockholders have granted the underwriters an over-allotment
option to purchase 326,250 shares of common stock. If the underwriters'
over-allotment option is exercised in full, the aggregate net proceeds to the
selling stockholders will be approximately $62.5 million (at an assumed offering
price of $26.50 per share).
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,000,000 shares of common stock
offered by us will be approximately $24.6 million (approximately $28.4 million
if the underwriters' over-allotment option is exercised in full), at an assumed
offering price of $26.50 per share, and after deducting the estimated
underwriting discounts and commissions (approximately $1.5 million) and
estimated offering expenses and other related fees (approximately $0.4 million)
that we will pay. We will not receive any proceeds from the sale of shares of
common stock by the selling stockholders.
We intend to use approximately $24.6 million of our net proceeds for the
partial repayment of our outstanding indebtedness under our $65.0 million
revolving credit facility with Bank of America National Trust and Savings
Association. Payments made under the revolving credit facility will not result
in a reduction in the maximum amount available under the facility but will have
the effect of increasing the amount we can borrow under the facility in the
future to fund possible acquisitions of businesses and for general corporate
purposes, including working capital. We continually evaluate potential
acquisition candidates, but we have not reached any agreements, commitments or
understandings for any material future acquisitions.
Interest on borrowings under the revolving credit facility is payable at
our option (a) at a base rate (at the greater of the federal funds rate plus
0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a margin
which ranges from 0.75% to 1.25%. The revolving credit facility matures on
December 15, 2000 or earlier at our discretion upon payment in full of loans and
other obligations. At October 4, 1998, borrowings totaled $47.0 million under
the revolving credit facility. The weighted average interest rate on outstanding
borrowings at October 4, 1998 was 6.34%.
Our use of proceeds may vary significantly and will depend on a number of
factors, including our future revenues and the other factors described under
"Risk Factors." Accordingly, our management has broad discretion in the
allocation of the net proceeds. Pending such uses, the net proceeds of this
offering will be invested in short-term, interest-bearing investment grade
securities.
13
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock has traded on the Nasdaq National Market under the
symbol "WATR" since December 1991. The following table sets forth, for the
periods indicated, the range of high and low sales prices for our common stock
as reported on the Nasdaq National Market. The prices have been adjusted to
reflect the effect, on a retroactive basis, of a 5-for-4 stock split, effected
in the form of a 25% stock dividend, in September 1998.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1994:
First Quarter............................................................. $ 6.39 $ 4.92
Second Quarter............................................................ $ 6.72 $ 5.65
Third Quarter............................................................. $ 7.54 $ 5.49
Fourth Quarter............................................................ $ 8.29 $ 5.90
Fiscal 1995:
First Quarter............................................................. $ 8.19 $ 6.70
Second Quarter............................................................ $ 8.29 $ 6.55
Third Quarter............................................................. $ 9.52 $ 7.99
Fourth Quarter............................................................ $ 12.16 $ 8.96
Fiscal 1996:
First Quarter............................................................. $ 12.16 $ 10.50
Second Quarter............................................................ $ 12.16 $ 9.99
Third Quarter............................................................. $ 14.34 $ 10.11
Fourth Quarter............................................................ $ 15.68 $ 11.04
Fiscal 1997:
First Quarter............................................................. $ 16.32 $ 11.92
Second Quarter............................................................ $ 13.28 $ 7.84
Third Quarter............................................................. $ 14.80 $ 8.80
Fourth Quarter............................................................ $ 18.08 $ 13.44
Fiscal 1998:
First Quarter............................................................. $ 17.76 $ 14.90
Second Quarter............................................................ $ 19.20 $ 15.20
Third Quarter............................................................. $ 20.20 $ 15.60
Fourth Quarter............................................................ $ 23.00 $ 15.40
Fiscal 1999:
First Quarter (through December 29, 1998)................................. $ 28.00 $ 15.63
</TABLE>
On December 29, 1998, the last reported closing sale price of the common
stock was $26.50 per share.
DIVIDEND POLICY
Since our initial public offering, we have not paid cash dividends on our
common stock. We currently anticipate that all of our earnings will be retained
for development of our business and do not anticipate paying any cash dividends
in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 4, 1998
on an actual basis and on a pro forma as adjusted basis to give effect to our
sale and issuance of the 1,000,000 shares of common stock at an assumed public
offering price of $26.50, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses and fees, and receipt and
application of the estimated net proceeds therefrom. See "Use of Proceeds." The
data set forth below should be read in conjunction with our Consolidated
Financial Statements, including Notes thereto, included in this prospectus.
<TABLE>
<CAPTION>
OCTOBER 4, 1998
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations excluding current portion.......................................... $ 33,546 $ 8,920
Stockholders' equity:
Preferred Stock -- authorized, 2,000,000 shares of $.01 par value;
no shares issued and outstanding....................................................... -- --
Exchangeable stock of subsidiary......................................................... 15,411 15,411
Common Stock -- authorized, 50,000,000 shares of $.01 par value;
issued and outstanding, 28,630,600 shares at October 4, 1998;
issued and outstanding, 29,630,600, pro forma as adjusted.............................. 287 296
Additional paid-in capital............................................................... 87,565 112,182
Retained Earnings........................................................................ 64,518 64,518
---------- -----------
Total stockholders' equity........................................................... 167,781 192,407
---------- -----------
Total capitalization............................................................. $ 201,327 $ 201,327
---------- -----------
---------- -----------
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
our statements of income for each of the three years in the period ended October
4, 1998 and balance sheets as of September 28, 1997 and October 4, 1998, have
been derived from our financial statements included elsewhere in this
prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors, as indicated in their report included elsewhere in this prospectus.
The statements of income data for the years ended October 2, 1994 and October 1,
1995 and the balance sheet data as of October 2, 1994, October 1, 1995 and
September 29, 1996 have been derived from our audited financial statements not
included in this prospectus. The data set forth below should be read in
conjunction with our consolidated financial statements, including notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
OCT. 2, OCT. 1, SEPT. 29, SEPT. 28, OCT. 4,
1994(2) 1995(3) 1996(4) 1997(5) 1998(6)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenue:
Gross revenue............................................. $ 96,472 $ 120,034 $ 220,099 $ 246,767 $ 382,934
Subcontractor costs....................................... 28,653 32,160 59,062 55,976 85,337
----------- ----------- ----------- ----------- -----------
Net revenue................................................. 67,819 87,874 161,037 190,791 297,597
Cost of net revenue......................................... 51,069 65,484 122,084 141,019 223,871
----------- ----------- ----------- ----------- -----------
Gross profit................................................ 16,750 22,390 38,953 49,772 73,726
Selling, general and administrative expenses................ 7,589 10,634 21,218 25,173 33,913
----------- ----------- ----------- ----------- -----------
Income from operations...................................... 9,161 11,756 17,735 24,599 39,813
Net interest income (expense)............................... 354 833 (776) (20) (1,910)
----------- ----------- ----------- ----------- -----------
Income before minority interest and income tax expense...... 9,515 12,589 16,959 24,579 37,903
Minority interest........................................... -- -- -- -- 1,397
----------- ----------- ----------- ----------- -----------
Income before income tax expense............................ 9,515 12,589 16,959 24,579 36,506
Income tax expense.......................................... 3,806 5,036 6,854 10,323 15,920
----------- ----------- ----------- ----------- -----------
Net income.................................................. $ 5,709 $ 7,553 $ 10,105 $ 14,256 $ 20,586
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Basic earnings per share(1)................................. $ 0.28 $ 0.37 $ 0.46 $ 0.61 $ 0.74
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted earnings per share(1)............................... $ 0.27 $ 0.36 $ 0.45 $ 0.58 $ 0.71
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:(1)
Basic(1)................................................. 20,464 20,585 21,851 23,371 27,970
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted(1)............................................... 20,811 21,146 22,581 24,656 29,191
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
OCT. 2, OCT. 1, SEPT. 29, SEPT. 28, OCT. 4,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 24,833 $ 39,872 $ 32,739 $ 42,539 $ 77,049
Total assets................................................ 51,606 92,930 88,463 159,513 266,610
Long-term obligations, excluding current portion............ -- 19,045 -- -- 33,546
Stockholders' equity........................................ 33,507 41,496 63,269 107,641 167,781
</TABLE>
- ------------
(1) Reflects the effect, on a retroactive basis, of a 5-for-4 stock split,
effected in the form of a 25% stock dividend, in September 1998.
(2) We have included the results of operations and financial positions of
Simons, Li & Associates, Inc. (acquired October 4, 1993) and
Hydro-Search, Inc. (acquired June 3, 1994) from the dates set forth in
the related purchase agreements.
(3) We have included the results of operations and financial position of
Tetra Tech EM Inc., formerly known as PRC Environmental Management, Inc.
(acquired September 15, 1995) from the date set forth in the related
purchase agreement.
(4) We have included the results of operations and financial position of
KCM, Inc., (acquired November 7, 1995) from the date set forth in the
related purchase agreement.
(5) We have included the results of operations and financial positions of
IWA Engineers (acquired December 11, 1996), FLO Engineering, Inc.
(acquired December 20, 1996), SCM Consultants, Inc. (acquired March 19,
1997), Whalen & Company, Inc. (acquired June 11, 1997) and CommSite
Development Corporation (acquired July 11, 1997) from the dates set forth
in the related purchase agreements.
(6) We have included the results of operations and financial positions of
Tetra Tech NUS, Inc. (acquired December 31, 1997), Whalen/Sentrex LLC
(formed March 2, 1998), C.D.C. Engineering, Inc. (acquired March 26,
1998), McNamee, Porter & Seeley, Inc. (acquired July 8, 1998), and the
Sentrex Group of Companies (acquired September 22, 1998) from the dates
set forth in the related purchase agreements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS
DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER
OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL RESOURCES AND
OPERATING RESULTS MAY DIFFER MATERIALLY FROM THE DISCUSSION SET FORTH BELOW IN
THESE FORWARD-LOOKING STATEMENTS. FOR ADDITIONAL INFORMATION, REFER TO THE NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Tetra Tech, Inc. is a leading provider of specialized management
consulting and technical services in three principal business areas: resource
management, infrastructure and communications. As a specialized management
consultant, we assist our clients in defining problems and developing innovative
and cost-effective solutions. Our management consulting services are
complemented by our technical services. These technical services, which
implement solutions, include research and development, applied science,
engineering and architectural design, construction management, and operations
and maintenance. Our clients include a diverse base of public and private
organizations located in the United States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth. From fiscal 1991 through
fiscal 1998, we generated a net revenue compounded annual growth rate of
approximately 34.2%, and achieved a net income compounded annual growth rate of
approximately 36.4%.
We derive our gross revenues from fees from professional services. Our
services are billed under various types of contracts with our clients,
including:
- Fixed-price;
- Fixed-rate time and materials;
- Cost-reimbursement plus fixed fee; and
- Cost-reimbursement plus fixed and award fee.
In the course of providing our services, we routinely subcontract
services. These subcontractor costs are passed through to clients and, in
accordance with industry practice, are included in our gross revenue. Because
subcontractor services can change significantly from project to project, we
believe net revenue, which is gross revenue less the cost of subcontractor
services, is a more appropriate measure of our performance.
Our cost of net revenue includes professional compensation and certain
direct and indirect overhead costs such as rents, utilities and travel.
Professional compensation represents the majority of these costs. Our selling,
general and administrative (SG&A) expenses are comprised primarily of our
corporate headquarters' costs related to the executive offices, corporate
accounting, information technology, marketing, and bid and proposal costs. These
costs are generally unrelated to specific client projects. In addition, we
include amortization of certain intangible assets resulting from acquisitions in
SG&A expenses.
17
<PAGE>
We provide services to a diverse base of Federal, state and local
government agencies, and private and international clients. The following table
presents, for the periods indicated, the approximate percentage of our net
revenue attributable to these client sectors:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
-------------------------------------
CLIENT FISCAL 1996 FISCAL 1997 FISCAL 1998
- --------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Federal government........................... 61.7% 52.3% 48.7%
State and local government................... 16.6 14.8 12.7
Private...................................... 20.1 29.2 35.4
International................................ 1.6 3.7 3.2
----- ----- -----
Total........................................ 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
RECENT ACQUISITIONS
As a part of our growth strategy, we expect to pursue complementary
acquisitions to expand our geographical reach and the breadth and depth of our
service offerings. During fiscal 1998, we purchased ten companies in the
following five separate transactions:
TETRA TECH NUS, INC. -- In December 1997, we acquired, through our
wholly-owned subsidiary Tetra Tech NUS, Inc. (NUS), the assets of certain
environmental services businesses of Brown & Root, Inc. and Halliburton
Corporation. The purchase was valued at approximately $25.2 million. NUS is a
nationwide firm providing consulting, engineering and design services for the
environmental remediation of contaminated air, water and soil conditions.
WHALEN/SENTREX LLC -- In March 1998, our wholly-owned subsidiary Whalen
Service Corps Inc. agreed to participate in a partnership with Sentrex Cen-Comm
and ANTEC Corporation. The partnership purchased certain assets from ANTEC
Corporation for a price of approximately $0.6 million. The partnership,
Whalen/Sentrex LLC, a Colorado-based firm, provides nationwide design,
engineering, information management and construction services to support
advanced communication system upgrades to the broadband information transport
industries.
C.D.C. ENGINEERING, INC. -- In March 1998, we acquired C.D.C.
Engineering, Inc. (CDE). The purchase was valued at approximately $1.5 million.
CDE, a California-based consulting and engineering firm, specializes in civil
engineering, transportation engineering, structural engineering and land
surveying.
MCNAMEE, PORTER & SEELEY, INC. -- In July 1998, we acquired McNamee,
Porter & Seeley, Inc. (MPS). The purchase was valued at approximately $14.2
million. MPS, a Michigan-based firm, provides engineering services throughout
the Midwest with expertise in the areas of water, industrial wastewater and
process controls.
SENTREX GROUP OF COMPANIES -- In September 1998, we acquired, through our
wholly-owned subsidiary, Tetra Tech Canada Ltd., six Canadian corporations that
are collectively referred to as the Sentrex Group of Companies (SGOC). The
purchase was valued at approximately $19.2 million. SGOC provides engineering
and technical services to the cable television, telephony and data networking
industries. As a result of the SGOC acquisition, we now own 100% of
Whalen/Sentrex LLC.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating information as a percentage of net revenue:
<TABLE>
<CAPTION>
PERCENTAGE RELATIONSHIP TO NET
REVENUE
-------------------------------------
FISCAL YEARS ENDED
-------------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue......................................... 100.0% 100.0% 100.0%
Cost of net revenue................................. 75.8 73.9 75.2
----- ----- -----
Gross profit........................................ 24.2 26.1 24.8
Selling, general and administrative expenses........ 13.2 13.2 11.4
----- ----- -----
Income from operations.............................. 11.0 12.9 13.4
Net interest income (expense)....................... (0.5) -- (0.7)
----- ----- -----
Income before minority interest and income tax
expense........................................... 10.5 12.9 12.7
Minority interest................................... -- -- (0.5)
----- ----- -----
Income before income tax expense.................... 10.5 12.9 12.2
Income tax expense.................................. 4.2 5.4 5.3
----- ----- -----
Net income.......................................... 6.3% 7.5% 6.9%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
NET REVENUE. Net revenue increased $106.8 million, or 56.0%, to $297.6
million in fiscal 1998 from $190.8 million in fiscal 1997. All four client
sectors continued to show net revenue increases in actual dollars. These
increases were attributable to increases in our existing Federal government
contracts, the introduction of new lines of service in our communications
business and to companies acquired in fiscal 1998. As a percentage of net
revenue, increases were realized in the private sector. Net revenue from the
companies acquired in fiscal 1998 totaled $72.0 million. Excluding the net
revenue from these companies, we realized 18.2% growth in our net revenue. Gross
revenue increased $136.2 million, or 55.2%, to $382.9 million in fiscal 1998
from $246.8 million in fiscal 1997. In fiscal 1998, subcontractor costs
comprised 22.3% of gross revenue compared to 22.7% for fiscal 1997.
COST OF NET REVENUE. Cost of net revenue increased $82.9 million, or
58.8%, to $223.9 million in fiscal 1998 from $141.0 million in fiscal 1997. As a
percentage of net revenue, cost of net revenue increased from 73.9% in fiscal
1997 to 75.2% in fiscal 1998. This increase was primarily attributable to higher
costs of Federal government contracts, as well as costs incurred in connection
with the additional net revenue from the acquired companies. Professional
compensation, the largest component of our cost of net revenue, rose as the
number of our employees increased by 1,400 or 61.9%, to 3,662 in fiscal 1998
from 2,262 in fiscal 1997. Excluding the employees provided from acquired
companies, our number of employees increased by 265, or 11.7%. Gross profit
increased $24.0 million, or 48.1%, to $73.7 million in fiscal 1998 from $49.8
million in fiscal 1997. However, as a percentage of net revenue, gross profit
decreased from 26.1% in fiscal 1997 to 24.8% in fiscal 1998, primarily due to a
change in the relative mix of our Federal government contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$8.7 million, or 34.7%, to $33.9 million in fiscal 1998 from $25.2 million in
fiscal 1997. This increase was primarily attributable to additional
headquarters' costs associated with centralizing corporate functions as well as
additional amortization expense relating to acquired companies. As a percentage
of net revenue, SG&A expenses decreased from 13.2% in fiscal 1997 to 11.4% in
fiscal 1998 due to operating efficiencies. The
19
<PAGE>
amortization expenses related to acquisitions increased $1.4 million, or 89.1%,
to $3.0 million in fiscal 1998 from $1.6 million in fiscal 1997.
NET INTEREST EXPENSE. Net interest expense increased from less than $0.1
million to $1.9 million from fiscal 1997 to fiscal 1998. This increase was
primarily attributable to the financing and working capital needs of certain
acquisitions.
INCOME TAX EXPENSE. Income tax expense increased $5.6 million, or 54.2%
to $15.9 million in fiscal 1998 from $10.3 million in fiscal 1997. This increase
was due to higher income before income taxes and an increase in our effective
tax rate from 42.0% in fiscal 1997 to 43.6% in fiscal 1998. This increase was
primarily attributable to amortization amounts which were not tax deductible.
FISCAL 1997 COMPARED TO FISCAL 1996
NET REVENUE. Net revenue increased $29.8 million, or 18.5%, to $190.8
million in fiscal 1997 from $161.0 million in fiscal 1996. The increase in net
revenue was primarily attributable to revenue associated with companies acquired
in fiscal 1997 which totaled $24.6 million. Despite the weakened condition of
the environmental industry, which was impacted by the decrease in Federal
government activity, we attained a 3.2% growth in our net revenue, excluding
revenue related to acquired companies. Gross revenue increased $26.7 million, or
12.1%, to $246.8 million in fiscal 1997 from $220.1 million in fiscal 1996. In
fiscal 1997, subcontractor costs were 22.7% of gross revenue, compared to 26.8%
for fiscal 1996. This decrease was due to the nature of the projects undertaken.
COST OF NET REVENUE. Cost of net revenue increased $18.9 million, or
15.5%, to $141.0 million in fiscal 1997 from $122.1 million in fiscal 1996. This
increase was primarily attributable to costs incurred in connection with the
additional net revenue from the acquired companies. As a percentage of net
revenue, cost of net revenue decreased from 75.8% in fiscal 1996 to 73.9% in
fiscal 1997. Professional compensation, the largest component of our cost of net
revenue, rose as the number of employees increased by 363, or 19.1%, to 2,262 in
fiscal 1997 from 1,899 in fiscal 1996. Excluding the employees provided from
acquired companies, our number of employees remained relatively flat. Gross
profit increased $10.8 million, or 27.8%, to $49.8 million in fiscal 1997 from
$39.0 million in fiscal 1996, primarily due to efficiencies in operations,
acquisitions and higher profit margins realized in the acquired businesses in
the communications industry.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$4.0 million, or 18.6%, to $25.2 million in fiscal 1997 from $21.2 million in
fiscal 1996. However, as a percentage of net revenue, SG&A expenses remained
flat at 13.2% for fiscal 1997. The amortization of intangible assets relating to
acquisitions increased $0.4 million, or 29.8%, to $1.6 million in fiscal 1997
from $1.2 million in fiscal 1996.
