-----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, GByYlymycPN3mpCqH+0d0PvZFXWAhJ+cQEAK+9lE2QNsISAOO3RYaHRY1Hl0hVTy wNKE4lOObexz/+czmvuvqA== 0000950129-98-003430.txt : 19980814 0000950129-98-003430.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950129-98-003430 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTE HANKS INC CENTRAL INDEX KEY: 0000045919 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 741677284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07120 FILM NUMBER: 98686503 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA DR STE 800 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108299000 FORMER COMPANY: FORMER CONFORMED NAME: HARTE HANKS COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HARTE HANKS NEWSPAPERS INC DATE OF NAME CHANGE: 19771010 10-Q 1 HARTE-HANKS, INC. - 06/30/98 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange - ---- Act of 1934. For the quarterly period ended June 30, 1998 ------------- - ---- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ---------- ---------- Commission File Number 1-7120 ------ HARTE-HANKS, INC. (formerly HARTE-HANKS COMMUNICATIONS, INC.) ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-1677284 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 Concord Plaza Drive, San Antonio, Texas 78216 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code -- 210/829-9000 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock: $1 par value, 73,299,355 shares as of July 31, 1998. 2 2 HARTE-HANKS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT June 30, 1998
Page Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - 3 June 30, 1998 and December 31, 1997 Consolidated Statements of Operations - 4 Three months ended June 30, 1998 and 1997 Consolidated Statements of Operations - 5 Six months ended June 30, 1998 and 1997 Consolidated Statements of Cash Flows - 6 Six months ended June 30, 1998 and 1997 Consolidated Statements of Stockholders' Equity - 7 Six months ended June 30, 1998 and 1997 Notes to Interim Condensed Consolidated Financial 8 Statements Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 (a) Exhibits (b) Reports on Form 8-K Signature 17
3 3 Harte-Hanks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts) - ------------------------------------------------------------------------------- (Unaudited)
June 30, December 31, 1998 1997 ------------ ------------ Assets Current assets Cash and cash equivalents ........................ $ 57,572 $ 83,675 Short-term investments ........................... 170,408 388,145 Accounts receivable, net ......................... 115,681 109,340 Inventory ........................................ 6,107 7,703 Prepaid expenses ................................. 10,246 8,473 Current deferred income tax benefit .............. 11,738 12,518 Other current assets ............................. 2,647 3,285 --------- --------- Total current assets ........................... 374,399 613,139 Property, plant and equipment, net ................. 88,332 89,351 Goodwill, net ...................................... 244,645 250,363 Other assets ....................................... 7,165 2,070 --------- --------- Total assets ................................... $ 714,541 $ 954,923 ========= ========= Liabilities and Stockholders' Equity Current liabilities Accounts payable ................................. $ 52,821 $ 49,918 Accrued payroll and related expenses ............. 19,348 23,097 Customer deposits and unearned revenue ........... 20,122 17,944 Income taxes payable ............................. 4,370 270,440 Other current liabilities ........................ 6,922 9,950 --------- --------- Total current liabilities ...................... 103,583 371,349 Other long term liabilities ........................ 19,376 17,337 --------- --------- Total liabilities .............................. 122,959 388,686 --------- --------- Stockholders' equity Common stock, $1 par value, 250,000,000 shares authorized. 75,429,883 and 74,842,982 shares issued at June 30, 1998 and December 31, 1997, respectively ................................... 75,430 74,843 Additional paid-in capital ....................... 182,363 177,238 Accumulated other comprehensive income ........... -- (577) Retained earnings ................................ 390,906 362,000 --------- --------- 648,699 613,504 Less treasury stock: 2,092,708 and 1,648,608 shares at cost at June 30, 1998 and December 31, 1997, respectively ............................. (57,117) (47,267) --------- --------- Total stockholders' equity ..................... 591,582 566,237 --------- --------- Total liabilities and stockholders' equity ..... $ 714,541 $ 954,923 ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 4 4 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) - ------------------------------------------------------------------------------- (Unaudited)
Three Months Ended June 30, --------------------------- 1998 1997 ---- ---- Operating revenues ............................... $ 186,806 $ 150,964 --------- --------- Operating expenses Payroll ........................................ 65,422 56,143 Production and distribution .................... 71,896 56,316 Advertising, selling, general and administrative................................ 15,671 13,543 Depreciation ................................... 5,226 4,072 Goodwill amortization .......................... 1,903 1,125 --------- --------- 160,118 131,199 --------- --------- Operating income ................................. 26,688 19,765 --------- --------- Other expenses (income) Interest expense ............................... 59 1,854 Interest income ................................ (2,766) (7) Other, net ..................................... 168 (566) --------- --------- (2,539) 1,281 --------- --------- Income from continuing operations before income taxes .......................................... 29,227 18,484 Income tax expense ............................... 12,217 7,844 --------- --------- Income from continuing operations ................ 17,010 10,640 Income from discontinued operations, net of income taxes ............................ -- 5,705 --------- --------- Net income ....................................... $ 17,010 $ 16,345 ========= ========= Basic earnings per common share: Continuing operations .......................... $ 0.23 $ 0.14 Discontinued operations ........................ -- 0.08 --------- --------- Basic earnings per common share .............. $ 0.23 $ 0.22 ========= ========= Weighted-average common shares outstanding ....... 73,541 74,558 ========= ========= Diluted earnings per common share: Continuing operations .......................... $ 0.22 $ 0.14 Discontinued operations ........................ -- 0.07 --------- --------- Diluted earnings per common share ............ $ 0.22 $ 0.21 ========= ========= Weighted-average common and common equivalent shares outstanding ........................... 77,212 77,664 ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 5 5 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) - ------------------------------------------------------------------------------- (Unaudited)
Six Months Ended June 30, ------------------------- 1998 1997 ---- ---- Operating revenues ............................... $ 364,479 $ 289,388 --------- --------- Operating expenses Payroll ........................................ 132,256 109,821 Production and distribution .................... 139,077 109,410 Advertising, selling, general and administrative ............................... 32,912 27,653 Depreciation ................................... 10,592 8,041 Goodwill amortization .......................... 3,829 2,205 --------- --------- 318,666 257,130 --------- --------- Operating income ................................. 45,813 32,258 --------- --------- Other expenses (income) Interest expense ............................... 129 3,765 Interest income ................................ (8,381) (50) Other, net ..................................... 861 (321) --------- --------- (7,391) 3,394 --------- --------- Income from continuing operations before income taxes .......................................... 53,204 28,864 Income tax expense ............................... 22,089 12,256 --------- --------- Income from continuing operations ................ 31,115 16,608 Income from discontinued operations, net of income taxes ............................ -- 9,754 --------- --------- Net income ....................................... $ 31,115 $ 26,362 ========= ========= Basic earnings per common share: Continuing operations .......................... $ 0.42 $ 0.22 Discontinued operations ........................ -- 0.13 --------- --------- Basic earnings per common share .............. $ 0.42 $ 0.35 ========= ========= Weighted-average common shares outstanding ....... 73,511 74,410 ========= ========= Diluted earnings per common share: Continuing operations .......................... $ 0.40 $ 0.21 Discontinued operations ........................ -- 0.13 --------- --------- Diluted earnings per common share ............ $ 0.40 $ 0.34 ========= ========= Weighted-average common and common equivalent shares outstanding ............................. 77,170 77,566 ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 6 6 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) - ---------------------------------------------------------------------------------------- (Unaudited)
