-----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, KKZ4Y9NaPJAR2W3LeIfoml194m8+U4O18Ik16jfvXD2AweTCOTb51Xm0w7hWWKpG z5etU1LYKp6DzUHBXQVopA== 0000818968-99-000015.txt : 19990809 0000818968-99-000015.hdr.sgml : 19990809 ACCESSION NUMBER: 0000818968-99-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990806 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: 99679130 BUSINESS ADDRESS: STREET 1: 7655 REDWOOD BLVD STREET 2: P O BOX 578 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, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-16169 HARDING LAWSON ASSOCIATES GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 68-0132062 (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 707 17th Street, Suite 2400, Denver, Colorado 80202 (Address of principal executive office) Registrant's telephone number, including area code: (303) 293-6100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $0.01 par value The NASDAQ Stock Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ X] Aggregate market value of the voting stock held by non-affiliates of the registrant on August 2, 1999: $41,661,158 Number of shares of the registrant's Common Stock outstanding as of August 2, 1999: 4,981,828 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on September 17, 1999, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, are incorporated by reference in Part III. Page 1 of 70 pages The Index to Exhibits is located at page 44. PART I ITEM 1. BUSINESS. Cautionary Statement Regarding Forward-Looking Statements The statements in this business section that are forward-looking are based on current expectations and actual results may differ materially. The forward-looking statements include those regarding future adoption of regulations and statutes having an impact on the Company's business, the impact of current regulations and statutes, the possible impact of current and future claims against the Company based upon negligence and other theories of liability, and the ability to successfully complete one or more acquisitions as part of the Company's growth strategy. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may result in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. Harding Lawson Associates Group, Inc. provides comprehensive environmental engineering, infrastructure and construction services. Environmental services may be related to the development and implementation of environmental management systems for maintaining compliance with environmental regulations, limiting the potential for unplanned discharges, and managing, minimizing or eliminating waste streams from industrial and agricultural operations, and the assessment and remediation of contaminated sites. Infrastructure services may be related to civil, transportation and geotechnical engineering services, and services during construction, either independently or in support of the Company's environmental, waste management, and civil services. Construction services may be related to environmental remediation and heavy construction, which could include the capping of landfills and construction of water/wastewater treatment facilities. The Company was originally incorporated in California in 1959, and reincorporated in Delaware in July 1987. As of August 1, 1999, its principal executive offices are located at 707 17th Street, Suite 2400, Denver, Colorado 80202, and its telephone number is (303) 293-6100. Unless the context otherwise requires, the term "Company" as used herein refers to Harding Lawson Associates Group, Inc. and its wholly owned subsidiaries Harding Lawson Associates, Inc. and its subsidiaries HLA Environmental Services of Michigan, Inc. and Regional Engineers, Planners & Surveyors, Inc. ("REPS"); Harding Lawson Associates International, Inc. and its subsidiaries Harding Lawson Australia Pty. Ltd., Harding Lawson Singapore Pte Ltd, Harding Lawson de Mexico S.A. de C.V., Harding Lawson Australia Pty. Ltd.'s, 90% ownership in HLA-Envirosciences Pty Limited, and Harding Lawson de Mexico's 51% ownership in Grupo Industrial de Ingenieria Ecologica ("GRIECO"). During the fiscal year ended May 31, 1999 ("Fiscal Year"), Harding Lawson Associates ES, Inc. and Harding Lawson Associates Infrastructure, Inc. were merged into Harding Lawson Associates, Inc. The Company provides its clients a full range of environmental services to comprehensively support management of hazardous materials, hazardous wastes, solid wastes and waste waters, and effects the remediation of environmental problems related to the management of these types of wastes. The Company provides these services to clients that are constructing, operating or closing facilities and/or properties, and also to clients that have ownership or responsibility for abandoned or historical industrial operations or hazardous waste disposal sites. These services may be performed for new, expanding, or discontinued operations or in connection with the transfer of ownership. The Company's management concluded in May 1999 that it would close GRIECO, and management is currently evaluating the potential sale of its interests in HLA-Envirosciences Pty. Limited. During the early stage of a project, the Company might be asked to perform site assessments or audits and to prepare site characterization reports or environmental planning and permitting documents in response to federal, state or local regulations. Following site characterization, the Company may assist its clients to evaluate cleanup options, select and negotiate remedies with regulatory agencies, and provide a design for site remediation. Once a remediation plan is established, the Company is able to provide its clients with construction and/or construction management services and may provide operation and maintenance of remedial systems. The Company also provides its clients engineering services with a focus on civil engineering related to infrastructure including civil, transportation, process, sanitary, structural, electrical, and mechanical engineering disciplines from planning through construction administration. The Company's engineering services are most frequently applied to the design of highways, bridges and other transportation systems, and to the design and construction of industrial waste water treatment and air pollution control equipment. The Company's services are provided to private and public sector clients through a staff of approximately 1,100 professional and support personnel located in 40 U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, and Washington, and five cities in Australia. During fiscal 1999 the Company performed services for over 1,400 industrial and governmental clients. The Company often provides services for its major clients under arrangements involving continuing service agreements. Such arrangements are usually on a "Time-and-Materials," "Cost-Plus-Fixed-Fee," or a "Fixed-Price" basis, and are usually terminable on advance notice by either party. The majority of the Company's projects are on a Time-and-Materials basis, under which the Company bills its clients at fixed hourly rates plus subcontracted services and materials used. Fixed-Price arrangements, under which the Company agrees to perform a stated service for a set price regardless of the time and materials cost involved, carry the risk that the cost to the Company for performing the agreed-upon services may exceed the set price, but also carry the benefit of potentially higher profit. The Company's growing construction practice may increase the percentage of fixed price projects in the firm. The Company provides consulting and engineering services to clients through its staff of engineers and scientists who possess a diverse range of education and professional experience. Project teams are organized to utilize applicable talent from the Company's staff. Qualified subcontractors are utilized to provide special technical resources that the Company either does not possess or has determined not to develop internally in a specific geographic area. A more detailed description of the Company's services is listed below; revenues resulting from these services for fiscal years 1999, 1998 and 1997 are reflected in Note 13 of the financial statements contained in this Annual Report on Form 10-K: Environmental Services The Company's clients require engineering, environmental, and construction services to comply with environmental regulations, manage risk associated with environmental emissions, and/or reduce their cost of operations. From 1980 until the early 1990s, the demand for the Company's services was largely driven by the need to comply with environmental regulations. Since that time, as enforcement of environmental regulations has decreased and environmental regulations have been relaxed, the Company's services are more frequently required in response to risk management or economic drivers. Because the U.S. regulatory framework is still the dominant driver for the Company's environmental services, the primary environmental statutes causing this demand are described below. Regulatory Background--Public concern over human health and the environment has led federal, state and local governments to enact legislation to correct and prevent environmental problems with particular emphasis on the generation, handling, disposal and cleanup of hazardous waste and hazardous substances. These laws and their implementing regulations affect industries and governmental bodies that manufacture, use, store, or dispose of toxic substances and other waste materials. Significant changes in policies affecting these programs or administrative actions affecting the sponsorship or funding of these programs could have a material adverse effect on the Company's business. The following federal legislation most affects the Company's business: Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA," also known as "Superfund") and Superfund Amendments and Reauthorization Act of 1986 ("SARA"). Superfund addresses problems created by past waste disposal practices by providing a means for identifying and cleaning up hazardous substances at designated sites. Superfund authorizes the Environmental Protection Agency ("EPA") to compel responsible parties to remediate hazardous substances and places responsibility for this remediation on the owners and operators of such sites and generators of the waste (identified as potentially responsible parties, or "PRPs") and provides for penalties for non-compliance with EPA orders. Superfund was reauthorized as part of the 1991 federal budget appropriating $5.1 billion through 1994. Since then, funding has been authorized by Congress annually while debate over reauthorization has carried on. Significant changes to the statute are expected when or if reauthorized. The Company is not able at this time to ascertain the effect of any such reauthorization or of Congress' failure to reauthorize Superfund. Resource Conservation and Recovery Act of 1976 ("RCRA") and Hazardous and Solid Waste Amendments of 1984 ("HSWA"). RCRA was the first federal effort to regulate the treatment, storage and disposal of hazardous waste. It places "cradle-to-grave" responsibility for hazardous waste on the generators of such wastes and provides regulations for permitting, transporting, treating, storing and disposing of hazardous wastes in controlled facilities. The Clean Air Act ("CAA") and the Clean Air Act Amendments ("CAAA"). The CAA empowered the EPA to establish and enforce national air quality standards and to require states to set toxic air emission limits on facilities not meeting these national standards. The CAAA of 1990 require certain facilities that emit air pollutants to obtain operating permits and mandate that the EPA develop guidelines and procedures relating to acid rain, urban air pollution, and air toxic emissions by the year 2000. Other Federal and State Regulations. The Company's services are also utilized by its clients in complying with, among others, the following federal laws: the Toxic Substances Control Act, the Clean Water Act, the National Environmental Policy Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the Hazardous Material Transportation Act. Many other federal regulations and policies have been established to cover more detailed aspects of hazardous waste legislation. Complimentary state laws have also been enacted. The State of California, for example, has consistently been a leader in passing and implementing state hazardous waste legislation. Similar laws in other states address such topics as air pollution control, underground storage tanks, water quality, solid waste, hazardous materials, surface impoundments, site cleanup and waste discharge. Hazardous Waste Management--The Company performs services domestically relating to the restoration (assessment and remediation) of contaminated sites. Projects where Superfund, RCRA or similar enforcement regulations are driving the need for site restoration comprise the majority of these revenues, while sites where "leaking underground tank" regulations are causing the need for remediation comprise a smaller portion of these revenues. The Company's hazardous waste management services include the following: o Site Characterization. The Company provides a range of services needed to determine the nature and extent of contamination at hazardous waste sites. o Risk Assessment. Assessing the risks that hazardous chemicals pose to human health and the environment is critical to selecting appropriate remedial technologies. Risk assessment involves quantifying the hazard posed by the presence and movement of chemicals in disposal or release areas, and expected concentrations to which people or the environment may be exposed. o Remedial Design Engineering. The Company has extensive experience in designing and implementing systems for removing contaminants from soil and water. The Company utilizes data acquired in site characterization and risk assessment studies to design integrated remedial systems, prepare detailed construction drawings and specifications, and develop operating manuals and maintenance programs for remedial systems. o Construction and Construction Management. The Company self performs or manages construction of remedial and pollution control systems and waste disposal facilities. The Company also performs selected construction on projects where it has not been involved with the design of the project. Other Environmental Services--The Company also provides a broad range of other environmental services, which include: o Operating Facilities Services. The Company provides a broad range of services to industrial clients to help them comply with federal or state environmental regulations, to reduce their costs of environmental compliance, and to employ more efficient processes to reduce, recover, or recycle industrial waste or by-products. o Waste Disposal Facility Permitting, Design and Closure. The Company provides a comprehensive range of services related to siting, permitting, designing, operating, closing and post closure monitoring of solid and hazardous waste disposal facilities such as landfills, landfarms and incinerators. o Applied Information Technology. Drawing on the Company's past experience in collecting and managing environmental data for our clients, this service involves applying data management skills, spatial data management technologies such as geographic information systems ("GIS"), statistical techniques, numerical modeling and sophisticated two-and three-dimensional imaging technology to solve technical problems and to address general management issues. o Environmental Planning, Permitting and Monitoring. The Company's services are frequently required to comply with the National Environmental Policy Act and other state and local regulations related to the assessment of environmental impacts or anticipated environmental impacts. The Company performs environmental resource investigations and monitoring, prepares environmental documents and reports, and secures environmental permits on behalf of its clients. o Air Quality Management. Air pollution is increasingly recognized as the type of contamination that has the greatest impact on human health and the environment. The Clean Air Act Amendments of 1990 are expected to increase the market for air quality related services that are provided by the Company. The Company provides air quality planning, permitting, monitoring, reporting, and process engineering services. o Water Resources and Wastewater Services. The Company provides a comprehensive range of services relating to water resource protection, hydrologic analysis and engineering, wetlands/stream restoration, stormwater management, water supply engineering and advanced water treatment, recycling and conservation. o Site Assessments and Site Audits. The site assessment market is large but fluctuates with the real estate market. It is highly competitive and price driven. The Company seeks to provide these services only to responsible clients where the scope of the engagement and fees can be negotiated, and liability risks properly managed. The Company performs records searches, site investigations, due diligence evaluations, and audits. o Regulatory Compliance. Regulatory compliance, evaluations, audits and support are a viable market that the Company expects will show modest growth as more facilities are brought under regulatory controls and more companies decide that an ongoing environmental auditing program will reduce environmental liabilities. The Company assists clients with strategic compliance planning, develops environmental management systems, and performs compliance permitting, monitoring, and reporting. o Asbestos/Lead-Paint Management. The asbestos and lead-based paint markets are highly competitive with limited barriers for new entrants. The Company performs asbestos/lead paint surveys, inspections, and abatement. The Company offers these services to select clients as part of its comprehensive environmental services. International Services--The Company also performs environmental services outside the United States which include contaminated site assessment and remediation, occupational health and hygiene, mine rehabilitation, environmental management systems, and environmental planning and permitting and are primarily performed through the Company's Australian and Mexican operations. Due to a shift in the Company's strategic focus toward domestic opportunities in the infrastructure and environmental markets, the Company is closing its operation in Mexico City and has devalued the net assets of its operations in Australia with a view to the potential sale of the Australian operations. Infrastructure Services Infrastructure and geotechnical services include: o Infrastructure/Transportation Engineering. The Company's civil engineers provide services relating to transportation including street, road and highway design, traffic engineering and traffic signal design, corridor studies, and a construction administration; design of structures including bridges, piers and marine terminal facilities and other structures; design services including drainage basin studies and hydrologic analysis and storm water treatment; and railroad engineering including design of railroad trackage, railroad bridges, railroad yard design, and intermodal facilities. The Company believes that these services will be in increasing demand in the future as the country moves to repair its deteriorating infrastructure and as funding becomes available as a result of the TEA21 bill adopted in 1998 authorizing $219 billion of funding over a six-year period. This bill is an increase of nearly 40% over the previous funding bill (ISTEA) signed in 1991. The Company anticipates that its civil/infrastructure practice may benefit from this legislation and additional proposed legislation in the future. o Geotechnical Engineering. The Company's geotechnical engineers use advanced exploration tools, laboratory testing and analytical methods to evaluate soil and rock for foundations and for use in construction. Customers and Marketing The Company's client base includes private-sector companies that comprised 57% of gross revenue in fiscal 1999. Federal governmental bodies, primarily non-regulatory, provided 24% of gross revenue, including Department of Defense agencies, 17% of gross revenue was derived from state and local governments, and 2% from international clients. The Company's 15 largest clients accounted for approximately 44% of the Company's gross revenue in fiscal 1999, 34% in fiscal 1998 and 44% in fiscal 1997. Approximately 29% of gross revenue during fiscal 1999 was derived from the Company's five largest clients compared to 24% and 32% in fiscal 1998 and 1997, respectively. In fiscal 1999, the Department of the Army accounted for approximately 12% of the Company's gross revenue. Revenue from this client, which accounted for 12% of gross revenue in fiscal 1998 and 19% in fiscal 1997, was generated under various contracts in various locations that were negotiated independently of each other. While the loss of all work related to this client could have a material adverse effect on the Company, the contracts are with separate divisions or units of the Army and the loss of one contract would not necessarily affect other contracts at other locations. No other client accounted for 10% or more of gross revenue in fiscal 1999, 1998 or 1997. The Company's marketing efforts are carried out by a full-time staff of marketing and sales personnel and by senior technical and management professionals. The Company also participates in industrial trade shows and technical conferences, and publishes certain technical literature to support its marketing program. Backlog The Company often provides services on major long-term contracts or continuing service agreements that provide for authorization of funding on a task or fiscal period basis. At the end of fiscal 1999, the Company had approximately $92 million of authorized gross revenue backlog. Backlog was $105 million at May 31, 1998 and $70 million at May 31, 1997. Authorized gross revenue backlog, most of which is expected to be completed within the next 12 months, includes only such contracts where work authorization has been received. There can be no assurances, however, that work represented by backlog will not be delayed or canceled. Because the backlog figures include only those portions of contracts where spending has been authorized to date, the Company does not feel that backlog figures are necessarily indicative of future revenue. In addition to authorized backlog, the Company has certain contracting vehicles that include substantial unauthorized amounts not included in backlog. Tasks under these contracts may or may not be authorized during fiscal 2000. Seasonal Factors Due primarily to more holidays and inclement weather conditions, the Company's third quarter operating results are generally lower in comparison to other quarters. Competition The Company competes with many companies of all sizes. Some of these companies are much larger and have substantially greater resources than the Company. Although no company currently dominates any particular market segment, the market in general suffers from over capacity and as a result can be characterized as intensely competitive. While the Company competes primarily on the basis of its reputation, a significant proportion of its projects are competitively bid and the Company believes its services to be price competitive. Other competitive factors include proximity to clients, breadth of service offerings and perceived financial strength. Potential Liability and Insurance In performing consulting and engineering services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage, or negligence. The Company generally indemnifies its clients for losses and expenses incurred by them as a result of the Company's negligence and, in certain instances, the concurrent negligence of such clients. A significant portion of the Company's activities relate to environmental and waste services. These services involve significant risks to the Company for environmental damage, personal injury, and fines and costs imposed by regulatory agencies. Although liabilities arising from environmental regulations are more directly applicable to the Company's clients, such regulations under certain circumstances could impose liability on the Company resulting, for example, from a release or exacerbation of contamination or the improper handling of contaminants during the course of the Company's work. Such liabilities can be joint and several where other parties are involved. The Company maintains both a health and safety program and a quality assurance and quality control program to assist in reducing the risk of damage to persons and property and the potential for resulting losses. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these matters, and, in the aggregate, such claims are not expected to have a material adverse impact on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results and there can be no assurances that the Company will not be materially affected by existing or future claims. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company is provided a $15 million per occurrence/$25 million aggregate contractor's operations and professional services policy through an unrelated, rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Personnel At the end of fiscal 1999, the Company employed approximately 1,100 regular, full-time employees including 605 engineers, scientists, and construction contractors, 340 production support staff and 155 administrative and clerical personnel. In addition to its full-time staff, the Company employs approximately 125 temporary or variable personnel at any time as required, most of whom are technical support personnel. Temporary or variable personnel constitute approximately 77 full-time equivalents. Although the Company has undergone selective downsizing over the past few years, it nevertheless maintains a continuous recruiting program to attract key personnel. None of the Company's employees are presently represented by a labor union. The Company believes it has good employee relations. ITEM 2. PROPERTIES. The Company leases facilities at various locations in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and in Australia and Mexico. At the end of fiscal 1999, these facilities had a combined area of approximately 370,000 square feet. Aggregate lease expense for all of the Company's facilities during fiscal 1999 was approximately $5.9 million. The lease terms expire at various times through February 2004. Historically, the Company has not experienced any difficulty in renewing leases that have expired. The Company owns, as a result of its acquisition of REPS during fiscal 1999, a 13,900 square foot building in Florida from which it conducts some of its business. In May 1999, the Company's management decided to relocate its corporate headquarters into its Denver, Colorado location. ITEM 3. LEGAL PROCEEDINGS. The Company is currently subject to certain claims and lawsuits arising in the ordinary course of business. In the opinion of management, adequate provisions have been made in the Company's Consolidated Financial Statement for all known liabilities that are currently expected to result from these claims and lawsuits, and in the aggregate such claims are not expected to have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of the security holders through the solicitation of proxies or otherwise. 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, 1998: First Quarter $ 8.50 $ 6.38 Second Quarter 10.75 8.00 Third Quarter 10.25 8.88 Fourth Quarter 10.50 9.00 Fiscal year ended May 31, 1999: First Quarter $10.13 $ 6.25 Second Quarter 8.25 5.13 Third Quarter 8.25 5.00 Fourth Quarter 9.00 5.38
Holders As of August 2, 1999 there were 669 record holders of the Company's common stock. Dividends The Company has not paid any cash dividends on its common stock during the last ten years. The Board of Directors currently intends to retain all earnings for reinvestment in the Company's business and has no present intention of paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data of the Company for the years ended May 31, 1995 through 1999. The data presented below should be read in conjunction with the consolidated financial statements of the Company, including notes thereto. Summary Financial Information (In thousands, except per share data)
Fiscal Years Ended May 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Income Statement Data: Gross revenue $162,096 $123,270 $123,412 $120,708 $130,554 Net revenue 108,758 83,451 84,276 85,655 92,455 Operating income/(loss) (1,019) (1) 3,220 4,112 839 4,595 Income/(loss) before provision for income taxes and minority interest (568) (1) 4,262 4,288 1,647 4,907 Net income/(loss) (842) (1) 2,488 2,404 953 2,972 Basic net income/(loss) per share $(0.17) $0.50 $0.49 $0.20 $0.63 Shares used in computing basic net income/(loss) per share 4,839 4,959 4,926 4,824 4,684 Diluted net income/(loss) per share $(0.17) $0.49 $0.49 $0.20 $0.63 Shares used in computing diluted net income per share 4,839 5,087 4,950 4,844 4,700 Balance Sheet Data: Working capital $32,697 $34,680 $37,780 $35,521 $33,369 Total assets 87,141 76,618 67,366 60,364 60,788 Short-term debt --- --- --- --- --- Shareholders' equity 47,455 49,788 46,602 44,357 42,685 (1) Includes charges of $4,383 recorded in the fourth quarter related to (i) the write-down of its investment in its Australia and the closure of its operations in Mexico City; (ii) corporate restructuring and (iii) the write-down of goodwill related to an acquisition made by the Company in 1993.
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 This report contains forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The statements are identified by words such as "will," "expect," "anticipate," "plans," or "intends" and by other descriptions of future circumstances or conditions. Such statements are based on current expectations and actual results may differ materially. The forward-looking statements include those regarding the continued growth of the construction division, the possible impact of current and future claims against the Company based upon negligence and other theories of liability, the possibility of the Company's making acquisitions during the next 12 to 18 months, and the impact of becoming year 2000 compliant. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may result in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. 1999 Restructuring In the fourth quarter of fiscal 1999, the Company provided $4.4 million for the cost of restructuring its operations ("Restructuring Charges"). The restructuring includes its reorganization of the Company's management and operating structure, including the relocation of its corporate office in order to reduce costs as well as the layers of management involved in corporate and operational functions. Further, due to a shift in the Company's strategic focus toward domestic opportunities in the infrastructure and environmental markets, the Company is closing its operations in Mexico City and has devalued the net assets of its operations in Australia with a view to the potential sale of the Australian operations. These actions are intended to streamline the Company's operations and to put senior management closer to the Company's operations and its customers and to focus attention on operating the Company in a way as to increase shareholder value. Of the $4.4 million in Restructuring Charges, approximately $1.9 million and $0.3 million relate to anticipated losses associated with the disposal of the Company's operations in Australia and Mexico City, respectively. The book value of goodwill written off in connection with the international operations was $0.8 million, related entirely to the Company's Australian operations. The Restructuring Charges also consist of approximately $2 million in severance and other costs resulting from the relocation of the corporate offices and certain severance and other related costs associated with streamlining the management of the Company. The remaining $0.2 million of Restructuring Charges relates to the write-down of goodwill associated with the Company's purchase, in February 1993, of EEC Environmental, Inc. 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 1999 1998 vs. vs. 1999 1998 1997 1998 1997 ---- ---- ---- ---- ---- Net revenue 100.0% 100.0% 100.0% 30.3% (1.0)% Costs and expenses Payroll and benefits 69.1 68.2 67.2 32.0 0.5 General expenses 27.8 27.9 27.9 29.8 (0.8) Restructuring Charges 4.0 --- --- --- --- Operating income/(loss)/margin (0.9) 3.9 4.9 (131.7) (21.7) Interest in loss of unconsolidated subsidiaries 0.0 (0.1) (0.6) (100.0) (90.8) Net interest income 0.4 1.3 0.8 (58.7) 51.4 Income/(loss) before provision for taxes and minority interest (0.5) 5.1 5.1 (113.3) (0.6) Provision for taxes/minority interest 0.3 2.1 2.2 (84.6) (5.9) Net income/(loss) (0.8) 3.0 2.9 (133.8) 3.5
Gross Revenue--Gross revenue, not presented in the table above, includes the revenue on services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Gross revenue related to outside services as a percent of total gross revenue was 34.8%, 34.5%, and 33.2% in 1999, 1998, and 1997, respectively. The increase in outside services revenue as a percent of total gross revenue in 1999 and 1998, compared to 1997 is due primarily to an increase in construction services. The Company believes that its construction services will continue to grow and represent a larger percentage of gross revenue. Net revenue, which is a more accurate measure of revenue earned for services provided directly by the Company, is recorded by deducting from gross revenue the costs of services contracted to third parties. Net Revenue--Net revenue totaled $108.8 million in fiscal 1999, an increase of $25.3 million or 30.3% from 1998. The increase in net revenue was attributable to the acquisition of ABB Environmental Services, Inc. ("ABB-ES") on May 8, 1998. Net revenue for ABB-ES declined $6.4 million in fiscal 1999 compared to its prior twelve-month period due primarily to the wind down of certain federal projects. Excluding the effects of the ABB-ES acquisition, net revenue was 2% lower than the prior fiscal year. The decrease in net revenue in fiscal 1999 was due primarily to a 19% decline in international and an 8% decline in domestic environmental net revenue, partially offset by a 34% increase in infrastructure net revenue and a 48% increase in construction net revenue. The Company experienced lower demand partially offset by higher prices for its services compared to 1998 and 1997. Net revenue derived from public sector clients in fiscal 1999 was down 9% from the prior year and accounted for 39% of total net revenue for fiscal 1999 compared to 43% and 46% for fiscal 1998 and 1997, respectively. Within the public sector, net revenue from the federal sector declined by 10% from fiscal 1998 while revenue from state and local sources declined by 8% over the same period. Net revenue from private sector clients increased by 6% over 1998. International sales accounted for 5% of the Company's net revenue in fiscal 1999 compared with 6% and 7% in fiscal 1998 and 1997 respectively. Virtually all international revenue was attributable to operations in Australia. Net revenue totaled $83.5 million in fiscal 1998, a decrease of $0.8 million or 1.0% from 1997. The decrease in net revenue in fiscal 1998 was due primarily to a 13% decline in international and a 21% decline in infrastructure net revenue respectively, partially offset by an increase of 4% in domestic environmental net revenue. The Company experienced lower demand partially offset by higher prices for its services compared to 1997 and 1996. Net revenue derived from public sector clients in fiscal 1998 was down 9% from the prior year and accounted for 43% of total net revenue for fiscal 1998 compared to 46% and 45% for fiscal 1997 and 1996, respectively. Net revenue from the federal sector declined by 14% from fiscal 1997 while revenue from state and local sources declined by 2% over the same period. Net revenue from private sector clients increased by 7% over 1997. International sales accounted for 6% of the Company's net revenue in fiscal 1998 compared with 7% and 6% in fiscal 1997 and 1996 respectively. Virtually all international revenue was attributable to operations in Australia. Costs, Expenses and Operating Income--The operating loss for fiscal 1999 of $1.0 million resulted primarily from the Restructuring Charges described above. Excluding the effect of such charges, operating income would have been $3.4 million and an operating margin of 3.1%, compared to fiscal 1998's operating income and operating margin of $3.2 million and 3.9%, respectively; excluding the effect of the ABB-ES acquisition, the Company would have incurred an operating loss of $0.6 million and a negative margin of 0.8%. The operating loss resulted primarily from both higher payroll costs and indirect expenses. The higher indirect expenses were primarily due to the write-down of excess premise leases and, to a lesser extent, external consulting and bad debt expenses. In fiscal 1999, the Company entered into three Executive Retention Agreements. As a result of the hiring of a new Chief Executive Officer in March of 1999 and the 1999 restructuring, the parties to these agreements could opt to terminate their employment with the Company prior to December 31, 1999 and receive severance payments, benefits and option acceleration provided for under the agreements. Operating income for fiscal 1998 of $3.2 million and an operating margin of 3.9% were both lower than fiscal 1997 results. Operating income in fiscal 1998 was lower by $0.9 million or approximately 22% compared to the prior year. The decrease in operating income and margin primarily reflects lower net revenue as the Company's total operating cost remained essentially unchanged from the prior fiscal year. Labor expense in fiscal 1998 was negatively impacted by $0.5 million in severance expenses, incurred primarily during the Company's fourth quarter of fiscal 1998. The Company's international operations improved over fiscal 1997 and contributed slightly to the Company's operating income but still negatively impacted the operating margin. Interest in Loss of Unconsolidated Subsidiaries--There was no loss from unconsolidated subsidiaries in fiscal 1999. Losses from unconsolidated subsidiaries were $50,000 in fiscal 1998. The loss was the final investment in Standards Training Corporation ("STC") a limited liability company focused on ISO 14000 training that was made and expensed in the first fiscal quarter of fiscal 1998. Losses from unconsolidated subsidiaries were $0.5 million in fiscal 1997. The loss recorded in fiscal 1997 consisted of $0.3 in losses from operations and $0.2 in write-downs of impaired assets. The losses resulted from the operations of STC and Integrated Software Systems, LLC, which specialized in software for the mining industry. There was no activity in these subsidiaries prior to 1997. The Company's investment in both entities was accounted for using the equity method. Interest Income (Expense)--Net interest income in fiscal 1999 of $0.5 million was $0.6 million lower than fiscal 1998. The decrease in net interest income primarily reflects lower average cash balances throughout the fiscal year and, to a lesser extent, lower interest rates on invested cash. Net interest income in 1998 and 1997 was $1.1 million and $0.7 million, respectively. Income Taxes--The Company has provided taxes of $0.4 million on a pretax loss of $0.6 million for fiscal 1999. The relative increase in the Company's tax expense for fiscal 1999 primarily reflects the impact of certain foreign components of the Restructuring Charges which provide no tax benefit. The effective tax rates for fiscal years 1998 and 1997 were 39.8% and 44.1%, respectively. The effective tax rate in fiscal 1998 reflects the improvement in the Company's foreign operations and a corresponding realization of prior year tax losses for which no tax benefit had been accrued and to a lesser extent an increase in the Company's non-taxable interest income. The effective tax rate in 1997 reflects the impact of losses from the start-up of certain international operations for which no tax benefit was recorded. Net Income/(Loss)--The net loss in fiscal 1999 was $842,000 compared to net income of $2.5 million in the prior year. The loss was primarily due to the Restructuring Charges. Net income of $2.4 million in 1997 was $1.4 million higher than the prior year primarily due to lower labor and general expenses. Net income/(loss) per diluted common share was ($0.17) in fiscal 1999 compared to $0.49 in fiscal 1998 and fiscal 1997. Diluted shares used in the per share calculation were 4,838,620, 5,087,255 and 4,949,700 in 1999, 1998, and 1997, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $7.4 million in fiscal 1999 compared to $5.1 million in 1998 and $8.7 million in 1997. The increase in cash provided by operations in fiscal 1999 compared to fiscal 1998 related primarily to an increase in certain current liabilities, particularly accounts payable and accrued expenses related to the Restructuring Charges. The increase in cash provided was partially offset by an increase in accounts receivable. The decrease in cash provided by operations in fiscal 1998 compared to 1997 was primarily related to a decrease in certain current liabilities. The decrease in certain current liabilities reflect, in part, payment under the incentive compensation program in fiscal 1998 for fiscal 1997 performance and increases in payments of income taxes, partially offset by increases in billings in excess of costs and estimated earnings on uncompleted contracts. The Company currently has a $20 million line of credit with a commercial bank, at prime or LIBOR rates, that expires in November 2000. At May 31, 1999, 1998 and 1997 the Company had no borrowings under the line of credit. Had the Company borrowed under its line at May 31 of fiscal 1999, 1998 and 1997, the interest rate would have been 5.6%, 5.7% and 5.7% respectively. The Company's credit agreement has certain covenants relating to, among other things, financial performance and the maintenance of certain financial ratios. At May 31, 1999, as a result of the Restructuring Charges, the Company was in violation of certain financial performance covenants. Such violation was waived by the bank. The Company was in compliance with all covenants pertaining to the line of credit agreement at May 31, 1998 and 1997. The Company invested $3.3 million and $14.4 million in the purchase of capital assets, including the cost of acquisitions, in fiscal 1999 and 1998, respectively. The Company used $1 million in fiscal 1999 for the acquisition of REPS. The Company used $12.4 million in fiscal 1998 for the acquisition of ABB-ES. The Company paid $0.4 and $0.2 million in fiscal 1999 and 1998 respectively, as additional purchase price under the terms of fiscal 1994 and 1995 acquisition agreements, respectively. In fiscal 1999, the Company used net cash of $2.2 million in financing activities that primarily consisted of the repurchase of common stock, partially offset by the sale of common stock to employees under certain employee benefit plans. In fiscal 1998, the Company generated net cash of $0.1 million from financing activities, which primarily consisted of the sale of common stock to employees offset by the repurchase of common stock. In fiscal 1997, the Company used net cash of $0.9 million for financing activities that primarily consisted of the repurchase of common stock. On March 7, 1996, the Board of Directors of the Company approved a Common Stock Repurchase Program that authorizes the Company to purchase up to a maximum of 500,000 shares of stock on the open market from time to time for the purpose of providing shares for the Company's various employee stock plans. The Company repurchased, under this plan, (i) 310,000 shares for $2.7 million in fiscal 1999; (ii) 46,300 shares for $0.4 million in fiscal 1998 and (iii) 139,200 shares for $1.0 million in fiscal 1997. There are 4,500 shares which remain available to be repurchased under the 1996 Program. On September 25, 1998, the Board authorized management to repurchase up to an additional 500,000 shares over the next four years. The Company is a consulting engineering services firm engaged in providing environmental, infrastructure and geotechnical related services, and encounters potential liability including claims for errors and omissions resulting from construction defects, construction cost overruns, or environmental or other damage in the normal course of business. The Company is a party to lawsuits and is aware of potential exposure related to certain claims. In the opinion of management, adequate provisions have been made for all known liabilities that are currently expected to result from these matters and, in the aggregate, such claims are not expected to have a material impact on the financial position and liquidity of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarter or annual reporting period could be material. Currently, the Company is provided $15 million per occurrence, $25 million aggregate contractor's operations and professional services insurance policy through an unrelated rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. The Company believes that its available cash and cash equivalents as well as cash generated from operations and its available credit line will be sufficient to meet the Company's operating cash requirements for fiscal 2000. During fiscal 2000, the Company intends to actively continue its search for acquisitions to expand