NET INTEREST EXPENSE. Net interest expense decreased $0.8 million to
less than $0.1 million in fiscal 1997 due to the reduction of the average
outstanding borrowings from fiscal 1996 to fiscal 1997.
INCOME TAX EXPENSE. Income tax expense increased $3.4 million, or 50.6%,
to $10.3 million in fiscal 1997 from $6.9 million in fiscal 1996. Our effective
tax rate increased from 40.4% in fiscal 1996 to 42.0% in fiscal 1997. This
increase was primarily attributable to amortization amounts which were not tax
deductible.
UNAUDITED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly operating
results for each of our last three fiscal years ended September 29, 1996,
September 28, 1997 and October 4, 1998. This data is also expressed as a
percentage of net revenue for the respective quarters. The information has been
derived from unaudited consolidated financial statements that, in our opinion,
reflect all adjustments, consisting
20
<PAGE>
only of normal recurring adjustments, necessary for a fair presentation of such
quarterly information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
-------------------------------------------------- -------------------------------------
DEC. 31, MAR. 31, JUN. 30, SEP. 29, DEC. 29, MAR. 30, JUN. 29,
1995 1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................... $ 38,023 $ 40,076 $ 40,314 $ 42,624 $ 40,423 $ 43,914 $ 48,621
Cost of net revenue............ 29,483 30,676 30,479 31,446 31,051 33,367 35,660
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................... 8,540 9,400 9,835 11,178 9,372 10,547 12,961
Selling, general and
administrative expenses..... 4,810 5,281 5,329 5,798 4,979 5,655 6,754
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations......... 3,730 4,119 4,506 5,380 4,393 4,892 6,207
Net interest income
(expense)................... (348) (291) (131) (6) 49 31 4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before minority interest
and income tax expense...... 3,382 3,828 4,375 5,374 4,442 4,923 6,211
Minority interest.............. -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income tax
expense..................... 3,382 3,828 4,375 5,374 4,442 4,923 6,211
Income tax expense............. 1,353 1,531 1,750 2,220 1,846 2,051 2,567
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income..................... $ 2,029 $ 2,297 $ 2,625 $ 3,154 $ 2,596 $ 2,872 $ 3,644
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
FISCAL 1998 QUARTER ENDED
------------------------------------------------
SEP. 28, DEC. 28, MAR. 29, JUN. 28, OCT. 4,
1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue.................... $ 57,833 $ 53,664 $ 71,806 $ 75,149 $ 96,978
Cost of net revenue............ 40,941 40,339 54,786 54,405 74,341
----------- ----------- ----------- ----------- ---------
Gross profit................... 16,892 13,325 17,020 20,744 22,637
Selling, general and
administrative expenses..... 7,785 6,146 8,148 9,333 10,286
----------- ----------- ----------- ----------- ---------
Income from operations......... 9,107 7,179 8,872 11,411 12,351
Net interest income
(expense)................... (104) (73) (596) (510) (731)
----------- ----------- ----------- ----------- ---------
Income before minority interest
and income tax expense...... 9,003 7,106 8,276 10,901 11,620
Minority interest.............. -- -- 203 1,194 --
----------- ----------- ----------- ----------- ---------
Income before income tax
expense..................... 9,003 7,106 8,073 9,707 11,620
Income tax expense............. 3,859 3,055 3,552 4,214 5,099
----------- ----------- ----------- ----------- ---------
Net income..................... $ 5,144 $ 4,051 $ 4,521 $ 5,493 $ 6,521
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
-------------------------------------------------- -------------------------------------
DEC. 31, MAR. 31, JUN. 30, SEP. 29, DEC. 29, MAR. 30, JUN. 29,
1995 1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue............ 77.5 76.5 75.6 73.8 76.8 76.0 73.3
----- ----- ----- ----- ----- ----- -----
Gross profit................... 22.5 23.5 24.4 26.2 23.2 24.0 26.7
Selling, general and
administrative expenses..... 12.7 13.2 13.2 13.6 12.3 12.9 13.9
----- ----- ----- ----- ----- ----- -----
Income from operations......... 9.8 10.3 11.2 12.6 10.9 11.1 12.8
Net interest income
(expense)................... (0.9) (0.7) (0.3) -- 0.1 0.1 --
----- ----- ----- ----- ----- ----- -----
Income before minority interest
and income tax expense...... 8.9 9.6 10.9 12.6 11.0 11.2 12.8
Minority interest.............. -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Income before income tax
expense..................... 8.9 9.6 10.9 12.6 11.0 11.2 12.8
Income tax expense............. 3.6 3.8 4.3 5.2 4.6 4.7 5.3
----- ----- ----- ----- ----- ----- -----
Net income..................... 5.3% 5.7% 6.5% 7.4% 6.4% 6.5% 7.5%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
FISCAL 1998 QUARTER ENDED
--------------------------------------------------
SEP. 28, DEC. 28, MAR. 29, JUN. 28, OCT. 4,
1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue............ 70.8 75.2 76.3 72.4 76.7
----- ----- ----- ----- -----
Gross profit................... 29.2 24.8 23.7 27.6 23.3
Selling, general and
administrative expenses..... 13.5 11.5 11.3 12.4 10.6
----- ----- ----- ----- -----
Income from operations......... 15.7 13.4 12.4 15.2 12.7
Net interest income
(expense)................... (0.2) (0.1) (0.8) (0.7) (0.8)
----- ----- ----- ----- -----
Income before minority interest
and income tax expense...... 15.6 13.2 11.5 14.5 12.0
Minority interest.............. -- -- 0.3 1.6 --
----- ----- ----- ----- -----
Income before income tax
expense..................... 15.6 13.2 11.2 12.9 12.0
Income tax expense............. 6.7 5.7 4.9 5.6 5.3
----- ----- ----- ----- -----
Net income..................... 8.9% 7.5% 6.3% 7.3% 6.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
Our revenues and operating results fluctuate from quarter to quarter as a
result of a number of factors, such as: (1) the seasonality of the spending
cycle of our public sector clients, notably the Federal government; (2) employee
hiring and utilization rates; (3) the number and significance of client
engagements commenced and completed during a quarter; (4) delays incurred in
connection with an engagement; (5) the ability of clients to terminate
engagements without penalties; (6) the size and scope of engagements; (7) the
timing and size of the return on investment capital; and (8) general economic
and political conditions. Variations in any of these factors can cause
significant variations in operating results from quarter to quarter and could
result in losses.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We expect that internally generated funds, our existing cash balances,
proceeds from this offering and availability under the Credit Agreement will be
sufficient to meet our capital requirements through the end of fiscal 1999.
As of October 4, 1998, our working capital was $77.0 million, an increase
of $34.5 million from $42.5 million on September 28, 1997, of which cash and
cash equivalents totaled $4.9 million. In fiscal 1998, we augmented cash used in
operations with borrowings under our credit facility. In fiscal 1998, $6.6
million was used in operating activities and $41.3 million was used in investing
activities, of which $37.8 million was related to business acquisitions. In
fiscal 1997, we generated $1.1 million from operating activities and used $3.8
million in investing activities, of which $1.2 million was related to business
acquisitions. The decreases in cash from operating activities in fiscal 1998 and
fiscal 1997 primarily resulted from the payment of liabilities assumed in
connection with fiscal 1998 acquisitions of approximately $6.4 million as well
as the acquisitions of Whalen & Company, Inc. in fiscal 1997 and McNamee, Porter
& Seeley, Inc. in fiscal 1998. In these acquisitions we agreed that we would not
acquire the accounts receivable. As a result, we experienced a lag in cash flow
to fund the business' operations. As an ongoing effort, we attempt to increase
our efficiencies in the timing of billings and the collection of receivables.
Our capital expenditures during fiscal years 1996, 1997, and 1998 were
approximately $2.4 million, $2.6 million and $3.5 million, respectively. The
expenditures were primarily for computer equipment, leasehold improvements and
office expansion.
We have a credit agreement with a bank (the "Credit Agreement") which, as
of October 4, 1998, provided us with a revolving credit facility (the
"Facility") of $70.0 million. The Credit Agreement provides for mandatory
reductions of $5.0 million on December 15, 1998 and December 15, 1999. We
amended the Credit Agreement during fiscal 1998 in order to accommodate the
fiscal 1998 acquisitions as well as to position ourselves to pursue future
acquisitions. The Facility matures on December 15, 2000 or earlier at our
discretion upon payment in full of loans and other obligations. Throughout
fiscal 1998, maximum borrowings under the Facility were $49.0 million. At
October 4, 1998, borrowings and standby letters of credit totaled $47.0 million
and $2.2 million, respectively.
We continuously evaluate the marketplace for strategic acquisition
opportunities. Once an opportunity is identified, we examine the effect an
acquisition may have on the business environment, as well as on our results of
operations. We proceed with an acquisition if we determine that the acquisition
is anticipated to have an accretive effect on future operations. However, as
successful integration and implementation are essential to achieve favorable
results, no assurances can be given that all acquisitions will provide accretive
results. Our strategy is to position ourselves to address existing and emerging
markets. We view acquisitions as a key component of our growth strategy, and we
intend to use both cash and our securities, as we deem appropriate, to fund such
acquisitions.
We believe our operations have not been and, in the foreseeable future,
we do not expect to be materially adversely affected by inflation or changing
prices.
RECENTLY ISSUED FINANCIAL STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, EARNINGS PER SHARE,
which we adopted in fiscal year 1998. The Statement replaces the presentation of
primary EPS with a presentation of basic EPS, which excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. The Statement also
requires the dual presentation of basic and diluted EPS on the face of the
income statement for all companies with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. EPS has
been retroactively restated to reflect the requirements of SFAS No. 128.
22
<PAGE>
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. The Statement is effective for fiscal years beginning after December 15,
1997. The Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. We will adopt
this Statement in fiscal year 1999.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. The Statement is effective for fiscal
years beginning after December 15, 1997. The Statement establishes standards for
the way that public business enterprises report information about operating
segments as well as related disclosures about products and services, geographic
areas, and major clients. The Statement also requires that a public business
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. The Statement need
not be applied to interim financial statements in the initial year of its
application. We have not completed our analysis of the effect of SFAS No. 131 on
our financial statements. We will adopt this Statement in fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES. The Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Statement requires companies to
recognize all derivative instruments on their balance sheet as either assets or
liabilities measured at fair value. The Statement also specifies a new method of
accounting for hedging transactions, prescribes the type of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. We will adopt this Statement in fiscal year 2001.
MARKET RISKS
We currently utilize no material derivative financial instruments which
expose us to significant market risk. We are exposed to cash flow risk due to
interest rate fluctuations with respect to our long-term debt. At our option, we
borrow on our Facility (a) at a base rate (the greater of the federal funds rate
plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a
margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no
designated term and may be repaid without penalty anytime prior to the
Facility's maturity date. Borrowings at a eurodollar rate have a term no less
than 30 days and no greater than 90 days. Typically, at the end of such term,
such borrowings may be rolled over at our discretion into either a borrowing at
the base rate or a borrowing at a eurodollar rate with similar terms, not to
exceed the maturity date of the Facility. The Facility matures on December 15,
2000 or earlier at our discretion upon payment in full of loans and other
obligations. Accordingly, we classify total outstanding debt between current
liabilities and long-term debt based on anticipated payments within and beyond
one year's period of time. Without giving effect to the use of the proceeds we
receive from the sale of our common stock in this offering, we presently
anticipate repaying our long-term debt in the amounts of $14,065,000,
$15,546,000 and $18,000,000 in fiscal 1999, 2000 and 2001, respectively.
Assuming we pay our long-term debt in such amounts ratably throughout the year,
and our average interest rate on our long-term debt increases or decreases by
one percentage point, our interest expense would increase or decrease by
$406,000, $258,000 and $90,000 in fiscal 1999, 2000 and 2001, respectively.
However, there can be no assurance that we will, or will be able to, repay our
long-term debt in the manner described. For example, we could incur additional
debt under the Facility or our operating results could be worse than we expect.
YEAR 2000
We are working to resolve the potential impact of the year 2000 on our
business operations and the ability of our computerized information systems to
accurately process information that may be date-sensitive.
23
<PAGE>
Any of our programs that recognize a date using "00" as the year 1900 rather
than the year 2000 could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology (IT) systems we utilize are (1) the accounting
and financial systems which include general ledger, accounts payable, accounts
receivable, billing and collection, fixed assets, job cost accounting and
payroll and (2) human resource information management systems. We do not believe
we have a material amount of non-IT systems on which we rely.
We have established both a year 2000 review committee and a year 2000
action team. The purpose of the review committee is to develop and communicate
our year 2000 plan to achieve our year 2000 compliance mission. The purpose of
the action team is to identify, remediate and implement plans to resolve our
year 2000 related issues. Through the review committee and the action team, we
are in the process of completing our full assessment of all issues relating to
the year 2000. We have developed questionnaires regarding year 2000 readiness to
be used internally and externally. We have completed our internal assessment and
we are in the process of assessing the year 2000 issues of our clients and
vendors. Based on the information collected to date, we do not believe that the
cost of addressing our year 2000 issues will have a material adverse impact on
our financial position. We plan to devote all resources required to resolve any
significant year 2000 issues in a timely manner.
STATE OF READINESS
We began our risk assessment in 1995. Since that time we have procured
and implemented certain accounting and financial reporting systems as well as
contract administration and billing systems that have been certified as year
2000 compliant by our vendors. Currently, approximately 72% of our gross revenue
is recognized on these year 2000 compliant systems. We have successfully
converted seven of our 18 operating units to these year 2000 compliant systems.
We are planning to convert four additional operating units by July 1999. The
operating units that will not be converted to the systems currently in place are
in the process of upgrading their existing systems to a year 2000 compliant
version or will procure and implement year 2000 compliant software. In all
cases, we believe that our financial and accounting systems will be year 2000
compliant in a timely manner and will not be materially impacted by the year
2000.
We are currently installing a year 2000 compliant human resource
information management system. Ten operating units including our corporate units
will be supported by this system. The anticipated completion date is April 1999.
We plan to convert the remaining operating units following April 1999. In all
cases, we believe that our human resource management information systems will be
year 2000 compliant in a timely manner and will not be materially impacted by
the year 2000.
We have expended or obligated approximately $2.6 million on the
procurement of these systems, the conversion of data from legacy systems to
these systems, and on the implementation and testing of these systems.
We have extensive business with the Federal government. Should the
Federal government, specifically the Department of Defense, experience
significant business interuptions relating to non-year 2000 compliance, we could
be materially impacted. To the extent that other third parties upon which we
rely, such as banking institutions, clients and vendors, are unable to address
their year 2000 issues in a timely manner, we could be materially impacted. We
believe that the worst case scenario relating to the year 2000 would be an
extensive period of time in which the Federal government and other third parties
could not process payments promptly.
24
<PAGE>
RISKS
We believe the risks associated with non-year 2000 compliance include:
- Our inability to invoice and process payments;
- Our inability to produce accurate and timely financials;
- The impact on our cash flow and working capital needs;
- The impact on our profitability; and
- Our potential liability to third parties for not meeting contracted
deliverables.
CONTINGENCY PLANS
We currently do not have formal contingency plans for the failure of our
financial and accounting systems. We have substantial experience in the
conversion process from multiple legacy systems to our current year 2000
certified systems. We have an experienced and dedicated staff to perform the
functions identified and are reasonably confident that the projected conversions
will be accomplished as projected.
We currently do not have formal contingency plans for the failure of our
human resource information management system. Our implementation strategy is to
install the system as simply as possible, with little customization. Our vendor
supports our implementation strategy and has agreed to a financial penalty if
the implementation is not achieved within three months, or by April 1999. If the
implementation is not achieved by April 1999, we believe there will still be
sufficient time to meet the year 2000 deadline.
We maintain, as a matter of policy and practice, mitigation plans in the
event of systems failure which include regular backup of historical information.
25
<PAGE>
BUSINESS
Tetra Tech, Inc. is a leading provider of specialized management
consulting and technical services in three principal business areas: resource
management, infrastructure and communications. As a specialized management
consultant, we assist our clients in defining problems and developing innovative
and cost-effective solutions. Our management consulting services are
complemented by our technical services. These technical services, which
implement solutions, include research and development, applied science,
engineering and architectural design, construction management, and operations
and maintenance. Our clients include a diverse base of public and private
organizations located in the United States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth. We have more than 3,600
employees worldwide, 3,500 of whom are located in North America in more than 100
locations. In addition, we have established a presence in Asia, South America
and Europe. From fiscal 1991 through fiscal 1998, we generated a net revenue
compounded annual growth rate of approximately 34.2%, and achieved a net income
compounded annual growth rate of approximately 36.4%.
INDUSTRY OVERVIEW
Due to increased competition, changing regulatory environments and rapid
technological advancement, many organizations face new and complex challenges.
Increasingly, these organizations are turning to professional services firms to
assist them with addressing these challenges. Since each industry presents its
own unique set of challenges, organizations often seek professional service
firms with industry-specific expertise to analyze their problems and develop
appropriate solutions. These solutions are then implemented by firms possessing
the required engineering and technical service capabilities. Each of the
following three business areas faces its own unique set of problems:
RESOURCE MANAGEMENT. The world's natural resources, including water, air
and soil, are interdependent, creating a delicate balance. Factors such as
agricultural and residential development, commercial construction and
industrialization often upset this balance. Public concern over environmental
issues, especially water quality and availability, has been a driving force
behind numerous laws and regulations that are designed to prevent environmental
degradation and mandate restorative measures. To comply with environmental laws
and regulations, respond to public pressure and attain operating efficiencies,
public and private organizations are increasing their focus on resource
management. Two areas particularly affected by these trends are water management
and waste management.
- Water Management. Insufficient water supplies, concern over the
cost, quality and availability of water and the need in many parts of the
world to replace aging infrastructure used to capture, safeguard and
distribute water are critical social and economic concerns. According to
the U.S. Environmental Protection Agency (EPA), contamination of
groundwater and surface water resulting from agricultural, residential,
commercial and industrial development is one of the most serious
environmental problems facing the United States. To alleviate these social
and economic concerns, public and private organizations seek water
management advice. According to the ENVIRONMENTAL BUSINESS JOURNAL, the
size of the consulting, engineering services and wastewater treatment
segments of the water management industry totaled more than $30 billion in
1997.
- Waste Management. In the past, many waste disposal practices
caused significant environmental damage. Since the 1970s, more stringent
controls on municipal and industrial waste have been established by
governments around the world to protect the environment. Recently, the
Federal government has committed approximately $15 billion to various
environmental initiatives in an attempt to curb pollution, accelerate
toxic waste cleanups and
26
<PAGE>
combat other forms of pollution. Organizations seek waste management
advice to comply with complex and evolving environmental regulations, to
minimize the economic impact of waste generation and disposal, and to
realize significant costs savings through increased operating
efficiencies.
INFRASTRUCTURE. Continued population and economic growth places
significant strain on an overburdened infrastructure, thereby requiring
additional development. This development includes water and wastewater treatment
plants, roads, pipelines, communication and power networks, and educational,
recreational and correctional facilities. Additionally, as existing facilities
age, they require upgrading or replacement. Further, the trend toward
privatization of infrastructure is causing public and private organizations that
develop and maintain these facilities to evaluate their cost structures and
establish more efficient systems. These factors drive the need for development
and planning services that are often provided by consulting firms. According to
the ENGINEERING NEWS-RECORD, the market opportunity in the United States for
technical services in infrastructure development including water and wastewater,
transportation, hazardous waste, and educational, recreational and correctional
facilities, ranges from $15 to $20 billion.
