-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgZDDC6aT+XTyHu579scEzsKQuQRN2LYu/hTixg0jAi2AJtRlW00jIGUWLwzIHAv dE587y7au4rE6yfwLnnXpQ== 0000818968-98-000012.txt : 19980831 0000818968-98-000012.hdr.sgml : 19980831 ACCESSION NUMBER: 0000818968-98-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980828 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDING LAWSON ASSOCIATES GROUP INC CENTRAL INDEX KEY: 0000818968 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 680132062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16169 FILM NUMBER: 98699925 BUSINESS ADDRESS: STREET 1: 7655 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158920821 MAIL ADDRESS: STREET 1: 7655 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94945 FORMER COMPANY: FORMER CONFORMED NAME: HARDING ASSOCIATES INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended May 31, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securitie Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-16169 HARDING LAWSON ASSOCIATES GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 68-0132062 (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 7655 Redwood Boulevard, P.O. Box 578, Novato, California 94948 (Address of principal executive office) Registrant's telephone number, including area code: (415) 892-0821 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $0.01 par value The NASDAQ Stock Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ X] Aggregate market value of the voting stock held by non-affiliates of the registrant on August 19, 1998: $32,116,872 Number of shares of the registrant's Common Stock outstanding as of August 19, 1998: 4,863,279 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on November 4, 1998, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, are incorporated by reference in Part III. Page 1 of 62 pages The Index to Exhibits is located at page 38. PART I ITEM 1. BUSINESS. Cautionary Statement Regarding Forward-Looking Statements The statements in this business section that are forward-looking are based on current expectations and actual results may differ materially. The forward-looking statements include those regarding future adoption of regulations and statutes having an impact on the Company's business, the impact of current regulations and statutes, the possible impact of current and future claims against the Company based upon negligence and other theories of liability, and the ability to successfully complete one or more acquisitions as part of the Company's growth strategy. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may result in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. Harding Lawson Associates Group, Inc. provides comprehensive engineering, environmental, and construction services related to the development and implementation of environmental management systems for maintaining compliance with environmental regulations, limiting the potential for unplanned discharges, and managing, minimizing or eliminating waste streams from industrial and agricultural operations, and the assessment and remediation of contaminated sites. The Company also provides civil, transportation, and geotechnical engineering services, and services during construction, either independently or in support of the Company's environmental, waste management, and civil services. The Company was originally incorporated in California in 1959, and reincorporated in Delaware in July 1987. Its principal executive offices are located at 7655 Redwood Boulevard, Novato, California 94945, and its telephone number is (415) 892-0821. Unless the context otherwise requires, the term "Company" as used herein refers to Harding Lawson Associates Group, Inc. and its wholly owned subsidiaries Harding Lawson Associates, Inc., Harding Lawson Associates ES, Inc., Harding Lawson Associates Infrastructure, Inc., HLA Environmental Services of Michigan, Inc., Harding Lawson Associates International, Inc. and its subsidiaries Harding Lawson Australia Pty. Ltd., Harding Lawson Singapore Pte Ltd, Harding Lawson de Mexico S.A. de C.V., Harding Lawson Australia Pty. Ltd.'s, 78% ownership in HLA-Envirosciences Pty Limited, and Harding Lawson de Mexico's 51% ownership in Grupo Industrial de Ingenieria Ecologica ("GRIECO"). The Company provides its clients a full range of environmental services to comprehensively support management of hazardous materials, hazardous wastes, solid wastes and waste waters, and effects the remediation of environmental problems related to the management of these types of wastes. The Company provides these services to clients that are constructing, operating or closing facilities and/or properties, and also to clients that have ownership or responsibility for abandoned or historical industrial operations or hazardous waste disposal sites. These services may be performed for new, expanding, or discontinued operations or in connection with the transfer of ownership. During the early stage of a project, the Company might be asked to perform site assessments or audits and to prepare site characterization reports or environmental planning and permitting documents in response to federal, state or local regulations. Following site characterization, the Company may assist its clients to evaluate cleanup options, select and negotiate remedies with regulatory agencies, and provide a design for site remediation. Once a remediation plan is established, the Company is able to provide its clients with construction and/or construction management services and may provide operation and maintenance of remedial systems. The Company also provides engineering services with a focus on civil engineering related to infrastructure including civil, transportation, process, sanitary, structural, electrical, and mechanical engineering disciplines from planning through construction administration. The Company's engineering services are most frequently applied to the design of highways, bridges and other transportation systems, and to the design and construction of industrial waste water treatment and air pollution control equipment. The Company's services are provided to private and public sector clients through a staff of approximately 1,125 professional and support personnel located in 44 U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, and Washington, six cities in Australia, and one in Mexico. During the fiscal year ended May 31, 1998 the Company performed services for over 1,200 industrial and governmental clients. The Company often provides services for its major clients under arrangements involving continuing service agreements. Such arrangements are usually on a "Time-and-Materials," "Cost-Plus-Fixed-Fee," or a "Fixed-Price" basis, and are usually terminable on advance notice by either party. The majority of the Company's projects are on a Time-and-Materials basis, under which the Company bills its clients at fixed hourly rates plus subcontracted services and materials used. Fixed-Price arrangements, under which the Company agrees to perform a stated service for a set price regardless of the time and materials cost involved, carry the risk that the cost to the Company for performing the agreed-upon services may exceed the set price, but also carry the benefit of potentially higher profit. Contracts acquired in the ABB Environmental Services, Inc. acquisition and the Company's growing construction practice will increase the percentage of fixed price projects in the firm. The Company provides consulting and engineering services to clients through its staff of engineers and scientists who possess a diverse range of education and professional experience. Project teams are organized to utilize applicable talent from the Company's staff. Qualified subcontractors are utilized to provide special technical resources that the Company either does not possess or has determined not to develop internally in a specific geographic area. Environmental Services The Company's clients require engineering, environmental, and construction services to comply with environmental regulations, manage risk associated with environmental emissions, and/or reduce their cost of operations. From 1980 until the early 1990s the demand for the Company's services was largely driven by the need to comply with environmental regulations. More recently, as enforcement of environmental regulations has decreased and environmental regulations have been relaxed, the Company's services are more frequently required in response to risk management or economic drivers. Because the U.S. regulatory framework is still the dominant driver for the Company's services, the primary environmental statutes causing this demand are described below. o Regulatory Background Public concern over human health and the environment has led federal, state and local governments to enact legislation to correct and prevent environmental problems with particular emphasis on the generation, handling, disposal and cleanup of hazardous waste and hazardous substances. These laws and their implementing regulations affect industries and governmental bodies that manufacture, use, store, or dispose of toxic substances and other waste materials. Significant changes in policies affecting these programs or administrative actions affecting the sponsorship or funding of these programs could have a material adverse effect on the Company's business. The following federal legislation most affects the Company's business: Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA," also known as "Superfund") and Superfund Amendments and Reauthorization Act of 1986 ("SARA"). Superfund addresses problems created by past waste disposal practices by providing a means for identifying and cleaning up hazardous substances at designated sites. Superfund authorizes the Environmental Protection Agency ("EPA") to compel responsible parties to remediate hazardous substances and places responsibility for this remediation on the owners and operators of such sites and generators of the waste (identified as potentially responsible parties, or "PRPs") and provides for penalties for non-compliance with EPA orders. Superfund was reauthorized as part of the 1991 federal budget appropriating $5.1 billion through 1994. Since then, funding has been authorized by Congress annually while debate over reauthorization has carried on. Significant changes to the statute are expected when or if reauthorized. The Company is not able at this time to ascertain the effect of any such reauthorization or of Congress' failure to reauthorize Superfund. Resource Conservation and Recovery Act of 1976 ("RCRA") and Hazardous and Solid Waste Amendments of 1984 ("HSWA"). RCRA was the first federal effort to regulate the treatment, storage and disposal of hazardous waste. It places "cradle-to-grave" responsibility for hazardous waste on the generators of such wastes and provides regulations for permitting, transporting, treating, storing and disposing of hazardous wastes in controlled facilities. The Clean Air Act ("CAA") and the Clean Air Act Amendments ("CAAA"). The CAA empowered the EPA to establish and enforce national air quality standards and to require states to set toxic air emission limits on facilities not meeting these national standards. The CAAA of 1990 require certain facilities that emit air pollutants to obtain operating permits and mandate that the EPA develop guidelines and procedures relating to acid rain, urban air pollution, and air toxic emissions by the year 2000. Other Federal and State Regulations. The Company's services are also utilized by its clients in complying with, among others, the following federal laws: the Toxic Substances Control Act, the Clean Water Act, the National Environmental Policy Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the Hazardous Material Transportation Act. Many other federal regulations and policies have been established to cover more detailed aspects of hazardous waste legislation. Complimentary state laws have also been enacted. The State of California, for example, has consistently been a leader in passing and implementing state hazardous waste legislation. Similar laws in other states address such topics as air pollution control, underground storage tanks, water quality, solid waste, hazardous materials, surface impoundments, site cleanup and waste discharge. o Hazardous Waste Management In the 1998 fiscal year, 48% of the Company's gross revenue was derived from domestic services relating to the restoration (assessment and remediation) of contaminated sites. Projects where Superfund, RCRA or similar enforcement regulations are driving the need for site restoration comprise the majority of these revenues, while sites where "leaking underground tank" regulations are causing the need for remediation comprise a smaller portion of these revenues. The Company's hazardous waste management services include the following: Site Characterization. The Company provides a range of services needed to determine the nature and extent of contamination at hazardous waste sites. Risk Assessment. Assessing the risks that hazardous chemicals pose to human health and the environment is critical to selecting appropriate remedial technologies. Risk assessment involves quantifying the hazard posed by the presence and movement of chemicals in disposal or release areas, and expected concentrations to which people or the environment may be exposed. Remedial Design Engineering. The Company has extensive experience in designing and implementing systems for removing contaminants from soil and water. The Company utilizes data acquired in site characterization and risk assessment studies to design integrated remedial systems, prepare detailed construction drawings and specifications, and develop operating manuals and maintenance programs for remedial systems. Construction and Construction Management. The Company self performs or manages construction of remedial and pollution control systems and waste disposal facilities. o Other Environmental Services All other domestic environmental services accounted for 29% of the Company's gross revenue in the 1998 fiscal year. These services include: Operating Facilities Services. The Company provides a broad range of services to industrial clients to help them comply with federal or state environmental regulations, to reduce their costs of environmental compliance, and to employ more efficient processes to reduce, recover, or recycle industrial waste or by-products. Waste Disposal Facility Permitting, Design and Closure. The Company provides a comprehensive range of services related to siting, permitting, designing, operating, closing and post closure monitoring of solid and hazardous waste disposal facilities such as landfills, landfarms and incinerators. Applied Information Technology. Drawing on the Company's past experience in collecting and managing environmental data