its geographical representation and enhance its technical capabilities. The Company expects to utilize a portion of its liquidity over the next 12 to 18 months for capital expenditures, including acquisitions. There can be no assurances that the Company will be able to identify suitable acquisition candidates, and if such are identified, that the Company will be able to successfully negotiate and consumate a transaction. Year 2000 Compliance Overview Computer systems and software have historically been coded to accept only two digit entries for the year. If computers cannot properly distinguish between the years 1900 and 2000, computers may shutdown or perform incorrect calculations. Scope & Status In late 1997, the Company established a Year 2000 Project Team ("Project Team"). The Project Team was established to address the following key components related to the Year 2000 issue: o Information applications, including the Company's project management and accounting systems o Computer hardware, software, operating systems and network infrastructure including telecommunications systems o Facility and administrative systems o Digital systems and devises with embedded processors installed on client projects o Major suppliers and customers' systems During the second quarter of fiscal 1999, the Company completed the upgrade of its major information technology system (a project management and accounting system). This version of the third party business application is warranted as Year 2000 compliant. The Company is performing specific Year 2000 compliance testing. The Company has completed the inventory and assessment of its hardware for Year 2000 compliance. It is also conducting an inventory and assessment of its software for Year 2000 compliance, which is expected to be completed by August 31, 1999. Other network and infrastructure upgrades of equipment and software are scheduled as part of normal business operations. Facility and administrative systems that support the Company (such as telephone, security systems, etc.) are also being assessed for Year 2000 compliance and required upgrades to such hardware and software are being prioritized for resolution. The assessment and remediation of the Company's facility and administrative systems is scheduled to be completed prior to December 31, 1999. The Company considers risks in these areas to be minimal. Contingency plans will be developed if the Company determines that compliance is not likely to occur. The Company has undertaken an analysis of its vendors and suppliers to determine potential areas of risk with regard to their failure to achieve Year 2000 compliance. Written requests have been sent to appropriate vendors and suppliers to determine their Year 2000 readiness. Evaluation of the responses to those requests will determine future verification procedures. The Company is currently inventorying and contacting vendors of software and equipment that such vendors have supplied under contracts or relationships with the Company's clients. Contingency plans will also be developed as appropriate to address any potential problems that may be identified. Costs The costs associated with Year 2000 compliance have not been material and generally fall within normally anticipated operating and capital spending. The Company currently estimates the costs of becoming Year 2000 compliant will not be material to the financial position of the Company. Although the Company does not currently anticipate the costs of Year 2000 compliance to be material, it cannot ensure Year 2000 compliance by third parties. Risks The upgrade of the Company's project management and accounting systems to a Year 2000 compliant version mitigates the risk that the Company would be unable to maintain accurate client records and billings. Technical deliverables provided by the Company for client sites could cause potential interruption in services provided by those clients. The Company's efforts to evaluate and remediate software and equipment supplied to its clients are expected to mitigate such potential service interruptions. There can be no assurance nontheless that such mitigation will be effective to avoid such service interruptions. The Company cannot predict with accuracy the extent to which its vendors and clients will become compliant. The Company's financial position could be adversely affected if major vendors or clients do not adequately complete Year 2000 requirements. The Company believes that the most significant risk it faces with regard to Year 2000 compliance issues would be if disruptions occurred to a significant portion of the Company's client base that could cause delayed contracting for and/or payment of the Company's services. Other Matters On May 8, 1998, the Company acquired all the outstanding shares of ABB-ES, a consulting and engineering firm. The acquisition was accounted for as a purchase and the operating results of ABB-ES were included in the Company's consolidated results from the date of the acquisition (see Note 8 to the Company's audited financial statements). On December 18, 1998, the Company acquired REPS. The acquisition was accounted for as a purchase and the operating results of REPS were included in the Company's consolidated results from the date of the acquisition (see Note 8 to the Company's audited financial statements). Inflation The Company's operations have not been, and in the foreseeable future are not expected to be, materially affected by inflation. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not hold derivative financial investments, derivative commodity investments or other financial investments or engage in foreign currency hedging or other transactions that exposes it to material market risk. The Company has also evaluated the risk associated with its Rabbi Trust investments in mutual funds and has deemed such risk minimal. 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, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Gross revenue $162,096 $123,270 $123,412 Less: Cost of outside services 53,338 39,819 39,136 - ------------------------------------------------------------------------------------------------------------------- Net revenue 108,758 83,451 84,276 - ------------------------------------------------------------------------------------------------------------------- Costs and Expenses: Payroll and benefits 75,114 56,911 56,647 General expenses 30,280 23,320 23,517 Restructuring charges 4,383 --- --- - ------------------------------------------------------------------------------------------------------------------- Total costs and expenses 109,777 80,231 80,164 - ------------------------------------------------------------------------------------------------------------------- Operating income/(loss) (1,019) 3,220 4,112 Interest in loss of unconsolidated subsidiaries --- (50) (545) Interest income, net of interest expense of $44 in 1999, $34 in 1998 and $38 in 1997 451 1,092 721 - ------------------------------------------------------------------------------------------------------------------- Income/(loss) before provision for income taxes and minority interest (568) 4,262 4,288 Provision for income taxes 412 1,696 1,892 Minority interests in net income/(loss) of subsidiaries (138) 78 (8) - ------------------------------------------------------------------------------------------------------------------- Net income/(loss) $ (842) $2,488 =================================================================================================================== $2,404 Basic net income/(loss) per share $(0.17) $0.50 $0.49 =================================================================================================================== Shares used in computing basic net income/(loss) per share 4,839 4,959 4,926 =================================================================================================================== Diluted net income/(loss) per share $(0.17) $0.49 $0.49 =================================================================================================================== Shares used in computing diluted net income/(loss) per share 4,839 5,087 4,950 ===================================================================================================================
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, 1999 May 31, 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $17,108 $15,118 Investments - Rabbi Trust 3,629 --- Accounts receivable, less allowance for doubtful accounts of $1,764 in 1999 and $1,085 in 1998 and including retentions of $3,468 in 1999 and $981 in 1998 28,679 27,891 Unbilled work in progress, less allowance for amounts unbillable of $700 in 1999 and of $751 in 1998 14,985 13,112 Prepaid expenses 1,282 1,196 Deferred income taxes 5,017 2,708 - ------------------------------------------------------------------------------------------------------------------- Total current assets 70,700 60,025 - ------------------------------------------------------------------------------------------------------------------- Equipment 27,947 24,892 Less accumulated depreciation (22,056) (19,571) - ------------------------------------------------------------------------------------------------------------------- Net equipment 5,891 5,321 - ------------------------------------------------------------------------------------------------------------------- Other assets 10,550 11,272 - ------------------------------------------------------------------------------------------------------------------- Total assets $87,141 $76,618 =================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 9,290 $6,381 Accrued expenses 10,558 5,350 Accrued compensation 7,967 7,794 Deferred compensation - Rabbi Trust 4,236 --- Billings in excess of costs and estimated earnings on uncompleted contracts 4,558 5,352 Income taxes payable 1,394 468 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 38,003 25,345 - ------------------------------------------------------------------------------------------------------------------- Other liabilities 1,635 1,084 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 39,638 26,429 - ------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 10) Minority interests in subsidiaries 48 401 - ------------------------------------------------------------------------------------------------------------------- Shareholders' Equity: Preferred stock--$.01 par value; authorized 1,000,000 shares; issued and outstanding--none --- --- Common stock--$.01 par value; authorized 10,000,000 shares; issued and outstanding 4,892,982 in 1999 and 5,009,018 in 1998 50 50 Additional paid-in capital 18,066 18,891 Stockholder note receivable (243) --- Rabbi Trust shares (607) --- Retained earnings 30,189 30,847 - ------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 47,455 49,788 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $87,141 $76,618 ===================================================================================================================
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)
Additional Total Common Stock Paid-in Contra- Retained Shareholders' Shares Amount Capital Equity Earnings Equity Balance May 31, 1996 4,845,207 $48 $18,142 --- $26,167 $44,357 - ------------------------------------------------------------------------------------------------------------------- Stock options exercised 6,000 --- 24 --- --- 24 Common stock issued to employees or to a defined contribution pension plan for the benefit of employees 152,496 2 786 --- --- 788 Shares repurchased and retired (139,200) (1) (970) --- --- (971) Net income --- --- --- --- 2,404 2,404 Balance May 31, 1997 4,864,503 $49 $17,982 --- $28,571 $46,602 - ------------------------------------------------------------------------------------------------------------------- Stock options exercised 59,750 --- 433 --- --- 433 Common stock issued to employees, directors or to a defined contribution pension plan for the benefit of employees 131,065 1 880 --- --- 881 Shares repurchased and retired (46,300) --- (404) --- --- (404) Foreign currency translation adjustment --- --- --- --- (212) (212) Net income --- --- --- --- 2,488 2,488 Balance May 31, 1998 5,009,018 $50 $18,891 --- $30,847 $49,788 - ------------------------------------------------------------------------------------------------------------------- Stock options exercised 38,500 1 234 --- --- 235 Common stock issued to employees, directors or to a defined contribution pension plan for the benefit of employees 165,888 2 1,217 --- --- 1,219 Common stock issued in connection with acquisition 24,930 --- 180 --- --- 180 Stockholder note receivable 35,000 --- 243 (243) --- --- Rabbi Trust shares (70,354) --- --- (607) --- (607) Shares repurchased and retired (310,000) (3) (2,699) --- --- (2,702) Foreign currency translation adjustment --- --- --- --- 184 184 Net loss --- --- --- --- (842) (842) Balance May 31, 1999 4,892,982 $50 $18,066 (850) $30,189 $47,455 - -------------------------------------------------------------------------------------------------------------------
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, 1999 1998 1997 OPERATING ACTIVITIES Net income/(loss) $(842) $2,488 $2,404 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 3,253 2,589 2,566 Deferred income tax (1,626) 68 (922) Changes in operating assets and liabilities: Receivables and billings on uncompleted contracts (2,593) 3,315 (238) Prepaid expenses (86) 76 242 Accrued compensation 122 (1,289) 1,546 Accounts payable 2,881 (1,017) 1,785 Accrued expenses 6,064 739 (457) Income taxes payable 549 (1,495) 1,962 Other, net (342) (328) (184) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,380 5,146 8,704 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of equipment, net (2,324) (2,045) (2,267) Investment in acquisitions, net of cash acquired (1,020) (12,350) (122) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (3,344) (14,395) (2,389) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from sale of common stock 472 519 108 Repurchase of common stock (2,702) (404) (971) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,230) 115 (863) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 184 (212) --- - ------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,990 (9,346) 5,452 Cash and cash equivalents at beginning of year 15,118 24,464 19,012 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $17,108 $15,118 $24,464 =================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Non-cash financing activities: Stockholder note receivable $243 --- --- Rabbi Trust shares 607 --- --- Stock issued in connection with acquisition 180
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Notes to Consolidated Financial Statements, May 31, 1999 Note 1 - Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition -- Gross revenue is principally recognized as in-house labor hours are incurred on projects. It also includes the revenue from services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Net revenue represents gross revenue excluding the cost of services subcontracted to third parties. Revenue from fixed price contracts are recognized on a percentage of completion basis which is determined using the percentage of the costs incurred to the total costs expected. Overruns or efficiencies on all contracts are recognized in the period when such results are reasonably determinable. Depreciation - Equipment is recorded at cost. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets, primarily between three and seven years. Income Taxes - The Company accounts for income taxes pursuant to the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under which the liability method is used to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Segment Information - The Company is a single segment entity providing primarily environmental and infrastructure engineering consulting services. The Company also provides construction management, construction and geotechnical services. Approximately 4% of the Company's net revenue was recognized in foreign countries in fiscal 1999, 6% in fiscal 1998, and 7% in fiscal 1997. In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise," replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. Management has evaluated (i) the Company's operations and its methodology for making operating decisions and (ii) the provisions of SFAS 131, and has concluded that the services provided by the Company represent one reportable segment. SFAS 131 also requires additional enterprise-wide disclosures about products and services, geographical areas and major customers. This information is included in Note 13 of these Financial Statements. The adoption of SFAS 131 did not affect the results of operations or financial position of the Company. Net Income per Share - The Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128") in the third quarter of fiscal 1998. SFAS 128 requires companies to present both basic net income per share and diluted net income per share. Basic net income per share excludes dilutive common stock equivalents and is calculated as net income divided by the weighted average number of common shares outstanding. Diluted net income per share is computed using the weighted average number of common shares outstanding and dilutive common stock equivalents outstanding during the period. Reporting Comprehensive Income - The Company adopted Financial Accounting Standard Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") in the third quarter of fiscal 1999. SFAS 130 established standards for reporting comprehensive income and its components. At present, comprehensive income for the Company includes net income and translation adjustments on foreign currency. Comprehensive income (in thousands) for the years ending May 31 is as follows:
12 months ending May 31, 1999 1998 Net income/(loss) $(842) $2,488 Foreign currency translation adjustment 184 (212) ------- ------- Comprehensive income/(loss) $(658) $2,276 ===== ======
Cash and Cash Equivalents - Cash and cash equivalents include bank demand deposits and short-term AAA rated investments with an effective maturity of less than three months. Rabbi Trust--The Company has a grantor trust to fund deferred compensation for certain employees (a "Rabbi Trust"). The assets in the trust, consisting of cash equivalents and equity securities, are quoted at current market prices as determined by the trustee, principally based upon national exchange and over-the-counter markets, and are available to satisfy claims of the Company's general creditors in the event of its bankruptcy. Previously, these assets were not consolidated in the Company's financial statements. During 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board issued EITF 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested". This pronouncement states that assets held by a Rabbi Trust and the related deferred compensation obligation should be consolidated with those of the employer. The trust's assets and the corresponding deferred compensation obligation are included in the accompanying balance sheet at May 31, 1999. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Unconsolidated Subsidiaries - The Company uses the equity method of accounting for investments in unconsolidated subsidiaries. During fiscal 1999, there was no activity with respect to unconsolidated subsidiaries. During fiscal 1998 and 1997, the Company reported $50,000 and $500,000 in losses, respectively. Accounting for Stock-Based Compensation - The Company accounts for its employee stock plans under the intrinsic-value-based method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of the net assets of various entities acquired by the Company. The Company currently amortizes goodwill on a straight line basis over 15 to 40 years. Other intangible assets, if any, recorded in connection with acquisitions are amortized on a straight line basis over the estimated useful lives of the respective assets, but not exceeding 15 years. The Company evaluates the realizability and the related periods of amortization of these assets on a regular basis. Concentrations of Credit Risk - The Company's receivables reflect its client mix, which includes a variety of industrial concerns and various agencies of the Federal Government. Services to one client, the Department of the Army, accounted for approximately 12%, 12%, and 19% of the Company's gross revenue in fiscal 1999, 1998 and 1997, respectively. Credit is extended based on an evaluation of the client's financial condition and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. Services to Federal Government bodies (excluding services provided to the Federal Government by ABB-ES during fiscal 1999), primarily non-regulatory, amounted to 18%, 21% and 25% of gross revenue in fiscal 1999, 1998 and 1997, respectively. Services to the Federal Government, including those provided by ABB-ES, during fiscal 1999 amounted to 24% of gross revenue. Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31. Fiscal years 1999, 1998, and 1997 consisted of 52 weeks. Reclassifications - Certain prior year amounts have been reclassified to conform to current year presentations. Note 2 - Line of Credit Bank Credit Line - The Company has a line of credit with a bank under which it can borrow amounts up to $20 million. At May 31, 1999, 1998, and 1997, there were no borrowings under the Company's line of credit. Under the terms of the line of credit, which expires in November 2000, the Company is required, among other things, to maintain minimum working capital, current ratio and tangible net worth levels and is not to exceed a defined maximum debt to tangible net worth ratio. Borrowings under the line will be secured by certain of the Company's assets and will be at either the bank's prime rate or LIBOR at the Company's option. The interest rate at which the Company could borrow funds was 6.4% at May 31, 1999 and 5.7% at May 31, 1998 and May 31, 1997. At May 31, 1999, as a result of Restructuring Charges (see Note 11), the Company was in violation of certain financial performance covenants. Such violation was waived by the bank. The Company was in compliance with all debt covenants relating to its credit agreements at May 31, 1998 and 1997. Interest paid by the Company was $44,000, $34,000 and $38,000 in fiscal years 1999, 1998, and 1997, respectively. 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, 1999 Allowance for doubtful accounts $1,085 796 (117) $1,764 Allowance for amounts unbillable 751 --- (51) 700 Year ended May 31, 1998 Allowance for doubtful accounts $1,087(1) $30 $(32) $1,085 Allowance for amounts unbillable 751 --- --- 751 Year ended May 31, 1997 Allowance for doubtful accounts $725 $160 $(248) $637 Allowance for amounts unbillable 751 --- --- 751 (1) The beginning balance for fiscal 1998 was adjusted to reflect $450 of acquired reserves from the acquisition of ABB-ES.