Six Months Ended June 30, ------------------------- 1998 1997 ---- ---- Operating Activities Net income .......................................... $ 31,115 $ 26,362 Adjustments to reconcile net income to cash (used in) provided by operating activities: Income from discontinued operations ............... -- (9,754) Depreciation ...................................... 10,592 8,041 Goodwill amortization ............................. 3,829 2,205 Amortization of option related compensation ....... 290 406 Deferred income taxes ............................. (601) 1,101 Other, net ........................................ 906 528 Changes in operating assets and liabilities, net of acquisitions: (Increase) decrease in accounts receivable, net ..... (6,341) 9,386 Decrease in inventory ............................... 1,596 1,545 Increase in prepaid expenses and other current assets .................................. (1,135) (1,777) Increase (decrease) in accounts payable ........... 2,903 (1,384) Decrease in other accrued expenses and other liabilities ........................... (5,019) (6,121) Other, net ........................................ 4,411 6,717 --------- --------- Net cash provided by continuing operations ..... 42,546 37,255 --------- --------- Net cash (used in) provided by discontinued operating activities ............................ (265,650) 16,375 --------- --------- Net cash (used in) provided by operating activities .................................... (223,104) 53,630 --------- --------- Investing Activities Acquisitions ........................................ (2,275) (5,949) Purchases of property, plant and equipment .......... (10,419) (15,138) Proceeds from sale of property, plant and equipment . 117 1,760 Net proceeds from sale of and maturities of available-for-sale short-term investments ....... 217,293 -- Discontinued operations: Purchases of property, plant and equipment ........ -- (2,288) Proceeds from sale of property, plant and equipment ....................................... -- 16 Payments on film contracts ........................ -- (919) --------- --------- Net cash provided by (used in) investing activities .................................... 204,716 (22,518) --------- --------- Financing Activities Long-term borrowings ................................ -- 193,300 Payments on debt, including current maturities ..... -- (217,665) Issuance of common stock ............................ 4,344 10,372 Purchase of treasury stock .......................... (9,850) (13,494) Dividends paid ...................................... (2,209) (1,486) --------- --------- Net cash used in financing activities ........... (7,715) (28,973) --------- --------- Net (decrease) increase in cash ..................... (26,103) 2,139 Cash and cash equivalents at beginning of year ...... 83,675 12,017 --------- --------- Cash and cash equivalents at end of period .......... $ 57,572 $ 14,156 ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 7 7 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity - ------------------------------------------------------------------------------- (Unaudited)
Accumulated Additional Other Total Common Paid-In Retained Treasury Comprehensive Stockholders' In thousands Stock Capital Earnings Stock Income Equity ----------- ----------- --------- --------- -------------- ------------ Balance at January 1, 1997 ... $ 73,604 $ 149,875 $ 29,213 $ -- $ -- $ 252,692 Common stock issued - employee benefit plans ............ 154 1,703 -- -- -- 1,857 Exercise of stock options .... 1,902 6,749 -- -- -- 8,651 Tax benefit of options exercised ................ -- 5,764 -- -- -- 5,764 Dividends paid ($0.02 per share) ................... -- -- (1,486) -- -- (1,486) Net income ................... -- -- 26,362 -- -- 26,362 Treasury stock repurchase .... (542) 542 -- (13,494) -- (13,494) --------- --------- --------- --------- --------- --------- Balance at June 30, 1997 ..... $ 75,118 $ 164,633 $ 54,089 $ (13,494) $ -- $ 280,346 ========= ========= ========= ========= ========= ========= Balance at January 1, 1998 ... $ 74,843 $ 177,238 $ 362,000 $ (47,267) $ (577) $ 566,237 Common stock issued - employee benefit plans ............ 111 1,982 -- -- -- 2,093 Exercise of stock options .... 476 1,766 -- -- -- 2,242 Tax benefit of options exercised ................ -- 1,377 -- -- -- 1,377 Dividends paid ($0.03 per share) ................... -- -- (2,209) -- -- (2,209) Net income ................... -- -- 31,115 -- -- 31,115 Treasury stock repurchase .... -- -- -- (9,850) -- (9,850) Change in unrealized loss on short-term investments (net of tax) ................. -- -- -- -- 577 577 --------- --------- --------- --------- --------- --------- Balance at June 30, 1998 ..... $ 75,430 $ 182,363 $ 390,906 $ (57,117) $ -- $ 591,582 ========= ========= ========= ========= ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 8 8 Harte-Hanks, Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited Interim Condensed Consolidated Financial Statements include the accounts of Harte-Hanks, Inc. and subsidiaries (the "Company"). The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Certain prior period amounts have been reclassified for comparative purposes. NOTE B - DISCONTINUED NEWSPAPER AND TELEVISION OPERATIONS On October 15, 1997, the Company sold its newspaper operations, KENS-TV, the CBS affiliate in San Antonio, and KENS-AM radio to the E.W. Scripps Company (NYSE: SSP) for a cash price of $775 million plus approximately $15 million for working capital. Because the newspaper and television operations represent entire business segments that were divested, their results are reported as "discontinued operations" for January 1, 1997 through October 15, 1997. NOTE C - INCOME TAXES The Company's quarterly and six month income tax provision of $12.2 million and $22.1 million, respectively, was calculated using an effective income tax rate of approximately 42%. The Company's effective income tax rate is derived by estimating pretax income and income tax expense for the year ended December 31, 1998. The effective income tax rate calculated is higher than the federal statutory rate of 35% due to the addition of state taxes and to certain expenses recorded for financial reporting purposes (primarily goodwill amortization) which are not deductible for federal income tax purposes. NOTE D - EARNINGS PER SHARE The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement requires the presentation of basic earnings per share (EPS) and diluted EPS for reporting periods of all public companies ending after December 15, 1997, instead of the primary and fully diluted EPS previously reported. The new standard requires the restatement of EPS for all periods presented. EPS is calculated as follows: 9 9
Three Months Ended June 30, In thousands, except per share amount 1998 1997 - ---------------------------------------------------------------------------------------------------- BASIC EPS Income from continuing operations .................................... $ 17,010 $ 10,640 Income from discontinued operations .................................. -- 5,705 -------- -------- Net Income ........................................................... $ 17,010 $ 16,345 ======== ======== Weighted-average common shares outstanding used in net earnings per share computations ..................... 73,541 74,558 ======== ======== Basic earnings per common share: Continuing operations ........................................... $ 0.23 $ 0.14 Discontinued operations ......................................... -- 0.08 -------- -------- Net income ...................................................... $ 0.23 $ 0.22 ======== ======== DILUTED EPS Income from continuing operations .................................... $ 17,010 $ 10,640 Income from discontinued operations .................................. -- 5,705 -------- -------- Net Income ........................................................... $ 17,010 $ 16,345 ======== ======== Shares used in net earnings per share computations ................... 77,212 77,664 ======== ======== Diluted earnings per common share: Continuing operations ........................................... $ 0.22 $ 0.14 Discontinued operations ......................................... -- 0.07 -------- -------- Net income ...................................................... $ 0.22 $ 0.21 ======== ======== Computation of shares used in net earnings per share computations: Average outstanding common shares .................................... 73,541 74,558 Average common equivalent shares - dilutive effect of option shares ................................ 3,671 3,106 -------- -------- Shares used in net earnings per share computations ................... 77,212 77,664 ======== ========