for our clients, this service involves applying data management skills, spatial data management technologies such as geographic information systems ("GIS"), statistical techniques, numerical modeling and sophisticated two-and three-dimensional imaging technology to solve technical problems and to address general management issues. Environmental Planning, Permitting and Monitoring. The Company's services are frequently required to comply with the National Environmental Policy Act and other state and local regulations related to the assessment of environmental impacts or anticipated environmental impacts. The Company performs environmental resource investigations and monitoring, prepares environmental documents and reports, and secures environmental permits on behalf of its clients. Air Quality Management. Air pollution is increasingly recognized as the type of contamination that has the greatest impact on human health and the environment. The Clean Air Act Amendments of 1990 are expected to increase the market for air quality related services that are provided by the Company. The Company provides air quality planning, permitting, monitoring, reporting, and process engineering services. Site Assessments and Site Audits. The site assessment market is large but fluctuates with the real estate market. It is highly competitive and price driven. The Company seeks to provide these services only to responsible clients where the scope of the engagement and fees can be negotiated, and liability risks properly managed. The Company performs records searches, site investigations, due diligence evaluations, and audits. Regulatory Compliance. Regulatory compliance, evaluations, audits and support are a viable market that the Company expects will show modest growth as more facilities are brought under regulatory controls and more companies decide that an ongoing environmental auditing program will reduce environmental liabilities. The Company assists clients with strategic compliance planning, develops environmental management systems, and performs compliance permitting, monitoring, and reporting. Lead Paint/Asbestos Management. The asbestos and lead-based paint markets are highly competitive with limited barriers for new entrants. The Company performs asbestos/lead paint surveys, inspections, and abatement. The Company offers these services to select clients as part of its comprehensive environmental services. o International Services Approximately 5% of the Company's services were environmental services performed outside the United States. These services include contaminated site assessment and remediation, occupational health and hygiene, mine rehabilitation, environmental management systems, and environmental planning and permitting and are primarily performed through the Company's Australian and Mexican operations. Infrastructure Infrastructure and geotechnical services accounted for 18% of the Company's gross revenue in the 1998 fiscal year. These services include: Infrastructure/Transportation Engineering. The Company's civil engineers provide services relating to transportation including street, road and highway design, traffic engineering and traffic signal design, corridor studies, and construction administration; design of structures including bridges, piers and marine terminal facilities and other structures; design services including drainage basin studies and hydrologic analysis and storm water treatment; and railroad engineering including design of railroad trackage, railroad bridges, railroad yard design, and intermodal facilities. The Company believes that these services will be in increasing demand in the future as the country moves to repair its deteriorating infrastructure and as funding becomes available as a result of the recently signed TEA21 bill authorizing $218 billion of funding over the next six years. This bill is an increase of nearly 40% over the previous funding bill (ISTEA) signed in 1991. The Company anticipates that its civil/infrastructure practice may benefit from this legislation and additional proposed legislation in the future. Geotechnical Engineering. The Company's geotechnical engineers use advanced exploration tools, laboratory testing and analytical methods to evaluate soil and rock for foundations and for use in construction. Customers and Marketing The Company's client base includes private-sector companies that comprised 54% of gross revenue in fiscal 1998. Federal governmental bodies, primarily non-regulatory, provided 21% of gross revenue, including Department of Defense agencies, 20% of gross revenue was derived from state and local governments, and 5% from international clients. The Company's 15 largest clients accounted for approximately 34% of the Company's revenue in fiscal 1998, 44% in fiscal 1997 and 45% in fiscal 1996. Approximately 24% of its revenue during fiscal 1998 were derived from the Company's five largest clients compared to 32% and 33% in fiscal 1997 and 1996 respectively. In fiscal 1998, the Department of the Army accounted for approximately 12% of the Company's gross revenue. Revenue from this client, which accounted for 19% of gross revenue in fiscal 1997 and 20% in fiscal 1996, was generated under various contracts in various locations that were negotiated independently of each other. While the loss of all work related to this client could have a material adverse effect on the Company, the contracts are with separate divisions or units of the Army and the loss of one contract would not necessarily affect other contracts at other locations. No other client accounted for 10% or more of gross revenue in fiscal 1998, 1997 or 1996. The Company's marketing efforts are carried out by a full-time staff of marketing and sales personnel and by senior technical and management professionals. The Company also participates in industrial trade shows and technical conferences, and publishes certain technical literature to support its marketing program. Backlog The Company often provides services on major long-term contracts or continuing service agreements that provide for authorization of funding on a task or fiscal period basis. At May 31, 1998, the Company had approximately $105 million of authorized gross revenue backlog, of which approximately $38 million resulted from the Company's acquisition of the former ABB Environmental Services, Inc. Backlog was $70 million at May 31, 1997, and $65 million at May 31, 1996. Authorized gross revenue backlog, most of which is expected to be completed within the next 12 months, includes only such contracts where work authorization has been received. There can be no assurances, however, that work represented by backlog will not be delayed or canceled. Because the backlog figures include only those portions of contracts where spending has been authorized to date, the Company does not feel that backlog figures are necessarily indicative of future revenue. In addition to authorized backlog, the Company has certain contracting vehicles that include substantial unauthorized amounts not included in backlog. Tasks under these contracts may or may not be authorized during fiscal 1999. Seasonal Factors Due primarily to more holidays and inclement weather conditions, the Company's third quarter operating results are generally lower in comparison to other quarters. Competition The Company competes with many companies of all sizes. Although no company currently dominates any particular market segment, the market in general suffers from over capacity and as a result can be characterized as intensely competitive. While the Company competes primarily on the basis of its reputation, a significant proportion of its projects are competitively bid and the Company believes its services to be price competitive. Potential Liability and Insurance In performing consulting and engineering services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage, or negligence. The Company generally indemnifies its clients for losses and expenses incurred by them as a result of the Company's negligence and, in certain instances, the concurrent negligence of such clients. A significant portion of the Company's activities relate to environmental and waste services. These services involve significant risks to the Company for environmental damage, personal injury, and fines and costs imposed by regulatory agencies. Although liabilities arising from environmental regulations are more directly applicable to the Company's clients, such regulations under certain circumstances could impose liability on the Company resulting, for example, from a release or exacerbation of contamination or the improper handling of contaminants during the course of the Company's work. Such liabilities can be joint and several where other parties are involved. The Company maintains both a health and safety program and a quality assurance and quality control program to assist in reducing the risk of damage to persons and property and the potential for resulting losses. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these matters, and, in the aggregate, such claims are not expected to have a material adverse impact on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results and there can be no assurances that the Company will not be materially affected by existing or future claims. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company is provided a $10 million per occurrence/$15 million aggregate contractor's operations and professional services policy through an unrelated, rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Personnel At May 31, 1998, the Company employed approximately 1,125 regular, full-time employees, (780 prior to the May 8, 1998 acquisition of ABB Environmental Services, Inc.) including 710 engineers, scientists, and construction contractors, 265 production support staff and 150 administrative and clerical personnel. In addition to its full-time staff, the Company employs approximately 200 temporary or variable personnel at any time as required, most of whom are technical support personnel. Temporary or variable personnel constitute approximately 50 full-time equivalents. Although the Company has undergone selective downsizing over the past few years, it nevertheless maintains a continuous recruiting program to attract key personnel. None of the Company's employees are presently represented by a labor union. The Company believes it has good employee relations. ITEM 2. PROPERTIES. The Company leases facilities at various locations in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and in Australia and Mexico. At May 31, 1998 these facilities had a combined area of approximately 496,000 square feet. Aggregate lease expense for all of the Company's facilities during the fiscal year ended May 31, 1998 was approximately $4.7 million. The lease terms expire at various times through October 2003. Historically, the Company has not experienced any difficulty in renewing leases that have expired. ITEM 3. LEGAL PROCEEDINGS. The Company is currently subject to certain claims and lawsuits arising in the ordinary course of business. In the opinion of management, adequate provision has been made in the Company's Consolidated Financial Statement for all known liabilities that are currently expected to result from these claims and lawsuits, and in the aggregate such claims are not expected to have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of the security holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information The Company's common stock is traded on the NASDAQ Stock Market under the symbol HRDG. The following table sets forth the range of high and low sale prices of the Company's common stock.
High Low Fiscal year ended May 31, 1997: First Quarter $ 6.63 $ 5.00 Second Quarter 7.13 5.63 Third Quarter 7.50 6.13 Fourth Quarter 7.75 6.63 Fiscal year ended May 31, 1998: First Quarter $ 8.50 $ 6.38 Second Quarter 10.75 8.00 Third Quarter 10.25 8.88 Fourth Quarter 10.50 9.00
Holders As of August 19, 1998 there were 575 record holders of the Company's common stock. Dividends The Company has not paid any cash dividends on its common stock during the last ten years. The Board of Directors currently intends to retain all earnings for reinvestment in the Company's business and has no present intention of paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data of the Company for the years ended May 31, 1994 through 1998. The data presented below should be read in conjunction with the consolidated financial statements of the Company, including notes thereto. Summary Financial Information (In thousands, except per share data)
Fiscal Years Ended May 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Income Statement Data: Gross revenue $123,270 $123,412 $120,708 $130,554 $115,561 Net revenue 83,451 84,276 85,655 92,455 79,944 Operating income 3,220 4,112 839 4,595 1,353 Income before provision for income taxes and minority interest 4,262 4,288 1,647 4,907 1,656 Net income 2,488 2,404 953 2,972 1,002 Basic net income per share $0.50 $0.49 $0.20 $0.63 $0.21 Shares used in computing basic net income per share 4,959 4,926 4,824 4,684 4,667 Diluted net income per share $0.49 $0.49 $0.20 $0.63 $0.21 Shares used in computing diluted net income per share 5,087 4,950 4,844 4,700 4,701 Balance Sheet Data: Working capital $34,680 $37,780 $35,521 $33,369 $29,394 Total assets 76,618 67,366 60,364 60,788 61,486 Short-term debt --- --- --- --- 2,030 Shareholders' equity 49,788 46,602 44,357 42,685 38,975
Dividends The Company has not paid any cash dividends on its common stock during the last ten years. The Board of Directors currently intends to retain all earnings for reinvestment in the Company's business and has no present intention of paying cash dividends in the foreseeable future. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Cautionary Statement Regarding Forward-Looking Statements The statements in this management's discussion and analysis of financial condition and results of operations section that are forward-looking are based on current expectations, and actual results may differ materially. The forward-looking statements include those regarding the continued growth of the construction division, the possible impact of current and future claims against the Company based upon negligence and other theories of liability, the possibility of the Company's making acquisitions during the next 12 to 18 months, and the impact of becoming year 2000 compliant. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may result in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. Results of Operations General--The following table sets forth, for the periods indicated, (i) the percentage that certain items in the consolidated income statements of the Company bear to net revenue, and (ii) the percentage increase (decrease) in the dollar amount of such items from year to year.