COMMUNICATIONS. Technological change and government deregulation have
spurred sweeping changes in the communications industry. Local and long-distance
telephone companies, cable operators and wireless service providers are
penetrating each other's markets and trying to establish a foothold in new
markets created by new technologies. For example, traditional cable operators
are installing advanced capabilities such as digital cable, cable modem, cable
telephony and other high-speed data transmission services. At the same time,
various service providers are consolidating in order to offer their subscribers
a comprehensive set of services and to maintain dominance in their markets. As
these trends continue, network service providers will increasingly turn to
professional service firms for advice and assistance in planning, deploying and
maintaining their communications networks.
Organizations within each of the above business areas face unique
problems but often lack the internal resources and experience necessary to
identify issues and evaluate possible solutions. As a result, many of these
organizations rely on advice from outside management consultants. Most
consulting companies provide limited front-end problem assessment and solution
design and require clients to engage other engineering and technical services
companies to implement recommended solutions. A significant opportunity exists
for consulting companies that not only develop, but also implement, solutions.
These professional service firms are often in the best position to help clients
respond to the challenges they face.
THE TETRA TECH SOLUTION
Tetra Tech provides the specialized management consulting services that
assist clients in identifying industry-specific problems and defining
appropriate solutions. We also provide the technical services required to
implement these solutions. We believe that we are a leader in this market and
that the following factors distinguish us from our competitors:
UNDERSTANDING CLIENT NEEDS. The ability to identify client needs is
essential to strategic planning and execution. Even before the proposal process
begins, we assist our clients by helping them define their business objectives
and strategies and identify issues that are critical to their success. We strive
to develop numerous contacts at various levels within our clients' organizations
to help us identify the key issues from a variety of perspectives. We believe
that our long history and exposure to a broad client base increase our awareness
of the issues being confronted by organizations and thereby help us identify and
solve our clients' problems.
CAPITALIZING ON OUR EXTENSIVE TECHNICAL EXPERIENCE. Since our inception
in 1966, we have provided innovative consulting and engineering services,
historically focusing on cost-effective solutions to water resource management
and environmental problems. We have been successful in leveraging this
27
<PAGE>
foundation of scientific and engineering capabilities into other areas,
including infrastructure and communications. Our services are provided by a wide
range of professionals including: archaeologists, biologists, chemical
engineers, chemists, civil engineers, computer scientists, economists,
electrical engineers, environmental engineers, environmental scientists,
geologists, hydrogeologists, mechanical engineers, oceanographers and
toxicologists. Because of the experience that we have gained from thousands of
completed projects, we often are able to apply proven solutions to client
problems without the time-consuming process of developing new approaches.
OFFERING A FULL RANGE OF SERVICES. Our depth of consulting and technical
skills allows us to respond to client needs at every phase of a project,
including initial planning, research and development, applied science,
engineering and architectural design, and construction management. Once a
particular project is completed, we are able to offer our clients additional
value-added services such as operations and maintenance. Our expertise across
industries and our broad service offerings enable us to be a single source
provider to our clients.
PROVIDING BROAD GEOGRAPHIC COVERAGE AND LOCAL EXPERTISE. We believe that
proximity to our clients is instrumental to understanding their needs and
delivering comprehensive services. We have significantly broadened our
geographic presence in recent years through strategic acquisitions and internal
growth. Our historical geographic base was primarily in the western portion of
the United States. However, we currently have operations in more than 40 states.
We have also increased our international presence, and we now have operations in
Canada, Taiwan, the Philippines, Argentina, Chile, Brazil and the Czech
Republic.
COMPANY STRATEGY
Our objective is to become the leading provider of specialized management
consulting and technical services in our chosen business areas. To achieve this
objective, we plan to continue the following primary strategies that we believe
have been integral to our success:
IDENTIFY AND EXPAND INTO NEW BUSINESS AREAS. We use our management
consulting services and certain of our technical services as an entry point to
evaluate and to enter new business areas. After our consulting practice is
established in a new business area, we can expand our operations by offering
additional technical services. For example, based on our provision of site
acquisition services to communications industry participants, we identified
infrastructure services within the communications industry as an appropriate
area into which we could expand our operations.
EXPAND SERVICE OFFERINGS AND GEOGRAPHIC PRESENCE THROUGH
ACQUISITIONS. We believe that acquisition opportunities exist that will allow
us to continue our growth in selected business areas, broaden our service
offerings and extend our geographic presence. We intend to make acquisitions
that will enable us to consolidate our position in certain key business areas,
such as communications, or further strengthen our position in our more
established service offerings. We believe that our reputation and public company
status make us an attractive partner and provide us with an advantage in
pursuing acquisitions.
FOCUS ON GOVERNMENT PROJECTS. We intend to continue marketing to
government organizations and bidding for government projects to stay on the
leading edge of policy development. This experience helps us identify market
opportunities and enhances our ability to serve other public and private
clients. Additionally, government contracts provide more predictable revenues
than private sector contracts.
MANAGE INTERNAL FINANCIAL CONTROLS. We take a disciplined approach to
monitoring, managing and improving our return on investment in each of our
business areas through the prompt billing and collection of accounts
receivables, the negotiation of favorable contract terms and the management of
our contract performance to prevent cost overruns. We believe that this approach
to managing our
28
<PAGE>
financial affairs enables us to improve our cash position and thereby fund
acquisitions and internal growth.
LEVERAGE EXISTING CLIENT BASE. Some of our clients engage us to provide
limited services. We believe that we can increase our revenue by selling
additional services to our existing client base. For example, we may be able to
secure an operations and maintenance contract after working with a client on the
design and construction phases of a facility. In addition, we believe that our
ability to offer a full spectrum of services will allow us to grow our business
and compete more effectively for larger projects.
SERVICES
We provide our clients with comprehensive management consulting and
technical services that focus on our clients' industry-specific needs. We offer
these services individually or as part of our full service approach to problem
solving. We are currently performing services under 1,000 active contracts,
ranging from small site investigations to large, complex infrastructure
projects. Our service offerings include:
- MANAGEMENT CONSULTING to assist clients in identifying and addressing
operational and competitive problems they face within their industries;
- RESEARCH AND DEVELOPMENT to formulate solutions to complex problems and
develop advanced computer simulation techniques for modeling problems,
ranging from microscopic to global;
- APPLIED SCIENCE to assess all aspects of problems and develop practical
and cost-effective solutions through the application of new technology
and data interpretation;
- ENGINEERING AND ARCHITECTURAL DESIGN to provide services from concept
development and initial planning and design through project completion;
- CONSTRUCTION MANAGEMENT to provide experienced and specialized
construction managers to assist clients in minimizing the risk of cost
overruns, delays and contractual conflicts; and
- OPERATIONS AND MAINTENANCE to allow clients to outsource routine
functions, permitting them to streamline contractor relationships and
reduce operating costs.
BUSINESS AREAS
We provide our services in the following three principal business areas:
resource management, infrastructure and communications.
RESOURCE MANAGEMENT
One of our major concentrations is water resource management, where we
have a leadership position in understanding the interrelationships of water
quality and human activities. We support high priority government programs for
water quality improvement, environmental restoration, productive reuse of
defense facilities and strategic environmental resource planning. We provide
comprehensive services, including management consulting, research and
development, applied science, engineering and architectural design, construction
management, and operations and maintenance. Our service offerings in the
resource management business area are focused on the following project areas:
Surface Water Projects: Public concern with the quality of rivers, lakes
and streams as well as coastal and marine waters and the ensuing
legislative and regulatory response is driving demand for our services.
Over the past 32 years, we have developed a specialized set of technical
skills that positions us to compete effectively for surface water and
watershed management projects. We provide water resource services to
government clients such as the
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EPA, the Department of Defense (DOD) and the Department of Energy (DOE),
and to a broad base of private sector clients including those in the
chemical, pharmaceutical, utility, aerospace and petroleum industries. We
also provide surface water services to state and local agencies,
particularly in the area of watershed management.
Groundwater Projects: Groundwater is the source of drinking water for
approximately 50% of the U.S. population and accounts for approximately
25% of all water consumed for residential, industrial and agricultural
purposes. Our activities in the groundwater field are diverse and
typically include projects such as investigating and identifying sources
of chemical contamination, examining the extent of contamination,
analyzing the speed and direction of contamination migration, and
designing and evaluating remedial alternatives. In addition, we conduct
monitoring studies to assess the effectiveness of groundwater treatment
and extraction wells.
Waste Management Projects: We currently provide a wide range of
engineering and consulting services for hazardous waste contamination and
remediation projects, from initial site assessment through design and
implementation phases of remedial solutions. In addition, we perform risk
assessments to determine the probability of adverse health effects that
may result from exposure to toxic substances. We also provide waste
minimization and pollution prevention services, and evaluate the
effectiveness of innovative technologies and novel solutions to
environmental problems.
Nuclear Environmental Projects: The DOE's nuclear weapons plants and
research laboratories face a wide variety of environmental challenges
including groundwater and surface water contamination, hazardous waste
management and environmental compliance. Our services include
environmental impact analyses and documentation, environmental audits and
risk assessments, regulatory compliance support, groundwater
characterization, remedial investigation/feasibility studies, and project
management and oversight. Our environmental analyses provide the DOE with
information it requires in order to make decisions regarding the storage
or disposition of surplus materials from dismantled nuclear weapon
components.
Regulatory Compliance Projects: Our regulatory compliance services include
advising our clients on the full spectrum of regulatory requirements under
the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the National Environmental Policy Act and other environmental
laws. Although we provide services to both public and private clients, our
current emphasis is on providing regulatory compliance services to the
Army, Navy and Air Force.
INFRASTRUCTURE
In the infrastructure area, we focus on the development of water resource
projects, institutional facilities, commercial, recreational and leisure
facilities and transportation projects. These facilities are an essential part
of everyday life and also sustain economic activity and the quality of life. Our
engineers, architects and planners work in partnership with our clients to
provide adequate infrastructure development within their financial constraints.
We assist clients with infrastructure projects by providing management
consulting, engineering and architectural design, construction management, and
operations and maintenance. Our service offerings in the infrastructure business
area are focused on the following project areas:
Water Resource Projects: Our technical services are applied to all aspects
of water quantity and quality management ranging from stormwater
management through drainage and flood control projects to major water and
wastewater treatment plants. Our experience includes planning, design and
construction services for drinking water projects, the design of water
treatment facilities and reservoirs, and the design of distribution
systems including pipelines and pump
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stations. Our capabilities are also applied to specialized technical
challenges associated with the design and construction of fisheries and
hatcheries worldwide.
Institutional Facilities Projects: We provide architectural engineering
and construction services for projects including site planning for land
development, complete architectural design, interior design,
civil/structural engineering and mechanical/electrical engineering of
multi-story facilities. We have completed engineering and construction
projects for a wide range of clients with specialized needs such as
security systems, clean rooms, laboratories and emergency preparedness
facilities.
Commercial, Recreational and Leisure Facilities Projects: We specialize in
the planning and design of water-related entertainment and leisure
facilities from theme park attractions to large marine aquariums. Our
projects also include hotels, parks, visitor centers and marinas. We have
designed complex aquatic life support systems and provided structural,
civil and mechanical engineering and design of interpretive exhibits for a
series of large aquarium projects worldwide.
Transportation Projects: We provide architectural, engineering and
construction services for transportation projects to improve public safety
and mobility. Our projects include roadway improvements, commuter railway
stations and expansion of airports. We have also completed numerous
transportation projects including bridges, major highways, and repair,
replacement and upgrading of older transportation facilities.
COMMUNICATIONS
In the communications area, we focus on the delivery of technical
solutions necessary to build and manage communications infrastructure projects.
Our capabilities support a wide range of technologies including broadband and
wireless communications. Our communications clients seek management consulting,
applied science, engineering and architectural design, and construction
management services. Our service offerings in the communications business area
are focused on the following project areas:
Network Feasibility Projects: We apply our technical services to all
aspects of assessing the feasibility of network systems development,
expansion and upgrades for our clients. Our experience includes
feasibility and remote site selection studies, cost-benefit modeling and
market assessments. We also assist network service providers with
technical requirements definition, sensitivity/risk analysis and key
economic projections.
Network Planning Projects: We specialize in network planning, including
short- and long-term network configuration and development planning. We
develop outside plant designs, civil engineering and regulatory compliance
assessment and support efforts. In addition, our projects have included
employment analysis, staffing, logistics, planning, and materials
provisioning and management.
Network Engineering Projects: We provide a full range of onsite and
offsite premises engineering and support services for projects ranging
from developing computer aided design workprints to field surveys. Our
experience includes digital evaluation and terrain modeling, right-of-way
permitting and site acquisition for wireless and broadband networks. In
addition, we have performed outside and inside plant design projects for
twisted pair, coaxial fiber optic and copper cable networks, and wireless
networks.
Network Development Projects: We have performed both inside and outside
plant projects for major network service providers in both the broadband
and wireless sectors. Our construction projects include urban and long
haul underground cable installation. We have also applied our capabilities
to wireless cell site construction and aerial cable placement.
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<PAGE>
The following table presents brief examples of specific projects in our
three primary business areas:
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------------------------
<S> <C>
BUSINESS AREA
- --------------------------- REPRESENTATIVE PROJECTS
--------------------------------------------------------
RESOURCE MANAGEMENT - Currently conducting a remedial design/remedial action
for contaminated groundwater at a Superfund site in
Hendersonville, North Carolina for a private
corporation.
- Currently providing program management and technical
support for the Comprehensive Long-term Environmental
Action Navy (CLEAN) program under several ten-year
contracts. Activities include installation,
restoration, base realignment and closure, and
underground storage tank programs.
- Currently serving as prime contractor for
environmental operations and maintenance services at
Vandenberg Air Force Base in California. Also
providing operations and maintenance services for a
wastewater treatment plant and a hazardous waste
collection plant, and air monitoring and other
services.
INFRASTRUCTURE - Completed the development and analysis of alternative
flood control measures for the Los Angeles River.
- Currently providing design and program management for
Taiwan's National Museum of Marine Biology/Aquarium.
Responsible for civil, structural and mechanical
engineering and for aquatic life support systems.
Designed water, wastewater and parking facilities.
- Selected by Texas Parks and Wildlife Department as the
prime contractor to plan and develop a new,
state-of-the-art, marine fish hatchery and visitor
center at Lake Jackson, Texas. Provided design and
construction administration, and engineering and
bioengineering for all life support systems.
COMMUNICATIONS - Provided site acquisition, obtained entitlements,
supervised construction and installation of equipment,
and provided program management services for a
Canadian corporation.
- Supported the initiative to enhance Emergency 911
services and to improve the dispatch of emergency
services to Henrico County near Richmond, Virginia.
Assisted in the buildout of the Emergency 911
communications network through installation of
antennas, coaxial cables, microwave dishes and
elliptical waveguides.
- Currently redesigning and reconstructing 25% of Tele-
Communications Inc.'s U.S. cable TV networks under a
turnkey contract.
</TABLE>
CLIENTS
We have developed a diverse client base of over 700 clients both in the
public and private sectors. During fiscal 1998, the DOD, EPA and DOE accounted
for 26.2%, 17.1% and 3.5%, respectively, of our net revenue. Although agencies
of the Federal government are among our most significant clients, we often
support multiple programs within a single Federal agency. Our private sector
clients include companies in the chemical, mining, pharmaceutical, aerospace,
automotive, petroleum, communications and utility industries. No private sector
client accounted for more than 10% of our net revenue in fiscal 1998.
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The following table presents a list of representative clients in our
three primary business areas:
<TABLE>
<CAPTION>
REPRESENTATIVE CLIENTS
- ------------------ ----------------------------------------------------------------------------------
BUSINESS AREA FEDERAL GOVERNMENT STATE, COUNTY AND LOCAL PRIVATE SECTOR
- ------------------ -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
RESOURCE U.S. Environmental California Department of Lockheed Martin
MANAGEMENT Protection Agency; U.S. Health Services; Corporation; Merck & Co.;
Air Force; U.S. Navy; U.S. Washington Department of General Electric Company;
Army; U.S. Coast Guard; Ecology; Prince Georges Westwood Squibb
U.S. Forest Service County, Maryland; Clarmont Pharmaceuticals, Inc.
County, Ohio; City of San
Jose, California
INFRASTRUCTURE U.S. Army Corps of City of Tucson, Arizona; Universal Studios, Inc.;
Engineers; U.S. Bureau of City of Breckenridge, Boeing Corporation; E.I.
Reclamation; U.S. Air Colorado; Washington DuPont de Nemours and
Force; Federal Emergency Department of Company; Ford Motor
Management Agency Transportation; City of Company
Detroit, Michigan; City of
Portland, Oregon; Texas
Parks and Wildlife
Department; King County,
Washington; Delaware
Department of
Transportation; Delaware
Department of Corrections
COMMUNICATIONS Henrico County, Virginia AT&T Wireless Services;
Nextel Communications,
Inc.; AirTouch
Communications, Inc.;
Motorola, Inc.; Sprint
Communications Company;
TCI
</TABLE>
CONTRACTS
We enter into various types of contracts with our clients, including
fixed-price, fixed-rate time and materials, cost-reimbursement plus fixed fee
and cost-reimbursement plus fixed and award fee contracts. In fiscal 1998,
26.1%, 33.5% and 40.4% of our net revenue was derived from fixed-price,
fixed-rate time and materials, and cost-reimbursement plus fixed fee and award
fee contracts, respectively. Under a fixed-price contract, the client agrees to
pay a specified price for our performance of the entire contract. Fixed-price
contracts carry certain inherent risks, including risks of losses from
underestimating costs, delays in project completion, problems with new
technologies and economic and other changes that may occur over the contract
period. Consequently, the profitability of fixed-price contracts may vary
substantially. The amount of the fee received for a cost-reimbursement and award
fee contract partially depends upon the government's discretionary periodic
assessment of our performance on that contract. Our various clients determine
which type of contract we enter into for a particular engagement.
Some contracts made with the Federal government are subject to annual
approval of funding. Federal government agencies may impose spending
restrictions that limit the continued funding of our existing contracts with the
Federal government and may limit our ability to obtain additional contracts.
These limitations, if significant, could have a material adverse effect on us.
To date, spending limitations have not had a significant effect on us. All
contracts made with the Federal government may be terminated by the government
at any time, with or without cause.
Federal government agencies have formal policies against continuing or
awarding contracts that would create actual or potential conflicts of interest
with other activities of a contractor. These policies may prevent us in certain
cases from bidding for or performing contracts resulting from or relating to
certain work we have performed for the government. In addition, services
performed for a private client may create conflicts of interest that preclude or
limit our ability to obtain work for another
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private organization. We attempt to identify actual or potential conflicts of
interest and to minimize the possibility that such conflicts would affect our
work under current contracts or our ability to compete for future contracts. We
have, on occasion, declined to bid on a project because of an existing potential
conflict of interest. However, we have not experienced disqualification during a
bidding or award negotiation process by any government or private client as a
result of a conflict of interest.
Our contracts with the Federal government are subject to audit by the
government, primarily by the Defense Contract Audit Agency (DCAA). The DCAA
generally seeks to (1) identify and evaluate all activities which either
contribute to, or have an impact on, proposed or incurred costs of government
contracts; (2) evaluate the contractor's policies, procedures, controls and
performance; and (3) prevent or avoid wasteful, careless and inefficient
production or service. To accomplish this, the DCAA examines our internal
control systems, management policies and financial capability, evaluates the
accuracy, reliability and reasonableness of our cost representations and
records, and assesses compliance by us with Cost Accounting Standards and
defective-pricing clauses found within the Federal Acquisition Regulations. The
DCAA also performs the annual review of our overhead rates and assists in the
establishment of our final rates. This review focuses on the allowability of
cost items and the allowability and applicability of Cost Accounting Standards.
The DCAA also audits cost-based contracts, including the close-out of those
contracts.