Note 4 - Income Taxes The provision for income taxes consists of the following (in thousands):
Years Ended May 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Current: Federal $1,598 $1,295 $2,104 Foreign 16 61 177 State and Local 424 272 533 - ------------------------------------------------------------------------------------------------------------------- 2,038 1,628 2,814 - ------------------------------------------------------------------------------------------------------------------- Deferred: Federal (1,281) 94 (756) Foreign (38) (28) (30) State and Local (307) 2 (136) - ------------------------------------------------------------------------------------------------------------------- (1,626) 68 (922) - ------------------------------------------------------------------------------------------------------------------- TOTAL $412 $1,696 $1,892 ===================================================================================================================
Income (loss) before provision for income taxes and minority interest is as follows (in thousands):
Years Ended May 31, 1999 1998 1997 Domestic $1,306 $4,107 $4,331 Foreign (1,874) 155 (43) - ------------------------------------------------------------------------------------------------------------------- Total $(568) $4,262 $4,288 ===================================================================================================================
A reconciliation between the statutory federal income tax rate and the effective income tax rates is as follows:
Years Ended May 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% State and local income taxes, net of federal tax benefits (18.6) 5.9 6.1 Foreign taxes (75.6) (0.4) 3.0 Tax exempt interest 18.8 (5.3) (3.0) Goodwill amortization (20.2) 0.8 0.6 Other, net (10.9) 4.8 3.4 - ------------------------------------------------------------------------------------------------------------------- Effective income tax rates (72.5)% 39.8% 44.1% ===================================================================================================================
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, 1999 1998 Deferred Tax Liabilities: Prepaid expenses $(56) $(32) Deferred revenue (585) --- Deferred state income taxes (339) (328) - ------------------------------------------------------------------------------------------------------------------- Total Deferred Tax Liabilities (980) (360) - ------------------------------------------------------------------------------------------------------------------- Deferred Tax Assets: Deferred revenue $--- $36 Allowances for doubtful accounts and amounts unbillable 1,012 535 Depreciation and amortization of intangibles 540 449 Employee benefits 3,354 2,250 Claims reserves 685 627 Rental inducements 310 346 Deferred tax assets resulting from the acquisition of ABB Environmental Services, Inc. 1,332 1,391 Other, net 877 289 - ------------------------------------------------------------------------------------------------------------------- Total Deferred Tax Assets 8,110 5,923 - ------------------------------------------------------------------------------------------------------------------- Less: Valuation allowance on deferred tax assets resulting from the acquisition of ABB Environmental Services, Inc. (1,332) (1,391) - ------------------------------------------------------------------------------------------------------------------- Net Deferred Assets $5,798 $4,172 ===================================================================================================================
The Company has recorded a valuation allowance of $1.3 million and $1.4 million for the years ended May 31, 1999 and May 31, 1998 respectively. The valuation allowance represents a full reserve against the deferred tax assets resulting from the acquisition of ABB-ES. Realization of ABB-ES's underlying tax assets would result in a decrease of the goodwill associated with this acquisition. Income taxes paid were as follows (in thousands): 1999 $1,448 1998 1,947 1997 945 Note 5 - Other Assets Other assets consist of the following (in thousands):
May 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Goodwill and other intangible assets, net of accumulated amortization of 3,419 in 1999 and $3,150 in 1998 $9,279 $9,287 Non-current deferred income taxes 781 1,464 Deposits and other 490 521 - ------------------------------------------------------------------------------------------------------------------ Total $10,550 $11,272 ===================================================================================================================
Note 6 - Other Liabilities and Accrued Expenses Other liabilities consist of the following (in thousands):
May 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Claims reserves $1,119 $1,084 Note payable 516 --- - ------------------------------------------------------------------------------------------------------------------- Total $1,635 $1,084 ===================================================================================================================
Accrued expenses consist of the following (in thousands):
May 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Accrued restructuring charges $2,768 $--- Accrued employee benefits and related charges 2,769 2,174 Other 5,021 3,176 - ------------------------------------------------------------------------------------------------------------------- Total $10,558 $5,350 ===================================================================================================================
Note 7 - Defined Contribution Pension Plan The Company has a defined contribution pension plan that covers substantially all of its employees. The Company's contributions to the plan are discretionary and may be in the form of cash payments or the Company's common stock. The amounts charged to operations for this plan were $1,264,000 for fiscal 1999, $824,000 for fiscal 1998, and $615,000 for fiscal 1997. The increase in fiscal 1999 compared to 1998 was due to the addition of, for a full year, employees eligible for the Company match due to the acquisitions of ABB-ES and REPS. The contribution for 1999 was made in cash, while the contributions for 1998 and 1997 were made with the Company's common stock. Note 8 - Acquisitions On May 8, 1998 the Company acquired all the outstanding shares of ABB-ES, a consulting and engineering firm, from ABB Services, Inc. Total consideration of $12 million, excluding transaction costs, was paid entirely in cash. The acquisition was accounted for using the purchase method and accordingly the purchase price was allocated to the assets and liabilities acquired based upon their fair market value. The excess of purchase price of the acquisition over the fair market value of the net assets acquired was recorded as goodwill. The final determination of such excess amount is subject to a final assessment of the value of the consideration paid and the net assets acquired. Goodwill of $5.7 million will be amortized on a straight line basis over 20 years. The results of operation for ABB-ES have been included in the Company's financial statements for the period of May 9, 1998 through May 31, 1998. The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired ABB-ES on June 1, 1996 (in thousands):
Fiscal Years Ended May 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net revenue $116,788 $123,564 Income/(loss) before income taxes 6,250 4,465 Net income/(loss) 3,560 2,413 Basic net income/(loss) per share $0.72 $0.49 Shares used in computing basic net income/(loss) per share 4,959 4,926 Diluted net income/(loss) per share $0.70 $0.49 Shares used in computing diluted net income/(loss) per share 5,087 4,950
On December 18, 1998, the Company acquired REPS located in Florida. Total consideration, excluding transaction costs, was $1.2 million in cash and 24,930 shares of common stock of the Company. The acquisition was accounted for using the purchase method and accordingly, the purchase price was allocated to the assets and liabilities acquired based upon their fair market value. The excess of purchase price of the acquisition over the fair market value of the net assets acquired was recorded as goodwill. Goodwill of $884 will be amortized on a straight-line basis over 15 years. The results of REPS' operations from the date of acquisition were included in the Company's consolidated financial statements. Had the acquisition taken place on June 1, 1998, the Company's 1999 results of operations would not have been materially different. Note 9 - Shareholders Equity The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of option valuation models that were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable and not for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Stock Option Plans - In July 1987, the Company adopted, and the shareholders approved, the 1987 Stock Option Plan that provided for the granting of stock options to employees and non-employee directors at no less than the fair market value of the common stock on the grant date. A total of 525,000 shares of the Company's common stock was reserved for issuance under this plan. The 1987 plan expired in July 1997 and no further options may be granted under that plan. As of May 31, 1999, 15,000 options remained outstanding and unexercised. In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock Option Plan that provided for the granting of stock options to employees. In November 1989, the plan was amended to provide for the granting of options to non-employee directors. Stock options could have been incentive or non-statutory. Non-statutory stock options could have been either restricted or non-restricted. All incentive stock options and non-restricted non-statutory stock options are to be granted at no less than the fair market value of the common stock on the grant date. Restricted stock options may be granted at a price determined by the Board of Directors, but shall not be less than $1.00 per share. A total of 1,050,000 shares of the Company's common stock has been reserved for issuance under this plan. The 1988 Plan expired in August 1998 and no further options may be granted under that Plan. As of May 31, 1999, 600,250 options remained outstanding and unexercised. In November 1998, the Company's shareholders approved the 1998 Stock Option Plan that provides for the grant of stock options to employees and non-employee directors. A total of 500,000 shares of the Company's common stock has been reserved for issuance under this plan. All options granted under the stock option plans have 10 year terms, and vest and become fully exercisable after three or four years of continued employment. Following is a summary of options granted under the Company's stock option plans:
Optioned Shares Range Weighted Number of Average of Exercise Exercise Shares Prices Price BALANCE MAY 31, 1996 1,010,000 $1.00 $14.30 $8.90 - ------------------------------------------------------------------------------------------------------------------- Options granted 10,500 6.25 7.25 6.63 Options canceled (174,063) 5.50 14.13 9.13 Options exercised (6,000) 1.00 5.50 4.00 - ------------------------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1997 840,437 $1.00 $14.30 $8.85 - ------------------------------------------------------------------------------------------------------------------- Options granted 171,000 6.75 9.94 7.10 Options canceled (149,187) 6.13 14.13 8.63 Options exercised (59,750) 1.00 8.17 7.26 - ------------------------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1998 802,500 $1.00 $14.30 $8.64 - ------------------------------------------------------------------------------------------------------------------- Options granted 416,500 5.06 9.13 6.25 Options canceled (160,750) 5.06 14.30 8.72 Options exercised (38,500) 1.00 7.50 6.11 - ------------------------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1999 1,019,750 $5.06 $14.30 $8.05 - -------------------------------------------------------------------------------------------------------------------
Under the Company's stock option plans, 460,750 and 550,375 options were exercisable at May 31, 1999 and 1998, respectively, at exercise prices ranging from $5.06 to $14.30. The contractual life at May 31, 1999, was two to ten years, with a weighted average contractual life of seven years. The following is a summary of fixed stock options outstanding and exercisable by price range at May 31, 1999:
Options Outstanding Options Exercisable Weighted Shares Average Shares Out- Remaining Weighted Exer- Weighted standing Contrac- Average cisable Average Range of as of tual Exercise as of Exercise Exercise Prices 5/31/99 Life Price 5/31/99 Price $5.0630 - $5.5000 217,000 8.36 $5.1899 61,500 $5.5000 5.8750 - 6.7500 186,500 7.58 6.5452 49,000 6.1317 6.8750 - 6.9375 133,000 9.72 6.9361 3,000 6.8750 7.0000 - 7.6250 154,000 4.74 7.4943 141,000 7.4823 8.7500 - 10.0000 129,000 9.46 9.8838 6,000 9.2500 11.1250 - 12.5000 169,750 2.23 12.2496 169,750 12.2496 14.1250 - 14.3000 30,500 2.96 14.1480 30,500 14.1480 ------ ---- ------- ------ ------- $5.0630 - $14.3000 1,019,750 6.81 $8.0504 460,750 $9.2908
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan ("ESPP Plan") was approved and subsequently amended by the Company's Board of Directors and Shareholders. A total of 250,000 shares of the Company's common stock has been reserved for issuance pursuant to this plan at a price that is 85% of the stock's fair market value. As of May 31, 1999, a total of 203,038 shares has been purchased through this plan. 1995 Executive Stock Incentive Plan - In November 1995, the Company's shareholders approved a stock incentive plan that reserved 200,000 shares of common stock to be awarded to selected executives of the Company in lieu of, or in addition to, regular or bonus compensation. As of May 31, 1999, a total of 60,797 shares have been issued through this plan. Non-employee Directors Stock Compensation Plan - In December 1996, the Company established a non-employee directors stock compensation plan that reserved 100,000 shares to be issued to non-employee directors of the Company. Directors can elect to have all or a portion of their director compensation paid in the form of common stock of the Company in lieu of cash compensation. A total of 53,339 shares has been issued under this plan as of May 31, 1999. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and is determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of each option grant under the fixed price option plans and the fair value of the employee's purchase rights under the employee stock purchase plan were estimated at the date of grant using a Black-Scholes option-pricing model. The dividend yield was assumed to be zero for both periods below. The weighted-average of all other significant assumptions and the weighted-average fair value of grants made during the years ended May 31, 1999 and 1998 are as follows:
May 31, 1999 May 31, 1998 Option Plan ESPP Plan Option Plan ESPP Plan Volatility 63.88% 63.88% 48.10% 48.10% Risk-free interest rate 5.39 % 4.90% 6.52% 5.69% Expected lives 5.09 yrs 0.5 yrs 5.0 yrs 0.5 yrs Fair value of grants $3.54 $3.78 $3.56 $3.55
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income/(loss) in thousands and earnings per share would have been ($1,104) or ($0.23) basic and diluted net income per share, and $2,291 or $0.46 basic and $0.45 diluted net income per share for the fiscal years 1999 and 1998, respectively. Note 10 - Commitments and Contingencies The Company leases certain premises and equipment under operating lease agreements. Future minimum commitments under leasing arrangements at May 31,1999 were as follows (in thousands): Operating Leases Year ending May 31: 1999 $ 6,007 2000 4,065 2001 2,942 2002 2,310 2003 and thereafter 933 - -------------------------------------------------------------------------------- Minimum commitments $16,257 Rental expense was $5.9 million in 1999, $5.5 million in 1998, and $5.4 million in 1997. Lease terms expire between June 1999 and May 2004. Most leases contain a renewal option at fair market value. The Company has a substantial number of U.S. Government contracts, under which the costs are subject to audit. Management believes that the effect of disallowed costs, if any, will not have a material adverse effect on the financial position or results of operations of the Company. The Company is currently subject to certain claims and lawsuits arising in the ordinary course of its business. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these claims and lawsuits and in the aggregate such claims will not have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company has a $15 million per occurrence, $25 million aggregate contractor's operations and professional services insurance policy through an unrelated insurance carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Note 11 - Restructuring Charges In May 1999, the Company recorded charges for (i) anticipated losses associated with the planned disposal of its investments in its Australian and Mexican operations; such investments have been written down to their anticipated net realizable value, (ii) severance and other costs associated with the corporate reorganization and corporate office relocation, and (iii) the writedown of goodwill associated with the Company's acquisition of EEC Environmental, Inc. in 1993. The following table reflects the components of costs reflected as Restructuring Charges for fiscal 1999 (in thousands): Anticipated losses associated with the planned disposal of Australian operations $1,904 Mexican operations 250 Severance costs 1,629 Corporate office closure/relocation 400 Write-down of goodwill 200 ------- $4,383 As of May 31, 1999, the accompanying consolidated financial statements reflect $2,768,000 in Accrued Expenses in connection with the Restructuring Charges. Since the Restructuring Charges were recorded in May 1999, no offsets or payments related to such accruals were recorded prior to the end of fiscal 1999. The remaining charges were recorded as a reduction to the related assets including a $1 million write-down of goodwill. Note 12 - Investments in Equity Securities In accordance with SFAS No. 115 and EITF 97-14 and based on the Company's intentions regarding these instruments, the Company has classified its marketable equity securities as trading (included in "Investments - Rabbi Trust" in the accompanying consolidated balance sheet. At May 31, 1999, the aggregate fair value of these equity securities was $3,629. These securities consist solely of mutual funds held entirely with a large financial management institution. The Company has evaluated the risk associated with these investments and has deemed such risk minimal. Note 13 - Segment Information In fiscal 1999, the Company adopted SFAS 131 and concluded that it has one reportable segment. The following information is provided as required by the enterprise-wide provisions of SFAS 131, about the Company's operations. The table below presents information about net revenue from external customers for the services provided by the Company (in thousands):
Years Ended May 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Products and Services Environmental Services $95,928 $73,906 $72,210 Infrastructure Services 12,830 9,545 12,066 -------- ------- ------- Company Total $108,758 $83,451 $84,276 ======== ======= =======
The table below presents information (in thousands) about revenue from external customers attributable to the Company's country of domicile and attributable to all foreign countries. The method for attributing revenues from particular countries is based on the location where the service is actually being provided. Individual countries are not shown because they are not material. The two main foreign countries in which the Company has operations are Australia and Mexico.