Six Months Ended June 30, In thousands, except per share amount 1998 1997 - ---------------------------------------------------------------------------------------------------- BASIC EPS Income from continuing operations .................................... $ 31,115 $ 16,608 Income from discontinued operations .................................. -- 9,754 -------- -------- Net Income ........................................................... $ 31,115 $ 26,362 ======== ======== Weighted-average common shares outstanding used in net earnings per share computations ..................... 73,511 74,410 ======== ======== Basic earnings per common share: Continuing operations ........................................... $ 0.42 $ 0.22 Discontinued operations ......................................... -- 0.13 -------- -------- Net income ...................................................... $ 0.42 $ 0.35 ======== ======== DILUTED EPS Income from continuing operations .................................... $ 31,115 $ 16,608 Income from discontinued operations .................................. -- 9,754 -------- -------- Net Income ........................................................... $ 31,115 $ 26,362 ======== ======== Shares used in net earnings per share computations ................... 77,170 77,566 ======== ======== Diluted earnings per common share: Continuing operations ........................................... $ 0.40 $ 0.21 Discontinued operations ......................................... -- 0.13 -------- -------- Net income ...................................................... $ 0.40 $ 0.34 ======== ======== Computation of shares used in net earnings per share computations: Average outstanding common shares .................................... 73,511 74,410 Average common equivalent shares - dilutive effect of option shares ................................ 3,659 3,156 -------- -------- Shares used in net earnings per share computations ................... 77,170 77,566 ======== ========
10 10 NOTE E - COMPREHENSIVE INCOME The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." This statement requires the reporting of comprehensive income and its components in the financial statements, or in the notes to interim financial statements, for reporting periods ending after December 15, 1997. Comprehensive income is defined as the total non-owner changes in equity, which includes net income and all revenues, expenses, gains and losses that are excluded from net income under generally accepted accounting principles, but do not result from investments by owners or distributions to owners. The Company's total comprehensive income for the second quarter 1998 was $0.6 million greater than net income, whereas comprehensive income for the second quarter 1997 was equal to net income. Total comprehensive income for the six months ending June 30 of 1998 was also $0.6 million greater than net income, whereas comprehensive income was equal to net income for the same period of 1997. NOTE F - STOCKHOLDERS' EQUITY On March 16, 1998, the Company effected a two-for-one split of its common stock in the form of a 100% stock dividend paid to holders of record on March 2, 1998. All share, per share and common stock amounts have been restated to retroactively reflect the stock split. In May 1998, the Company amended its Certificate of Incorporation to increase its total authorized common stock to 250,000,000 shares. The financial statements reflect this increase in authorized shares of common stock. NOTE G - RECENTLY ISSUED ACCOUNTING STANDARDS In October 1997, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 provides guidance on the timing and amount of revenue recognition when licensing, selling, leasing or otherwise marketing computer software and is effective for transactions entered into during fiscal years beginning after December 15, 1997. The adoption of the provisions of SOP 97-2, which were effective as of January 1, 1998, have not materially affected the Company's financial condition or results of operations. 11 11 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS As described in Note B of the Notes to Interim Condensed Consolidated Financial Statements included herein, on October 15, 1997, the Company sold its newspaper and television operations. Therefore, the newspaper and television operations results are excluded from management's discussion and analysis of financial condition and results of operations below. Operating results from continuing operations -- direct marketing and shoppers -- were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE - ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $186,806 $150,964 23.7% $364,479 $289,388 25.9% Operating expenses 160,118 131,199 22.0% 318,666 257,130 23.9% -------- -------- -------- -------- Operating income $ 26,688 $ 19,765 35.0% $ 45,813 $ 32,258 42.0% ======== ======== ======== ======== Net income $ 17,010 $ 10,200 66.8% $ 31,115 $ 16,168 92.4% ======== ======== ======== ======== Diluted earnings per share $ 0.22 $ 0.13 69.2% $ 0.40 $ 0.21 90.5% ======== ======== ======== ========
(The results above exclude second quarter 1997 and six months ended June 30, 1997 non-recurring income of $0.8 million, or $0.4 million net of income taxes. This represents a gain on the sale of stock in another company partially offset by other non-recurring items. Including this gain, net income was $10.6 million or 14 cents per share.) Consolidated revenues grew 23.7% to $186.8 million and operating income grew 35.0% to $26.7 million in the second quarter of 1998 when compared to the second quarter of 1997. The Company's overall growth resulted from increased business with both new and existing customers and from the sale of new products and services. Overall operating expenses compared to 1997 increased 22.0% to $160.1 million. Net income grew 66.8% to $17.0 million, or 22 cents per share, compared to 13 cents per share on a diluted basis. The net income growth resulted from the growth in operating income as well as from $2.8 million interest income in the second quarter of 1998 compared to $1.9 million interest expense (allocated based upon percentage of net assets) for the same period in 1997. DIRECT MARKETING Direct marketing operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE - ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $121,565 $100,413 21.1% $235,992 $194,203 21.5% Operating expenses 105,001 87,685 19.7% 205,352 170,985 20.1% -------- -------- -------- -------- Operating income $ 16,564 $ 12,728 30.1% $ 30,640 $ 23,218 32.0% ======== ======== ======== ========
Direct marketing revenues increased $21.2 million, or 21.1%, in the second quarter of 1998 when compared to 1997. Revenues were lead by database marketing, which had significant revenue growth for the quarter, followed by response management and marketing services, both of which experienced good internal revenue growth. Database marketing revenues increased primarily due to the growth in database processing and in hardware sales. Database marketing revenues were also impacted by the November 1997 acquisition of Mercantile Software Systems, which contributed significantly to the increased hardware sales. Response management revenues increased due to increased telemarketing and 12 12 internet business with existing customers, new customer gains, the November 1997 acquisition of Tele Support Services and to a lesser extent the May 1997 opening of the Langhorne, PA call center. Marketing services' revenues, led by its logistics operations, increased due to increased product sales as well as new product sales to new and existing customers, primarily in the retail industry. Operating expenses increased $17.3 million, or 19.7%, in the second quarter of 1998 when compared to 1997. Payroll costs increased $5.3 million due to expanded hiring to support revenue growth. Also contributing to the increased operating expenses were additional production costs of $8.5 million due to increased volumes. General and administrative expense increased $2.3 million due to increased professional and outside services fees and increased employee expenses related to