The DCAA also reviews all types of proposals, including those of award,
administration, modification and repricing. Factors considered are our cost
accounting system, estimating methods and procedures, and specific proposal
requirements. Operational audits are also performed by the DCAA. A review of our
operations at every major organizational level that has a significant effect on
the performance of future government contracts is also conducted during the
proposal review period.
During the course of its audit, the DCAA may disallow costs if it
determines that we improperly accounted for such costs in a manner inconsistent
with Cost Accounting Standards. Under a government contract, only those costs
that are reasonable, allocable and allowable are recoverable. A disallowance of
costs by the DCAA could have a material adverse effect on us.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
The Defense Contract Audit Agency recently completed an audit of EMI for the
fiscal years 1987 through 1995. As a result of the completed audit and our
negotiations with the DCAA, the DCAA disallowed approximately $2.9 million in
costs. Because we were aware of these issues prior to completing the
acquisition, we established a sufficient reserve and, consequently, the
disallowance did not have a material adverse effect on our business.
Due to the severity of the legal remedies available to the government,
including the required payment of damages and/or penalties, criminal and civil
sanctions, and debarment, we maintain controls to avoid the occurrence of fraud
and other unlawful activity. In addition, we maintain preventative audit
programs to ensure appropriate control systems and mitigate control weaknesses.
We provide our services under contracts, purchase orders or retainer
letters. Our policy provides that, where possible, all contracts will be in
writing. We bill all of our clients periodically based on costs incurred, on
either an hourly-fee basis or on a percentage of completion basis, as the
project progresses. Generally, our contracts do not require that we provide
performance bonds. A performance bond, issued by a surety company, guarantees
the contractor's performance under the contract. If the contractor defaults
under the contract, the surety will, in its discretion, step in to finish the
job or pay the client the amount of the bond. If the contractor does not have a
performance bond and defaults in the performance of a contract, the contractor
is responsible for all damages resulting from the breach of contract. These
damages include the cost of completion, together with possible consequential
damages such as lost profits. To date, we have not incurred material damages
beyond the coverage of any performance bond.
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<PAGE>
Most of our agreements permit termination by the clients upon payment of
fees and expenses through the date of the termination.
MARKETING
We utilize both a centralized corporate marketing department and local
marketing groups within each of our operating units. Our corporate marketing
department assists management in establishing our business plan, our target
markets and an overall marketing strategy. The corporate marketing department
also identifies and tracks the development of large Federal programs, positions
us for new business areas, selects appropriate partners, if any, for new
projects and assists in the bid process for new projects. We market throughout
the organizations we target, focusing primarily on senior representatives in
government organizations and senior management in private companies. In
addition, the corporate marketing department supports marketing activities
firm-wide by coordinating corporate promotional and professional activities,
including appearances at trade shows, direct mailings, telemarketing and public
and media relations.
We also perform marketing activities through our local offices. We
believe that these offices have a greater understanding of local environmental
issues, laws and regulations and, therefore, can better target their marketing
activities. These marketing activities are coordinated by full time marketing
staff located in certain of our offices. These activities include meetings with
potential clients and state, county and municipal regulators, presentations to
civic and professional organizations and seminars on current regulatory topics.
COMPETITION
The market for our services is highly competitive. We compete with many
other firms, ranging from small local firms to large national firms that may
have greater financial and marketing resources. We perform a broad spectrum of
engineering and consulting services across the resource management,
infrastructure and communications business areas. Services within these business
areas are provided to a client base which includes Federal agencies, such as the
DOD, the DOE, the Department of the Interior, the EPA and the U.S. Postal
Service, state and local agencies, and the private sector. Our competition
varies and is a function of the business areas in which, and client sectors for
which, we perform our services. The range of competitors for any one procurement
can vary from 10 to 100 firms, depending upon the relative value of the project,
the financial terms and risks associated with the work, and any restrictions
placed upon competition by the client. Historically, clients have chosen among
competing firms based primarily on the quality and timeliness of the firm's
service. However, we believe that price has become an increasingly important
competitive factor. We believe that if this trend continues it could have a
material adverse effect on our operating margins and profitability.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd., Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
BACKLOG
At October 4, 1998, our gross revenue backlog was approximately $405.0
million, compared to $217.5 million at September 28, 1997. We include in gross
revenue backlog only those contracts for which funding has been provided and
work authorizations have been received. We estimate that approximately $329.6
million of the gross revenue backlog at October 4, 1998 will be recognized
during fiscal 1999. No assurance can be given that all amounts included in
backlog will ultimately be realized, even if evidenced by written contracts. For
example, certain of our contracts with the Federal
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<PAGE>
government and other clients are terminable at will. If any of these clients
terminate their contracts prior to completion, we would not recognize revenue.
ENVIRONMENTAL LEGISLATION
Our clients have become subject to an increasing number of frequently
overlapping Federal, state and local laws concerned with the protection of the
environment, as well as regulations promulgated by administrative agencies
pursuant to these laws. We provide services with respect to Federal
environmental laws, and regulations including: the Clean Water Act; the Resource
Conservation and Recovery Act; CERCLA; the National Environmental Policy Act;
the Safe Drinking Water Act; and other laws.
POTENTIAL LIABILITY AND INSURANCE
Our business activities could expose us to potential liability under
various environmental laws such as CERCLA. In addition, we occasionally
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. These policies are "claims made"
policies. This means that only claims made during the term of the policy are
covered. If we terminate our policies and do not obtain retroactive coverage, we
would be uninsured for claims made after termination even if based on events or
acts that occurred during the term of the policy.
We obtain insurance coverage through a broker who is experienced in the
engineering field. The broker, together with our Risk Manager, periodically
review the adequacy of our insurance programs. However, because there are
various exclusions and retentions under our insurance policies, there can be no
assurance that all potential liabilities will be covered by our insurance.
Further, in the event we expand our services into new markets, we may not be
able to obtain insurance coverage for such activities or, if insurance is
obtained, the dollar amount of any liabilities incurred could exceed our
insurance coverage.
We evaluate the risk associated with uninsured claims. If we determine
that an uninsured claim has potential liability, we establish an appropriate
reserve. A reserve is not established if we determine that the claim has no
merit. Our historic levels of insurance coverage and reserves have been
adequate. However, a partially or completely uninsured claim, if successful and
of significant magnitude, could have a material adverse effect on our business.
EMPLOYEES
At October 4, 1998, we had 3,662 total employees or 3,077 full-time
equivalent employees. Of the 3,662 total employees, 2,144 are professionals. Our
professional staff includes archaeologists, biologists, chemical engineers,
chemists, civil engineers, computer scientists, economists, electrical
engineers, environmental engineers, environmental scientists, geologists,
hydrogeologists, mechanical engineers, oceanographers, toxicologists and project
managers. Our ability to retain and expand our staff of qualified professionals
will be an important factor in determining our future growth and success. Three
employees of one of our subsidiaries will be represented by a labor
organization. Management considers its relations with our employees to be good.
In addition, we supplement our consultants on certain engagements with
independent contractors. We believe that the practice of retaining independent
contractors on a per engagement basis provides us with significant flexibility
in adjusting professional personnel levels in response to changes in demand for
our services.
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<PAGE>
PROPERTIES
Our corporate headquarters facilities are located in Pasadena,
California. These facilities contain approximately 25,000 square feet of office
space and are subject to leases which expire beyond the year 2001. We lease
office space in approximately 110 locations in the United States. We also rent
additional office space on a month-to-month basis.
We believe that our existing facilities are adequate to meet current
requirements and that additional or substitute space will be available as needed
to accommodate any expansion of operations.
LEGAL PROCEEDINGS
We are subject to certain claims and lawsuits typically filed against the
engineering and consulting professions, primarily alleging professional errors
or omissions. We carry professional liability insurance, subject to certain
deductibles and policy limits against such claims. We believe that the
resolution of these claims will not have a material effect on our financial
position or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Li-San Hwang................... 63 Chairman of the Board of Directors, President and Chief
Executive Officer
Thomas D. Brisbin.............. 46 Executive Vice President, Chief Operating Officer
James M. Jaska................. 47 Vice President, Chief Financial Officer and Treasurer
Daniel A. Whalen............... 51 Director, Executive Vice President
William R. Brownlie............ 45 Senior Vice President
Steven A. Gherini.............. 53 Vice President
Arkan Say...................... 63 Vice President
Charles R. Faust............... 53 Vice President
Richard A. Lemmon.............. 39 Vice President and Secretary
J. Christopher Lewis........... 42 Director
Patrick C. Haden............... 45 Director
James J. Shelton............... 82 Director
</TABLE>
Our executive officers are elected by and serve at the discretion of the
Board of Directors. Set forth below is a brief description of the business
experience of all executive officers and directors.
LI-SAN HWANG joined our predecessor in 1967 and has held his present
positions since our acquisition of the Water Management Group of Tetra Tech,
Inc., a subsidiary of Honeywell Inc., in March 1988 (the "Acquisition"). Dr.
Hwang was named our Director of Engineering in 1972 and a Vice President in
1974. Prior to the Acquisition, Dr. Hwang was Senior Vice President of
Operations. He has served as an advisor to numerous government and professional
society committees and has published extensively in the field of hydrodynamics.
Dr. Hwang is a graduate of the National Taiwan University, Michigan State
University and the California Institute of Technology, holding B.S., M.S. and
Ph.D. degrees, respectively, in Civil Engineering, specializing in water
resources.
THOMAS D. BRISBIN was named our Executive Vice President and Chief
Operating Officer in 1996 after we acquired Tetra Tech EM Inc. (formerly known
as PRC Environmental Management, Inc.). Dr. Brisbin joined Planning Research
Corporation (PRC), a wholly-owned subsidiary of The Black & Decker Corporation,
in 1978 and was co-founder and President of PRC Environmental Management, Inc.
(PRC EMI). During his 17 year tenure at PRC, he was involved in all aspects of
marketing, operations and finance. Before joining PRC, he was a research
associate at Argonne National Laboratory and an adjunct professor at the
Illinois Institute of Technology. Dr. Brisbin holds a B.S. degree from Northern
Illinois University and a Ph.D. in Environmental Engineering from the Illinois
Institute of Technology. He also completed Harvard Business School's Advanced
Management Program in 1988.
JAMES M. JASKA joined us in 1994 as Vice President, Chief Financial
Officer and Treasurer. From 1991 to 1994, Mr. Jaska held several operations and
management positions at Alliant Techsystems, Inc., in addition to leading the
environmental business venture and having operational responsibility for large
government defense plants. From 1988 to 1990, he served as the Director of
Finance and Business Management at Honeywell Inc.'s Precision Weapons
Operations. From 1981 to
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1987, he was responsible for environmental affairs at Honeywell Inc. From 1977
to 1981, he managed regulatory affairs dealing with the production of specialty
chemicals at Ecolab, Inc. Mr. Jaska also served as an advisor to numerous
governmental and professional committees. Mr. Jaska holds B.S. and M.S. degrees
from Western Illinois University and completed an executive management program
through Harvard University.
DANIEL A. WHALEN, currently on a leave of absence from his position as
our Executive Vice President of Telecommunications Services and President of
Whalen & Company, Inc. (WAC), joined us and the Board upon our merger with WAC
in June 1997. Prior to founding WAC in 1987, Mr. Whalen co-founded and served as
an executive officer of First Cellular Group, Inc., The Microwave Group, Inc.,
Network Building & Consulting, Inc., and Cellular Development Company. Earlier
he was Vice President-Operations of American TeleServices, Inc. and Director of
Operations of NYNEX Mobile Services. Mr. Whalen earned a B.S. degree from St.
John's University and M.A. and M.B.A. degrees from Stanford University.
WILLIAM R. BROWNLIE joined us in 1981, has been a Vice President since
1988 and was named a Senior Vice President in December 1993. Dr. Brownlie has
managed several large government environmental support programs and serves as
one of our Division Managers. Dr. Brownlie is a registered Civil Engineer with a
technical background in hydrology, hydraulics, water quality analysis and
numerical modeling. Dr. Brownlie holds B.S. and M.S. degrees in Civil
Engineering at the State University of New York at Buffalo, and earned a Ph.D.
in Civil Engineering from the California Institute of Technology.
STEVEN A. GHERINI joined us in 1976. Mr. Gherini has served as Program
Manager on a variety of contracts involving chemistry, water quality control and
water quality modeling, and served as Division Vice President prior to being
named as Vice President in 1988. He is the author of numerous technical
publications and is the developer of several models for pollutant fate and
transport. He has served on two National Academy of Science panels. Mr. Gherini
is a registered engineer with B.S. and M.S. degrees in Civil Engineering from
Stanford University, and a M.S. degree in Aquatic Chemistry from Harvard
University.
ARKAN SAY joined Edward H. Richardson & Associates (a firm that our
predecessor acquired in 1981 and which became one of our divisions in 1991) in
1958 and was named to his present position in 1988. Mr. Say has authored several
publications on site development, engineering and storm drainage. Mr. Say holds
a B.S. in Civil Engineering from Robert College in Istanbul, Turkey and a M.S.
in Civil Engineering from the University of Delaware.
CHARLES R. FAUST, Vice President since 1988 and President of HSI
GeoTrans, Inc. (HSG), one of our subsidiaries, co-founded GeoTrans, Inc., a
predecessor of HSG, in 1979. In addition to his management responsibilities, Mr.
Faust is engaged in the quantitative assessment and investigation of highly
technical groundwater problems. He has published 23 articles and has co-authored
a book on groundwater modeling. Dr. Faust holds B.S. and Ph.D. degrees in
Geology from Pennsylvania State University.
RICHARD A. LEMMON, Vice President and Secretary, joined us in 1981. Until
1985, he served in several technical capacities. Mr. Lemmon transferred to
Corporate Human Resources, and was promoted to Corporate Manager of Human
Resources in 1987. Following our divestiture from Honeywell, Inc., Mr. Lemmon
structured and managed our Risk Management, Human Resource and Office Leasing
programs. In 1990, he was promoted to Director of Administration and in 1994
assumed responsibility for contracts administration and was elected as our
Secretary. In November 1995, Mr. Lemmon became a Vice President. Mr. Lemmon
holds a B.A. degree in Business Administration.
J. CHRISTOPHER LEWIS has been a member of our Board of Directors since
February 1988. Since 1982, Mr. Lewis has been a general partner of Riordan,
Lewis & Haden, a Los Angeles-based partnership which invests equity in
high-growth middle market companies. Mr. Lewis also serves as a
39
<PAGE>
director of Data Processing Resources Corporation, a provider of specialty
information technology staffing services, SM&A Corporation, a provider of
proposal management, systems engineering and information technology services,
California Beach Restaurants, Inc., an owner and operator of restaurants, PIA
Merchandising Services, Inc., a supplier of in-store merchandising and sales
services, and several privately-held companies.
PATRICK C. HADEN has been a member of our Board of Directors since
December 1, 1992. Mr. Haden is a general partner of Riordan, Lewis & Haden,
which he joined in 1987. Mr. Haden also serves as a director of PIA
Merchandising Services, Inc., a supplier of in-store merchandising and sales
services, Data Processing Resources Corporation, a provider of specialty
information technology staffing services, and several privately-held companies.
JAMES J. SHELTON has been a member of our Board of Directors since March
1995. Mr. Shelton is a self-employed investor and venture capitalist. He is the
former (retired) President of the Baker Drilling Equipment Co., and formerly
served as the Director of Corporate Relations and a director of Baker Hughes
Incorporated (formerly Baker International Corp.).
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation that we paid or
accrued to the Chief Executive Officer and to each of the four additional most
highly compensated executive officers for each of the fiscal years in the
three-year period ended October 4, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------ --------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) ($)
- ---------------------------------- --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Li-San Hwang ..................... 1998 185,000 85,000 601(2) -- 12,500
Chairman, Chief Executive 1997 185,000 80,000 1,087 -- 7,813
Officer and President 1996 185,000 80,000 1,975 -- 9,766
Thomas D. Brisbin ................ 1998 150,000 95,000(4) 3,600(5) -- 3,750
Executive Vice President, Chief 1997 150,000 50,000 -- -- --
Operating Officer 1996 150,000 -- -- -- 83,985
James M. Jaska ................... 1998 120,000 60,000 4,950(7) -- 2,500
Vice President, Chief Financial 1997 110,000 50,000 5,400 -- 18,750
Officer and Treasurer 1996 110,000 27,000 5,400 -- 3,906
William R. Brownlie .............. 1998 117,000 35,000 5,400(9) -- 3,125
Senior Vice President 1997 115,000 30,000 5,400 -- 3,125
1996 114,000 25,000 5,400 -- 4,883
Charles R. Faust ................. 1998 120,000 25,000 5,400(11) -- 5,000
Vice President 1997 120,000 -- 5,400 -- 5,469
1996 115,000 15,000 5,400 -- 2,930
<CAPTION>
PAYOUTS
-------------
LTIP ALL OTHER
NAME AND PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) ($)
- ---------------------------------- ------------- ---------------
<S> <C> <C>
Li-San Hwang ..................... -- 10,266(3)
Chairman, Chief Executive -- 10,317
Officer and President -- 10,746
Thomas D. Brisbin ................ -- 9,079(6)
Executive Vice President, Chief -- 34,058
Operating Officer -- 9,337
James M. Jaska ................... -- 7,060(8)
Vice President, Chief Financial -- 5,826
Officer and Treasurer -- 6,378
William R. Brownlie .............. -- 6,890(10)
Senior Vice President -- 6,043
-- 6,668
Charles R. Faust ................. -- 9,405(12)
Vice President -- 8,637
-- 8,758
</TABLE>
- ---------
(1) No named executive officer received other annual compensation in excess
of the lesser of $50,000 or 10% of such officer's compensation in fiscal
1998.
(2) Comprised of $601 in automobile allowances.
(3) Comprised of $7,850 of contributions to our Retirement Plan and $2,416
benefits and premiums we paid to Dr. Hwang pursuant to the Executive
Medical Reimbursement Plan.
(4) Includes $50,000 of bonus paid in fiscal 1998 relating to bonus earned
in fiscal 1996.
(5) Comprised of $3,600 in automobile allowances.
(6) Comprised of $9,079 of contributions to our Retirement Plan.
40
<PAGE>
(7) Comprised of $4,950 in automobile allowances.
(8) Comprised of $7,060 of contributions to our Retirement Plan.
(9) Comprised of $5,400 in automobile allowances.
(10) Comprised of $6,890 of contributions to our Retirement Plan.
(11) Comprised of $5,400 in automobile allowances.
(12) Comprised of $7,155 of HSI GeoTrans' contributions to HSI GeoTrans'
Retirement Plan and $2,250 in life insurance premiums we paid on behalf
of Dr. Faust.
The following table sets forth information concerning options granted to
each of the named executive officers during fiscal 1998:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------ STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS EXERCISE OPTION TERM
UNDERLYING GRANTED TO OR BASE --------------------
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE ($)(2) ($)(2)
- ---------------------------------- --------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Li-San Hwang...................... 12,500 2.19 16.00 12/18/07 125,779 318,748
Thomas D. Brisbin................. 3,750 0.66 16.00 12/18/07 37,734 95,625
James M. Jaska.................... 2,500 0.44 16.00 12/18/07 25,156 63,750
William R. Brownlie............... 3,125 0.55 16.00 12/18/07 31,445 79,687
Charles R. Faust.................. 5,000 0.88 16.00 12/18/07 50,312 127,499
</TABLE>
- ---------
(1) All options are incentive stock options and were granted under our 1992
Incentive Stock Plan. Such options vest over four year periods at an
annual rate of 25% beginning on the first anniversary of the date of
grant.
(2) Potential realizable value is determined by multiplying the exercise or
base price per share by the stated annual appreciation rate compounded
annually for the term of the option (10 years), subtracting the exercise
or base price per share from the product, and multiplying the remainder by
the number of options granted. Actual gains, if any, on stock option
exercises and common stock holdings are dependent on the future
performance of the common stock and overall stock market conditions. There
can be no assurance that the amounts reflected in this table will be
achieved.