Years Ended May 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Country United States $104,524 $78,205 $77,198 Australia/Mexico 4,234 5,246 7,078 -------- ------- ------- Company Total $108,758 $83,451 $84,276 ======== ======= =======
The table below presents information about long-lived assets attributable to the Company's country of domicile and attributable to all foreign countries (in thousands):
Years Ended May 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Country United States $86,691 $72,473 $63,244 Australia/Mexico 450 4,145 4,122 ------- ------- -------- Company Total $87,141 $76,618 $67,366 ======= ======= =======
The amounts included for net revenue and total assets are based on the financial information used to produce these financial statements. Note 14 - Selected Quarterly Financial Data (Unaudited) The Company's fiscal quarters end on August 31, November 30, February 28, and May 31. Selected quarterly financial data for fiscal 1999 and 1998 are summarized as follows (in thousands, except per share data):
Quarterly Data First Second Third Fourth Quarter Quarter Quarter Quarter YEAR ENDED MAY 31, 1999 - ------------------------------------------------------------------------------------------------------------------- Net revenue $27,681 $26,797 $26,295 $27,985 Operating income/(loss) 1,646 120 553 (3,338) (1) Net income/(loss) 1,013 139 414 (2,408) (1) Basic net income/(loss) per share $0.21 $0.03 $0.09 $(0.50) Shares used in computing basic net Income/(loss) per share 4,896 4,835 4,815 4,852 Diluted net income/(loss) per share $0.20 $0.03 $0.09 $(0.50) Shares used in computing diluted net Income/(loss) per share 4,999 4,854 4,830 4,852 - ------------------------------------------------------------------------------------------------------------------- YEAR ENDED MAY 31, 1998 - ------------------------------------------------------------------------------------------------------------------- Net revenue $21,681 $21,280 $19,081 $21,409 Operating income 1,327 1,265 202 426 Net income 920 891 254 423 Basic net income per share $0.19 $0.18 $0.05 $0.08 Shares used in computing basic net income per share 4,887 4,971 4,986 4,992 Diluted net income per share $0.19 $0.17 $0.05 $0.08 Shares used in computing diluted net income per share 4,928 5,133 5,142 5,145 - ------------------------------------------------------------------------------------------------------------------- (1) The operating loss and net loss in the fourth quarter of fiscal 1999 result primarily from the Restructuring Charges.
Report of Ernst & Young LLP, Independent Auditors Board of Directors and Shareholders Harding Lawson Associates Group, Inc. Novato, California We have audited the accompanying consolidated balance sheets of Harding Lawson Associates Group, Inc. as of May 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harding Lawson Associates Group, Inc. at May 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1999, in conformity with generally accepted accounting principles. Ernst & Young LLP San Francisco, California July 7, 1999 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 September 17, 1999, that is to be filed pursuant to regulation 14A under the Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information set forth under the caption "Proposal No. 1: Election of Directors -- Compensation of Directors and Executive Officers" of the Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set forth under the caption "Proposal No. 1: Election of Directors" under the headings "Security Ownership of Management" and "Principal Shareholders" of the Proxy Statement is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information set forth under the caption "Proposal No. 1: Election of Directors -- Certain Relationships and Related Transactions" of the Proxy Statement is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (i) Consolidated Financial Statements The following consolidated financial statements of the Company are included in Item 8, above. Consolidated Balance Sheets, May 31, 1999 and 1998 Consolidated Statements of Income for the years ended May 31, 1999, 1998, and 1997 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1999, 1998, and 1997 Consolidated Statements of Cash Flows for the years ended May 31, 1999, 1998, and 1997 Notes to Consolidated Financial Statements Report of Ernst and Young LLP, Independent Auditors (ii) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (iii) Exhibits Exhibits marked with a single asterisk are attached as Exhibits to this Annual Report. 2.1 Stock Purchase Agreement effective May 8, 1998 by and among the Company and ABB Services, Inc., incorporated by reference from the Company's Form 8-K, as filed with the Commission on May 21, 1998, where it appeared as Exhibit 2.1 thereto. 3.1 Restated Certificate of Incorporation of the Company, incorporated by reference from amendment No. 1 to the Company's Registration Statement on Form S-1 under the 1933 Act, Registration No. 33-15852, that was filed with the Commission on August 14, 1987 ("Amendment No. 1"), where it appears as Exhibit 3(a) thereto. 3.2 Amendment to Restated Certificate of Incorporation changing the Company's name from Harding Associates, Inc. to Harding Lawson Associates Group, Inc., incorporated by reference from the Company's 1996 Annual Report on Form 10-K, as filed with the Commission on August 29, 1996 ("1996 Form 10-K"), where it appears as Exhibit 3.2 thereto. 3.3 Bylaws of the Company, incorporated by reference from Amendment No. 1, where they appear as Exhibit 3(c) thereto. 10.1@ Harding Lawson Associates Group, Inc. 1987 Stock Option Plan, incorporated by reference from the Company's 1988 Annual Report on Form 10-K, as filed with the Commission on August 28, 1988 ("1988 Form 10-K"), where it appears as Exhibit 4(b) thereto. 10.2@ Harding Lawson Associates Group, Inc. revised 1988 Stock Option and Restricted Stock Option Plan incorporated by reference from the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on August 25, 1994 ("1994 Form 10-K"), where it appears as Exhibit 10.2 thereto. 10.3 Amendment to the Harding Lawson Associates Group, Inc. 1991 Employee Stock Purchase Plan, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.3 thereto. 10.4@* Harding Lawson Associates Group, Inc. 1998 Stock Option Plan. 10.5@ Form of Directors' and Officers' Indemnification Agreements, incorporated by reference from the Registration Statement where it appears as Exhibit 10(a) thereto. 10.6 Line of credit agreement with Wells Fargo Bank, N.A.as amended October 31, 1997. 10.7* Amendment to Line of Credit with Wells Fargo Bank, N.A. dated December 1, 1998. 10.8@ 1995 Executive Stock Incentive Plan approved by the Company's Shareholders in November 1995, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.9 thereto. 10.9 Non-employee Director Compensation Plan dated April 27, 1997, incorporated by reference from the 1997 Form 10-K, where it appears as Exhibit 10.10 thereto. 10.10 Non-qualified Deferred Compensation Plan as amended June 2, 1998, incorporated by reference from the 1998 Form 10-K, where it appears as Exhibit 10.11 thereto. 10.11*@ Executive Separation and General Release dated December 1, 1998 for Donald L. Schreuder. 10.12@ Employment Agreement dated March 19, 1999 for Robert L. Costello, Jr., incorporated by reference from the Form 10-Q for the quarterly period ended February 28, 1999, where it appears as Exhibit 10.12 thereto. 10.13@ Executive Retention Agreement dated February 17, 1999 for Claude Corvino, incorporated by reference from the Form 10-Q for the quarterly period ended February 28, 1999, where it appears as Exhibit 10.13 thereto. 10.14@ Executive Retention Agreement dated February 17, 1999 for Arthur C. Riese, incorporated by reference from the Form 10-Q for the quarterly period ended February 28, 1999, where it appears as Exhibit 10.14 thereto. 10.15@ Executive Retention Agreement dated February 17, 1999 for Gregory A. Thornton, incorporated by reference from the Form 10-Q for the quarterly period ended February 28, 1999, where it appears as Exhibit 10.15 thereto. 10.16*@ Amendment to Retention Agreement effective July 9, 1999 for Claude Corvino. 10.17*@ Amendment to Retention Agreement effective July 9, 1999 for Arthur C. Riese. 10.18*@ Amendment to Retention Agreement effective July 9, 1999 for Gregory A. Thornton. 11.* Computation of Per Share Earnings. 21.* Subsidiaries of the Registrant. 23.* Consent of Ernst and Young LLP, Independent Auditors 27. Financial Data Schedule (electronic filing only). * Exhibits are attached to this Annual Report. @ Management contracts and compensatory plans or arrangements required to be filed as Exhibits in compliance with Item 14(a)(3). The Company will provide a copy of any exhibit upon request and payment of the Company's reasonable expenses of furnishing such exhibit. (b) Reports on Form 8-K Date of Report Item Reported October 2, 1998 Item 5: Donald L. Schreuder resigns as Chief Executive Officer. March 17, 1999 Item 5: Robert L. Costello, Jr. named as Chief Executive Officer. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HARDING LAWSON ASSOCIATES GROUP, INC. Date: July 28, 1999 By: /s/ Robert L. Costello, Jr. ------------------------------------------- Robert L. Costello, Jr. President and Chief Executive Officer (Principal Executive Officer) Date: July 28, 1999 By: /s/ Gregory A. Thornton --------------------------------------------- Gregory A. Thornton Vice President and Chief Financial Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ross K. Anderson Director August 2, 1999 - -------------------------- Ross K. Anderson /s/ Robert L. Costello, Jr. Chief Executive Officer July 28, 1999 - --------------------------- and Director Robert L. Costello, Jr. /s/ James M. Edgar Director August 3, 1999 - -------------------------- James M. Edgar /s/ Richard S. Harding Director and Chairman July 28, 1999 - -------------------------- Emeritus Richard S. Harding /s/ Stuart F. Platt Director July 28, 1999 - ------------------------- Adm. Stuart F. Platt (Ret.) /s/ Richard D. Puntillo Chairman of the Board July 28, 1999 - ------------------------ Richard D. Puntillo /s/ Donald K. Stager Director July 28, 1999 - ------------------------ Donald K. Stager Index to Exhibits Exhibit No. Exhibit 10.4 Harding Lawson Associates Group, Inc. 1998 Stock Option Plan. 10.7 Amendment to Line of Credit with Wells Fargo Bank, N.A. dated December 1, 1998. 10.11 Executive Separation and General Release dated December 1, 1998 for Donald L. Schreuder 10.16 Amendment to Retention Agreement effective July 9, 1999 for Claude Corvino. 10.17 Amendment to Retention Agreement effective July 9, 1999 for Arthur C. Riese. 10.18 Amendment to Retention Agreement effective July 9, 1999 for Gregory A. Thornton. 11. Computation of Per Share Earnings. 21. Subsidiaries of the Registrant 23. Consent of Ernst and Young LLP, Independent Auditors 27. Financial Data Schedule (Electronic filing only) EX-10 2 1998 STOCK OPTION PLAN Exhibit 10.4 HARDING LAWSON ASSOCIATES GROUP, INC. 1998 STOCK OPTION PLAN 1. Adoption and Purpose of the Plan. This stock option plan, to be known as the "Harding Lawson Associates 1998 Stock Option Plan" (but referred to herein as the "Plan") has been adopted by the board of directors (the "Board") of Harding Lawson Associates Group, Inc., a Delaware corporation (the "Company"), and is subject to the approval of its shareholders pursuant to section 7 below. The purpose of this Plan is to advance the interests of the Company and its shareholders by enabling the Company to attract and retain qualified directors, officers, and employees with an opportunity for investment in the Company. The options that may be granted hereunder ("Options") represent the right by the grantee thereof (each, including any permitted transferee, an "Optionee") to acquire shares of the Company's common stock ("Shares," which if acquired pursuant to the exercise of an Option will be referred to as "Option Shares") subject to the terms and conditions of this Plan and a written agreement between the Company and the Optionee to evidence each such Option (an "Option Agreement"). 2. Certain Definitions. The defined terms set forth in Exhibit A attached hereto and incorporated herein (together with other capitalized terms defined elsewhere in this Plan) will govern the interpretation of this Plan. 3. Eligibility. The Company may grant Options under this Plan only to persons who, at the time of such grant, are directors, officers and/or employees of the Company and/or any of its Subsidiaries (collectively, "Eligible Participants"). No person will be an Eligible Participant following his or her Termination of Eligibility Status and no Option may be granted to any person other than an Eligible Participant. There is no limitation on the number of Options that may be granted to an Eligible Participant. 4. Shares Reserved for Options. The plan shall consist of 500,000 Option Shares. At all times while Options granted under this Plan are outstanding, the Company will reserve for issuance for the purposes hereof a sufficient number of authorized and unissued Shares to fully satisfy the Company's obligations under all such outstanding Options. 5. Administration. This Plan will be administered and interpreted by the Board, or by a committee consisting of two or more members of the Board, appointed by the Board for such purpose (the Board, or such committee, referred to herein as the "Administrator"). Subject to the express terms and conditions hereof, the Administrator is authorized to prescribe, amend and rescind rules and regulations relating to this Plan, and to make all other determinations necessary or advisable for its administration and interpretation. Specifically, the Administrator will have full and final authority in its discretion, subject to the specific limitations on that discretion as are set forth herein and in the Articles of Incorporation and Bylaws of the Company, at any time: (a) to select and approve the Eligible Participants to whom Options will be granted from time to time hereunder; (b) to determine the Fair Market Value of the Shares as of the Grant Date for any Option that is granted hereunder; (c) with respect to each Option it decides to grant, to determine the terms and conditions of that Option, to be set forth in the Option Agreement evidencing that Option (the form of which also being subject to approval by the Administrator), which may vary from the "default" terms and conditions set forth in section 6 below, except to the extent otherwise provided in this Plan, including, without limitation, as follows: (i) the total number of Option Shares that may be acquired by the Optionee pursuant to the Option; (ii) if the Option satisfies the conditions under Section 422(b) of the Code, whether the Option will be treated as an ISO; (iii) the per share purchase price to be paid to the Company by the Optionee to acquire the Option Shares issuable upon exercise of the Option (the "Option Price"); (iv) the maximum period or term during which the Option will be exercisable (the "Option Term"); (v) the maximum period following any Termination of Eligibility Status, whether resulting from an Optionee's death, disability or any other reason, during which period (the "Grace Period") the Option will be exercisable, subject to Vesting and to the expiration of the Option Term; (vi) whether to accept a promissory note or other form of legal consideration in addition to cash as payment of all or a portion of the Option Price and/or Tax Withholding Liability to be paid by the Optionee upon the exercise of an Option granted hereunder; (vii) the conditions (e.g., the passage of time or the occurrence of events), if any, that must be satisfied prior to the vesting of the right to exercise all or specified portions of an Option (such portions being described as the number of Option Shares, or the percentage of the total number of Option Shares that may be acquired by the Optionee pursuant to the Option; the vested portion being referred to as a "Vested Option" and the unvested portion being referred to as an "Unvested Option"); and (d) to delegate all or a portion of the Administrator's authority under sections 5(a), (b) and (c) above to one or more members of the Board who also are executive officers of the Company, and subject to such restrictions and limitations as the Administrator may decide to impose on such delegation. 6. Default Terms and Conditions of Option Agreements. Unless otherwise expressly provided in an Option Agreement based on the Administrator's determination pursuant to section 5(c) above, the following terms and conditions will be deemed to apply to each Option as if expressly set forth in the Option Agreement: 6.1 ISO. No Option will be treated as an ISO unless treatment as an ISO is expressly provided for in an Option Agreement and such Option satisfies the conditions of Section 422(b) of the Code. 6.2 Option Term. The Option Term will be for a period of 10 years beginning on the Grant Date (or 5 years in the case of an ISO granted to a 10% shareholder). 6.3 Grace Periods. Following a Termination of Eligibility Status: (a) Unless the Termination of Eligibility Status is a result of a Qualified Retirement or Termination for Cause, that portion of the Option that is a Vested Option will be exercisable for 30 days from the date of termination, except in the case of death or permanent disability, when such Vested Options will be exercisable for one year from the date of death or determination of permanent disability; (b) If the termination of Eligibility Status is the result of a Qualified Retirement, that portion of the Option that is a Vested Option will be exercisable at any time prior to the expiration of the Option Term; and (c) the Option will terminate, and there will be no Grace Period, effective immediately as of the date and time of a Termination for Cause of the Optionee, regardless of whether the Option is Vested or Unvested. 6.4 Vesting. The Option initially will be deemed an entirely Unvested Option, but portions of the Option will become a Vested Option on the following schedule, unless otherwise specified in the Option Agreement: (a) fifty percent (50%) will become a Vested as of the second anniversary of the "Grant Date" specified in the Option Agreement; and (b) twenty-five percent (25%) of the Option will become a Vested Option as of the third anniversary of the Grant Date; and (c) twenty-five percent (25%) of the Option will become a Vested Option as of the fourth anniversary of the Grant Date; provided that the Optionee does not suffer a Termination of Eligibility Status prior to each such vesting date and provided further that additional vesting will be suspended during any period while the Optionee is on a leave of absence from the Company or its Subsidiaries, as determined by the Administrator. 