growth. Depreciation expense increased $1.0 million due to higher levels of capital investment to support growth. Operating expenses were also impacted by the acquisitions noted above. Direct marketing revenues increased $41.8 million, or 21.5%, in the first six months of 1998 compared to the first six months of 1997. Database marketing, response management and marketing services all experienced significant revenue growth. Overall, revenue growth resulted from increased business with both new and existing customers, particularly in services provided to the retail, financial services, high technology and insurance industries. Operating expenses rose $34.4 million, or 20.1%, in the first half of 1998 when compared to the first half of 1997. Payroll costs increased $12.3 million due to expanded hiring to support revenue growth. In addition, production costs increased $14.5 million due to increased volumes. General and administrative expense increased $5.0 million due to increased professional and outside services fees as well as an increased provision for bad debt related to the increased revenues. Depreciation expense increased $2.1 million due to the higher levels of capital investment. The acquisitions mentioned above also contributed to the increased operating expenses. SHOPPERS Shopper operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1998 JUNE 30, 1997 CHANGE JUNE 30, 1998 JUNE 30, 1997 CHANGE - ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $ 65,241 $ 50,551 29.1% $128,487 $ 95,185 35.0% Operating expenses 52,785 41,488 27.2% 108,724 81,922 32.7% -------- -------- -------- -------- Operating income $ 12,456 $ 9,063 37.4% $ 19,763 $ 13,263 49.0% ======== ======== ======== ========
Shopper revenues increased $14.7 million, or 29.1%, in the second quarter of 1998 as compared to 1997. The increase was primarily due to the September 1997 acquisition of the ABC Shopper Group, which accounted for $16.0 million of the revenue increase, partially offset by the sale of the Dallas-Fort Worth Shoppers Guide in April 1998 which resulted in a $1.3 million revenue decrease. The increased revenues were influenced by increased employment-related in-book revenues and increased distribution product revenues partially offset by decreased in-book ROP advertising, automotive and real estate in particular, and declines in standard print and delivery products. Distribution product revenues increased due to higher volumes in four color glossy print and deliver products and preprinted inserts. Operating expenses increased $11.3 million, or 27.2%, in the second quarter of 1998 when compared to 1997. The acquisition of the ABC Shopper Group accounted for a $13.9 million increase in operating expenses. The sale of the Dallas-Fort Worth Shoppers Guide resulted in a $1.3 million reduction in operating expenses. Excluding the acquisition and divestiture mentioned above, operating costs declined primarily due to decreased labor costs of $1.2 million which were influenced by improved 13 13 production efficiencies and staff reductions. Shopper revenues increased $33.3 million, or 35.0%, in the first six months of 1998 compared to the first six months of 1997. The ABC Shopper Group acquisition accounted for $32.0 million of this increase while the sale of the Dallas-Fort Worth Shoppers Guide in April 1998 resulted in a $1.2 million revenue decrease. Excluding the effects of the acquisition and the divestiture discussed above, revenues grew 2.3% due to growth in preprinted inserts, four-color glossy print and deliver products, in-book employment related advertising and improved trade sales. Gains in these categories were partially offset by declines in standard print and deliver products and in automotive and real estate related in-book advertising. Operating expenses rose $26.8 million, or 32.7%, in the first half of 1998 when compared to the first half of 1997. The acquisition of the ABC Shopper Group accounted for a $28.5 million increase in operating costs. The sale of the Dallas-Fort Worth Shoppers Guide resulted in a $1.2 million reduction in operating expenses. Excluding the acquisition and divestiture mentioned above, operating costs declined primarily due to decreased labor costs of $1.3 million which were influenced by improved production efficiencies, staff reductions and lower fringe benefit costs. Other Income and Expense The company realized a loss of approximately $0.4 million in the first quarter 1998 on the sale of equity securities that were held in its short-term investment portfolio. Interest Expense/Interest Income Total Company interest income and expense were allocated to continuing and discontinued operations based on percentage of net assets through October 15, 1997. The percentage allocated to continuing operations was approximately 58% for the second quarter and first six months of 1997. Interest expense decreased $1.8 million in the second quarter of 1998 and $3.6 million in the first six months of 1998 over the same periods in 1997 due to the extinguishment of debt with the proceeds from the October 15, 1997 sale of the Company's newspaper and television operations. Interest income increased $2.8 million in the second quarter of 1998 and $8.3 million in the first six months of 1998 over the same periods in 1997 due to the short-term investment of the proceeds from the sale of newspaper and television operations, after debt extinguishment, operational fundings and income tax payments. Income Taxes The Company's income tax expense increased $4.4 million in the second quarter and $9.8 million in first six months of 1998, when compared to the second quarter and first six months of 1997. This increase was due primarily to the higher pre-tax income levels. The effective tax rate was 41.8% for the second quarter and 41.5% for the first six months of 1998 compared to 42.4% and 42.5%, respectively for the same periods of 1997. Liquidity and Capital Resources Cash used in operating activities for the six months ended June 30, 1998 was $223.1 million. The cash outflow from operating activities related primarily to the first quarter 1998 payment of $265.7 million in income taxes, resulting from the gain on the October 15, 1997 sale of newspaper and television operations. 14 14 Net cash inflows from investing activities were $204.7 million for the first half of 1998 compared to net cash outflows of $22.5 million for the first half of 1997. The increase of cash inflows from investing activities was primarily attributable to sales and maturities of marketable securities totaling $217.3 million, the proceeds of which were used to help fund the Company's tax payments made in the first quarter of 1998. Net cash outflows from financing activities were $7.7 million compared to $29.0 million in 1997. The decrease in cash outflows from financing activities from 1997 is attributed primarily to the extinguishment of debt in October 1997. Capital resources were available from and provided through the Company's unsecured credit facility through October 15, 1997. All borrowings under the revolving credit facility were to be repaid by December 31, 2001. However, these outstanding borrowings ($306.3 million) were retired on October 15, 1997, funded primarily through the proceeds received from the sale of the Company's newspaper and television operations as described in Note B of the Notes to Interim Condensed Consolidated Financial Statements included herein. Management believes that the proceeds from the Company's sale of newspaper and television operations remaining after the retirement of debt and the payment of income taxes related to the sale, together with cash provided from operating activities, will be sufficient to fund operations and anticipated capital service needs for the foreseeable future. Divestiture On May 1, 1998, the Company sold three of its smallest shopper publications, located in Dallas, TX, Wichita, KS and Springfield, MO, to Central States Publishing, LLC. Recent Developments On July 30, 1998, the Company signed a definitive agreement to acquire Cornerstone Integrated Services of Austin, Texas, a leading provider of technical and marketing support to the high-tech industry. The transaction closed on August 3, 1998. Factors That May Affect Future Results and Financial Condition From time to time, in both written reports and oral statements by senior management, the Company may express its expectations regarding its future performance. These "forward-looking statements" are inherently uncertain, and investors should realize that events could turn out to be other than what senior management expected. Set forth below are some key factors which could affect the Company's future performance. Acquisitions -- In recent years the Company has made a number of acquisitions in its direct marketing and shopper