41
<PAGE>
The following table sets forth information concerning the aggregate
number of options exercised during fiscal 1998 by each of the named executive
officers:
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY OPTIONS/
SARS AT FY-END SARS AT FY-END
SHARES VALUE --------------------------- -----------------------------
ACQUIRED ON REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) ($) (#) ($)(1)
- -------------------------- ------------- ----------- --------------------------- -----------------------------
<S> <C> <C> <C> <C>
Li-San Hwang.............. -- -- 15,991/26,296 144,642/237,853
Thomas D. Brisbin......... -- -- 55,175/18,517 662,216/222,243
James M. Jaska............ 12,500 147,095 45,898/41,837 430,229/392,163
William R. Brownlie....... -- -- 35,649/10,963 473,362/145,571
Charles R. Faust.......... -- -- 16,048/12,400 202,993/359,842
</TABLE>
- ---------
(1) Value is determined by subtracting the exercise price from the fair
market value of $20.84 per share (the closing price for our common stock
as reported by the Nasdaq National Market as of October 2, 1998) and
multiplying the remainder by the number of underlying shares of common
stock.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock at December 18, 1998 and after giving
effect to our sale of 1,000,000 shares of common stock and the sale by the
selling stockholders of 2,175,000 shares of common stock in this offering and
assuming no exercise of the Underwriters' over-allotment option, by: (1) each
director and executive officer; (2) each person we know to beneficially own more
than 5% of the outstanding shares of our common stock; (3) all officers and
directors as a group; and (4) the selling stockholders. Except as otherwise
noted, each person named below has an address in care of our principal executive
offices.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY NUMBER OF BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
NAMES TO OFFERING %(1) OFFERED OFFERING %(1)
- ----------------------------------------------------- ------------ --- ----------- ------------ -----
<S> <C> <C> <C> <C> <C>
Li-San Hwang(2)...................................... 1,629,961 5.7% -- 1,629,961 5.5%
Daniel A. Whalen(3).................................. 3,713,649 13.0 2,175,000(3) 1,538,649 5.2
Whalen & Company, Inc.
3675 Mt. Diablo Blvd.
Suite 360
Lafayette, California 94549
Pilgrim Baxter &Associates, Ltd.(4).................. 2,873,206 10.0 -- 2,873,206 9.7
Harold J. Baxter
Gary I. Pilgrim
1255 Drummers Lane
Wayne, Pennsylvania 19087
J. Christopher Lewis(5).............................. 76,472 * -- 76,472 *
Patrick C. Haden(6).................................. 28,145 * -- 28,145 *
James J. Shelton(7).................................. 20,869 * -- 20,869 *
Thomas D. Brisbin(8)................................. 47,603 * -- 47,603 *
Charles R. Faust(9).................................. 48,998 * -- 48,998 *
James M. Jaska(10)................................... 58,209 * -- 58,209 *
William R. Brownlie(11).............................. 147,068 * -- 147,068 *
Steven A. Gherini(12)................................ 170,262 * -- 170,262 *
Arkan Say(13)........................................ 39,157 * -- 39,157 *
Richard A. Lemmon(14)................................ 38,841 * -- 38,841 *
All directors and executive officers as a group 21.0%
(12 persons)(15).................................. 6,019,234 -- 3,844,234 13.0%
</TABLE>
- ---------
* Represents less than 1% of the outstanding shares of common stock.
(1) Applicable percentages of ownership prior to the offering are based on
28,666,131 shares of common stock outstanding on December 18, 1998,
adjusted as required by the rules promulgated by the Securities and
Exchange Commission (SEC). Applicable percentages of ownership after the
offering are based on 29,666,131 shares of common stock outstanding. This
table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G (if any) filed with the
SEC. Unless otherwise indicated, and subject to community property laws
where applicable, we believe that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Any security that any person named above
has the right to acquire within 60 days is deemed to be outstanding for
purposes of calculating the percentage ownership of such person, but is
not deemed to be outstanding for purposes of calculating the ownership
percentage of any other person.
(2) Includes 26,563 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(3) Includes 3,906 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998. Also includes (a)
2,890,821 shares of common stock held by Daniel A. Whalen and Katharine
C. Whalen, as Trustees for the Whalen Family Trust U/A/D 4/30/92 (the
"Family Trust"), (b) 31,000 shares of common stock held by Brown
Investment Advisory & Trust Company, as Trustee for the Whalen 1997
Charitable Remainder Unitrust, (c) 488,295 shares of common stock held by
DKW/CRT Investments ("DKW/CRT"), and (d) 299,627 shares of common stock
held by D-K-W Ventures LP ("D-K-W"). Of the shares being offered hereby,
1,709,422 will be sold by the Family Trust, 288,797 will be sold by
DKW/CRT and 176,781 will be sold by D-K-W.
(4) All information regarding share ownership is taken from and furnished
in reliance upon the Schedule 13G (Amendment No. 6), dated as of April 9,
1998, jointly filed by Pilgrim Baxter & Associates, Ltd., Harold J.
Baxter and Gary I. Pilgrim.
(5) Includes 19,070 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(6) Excludes an aggregate of 2,683 shares of common stock owned by Mr.
Haden's wife as to which Mr. Haden disclaims beneficial ownership.
Includes 19,070 shares issuable with respect to stock options exercisable
within 60 days after December 18, 1998.
43
<PAGE>
(7) Includes 5,613 shares held by James J. Shelton, Sarah Belle Shelton and
James J. Shelton, Jr., Trustees of the James J. Shelton and Sarah Belle
Shelton Family Trust dated August 19, 1987, and 15,256 shares issuable
with respect to stock options exercisable within 60 days after December
18, 1998.
(8) Includes 46,835 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(9) Includes 21,230 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998. Additionally, Charles
R. Faust's minor children own an aggregate of 2,882 shares of common
stock as to which Charles R. Faust disclaims beneficial ownership.
(10) Includes 57,558 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(11) Includes 41,484 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998. Also includes an
aggregate of 400 shares of common stock owned by Dr. Brownlie's minor
children.
(12) Includes 27,090 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(13) Includes 14,157 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(14) Includes 11,945 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
(15) Includes 304,164 shares issuable with respect to stock options
exercisable within 60 days after December 18, 1998.
44
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., NationsBanc Montgomery Securities LLC,
Cleary Gull & Reiland Inc., and First Analysis Securities Corporation (the
"Representatives"), have severally agreed with us and the selling stockholders,
subject to the terms and conditions of the Underwriting Agreement, to purchase
the number of shares of common stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for those shares, if
any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
BancBoston Robertson Stephens Inc....................................................................
NationsBanc Montgomery Securities LLC................................................................
Cleary Gull & Reiland Inc............................................................................
First Analysis Securities Corporation................................................................
----------
Total............................................................................................ 3,175,000
----------
----------
</TABLE>
The Representatives have advised us and the selling stockholders that the
Underwriters propose to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession of not more than $ per
share, of which $ may be reallowed to other dealers. After the
completion of this offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds we and the selling stockholders will receive
as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We and certain of the selling stockholders have
granted to the Underwriters an option, exercisable during the 30-day period
after the date of this prospectus, to purchase up to 476,250 additional shares
of common stock at the same price per share as we and the selling stockholders
will receive for the 3,175,000 shares that the Underwriters have agreed to
purchase from us and the selling stockholders. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the total number of shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the shares are being sold.
INDEMNITY. The Underwriting Agreement contains covenants of indemnity
among the Underwriters, the selling stockholders and us against certain civil
liabilities, including liabilities under the Securities Act of 1933 and
liabilities arising from breaches of representations and warranties contained in
the Underwriting Agreement.
LOCK-UP AGREEMENTS. Pursuant to the terms of lock-up agreements, the
holders of shares of common stock, have agreed, for a period of up to 90
days after the date of this prospectus, and the selling stockholders have
agreed, for a period of up to 90 days after the date of this prospectus, that,
subject to certain exceptions, they will not contract to sell or otherwise
dispose of any shares of common stock, any options to purchase shares of common
stock or any securities convertible into, or exchangeable for, shares of common
stock, owned directly by such holders or with respect to which they have the
power of disposition, without the prior written consent of BancBoston Robertson
45
<PAGE>
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion, and at any time or from time to time, without notice, release all or
any portion of the securities subject to those lock-up agreements. All of the
shares of common stock subject to the lock-up agreements will be eligible for
sale in the public market upon the expiration of the lock-up agreements, subject
in the case of shares held by affiliates, to Rule 144.
FUTURE SALES. In addition, we have agreed that until 90 days after the
date of this prospectus, we will not, without the prior written consent of
BancBoston Robertson Stephens Inc., subject to certain exceptions, offer, sell,
contract to sell or otherwise dispose of any shares of our common stock, any
options to purchase any shares of our common stock or any securities convertible
into, exercisable for or exchangeable for shares of our common stock other than
our sale of shares in this offering, the issuance of shares of our common stock
upon the exercise of outstanding options and the grant of options to purchase
shares of our common stock under existing employee stock option or stock
purchase plans.
The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
STABILIZATION. The Representatives have advised us that, pursuant to
Regulation M under the Securities Exchange Act of 1934, certain persons
participating in the offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids which
may have the effect of stabilizing or maintaining the market price of our common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
offering if the common stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised us that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
PASSIVE MARKET MAKING. In connection with this offering, certain
Underwriter and syndicate selling group members, if any, who are qualified
market makers on the Nasdaq National Market may engage in passive market making
transactions in the common stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, during
the business day prior to the pricing of the offering, before the commencement
of offers or sales of our common stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
46
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (SEC). You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. Annual Report on Form 10-K for the fiscal year ended October 4,
1998 filed on December 31, 1998;
2. Current Report on Form 8-K for the event of September 22, 1998, as
filed with the SEC on October 7, 1998;
3. Current Report on Form 8-K/A for event of September 22, 1998, as
filed with the SEC on December 1, 1998;
4. Definitive Proxy Statement, filed on December 31, 1998, for the
1999 Annual Meeting of Stockholders; and
5. The description of the common stock set forth in the Registration
Statement on Form 8-A dated November 13, 1991, including any
amendments or reports filed for the purpose of updating such
description.
You may request a copy of these filings, at no cost, by writing or
telephoning James M. Jaska, our Vice President and Chief Financial Officer, at
the following address:
Tetra Tech, Inc.
670 North Rosemead Boulevard
Pasadena, CA 91107
(626) 351-4664
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
common stock offered hereby will be passed upon for the Company by Riordan &
McKinzie, a Professional Corporation, Los Angeles, California. Certain
principals of Riordan & McKinzie own, in the aggregate, approximately 162,140
shares of Tetra Tech common stock. Certain legal matters related to the offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, a
Professional Corporation, Palo Alto, California.
47
<PAGE>
EXPERTS
The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended October 4, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
48
<PAGE>
INDEX TO TETRA TECH, INC. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
CONSOLIDATED BALANCE SHEETS................................................................................ F-3
CONSOLIDATED STATEMENTS OF INCOME.......................................................................... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................................................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the accompanying consolidated balance sheets of Tetra
Tech, Inc. and its subsidiaries as of October 4, 1998 and September 28, 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended October 4, 1998.
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Tetra Tech, Inc. and its
subsidiaries as of October 4, 1998 and September 28, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended October 4, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 13, 1998
F-2
<PAGE>
TETRA TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 28, OCT. 4,
1997 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 12,262,000 $ 4,889,000
Accounts receivable--net....................................................... 30,089,000 68,834,000
Unbilled receivables--net...................................................... 35,145,000 59,888,000
Prepaid and other current assets............................................... 2,522,000 4,955,000
Deferred income taxes.......................................................... 867,000 3,766,000
-------------- --------------
Total Current Assets......................................................... 80,885,000 142,332,000
-------------- --------------
Property and Equipment:
Equipment, furniture and fixtures.............................................. 16,838,000 25,616,000
Leasehold improvements......................................................... 1,177,000 1,348,000
-------------- --------------
Total........................................................................ 18,015,000 26,964,000
Accumulated depreciation and amortization...................................... (9,592,000) (13,219,000)
-------------- --------------
Property and Equipment--Net...................................................... 8,423,000 13,745,000
-------------- --------------
Intangible Assets--Net........................................................... 69,439,000 108,638,000
Other Assets..................................................................... 766,000 1,895,000
-------------- --------------
Total Assets..................................................................... $ 159,513,000 $ 266,610,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................... $ 11,621,000 $ 24,027,000
Accrued compensation........................................................... 10,981,000 15,614,000
Other current liabilities...................................................... 6,386,000 8,283,000
Income taxes payable........................................................... 1,358,000 3,294,000
Current portion of long-term obligations....................................... 8,000,000 14,065,000
-------------- --------------
Total Current Liabilities.................................................... 38,346,000 65,283,000
-------------- --------------
Long-term Obligations............................................................ -- 33,546,000
-------------- --------------
Commitments and Contingencies (Notes 9 and 11)
Redeemable Preferred Stock....................................................... 13,526,000 --
-------------- --------------
Stockholders' Equity:
Preferred stock--authorized, 2,000,000 shares of $.01 par value; issued and
outstanding 1,231,840 at September 28, 1997 and 0 at October 4, 1998......... -- --
Exchangeable stock of a subsidiary............................................. -- 15,411,000
Common stock--authorized, 50,000,000 shares of $.01 par value; issued and
outstanding 25,892,818 shares at September 28, 1997 and 28,630,600 at October
4, 1998...................................................................... 259,000 287,000
Additional paid-in capital..................................................... 63,450,000 87,565,000
Retained earnings.............................................................. 43,932,000 64,518,000
-------------- --------------
Total Stockholders' Equity....................................................... 107,641,000 167,781,000
-------------- --------------
Total Liabilities and Stockholders' Equity....................................... $ 159,513,000 $ 266,610,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
<S> <C> <C> <C>
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
-------------- -------------- --------------
Revenue:
Gross revenue................................................. $ 220,099,000 $ 246,767,000 $ 382,934,000
Subcontractor costs........................................... 59,062,000 55,976,000 85,337,000
-------------- -------------- --------------
Net Revenue..................................................... 161,037,000 190,791,000 297,597,000
Cost of Net Revenue............................................. 122,084,000 141,019,000 223,871,000
-------------- -------------- --------------
Gross Profit.................................................... 38,953,000 49,772,000 73,726,000
Selling, General and Administrative Expenses.................... 21,218,000 25,173,000 33,913,000
-------------- -------------- --------------
Income From Operations.......................................... 17,735,000 24,599,000 39,813,000
Interest Expense................................................ 1,076,000 320,000 2,329,000
Interest Income................................................. 300,000 300,000 419,000
-------------- -------------- --------------
Income Before Minority Interest and Income Tax Expense.......... 16,959,000 24,579,000 37,903,000
Minority Interest............................................... -- -- 1,397,000
-------------- -------------- --------------
Income Before Income Tax Expense................................ 16,959,000 24,579,000 36,506,000
Income Tax Expense.............................................. 6,854,000 10,323,000 15,920,000
-------------- -------------- --------------
Net Income...................................................... $ 10,105,000 $ 14,256,000 $ 20,586,000
-------------- -------------- --------------
-------------- -------------- --------------
Basic Earnings Per Share........................................ $ 0.46 $ 0.61 $ 0.74
-------------- -------------- --------------
-------------- -------------- --------------
Diluted Earnings Per Share...................................... $ 0.45 $ 0.58 $ 0.71
-------------- -------------- --------------
-------------- -------------- --------------
Weighted Average Common Shares Outstanding:
Basic......................................................... 21,851,000 23,371,000 27,970,000
-------------- -------------- --------------
-------------- -------------- --------------
Diluted....................................................... 22,581,000 24,656,000 29,191,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
EXCHANGEABLE STOCK COMMON STOCK ADDITIONAL
--------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ---------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 as previously
reported............................. -- $ -- 16,544,136 $ 165,000 $21,760,000 $19,571,000 $41,496,000
5-for-4 common stock split (see Note
7)................................ -- -- 4,136,034 42,000 (42,000)
--------- ---------- --------- --------- ---------- ---------- -----------
BALANCE, OCTOBER 1, 1995................ -- -- 20,680,170 207,000 21,718,000 19,571,000 41,496,000
Net income........................... -- -- -- 10,105,000 10,105,000
Payment for fractional shares........ -- -- (264) (3,000) -- (3,000)
Shares issued in acquisition......... -- -- 1,234,744 12,000 10,301,000 -- 10,313,000
Stock options exercised.............. -- -- 158,790 2,000 682,000 -- 684,000
Tax benefit for disqualifying
dispositions of stock options..... -- -- -- -- 674,000 -- 674,000
--------- ---------- --------- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 29, 1996............. -- -- 22,073,440 221,000 33,372,000 29,676,000 63,269,000
Net income........................... -- -- 14,256,000 14,256,000
Shares issued in acquisitions........ -- -- 3,439,330 34,000 27,016,000 -- 27,050,000
Stock options exercised.............. -- -- 225,949 2,000 1,308,000 -- 1,310,000
Shares issued in Employee Stock
Purchase Plan..................... -- -- 154,099 2,000 1,280,000 -- 1,282,000
Tax benefit for disqualifying
dispositions of stock options..... -- -- -- -- 474,000 -- 474,000
--------- ---------- --------- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 28, 1997............. -- -- 25,892,818 259,000 63,450,000 43,932,000 107,641,000
Net income........................... -- -- 20,586,000 20,586,000
Shares issued in acquisitions........ -- -- 345,948 4,000 5,520,000 -- 5,524,000
Stock options exercised.............. -- -- 352,265 4,000 2,613,000 -- 2,617,000
Payment for fractional shares........ -- -- (726) (7,000) (7,000)
Shares issued in Employee Stock
Purchase Plan..................... -- -- 115,545 1,000 1,505,000 -- 1,506,000
Preferred shares converted to common
stock............................. -- -- 1,924,750 19,000 13,507,000 -- 13,526,000
Exchangeable shares of a subsidiary
issued in acquisitions............ 920,354 15,411,000 -- -- -- -- 15,411,000
Tax benefit for disqualifying
dispositions of stock options..... -- -- -- -- 977,000 -- 977,000
--------- ---------- --------- --------- ---------- ---------- -----------
BALANCE, OCTOBER 4, 1998................ 920,354 $15,411,000 28,630,600 $ 287,000 $87,565,000 $64,518,000 $167,781,000
--------- ---------- --------- --------- ---------- ---------- -----------
--------- ---------- --------- --------- ---------- ---------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 10,105,000 $ 14,256,000 $ 20,586,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 3,613,000 4,514,000 6,595,000
Deferred income taxes........................................ (519,000) 1,490,000 (2,899,000)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable.......................................... 18,043,000 (3,776,000) (23,561,000)
Unbilled receivables......................................... (5,916,000) (8,037,000) (11,537,000)
Prepaid and other current assets............................. 246,000 1,823,000 (1,375,000)
Accounts payable............................................. (4,080,000) (3,551,000) 10,203,000
Accrued compensation......................................... (1,431,000) (3,909,000) (32,000)
Other current liabilities.................................... (192,000) (1,412,000) (6,548,000)
Income taxes payable......................................... 1,255,000 (254,000) 1,948,000
-------------- -------------- --------------
Net Cash Provided By (Used In) Operating Activities....... 21,124,000 1,144,000 (6,620,000)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (2,385,000) (2,640,000) (3,511,000)
Proceeds from sale of property and equipment................... 71,000 44,000 --
Payments for business acquisitions, net of cash acquired....... (6,441,000) (1,237,000) (37,778,000)
-------------- -------------- --------------
Net Cash Used In Investing Activities..................... (8,755,000) (3,833,000) (41,289,000)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations.............................. (25,048,000) (6,797,000) (39,580,000)
Proceeds from issuance of long-term obligations................ 5,003,000 13,000,000 76,000,000
Payments on obligations under capital leases................... (6,000) -- --
Proceeds from issuance of common stock......................... 681,000 2,619,000 4,116,000
-------------- -------------- --------------
Net Cash (Used In) Provided By Financing Activities....... (19,370,000) 8,822,000 40,536,000
-------------- -------------- --------------
Net (Decrease) Increase in Cash and Cash Equivalents............. (7,001,000) 6,133,000 (7,373,000)
Cash and Cash Equivalents at Beginning of Year................... 13,130,000 6,129,000 12,262,000
-------------- -------------- --------------
Cash and Cash Equivalents at End of Year......................... $ 6,129,000 $ 12,262,000 $ 4,889,000
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..................................................... $ 1,149,000 $ 309,000 $ 2,129,000
-------------- -------------- --------------
-------------- -------------- --------------
Income taxes................................................. $ 6,123,000 $ 9,407,000 $ 17,195,000
-------------- -------------- --------------
-------------- -------------- --------------
(Continued)
</TABLE>
F-6
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
In fiscal 1996, the Company purchased all of the capital stock
of KCM, Inc. In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired............................. $ 20,393,000
Cash paid................................................. (2,645,000)
Issuance of common stock.................................. (10,313,000)
Other acquisition costs................................... (415,000)
--------------
Liabilities assumed..................................... $ 7,020,000
--------------
--------------
In fiscal 1997, the Company purchased all of the capital stock
of IWA Engineers, FLO Engineering, Inc., SCM Consultants,
Inc., Whalen & Company, Inc., Whalen Service Corps Inc. and
CommSite Development Corporation. In conjunction with these
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired............................. $ 66,386,000
Cash paid................................................. (8,811,000)
Purchase price payable.................................... (729,000)
Issuance of common and preferred stock.................... (40,577,000)
Other acquisition costs................................... (2,111,000)
--------------
Liabilities assumed..................................... $ 14,158,000
--------------
--------------
In fiscal 1998, the Company purchased all of the capital stock
of C.D.C. Engineering, Inc., McNamee, Porter & Seeley, Inc.
and the Sentrex Group of Companies. The Company also
purchased certain assets of Brown & Root, Inc. and
Halliburton Corporation. In conjunction with these
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired............................. $ 79,639,000
Cash paid................................................. (37,778,000)
Issuance of common and exchangeable stock................. (20,935,000)
Other acquisition costs................................... (985,000)
--------------
Liabilities assumed..................................... $ 19,941,000
--------------
--------------
</TABLE>
(Concluded)
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Tetra Tech, Inc. (the "Company") provides specialized
management consulting and technical services in three principal business areas:
resource management, infrastructure and communications. As a specialized
management consultant, the Company assists its clients in defining problems and
developing innovative and cost-effective solutions. The Company's management
consulting services are complemented by its technical services. These technical
services, which implement solutions, include research and development, applied
science, engineering and architectural design, construction management, and
operations and maintenance.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
FISCAL YEAR--The Company reports results of operations based on 52- or
53-week periods ending near September 30. Fiscal years 1996 and 1997 contained
52 weeks. Fiscal year 1998 contained 53 weeks.