6.5 Exercise of the Option; Issuance of Share Certificate. (a) The portion of the Option that is a Vested Option may be exercised by giving written notice thereof to the Company, on such form as may be specified by the Administrator, but in any event stating: the Optionee's intention to exercise the Option; the date of exercise; the number of full Option Shares to be purchased; the amount and form of payment of the Option Price; and such assurances of the Optionee's investment intent as the Company may require to ensure that the transaction complies in all respects with the requirements of the 1933 Act and other applicable securities laws. The notice of exercise will be signed by the person or persons exercising the Option. In the event that the Option is being exercised by the representative of the Optionee, the notice will be accompanied by proof satisfactory to the Company of the representative's right to exercise the Option. The Option may be exercised by a securities broker acting on behalf of the Optionee pursuant to authorization instructions approved by the Company. The notice of exercise will be accompanied by full payment of the Option Price for the number of Option Shares to be purchased, in United States dollars, in cash, by check made payable to the Company, or by delivery of such other form of payment (if any) as approved by the Administrator. Payment may also be made by delivering a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay the Option Price and, if required, the amount of any Tax Witholding Liability. (b) To the extent required by applicable federal, state, local or foreign law, and as a condition to the Company's obligation to issue any Shares upon the exercise of the Option in full or in part, the Optionee will make arrangements satisfactory to the Company for the payment of any applicable Tax Withholding Liability that may arise by reason of or in connection with such exercise. Such arrangements may include, in the Company's sole discretion, that the Optionee tender to the Company the amount of such Tax Withholding Liability, in cash, by check made payable to the Company, by delivery of irrevocable instructions to a broker as described in the last sentence of section (a) above, or in the form of such other payment as may be approved by the Administrator, in its discretion pursuant to section 5(c)(vi) above. (c) After receiving a proper notice of exercise and payment of the applicable Option Price and Tax Withholding Liability, the Company will cause to be issued a certificate or certificates or an electronic transfer of shares, where requested, for the Option Shares as to which the Option has been exercised, registered in the name of the person rightfully exercising the Option and the Company will cause such certificate or certificates or electronic transfer to be delivered to such person. 6.6 Compliance with Law. Notwithstanding any other provision of this Plan, Options may be granted pursuant to this Plan, and Option Shares may be issued pursuant to the exercise thereof by an Optionee, only after and on the condition that there has been compliance with all applicable federal and state securities laws. The Company will not be required to list, register or qualify any Option Shares upon any securities exchange, under any applicable state, federal or foreign law or regulation, or with the Securities and Exchange Commission or any state agency, or secure the consent or approval of any governmental regulatory authority, except that if at any time the Board determines, in its discretion, that such listing, registration or qualification of the Option Shares, or any such consent or approval, is necessary or desirable as a condition of or in connection with the exercise of an Option and the purchase of Option Shares thereunder, that Option may not be exercised, in whole or in part, unless and until such listing, registration, qualification, consent or approval is effected or obtained free of any conditions that are not acceptable to the Board, in its discretion. However, the Company will seek to register or qualify with, or as may be provided by applicable local law, file for and secure an exemption from such registration or qualification requirements from, the applicable securities administrator and other officials of each jurisdiction in which an Eligible Participant would be granted an Option hereunder prior to such grant. 6.7 Restrictions on Transfer. (a) Options Nontransferable. No Option will be transferable by an Optionee otherwise than by will or the laws of descent and distribution. During the lifetime of a natural person who is granted an Option under this Plan, the Option will be exercisable only by him or her. Notwithstanding anything else in this Plan to the contrary, no Option Agreement will contain any provision which is contrary to, or which modifies, the provisions of this section 6.7(a). (b) Prohibited Transfers. No Holder of any Option Shares may Transfer such Shares, or any interest therein: (i) except as expressly provided in this Plan; and (ii) in full compliance with all applicable securities laws and any applicable restrictions on Transfer provided in the Company's Articles of Incorporation and/or Bylaws, which will be deemed incorporated by reference into this Plan. All Transfers of Option Shares not complying with the specific limitations and conditions set forth in this section 6.7 are expressly prohibited. Any prohibited Transfer is void and of no effect, and no purported transferee in connection therewith will be recognized as a Holder of Option Shares for any purpose whatsoever. Should such a Transfer purport to occur, the Company may refuse to carry out the Transfer on its books, attempt to set aside the Transfer, enforce any undertakings or rights under this Plan, or exercise any other legal or equitable remedy. (c) Conditions to Transfer. It will be a condition to any Transfer of any Option Shares that: (i) the transferee of the Shares will execute such documents as the Company may reasonably require to ensure that the Company's rights under this Plan, and any applicable Option Agreement, are adequately protected with respect to such Shares, including, without limitation, the transferee's agreement to be bound by all of the terms and conditions of this Plan and such Agreement, as if he or she were the original Holder of such Shares; and (ii) the Company is satisfied that such Transfer complies in all respects with the requirements imposed by applicable state and federal securities laws and regulations. (d) Market Standoff. If in connection with any public offering of securities of the Company (or any Successor Entity), the underwriter or underwriters managing such offering so requests, then each Optionee and each Holder of Option Shares will agree to not sell or otherwise Transfer any such Shares (other than Shares included in such underwriting) without the prior written consent of such underwriter, for such period of time as may be requested by the underwriter commencing on the effective date of the registration statement filed with the Securities and Exchange Commission in connection with such offering. 6.8 Change of Control Transactions. Except as otherwise provided in the Option Agreement, or any contract of employment or engagement between Optionee and the Company, in the event of a Change of Control Transaction, the Company shall endeavor to cause the Successor Entity in such transaction either to assume all of the Options which have been granted hereunder and which are outstanding as of the consummation of such transaction ("Closing"), or to issue (or cause to be issued) in substitution thereof comparable options of such Successor Entity (or of its parent or its Subsidiary). If the Successor Entity is unwilling to either assume such Options or grant comparable options in substitution for such Options, on terms that are acceptable to the Company as determined by the Board in the exercise of its discretion, then with respect to each outstanding Option, that portion of the Option which remains Unvested will become Vested immediately prior to such Closing; and the Board may cancel all outstanding Options, and terminate this Plan, effective as of the Closing, provided that it will notify all Optionees of the proposed Change of Control Transaction a reasonable amount of time prior to the Closing so that each Optionee will be given the opportunity to exercise the Vested portion of his or her Option (after giving effect to the acceleration of such vesting discussed above) prior to the Closing. For purposes of this section 6.8, the term "Change of Control Transaction" means (a) the sale of all or substantially all of the assets of the Company to any person or entity that, prior to such sale, did not control, was not under common control with, or was not controlled by, the Company, or (b) a merger or consolidation or other reorganization in which the Company is not the surviving entity or becomes owned entirely by another entity, unless at least fifty percent (50%) of the outstanding voting securities of the surviving or parent corporation, as the case may be, immediately following such transaction are beneficially held by such persons and entities in the same proportion as such persons and entities beneficially held the outstanding voting securities of the Company immediately prior to such transaction, or (c) the sale or other change of beneficial ownership of the outstanding voting securities of the Company such that any person or "group" as that term is defined under the Securities Exchange Act of 1934, as amended becomes the beneficial owner of more than 50% of the outstanding voting securities of the Company. 6.9 Additional Restrictions on Transfer; Investment Intent. By accepting an Option and/or Option Shares under this Plan, the Optionee will be deemed to represent, warrant and agree that, unless a registration statement is in effect with respect to the offer and sale of Option Shares: (i) neither the Option nor any such Shares will be freely tradeable and must be held indefinitely unless such Option and such Shares are either registered under the 1933 Act or an exemption from such registration is available; (ii) the Company is under no obligation to register the Option or any such Shares; (iii) upon exercise of the Option, the Optionee will purchase the Option Shares for his or her own account and not with a view to distribution within the meaning of the 1933 Act, other than as may be effected in compliance with the 1933 Act and the rules and regulations promulgated thereunder; (iv) no one else will have any beneficial interest in the Option Shares; (v) the Optionee has no present intention of disposing of the Option Shares at any particular time; and (vi) neither the Option nor the Shares have been qualified under the securities laws of any state and may only be offered and sold pursuant to an exception from qualification under applicable state securities laws. 6.10 Stock Certificates; Legends. Certificates representing Option Shares will bear all legends required by law and necessary or appropriate in the Administrator's discretion to effectuate the provisions of this Plan and of the applicable Option Agreement. The Company may place a "stop transfer" order against Option Shares until full compliance with all restrictions and conditions set forth in this Plan, in any applicable Option Agreement and in the legends referred to in this section 6.10. 6.11 Notices. Any notice to be given to the Company under the terms of an Option Agreement will be addressed to the Company at its principal executive office, Attention: Secretary, or at such other address as the Company may designate in writing. Any notice to be given to an Optionee will be addressed to him or her at the address provided to the Company by the Optionee. Any such notice will be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, deposited, postage prepaid, in a post office or branch post office regularly maintained by the local postal authority. 6.12 Other Provisions. Each Option Agreement may contain such other terms, provisions and conditions, including restrictions on the Transfer of Option Shares, and rights of the Company to repurchase such Shares, not inconsistent with this Plan and applicable law, as may be determined by the Administrator in its sole discretion. 6.13 Specific Performance. Under those circumstances in which the Company chooses to timely exercise its rights to repurchase Option Shares as provided herein or in any Option Agreement, the Company will be entitled to receive such Shares in specie in order to have the same available for future issuance without dilution of the holdings of other shareholders of the Company. By accepting Option Shares, the Holder thereof therefore acknowledges and agrees that money damages will be inadequate to compensate the Company and its shareholders if such a repurchase is not completed as contemplated hereunder and that the Company will, in such case, be entitled to a decree of specific performance of the terms hereof or to an injunction restraining such holder (or such Holder's personal representative) from violating this Plan or Option Agreement, in addition to any other remedies that may be available to the Company at law or in equity. 7. Term of the Plan. This Plan will become effective on the date of its adoption by the Board. This Plan will expire on the tenth (10th) anniversary of the date of its adoption by the Board or its approval by the shareholders of the Company, whichever is earlier, unless it is terminated earlier pursuant to section 11 of this Plan, after which no more Options may be granted under this Plan, although all outstanding Options granted prior to such expiration or termination will remain subject to the provisions of this Plan, and no such expiration or termination of this Plan will result in the expiration or termination of any such Option prior to the expiration or early termination of the applicable Option Term. 8. Adjustments Upon Changes in Stock. In the event of any change in the outstanding Shares of the Company as a result of a stock split, reverse stock split, stock bonus or distribution, recapitalization, combination or reclassification, appropriate proportionate adjustments will be made in: (i) the aggregate number of Shares that are reserved for issuance in the Option Pool pursuant to section 4 above, under outstanding Options or future Options granted hereunder; (ii) the Option Price and the number of Option Shares that may be acquired under each outstanding Option granted hereunder; and (iii) other rights and matters determined on a per share basis under this Plan or any Option Agreement evidencing an outstanding Option granted hereunder. Any such adjustments will be made only by the Board, and when so made will be effective, conclusive and binding for all purposes with respect to this Plan and all Options then outstanding. No such adjustments will be required by reason of the issuance or sale by the Company for cash or other consideration of additional Shares or securities convertible into or exchangeable for Shares. 9. Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, the Administrator may modify outstanding Options granted under this Plan, but under no circumstances may the shares be repriced or surrendered and replaced with other options bearing a lower exercise price. Notwithstanding the foregoing, however, no modification of any Option will, without the consent of the Optionee, alter or impair any rights or obligations under any outstanding Option. 10. Governing Law. The internal laws of the State of Delaware (irrespective of its choice of law principles) will govern the validity of this Plan, the construction of its terms and the interpretation of the rights and duties of the parties hereunder and under any Option Agreement. 11. Amendment and Discontinuance. The Board may amend, suspend or discontinue this Plan at any time or from time to time; provided that no action of the Board will, without the approval of the shareholders of the Company, materially increase (other than by reason of an adjustment pursuant to section 8 hereof) the maximum aggregate number of Option Shares in the Option Pool, or materially modify the category of, or eligibility requirements for, persons who are Eligible Participants. However, no such action may alter or impair any Option previously granted under this Plan without the consent of the Optionee, nor may the number of Option Shares in the Option Pool be reduced to a number that is less than the aggregate number of Option Shares (i) that may be issued pursuant to the exercise of all outstanding and unexpired Options granted hereunder, and (ii) that have been issued and are outstanding pursuant to the exercise of Options granted hereunder. 12. No Shareholder Rights. No rights or privileges of a shareholder in the Company are conferred by reason of the granting of an Option. No Optionee will become a shareholder in the Company with respect to any Option Shares unless and until the Option has been properly exercised and the Option Price fully paid as to the portion of the Option exercised. 13. Copies of Plan. A copy of this Plan will be delivered to each Optionee at or before the time he, she or it executes an Option Agreement. Date Plan Adopted by Board of Directors: September 25, 1998 Date Plan Approved by the Shareholders: November 4, 1998 EXHIBIT A DEFINITIONS 1. "10% shareholder" means a person who owns, either directly or indirectly by virtue of the ownership attribution provisions set forth in Section 424(d) of the Code at the time he or she is granted an Option, stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Company and/or of its Subsidiaries. 2. "1933 Act" means the Securities Act of 1933, as amended. 3. "Administrator" has the meaning set forth in section 5 of the Plan. 4. "Board" has the meaning set forth in section 1 of the Plan. 5. "Business Combination" has the meaning set forth in section 6.8 of the Plan. 6. "Change of Control Transaction" has the meaning set forth in section 6.8 of the Plan. 7. "Closing" has the meaning set forth in section 6.8 of the Plan. 8. "Code" means the Internal Revenue Code of 1986, as amended (references herein to Sections of the Code are intended to refer to Sections of the Code as enacted at the time of the Plan's adoption by the Board and as subsequently amended, or to any substantially similar successor provisions of the Code resulting from recodification, renumbering or otherwise). 9. "Company" has the meaning set forth in section 1 of the Plan. 10. "Disability" means any physical or mental disability that results in a Termination of Eligibility Status under applicable law, except that for purposes of section 6.1(c) of the Plan, the term "disability" means permanent and total disability within the meaning of Section 22(e)(3) of the Code. 11. "Donative Transfer" with respect to Option Shares means any voluntary Transfer by a transferor other than for value or the payment of consideration to the transferor. 12. "Eligible Participants" has the meaning set forth in section 3 of the Plan. 13. "Fair Market Value" means, with respect to the Shares and as of the date that is relevant to such a determination (e.g., on the Grant Date), the market price per share of such Shares determined by the Administrator, consistent with the requirements of Section 422 of the Code and to the extent consistent therewith, as follows: (a) if the Shares are traded on a stock exchange on the date in question, then the Fair Market Value will be equal to the closing price reported by the applicable composite-transactions report for such date; (b) if the Shares are traded over-the-counter on the date in question and are classified as a national market issue, then the Fair Market Value will be equal to the last-transaction price quoted by The Nasdaq Stock Market for such date; (c) if the Shares are traded over-the-counter on the date in question but are not classified as a national market issue, then the Fair Market Value will be equal to the mean between the last reported representative bid and asked prices quoted by The Nasdaq Stock Market for such date; and (d) if none of the foregoing provisions is applicable, then the Fair Market Value will be determined by the Administrator in good faith on such basis as it deems appropriate. 14. "Grace Period" has the meaning set forth in section 5(c)(v) of the Plan. 15. "Grant Date" means, with respect to an Option, the date on which the Option Agreement evidencing that Option is entered into between the Company and the Optionee, or such other date as may be set forth in that Option Agreement as the "Grant Date" which will be the effective date of that Option Agreement. 16. "Holder" means the holder of any Option Shares. 17. "Involuntary Transfer" with respect to Option Shares includes, without limitation, any of the following: (A) an assignment of the Shares for the benefit of creditors of the transferor; (B) a Transfer by operation of law; (C) an execution of judgment against the Shares or the acquisition of record or beneficial ownership of Shares by a lender or creditor; (D) a Transfer pursuant to any decree of divorce, dissolution or separate maintenance, any property settlement, any separation agreement or any other agreement with a spouse (except for bona fide estate planning purposes) under which any Shares are Transferred or awarded to the spouse of the transferor or are required to be sold; or (E) a Transfer resulting from the filing by the transferor of a petition for relief, or the filing of an involuntary petition against the transferor, under the bankruptcy laws of the United States or of any other nation. 