Percentage of Percentage Net Revenue Increase/(Decrease) Fiscal Year Fiscal Year 1998 1997 vs. vs. 1998 1997 1996 1997 1996 ---- ---- ---- ---- ---- Net revenue 100.0% 100.0% 100.0% (1.0)% (1.6)% Costs and expenses Payroll and benefits 68.2 67.2 68.9 0.5 (4.0) General expenses 27.9 27.9 30.1 (0.8) (8.8) Operating income/margin 3.9 4.9 1.0 (21.7) 390.1 Interest in loss of unconsolidated subsidiaries (0.1) (0.6) --- (90.8) --- Net interest income 1.3 0.8 0.9 51.4 (10.8) Income before provision for taxes and minority interest 5.1 5.1 1.9 (0.6) 160.4 Provision for taxes 2.1 2.2 0.8 (5.9) 152.3 Net income 3.0 2.9 1.1 3.5 152.3
Gross Revenue--Gross revenue, not presented in the table above, includes the revenue on services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Gross revenue related to outside services as a percent of total gross revenue was 34.5%, 33.2%, and 30.4% in 1998, 1997, and 1996, respectively. The increase in outside services revenue as a percent of total gross revenue in 1998, compared to 1997 and 1996, is due primarily to an increase in construction services. The Company believes that its construction services will continue to grow and represent a larger percentage of gross revenue. Net revenue, which is a more accurate measure of revenue earned for services provided directly by the Company, is recorded by deducting from gross revenue the costs of services contracted to third parties. Net Revenue--Net revenue totaled $83.5 million in fiscal 1998, a decrease of $0.8 million or 1.0% from 1997. The decrease in net revenue in fiscal 1998 was due primarily to a 13% decline in international and a 21% decline in infrastructure net revenue respectively, partially offset by an increase of 4% in domestic environmental net revenue. The Company experienced lower demand partially offset by higher prices for its services compared to 1997 and 1996. Net revenue derived from public sector clients in fiscal 1998 was down 9% from the prior year and accounted for 43% of total net revenue for fiscal 1998 compared to 46% and 45% for fiscal 1997 and 1996, respectively. Net revenue from the federal sector declined by 14% from fiscal 1997 while revenue from state and local sources declined by 2% over the same period. Net revenue from private sector clients increased by 7% over 1997. International sales accounted for 6% of the Company's net revenue in fiscal 1998 compared with 7% and 6% in fiscal 1997 and 1996 respectively. Virtually all international revenue was attributable to operations in Australia. Fiscal 1997 net revenue was $84.3 million, a decrease of $1.4 million or 1.6% from 1996. The decrease in fiscal 1997 was due primarily to a 4% decline in domestic environmental net revenue partially offset by an increase of 11% and 25% in infrastructure and international net revenue, respectively. Domestic operations of the Company experienced lower demand and slightly higher prices for its services compared to 1996. Net revenue derived from public sector clients in fiscal 1997 was virtually unchanged from the prior fiscal year and accounted for 46% of total net revenue for fiscal 1997 compared to 45% for fiscal 1996. Net revenue from the federal sector declined by 17% from fiscal 1996 while revenue from state and local sources increased by 41% over the same period. Net revenue from private sector clients declined by 6% over 1996. International sales accounted for 7% of the Company's net revenue in fiscal 1997 compared with 6% in 1996. Virtually all international revenue was attributable to operations in Australia. Costs, Expenses and Operating Income--Operating income in fiscal 1998 of $3.2 million and an operating margin of 3.9% were both lower than fiscal 1997 results. Operating income in fiscal 1998 was lower by $0.9 million or approximately 22% compared to the prior year. The decrease in operating income and margin primarily reflects lower net revenue as the Company's total operating cost remained essentially unchanged from the prior fiscal year. Labor expense in fiscal 1998 was negatively impacted by $0.5 million in severance expenses, incurred primarily during the Company's fourth quarter of fiscal 1998. The Company's international operations improved over fiscal 1997 and contributed slightly to the Company's operating income but still negatively impacted the operating margin. Operating income in fiscal 1997 of $4.1 million and an operating margin of 4.9% were both higher than fiscal 1996 results. Operating income in fiscal 1997 was higher by $3.3 million or approximately 390% compared to the prior year. The operating margin in fiscal 1996 was 1.0% or $0.8 million. Excluding downsizing charges of $1.4 million, the operating margin in fiscal 1996 was 2.6%. The increase in operating income and margin primarily reflected lower labor and benefit costs and lower indirect expenses. Labor and benefit costs were lower due to staff reductions in the fourth quarter of fiscal 1996 and the first quarter of fiscal 1997 and, to a lesser extent, the utilization of variable employees who are not eligible for fringe benefits. The Company's international operations improved over fiscal 1996 but still negatively impacted operating margin. Interest in Loss of Unconsolidated Subsidiaries--Losses from unconsolidated subsidiaries were $50,000 in fiscal 1998. The loss was the final investment in Standards Training Corporation (STC) a limited liability company focused on ISO 14000 training that was made and expensed in the first fiscal quarter of fiscal 1998. Losses from unconsolidated subsidiaries were $0.5 million in fiscal 1997. The loss recorded in fiscal 1997 consisted of $0.3 in losses from operations and $0.2 in write-downs of impaired assets. The losses resulted from the operations of STC and Integrated Software Systems, LLC which specialized in software for the mining industry. There was no activity in these subsidiaries prior to 1997. The Company's investment in both entities was accounted for using the equity method. Interest Income (Expense)--Net interest income in 1998 of $1.1 million was $0.4 million higher than fiscal 1997. The increase in net interest income primarily reflects higher average cash balances throughout the fiscal year and to a lesser extent higher interest rates on invested cash. Net interest income in 1997 and 1996 was $0.7 million and $0.8 million, respectively. Income Taxes--The effective tax rate was 39.8% for fiscal 1998, 44.1% and 45.5% for fiscal years 1997 and 1996 respectively. The effective tax rate in fiscal 1998 reflects the improvement in the Company's foreign operations and a corresponding realization of prior year tax losses for which no tax benefit had been accrued and to a lesser extent an increase in the Company's non-taxable interest income. The effective tax rate in fiscal 1997 and 1996 reflects the impact of losses from the start-up of certain international operations for which no tax benefit was recorded. Net Income--Net income of $2.5 million in fiscal 1998 was $0.1 million higher than the prior year. The increase was primarily due to increased interest income and lower income taxes partially offset by lower net revenue and operating income. Net income of $2.4 million in 1997 was $1.4 million higher than the prior year primarily due to lower labor and general expenses. Net income per diluted common share was $0.49 in 1998 unchanged from 1997, and $0.20 in 1996. Diluted shares used in the per share calculation were 5,087,255, 4,949,700 and 4,843,570 in 1998, 1997, and 1996, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $5.1 million in fiscal 1998 compared to $8.8 million in 1997 and $8.0 million in 1996. The decrease in cash provided by operations in fiscal 1998 compared to 1997 was primarily related to a decrease in certain current liabilities. The decrease in certain current liabilities reflect payment under the incentive compensation program in fiscal 1998 for fiscal 1997 performance and increases in payments of income taxes and was partially offset by increases in billings in excess of costs and estimated earnings on uncompleted contracts. The increase in cash provided by operations in fiscal 1997 compared to 1996 was primarily related to the Company's higher earnings and improved working capital. The improved working capital in fiscal 1997 primarily reflected an improvement in the days sales held in receivables, including collections of retentions on certain federal projects nearing completion, and, to a lesser extent, higher trade payables. The Company currently has a $20 million line of credit with a commercial bank, at prime or LIBOR rates, that expires in November 1999. At May 31, 1998, 1997 and 1996 the Company had no borrowings under the line of credit, therefore, the entire $20 million was available to the Company. Had the Company borrowed under its line at May 31 of fiscal 1998, 1997 and 1996, the interest rate would have been 5.7%, 5.7% and 5.4% respectively. The Company's credit agreement has certain covenants relating to, among other things, financial performance and the maintenance of certain financial ratios. The Company was in compliance with all covenants pertaining to the line of credit agreement at May 31, 1998, 1997 and 1996. The Company invested $14.4 million and $2.4 million in the purchase of capital assets, including the cost of acquisitions, in fiscal 1998 and 1997 respectively. The Company used $12.4 million in fiscal 1998 for the acquisition of ABB Environmental Services, Inc. The Company paid $0.2 and $0.1 million in fiscal 1998 and 1997 respectively, as additional purchase price under the terms of a fiscal 1994 and 1995 acquisition agreements, respectively. In fiscal 1998, the Company generated net cash of $0.1 million for financing activities, that primarily consisted of the sale of common stock to employees offset by the repurchase of common stock. The Board of Directors of the Company has approved a Common Stock Repurchase Program that authorizes the Company to purchase up to a maximum of 500,000 shares of stock on the open market from time to time for the purpose of providing shares for the Company's various employee stock plans. The Company repurchased 46,300 shares for $0.4 million in fiscal 1998 under this plan. The Company repurchased 139,200 shares for $1.0 million in fiscal 1997 under this plan. In fiscal 1997 the Company used net cash of $0.9 million for financing activities that primarily consisted of the repurchase of common stock. The Company is a consulting engineering services firm engaged in providing environmental, infrastructure and geotechnical related services, and encounters potential liability including claims for errors and omissions resulting from construction defects, construction cost overruns, or environmental or other damage in the normal course of business. The Company is a party to lawsuits and is aware of potential exposure related to certain claims. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these matters and, in the aggregate, such claims are not expected to have a material impact on the financial position and liquidity of the Company although there can be no assurances that the Company will not be affected by existing or future claims. Currently, the Company is provided $10 million per occurrence, $15 million aggregate contractor's operations and professional services insurance policy through an unrelated rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. The Company believes that its available cash and cash equivalents as well as cash generated from operations and its available credit line will be sufficient to meet the Company's cash requirements for fiscal 1998. During fiscal 1999, the Company intends to actively continue its search for acquisitions to expand its geographical representation and enhance its technical capabilities. The Company expects to utilize a portion of its liquidity over the next 12 to 18 months for capital expenditures, including acquisitions. There can be no assurances that the Company will be able to identify suitable acquisition candidates, and if such are identified, that the Company will be able to successfully negotiate and consumate a transaction. Other Matters On May 8, 1998 the Company acquired all the outstanding shares of ABB Environmental Services, Inc. ("ABB ES"), a consulting and engineering firm. The acquisition was accounted for as a purchase and the operating results of ABB ES were included in the Company's consolidated results from the date of the acquisition. Such results were not material to the Company's fiscal 1998 results (see Note 8). The Company is in the process of upgrading its accounting and management software systems to versions that are year 2000 compliant. In addition, the Company is assessing its other computer systems and equipment and business processes to ensure its systems will be capable of processing data in the year 2000 and beyond. The Company believes the cost of becoming year 2000 compliant will not have a material adverse impact on the Company's financial position or results of operation. Inflation The Company's operations have not been, and in the foreseeable future are not expected to be, materially affected by inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Income (In thousands, except per share data)
Years Ended May 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Gross revenue $123,270 $123,412 $120,708 Less: Cost of outside services 39,819 39,136 35,053 - --------------------------------------------------------------------------------------------------------------- Net revenue 83,451 84,276 85,655 - --------------------------------------------------------------------------------------------------------------- Costs and Expenses: Payroll and benefits 56,911 56,647 59,033 General expenses 23,320 23,517 25,783 - --------------------------------------------------------------------------------------------------------------- Total costs and expenses 80,231 80,164 84,816 - --------------------------------------------------------------------------------------------------------------- Operating income 3,220 4,112 839 Interest in loss of unconsolidated subsidiaries (50) (545) --- Interest income, net of interest expense of $34 in 1998, $38 in 1997 and $39 in 1996 1,092 721 808 - --------------------------------------------------------------------------------------------------------------- Income before provision for income taxes and minority interest 4,262 4,288 1,647 Provision for income taxes 1,696 1,892 750 Minority interests in net income (loss) of subsidiaries 78 (8) (56) - ---------------------------------------------------------------------------------------------------------------- Net income $2,488 $2,404 $953 =============================================================================================================== Basic net income per share $0.50 $0.49 $0.20 =============================================================================================================== Shares used in computing basic net income per share 4,959 4,926 4,824 =============================================================================================================== Diluted net income per share $0.49 $0.49 $0.20 =============================================================================================================== Shares used in computing diluted net income per share 5,087 4,950 4,844 ===============================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Balance Sheets (In thousands, except share data)