CONTRACT REVENUE AND COSTS--In the course of providing its services, the
Company routinely subcontracts for services. These costs are passed through to
clients and, in accordance with industry practice, are included in the Company's
gross revenue. Because subcontractor services can change significantly from
project to project, changes in gross revenue may not be indicative of business
trends. Accordingly, the Company also reports net revenue, which is gross
revenue less the cost of subcontractor services. Contract revenue and contract
costs on both cost-type and fixed-price-type contracts are recorded using the
percentage-of-completion (cost-to-cost) method. Under this method, contract
revenue on long-term contracts are recognized in the ratio that contract costs
incurred bear to total estimated costs. Costs and income on long-term contracts
are subject to revision throughout the lives of the contracts and any required
adjustments are made in the period in which the revisions become known. Losses
on contracts are recorded in full as they are identified.
Selling, general and administrative costs are expensed in the period
incurred.
Contract revenue under Federal government contracts and subcontracts
accounted for approximately 61.7%, 52.3% and 48.7% of net contract revenue for
the years ended September 29, 1996, September 28, 1997 and October 4, 1998,
respectively.
CASH AND CASH EQUIVALENTS--Cash equivalents include all investments with
initial maturities of 90 days or less.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
are depreciated over their estimated useful lives using the straight-line
method. Expenditures for maintenance and repairs are expensed as incurred.
Generally, estimated useful lives range from three to ten years for
equipment, furniture and fixtures. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the
remaining terms of the leases.
LONG-LIVED ASSETS--The Company reviews the recoverability of long-lived
assets to determine if there has been any impairment. This assessment is
performed based on the estimated undiscounted cash flows compared with the
carrying value of the assets. If the future cash flows (undiscounted and
F-8
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
without interest charges) are less than the carrying value, a writedown would be
recorded to reduce the related asset to its estimated fair value. Long-lived
assets as of September 28, 1997 and October 4, 1998 consist principally of
goodwill resulting from business acquisitions which is being amortized over
periods ranging from 15 to 30 years. The accumulated amortization of intangible
assets as of September 28, 1997 and October 4, 1998 was $3,522,000 and
$6,490,000, respectively.
INCOME TAXES--The Company files a consolidated federal income tax return
and combined California franchise tax reports, as well as other returns which
are required in the states in which the Company does business, which include the
Company and its subsidiaries. Income taxes are recognized for (a) the amount of
taxes payable or refundable for the current period, and (b) deferred income tax
assets and liabilities for the future tax consequences of events that have been
recognized in the Company's financial statements or income tax returns. The
effects of income taxes are measured based on enacted tax laws and rates.
EARNINGS PER SHARE--Due to the Company's complex capital structure, the
Company presents both basic and diluted Earnings Per Share (EPS). Basic EPS
excludes dilution and is computed by dividing the income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing net income by the weighted average
number of common shares outstanding and dilutive potential common shares. The
Company includes as potential common shares the weighted average number of
shares of exchangeable stock of a subsidiary, the weighted average number of
shares of redeemable preferred stock and the weighted average dilutive effects
of outstanding stock options. The exchangeable stock of a subsidiary is non-
voting and is exchangeable share for share for the Company's common stock. The
redeemable preferred stock has voting and dividend rights substantially similar
to those of common. The redeemable preferred stock outstanding at September 28,
1997 was converted to common stock during the fiscal year ended October 4, 1998.
Basic and diluted EPS reflect, on a retroactive basis, a 5-for-4 stock split
effected in the form of a 25% stock dividend, wherein one additional share of
stock was issued on September 15, 1998 for each four shares outstanding as of
the record date of July 27, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS--
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, UNBILLED RECEIVABLES
AND ACCOUNTS PAYABLE--The carrying amounts approximate fair value because of
the short maturities of these instruments.
REVOLVING CREDIT FACILITY--The carrying amount approximates fair
value because the interest rates are based upon variable reference rates.
CONCENTRATION OF CREDIT RISK--Financial instruments which subject the
Company to credit risk consist primarily of temporary cash investments and
accounts receivable. The Company places its temporary cash investments with
high credit quality financial institutions and, by policy, limits the amount
of investment exposure to any one financial institution. As of October 4,
1998, approximately 44% of accounts receivable was due from various agencies
of the Federal government. The remaining accounts receivable are generally
diversified due to the large number of organizations comprising the
Company's client base and their geographic dispersion. The Company performs
ongoing credit evaluations of its clients and maintains an allowance for
potential credit losses.
F-9
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS--In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 128, EARNINGS PER SHARE, which the Company adopted in fiscal year 1998. The
Statement replaces the presentation of primary EPS with a presentation of basic
EPS, which excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. The Statement also requires the dual presentation of basic and
diluted EPS on the face of the income statement for all companies with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB Opinion No. 15. EPS has been retroactively restated to reflect
the requirements of SFAS No. 128.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. The Statement is effective for fiscal years beginning after December 15,
1997. The Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
will adopt this Statement in fiscal year 1999.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This Statement is effective for fiscal
years beginning after December 15, 1997. This Statement establishes standards
for the way that public business enterprises report information about operating
segments as well as related disclosures about products and services, geographic
areas, and major clients. The Statement also requires that a public business
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. The Statement need
not be applied to interim financial statements in the initial year of its
application. The Company has not yet completed its analysis of the effect of
SFAS No. 131 on its financial statements. The Company will adopt this Statement
in fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES. The Statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The Statement requires companies
to recognize all derivative instruments on their balance sheet as either assets
or liabilities measured at fair value. The Statement also specifies a new method
of accounting for hedging transactions, prescribes the type of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. The Company does not anticipate that the adoption
of SFAS No. 133 will have a material effect on the Company's financial
statements. The Company will adopt this Statement in fiscal year 2001.
F-10
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS AND ACQUISITIONS
On November 7, 1995, the Company acquired 100% of the capital stock of
KCM, Inc. (KCM), an engineering services firm specializing in areas of water
quality, water and wastewater systems, surface water management, fisheries and
facilities. The purchase was valued at approximately $13,373,000, consisting of
cash and 1,234,744 shares of Company common stock issued in a private placement.
On December 11, 1996, the Company acquired 100% of the capital stock of
IWA Engineers (IWA), an architecture and engineering firm providing a wide range
of planning, engineering, and design capabilities in water, wastewater, and
facility design, and serving state and local government and private clients. The
purchase was valued at approximately $1,632,000, consisting of cash and 119,593
shares of Company common stock, as adjusted based upon IWA's Net Asset Value on
December 29, 1996 as described in the related purchase agreement.
On December 18, 1996, the Company acquired 100% of the capital stock of
FLO Engineering, Inc. (FLO), a consulting and engineering firm specializing in
water resource engineering involving hydraulic engineering and hydrographic data
collection. The purchase was valued at approximately $724,000, consisting of
cash and 50,172 shares of Company common stock, as adjusted based upon FLO's Net
Asset Value on December 29, 1996 as described in the related purchase agreement.
On March 20, 1997, the Company acquired 100% of the capital stock of SCM
Consultants, Inc. (SCM), a consulting and engineering firm providing design of
irrigation, water and wastewater systems, as well as facility and infrastructure
engineering services, to state and local government, private and industrial
clients. The purchase was valued at approximately $2,431,000, consisting of cash
and 246,965 shares of Company common stock, as adjusted based upon SCM's Net
Asset Value on March 30, 1997 as described in the related purchase agreement.
On June 11, 1997, the Company acquired 100% of the capital stock of
Whalen & Company, Inc. and Whalen Service Corps Inc. (collectively, WAC). WAC, a
wireless telecommunications firm, provides a full range of wireless
telecommunications site development services for PCS, cellular, ESMR,
air-to-ground, microwave, paging, fiber optic and switching centers technology.
The purchase has been valued at approximately $41,738,000, consisting of cash
and 4,549,750 shares of Company common stock. Initially, the Company issued
1,231,840 shares of redeemable preferred stock. The shares of redeemable
preferred stock were subsequently converted into common stock prior to the stock
split which occurred on December 1, 1997. The common and preferred stock were
issued in a private placement and had a combined value of $31,972,000. On the
business day prior to the merger, WAC distributed to its stockholders (i) cash
in the amount of $4,138,000 and (ii) accounts receivable having a net value of
$18,456,000.
On July 11, 1997, the Company acquired 100% of the capital stock of
CommSite Development Corporation (CDC), a wireless telecommunications site
development service firm. The purchase has been valued at approximately
$5,702,000, consisting of cash and 397,598 shares of Company common stock, as
adjusted based on CDC's Net Asset Value on July 11, 1997 as described in the
related purchase agreement.
On December 31, 1997, the Company acquired, through its wholly-owned
subsidiary Tetra Tech NUS, Inc., the assets of certain environmental services
businesses of Brown & Root, Inc. and Halliburton Corporation, both of which are
subsidiaries of Halliburton Company (collectively, NUS). NUS provides
consulting, engineering and design services for the environmental remediation of
F-11
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS AND ACQUISITIONS (CONTINUED)
contaminated air, water and soil conditions. The purchase price was valued at
approximately $25,217,000, as adjusted, and consisted of cash.
On March 2, 1998, Whalen Service Corps Inc. (WSC) agreed to participate
in a partnership with Sentrex Cen-Comm and ANTEC Corporation to provide design,
engineering, information management and construction services to support
advanced communication system upgrades to the broadband information transport
industries. The agreement required the purchase of certain assets of TANCO LLC
from ANTEC Corporation for a price in cash of approximately $623,000. WSC
initially held a 51% majority interest in Whalen/Sentrex LLC, a California
limited liability company while LAL Corp. held the remaining 49% minority
interest.
On March 26, 1998, the Company acquired 100% of the capital stock of
C.D.C. Engineering, Inc. (CDE), a consulting and engineering firm specializing
in civil engineering, transportation engineering, structural engineering and
land surveying. The purchase has been valued at approximately $1,502,000,
consisting of cash and 71,060 shares of Company common stock.
On July 8, 1998, the Company acquired 100% of the capital stock of
McNamee, Porter & Seeley, Inc. (MPS), a provider of engineering services with
expertise in the areas of water, industrial wastewater and process controls. The
purchase was valued at approximately $14,247,000, consisting of cash and 274,888
shares of Company common stock. Simultaneously with the acquisition, MPS
distributed to its former stockholders accounts receivable having a net value of
$8,040,000.
On September 22, 1998, the Company acquired, through its wholly-owned
subsidiary Tetra Tech Canada Ltd. (TtC), 100% of the capital stock of 1056584
Ontario Limited, 1056585 Ontario Limited, Venture Cable Limited, Cen-Comm
Communications, Inc., Sentrex Electronics Inc. and LAL Corp., (collectively, the
Sentrex Group of Companies (SGOC)), providers of engineering and technical
services to the cable television, telephony and data networking industries. The
purchase has been valued at approximately $19,227,000, consisting of cash and
920,354 shares of TtC exchangeable stock. The TtC exchangeable stock is
exchangeable, share for share, for Company common stock as described in the
related purchase agreement. Upon completion of the SGOC acquisition, the Company
beneficially owns 100% of Whalen/Sentrex LLC.
All of the acquisitions above have been accounted for as purchases and,
accordingly the purchase prices of the businesses acquired have been allocated
to the assets and liabilities acquired based upon their fair market values. The
excess of the purchase cost of the acquisitions over the fair value of the net
assets acquired was recorded as goodwill and is included in Intangible
Assets--Net in the accompanying balance sheets. The Company values stock
exchanged in acquisitions based on extended restriction periods and economic
factors specific to the Company's circumstances. During fiscal 1996, stock
exchanged in the acquisition was discounted by 26%. During fiscal 1997, the
discount on stock exchanged in acquisitions ranged from 16% to 28%. During
fiscal 1998, stock exchanged in acquisitions was discounted 15%. The results of
operations of each of the companies acquired have been included in the Company's
financial statements from their respective acquisition effective dates as set
forth in the related purchase agreements.
The effect of unaudited pro forma operating results of the SGOC, CDE,
SCM, FLO and IWA acquisitions, had they been acquired on September 30, 1996, is
not material.
F-12
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS AND ACQUISITIONS (CONTINUED)
The following table presents summarized unaudited pro forma operating
results assuming that the Company had acquired MPS, NUS, CDC and WAC on
September 30, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------
SEPT. 28, OCT. 4,
1997 1998
----------- -----------
<S> <C> <C>
Gross revenue.................................... $420,294,000 $429,591,000
Income before income tax expense................. 33,637,000 37,958,000
Net income....................................... 19,510,000 21,446,000
Basic earnings per share......................... $ 0.72 $ 0.76
Diluted earnings per share....................... 0.69 0.73
Weighted average common shares outstanding:
Basic.......................................... 26,977,000 28,176,000
Diluted........................................ 28,262,000 29,397,000
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at September 28, 1997 and
October 4, 1998:
<TABLE>
<CAPTION>
SEPT. 28, OCT. 4,
1997 1998
---------- -----------
<S> <C> <C>
Billed accounts receivable........................ $31,435,000 $71,745,000
---------- -----------
Unbilled accounts receivable:
Billable amounts not invoiced, amounts billable
at stipulated stages of completion of contract
work, and unbilled amounts pending negotiation
or receipt of contract modifications.......... 31,626,000 58,384,000
Costs and fee retention billable upon audit of
total contract costs.......................... 13,326,000 11,278,000
---------- -----------
Total unbilled accounts receivable................ 44,952,000 69,662,000
---------- -----------
Allowance for uncollectible accounts:
Allowance for doubtful accounts................. (1,346,000) (2,911,000)
Allowance for disallowed costs.................. (9,807,000) (9,774,000)
---------- -----------
Total allowance for uncollectible accounts........ (11,153,000) (12,685,000)
---------- -----------
Total............................................. $65,234,000 $128,722,000
---------- -----------
---------- -----------
</TABLE>
The accounts receivable valuation allowance includes amounts to provide
for doubtful accounts and for the potential disallowance of billed and unbilled
costs. The Company's contracts with the Federal government are subject to audit
by the government, primarily the Defense Contract Audit Agency (DCAA), which
reviews the Company's overhead rates, operating systems and cost proposals.
During the course of its audit, the DCAA may disallow costs if it determines
that the Company improperly accounted for such costs in a manner inconsistent
with Cost Accounting Standards. Historically, the Company has not had any
material cost disallowances by the DCAA as a result of audit, however, there can
be no assurance that DCAA audits will not result in material cost disallowances
in the future. On September 15, 1995, the Company acquired Tetra Tech EM Inc.
(EMI).
F-13
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE (CONTINUED)
EMI likewise contracts with the Federal government. At the time of acquisition,
audits had not been performed for years beyond 1986. As of September 1998,
audits and negotiations relating to the EMI contracts for years 1987 through
1995 had been completed, and cost disallowances as a result of audits totaled
approximately $2,900,000. It has been determined by the Federal government that
for these periods the Company is entitled to payments, however, the
collectibility of such payments cannot be assured as each agency must obtain
separate funding approval. Allowances to provide for doubtful accounts have been
determined through reviews of specific amounts determined to be uncollectible,
plus a general allowance for other amounts for which some potential loss has
been determined to be probable based on current events and circumstances. Given
the above, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
As of October 4, 1998, the Company had approximately $5,200,000 under
retainage provisions of contracts and approximately $2,166,000 of accounts
receivable which may not be realized within one year.
4. INCOME TAXES
Income tax expense for the fiscal years ended September 29, 1996,
September 28, 1997 and October 4, 1998 consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................ $ 5,849,000 $ 9,220,000 $ 15,284,000
State.......................................... 1,462,000 2,291,000 3,535,000
Deferred......................................... (457,000) (1,188,000) (2,899,000)
------------ ------------- -------------
Total income tax expense......................... $ 6,854,000 $ 10,323,000 $ 15,920,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Temporary differences comprising the net deferred income tax asset shown
on the consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
SEPT. 28, OCT. 4,
1997 1998
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts.................... $2,513,000 $3,662,000
Cash to accrual.................................... (2,275,000) (1,250,000)
Accrued vacation................................... 495,000 1,247,000
State taxes........................................ (21,000) 1,038,000
Prepaid expense.................................... (104,000) (632,000)
Depreciation....................................... (369,000) (299,000)
Other.............................................. 628,000 --
---------- ----------
Net deferred income tax asset...................... $ 867,000 $3,766,000
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Total income tax expense was different than the amount computed by
applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
SEPT. 29, 1996 SEPT. 28, 1997 OCT. 4, 1998
----------------------- ------------------------ ------------------------
AMOUNT % AMOUNT % AMOUNT %
------------ --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate.............. $ 5,936,000 35.0% $ 8,603,000 35.0% $ 12,777,000 35.0%
State taxes, net of federal benefit........ 933,000 5.5 1,348,000 5.5 1,898,000 5.2
Goodwill................................... 384,000 2.3 528,000 2.1 990,000 2.7
Other...................................... (399,000) (2.4) (156,000) (0.6) 255,000 0.7
------------ --- ------------- --- ------------- ---
Total income tax expense................... $ 6,854,000 40.4% $ 10,323,000 42.0% $ 15,920,000 43.6%
------------ --- ------------- --- ------------- ---
------------ --- ------------- --- ------------- ---
</TABLE>
5. LONG-TERM OBLIGATIONS
The Company has a credit agreement (as amended, the "Credit Agreement")
with a bank to support its working capital and acquisition needs. At October 4,
1998, the Credit Agreement provided a revolving credit facility of $70,000,000.