businesses, and it expects to pursue additional acquisition opportunities. Acquisition activities, even if not consummated, require substantial amounts of management time and can distract from normal operations. In addition, there can be no assurance that the synergies and other objectives sought in acquisitions will be achieved. Competition -- Direct marketing is a rapidly evolving business, subject to periodic technological advancements, high turnover of customer personnel who make buying decisions, and changing customer needs and preferences. Consequently, the Company's direct marketing business faces competition in each of its three sectors -- response management/teleservices, database marketing, and marketing services. The Company's shopper business competes for advertising, as well as for readers, with other print and electronic media. Competition comes from local and regional newspapers, magazines, radio, broadcast and cable television, 15 15 shoppers and other communications media that operate in the Company's markets. The extent and nature of such competition are, in large part, determined by the location and demographics of the markets targeted by a particular advertiser, and the number of media alternatives in those markets. Postal Rates -- The Company's shoppers are delivered by standard mail, and postage is the second largest expense, behind payroll, in the Company's shopper business. The present standard postage rates went into effect in July 1995, and the next increase is expected in 1999. Postal rates also influence the demand for the Company's direct marketing services even though the cost of mailings is borne by the Company's customers and is not directly reflected in the Company's revenues or expenses. Newsprint Prices -- Newsprint represents a substantial expense in the Company's shopper operations. In recent years newsprint prices have fluctuated widely, and such fluctuations can materially affect the results of the Company's operations. Economic Conditions -- Changes in national economic conditions can affect levels of advertising expenditures generally, and such changes can affect each of the Company's businesses. In addition, revenues from the Company's shopper business is dependent to a large extent on local advertising expenditures in the markets in which they operate. Such expenditures are substantially affected by the strength of the local economies in those markets. Direct marketing revenues are dependent on national and international economics. Year 2000 Issue -- The Year 2000 issue is a result of computer programs being written using two digits rather than four to define the applicable year. The Company has conducted a comprehensive review of its computer systems to identify those that could be affected by the Year 2000 issue and has developed an implementation plan to resolve the issue. The Company is utilizing both internal and external resources to correct or reprogram, and test the systems for the year 2000 compliance. It is anticipated that all reprogramming efforts will be complete by December 31, 1998, allowing adequate time for testing. The Company is also in the process of obtaining confirmations, from primary processing vendors and customers, that plans are being developed to address processing of transactions in the year 2000. The Company does not expect the amounts required to be expensed over the next eighteen months to have a material effect on its financial position or results of operations. 16 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of stockholders on May 5, 1998. At the meeting the stockholders were requested to vote on the following: 1. To elect Larry Franklin and James L. Johnson as Class II directors for a three-year term. The result of the vote was as follows:
For Withheld ---------- -------- Larry Franklin 55,222,507 177,048 James L. Johnson 55,222,507 177,048
The names of each director whose term of office continued are: David L. Copeland, Dr. Peter T. Flawn, Christopher M. Harte, Houston H. Harte and Richard M. Hochhauser. 2. To approve an amendment to the Company's Certificate of Incorporation to change the name of the Company to "Harte-Hanks, Inc." The result of the vote was as follows:
For Against Abstentions ---------- ------- ----------- 55,355,837 17,271 26,447
3. To approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 125,000,000 to 250,000,000. The result of the vote was as follows:
For Against Abstentions ---------- ------- ----------- 54,799,965 568,516 31,074
4. To approve the adoption of the Company's 1998 Director Stock Plan. The result of the vote was as follows:
For Against Abstentions ---------- ------- ----------- 54,904,051 388,399 107,105
5. To approve amendments to the Company's 1991 Stock Option Plan. The result of the vote was as follows:
For Against Abstentions ---------- ------- ----------- 54,071,120 1,215,050 113,385
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See index to Exhibits on Page 14. (b) No Form 8-K has been filed during the three months ended June 30, 1998. 17 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HARTE-HANKS, INC. August 13, 1998 /s/ Jacques D. Kerrest --------------- ------------------------------------- Date Jacques D. Kerrest Senior Vice President, Finance and Chief Financial and Accounting Officer 18 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ------- ---------------------- 2(a) Certificate of Ownership and Merger (filed as Exhibit 2(a) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 2(b) Agreement and Plan of Merger dated as of February 4, 1996 among Harte-Hanks Communications, Inc., HHD Acquisition Corp. and DiMark, Inc. (filed as Appendix A to the Company's Registration Statement No. 333-02047 and incorporated by reference herein). 2(c) Agreement and Plan of Merger and Reorganization, dated as of May 16, 1997, by and between The E.W. Scripps Company and Harte-Hanks Communications, Inc. (filed as Exhibit 2.1 to the Company's Form 8-K dated May 22, 1997 and incorporated by reference herein). 2(d) Acquisition Agreement, dated as of May 16, 1997, by and between The E.W. Scripps Company and Harte-Hanks Communications, Inc. (filed as Exhibit 2.2 to the Company's Form 8-K dated May 22, 1997 and incorporated by reference herein). 2(e) Stock Purchase Agreement dated as of July 26, 1997 between ABC, Inc. and Harte-Hanks Communications, Inc. (filed as Exhibit 2(e) to the Company's Form 10-Q for the nine months ended September 30, 1997 and incorporated by reference herein). 3(a) Amended and Restated Certificate of Incorporation (filed as Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1993 and incorporated by reference herein). 3(b) Amended and Restated Bylaws (filed as Exhibit 3(b) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 3(c) Amendment dated April 30, 1996 to Amended and Restated Certificate of Incorporation (filed as Exhibit 3(c) to the Company's Form 10-Q for the six months ended June 30, 1996 and incorporated by reference herein). *3(d) Amendment dated May 5, 1998 to Amended and Restated Certificate of Incorporation. *3(e) Amended and Restated Certificate of Incorporation as amended through May 5, 1998. 4(a) Long term debt instruments are not being filed pursuant to Section (b)(4)(iii) of Item 601 of Regulation S-K. Copies of such instruments will be furnished to the Commission upon request.
19 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ------- ---------------------- 10(a) 1984 Stock Option Plan (filed as Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1984 and incorporated herein by reference). 10(b) Registration Rights Agreement dated as of September 11, 1984 among HHC Holding Inc. and its stockholders (filed as Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1993 and incorporated by reference herein). 10(c) Severance Agreement between Harte-Hanks Communications, Inc. and Larry Franklin, dated as of July 23, 1993 (filed as Exhibit 10(f) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 10(d) Form of Severance Agreement between Harte-Hanks Communications, Inc. and certain Executive Officers of the Company, dated as of July 7 or December 28,1997 (filed as Exhibit 10(f) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated by reference herein). 10(e) Harte-Hanks, Inc. Pension Restoration Plan (filed as Exhibit 10(j) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 10(f) Harte-Hanks Communications, Inc. 1996 Incentive Compensation Plan (filed as Exhibit 10(p) to the Company's Form 10-Q for the six months ended June 30, 1996 and incorporated by reference herein). *10(g) Harte-Hanks, Inc. Amended and Restated 1991 Stock Option Plan. *10(h) Harte-Hanks, Inc. 1998 Director Stock Plan. *11 Statement Regarding Computation of Net Income (Loss) Per Common Share *21 Subsidiaries of the Company. *27 Financial Data Schedule.