May 31, 1998 May 31, 1997 - ------------------------------------------------------------------------------------------------------------ ASSETS Current Assets: Cash and cash equivalents $15,118 $24,464 Accounts receivable, less allowance for doubtful accounts of $1085 in 1998 and $637 in 1997 and including retentions of $981 in 1998 and $1,866 in 1997 27,891 22,275 Unbilled work in progress, less allowance for amounts unbillable of $751 in 1998 and 1997 13,112 6,481 Prepaid expenses 1,196 1,073 Deferred income taxes 2,708 2,691 - ---------------------------------------------------------------------------------------------------------- Total current assets 60,025 56,984 - ---------------------------------------------------------------------------------------------------------- Equipment 24,892 21,701 Less accumulated depreciation (19,571) (17,299) - ----------------------------------------------------------------------------------------------------------- Net equipment 5,321 4,402 - ---------------------------------------------------------------------------------------------------------- Other assets 11,272 5,980 - ---------------------------------------------------------------------------------------------------------- Total assets $76,618 $67,366 ========================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $6,381 $4,538 Accrued expenses 5,350 5,061 Accrued compensation 7,794 6,632 Billings in excess of costs and estimated earnings on uncompleted contracts 5,352 1,011 Income taxes payable 468 1,962 - ---------------------------------------------------------------------------------------------------------- Total current liabilities 25,345 19,204 - ---------------------------------------------------------------------------------------------------------- Other liabilities 1,084 1,237 - ---------------------------------------------------------------------------------------------------------- Total liabilities 26,429 19,430 - ---------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 10) Minority interests in subsidiaries 401 323 - ---------------------------------------------------------------------------------------------------------- Shareholders' Equity: Preferred stock--$.01 par value; authorized 1,000,000 shares; issued and outstanding--none --- --- Common stock--$.01 par value; authorized 10,000,000 shares; issued and outstanding 5,009,018 in 1998 and 4,864,503 in 1997 50 49 Additional paid-in capital 18,891 17,982 Retained earnings 31,059 28,571 Foreign currency translation adjustment (212) --- - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 49,788 46,602 - ---------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $76,618 $67,366 ==========================================================================================================
The balances in fiscal 1998 reflect an acquisition completed on May 8, 1998. The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Shareholders' Equity (In thousands, except share data)
Foreign Additional Cumulative Total Common Stock Paid-in Translation Retained Shareholders' Shares Amount Capital Adjustment Earnings Equity Balance May 31, 1995 4,719,320 $47 $17,424 $ --- $25,214 $42,685 - ------------------------------------------------------------------------------------------------------------------ Stock options exercised 1,000 --- 1 --- --- 1 Common stock issued to employees or to a defined contribution pension plan for the benefit of employees 124,887 1 717 --- --- 718 Net income --- --- --- --- 953 953 Balance May 31, 1996 4,845,207 $48 $18,142 $ --- $26,167 $44,357 - ------------------------------------------------------------------------------------------------------------------ Stock options exercised 6,000 --- 24 --- --- 24 Common stock issued to employees, directors or to a defined contribution pension plan for the benefit of employees 152,496 2 786 --- --- 788 Shares repurchased and retired (139,200) (1) (970) --- --- (971) Net income --- --- --- --- 2,404 2,404 Balance May 31, 1997 4,864,503 $49 $17,982 $ --- $28,571 $46,602 - ------------------------------------------------------------------------------------------------------------------ Stock options exercised 59,750 --- 433 --- --- 433 Common stock issued to employees, directors or to a defined contribution pension plan for the benefit of employees 131,065 1 880 --- --- 881 Shares repurchased and retired (46,300) (404) --- --- (404) Foreign currency translation adjustment (212) (212) Net income --- --- --- 2,488 2,488 Balance May 31, 1998 5,009,018 $50 $18,891 $(212) $31,059 $49,788 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Cash Flows (In thousands)
Years Ended May 31, 1998 1997 1996 OPERATING ACTIVITIES Net income $2,488 $2,404 $953 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,589 2,566 2,522 Deferred income tax 68 (922) 670 Changes in operating assets and liabilities: Receivables and billings on uncompleted contracts 3315 (238) 6,218 Prepaid expenses 76 242 (378) Accrued compensation (1,289) 1,546 (1,433) Accounts payable and other liabilities (278) 1,328 301 Income taxes payable (1,495) 1,962 (621) Other, net (328) (184) (279) - ---------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,146 8,788 8,048 - --------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of equipment, net (2,045) (2,267) (1,591) Investment in acquisitions, net of cash acquired (12,350) (122) --- - --------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (14,395) (2,389) (1,591) - ---------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from sale of common stock 519 108 2 Repurchase of common stock (404) (971) --- - --------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 115 (947) (93) - ---------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (212) --- --- - --------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,346) 5,452 6,364 Cash and cash equivalents at beginning of year 24,464 19,012 12,648 - --------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $15,118 $24,464 $19,012 ===============================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Notes to Consolidated Financial Statements, May 31, 1998 Note 1 - Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition -- Gross revenue is principally recognized as in-house labor hours are incurred on projects. It also includes the revenue from services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Net revenue represents gross revenue excluding the cost of services subcontracted to third parties. Revenue from fixed price contracts are recognized on a percentage of completion basis which is determined using the percentage of the costs incurred to the total costs expected. Overruns or efficiencies on all contracts are recognized in the period when such results are reasonably determinable. Depreciation - Equipment is recorded at cost. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets, primarily between three and seven years. Income Taxes - The Company accounts for income taxes pursuant to the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under which the liability method is used to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Net Income per Share - The Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128") in the third quarter of fiscal 1998. SFAS 128 requires companies to present both basic net income per share and diluted net income per share. Basic net income per share excludes dilutive common stock equivalents and is calculated as net income divided by the weighted average number of common shares outstanding. Diluted net income per share is computed using the weighted average number of common shares outstanding and dilutive common stock equivalents outstanding during the period. Cash and Cash Equivalents - Cash and cash equivalents include short-term AAA rated investments with an effective maturity of less than three months. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Industry Segment Information - The Company is a single segment entity providing primarily environmental and infrastructure engineering consulting services. The Company also provides construction management, construction and geotechnical services. Approximately 6% of the Company's net revenue was recognized in foreign countries in fiscal 1998, 7% in fiscal 1997, and 6% in fiscal 1996. Unconsolidated Subsidiaries - The Company uses the equity method of accounting for investments in unconsolidated subsidiaries. During fiscal 1998 and 1997, the Company reported $50,000 and $500,000 in losses respectively. There was no activity in fiscal 1996. Accounting for Stock-Based Compensation - The Company accounts for its employee stock plans under the intrinsic-value-based method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of the net assets of various entities acquired by the Company. The Company currently amortizes goodwill on a straight line basis over 15 to 40 years. Other intangible assets, if any, recorded in connection with acquisitions are amortized on a straight line basis over the estimated useful lives of the respective assets, but not exceeding 15 years. Concentrations of Credit Risk - The Company's receivables reflect its client mix, which includes a variety of industrial concerns and various agencies of the Federal Government. Services to one client, the Department of the Army, accounted for approximately 12%, 19% and 20% of the Company's revenue in fiscal 1998, 1997 and 1996, respectively. Credit is extended based on evaluation of the client's financial condition and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. Services to Federal Government bodies, primarily non-regulatory, amounted to 21%, 25% and 31% of gross revenue in fiscal 1998, 1997 and 1996, respectively. Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31. Fiscal years 1998, 1997, and 1996 consisted of 52 weeks. Reclassifications - Certain amounts have been reclassified to conform to current year presentations. Recently Issued Accounting Standards - In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements and is required to be adopted by the Company beginning in its fiscal year 1999. Additionally, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for the way public business enterprises report information in annual statements and interim financial reports regarding operating segments, products and services, geographic areas, and major customers. SFAS 131 will first be reflected in the Company's fiscal year 1999 Annual Report and will apply to both annual and interim financial reporting subsequent to this date. The Company is currently evaluating the impact of SFAS 130 and SFAS 131 on its financial disclosures. Note 2 - Borrowings Bank Credit Line - The Company has a line of credit with a bank under which it can borrow amounts up to $20 million. Under the terms of the line of credit that expires in November 1999, the Company is required, among other things, to maintain minimum working capital, current ratio and tangible net worth levels and is not to exceed a defined maximum debt to tangible net worth ratio. Borrowings under the line will be secured by certain of the Company's assets and will be at either the bank's prime rate or LIBOR at the Company's option. The interest rate at which the Company could borrow funds was 5.7% at May 31, 1998 and 1997, and 5.4% at May 31, 1996. At May 31, 1998, 1997, and 1996, there were no borrowings under the Company's line of credit and therefore the entire $20 million was available to the Company. At May 31, 1998, 1997, and 1996, the Company was in compliance with all debt covenants relating to its credit agreements. Interest paid by the Company was $34,000, $38,000 and $52,000 in fiscal years 1998, 1997, and 1996, respectively. Note 3 - Valuation and Qualifying Accounts The activity for the past three fiscal years in the allowance for doubtful accounts, which is deducted from accounts receivable, and the allowance for amounts unbillable, which is deducted from unbilled work in progress, is as follows (in thousands):
Write-offs Balance Balance at Charged of at Beginning to Uncollectable End Description of Period Expense Accounts of Period Year ended May 31, 1998 Allowance for doubtful accounts $1,087 $30 $(32) $1,085 Allowance for amounts unbillable 751 --- --- 751 Year ended May 31, 1997 Allowance for doubtful accounts $725 $160 $(248) $637 Allowance for amounts unbillable 751 --- --- 751 Year ended May 31, 1996 Allowance for doubtful accounts $802 $68 $(145) $725 Allowance for amounts unbillable 751 --- --- 751
The beginning balance for fiscal 1998 has been adjusted to reflect $450 of acquired reserves from the acquisition of ABB Environmental Services, Inc. Note 4 - Income Taxes The provision for income taxes consists of the following (in thousands):
Years Ended May 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Current: Federal $1,295 $2,104 $(4) Foreign 61 177 78 State and Local 272 533 6 - ----------------------------------------------------------------------------------------------------------- 1,628 2,814 80 - ----------------------------------------------------------------------------------------------------------- Deferred: Federal 94 (756) 639 Foreign (28) (30) (56) State and Local 2 (136) 87 - ----------------------------------------------------------------------------------------------------------- 68 (922) 670 - ----------------------------------------------------------------------------------------------------------- TOTAL $1,696 $1,892 $750 ===========================================================================================================
Note 4 - Income Taxes (continued) Income (loss) before provision for income taxes and minority interest is as follows (in thousands):
Years Ended May 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Domestic $4,107 $4,331 $1,808 Foreign 155 (43) (161) - ------------------------------------------------------------------------------------------------------------- Total $4,262 $4,288 $1,647 ============================================================================================================
A reconciliation between the statutory federal income tax rate and the effective income tax rates is as follows: Years Ended May 31, 1998 1997 1996
Years Ended May 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% State and local income taxes, net of federal tax benefits 5.9 6.1 6.8 Foreign taxes (0.4) 3.0 5.1 Tax exempt interest (5.3) (3.0) (6.5) Goodwill amortization 0.8 0.6 1.6 Other, net 4.8 3.4 4.5 - ------------------------------------------------------------------------------------------------------------- Effective income tax rates 39.8% 44.1% 45.5% =============================================================================================================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
Years Ended May 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------- Deferred Tax Liabilities: Prepaid expenses $(32) $(59) Deferred revenue --- (51) Deferred state income taxes (328) (354) - ---------------------------------------------------------------------------------------------------------- Total Deferred Tax Liabilities (360) (464) - ---------------------------------------------------------------------------------------------------------- Deferred Tax Assets: Deferred revenue $36 --- Allowances for doubtful accounts and amounts unbillable 535 663 Depreciation and amortization of intangibles 449 393 Employee benefits 2,250 2,035 Claims reserves 627 819 Rental inducements 346 329 Deferred tax assets resulting from the acquisition of ABB Environmental Services, Inc. 1,391 --- Other, net 289 465 - --------------------------------------------------------------------------------------------------------- Total Deferred Tax Assets 5,923 4,704 - --------------------------------------------------------------------------------------------------------- Less: Valuation allowance on deferred tax assets resulting from the acquisition of ABB Environmental Services, Inc. (1,391) --- - --------------------------------------------------------------------------------------------------------- Net Deferred Assets $4,172 $4,240 =========================================================================================================