The Credit Agreement provides for mandatory reductions of $5,000,000 on December
15, 1998 and December 15, 1999.
Interest on borrowings under the Credit Agreement is payable at the
Company's option (a) at a base rate (the greater of the federal funds rate plus
0.50% or the bank's reference rate) as defined in the Credit Agreement or (b) at
a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. The weighted
average interest rate on outstanding borrowings at October 4, 1998 was 6.34375%.
Borrowings under the Credit Agreement are secured by the Company's
accounts receivable and the stock of five of the Company's subsidiaries.
The Credit Agreement contains various covenants including, but not
limited to, restrictions related to tangible net worth, net income, additional
indebtedness, asset sales, mergers and acquisitions, creation of liens, and
dividends on capital stock (other than stock dividends).
The Credit Agreement matures on December 15, 2000 or earlier at the
discretion of the Company upon payment in full of loans and other obligations.
As of October 4, 1998, outstanding borrowings totaled $47,000,000 and standby
letters of credit totaled $2,207,000.
6. EXCHANGEABLE STOCK OF A SUBSIDIARY
In connection with the SGOC acquisition, the Company issued 920,354
shares of exchangeable stock of its subsidiary Tetra Tech Canada Ltd. (the
"Exchangeable Shares"), a corporation existing under the laws of the Province of
Ontario, Canada. The Exchangeable Shares are non-voting but carry exchange
rights whereas a holder of Exchangeable Shares shall be entitled, at any time
after five months from the date of issue of the Exchangeable Shares, to require
the Company to redeem all or any part of the Exchangeable Shares for an amount
per share equal to (a) the current market price of a share of the Company's
common stock, which shall be satisfied in full by the Company causing to be
delivered to such holder one share of the Company's common stock for each
Exchangeable Share presented and surrendered, plus (b) a dividend amount, if
any. The Exchangeable Shares cannot be put back to the Company for cash.
F-15
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
On September 14, 1998, a Special Meeting of the Stockholders (the
"Special Meeting") was held. During the Special Meeting, the stockholders
approved a proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock, $.01 par value per
share, from 30,000,000 to 50,000,000. On September 15, 1998, the Company paid a
5-for-4 split of the Company's common stock, effected in the form of a 25% stock
dividend, to the stockholders of record on July 27, 1998. All agreements
concerning stock options and other commitments payable in shares of the
Company's common stock are affected by the 5-for-4 split. All references to
number of shares (except shares authorized), stock options, share prices and per
share information in the consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis.
Pursuant to the Company's 1989 Stock Option Plan, key employees may be
granted options to purchase an aggregate of 953,672 shares of the Company's
common stock at prices ranging from 85% to 100% of the market value on the date
of grant. All options granted to date by the Company have been at 100% of the
market value as determined by the Board of Directors at the date of grant. These
options become exercisable beginning one year from date of grant, become fully
vested in four years and terminate ten years from the date of grant.
The Company also has a 1992 Incentive Stock Plan under which key
employees may be granted options to purchase an aggregate of 4,609,375 shares of
the Company's common stock at prices not less than the market value on the date
of grant. From such date of grant, these options become exercisable after one
year, are fully vested no later than five years after grant and terminate no
later than ten years after grant.
F-16
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to the Company's 1992 Non-employee Director Plan, non-employee
directors may be granted options to purchase an aggregate of 114,438 shares of
the Company's common stock at prices not less than the market value on the date
of grant. These options vest and become exercisable when, and only if, the
optionee continues to serve as a director until the Annual Meeting following the
year in which the options were granted.
The Company also has an Employee Stock Purchase Plan (the "Purchase
Plan") which provides for the granting of Purchase Rights to purchase common
stock to regular full and part-time employees or officers of the Company and its
subsidiaries. Under the Purchase Plan, shares of common stock will be issued
upon exercise of the Purchase Rights. Under the Purchase Plan, an aggregate of
878,906 shares may be issued pursuant to the exercise of Purchase Rights. The
maximum amount that an employee can contribute during a Purchase Right Period is
$4,000, and the minimum contribution per payroll period is $25.
Under the Purchase Plan, the exercise price of a Purchase Right will be
the lesser of 100% of the fair market value of such shares on the first day of
the Purchase Right Period or 85% of the fair market value on the last day of the
Purchase Right Period. For this purpose, the fair market value of the stock is
its closing price as reported on the Nasdaq Stock Market on the day in question.
During the three years in the period ended October 4, 1998, option
activity was as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Balance, October 1, 1995....................................... 1,565,270 $ 5.82
Granted...................................................... 644,667 11.36
Exercised.................................................... (158,791) 4.30
Cancelled.................................................... (81,901) 7.11
---------- ------
Balance, September 29, 1996.................................... 1,969,245 7.70
Granted...................................................... 762,692 12.56
Exercised.................................................... (225,948) 5.80
Cancelled.................................................... (167,614) 9.62
---------- ------
Balance, September 28, 1997.................................... 2,338,375 9.33
Granted...................................................... 569,566 16.89
Exercised.................................................... (352,265) 7.43
Cancelled.................................................... (187,206) 12.61
---------- ------
Outstanding at October 4, 1998................................. 2,368,470 $ 11.17
---------- ------
---------- ------
Exercisable at October 4, 1998................................. 1,086,166 $ 8.04
---------- ------
---------- ------
</TABLE>
F-17
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------------------- ----------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$0.69- $1.18............. 47,711 2.47 $ 1.08 47,711 $ 1.08
$3.14- $6.96............. 431,888 5.13 5.57 419,678 5.53
$7.01-$12.32............. 921,779 7.14 10.11 525,724 9.78
$12.80-$15.70............. 660,917 8.79 13.95 93,053 13.08
$16.00-$20.88............. 306,175 9.49 17.85 -- --
----------- --- ----------- --------- -----------
2,368,470.. 7.44 $ 11.17 1,086,166 $ 8.04
----------- --- ----------- --------- -----------
----------- --- ----------- --------- -----------
</TABLE>
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its employee stock
option plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Pro forma net income and net income per share
had the Company accounted for stock options issued to employees in accordance
with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income-as reported................................ $10,105,000 $14,256,000 $20,586,000
Net income-pro forma.................................. 9,598,000 13,059,000 18,980,000
Basic earnings per share-as reported.................. $ 0.46 $ 0.61 $ 0.74
Diluted earnings per share-as reported................ 0.45 0.58 0.71
Basic earnings per share-pro forma.................... 0.44 0.56 0.68
Diluted earnings per share-pro forma.................. 0.43 0.53 0.65
</TABLE>
The pro forma effects of applying SFAS No. 123 may not be representative
of the effects on reported net income and net income per share for future years
since options vest over several years and additional awards are made each year.
The fair value of the Company's stock options used to compute pro forma
net income and pro forma earnings per share disclosures is the estimated value
using the Black-Scholes option-pricing model. The weighted average fair values
per share of options granted in fiscal 1996, 1997 and 1998 are $3.65, $4.13 and
$5.79, respectively. The following assumptions were used in completing the
model:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
SEPT. 29, SEPT. 28, OCT. 4,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield........................................... 0.0% 0.0% 0.0%
Expected volatility...................................... 39.1% 40.5% 42.5%
Risk-free rate of return, annual......................... 6.4% 6.4% 6.4%
Expected life............................................ 2.76 yrs. 2.76 yrs. 3.11 yrs.
</TABLE>
F-18
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
SEPT. 29, SEPT. 28,
1996 1997 OCT. 4, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income........................................................ $ 10,105,000 $ 14,256,000 $ 20,586,000
------------- ------------- -------------
Denominator:
Denominator for basic earnings per share--weighted-average
shares........................................................ 21,851,000 23,371,000 27,970,000
Effect of dilutive securities:
Stock options................................................. 730,000 709,000 1,040,000
Redeemable preferred stock.................................... -- 576,000 151,000
Exchangeable stock of a subsidiary............................ -- -- 30,000
------------- ------------- -------------
Dilutive potential common shares.................................. 730,000 1,285,000 1,221,000
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions............... 22,581,000 24,656,000 29,191,000
------------- ------------- -------------
------------- ------------- -------------
Basic earnings per share............................................ $ 0.46 $ 0.61 $ 0.74
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings per share.......................................... $ 0.45 $ 0.58 $ 0.71
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
9. LEASES
The Company leases land, buildings and equipment under various operating
leases. Rent expense under all operating leases was approximately $9,462,000,
$10,204,000 and $13,458,000 for the fiscal years ended September 29, 1996,
September 28, 1997 and October 4, 1998, respectively. Amounts payable under
noncancelable operating lease commitments are as follows during the fiscal years
ending in:
<TABLE>
<S> <C>
1999........................................................... $14,838,000
2000........................................................... 11,979,000
2001........................................................... 9,569,000
2002........................................................... 5,697,000
2003........................................................... 3,903,000
Thereafter..................................................... 4,036,000
----------
Total.......................................................... $50,022,000
----------
----------
</TABLE>
10. RETIREMENT PLANS
The Company and its subsidiaries have established defined contribution
plans and 401(k) plans. Generally, employees are eligible to participate in the
defined contribution plans upon completion of one year of service and in the
401(k) plans upon commencement of employment. For the fiscal years ended
September 29, 1996, September 28, 1997 and October 4, 1998 employer
contributions relating to the plans were approximately $4,002,000, $3,536,000
and $3,952,000, respectively.
F-19
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CONTINGENCIES
The Company is subject to certain claims and lawsuits typically filed
against the engineering and consulting professions, primarily alleging
professional errors or omissions. The Company carries professional liability
insurance, subject to certain deductibles and policy limits against such claims.
Management is of the opinion that the resolution of these claims will not have a
material adverse effect on the Company's financial statements.
12. QUARTERLY FINANCIAL INFORMATION--UNAUDITED
In the opinion of management, the following unaudited quarterly data for
the years ended September 28, 1997 and October 4, 1998 reflect all adjustments
necessary for a fair statement of the results of operations. All such
adjustments are of a normal recurring nature. (In thousands, except per share
data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1997 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenue......................................................... $ 54,938 $ 55,545 $ 60,922 $ 75,362
Net revenue........................................................... 40,423 43,914 48,621 57,833
Gross profit.......................................................... 9,372 10,547 12,961 16,892
Income from operations................................................ 4,393 4,892 6,207 9,107
Net income............................................................ 2,596 2,872 3,644 5,144
Basic earnings per share.............................................. $ 0.12 $ 0.13 $ 0.16 $ 0.20
Diluted earnings per share............................................ 0.11 0.13 0.15 0.18
Weighted average common shares outstanding:
Basic............................................................... 22,110 22,306 23,178 25,811
Diluted............................................................. 22,951 22,865 24,065 28,656
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1998 QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Gross revenue........................................................ $ 66,438 $ 92,727 $ 98,231 $ 125,538
Net revenue.......................................................... 53,664 71,806 75,149 96,978
Gross profit......................................................... 13,325 17,020 20,744 22,637
Income from operations............................................... 7,179 8,872 11,411 12,351
Net income........................................................... 4,051 4,521 5,493 6,521
Basic earnings per share............................................. $ 0.15 $ 0.16 $ 0.20 $ 0.23
Diluted earnings per share........................................... 0.14 0.16 0.19 0.22
Weighted average common shares outstanding:
Basic.............................................................. 27,217 27,905 28,147 28,567
Diluted............................................................ 28,834 28,956 29,201 29,719
</TABLE>
F-20
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<S> <C>
SEC registration fee......................................... $ 26,772
Nasdaq National Market fee for listing additional shares..... 17,500
NASD fee..................................................... 10,130
Legal fees and expenses...................................... 125,000
Accountants' fees............................................ 50,000
Blue Sky qualification fees and expenses..................... 5,000
Transfer Agents fees......................................... 2,500
Printing and engraving fees.................................. 100,000
Miscellaneous................................................ 13,098
---------
Total.................................................... $ 350,000
---------
---------
</TABLE>
All of the above amounts, except for the SEC registration fee, the Nasdaq
National Market fee for listing additional shares and the NASD fee are
estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person against expenses, judgments, fines
and settlements actually and reasonably incurred by any such person in
connection with a threatened, pending or completed action, suit or proceeding in
which he is involved by reason of the fact that he is or was a director,
officer, employee or agent of such corporation, provided that (i) he acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and (ii) with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful.
If the action or suit is by or in the name of the corporation, the corporation
may indemnify any such person against expense actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation for negligence or
misconduct in the performance of his duty to the corporation, unless and only to
the extent that the Delaware Court of Chancery or the court in which the action
or suit is brought determines upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expense as the court deems
proper.
The Company's By-Laws provides for indemnification of persons to the
fullest extent permitted by the Delaware General Corporation Law.
In accordance with the Delaware General Corporation Law, the Company's
Certificate of Incorporation, as amended, limits the personal liability of its
directors for violations of their fiduciary duty. The Certificate of
Incorporation eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under the section of the Delaware law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or
II-1
<PAGE>
(iv) for any transaction from which a director derived any improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence. This
provision will not, however, limit in any way the liability of directors for
violations of the Federal securities laws.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Riordan & McKinzie, a Professional Corporation.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Riordan & McKinzie (included in Exhibit 5.1).
24.1 Powers of Attorney with respect to the Company (included in Part II).*
</TABLE>
- ---------
* Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(2) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective; and
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Pasadena, State of California on the 8th of January, 1999.
<TABLE>
<S> <C> <C>
TETRA TECH, INC.
By: /s/ LI-SAN HWANG
-----------------------------------------
Li-San Hwang
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ LI-SAN HWANG Chief Executive Officer
- ------------------------------ and President (Principal January 8, 1999
Li-San Hwang Executive Officer)
Vice President, Chief
Financial Officer and
* Treasurer (Principal
- ------------------------------ Financial Officer and January 8, 1999
James M. Jaska Principal Accounting
Officer)
*
- ------------------------------ Director January 8, 1999
Daniel A. Whalen
*
- ------------------------------ Director January 8, 1999
J. Christopher Lewis
*
- ------------------------------ Director January 8, 1999
Patrick C. Haden
*
- ------------------------------ Director January 8, 1999
Joseph J. Shelton
*By: /s/ LI-SAN
HWANG
- ------------------------------ January 8, 1999
Li-San Hwang
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
3,175,000 SHARES(1)
TETRA TECH, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
January __, 1999
BANCBOSTON ROBERTSON STEPHENS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
CLEARY GULL & REILAND INC.
FIRST ANALYSIS SECURITIES CORP.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Tetra Tech, Inc., a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule B hereto (hereafter called the
"Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,000,000 shares of its authorized and unissued common stock, par value $.01 per
share, to the several Underwriters. The Selling Stockholders, acting severally
and not jointly, propose to sell an aggregate of 2,175,000 shares of the
Company's authorized and outstanding common stock, par value $.01 per share, to
the several Underwriters. The 1,000,000 shares of common stock, par value $.01
per share, of the Company to be sold by the Company are hereinafter called the
"Company Shares," and the 2,175,000 shares of common stock, par value $.01 per
share, to be sold by the Selling Stockholders are hereinafter called the
"Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company and certain Selling Stockholders also propose to grant, severally and
not jointly, to the Underwriters an option to purchase up to 476,250 additional
shares of the Company's common stock, par value $.01 per share (the "Option
Shares"), as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
common stock, par value $.01 per share, of the Company
------------------------
(1) Plus an option to purchase up to 476,250 additional shares from the Company
to cover over-allotments.
<PAGE>
to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-3 (File No. 333-70053)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements pursuant to Rule 462(b) of the Rules and Regulations as may have
been required prior to the date hereof have been similarly prepared and filed
with the Commission; and the Company will file such additional amendments to
such registration statement, such amended prospectuses subject to completion
and such abbreviated registration statements as may hereafter be required.
Copies of such registration statement and amendments, of each related
prospectus subject to completion (the "Preliminary Prospectuses"), including
all documents incorporated by reference therein, and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
have been delivered to you. The Company and the transactions contemplated by
this Agreement meet the requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of BancBoston Robertson Stephens
Inc., on behalf of the several Underwriters, the Company shall have provided to
the
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<PAGE>
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of BancBoston Robertson Stephens Inc., on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement. Any
reference to the Registration Statement or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Act, as of the date of the Registration Statement
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the Registration Statement or the Prospectus shall be deemed to
refer to and include any documents filed after such date under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which, upon filing, are
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used in this Agreement, the term "Incorporated Documents" means
the documents which at the time are incorporated by reference in the
Registration Statement, the Prospectus or any amendment or supplement thereto.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter directly or through you specifically for use in
the preparation thereof.
The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder; any further Incorporated Documents so filed will, when they are
filed, conform in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder; no such document
when it was filed (or, if an amendment with respect to any such document was
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<PAGE>
filed, when such amendment was filed), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and no such further
amendment will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Company and each of its subsidiaries has been duly
incorporated and is, respectively, validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with full
power and authority (corporate or otherwise) to own, lease and operate its
properties and conduct its business as described in the Prospectus; the Company
owns all of the outstanding capital stock of its subsidiaries free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest
[other than the pledge of such shares to the Company's bank pursuant to the
revolving credit facility referred to in the Prospectus]; the Company and each
of its subsidiaries is, respectively, duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted or to the knowledge of the Company is threatened in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company and each of its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
the business of the Company and its subsidiaries, taken as a whole, all of which
are valid and in full force and effect; neither the Company nor any of its
subsidiaries is in violation of its respective charter or bylaws or in default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any material bond, debenture, note or other evidence
of indebtedness, or in any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective properties may be bound; and neither the
Company nor its subsidiaries is in material violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
theCompany or any of its subsidiaries or over their respective properties of
which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than those
organizations identified on Schedule C attached hereto.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by federal and state securities laws and other
applicable laws and the public policy underlying such laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note or
other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective properties may be bound,
(ii) the respective charter or bylaws of the Company or any of its subsidiaries,
or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or over their
respective properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or their respective properties is required for the execution and
delivery of this Agreement
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<PAGE>
and the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Exchange Act, and the rules
and regulations of the National Association of Securities Dealers, Inc., which
have been or will be made before the Closing Date, or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied in
all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or any
Incorporated Document or to be filed as an exhibit to the Registration Statement
or any Incorporated Document by the Act or the Rules and Regulations or by the
Exchange Act or the rules and regulations of the Commission thereunder which
have not been accurately described in all material respects in the Registration
Statement or Prospectus or any Incorporated Document or filed as exhibits to the
Registration Statement or any Incorporated Document.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. The authorized and outstanding capital stock of the Company, at
October 4, 1998, is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus and
any Incorporated Document (and such statements correctly state the substance of
the instruments defining the capitalization of the Company); the Company Shares
and the Option Shares hereunder have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement and, when issued and delivered by
the Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and nonassessable, and
will be sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Company Shares or Option Shares
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on the
Closing Date. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. All issued and outstanding shares
of capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included or incorporated by reference in
the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth or
incorporated by reference in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
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(g) Deloitte & Touche LLP which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of October 4, 1998 and September 28, 1997 and for each of the years in
the three (3) fiscal years ended October 4, 1998 filed with the Commission as a
part of or incorporated by reference into the Registration Statement, which are
included or incorporated by reference in the Prospectus, are, to the Company's
knowledge, independent accountants within the meaning of the Act and the Rules
and Regulations; the audited consolidated financial statements of the Company,
together with the related schedules and notes, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the results
of operations of the Company and its subsidiaries at the respective dates and
for the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes, filed with the Commission as part of or incorporated by reference into
the Registration Statement, have been prepared in accordance with United States
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial, quarterly and statistical data included or incorporated by
reference in the Registration Statement present fairly on the basis stated in
the Prospectus the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included or incorporated by
reference in the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been
(i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) each of the Company and its
subsidiaries has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus and any Incorporated
Document as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than [security interests therein
granted pursuant to the revolving credit facility referred to in the Prospectus
and] such as would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise, (ii) the
agreements to which the Company or any of its subsidiaries is a party described
in the Registration Statement and Prospectus and any Incorporated Document are
valid agreements, enforceable by the Company and its subsidiaries (as
applicable) in accordance with their terms, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company and each of
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus and any Incorporated Document as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except
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<PAGE>
as set forth in the Registration Statement and Prospectus and any Incorporated
Document, the Company owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company or any of its subsidiaries that might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise; and all tax liabilities are adequately provided for on the books of
the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, contract manufacturers,
partners or subcontractors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(m) The Company and each of its subsidiaries, respectively, owns
or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the Registration
Statement and Prospectus and any Incorporated Document; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company except as described in the Registration Statement and Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of
the Exchange Act and is listed on The Nasdaq National Market, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating such
registration or listing.