18. "ISO" means an "incentive stock option" as defined in Section 422 of the Code. 19. "Option Agreement" has the meaning set forth in section 1 of the Plan. 20. "Option Price" has the meaning set forth in section 5(c)(iii) of the Plan. 21. "Option Shares" has the meaning set forth in section 1 of the Plan, provided that for purposes of section 6.7 of the Plan, the term "Option Shares" includes all Shares issued by the Company to a Holder (or his, her or its predecessor) by reason of such holdings, including any securities which may be acquired as a result of a stock split, stock dividend, and other distributions of Shares in the Company made upon, or in exchange for, other securities of the Company. 22. "Option Term" has the meaning set forth in section 5(c)(iv) of the Plan. 23. "Optionee" has the meaning set forth in section 1 of the Plan. 24. "Options" has the meaning set forth in section 1 of the Plan. 25. "Plan" has the meaning set forth in section 1 of the Plan. 26. Qualified Retirement shall mean the voluntary termination of an employee or director of the Company after the individual has reached age 55 with not less than 10 years of service with the Company. In order for such termination to remain a Qualified Retirement under the Plan, the individual must withdraw from the profession in which that individual was employed with the Company and shall not during the time of the Grace Period, directly engage in or have any interest in, any person, firm, corporation or business (whether as an employee, officer, director, agent, security holder, creditor, consultant or otherwise) that engages in any activity or service which is the same as, similar to or competitive with, in whole or in part, the Company. 27. "Shares" has the meaning set forth in section 1 of the Plan. 28. "Subsidiary" has the same meaning as "Subsidiary Corporation" as defined in Section 424(f) of the Code. 29. "Successor Entity" means a corporation or other entity that acquires all or substantially all of the assets of the Company, or which is the surviving or parent entity resulting from a Business Combination, as that term is defined in section 6.8 of the Plan. 30. "Tax Withholding Liability" in connection with the exercise of any Option means all federal and state income taxes, social security tax, and any other taxes applicable to the compensation income arising from the transaction required by applicable law to be withheld by the Company. 31. "Termination of Eligibility Status" means (i) in the case of any employee of the Company and/or any of its Subsidiaries, a termination of his or her employment, whether by the employee or employer, and whether voluntary or involuntary, including without limitation as a result of the death or disability of the employee, and (ii) in the case of any director of the Company and/or any of its Subsidiaries, the death of or resignation by the director or his or her removal from the board in the manner provided by the articles of incorporation, bylaws or other organic instruments of the Company or Subsidiary or otherwise in accordance with applicable law. 32. "Termination for Cause" means (i) in the case of an Optionee who is an employee of the Company and/or any of its Subsidiaries, a termination by the employer of the Optionee's employment for "cause" as defined by any applicable contract of employment, or if not defined therein (or following termination of any such contract of employment), pursuant to the "For Cause Standard" set forth below, (ii) in the case of an Optionee who is or which is an advisor, consultant or independent contractor to the Company and/or any of its Subsidiaries, a termination of the services relationship by the hiring party for "cause" or breach of contract, as defined by any applicable contract of engagement between the parties, or if not defined therein (or following termination of any such contract of engagement), pursuant to the "For Cause Standard" set forth below, and (iii) in the case of an Optionee who is a director, but not an employee, of the Company, removal of him or her from the board of directors by action of the shareholders or, if permitted by applicable law and the articles, bylaws or other organic documents of the Company, by the other directors, in connection with the good faith determination of the board of directors (or of the Company's shareholders if so required, but in either case excluding the vote of the subject individual if he or she is a director or a shareholder) that the "For Cause Standard" set forth below has been satisfied. For purposes hereof, the "For Cause Standard" means that one or more of the following has occurred: (a) the commission by Optionee of any act materially detrimental to the Company, including fraud, embezzlement, theft, bad faith, gross negligence, recklessness or willful misconduct; (b) incompetence or repeated failure or refusal to perform the duties required of Optionee by the Company; (c) conviction of a felony or of any crime of moral turpitude to the extent materially detrimental to the Company; or (d) any material misrepresentation by Optionee to the Company regarding the operation of the business, provided that the action or conduct described in clause (b) above will constitute "Cause" only if such action or conduct continues after the Company has provided Optionee with written notice thereof and a reasonable opportunity (to be not less than 30 days) to cure the same. 33. "Transfer" with respect to Option Shares, includes, without limitation, a voluntary or involuntary sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of those Shares, including any Involuntary Transfer, Donative Transfer or transfer by will or under the laws of descent and distribution. 34. "Unvested Option" has the meaning set forth in sectio 5(c)(vii) of the Plan. 35. "Vested Option" has the meaning set forth in section 5(c)(vii) of the Plan. EX-10 3 AMENDMENT TO LINE OF CREDIT Exhibit 10.7 THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of December 1, 1998, by and between HARDING LAWSON ASSOCIATES GROUP, INC., a Delaware corporation, formerly known as HARDING ASSOCIATES, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of October 31, 1995, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 1.1(a) is hereby amended by deleting "November 30, 1999" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "November 30, 2000," with such change to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change. 2. Section 1.1(e) is hereby amended (a) by deleting "November 30, 1999" as the last day on which bank will issue Letters of Credit under the subfeature therefor under the Line of Credit, and by substituting for said date "November 30, 2000," and (b) by deleting "May 30, 2000" as the last date any such Letter of Credit may expire, and by substituting for said date "April 30, 2001." 3. Section 1.2(a) is hereby deleted in its entirety, and the following substituted therefor: "(a) Foreign Exchange Facility. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make available to Borrower a facility (the "Foreign Exchange Facility") under which Bank, from time to time up to and including November 30, 2000, will enter into foreign exchange contracts for the account of Borrower for the purchase and/or sale by Borrower in United States dollars of foreign currencies designated by borrower provided however, that the maximum amount of all outstanding foreign exchange contracts shall not at any time exceed an aggregate of One Million and No/100 United States Dollars (US$1,000,000.00). No foreign exchange contract shall be executed for a term in excess of three (3) months or for a term which extends beyond November 30, 2000. Borrower shall have a "Delivery Limit" under the Foreign Exchange Facility not to exceed at any time the aggregate principal amount of Three Hundred Thousand and No/100 United State Dollars (US$300,000.00), which Delivery Limit reflects the maximum principal amount of Borrower's foreign exchange contracts which may mature during any two (2) day period. All foreign exchange transactions shall be subject to the additional terms of a Foreign Exchange Agreement, substantially in the form of Exhibit B attached hereto ("Foreign Exchange Agreement"), all terms of which are incorporated herein by this reference." 4. The following is hereby added to the Credit Agreement as Section 4.10: "SECTION 4.10. YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary to ensure that (a) Borrower and any business in which Borrower holds a substantial interest, and (b) all customers, suppliers and vendors that are material to Borrower's business, become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of the Borrower's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. Borrower shall, immediately upon request, provide to Bank such certifications or other evidence of Borrower's compliance with the terms hereof as Bank may from time to time require." 5. Section 4.8(c) is hereby deleted in its entirety, and the following substituted therefor: "(c) Tangible Net Worth not at any time less than $26,000,000.00 up to and including November 29, 1999 and as of November 30, 1999 not less than $28,000,000.00 at any time thereafter, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets." 6. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 7. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. HARDING LAWSON ASSOCIATES WELLS FARGO BANK, GROUP, INC. NATIONAL ASSOCIATION By: /s/ Greg Thornton By: /s/ Peter Gruebele Gregory A. Thornton Peter Gruebele Vice President/CFO Vice President EX-10 4 EXECUTIVE SEPARATION AND GENERAL RELEASE Exhibit 10.11 CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE This CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE is entered into by and between DONALD L. SCHREUDER (hereinafter called "Schreuder") and HARDING ASSOCIATES, INC. a Delaware corporation whose principal corporate office is Novato, California (hereafter called "the Company"). Recitals A. Schreuder has been employed by the Company from June 1965 to September 1966, and after an education sabbatical, from June 1967 until present. He has served as a member of the Board of Directors of the Company and its predecessors since 1975, and has been an officer of the Company since 1976. Since June 1994, he has served as its President and Chief Executive Officer. B. Schreuder has resigned as President and Chief Executive Officer of the Company effective September 25, 1998. C. In consideration for his long and valuable service to the Company and in recognition of his contributions to the Company, the Company wishes to provide Schreuder with the severance benefits described below. NOW, THEREFORE, in consideration of the above Recitals and the mutual promises and conditions in this Agreement, IT IS AGREED AS FOLLOWS: 1. Date of Termination. Schreuder has resigned his position as President and Chief Executive Officer effective September 25, 1998 and his resignation has been accepted by the Company's Board of Directors. However, Schreuder shall remain as a non-officer employee of the Company until June 30, 1999 ("Date of Termination"), at which time his employment shall terminate. While Schreuder shall be relieved of all duties and responsibilities except as may be set forth in this Agreement, he shall receive his current salary and benefits through November 30, 1998. After that date, the Company shall provide him compensation as set forth hereafter. Although during the period ending on the Date of Termination ("the Severance Period") Schreuder shall remain a non-officer employee of the Company, he shall not be precluded from obtaining other employment that is in compliance with the terms of this Agreement. Notwithstanding this Agreement, during the Severance Period and thereafter Schreuder shall not hold himself out to be an agent or employee of the Company, and he acknowledges he now has, and shall hereafter have, no authority to engage in any acts or to enter into any contracts or other obligations on behalf of or binding on the Company. 2. Severance Pay. Schreuder shall receive severance pay for a period of 62 weeks counted from November 30, 1998. The severance pay will be determined on the basis of Schreuder's weekly gross salary in effect at the date of his resignation (annual salary of $238,000 divided by 52), for a total severance payment of $283,769.23. Severance pay shall be paid as follows: two-thirds of the total amount (i.e., $187,287.69) shall be paid prior to December 31, 1998; one-sixth of the total amount shall be paid on March 31, 1999, and the remaining one-sixth shall be paid on June 30, 1999 (i.e., two payments of $48,240.77 each). The Company shall deduct from each such payment federal and state tax withholding and an amount equal to an employee's portion of FICA payments, and forward such amounts withheld to the appropriate governmental agencies for Schreuder's account. 3. Treatment of Personal Time Off ("PTO"). During December 1998 the Company shall pay to Schreuder all PTO that has accrued through November 30, 1998. No additional PTO shall accrue after November 30, 1998, as it is agreed that the severance payments set forth in paragraph 2 above include any PTO to which Schreuder would otherwise be entitled as an employee of the Company for the period from December 1, 1998 through June 30, 1999. 4. Allowance. The Company agrees to fund an allowance of $18,000 for Schreuder for outplacement, legal services, and other professional services in connection with his separation from employment with the Company. Upon presentation of invoices, the Company will pay the service providers directly until the allowance has been exhausted. If any balance remains in the allowance fund on June 30, 1999, said balance will be paid to Schreuder in a lump sum; the unused balance shall be determined on the basis of invoices received by the Company on or before June 30, 1999. The Company shall have no other responsibility for expenses incurred by Schreuder except as otherwise set forth in this Agreement. 5. Medical/Dental/Vision Plans. Schreuder shall continue his eligibility for the Company's medical, dental and vision plans until the Date of Termination. After the Date of Termination, Schreuder shall have the option to convert the Company's medical, dental and vision plans to individual plans pursuant to the rules and regulations of COBRA (the Consolidated Omnibus Budget Reconciliation Act). The Company shall reimburse Schreuder the amounts of the monthly COBRA payments for 11 months from the Date of Termination (i.e., to May 31, 2000) or until Schreuder obtains other coverage, whichever comes first. If Schreuder obtains other coverage before May 31, 2000 that provides fewer benefits or less coverage than the coverage provided by the Company, then the Company shall continue to reimburse Schreuder for his coverage until May 31, 2000. However, if subsequent coverage is obtained by Schreuder that provides greater benefits or coverage, the Company may discontinue reimbursements for Schreuder's coverage before May 31, 2000. The Company shall have discretion to determine whether any other coverage obtained by Schreuder provides fewer or greater benefits or coverage, which discretion the Company shall exercise reasonably in good faith. It is Schreuder's responsibility to inform the Company if and when he obtains subsequent coverage. Failure by Schreuder to inform the Company he has obtained subsequent coverage shall release the Company from its obligations under this paragraph. 6. Deferred Compensation Plans. Schreuder's vested rights under the Company's 401(k) Salary Deferral Plan and the Company's Rabbi Trust Non-Qualified Salary Deferral Plan shall continue to be governed by the terms and conditions of the Plan documents and applicable law. 7. Stock Option Plans. Schreuder's rights under the Company's stock option plans shall continue to be governed by the plan documents, pre-existing Board of Directors' resolutions regarding stock option plans, and applicable law. 8. Incentive Compensation. Schreuder will not be entitled to any compensation or bonuses under the Company's Incentive Compensation Plan for the fiscal year ending May 31, 1998 or any fiscal year thereafter. 9. Expenses. The Company shall reimburse Schreuder for reasonable out-of-pocket expenses incurred up to November 30, 1998 in connection with the Company's business, including travel expenses, food, and lodging while away from home, subject to such policies as the Company has established for its employees. 10. Return of Documents. Schreuder will promptly return to the Company all documents and other materials relating to the Company's business, together with all copies thereof, including but not limited to Company reports, job files, operating manuals, technical blueprints or plans, business forecasts, market summaries, proposals, job notes and customer lists, and any other files or documents that could reasonably be construed to be of value to the Company. In the event the Company believes Schreuder has retained materials that should have been returned to the Company, the Company will promptly notify Schreuder and provide him a reasonable opportunity to return such materials before the Company commences any proceeding regarding them. 11. Disclosure of Confidential Client Information. In the course of his employment, Schreuder has had access to confidential records and data pertaining to the Company's clients and to the relationship between these clients and the Company. Schreuder agrees that such information is considered secret and was disclosed to Schreuder in confidence. Schreuder agrees that he shall not, directly or indirectly, disclose or use any such information until such information otherwise becomes public knowledge. Nothing in this paragraph is intended to preclude Schreuder from obtaining other employment; rather, it is the intent of this paragraph to protect the Company against the use of its confidential proprietary information to compete unfairly against it. 12. Solicitation of Customers or Employees. To protect the confidential, proprietary, and trade secret information of the Company, the parties agree it is necessary to enter the following covenants: a. Schreuder agrees that all customers of the Company listed on Exhibit A, from whom Schreuder has solicited business during the two (2) years prior to November 30, 1998 ("the prior two year period") are solely the customers of the Company and not of Schreuder. Schreuder acknowledges and agrees that the names and addresses of the customers of the Company listed on Exhibit A, and all other confidential information relating to those customers, including their buying habits and special needs, which information Schreuder acquired during the prior two year period, are considered secret and disclosed to Schreuder in confidence. Schreuder agrees that for a period of time, ending November 30, 2000, Schreuder will not solicit business, either directly or indirectly, as to products or services competitive with those of the Company from any of the Company's customers listed in the attached Exhibit A, on whom Schreuder called or with whom Schreuder became acquainted during the two year period, either for himself or for any other person, firm or corporation for which he is working either as an employee, consultant or board member. This restriction applies only to those individuals or divisions of large companies that Schreuder called on or became acquainted with in connection with Company business, and will not apply to contact or projects from different locations or divisions of a listed customer. (For example, the Company has listed "Chevron" as a customer because of Schreuder's involvement with a project at the El Paso refinery. It is agreed that Schreuder is restricted from using contacts he made in connection with that project at that office of Chevron to solicit business from those contacts at that location. However, he would not be precluded from soliciting business from Chevron at other locations such as in California or overseas.) b. Schreuder agrees that the Company has invested substantial time and effort and resources in assembling, training and managing its present staff of personnel, which constitutes a significant asset of the Company. Accordingly, Schreuder agrees that for a period of two years after November 30, 1998, Schreuder will not directly or indirectly induce or solicit any of the Company's employees to leave their employment with the Company for employment with himself or any other person, firm or corporation for which he is working either as an employee, consultant or board member. Nothing in this paragraph shall be construed to create liability or responsibility in Schreuder in the event a current Company employee on his or her own initiative seeks employment with an employer or prospective employer of Schreuder or with Schreuder himself. 