- ----------------- *Filed herewith EX-3.D 2 AMENDMENT TO CERTIFICATE OF INCORPORATION 1 20 EXHIBIT 3(d) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF HARTE-HANKS COMMUNICATIONS, INC. Harte-Hanks Communications, Inc., a corporation organized and existing under the Delaware General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY: FIRST: that the Board of Directors of the Corporation, at a meeting of the Board of Directors held on January 28, 1998, duly adopted resolutions setting forth proposed amendments to the Certificate of Incorporation of said corporation, declaring said amendments to be advisable, and directing that said amendments be submitted to the stockholders of said corporation for approval at the Annual Meeting of Stockholders. The resolution setting forth the proposed amendments is as follows: RESOLVED, that the Board of Directors of the Corporation hereby adopts, approves and recommends a proposal to amend the Certificate of Incorporation of the Corporation to amend ARTICLE I thereto, as follows: "ARTICLE I The name of the corporation is Harte-Hanks, Inc." RESOLVED FURTHER, that the Board of Directors of the Corporation hereby adopts, approves and recommends a proposal to amend the Certificate of Incorporation of the Corporation to amend the first sentence of ARTICLE FOURTH as follows: "Fourth: The aggregate number of shares of capital stock that the Corporation shall have the authority to issue is two hundred fifty-one million (251,000,000), of which two hundred fifty million (250,000,000) shares shall be common stock of the Corporation, par value $1.00 per share and one million (1,000,000) shares shall be Preferred Stock, par value $1.00 per share". SECOND: that thereafter, the stockholders of said corporation, which hold the necessary number of shares as required by statute, duly adopted and approved said amendments at the Annual Meeting of the Stockholders on Tuesday, May 5, 1998. THIRD: that said amendments were duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, this Certificate of Amendment is signed by Donald R. Crews, Senior Vice President, Legal and Secretary of the Corporation, as of May 5, 1998, and the undersigned acknowledges that the above statements are true. /s/ Donald R. Crews ------------------------------------------ Donald R. Crews Senior Vice President, Legal and Secretary EX-3.E 3 AMENDED CERTIFICATE OF INCORPORATION 1 21 EXHIBIT 3(e) AS AMENDED THROUGH 5/5/98 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HARTE-HANKS, INC. The undersigned, Larry D. Franklin certifies that he is the President and Chief Executive Officer of Harte-Hanks, Inc., a Delaware corporation (the "Corporation"), and further certifies as follows: 1. The name of the Corporation is Harte-Hanks, Inc. 2. The name under which the Corporation was originally incorporated was Harte-Hanks Newspapers, Inc., and the original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on October 1, 1970. This Amended and Restated Certificate of Incorporation was duly adopted by written consent of the holders of not less than a majority of the outstanding stock of the Corporation entitled to vote, and written notice of the Corporation action has been given to the stockholders of the Corporation who have not so consented in writing, all in accordance with the provisions of the Sections 228, 245 and 242 of the Delaware General Corporation Law ("DGCL"). 4. The text of the Restated Certificate of Incorporation of the Corporation as amended hereby is restated to read in its entirety, as follows: FIRST. The name of the Corporation is HARTE-HANKS, INC. SECOND. The name of its registered agent and the address of its registered office in the State of Delaware are The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. THIRD. The purpose of the Corporation is to engage in any lawful activity for which corporations may be organized under the DGCL. FOURTH. The aggregate number of shares of capital stock that the Company shall have the authority to issue is two hundred fifty-one million (251,000,000), of which two hundred fifty million (250,000,000) shares shall be Common Stock of the Corporation, par value $1.00 per share, and one million (1,000,000) shares shall be Preferred Stock, par value $1.00 per share. Shares of Preferred Stock may be issued from time to time in one or more series, each such series to have such distinctive designation or title as may be fixed by the Board of Directors prior to the issuance of any shares thereof. Each share of any series of Preferred Stock shall be identical with all other shares of such series, except as to the date from which accumulated preferred dividends, if any, shall be cumulative. Each such series shall have such voting powers, if any, and such preferences and relative, participating, optional or other special rights, with such qualifications, limitations or restrictions of such preferences and/or rights, and the benefit of such affirmative or negative covenants as shall be stated in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series of Preferred Stock, including, but without limiting the generality of the foregoing, the following: (a) The rates and times at which, and the terms and conditions on which, dividends on Preferred Stock or series thereof shall be paid; 2 22 (b) The right, if any, of the holders of Preferred Stock or series thereof to convert the same into, or exchange the same for, shares of other classes or series of stock of the Corporation and the terms and conditions of such conversion or exchange; (c) The redemption price or prices, if any, and the time or times at which, and the terms and condition of which, Preferred Stock or series thereof may be redeemed; (d) The rights of the holders of Preferred Stock or series thereof, if any, upon the voluntary or involuntary liquidation, merger, consolidation, distribution or winding up of the Corporation; (e) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock or series thereof; and (f) Such other relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, all as may be stated in a resolution or resolutions providing for the issue of such Preferred Stock. After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of this Article FOURTH) shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of this Article FOURTH), then, and not otherwise, the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. After distribution in full of the preferential amount (fixed in accordance with the provisions of this Article FOURTH) to be distributed to the holders of Preferred Stock in the event of the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive ratably all of the remaining assets of the Corporation available for distribution to stockholders. Except as may otherwise be required by law or provided herein, each holder of Common Stock shall have one vote in respect of each share of stock held by such holder on all matters voted upon by stockholders. No holder of stock of any class of the Corporation shall be entitled as of right to subscribe for or purchase any shares of stock of any class whether now or hereafter authorized, or any bonds, debentures, or other evidences of indebtedness whether or not convertible into or exchangeable for stock. FIFTH. (a) Classified Board of Directors. The number of directors of the Corporation shall be as from time to time fixed by, or in the manner provided in, the By-laws of the Corporation. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 1994 annual meeting of stockholders; the term of the initial Class II directors shall terminate on the date of the 1995 annual meeting of stockholders; and the term of the initial Class III directors shall terminate on the date of the 1996 annual meeting of stockholders. At each annual meeting of stockholders beginning in 1994, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a 3 23 term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, however resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Article FOURTH applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless expressly provided by such terms. (b) Removal of Directors. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of votes represented by the outstanding shares of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article FIFTH as one class. SIXTH. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding whether civil, criminal, administrative, or investigative ("proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or as its representative in a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, representative or in any other capacity while serving as a director, officer, or representative, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or representative and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Such rights shall be contract rights and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in 4 24 advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this paragraph (a) or otherwise. (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part in any such suit, or in a suit brought by the Corporation against the claimant to recover an advancement of expenses pursuant to the terms of an undertaking referred to in paragraph (a) hereof, the claimant shall be entitled to be paid also the expense of prosecuting or defending such claim. In any suit brought by the claimant to enforce a right to indemnification hereunder, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover any advanced expenses upon a final adjudication that the claimant has not met the standards of conduct that make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of providing such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant had not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The rights conferred on any person by paragraphs (a) and (b) shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Amended and