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(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each executive officer and director of the Company, each 5%
or greater stockholder and each Selling Stockholder has agreed in writing that
such person will not, for a period of 90 days from the date that the
Registration Statement is declared effective by the Commission (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to limited partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, or (iii) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancBoston Robertson Stephens Inc.
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(t) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) the Company is not aware that it
is not in compliance with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of health or
the environment ("Environmental Laws") which are applicable to its business,
(ii) the Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus and any
Incorporated Document, (iii) the Company is not aware that it will be required
to make future material capital expenditures to comply with Environmental Laws
and (iv) no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
ET SEQ.), or otherwise designated as a contaminated site under applicable state
or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them
except as properly disclosed in the Registration Statement and the Prospectus
and any Incorporated Document.
(w) There are no issues related to the Company's preparedness
for the Year 2000 that (i) are of a character required to be described or
referred to in the Registration Statement or Prospectus by the Act or the Rules
and Regulations which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise or that might materially affect its properties,
assets or rights. All internal computer systems and each Constituent Component
(as defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company will,
by December 31, 1999, fully comply with the Year 2000 Qualification
Requirements. "Year 2000 Qualification Requirements" means that the internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products of each Constituent Component (as
defined below) of those products of the Company (i) have been reviewed to
confirm that they store, process (including sorting and performing mathematical
operations, calculations and computations), input and output data containing
date and information correctly regardless of whether the date contains dates and
times before, on or after January 1, 2000, (ii) have been designed to ensure
date and time entry recognition, calculations that accommodate same century and
multi-century formulas and date values, leap year recognition and calculations,
and date data interface values that reflect the century, (iii) accurately manage
and manipulate data involving dates and times, including single century formulas
and multi-century formulas, and will not cause an abnormal ending scenario
within the application or generate incorrect values or invalid results involving
such dates, (iv) accurately process any date rollover, and (v) accept and
respond to two-digit year date input in a manner that resolves any ambiguities
as to the century. "Constituent Component" means all software (including
operating systems, programs, packages and utilities), firmware, hardware,
networking components, and peripherals provided as part of the configuration.
II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
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(a) Such Selling Stockholder now has and on the Closing will
have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing _____________ as attorney-in-fact (the "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with U.S. Stock
Transfer Corporation, as custodian (the "Custodian"); each of the Power of
Attorney and the Custody Agreement constitutes a valid and binding agreement on
the part of such Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; and
each of such Selling Stockholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in
Section 6(h) hereof on behalf of such Selling Stockholder, to determine the
purchase price to be paid by the several Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of the
Selling Stockholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a stock
power or powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Stockholder of this Agreement and the sale and delivery of the
Selling Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of BancBoston Robertson Stephens Inc. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates
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<PAGE>
to or derives any significant part of its value from Securities. Such Selling
Stockholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form or properly executed option
exercise forms for all Shares to be sold by such Selling Stockholder under this
Agreement, together with a stock power or powers duly endorsed in blank by such
Selling Stockholder, have been placed in custody with the Custodian for the
purpose of effecting delivery hereunder.
(f) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnification and contribution hereunder may be limited by federal and
state securities laws and other applicable laws and the public policy underlying
such laws, and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; and
the performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of the terms
and provisions of or constitute a default under any bond, debenture, note or
other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder, or any Selling Stockholder hereunder, may be bound or, to the best
of such Selling Stockholders' knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder, or, if such Selling Stockholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing was or will be, true, correct and
complete, and does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise one of its Attorneys and BancBoston Robertson Stephens Inc. prior to
the Closing Date if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares
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<PAGE>
that are to be sold by the Company or any of the other Selling Stockholders to
the Underwriters pursuant to this Agreement; such Selling Stockholder does not
have, or has waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus, other than
such rights of participation as have been satisfied by the participation of such
Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Stockholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus and any Incorporated Document.
(l) To such Selling Stockholder's knowledge, each Preliminary
Prospectus, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and to such Selling Stockholder's knowledge, at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
contained in this subparagraph (l) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter directly or through you specifically for use in the preparation
thereof. To such Selling Stockholder's knowledge, the Incorporated Documents
heretofore filed, when they were filed (or, if any amendment with respect to any
such document was filed, when such amendment was filed) have not included any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares and Selling Stockholder Shares set forth
opposite the names of the Company and the Selling Stockholders, respectively, in
Schedule B hereto. The obligation of each Underwriter to the Company and to
each Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, which (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form or properly executed option
exercise forms for the Selling Stockholder Shares have been placed in custody
(for delivery under this Agreement) under the Custody Agreement. Each
Selling Stockholder agrees that the certificates or executed option exercise
forms for the Selling Stockholder Shares of such Selling Stockholder so held
in custody are subject to the interests of the Underwriters hereunder, that
the arrangements made by such Selling Stockholder for such custody, including
the Power of Attorney is to that extent irrevocable and that the obligations
of such Selling Stockholder hereunder shall not be terminated by the act of
such Selling Stockholder or by operation of law, whether by the death or
incapacity of such Selling Stockholder or the occurrence of any other event,
except as specifically
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<PAGE>
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company with regard to the Shares being purchased from the Company, and to the
order of the Custodian for the respective accounts of the Selling Stockholders
with regard to the Shares being purchased from such Selling Stockholders (and
the Company and such Selling Stockholders agree not to deposit and to cause the
Custodian not to deposit any such check in the bank on which it is drawn, and
not to take any other action with the purpose or effect of receiving immediately
available funds, until the business day following the date of its delivery to
the Company or the Custodian, as the case may be, and, in the event of any
breach of the foregoing, the Company or the Selling Stockholders, as the case
may be, shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach), at the offices of Riordan &
McKinzie, Los Angeles, California (or at such other place as may be agreed upon
among the Representatives and the Company), at 7:00 A.M., San Francisco time (a)
on the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company and the Attorneys may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" PROVIDED, HOWEVER, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the second and eighth paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement or any Incorporated Document, and you, on behalf of the respective
Underwriters,
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<PAGE>
represent and warrant to the Company and the Selling Stockholders that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence satisfactory to you that the Prospectus and term sheet meeting the
requirements of Rule 434(b) or (c), as applicable, of the Rules and Regulations,
have been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any
reason the filing of the final form of Prospectus is required under
Rule 424(b)(3) of the Rules and Regulations, it will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed; it will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of counsel for the several Underwriters ("Underwriters' Counsel"),
may be necessary or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus or the Incorporated
Documents, or, prior to the end of the period of time in which a prospectus
relating to the Shares is required to be delivered under the Act, file any
document which upon filing becomes an Incorporated Document, which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the
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Registration Statement or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal at the earliest possible moment if
such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, and the Incorporated Documents (three of which will include all
exhibits,) all in such quantities as you may from time to time reasonably
request. Notwithstanding the foregoing, if BancBoston Robertson Stephens Inc.,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the Company shall provide to you copies of a
Preliminary Prospectus updated in all respects through the date specified by you
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to stockholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD, (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to stockholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
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(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus and report its use of proceeds in accordance with
the Exchange Act and the rules and regulations thereunder.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to
Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event subject
to compliance with the Act, the Exchange Act and the Rules and Regulations.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of BancBoston Robertson Stephens Inc., effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized 1989 Stock Option Plan, 1992 Incentive Stock Plan, 1992 Non-Employee
Director Plan and Employee Stock Purchase Plan (the "Option Plans").
(l) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plans or other employee benefit
plan.
5. EXPENSES.
I. The Company and the Selling Stockholders agree with each
Underwriter that:
(a) The Company and the Selling Stockholders will pay and bear
all costs and expenses in connection with the preparation, printing and filing
of the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and the Incorporated
Documents and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus and
the Incorporated
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Documents, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this
Section 5.I.(a) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholders hereunder to the several Underwriters.
(b) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(c) In addition to their other obligations under Section 8(b)
hereof, each Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder for which
the Underwriters could secure indemnification from the Selling Stockholders
pursuant to Section 8(b), it will reimburse the Underwriters on a monthly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of such Selling Stockholder's obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Underwriters shall promptly return such payment
to the Selling Stockholders, together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request.
II. In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together
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with interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments which are not made to the Company and each
such Selling Stockholder within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
III. It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5.I.(b), 5.I.(c)
and 5.II. hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5.I.(b), 5.I.(c) and
5.II. hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or any Incorporated
Document or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
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(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectus;
(iii) The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the financial
condition, earnings, operations or business of the Company. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity, other than ____________;
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the date stated therein, the issued and outstanding
shares of capital stock of the Company (including the Selling Stockholder
Shares) have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the case
may be, to be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vi) The Company has the corporate power and authority
to enter into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and limitations on availability of equitable remedies;
(viii) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
(ix) The Registration Statement, the Prospectus and
each of the Incorporated Documents, and each amendment or supplement thereto
(other than the financial statements (including supporting schedules) and
financial data derived therefrom as to which such counsel need express no
opinion), as of the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act and the
applicable Rules and Regulations;
(x) The description of capital stock of the Company in
any Incorporated Document to the extent that it constitutes matters of law or
legal conclusions, has been reviewed
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by such counsel and is a fair summary of such matters and conclusions to the
extent required by the Act and the Rules and Regulations; and the form of
certificate evidencing the Common Stock and incorporated by reference as an
exhibit to the Registration Statement comply with Delaware law;
(xi) The description in the Registration Statement and
the Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by the Act
and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a party of a
character required by the Act and the applicable Rules and Regulations to be
described or referred to in the Registration Statement or Prospectus or any
Incorporated Document or to be filed as an exhibit to the Registration Statement
or any Incorporated Document which are not described or referred to therein or
filed or incorporated by reference as so required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification and contribution obligations hereunder, concerning
which no opinion need be expressed) will not (a) result in any violation of the
charter or bylaws of the Company or (b) to such counsel's knowledge, result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any material bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument filed or incorporated
by reference as an exhibit to the Registration Statement to which the Company or
any of its subsidiaries is a party or by which their respective properties are
bound, or any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, or over any of their respective properties or operations other
than state securities or Blue Sky laws, as to which no opinion need be
expressed;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company, or over any of its properties or operations is
necessary in connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act (or such as
may be required by the NASD or under state securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters as to which no opinion need be expressed);
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus or any Incorporated Document by the Act or the Rules
and Regulations or by the Exchange Act or the applicable rules and regulations
of the Commission thereunder, other than those described therein;
(xvi) To such counsel's knowledge, the Company and its
subsidiaries are not presently (a) in material violation of their respective
charters or bylaws or (b) in material breach of any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court or governmental agency or body having jurisdiction
over the Company, its subsidiaries or over any of their respective properties or
operations; and
(xvii) To such counsel's knowledge, except as set forth
in the Registration Statement and Prospectus and any Incorporated Document, no
holders of Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of Common
Stock or other securities, because of the filing
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of the Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
(xviii) Each Selling Stockholder which is not a
natural person has full right, power and authority to enter into and to perform
its obligations under the Power of Attorney and Custody Agreement to be executed
and delivered by it in connection with the transactions contemplated herein; the
Power of Attorney and Custody Agreement of each Selling Stockholder that is not
a natural person has been duly authorized by such Selling Stockholder; the Power
of Attorney and Custody Agreement of each Selling Stockholder has been duly
executed and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder constitutes
the valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and limitations on availability of equitable remedies;
(xix) Each of the Selling Stockholders has full right,
power and authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold by
such Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by each
Selling Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the Shares
being sold by the Selling Stockholders, duly endorsed for transfer, as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling Stockholder,
free and clear of any adverse claim. In rendering such opinion, such counsel
may assume that the Underwriters are without notice of any adverse claim of the
Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the applicable Closing Date, the Registration
Statement and any amendment thereto (other than the financial statements
including supporting schedules and other financial and statistical information
derived therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the applicable Closing Date, the Prospectus and any supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such counsel shall also state that, to the best of their knowledge,
the conditions for the use of Form S-3 by the Company set forth in the General
Instructions thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to questions
of fact upon representations or certificates of officers of the Company, the
Selling Stockholders or officers of the Selling
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Stockholders (when the Selling Stockholder is not a natural person), and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to
you, as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Deloitte & Touche LLP addressed to the Underwriters, dated the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
two (2) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Deloitte & Touche LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of October 4, 1998 and related
consolidated statements of operations, stockholders' equity, and cash flows for
the twelve (12) months ended October 4, 1998, (iii) state that Deloitte & Touche
LLP has performed the procedures set out in Statement on Auditing Standards No.
71 and (iv) address other matters agreed upon by Deloitte & Touche LLP and you.
In addition, you shall have received from Deloitte & Touche LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of October 4, 1998, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option
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Shares are to be purchased, as the case may be, and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto and the Incorporated Documents, when such Incorporated
Documents became effective or were filed with the Commission, contained all
material information required to be included therein by the Act and the Rules
and Regulations or the Exchange Act and the applicable rules and regulations of
the Commission thereunder, as the case may be, and in all material respects
conformed to the requirements of the Act and the Rules and Regulations or the
Exchange Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the Prospectus, and any
amendment or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (f) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such
Selling Stockholder herein are not true or correct in any material respect on
the Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied
with any obligation or satisfied any condition which is required to be performed
or satisfied on the part of such Selling
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Stockholder at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company and each Selling
Stockholder in writing prior to the date hereof that such person will not,
during the Lock-up Period, effect the Disposition of any Securities now owned or
hereafter acquired directly by such person or with respect to which such person
has or hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of BancBoston Robertson Stephens Inc. The foregoing restriction
shall have been expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(j) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of its their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders hereby grant to the several
Underwriters, for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of 476,250 Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company and the Attorney. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares. The number of Option Shares to be
sold by the Company and the Selling Stockholders shall be identified on Schedule
B attached hereto.
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Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company and each Selling Stockholder who is selling Option Shares (and the
Company and each such Selling Stockholder agrees not to deposit any such
check in the bank on which it is drawn, and not to take any other action with
the purpose or effect of receiving immediately available funds, until the
business day following the date of its delivery to the Company or such
Selling Stockholder, as the case may be). In the event of any breach of the
foregoing, the Company and/or the Selling Stockholders shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach. Such delivery and payment shall take place at the
offices of Riordan & McKinzie, Los Angeles, California or at such other place
as may be agreed upon among the Representatives and the Company (i) on the
Closing Date, if written notice of the exercise of such option is received by
the Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business
day following the date the Company receives written notice of the exercise of
such option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company, the
Selling Stockholders and officers of the Company made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of its
their respective obligations hereunder, to the conditions set forth in Section 6
hereof, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants or agreements of the Company and the Selling Stockholders or
the satisfaction of any of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD),
under the Act, the Exchange Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration
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Statement or any amendment or supplement thereto, including any Incorporated
Document, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
or action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by
such Underwriter, directly or through you, specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, damages, liabilities or actions based upon any
untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy
of the Prospectus in which such untrue statement or alleged untrue statement
or omission or alleged omission was corrected had not been sent or given to
such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject (including, without limitation, in its capacity as an Underwriter
or as a "qualified independent underwriter" within the meaning of Schedule E or
the Bylaws of the NASD) under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such Selling
Stockholder herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Stockholder, directly or through such Selling Stockholder's representatives,
specifically for use in the preparation thereof, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity agreement provided in
this Section 8(b) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d)
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hereof. Notwithstanding anything contained in this Section 8(b) to the
contrary, any indemnification by the Selling Stockholders based on a breach of
the representations and warranties contained in Section 2.II.(l) shall be
subordinated to the indemnification obligations of the Company contained in
Section 8(a); if the Company is unable to indemnify the Underwriters for any
reason, then, but only then, shall the Underwriters be entitled to seek
indemnification from the Selling Stockholders pursuant to this Section 8(b).
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, including any Incorporated Document, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the
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defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; PROVIDED that such
consent shall not be unreasonably withheld but if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the public offering price, and the Company and
the Selling Stockholders are responsible for the remaining portion, PROVIDED,
HOWEVER, that (i) no Underwriter shall be required to contribute any amount in
excess of the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the
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parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of its their officers, directors or controlling persons within the meaning
of the Act or the Exchange Act, and shall survive the delivery of the Shares to
the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
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The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the
time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be,
(i) if the Company or any Selling Stockholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company and its subsidiaries considered as one enterprise regardless of whether
or not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(v) if there shall have been an outbreak or escalation of hostilities or of any
other insurrection or armed conflict or the declaration by the United States of
a national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination pursuant
to subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination pursuant to
any of subparagraphs (ii) through (v) above shall be without liability of any
party to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and
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confirmed by letter) to Tetra Tech, Inc., 670 North Rosemead Boulevard,
Pasadena, California 91107, telecopier number (626) 351-5291. Attention:
Li-San Hwang, President and Chief Executive Officer; if sent to one or more
of the Selling Stockholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter)
to _________, as Attorney-in-Fact for the Selling Stockholders, at
[Tetra Tech, Inc., 670 North Rosemead Boulevard, Pasadena, California 91107],
telecopier number [(626) 351-5291].
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
BancBoston Robertson Stephens Inc. on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
TETRA TECH, INC.
By
---------------------------------------------
SELLING STOCKHOLDERS
By
----------------------------------------------
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
CLEARY GULL & REILAND INC.
FIRST ANALYSIS SECURITIES CORP.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By
-------------------------------------
Authorized Signatory
-32-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- --------------------------------------------------------------------------------
<S> <C>
BancBoston Robertson Stephens Inc. . . . . . . . . . . . . . .
NationsBanc Montgomery Securities LLC
Cleary Gull & Reiland Inc.
First Analysis Securities Corp.
[NAMES OF OTHER UNDERWRITERS]
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
---------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Company
Option Shares Shares To
To Be Be Sold
Company Sold
- --------------------------------------------------------------------------------
<S> <C> <C>
-------- --------
Total . . . . . . . . . . . . . . . . . . .
-------- --------
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of
Number of Selling
Option Stockholder
Shares Shares
Name of Selling Stockholder To Be Sold To Be Sold
- --------------------------------------------------------------------------------
<S> <C> <C>
---------- ----------
Total . . . . . . . . . . . . . . . . . . .
---------- ----------
---------- ----------
</TABLE>
<PAGE>
SCHEDULE C
[list of all subsidiaries, etc.]
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-70053 of Tetra Tech, Inc. on Form S-3 of our report dated November 13, 1998,
appearing in the Prospectus, which is part of this Registration Statement, and
the incorporation by reference in this Amendment No. 1 to Registration Statement
No. 333-70053 of our reports appearing in and incorporated by reference in the
Annual Report on Form 10-K of Tetra Tech, Inc. for the year ended October 4,
1998.
We also consent to the reference to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
Los Angeles, California
January 8, 1999