Note 4 - Income Taxes (continued) The Company recorded a valuation allowance of $1.4 million related to deferred taxes at May 31, 1998, representing a full reserve against the deferred tax assets resulting from the acquisition of ABB Environmental Services, Inc. Realization of ABB Environmental Services, Inc.'s underlying tax assets would result in a decrease of the goodwill associated with this acquisition. Income taxes paid were as follows (in thousands): 1998 $1,947 1997 945 1996 1,069 Note 5 - Other Assets Other assets consist of the following (in thousands):
May 31, 1998 1997 - ------------------------------------------------------------------------------------------------ Goodwill and other intangible assets, net of accumulated amortization of $3,150 in 1998 and $2,796 in 1997 $9,287 $3,995 Non-current deferred income taxes 1,464 1,549 Deposits and other 521 436 - ------------------------------------------------------------------------------------------------- Total $11,272 $5,980 =================================================================================================
Note 6 - Other Liabilities Other liabilities consist of the following (in thousands):
May 31, 1998 1997 - ------------------------------------------------------------------------------------------------ Claims reserves $1,083 $1,237 =================================================================================================
Note 7 - Defined Contribution Pension Plan The Company has a defined contribution pension plan that covers substantially all of its employees. The Company's contributions to the plan are discretionary and may be in the form of cash payments or the Company's common stock. The amounts charged to operations for this plan were $824,000 for fiscal 1998, $615,000 for fiscal 1997, and $633,000 for fiscal 1996. The increase in fiscal 1998 compared to 1997 and 1996 was due to an increase of up to $200 per employee in Company matching contributions and the addition of employees eligible for the Company match due to the acquisition of ABB Environmental Services, Inc. The contributions for 1998, 1997 and 1996 were made with the Company's common stock. Note 8 - Acquisitions On May 8, 1998 the Company acquired all the outstanding shares of ABB Environmental Services, Inc., a consulting and engineering firm, from ABB Services, Inc. Total consideration of $12.0 million, excluding transaction costs, was paid entirely in cash. The acquisition was accounted for using the purchase method and accordingly the purchase price was allocated to the assets and liabilities acquired based upon their fair market value. The excess of purchase price of the acquisition over the fair market value of the net assets acquired was recorded as goodwill. The final determination of such excess amount is subject to a final assessment of the value of the consideration paid and the net assets acquired. The goodwill will be amortized on a straight line basis over 20 years. The net purchase price was allocated as follows (in thousands): Working capital, net $ 5,670 Equipment 1,114 Other assets 116 Goodwill 5,450 -------- Purchase price, net of cash received $12,350 ======= The results of operation for ABB Environmental Services, Inc. have been included in the Company's financial statements for the period of May 9, 1998 through May 31, 1998 and such results were not material to the Company's 1998 performance. The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired ABB Environmental Services, Inc. on June 1, 1996 (in thousands):
Fiscal Years Ended May 31, 1998 1997 Net revenue $116,788 $123,564 Income before income taxes 6,250 4,465 Net income 3,560 2,413 Basic net income per share $0.72 $0.49 Shares used in computing basic net income per share 4,959 4,926 Diluted net income per share $0.70 $0.49 Shares used in computing diluted net income per share 5,087 4,950
Note 9 - Shareholders Equity The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of option valuation models that were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable and not for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Stock Option Plans - In July 1987, the Company adopted, and the shareholders approved, the 1987 Stock Option Plan that provided for the granting of stock options to employees and non-employee directors at no less than the fair market value of the common stock on the grant date. A total of 525,000 shares of the Company's common stock was reserved for issuance under this plan. The 1987 plan expired in July 1997 and no further options may be granted under that plan. As of May 31, 1998, 18,000 options remained outstanding and unexercised. In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock Option Plan that provides for the granting of stock options to employees. In November 1989, the plan was amended to provide for the granting of options to non-employee directors. Stock options may be incentive or non-statutory. Non-statutory stock options may be either restricted or non-restricted. All incentive stock options and non-restricted non-statutory stock options are to be granted at no less than the fair market value of the common stock on the grant date. Restricted stock options may be granted at a price determined by the Board of Directors, but shall not be less than $1.00 per share. A total of 1,050,000 shares of the Company's common stock has been reserved for issuance under this plan. All options granted under the 1987 and 1988 Stock Option Plans have 10 year terms, and vest and become fully exercisable after three or four years of continued employment. Since the 1988 plan will expire in October 1998 and no options may be granted under the 1988 plan, the Company will seek approval from the Company's shareholders for a new Stock Option Plan. Following is a summary of options granted under the 1987 and 1988 stock option plans:
Optioned Shares Range Weighted Number of Average of Exercise Exercise Shares Prices Price BALANCE MAY 31, 1995 1,033,250 $1.00 $14.30 $9.08 - --------------------------------------------------------------------------------------------------- Options granted 57,000 5.88 6.88 6.21 Options canceled (79,250) 5.50 14.13 9.43 Options exercised (1,000) 1.00 1.00 1.00 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1996 1,010,000 $1.00 $14.30 $8.90 - --------------------------------------------------------------------------------------------------- Options granted 10,500 6.25 7.25 6.63 Options canceled (174,063) 5.50 14.13 9.13 Options exercised (6,000) 1.00 5.50 4.00 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1997 840,437 $1.00 $14.30 $8.85 - --------------------------------------------------------------------------------------------------- Options granted 171,000 6.75 9.94 7.10 Options canceled (27,687) 6.13 14.13 10.00 Options expired (121,500) 8.33 8.33 8.33 Options exercised (59,750) 1.00 8.17 7.26 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1998 802,500 $1.00 $14.30 $8.64 - ---------------------------------------------------------------------------------------------------
Under the Company's stock option plans, 550,375 and 670,249 options were exercisable at May 31, 1998 and 1997, respectively, at exercise prices ranging from $1.00 to $14.30. The contractual life at May 31, 1998, was one to ten years, with a weighted average contractual life of six years. The following is a summary of fixed stock options outstanding and exercisable by price range at May 31, 1998:
Options Outstanding Options Exercisable Weighted Shares Average Shares Out- Remaining Weighted Exer- Weighted standing Contrac- Average cisable Average Range of as of tual Exercise as of Exercise Exercise Prices 5/31/98 Life Price 5/31/98 Price $1.0000 - $1.0000 2,000 1.13 $1.00 2,000 $1.00 5.5000 - 6.6250 164,250 6.62 5.82 107,125 5.78 6.7500 - 7.0000 163,000 8.82 6.77 11,000 6.98 7.2500 - 8.7500 193,000 5.33 7.51 190,000 7.51 9.5000 - 11.5000 74,500 4.22 10.67 44,500 10.97 12.3750 - 14.3000 205,750 3.35 12.79 195,750 12.72 - -------------------------------------------------------------------------------------------------------- $1.000 - $14.3000 802,500 5.68 $8.64 550,375 $9.27
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan ("ESPP Plan") was approved and subsequently amended by the Company's Board of Directors and Shareholders. A total of 250,000 shares of the Company's common stock has been reserved for issuance pursuant to this plan at a price that is 85% of the stock's fair market value. As of May 31, 1998, a total of 180,963 shares has been purchased through this plan. 1995 Executive Stock Incentive Plan - In November 1995, the Company's shareholders approved a stock incentive plan that reserved 200,000 shares of common stock to be awarded to selected executives of the Company in lieu of, or in addition to, regular or bonus compensation. As of May 31, 1998, a total of 21,330 shares have been issued through this plan. Non-employee Directors Stock Compensation Plan - In December 1996, the Company established a non-employee directors stock compensation plan that reserved 100,000 shares to be issued to non-employee directors of the Company. Directors can elect to have all or a portion of their director compensation paid in the form of common stock of the Company in lieu of cash compensation. A total of 14,016 shares has been issued under this plan as of May 31, 1998. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and is determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of each option grant under the fixed price option plans and the fair value of the employee's purchase rights under the employee stock purchase plan were estimated at the date of grant using a Black-Scholes option-pricing model. The dividend yield was assumed to be zero for both periods below. The weighted-average of all other significant assumptions and the weighted-average fair value of grants made during the years ended May 31, 1998 and 1997 are as follows:
May 31, 1998 May 31, 1997 Option Plan ESPP Plan Option Plan ESPP Plan Volatility 48.10% 48.10% 70.08% 70.08% Risk-free interest rate 6.52% 5.69% 6.08% 5.51% Expected lives 5.0 yrs 0.5 yrs 4.2 yrs 0.5 yrs Fair value of grants $3.56 $3.55 $3.85 $1.78
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (in thousands) and earnings per share would have been $2,291 or $0.46 basic net income per share and $0.45 diluted net income per share, and $2,351, or $0.47 basic and diluted net income per share for the fiscal years 1998 and 1997, respectively. Note 10 - Commitments and Contingencies The Company leases certain premises and equipment under operating lease agreements. Future minimum commitments under leasing arrangements at May 31,1998 were as follows (in thousands): Operating Leases Year ending May 31: 1999 $ 5,886 2000 4,379 2001 3,032 2002 2,065 2003 andreafter 1,843 - ---------------------------------------------------------------------------- Minimum commitments $17.205 Rental expense was $5.5 million in 1998, $5.4 million in 1997, and, $5.6 million in 1996. Lease terms expire between June, 1998 and October, 2003. Most leases contain a renewal option at fair market value. The Company has a substantial number of U.S. Government contracts, under which the costs are subject to audit. Management believes that the effect of disallowed costs, if any, will not have a material adverse effect on the financial position or results of operations of the Company. The Company is currently subject to certain claims and lawsuits arising in the ordinary course of its business. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these claims and lawsuits and in the aggregate such claims will not have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company has a $10 million per occurrence, $15 million aggregate contractor's operations and professional services insurance policy through an unrelated insurance carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Note 11 - Selected Quarterly Financial Data (Unaudited) The Company's fiscal quarters end on August 31, November 30, February 28, and May 31. Selected quarterly financial data for fiscal 1998 and 1997 are summarized as follows (in thousands, except per share data):
Quarterly Data First Second Third Fourth Quarter Quarter Quarter Quarter YEAR ENDED MAY 31, 1998 Net revenue $21,681 $21,280 $19,081 $21,409 Operating income 1,327 1,265 202 426 Net income 920 891 254 423 Basic net income per share $0.19 $0.18 $0.05 $0.08 Shares used in computing basic net income per share 4,887 4,971 4,986 4,992 Diluted net income per share $0.19 $0.17 $0.05 $0.08 Shares used in computing diluted net income per share 4,928 5,133 5,142 5,145 - -------------------------------------------------------------------------------------------------------------- YEAR ENDED MAY 31, 1997 Net revenue $20,979 $21,282 $19,520 $22,495 Operating income 304 1,230 813 1,765 Net income 226 750 462 966 Basic net income per share $0.05 $0.15 $0.09 $0.20 Shares used in computing basic net income per share 4,892 4,980 4,942 4,889 Diluted net income per share $0.05 $0.15 $0.09 $0.20 Shares used in computing diluted net income per share 4,902 5,002 4,974 4,921 - --------------------------------------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors Board of Directors and Shareholders Harding Lawson Associates Group, Inc. Novato, California We have audited the accompanying consolidated balance sheets of Harding Lawson Associates Group, Inc. as of May 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harding Lawson Associates Group, Inc. at May 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP San Francisco, California July 3,1998 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information set forth under the caption "Proposal No. 1: Election of Directors" under the sections entitled "General," "Security Ownership of Management," "The Directors," and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 8, 1998, that is to be filed pursuant to regulation 14A under the Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information set forth under the caption "Proposal No. 1: Election of Directors -- Compensation of Directors and Executive Officers" of the Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set forth under the caption "Proposal No. 1: Election of Directors" under the headings "Security Ownership of Management" and "Principal Shareholders" of the Proxy Statement is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information set forth under the caption "Proposal No. 1: Election of Directors -- Certain Relationships and Related Transactions" of the Proxy Statement is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (i) Consolidated Financial Statements The following consolidated financial statements of the Company are included in Item 8, above. Consolidated Balance Sheets, May 31, 1998 and 1997 Consolidated Statements of Income for the years ended May 31, 1998, 1997, and 1996 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows for the years ended May 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements Report of Ernst and Young LLP, Independent Auditors (ii) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (iii) Exhibits All of the Exhibits listed below, other than those marked with an asterisk, were filed as Exhibits to (a) the Company's Registration Statement on Form S-1 (Registration No. 33-15852), as filed with the Securities and Exchange Commission (the "Commission") on July 16, 1987 (the Registration Statement) and subsequently amended on August 14, 18, and 19, 1988, (b) the Company's 1988 Annual Report on Form 10-K, as filed with the Commission on August 28, 1988, (c) the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on August 25, 1994, (d) the Company's 1995 Annual Report on Form 10-K, as filed with the Commission on August 25, 1995, (e) the Company's 1996 Annual Report on Form 10-K, as filed with the Commission on August 29, 1996, or (f) the Company's 1997 report on Form 10-K, as filed with the Commission of August 19, 1997 and are incorporated herein by reference. Exhibits marked with a single asterisk are attached as Exhibits to this Annual Report. 