Restated Certificate of Incorporation, By-laws, agreement, vote of stockholders or disinterested directors, or otherwise. (d) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. (e) Continuance. Any repeal or modification of the foregoing paragraphs of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of an officer, director or representative of the Corporation existing at the time of such repeal or modification. SEVENTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the 5 25 Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. EIGHTH. The Bylaws of the Corporation may be adopted, repealed, altered, amended, or rescinded by (a) a majority of the authorized number of directors and, if one or more interested stockholders (as defined in Section 203 of the DGCL) exists, by a majority of the directors who are Continuing Directors or (b) the affirmative vote of the holders of not less than 66 2/3% of the voting power of the Company's capital stock and if such adoption, repeal, alteration, amendment, or rescission is proposed by or on behalf of an interested stockholder or a director affiliated with an interested stockholder, by a majority of the disinterested shares. "Continuing Director" means a director of the corporation who (i) was a member of the Board of the Corporation as of September 20, 1993, or (ii) is a beneficial owner, or affiliate of such beneficial owner, of less than 20% of the Common Stock of the Corporation and who became a director of the Corporation subsequent to September 20, 1993 and whose initial election or initial nomination for election was approved by a majority of the Continuing Directors then on the Board of Directors of the Corporation. The provisions of this Amended and Restated Certificate of Incorporation may be altered, amended or repealed by the affirmative vote of the holders a majority of the issued and outstanding stock having voting power provided, that with respect to the provisions of Articles Fifth, Seventh, Eighth, Tenth and Eleventh, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the issued and outstanding stock having voting power shall be required. NINTH. The Corporation may in its Bylaws by amendment thereto make any lawful restriction upon the sale or transfer of stock of the Corporation held by its stockholders; and all persons subscribing for stock of the Corporation or purchasing stock, whether from the Corporation itself or from any stockholder, shall take notice of and be bound by such lawful restrictions, and shall be deemed to agree thereto. TENTH. (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the DGCL is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. (b) Any repeal of modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ELEVENTH. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting duly noticed and called, as provided in the By-laws 6 26 of the Corporation, and may not be taken by a written consent of the stockholders. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the chief executive officer or by a majority of the members of the Board of Directors. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. IN WITNESS WHEREOF, Harte-Hanks has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officers, this 30th day of September 1993. [as amended through May 5, 1998] HARTE-HANKS , INC. By: /s/ Larry D. Franklin ------------------------------------ Larry D. Franklin President [SEAL] ATTEST: By: /s/ Donald R. Crews ------------------------------- Donald R. Crews Secretary EX-10.G 4 AMENDED 1991 STOCK OPTION PLAN 1 27 EXHIBIT 10(g) AMENDED AND RESTATED HARTE-HANKS COMMUNICATIONS, INC. 1991 STOCK OPTION PLAN 1. Purpose of the Plan. This plan shall be known as the Harte-Hanks Communications, Inc. 1991 Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentives to key employees of Harte-Hanks Communications, Inc. or any present or future Parent or Subsidiary of Harte-Hanks Communications, Inc. to promote the success of the business of these corporations. It is intended that options that qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, as well as nonqualified options may be granted pursuant to the Plan, and the Plan shall be construed accordingly. 2. Definitions. As used herein, the following definitions shall apply: (a) "Corporation" shall mean Harte-Hanks Communications, Inc. (b) "Board" shall mean the Board of Directors of the Corporation and, subject to such limitations as are prescribed by the Board of Directors of the Corporation, the committee, if any, appointed to administer the Plan pursuant to paragraph 4(a) hereof. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Common Stock" shall mean common stock, par value $1.00 per share, of the Corporation. (e) "Employee" shall mean, with respect to Incentive Stock Options, any person employed by the Corporation or any present or future Parent or Subsidiary of the Corporation who would qualify as an "employee" under Treas. Reg. Section 1.421-7(h)(1) or successor regulation. With respect to non-qualified options, "Employee" shall also include consultants and advisors who provide services to the Corporation or any of its Subsidiaries or its Parent, including outside directors of the Corporation. (f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (g) "Fair Market Value" shall mean the closing sale price (or average of the quoted closing bid and asked prices if there is no closing sale price reported) of the Common Stock on the date specified as reported by the New York Stock Exchange or by the principal national stock exchange on which the Common Stock is then listed. If there is no reported price information for the Common Stock, the Fair Market Value will be determined by the Board, in its sole discretion. In making such determination, the Board may, but shall not be obligated to, commission and rely upon an independent appraisal of the Common Stock. (h) "Incentive Stock Option" or "ISO" shall mean an Option that constitutes an incentive stock option within the meaning of Section 422 of the Code. These options shall be designated as Incentive Stock Options. 2 28 (i) "Option" shall mean a stock option granted pursuant to this Plan. (j) "Parent" shall mean any future corporation which would be a "parent corporation" of the Corporation as defined in Section 425(e) and (g) of the Code. (k) "Participant" shall mean an Employee who receives an Option. (l) "Plan" shall mean the Harte-Hanks Communications, Inc. 1991 Stock Option Plan. (m) "Securities Act" shall mean the Securities Act of 1933, as amended. (n) "Subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" of the Corporation as defined in Section 425(f) and (g) of the Code. 3. Shares Subject to the Plan. Except as otherwise required by the provisions of paragraph 7 hereof, the aggregate number of shares of Common Stock issuable upon the exercise of Options pursuant to the Plan shall not exceed 8,000,000 shares. Such shares may be either authorized but unissued shares or treasury shares. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased shares which were subject thereto shall, unless the Plan shall have been terminated, be available for the grant of other Options under the Plan. 4. Administration of the Plan. (a) The Plan shall be administered by the Board; provided however, that the Board at any time can appoint a committee, consisting solely of non-employee directors, to administer the Plan. (b) Powers of the Board. The Board (or a committee appointed pursuant to Section 4(a) above) is authorized (but only to the extent not contrary to the express provisions of the Plan) to select from the persons who are eligible to receive Options under the Plan the particular persons who will receive Options, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the form and content of Options to be issued under the Plan and to make other determinations and exercise such other power and authority as may be necessary or advisable for the administration of the Plan. A majority of the Board members eligible to act shall constitute a quorum for purposes of acting with respect to the Plan and the action of a majority of the members present who are eligible to act at any meeting at which a quorum is present shall be deemed the action of the Board. The President or any Vice President of the Corporation is hereby authorized to execute instruments evidencing duly granted Options on behalf of the Corporation and to cause them to be delivered to the Participants. (c) Effect of Board Decisions. All decisions, determinations and interpretations of the Board with respect to the Plan and Options granted thereunder shall be final and conclusive on all persons affected thereby. 3 29 (d) Approval of Grants. Each grant of Option must be approved in one of the following ways: (i) Board/Committee Approval. The entire Board of the Corporation or a committee thereof may vote in advance to approve such grant. (ii) Stockholder Approval/Ratification. In compliance with Section 14 of the Exchange Act, a majority of the stockholders of the Corporation duly entitled to vote on such matters at meetings held in accordance with the Delaware Corporation Law, may either in advance of the grant or no later than the next annual meeting of stockholders, affirmatively vote to approve such grant. 5. Eligibility. (a) All Employees are eligible to receive Options under the Plan, except that no Employee shall be eligible to receive an Incentive Stock Option if, on the date of grant, such Employee owns (including ownership through the attribution provisions of Section 424 of the Code) in excess of 10% of the outstanding voting stock of the Company (or of its parent or subsidiary as defined in Section 424 of the Code). (b) No Participant shall be eligible to be granted Options with respect to more than 1,000,000 shares of Common Stock per calendar year under the Plan. 6. Term of Plan. The Plan shall continue in effect until terminated pursuant to Paragraph 12. 