13. Disclosure of Confidential Company Information. Schreuder agrees that he will regard and preserve as confidential and will not divulge to unauthorized persons, or use or permit persons who are under his direction or supervision to divulge or use, for any purposes other than those related to the business of the Company, either during or after the term of his employment, any information, matter or thing of a secret, confidential or private nature connected with the business of the Company, or any of its suppliers, customers or affiliates, without the written consent of the Board of Directors, until such time as such information otherwise becomes public knowledge. Included within the meaning of the foregoing are matters of a technical nature, such as know-how, formulae, computer programs, software and documentation, processes or machines, inventions and research projects; and matters of a business nature such as information about costs, profits, markets, sales, customers, suppliers and employees (including salary, evaluation and other personnel data), and plans for further development or marketing; and any other information of a similar nature to the extent not available to the public. 14. Company's Ownership of Intangibles. All processes, techniques, trade secrets, computer programs or applications, formulae, inventions, copyrights, trademarks and other intangible rights that have been conceived or developed by Schreuder, either alone or with others, during the term of Schreuder's employment with the Company (hereafter "work products"), whether or not conceived or developed during Schreuder's working hours, whether or not reduced to writing, and with respect to which the equipment, supplies, facilities, premises or property of the Company were used, or that relate to the business of the Company or the Company's actual or demonstrable and anticipated research and development, or that result from any work performed by Schreuder for or on behalf of the Company, were and shall be the sole property of the Company. Schreuder acknowledges and agrees that all such work products are the sole property of the Company, and Schreuder hereby assigns to the Company Schreuder's entire right and interest in all such work products. Schreuder shall execute all documents, including patent applications and assignments, required by the Company to establish the Company's rights under this section; provided, however, that such assignment does not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code. 15. Indemnification. The Company shall, to the maximum extent permitted by law, indemnify and hold Schreuder harmless against all cost and expenses, including reasonable attorney's fees, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising in whole or in part by reason of Schreuder's employment by the Company while acting within the course and scope of such employment. Schreuder shall, to the maximum extent permitted by law, indemnify and hold the Company harmless against all costs and expenses, including reasonable attorney's fees, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising from any claim or allegation against the Company based on any conduct of Schreuder during the Severance Period. 16. Waiver of Employment Related Claims. This Agreement resolves all claims directly or indirectly arising out of the employment relationship between Schreuder and the Company, which claims could have been alleged by Schreuder against the Company or any of its successors, assigns, subsidiaries, affiliates, officers, directors, shareholders, employees, attorneys, and agents. In return for the severance payments and other benefits provided by this Agreement, Schreuder fully releases the Company, its officers, directors, shareholders, employees, attorneys, agents, subsidiaries, and affiliates from any and all claims and actions (whether known or unknown) which he may have against the Company, including but not limited to any and all matters arising out of his employment, including but by no means limited to claims of employment discrimination or bias, wrongful termination, infliction of emotional distress, any form of negligence, violation of any statute or regulation, breach of any express or implied agreements, defamation, fraud or misrepresentation, violation of public policy, pain and suffering, any claim for unpaid compensation or benefits or severance pay, any alleged violation of the National Labor Relations Act, Title VII of the Civil Rights Act of 1964, Sections 1981 through 1988 of Title 42 of the United States Code, the California Fair Employment and Housing Act, any provision of the California Labor Code, the Employee Retirement Income Security Act ("ERISA"), the Age Discrimination in Employment Act of 1967 ("ADEA"), and any other alleged violation of any local, state or federal law, regulation or ordinance, or public policy, contract or tort or common-law having any bearing on the terms and conditions or modification of his employment with the Company, which he ever had, now has, or shall have as of the date of this Agreement, and except for any obligation the Company has to Schreuder under this Agreement. This Agreement shall be binding on and shall inure to the benefit of the executors, heirs, administrators, successors and assigns of Schreuder and shall inure to the benefit of the respective executors, heirs, administrators, successors and assigns of the Company. 17. Mutual Release. The Company and Schreuder agree that there is adequate consideration for all of the obligations, releases and other agreements set forth herein. The Company and Schreuder generally release, absolve, disclaim and forever discharge each other from any and all claims, demands and actions (whether known or unknown), liability, damage or loss arising from, alleged to arise from, or related to Schreuder's employment by the Company, the terms of any employment agreement, or the termination of Schreuder's employment. This release includes all claims, known and unknown, which have arisen prior to the date of this Release, or which may arise after the date of this Release, that are based upon any act, omission, or condition which happened or existed prior to the date of this Release. To implement and create a fully effective waiver and release, the Company and Schreuder each expressly waive all of their rights and remedies that are provided by Section 1542 of the California Civil Code, which states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. In entering this waiver and release, Schreuder and the Company each acknowledge they may hereafter discover facts different from those either now knows or believes to be true, and notwithstanding such possibility Schreuder and the Company each agree to the foregoing general release of any and all claims whether known or unknown. Schreuder and the Company each assume the risk of any such subsequently discovered facts or any information related to them. 18. Effect of Combination or Dissolution. This Agreement shall not be terminated by the Company's voluntary or involuntary dissolution or by any merger in which the Company is not the surviving or resulting corporation, or on any transfer of all or substantially all of the Company's assets. In the event of any such merger or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which assets shall be transferred. 19. Representation, Advice and Understanding. The parties have read and fully considered this Agreement and are mutually desirous of entering into this Agreement. The terms of this Agreement are the product of mutual negotiation and compromise between Schreuder and the Company. Schreuder has been advised in writing to consult with an attorney of his choice prior to execution of this Agreement. This Agreement is executed by Schreuder without reliance on any representation by the Company or its agents, attorneys, officers, and directors regarding the nature and extent of Schreuder's rights, responsibilities, claims, and liabilities. Schreuder affirms he has carefully read and understands the contents of this Agreement, and in particular his waiver of rights under California Civil Code section 1542, that he has had up to 21 days to consider whether to enter into this Agreement, and signs the same as his own free and voluntary act with the full intent of forever releasing the Company and any other person described in this Agreement from all claims arising out of or relating to his employment by the Company. 20. Confidentiality. The parties agree that the terms and conditions of this Agreement will remain confidential between the parties hereto and will not be disclosed to any other person or entity other than counsel and accountants of the parties, and to such employees of the Company to whom disclosure must be made to implement the terms of this Agreement, except as required by law. 21. Beneficiaries. The parties intend the Company, its past and present parent corporations, affiliated corporations, subsidiary corporations, predecessors, successors, and assigns as well as their officers, directors, employees, stockholders, agents, attorneys, and representatives be beneficiaries of this Agreement. 22. Waiver of Rights under the Age Discrimination in Employment Act. Schreuder understands that this Agreement includes claims and rights Schreuder might have under the Age Discrimination in Employment Act ("ADEA"). The waiver of Schreuder's rights under the ADEA does not extend to claims or rights that might arise after the date this Agreement is executed. The monies to be paid to Schreuder in this Agreement are in addition to any sums to which he would be entitled without signing this Agreement. For a period of seven (7) days following execution of this Agreement, Schreuder may revoke his waiver of rights under the ADEA by a written document received by the Company on or before the end of the seven (7) day period. The Agreement will not be final until said revocation period has expired. Company will make the severance payment to Schreuder as described above only if this Agreement is not revoked by Schreuder. 23. Cooperation. Schreuder agrees to cooperate with the Company with regard to the business of Company that Schreuder participated in during the course of Schreuder's employment with the Company, including, but not limited to, providing Company with information requested by Company with regard to such business. 24. Duplicate Originals. This Agreement may be executed in duplicate, with one fully executed copy delivered to the Company and one fully executed copy delivered to Schreuder. 25. Interpretation. Counsel for the respective parties have participated in the negotiation and preparation of this Agreement. Therefore, the normal rule that ambiguities are resolved against the drafter shall not be used in the interpretation or construction of this Agreement. 26. Arbitration of Controversies. Any dispute over the interpretation or application of this Agreement shall be resolved in binding arbitration under the rules and procedures of the American Arbitration Association. Any request for arbitration must be made in writing no later than 120 days following the date the dispute arises. The cost of arbitration shall be borne equally by the parties. Each party shall pay its own attorney's fees. The arbitrator's decision will be final, and the arbitrator will have no power to add to, subtract from, or modify this Agreement. 27. Entire Agreement. This Agreement contains the entire agreement between the parties and supersedes all prior oral and written agreements, understandings, commitments and practices between the parties, including all prior employment agreements. No amendments to this Agreement may be made except by a writing signed by both parties. 28. Severability. If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 29. Choice of Law. The formation, construction, and performance of this Agreement shall be construed in accordance with the laws of the State of California. 30. Board of Directors. The execution of this Agreement has been duly approved by the Company's Board of Directors, and the undersigned have been duly authorized to execute this Agreement on behalf of the Company. Executed by the parties on December 1, 1998. COMPANY: HARDING ASSOCIATES, INC. a Delaware Corporation By: /s/ Donald K. Stager Donald K. Stager Chairman of the Board's Compensation Committee HARDING ASSOCIATES, INC. a Delaware Corporation By: /s/ Gregory P. Klein Gregory P. Klein Vice President Human Resources EMPLOYEE: By: /s/ Donald L. Schreuder Donald L. Schreuder EX-10 5 AMENDMENT TO RETENTION AGREEMENT Exhibit 10.16 AMENDMENT TO RETENTION AGREEMENT Pursuant to this Amendment, effective July 9, 1999, the Retention Agreement between Claude Corvino (you) and Harding Lawson Associates Group Inc. is amended as follows: It is agreed that the Corporate Reorganization on or about June 1, 1999 is deemed to constitute an event that is or would constitute Good Reason as defined in Paragraph 19(k). The time within which you may terminate employment for the June 1, 1999 Good Reason and trigger Severance Benefits under the Agreement is hereby extended to December 31, 1999. All other provisions of the Agreement remain in full force and effect. Date July 29, 1998 /s/ Robert Costello Robert Costello President - Chief Executive Officer Date August 3, 1999 /s/ Claude Corvino Claude Corvino EX-10 6 AMENDMENT TO RETENTION AGREEMENT Exhibit 10.17 AMENDMENT TO RETENTION AGREEMENT Pursuant to this Amendment, effective July 9, 1999, the Retention Agreement between Arthur C. Riese (you) and Harding Lawson Associates Group Inc. is amended as follows: It is agreed that the Corporate Reorganization on or about June 1, 1999 is deemed to constitute an event that is or would constitute Good Reason as defined in Paragraph 19(k). The time within which you may terminate employment for the June 1, 1999 Good Reason and trigger Severance Benefits under the Agreement is hereby extended to December 31, 1999. All other provisions of the Agreement remain in full force and effect. Date July 29, 1999 /s/ Robert Costello Robert Costello President - Chief Executive Officer Date July 30, 1999 /s/ Arthur C. Riese Arthur C. Riese EX-10 7 AMENDMENT TO RETENTION AGREEMENT Exhibit 10.18 AMENDMENT TO RETENTION AGREEMENT Pursuant to this Amendment, effective July 9, 1999, the Retention Agreement between Gregory A. Thornton (you) and Harding Lawson Associates Group Inc. is amended as follows: It is agreed that the Corporate Reorganization on or about June 1, 1999 is deemed to constitute an event that is or would constitute Good Reason as defined in Paragraph 19(k). The time within which you may terminate employment for the June 1, 1999 Good Reason and trigger Severance Benefits under the Agreement is hereby extended to December 31, 1999. All other provisions of the Agreement remain in full force and effect. Date July 30, 1999 /s/ Robert Costello Robert Costello President - Chief Executive Officer Date August 2, 1999 /s/ Greg Thornton Gregory A. Thornton EX-11 8 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, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Weighted average basic shares outstanding 4,839 4,959 4,926 Effect of dilutive stock options based on the treasury stock method --- 128 24 - ------------------------------------------------------------------------------------------------------------------- Diluted shares outstanding 4,839 5,087 4,950 =================================================================================================================== Net income/(loss) $(842) $2,488 $2,404 =================================================================================================================== Basic net income/(loss) per share $(0.17) $0.50 $0.49 =================================================================================================================== Diluted net income/(loss) per share $0.17) $0.49 $0.49 ===================================================================================================================
EX-21 9 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. HLA Environmental Services Delaware Harding Lawson Associates of Michigan, Inc. (wholly owned subsidiary of Harding Lawson Associates, Inc.) Regional Engineers, Planners Florida Regional Engineers, Planners & Surveyors, Inc. (wholly owned & Surveyors, Inc. subsidiary of Harding Lawson Associates, Inc.) Harding Lawson Associates Delaware Harding Lawson Associates International, Inc. International, Inc. Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty. (wholly owned subsidiary of Australia Ltd. Harding Lawson Associates International, Inc.) HLA-Envirosciences Pty Limited New South Wales, HLA-Envirosciences Pty Limited (majority owned subsidiary of Australia Harding Lawson Australia, Pty. Ltd.) Harding Lawson de Mexico S.A. de C.V. City of Mexico Harding Lawson de Mexico S.A. (wholly owned subsidiary of Federal District de C.V. Harding Lawson Associates International, Inc.) Grupo Industrial de Ingenieria Ecologica III, City of Mexico GRIECO HLA & Iconsa S.A. de C.V. Federal District (majority owned subsidiary of Harding Lawson de Mexico S.A. de C.V.) Harding Lawson Singapore Pte Ltd Singapore Dormant (wholly owned subsidiary of Harding Lawson Associates International, Inc.) PT. Harding Lawson Indonesia Jakarta Dormant (wholly owned subsidiary of Harding Lawson Associates International, Inc.) Harding Lawson Associates Sakhalin, LLC Washington Harding Lawson Associates Sakhalin, LLC (wholly owned subsidiary of Harding Lawson Associates International, Inc.) HLA Venture, Inc. Delaware HLA Venture, Inc. Standards Training Corporation, LLC Ohio Dormant (HLA Venture, Inc. has a 50% ownership interest in LLC)
EX-23 10 CONSENT OF ERNST & YOUNG LLP Exhibit No. 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements on Form S-8 dated October 19, 1998 pertaining to the Non-Employee Director Compensation Stock Plan; Form S-8 dated April 12, 1999 pertaining to the 1998 Stock Option Plan and the Non Qualified Stock Option Agreement; Form S-8 dated August 15, 1998 pertaining to the 1987 Stock Option Plan; Form S-8 dated April 14, 1989, as amended on July 25, 1990 and December 24, 1991, pertaining to the 1998 Stock Option and Restricted Stock Option Plan; Form S-8 dated June 5, 1996 pertaining to the Executive Stock Incentive Plan; Form S-8 dated April 17, 1988 pertaining to the Employee Stock Purchase Plan as amended on December 24, 1991 and June 5, 1996; Form S-8 dated August 15, 1988 pertaining to the Deferred Compensation and Profit Sharing Plan of Harding Lawson Associates Group, Inc., of our report dated July 7, 1999, with respect to the consolidated financial statements of Harding Lawson Associates Group, Inc., included in its Annual Report on Form 10-K for the year ended May 31, 1999. San Francisco, California July 30, 1999 EX-27 11 FINANCIAL DATA SCHEDULE
5 1000 YEAR MAY-31-1999 JUN-01-1998 MAY-31-1999 17108 3629 46128 2464 0 70700 27947 22056 87141 38003 0 0 0 50 47405 87141 0 162096 0 53338 109777 0 44 (568) 412 (842) 0 0 0 (842) (0.17) (0.17)
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