2.1 Stock Purchase Agreement effective May 8, 1998 by and among the Company and ABB Services, Inc., incorporated by reference from the Company's Form 8-K, as filed with the Commission on May 21, 1998, where it appeared as Exhibit 2.1 thereto. 3.1 Restated Certificate of Incorporation of the Company, incorporated by reference from amendment No. 1 to the Company's Registration Statement on Form S-1 under the 1933 Act, Registration No. 33-15852, that was filed with the Commission on August 14, 1987 ("Amendment No. 1"), where it appears as Exhibit 3(a) thereto. 3.2 Amendment to Restated Certificate of Incorporation changing the Company's name from Harding Associates, Inc. to Harding Lawson Associates Group, Inc., incorporated by reference from the Company's 1996 Annual Report on Form 10-K, as filed with the Commission on August 29, 1996 ("1996 Form 10-K"), where it appears as Exhibit 3.2 thereto. 3.3 Bylaws of the Company, incorporated by reference from Amendment No. 1, where they appear as Exhibit 3(c) thereto. 10.1@ Harding Lawson Associates Group, Inc. 1987 Stock Option Plan, incorporated by reference from the Company's 1988 Annual Report on Form 10-K, as filed with the Commission on August 28, 1988 ("1988 Form 10-K"), where it appears as Exhibit 4(b) thereto. 10.2@ Harding Lawson Associates Group, Inc. revised 1988 Stock Option and Restricted Stock Option Plan incorporated by reference from the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on August 25, 1994 ("1994 Form 10-K"), where it appears as Exhibit 10.2 thereto. 10.3 Amendment to the Harding Lawson Associates Group, Inc. 1991 Employee Stock Purchase Plan, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.3 thereto. 10.4@ Amendment to the Non-Qualified Deferred Compensation Plan of the Company (formerly referred to as the Non-Qualified Deferred Bonus Plan II) incorporated by reference from the Company's 1995 Annual Report on Form 10-K, as filed with the Commission on August 25, 1995 ("1995 Form 10-K"), where it appears as Exhibit 10.7 thereto. 10.5@ Employment Agreement between the Company and Donald L. Schreuder dated June 29, 1994, incorporated by reference from the Company's 1994 Form 10-K. 10.6@ Form of Directors' and Officers' Indemnification Agreements, incorporated by reference from the Registration Statement where it appears as Exhibit 10(a) thereto. 10.7 Insurance policy issued to the Company by American International Specialty Lines Insurance Company for the period May 1, 1994 to June 30, 1995, incorporated by reference from the 1994 Form 10-K, where it appears as Exhibit 10.11 thereto. 10.8* Line of credit agreement with Wells Fargo Bank, N.A.as amended October 31, 1997. 10.9@ 1995 Executive Stock Incentive Plan approved by the Company's Shareholders in November 1995, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.9 thereto. 10.10 Non-employee Director Compensation Plan dated April 27, 1997, incorporated by reference from the 1997 Form 10-K, where it appears as Exhibit 10.10 thereto. 10.11* Non-qualified Deferred Compensation Plan as amended June 2, 1998. 11.* Computation of Per Share Earnings. 21.* Subsidiaries of the Registrant. 23.* Consent of Ernst and Young LLP, Independent Auditors 27. Financial Data Schedule (electronic filing only). * Exhibits are attached to this Annual Report. @ Management contracts and compensatory plans or arrangements required to be filed as Exhibits in compliance with Item 14(a)(3). The Company will provide a copy of any exhibit upon request and payment of the Company's reasonable expenses of furnishing such exhibit. (b) Reports on Form 8-K Date of Report Item Reported May 21, 1998 Item 2: Acquisition of ABB Environmental Services, Inc. July 17, 1998 8-K/A for May 21, 1998 Form 8-K SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HARDING LAWSON ASSOCIATES GROUP, INC. Date: August 24, 1998 By: /s/ Donald L. Schreuder ----------------------- Donald L. Schreuder President and Chief Executive Officer Date: August 24, 1998 By: /s/ Gregory A. Thornton ------------------------ Gregory A. Thornton Vice President and Chief Financial Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ James M. Edgar Director August 21, 1998 - ------------------------ James M. Edgar Director and Chairman Richard S. Harding Emeritus /s/ Stuart F. Platt Director August 22, 1998 - ------------------------- Adm. Stuart F. Platt (Ret.) /s/ Richard D. Puntillo Chairman of the Board August 24, 1998 - ------------------------- Richard D. Puntillo /s/ Donald L. Schreuder President, Chief Executive August 24, 1998 - ------------------------- Donald L. Schreuder Officer, and Director /s/ Donald K. Stager Director August 26, 1998 - ------------------------- Donald K. Stager Index to Exhibits Exhibit No. Exhibit 10.8 Line of credit agreement with Wells Fargo Bank, N.A. as amended October 31, 1997. 10.11 Non-qualified Deferred Compensation Plan as amended June 2, 1998. 11. Computation of Per Share Earnings. 21. Subsidiaries of the Registrant 23. Consent of Ernst and Young LLP, Independent Auditors 27. Financial Data Schedule (Electronic filing only) EX-10 2 LINE OF CREDIT AGREEMENT WITH WELLS FARGO BANK Exhibit No. 10.8 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of October 31, 1997, by and between HARDING LAWSON ASSOCIATES GROUP, INC., a Delaware corporation, formerly known as HARDING ASSOCIATES, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of October 31, 1995, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 1.1 is hereby amended by deleting "October 31, 1997" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "November 30, 1999," with such change to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change. 2. Section 1.1(d) Term Loan Subfeature is hereby deleted in its entirety, without substitution. 3. Section 1.1(e) is hereby amended (a) by deleting "October 30, 1997" as the last day on which Bank will issue Letters of Credit under the subfeature therefor under the Line of Credit, and by substituting for said date "November 30, 1999," and (b) by deleting "April 30, 1998" as the last date any such Letter of Credit may expire, and by substituting for said date "May 30, 2000." 4. Section 1.2(a) is hereby deleted in its entirety, and the following substituted therefor: "(a) Foreign Exchange Facility. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make available to Borrower a facility (the "Foreign Exchange Facility") under which Bank, from time to time up to and including November 30, 1999, will enter into foreign exchange contracts for the account of Borrower for the purchase and/or sale by Borrower in United States dollars of foreign currencies designated by borrower provided however, that the maximum amount of all outstanding foreign exchange contracts shall not at any time exceed an aggregate of One Million and No/100 United States Dollars (US$1,000,000.00). No foreign exchange contract shall be executed for a term in excess of three (3) months or for a term which extends beyond November 30, 1999. Borrower shall have a "Delivery Limit" under the Foreign Exchange Facility not to exceed at any time the aggregate principal amount of Three Hundred Thousand and No/100 United States dollars (US$300,000.00), which Delivery Limit reflects the maximum principal amount of Borrower's foreign exchange contracts which may mature during any two (2) day period. All foreign exchange transactions shall be subject to the additional terms of a Foreign Exchange Agreement, substantially in the form of Exhibit B attached hereto ("Foreign Exchange Agreement"), all terms of which are incorporated herein by this reference." 5. Sections 1.3(a) and (b) are hereby deleted in their entirety, and the following substituted therefor: "(a) Interest. The outstanding principal balance of the Line of Credit shall bear interest at the rate of interest set forth in the Line of Credit Note. "(b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note (collectively, the "Notes")." 6. Section 4.8(b) Working Capital is hereby deleted in its entirety, without substitution. 7. Section 4.8(c) is hereby deleted in its entirety, and the following substituted therefor: "(c) Tangible Net Worth not at any time less than $30,000,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets." 8. Section 4.8(f) is hereby deleted in its entirety, and the following substituted therefor: "(f) Net income after taxes not less than $1.00 on an annual basis, determined as of each fiscal year end, with loss not to exceed $1,000,000.00 in any one fiscal quarter and with combined loss not to exceed $1,000,000.00 in any two consecutive fiscal quarters." 9. The following is hereby added to the Credit Agreement as Section 7.10: "SECTION 7.10. Waiver of Jury Trial. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, BORROWER AND BANK HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS CREDIT AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AS DEFINED THEREIN, AS AMENDED RENEWED OR RESTATED OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES OR ANY OF THEM WITH RESPECT TO THIS CREDIT AGREEMENT OR ANY OF SUCH LOAN DOCUMENTS, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION IS NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EITHER PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF ANY RIGHT THEY MIGHT OTHERWISE HAVE TO TRAIL BY JURY. 10. Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to $30,000.00, which fee shall be due and payable in full on the date Borrower acknowledges this letter. 11. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 12. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. HARDING LAWSON ASSOCIATES WELLS FARGO BANK, GROUP, INC. NATIONAL ASSOCIATION By: /s/Gregory A. Thornton By: /s/ Alex McCombs Gregory A. Thornton Alex McCombs Vice President/Chief Financial Officer Vice President CREDIT AGREEMENT THIS AGREEMENT is entered into as of October 31, 1995, by and between HARDING ASSOCIATES, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodations described below (collectively, the "Credits"), and Bank has agreed to provide the Credits to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDITS SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including October 31, 1997, not to exceed at any time the aggregate principal amount of Twenty Million and No/100 Dollars ($20,000,000.00) ("Line of Credit"), the proceeds of which shall be used for short term working capital and other general uses. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. (c) Prepayment. Borrower may prepay principal on the Line of Credit solely in accordance with the provisions of the Line of Credit Note. (d) Term Loan Subfeature. Subject to the terms and conditions of the Line of Credit, Bank hereby agrees to convert advances under the Line of Credit to a loan or series of loans to Borrower in the aggregate principal amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (each, a "Term Loan" and collectively, the "Term Loans"). Borrower's obligation to repay each Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto (each, a "Term Note" and collectively, the "Term Notes"), all terms of which are incorporated herein by this reference. Bank's commitment to grant Term Loans shall terminate on October 31, 1997. The principal amount of each Term Loan shall be repaid in accordance with the provisions of the respective Term Note and shall be amortized over a five (5) year term; provided however, that no Term Loan shall have a maturity date occurring later than October 31, 2002. Each Term Loan shall be in the minimum principal amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00). The aggregate outstanding principal balance of all Term Loans shall be reserved under the Line of Credit and shall not be available for advances thereunder. Borrower may prepay principal on the Term Loans solely in accordance with the provisions of the Term Note. (e) Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue stand-by letters of credit for the account of Borrower to finance insurance and performance bond requirements (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion; and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed Five Million and No/100 Dollars ($5,000,000.00), provided however, that no Letter of Credit shall have an expiration date subsequent to April 30, 1998. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Bank in connection with the issuance thereof (each, a "Letter of Credit Agreement" and collectively, "Letter of Credit Agreements"). Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided however, that if advances under the Line of Credit are not available, for any reason whatsoever, at the time any draft is paid by Bank, then the full amount of such draft shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. In such event Borrower agrees that Bank, at Bank's sole discretion, may debit any demand deposit account maintained by Borrower with Bank for the amount of any such draft. SECTION 1.2. FOREIGN EXCHANGE FACILITY. (a) Foreign Exchange Facility. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make available to Borrower a facility (the "Foreign Exchange Facility") under which Bank, from time to time up to and including October 31, 1997, will enter into foreign exchange contracts for the account of Borrower for the purchase and/or sale by Borrower in United States dollars of foreign currencies designated by borrower provided however, that the maximum amount of all outstanding foreign exchange contracts shall not at any time exceed an aggregate of One Million and No/100 United States Dollars (US$1,000,000.00). No foreign exchange contract shall be executed for a term inexcess of three (3) months or for a term which extends beyond October 31, 1997. Borrower shall have a "Delivery Limit" under the Foreign Exchange Facility not to exceed at any time the aggregate principal amount of Three Hundred Thousand and No/100 United States Dollars (US$300,000.00), which Delivery Limit reflects the maximum principal amount of Borrower's foreign exchange contracts which may mature during any two (2) day period. All foreign exchange transactions shall be subject to the additional terms of a Foreign Exchange Agreement, substantially in the form of Exhibit C attached hereto ("Foreign Exchange Agreement"), all terms of which are incorporated herein by this reference. (b) Settlement. Each foreign exchange contract under the Foreign Exchange Facility shall be settled on its maturity date by Bank's debit to any demand deposit account maintained by Borrower with Bank. SECTION 1.3. INTEREST/FEES. (a) Interest. The outstanding principal balance of the Line of Credit and Term Loan(s) shall bear interest at the respective rates of interest set forth in the Line of Credit Note and Term Note(s). (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note and Term Note(s) (collectively, the "Notes"). (c) Documentation Fee. Borrower shall pay to Bank a non-refundable documentation fee for the Line of Credit equal to $40,000.00, which documentation fee shall be due and payable in full upon execution of this agreement. (d) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of each Letter of Credit equal to one and one-quarter percent (1.25%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, (ii) fees upon the payment or negotiation by Bank of each draft under any Letter of Credit equal to the greater of two percent (2%) of the amount of such draft or $540.00 and (iii) fees upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity. SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under each Credit by charging Borrower's demand deposit account number 4518050042 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SECTION 1.5. COLLATERAL. As security for all indebtedness of Borrower to Bank pursuant to this Agreement, Borrower grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment and all proceeds of the foregoing. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated May 31, 1995, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower toBank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any of the Credits is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the granting of each of the Credits shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Notes; (ii) Corporate Borrowing Resolution; (iii) Sweep Authorization Agreement; and (iv) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may berequired in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by an independent certified public accountant acceptable to Bank, to include income statement, balance sheet, Incident of Loss Report and 10K's; (b) not later than 60 days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower, to include income statement, balance sheet, Incident of Loss Report and 10Q's; and (c) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation Federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices, except to the extent modified by the following definitions: (a) Current Ratio not at any time less than 1.5 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Working Capital not at any time less than $21,000,000.00, with "Working Capital" defined as total current assets minus total current liabilities. (c) Tangible Net Worth not at any time less than $26,000,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (d) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.0 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" defined as the aggregate of total equity plus subordinated debt less any intangible assets. (e) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal year end, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt. (f) Profitable operations on an annual basis, with no two quarters of consecutive losses. SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $7,000,000.00, except for those acquired through mergers and acquisitions. Investments in fixed assets not prohibited by this Section, and not made through mergers and acquisitions, shall consist only of (a) cash purchases by Borrower (no financing) and/or (b) purchases subject to purchase money security interests including capital lease transactions. SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except the liabilities of Borrower to Bank and any other liabilities of Borrower existing as of the date of this Agreement and previously disclosed to Bank and except for stock option loans not in excess of an aggregate of $1,000,000.00. SECTION 5.4. INDEBTEDNESS OF WHOLLY OWNED SUBSIDIARIES. Permit wholly owned subsidiaries of Borrower to create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans, advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except for working capital lines of credit with commercial banks to wholly owned subsidiaries of Borrower not to exceed an aggregate principal amount of $1,000,000.00. SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any corporation or other entity; make any substantial change in nature of Borrower's business; acquire all or substantially all of the assets of any corporation or other entity where such acquisition occurs on a "hostile" basis (that is, not approved by the target company's board of directors). SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety, endorser, accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity other than a wholly owned subsidiary of Borrower not to exceed an aggregate amount of $5,000,000.00. SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except to various joint ventures or general partnerships in which Borrower is a joint venturer or general partner in the ordinary course of business. SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any representation or warranty made by Borrower hereunder shall prove to be incorrect in any material respect when made. (c) Any material default in the performance of or compliance with any obligation, agreement or other provision contained herein (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any material default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) Any material default in the payment or performance of any obligation, or any defined event of default, under any of the Loan Documents other than this Agreement. (f) The filing of a notice of judgment lien against Borrower; or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; where such liens, levies and/or like processes exceed an aggregate of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) and are not satisfied, or discharged or stayed within ten (10) days from filing or recordation thereof; or the entry of any judgement(s) against Borrower where such judgement(s) exceed(s) an aggregate of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) and is (are) not satisfied or discharged or stayed within 90 days from filing or recordation thereof. (g) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered by any court of competent jurisdiction under said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (h) There shall exist or occur any material event or condition which Bank in good faith believes, impairs, or is substantially likely to materially impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (i) The dissolution or liquidation of Borrower; or Borrower, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. (j) Litigation loss estimates for claims involving litigation against Borrower as reflected in Borrower's and/or Redwood Insurance Ltd's (a Bermuda corporation and a wholly owned subsidiary of Borrower) Incidence of Loss Report (currently shown by Borrower as "HLA Reserves") shall at any time be estimated (based on a determination made by Borrower's management and outside counsel) to exceed $7,500,000.00 as of the most recent fiscal quarter's end. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any of the Credits and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: HARDING ASSOCIATES, INC. 7655 Redwood Boulevard Novato, California 94945 Attn: Gregory A. Thornton Vice President/Chief Financial Officer BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION San Francisco Regional Commercial Banking Office 420 Montgomery Street, 1st Floor San Francisco, California 94163 Attn: Drew Metcalfe, Vice President or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any of the Credits, Borrower or its business, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Credits and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only by a written instrument executed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. HARDING ASSOCIATES, INC. WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Gregory A. Thornton By: /s/ Drew Metcalfe Gregory A. Thornton Drew Metcalfe Vice President/ Chief Financial Officer Vice President EX-10 3 NON-QUALIFIED DEFERRED COMPENSATION PLAN Exhibit 10.11 HARDING LAWSON ASSOCIATES GROUP, INC. NON-QUALIFIED DEFERRED-COMPENSATION PLAN SECTION 1. ESTABLISHMENT AND PURPOSE. The Plan was adopted by the Board effective as of November 1987. The Plan was amended and restated by the Board as of January 1, 1989, January 1, 1995, April 24, 1997, and June 2, 1998. The Plan is intended to provide Eligible Participants with an opportunity to defer payment of a portion of their salaries and directors' compensation and of any bonus awards they receive under the Company's Incentive Compensation, 1995 Incentive Stock and Non-Employee Director Compensation Stock Plans. Deferred amounts will be credited with an investment return linked to the return on selected mutual funds or on the Company's common stock. SECTION 2. DEFINITIONS. (a) "Account" means a Mutual Fund Account or a Stock Account. (b) "Beneficiary" means the person or persons designated by the Eligible Participant or by the Plan under Section 8(b) to receive the balance in the Eligible Participant's Account(s) in the event of his or her death. (c) "Board" means the Board of Directors of the Company, as constituted from time to time. (d) "Committee" means the Salary Deferral Committee, as appointed by the Board of Directors. (e) "Company" means Harding Lawson Associates Group, Inc., a Delaware corporation. (f) "Compensation" means: (i) The amount payable by the Company or a subsidiary of the Company to an Eligible Employee as a bonus award under the Company's Incentive Compensation Plan or 1995 Incentive Stock Plan; (ii) The amount of the Eligible Employee's base salary from the Company or a subsidiary of the Company; and (iii) In the case of an Eligible Board Member, the amount of his or her director's fees from the Company (including, without limitation, annual retainers and meeting fees, but not including expense reimbursements), which are payable either in cash or in Stock under the Company's Non-Employee Director Compensation Stock Plan. (g) "Election Period" means the month of December of each Year. (h) "Eligible Board Member" means a member of the Board who is not a common-law employee of the Company or a subsidiary of the Company. (i) "Eligible Employee" means: (i) An officer of the Company or of a domestic subsidiary wholly owned (directly or indirectly by the Company; or (ii) A common-law employee of the Company, or of any of its direct or indirect subsidiaries, who has continuously participated in the Plan since December 31, 1994. Once the active participation of such employee terminates for any reason, it shall not resume thereafter (unless such employee is eligible to resume active participation as an Eligible Board Member or as an officer). (j) "Eligible Participant" means an Eligible Board Member or an Eligible Employee. (k) "Mutual Fund Account" means a bookkeeping account established pursuant to Section 5(a) for Compensation which (i) is subject to an Eligible Participant's deferral election and (ii) is not payable under either the 1995 Incentive Stock Plan or the Non-Employee Director Compensation Stock Plan. (l) "Plan" means this Non-Qualified Deferred-Compensation Plan of Harding Lawson Associates Group, Inc., as amended from time to time. (m) "Retirement Date" means: (i) The first day of the month coinciding with or next following the Eligible Participant's 65th birthday; or (ii) The first day of the month coinciding with or next following the earliest date when the Eligible Participant has both attained age 55 and completed 10 years of Service. (n) "Service" means: (i) Service as a common-law employee of the Company or a subsidiary of the Company; or (ii) Service as a member of the Board. (o) "Stock" means the Company's Common Stock. (p) "Stock Account" means a bookkeeping account established pursuant to Section 5(a) for Compensation which (i) is subject to an Eligible Participant's deferral election and (ii) is payable under either the 1995 Incentive Stock Plan or the Non-Employee Director Compensation Stock Plan. (q) "Total Disability" means that the Eligible Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than 12 months. The existence of a Total Disability shall be confirmed by the Committee. (r) "Unforeseeable Emergency" means a severe financial hardship to the Eligible Participant resulting from a sudden and unexpected illness or accident of the Eligible Participant or of a dependent of the Eligible Participant, from a loss of the Eligible Participant's property due to casualty or from other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Eligible Participant. A hardship shall not constitute an Unforeseeable Emergency under the Plan to the extent that it is or may be relieved: (i) Through reimbursement or compensation, by insurance or otherwise; (ii) By liquidation of the Eligible Participant's assets, to the extent that the liquidation of such assets would not itself cause severe financial hardship; or (iii) By discontinuing deferrals under this Plan or under any other plan of the Company as soon as permissible. An Unforeseeable Emergency under the Plan shall in no event include the need to send a child to college or the desire to purchase a home. (s) "Year" means a calendar year. SECTION 3. ELIGIBILITY. Participation in the Plan shall be limited to Eligible Participants. Eligible Participants shall be excluded from the Plan after a withdrawal described in Section 7(d). SECTION 4. ELECTION TO PARTICIPATE IN PLAN. (a) Initial Deferral Election. An Eligible Participant may elect to participate in the Plan by filing a written election of deferral of Compensation with the Company during any Election Period. Such election shall apply to all Compensation to be paid in payroll periods commencing after the close of such Election Period. The election shall specify the percentage of the Eligible Participant's Compensation to which it applies, which may be any whole percentage between the minimum and the maximum prescribed by the Committee from time to time. Such minimum and maximum may be different for salaries, bonuses and directors' fees. (b) Revised Deferral Election. An Eligible Participant may change his or her deferral percentage (or reduce it to zero) by filing a new deferral election with the Company during any Election Period. The change shall be effective with respect to all Compensation to be paid in payroll periods commencing after the close of such Election Period. (c) Election Form. All deferral elections under this Section 4 shall be made on the form(s) prescribed for this purpose by the Committee. SECTION 5. ACCOUNTS. (a) Establishment of Accounts. The Company shall establish a Mutual Fund Account or a Stock Account, or both, for each Eligible Participant who has duly filed a deferral election with respect to his or her Compensation. A Mutual Fund Account may include more than one sub-account for investment purposes. (b) Credits to Accounts. An Eligible Participant's Mutual Fund Account shall be credited with an amount equal to that percentage of his or her Compensation which would have been payable currently but for the terms of his or her deferral election, excluding Compensation which would have been payable under the 1995 Incentive Stock Plan or the Non-Employee Director Stock Plan. An Eligible Participant's Stock Account shall be credited with an amount equal to that percentage of his or her Compensation which would have been payable currently under the 1995 Incentive Stock Plan or the Non-Employee Director Stock Plan but for the terms of his or her deferral election. Deferred Compensation shall be credited to the Eligible Participant's Account(s) as soon as reasonably practicable after the applicable payment date. SECTION 6. INVESTMENT INCREMENTS. (a) Investment Selection. The Committee shall select one or more mutual funds for the purposes of the Plan. The investment return on all Mutual Fund Accounts shall be linked to the investment return on one or more of such mutual funds. If the Committee has selected more than one mutual fund, the Eligible Participant may elect from time to time to which mutual fund(s) the investment return on his or her Mutual Fund Account shall be linked. The frequency and content of such elections shall be subject to rules adopted by The Committee. The investment return on all Stock Accounts shall be linked to the investment return on Stock. (b) Investment Return and Expenses. The balance in each Mutual Fund Account shall be adjusted at such intervals as the Committee may determine to reflect changes in the value of the mutual fund(s) to which such Account is linked. Any commissions, sales loads or other charges related to a mutual fund shall be charged to the Mutual Fund Accounts linked to such mutual fund. The balance in each Stock Account shall be adjusted at such intervals as the Committee may determine to reflect changes in the value of Stock. Any commissions or other charges related to the acquisition or holding of shares of Stock shall be charged to the Stock Accounts linked to such shares. Any investment increments shall become part of the applicable Account and shall be distributed at the same time or times as the rest of such Account. (c) Statements. At such intervals as the Committee may determine, each Eligible Participant who has one or more Accounts shall receive one or more written statements showing the balance credited to such Accounts as of the applicable date. (d) Effective Date. Subsection (a) above notwithstanding, the investment return on the Mutual Fund Accounts of individuals who were not active employees of the Company or members of the Board on or after January 1, 1995, shall be linked in equal proportions to the investment return on each of the mutual funds selected by the Committee for this purpose. Such individuals shall not be entitled to make elections with respect to the mutual funds. SECTION 7. FORM AND TIME OF DISTRIBUTION OF ACCOUNTS. (a) Termination Before Retirement Date. In the case of an Eligible Participant whose Service terminated before his or her Retirement Date, such Eligible Participant's Account(s) shall be distributed to him or her as soon as reasonably practicable after his or her Service has terminated. Mutual Fund Accounts shall be distributed in cash, and Stock Accounts shall be distributed in the form of certificates for Stock or electronic transfer. (b) Termination After Retirement Date. In the case of an Eligible Participant whose Service terminates on or after his or her Retirement Date, such Eligible Participant's Account(s) shall be distributed to him or her in one of the following forms, as such Eligible Participant has elected at the time of enrolling in the Plan (as amended effective January 1, 1995): (i) A single lump sum; or (ii) A series of quarterly installments over such period of years (not more than 10 years) as the Eligible Participant has elected at the time of enrollment. The lump sum shall be distributed, or the installments shall commence, either as soon as reasonably practicable after the Eligible Participant's Service has terminated or, if later, on a specified date, as the Eligible Participant has elected at the time of enrollment. Mutual Fund Accounts shall be distributed in cash, and Stock Accounts shall be distributed in the form of certificates for Stock or electronic transfer. The amount of any installment to be distributed from an Account shall be determined by dividing the balance remaining in such Account by the number of installments then remaining to be distributed from such Account. (c) Disability or Emergency. In the event of an Eligible Participant's Total Disability or an Unforeseeable Emergency, upon application by such Eligible Participant, the Committee may determine in its sole discretion that distribution of all or part of such Eligible Participant's Account(s) shall be made in a different form or on an earlier date than the time or times specified in Subsections (a) and (b) above. Distributions on account of Total Disability or an Unforeseeable Emergency shall be permitted only to the extent reasonably needed to satisfy the Eligible Participant's need. (d) Early Distribution With Penalty. Upon application by an Eligible Participant, the Committee may determine in its sole discretion that distributions from such Eligible Participant's Account(s) shall be made in a different form or an earlier date than the time or times specified in Subsections (a) and (b) above (even in the absence of a Total Disability or Unforeseeable Emergency). All distributions under this Subsection (d) shall be reduced by a penalty equal to eight percent of the amount otherwise distributable, which penalty shall be forfeited to the Company. An Eligible Participant who has received a distribution under this Subsection (d) thereafter shall not make any additional deferral under the Plan. (e) Special Rule for Stock Accounts. Any other provision of the Plan notwithstanding, the Committee (at its absolute discretion) may vary the time of distributions from Stock Accounts in order to accommodate the requirements of section 16 of the Securities Exchange Act of 1934, as amended, and the rules issued thereunder by the Securities and Exchange Commission. (f) Effective Date. The provisions of this Section 7 shall apply to all Accounts of Eligible Participants who elected to participate in the Plan on or after January 1, 1995, including Account balances held under the Plan as of December 31, 1994. SECTION 8. EFFECT OF DEATH OR PARTICIPANT. (a) Distributions. Upon the death of an Eligible Participant, any balance remaining in his or her Account(s) shall be distributed to his or her Beneficiary. The distribution(s) shall be made in the form in which the distribution(s) to the Eligible Participant would have been made. The distribution(s) shall be made at the time when the distribution(s) to the Eligible Participant would have been made, unless the Committee determines in its sole discretion that distribution(s) shall be made at an earlier date. (b) Beneficiary Designation. Upon enrollment in the Plan, each Eligible Participant shall, by filing the prescribed form with the Company, name a person or persons as the Beneficiary who will receive any distribution under the Plan in the event of the Eligible Participant's death. If the Eligible Participant has not named a Beneficiary or if none of the named Beneficiaries is living when any distribution is to be made, then: (i) The spouse of the deceased Eligible Participant shall be the Beneficiary; or (ii) If the Eligible Participant has no spouse living at the time of such distribution, the then living children of the deceased Eligible Participant shall be the Beneficiaries in equal shares; or (iii) If the Eligible Participant has neither spouse nor children living at the time of such distribution, the estate of the Eligible Participant shall be the Beneficiary. The Eligible Participant may change the designation of a Beneficiary from time to time in accordance with procedures established by the Committee. Any designation of a Beneficiary (or an amendment or revocation thereof) shall be effective only if it is made in writing on the prescribed form and is received by the Company prior to the Eligible Participant's death. SECTION 9. WITHHOLDING TAXES. All distributions under the Plan shall be subject to reduction to reflect any withholding tax obligations imposed by law. SECTION 10. PARTICIPANT'S RIGHTS UNSECURED. The interest under the Plan of any Eligible Participant, and such Eligible Participant's right to receive distributions from his or her Account(s), shall be an unsecured claim against the general assets of the Company. The Accounts shall be unfunded bookkeeping entries only, and the Company intends that the Plan be considered unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. No Eligible Participant shall have an interest in or claim against any specific asset of the Company pursuant to the Plan. SECTION 11. NONASSIGNABILITY OF INTERESTS. The interest and property rights of an Eligible Participant under the Plan shall not be subject to option nor be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any act in violation of this Section 11 shall be void. SECTION 12. LIMITATION OF RIGHTS. (a) Bonuses. Nothing in the Plan shall be construed to give any Eligible Employee any right to be granted a bonus award. (b) Employment Rights. Neither the Plan nor the deferral of any Compensation, nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company or any subsidiary of the Company will employ an Eligible Employee for any period of time, in any position or at any particular rate of compensation. The Company and its subsidiaries reserve the right to terminate an Eligible Employee's employment at any time and for any reason, except as otherwise expressly provided in a written employment agreement. SECTION 13. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have full power and authority to administer and interpret the Plan, to establish procedures for administering the Plan, to prescribe forms and to take any and all necessary actions in connection with the Plan. The Committee's interpretation and construction of the Plan shall be conclusive and binding on all persons. SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend, suspend or terminate the Plan at any time. In the event of a termination of the Plan, the Accounts of Eligible Participants shall be distributed at such time and in such form as shall be determined pursuant to Section 7, unless the Board prescribes an earlier time or different form for the distribution of such Accounts. SECTION 15. CHOICE OF LAW AND CLAIMS PROCEDURE. (a) Choice of Law. The validity, interpretation, construction and performance of the Plan shall be governed by the Employee Retirement Income Security Act of 1974 and, to the extent they are not preempted, by the laws of the State of California (other than their choice-of-law provisions). (b) Claims and Review Procedure. In accordance with the regulations of the U.S. Secretary of Labor, the Committee shall: (i) Provide adequate notice in writing to any Eligible Participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth the specific reasons for such denial and written in a manner calculated to be understood by such Eligible Participant or Beneficiary; and (ii) Afford a reasonable opportunity to any Eligible Participant or Beneficiary whose claim for benefits has been denied for a full and fair review by the Board of the decision denying the claim. SECTION 16. EXECUTION. To record the amendment of the Plan by the Board, the Company has caused its duly authorized officer to affix the corporate name hereto. HARDING LAWSON ASSOCIATES GROUP, INC. By /s/ Patricia A. England Corporate Secretary EX-11 4 COMPUTATION OF PER SHARE EARNINGS
Exhibit No. 11 HARDING LAWSON ASSOCIATES GROUP, INC. COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) Years Ended May 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Weighted average basic shares outstanding 4,959 4,926 4,824 Effect of dilutive stock options based on the treasury stock method 128 24 20 - --------------------------------------------------------------------------------------------------------------- Diluted shares outstanding 5,087 4,950 4,844 =============================================================================================================== Net income $2,488 $2,404 $ 953 =============================================================================================================== Basic net income per share $ 0.50 $ 0.49 $ 0.20 =============================================================================================================== Diluted net income share $ 0.49 $ 0.49 $ 0.20 ===============================================================================================================
EX-21 5 SUBSIDIARIES OF THE REGISTRANT
Exhibit No. 21 HARDING LAWSON ASSOCIATES GROUP, INC. SUBSIDIARIES OF THE REGISTRANT State or Country Name of Incorporation Doing Business Under Harding Lawson Associates, Inc. Delaware Harding Lawson Associates, Inc. Harding Lawson Associates ES, Inc. Delaware Harding Lawson Associates, Inc. HLA Environmental Services Delaware HLA Environmental Services of of Michigan, Inc. Michican, Inc. (wholly owned subsidiary of Harding Lawson Associates ES, Inc.) Harding Lawson Associates Delaware Harding Lawson Associates Infrastructure, Inc. Infrastructure, Inc. Harding Lawson Associates Delaware Harding Lawson Associates International, Inc. International, Inc. Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty. (wholly owned subsidiary of Australia Ltd. Harding Lawson Associates International, Inc.) HLA-Envirosciences Pty Limited New South Wales, HLA-Envirosciences Pty Limited (majority owned subsidiary of Australia Harding Lawson Australia, Pty. Ltd.) Harding Lawson de Mexico S.A. de C.V. City of Mexico Harding Lawson de Mexico S.A. (wholly owned subsidiary of Federal District de C.V. Harding Lawson Associates International, Inc.) Grupo Industrial de Ingenieria Ecologica III, City of Mexico GRIECO HLA & Iconsa S.A. de C.V. Federal District (majority owned subsidiary of Harding Lawson de Mexico S.A. de C.V.) Harding Lawson Singapore Pte Ltd Singapore Harding Lawson Singapore (wholly owned subsidiary of Pte Ltd Harding Lawson Associates International, Inc.) HLA Venture, Inc. Delaware HLA Venture, Inc. Standards Training Corporation, LLC Ohio Standards Training Corporation, LLC (HLA Venture, Inc. has a 50% ownership interest in LLC) Harding Lawson Associates Delaware Harding Lawson Associates Acquisition, Inc. Acquisition, Inc. Harding Construction Services, Inc. Delaware (Dormant) Redwood Company, Ltd. Bermuda (Dormant) Redwood Insurance, Ltd. Bermuda (Dormant) (wholly owned subsidiary of Redwood Company, Ltd.) Integrated Software Systems, LLC Colorado (Dormant) (Harding Lawson Associates, Inc. has a minority interest in LLC)
EX-23 6 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Exhibit No. 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements on Form S-8 dated August 15, 1988 pertaining to the 1987 Stock Option Plan; Form S-8 dated April 14, 1989, as amended on July 25, 1990 and December 24, 1991, pertaining to the 1988 Stock Option and Restricted Stock Option Plan; Form S-8 dated June 5, 1996 pertaining to the Executive Stock Incentive Plan; Form S-8 dated April 17, 1988 pertaining to the Employee Stock Purchase Plan as amended on December 24, 1991 and June 5, 1996; Form S-8 dated August 15, 1988 pertaining to the Deferred Compensation and Profit Sharing Plan of Harding Lawson Associates Group, Inc., of our report dated July 3, 1997, with respect to the consolidated financial statements of Harding Lawson Associates Group, Inc., included in its Annual Report on Form 10-K for the year ended May 31, 1998. San Francisco, California August 21, 1998 EX-27 7 FINANCIAL DATA SCHEDULE EXHIBIT 27.1
5 1000 YEAR YEAR MAY-31-1998 MAY-31-1997 JUN-01-1997 JUN-01-1996 MAY-31-1998 MAY-31-1997 15118 24464 0 0 42839 30144 1836 1388 0 0 60025 56984 24892 21701 19571 17299 76618 67366 25345 19204 0 0 0 0 0 0 50 49 49738 46553 76618 67366 0 0 123270 123412 0 0 39819 39136 80231 80164 0 0 34 38 4262 4288 1696 1892 2488 2404 0 0 0 0 0 0 2488 2404 0.50 0.49 0.49 0.49
EX-27 8 RESTATED FINANCIAL DATA SCHEDULE EXHIBIT 27.2
5 1000 9-MOS 6-MOS 3-MOS MAY-31-1998 MAY-31-1998 MAY-31-1998 JUN-01-1997 JUN-01-1997 JUN-01-1997 FEB-28-1998 NOV-30-1997 AUG-31-1997 26864 24441 23066 0 0 0 25051 30418 28909 1356 1356 1408 0 0 0 54634 57303 54812 23604 22281 21870 19312 18148 17762 65104 67545 65182 13972 16759 15144 0 0 0 0 0 0 0 0 0 50 50 50 49334 49092 48165 65104 67545 65182 0 0 0 93486 65446 31818 0 0 0 31444 22485 10137 59248 40369 20354 0 0 0 23 17 5 3528 3049 1541 1450 1282 645 2065 1811 920 0 0 0 0 0 0 0 0 0 2065 1811 920 0.42 0.37 0.19 0.41 0.36 0.19
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