7. Effect of Change in Stock Subject to the Plan. In the event that each of the outstanding shares of Common Stock (other than shares held by dissenting stockholders) shall be changed into or exchanged for a different number or kind of shares of stock of the Corporation or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, split-up, combination of shares, or otherwise), then there shall be substituted for each share of Common Stock then under Option or available for Option the number and kind of shares of stock into which each outstanding share of Common Stock (other than shares held by dissenting stockholders) shall be so changed or for which each such share shall be so exchanged, together with an appropriate adjustment of the option price. In the event there shall be any other change in the number of, or kind of, issued shares of Common Stock, or of any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, the Board shall make such adjustment, if any, in the number, or kind, or option price of shares then subject to an Option or available for Option as is equitably required. Any such adjustment shall be effective and binding for all purposes of the Plan. 8. Time of Granting Options. The date of grant of an Option under the Plan shall for all purposes, be the date on which the Board awards the Option or, if otherwise, the date specified by the Board as the date the award is to be effective. Notice of the grant shall be given to each Employee to whom an Option is so granted within a reasonable time after the date of such grant. 9. Manner of Exercise. Payment methods for the exercise of Options granted under this Plan may include any of the following, as determined by the Board or a committee at the date of the grant or prior to any exercise, provided that such 4 30 method is not prohibited by the applicable Option agreement (or the law applicable thereto as the same may be amended from time to time): (a) by check; (b) in shares of Common Stock owned by the Participant; (c) partly by check and partly in shares of Common Stock. Notwithstanding the foregoing, Incentive Stock Options granted prior to January 1, 1998, may be exercised only by check. If Participant-owned Common Stock is used to pay the purchase price, the Common Stock used must have been held by the Participant for at least six months prior to the date of exercise. Payments made in Common Stock shall be made by tendering to the Company shares owned by the Participant having an aggregate Fair Market Value per share that is not greater than the exercise price for the shares with respect to which the Option is being exercised and by paying any remaining amount of the exercise price by check. The Board or the committee may, in its discretion, authorize a constructive exchange of existing shares, as follows: the Participant may exercise the option by delivering a notarized statement that the Participant has owned for at least six months the number of shares of Common Stock to be used for the exercise of the Option (and delivering cash, to the extent the value of such shares is less than the exercise price), and thereupon, a new certificate shall be issued to the Participant for the number of shares being acquired pursuant to the exercise of the Option, less the number of shares being constructively tendered as set forth in the Participant's notarized statement. The Board or committee, in its discretion, may also authorize: (a) Participants to deliver Common Stock as payment for the withholding taxes due upon exercise of a non-qualified option; or (b) at the request of the Participant, withholding of a number of shares from the certificate satisfactory to pay the withholding taxes due on exercise of a non-qualified option. 10. Effective Date. The Plan became effective on February 28, 1991, the date it was adopted by the Board of Directors of the Corporation. 11. Modification of Options. At any time and from time to time the Board may execute an instrument providing for the modification of any outstanding Option, provided no such modification, extension or renewal shall confer on the holder of said Option any right or benefit which could not be conferred on such holder by the grant of a new Option at such time, or impair the Option without the consent of the holder of the Option. 12. Amendment and Termination of the Plan. The Board may alter, suspend or discontinue the Plan at any time. However, all Incentive Stock Options must be granted within ten years of the effective date of the Plan, or the date the Plan is approved by the shareholders, whichever is earlier. No action of the Board may impair any then outstanding Option without the consent of the holder of the Option. No amendment may be made without the approval of the stockholders of the Corporation by the affirmative votes of the holders of a majority of shares of Common Stock casting votes at a duly held stockholder's meeting which amendment would (i) increase the number of shares available under the Plan; (ii) change the employees or class of employees eligible to participate in the Plan; or (iii) change the material terms of the Plan as construed under Section 162(m) of the Code. 13. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to any Option granted under the Plan unless the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the shares may then be listed. 5 31 The Corporation shall not be liable for refusing to sell or issue any shares if the Corporation cannot obtain from the appropriate regulatory body(ies) authority deemed by the Corporation's counsel to be necessary lawfully to issue or sell such shares. As a condition to the exercise of an Option, the Corporation may require the person exercising the Option to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. 14. Restrictions on Shares. The Board may impose such restrictions on the ownership and transfer of shares issued pursuant to this Plan as it deems desirable; any such restrictions shall be set forth in any Option agreement entered into hereunder. 15. Reservation of Shares. The Corporation during the term of this Plan will reserve and keep available a number of shares sufficient to satisfy the requirements of the Plan. 16. Change of Control. (a) In order to maintain the Participants' rights in the event of a Change of Control or Potential Change of Control of the Corporation, as hereinafter defined, the Board, in its sole discretion, may, in addition to and notwithstanding anything to the contrary contained in the Plan, either at the time an Option is granted hereunder or at any time prior to or upon the occurrence of a Change of Control or Potential Change of Control, provide, in whole or in part, for the accelerated exercisability of and/or the waiver of any conditions to the full and immediate exercisability of, each Option outstanding at the time of such Change of Control or Potential Change of Control event. The Board may, in its discretion, include such further provisions and limitations in any agreement entered into with respect to an Option as it may deem equitable and in the best interests of the Corporation. (b) For the purposes of this paragraph 16, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof), excluding the Corporation, its Subsidiaries and any employee benefit plan sponsored or maintained by the Corporation or its Subsidiaries (including any trustee of such plan acting as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least fifty percent (50%) of the total number of shares which are entitled to vote for the election of directors of the Corporation (the "Voting Shares"); or (ii) the stockholders of the Corporation shall approve any merger or other business combination of the Corporation, sale of substantially all the Corporation's assets or a combination of the foregoing transactions (a "Transaction") other than a Transaction involving only the Corporation and one or more of its Subsidiaries, or a Transaction immediately following which the stockholders of the Corporation immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity. Two or more persons owning in the aggregate fifty percent (50%) or more of the Voting 6 32 Shares shall not be deemed to be a "group" for the purposes of paragraph 16(b)(i) hereof solely because such persons are officers or directors of the Corporation. (c) For the purposes of this paragraph 16, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer for at least fifty percent (50%) of the Voting Shares; (ii) approval of any Transaction (excluding any Transaction that is excluded for purposes of paragraph 16(b)(ii) above) is requested of stockholders; (iii) proxies for the election of directors of the Corporation are solicited by anyone other than the Corporation; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board. (d) Notwithstanding the foregoing, no Change of Control or Potential Change of Control shall be deemed to have occurred for purposes of the Plan with respect to an Employee by reason of any actions or events in which such Employee participates in a capacity other than in his or her capacity as an Employee (or as a director of the Company, where applicable). (e) Notwithstanding the foregoing, in no event shall the acceleration of any option hereunder upon a Change of Control occur to the extent an "excess parachute payment" (as defined in Code Sec. 280G) would result. In the event that the Board or a committee appointed thereby determines that such an excess parachute payment would result if the full acceleration provision of this section 16(e) occurred (when added to any other payments or benefits contingent on a change of control under any other agreements, arrangements or plans) then the number of shares as to which exercisability is accelerated shall be reduced so that total parachute payments do not exceed 299% of the optionee's "base amount," as defined in Code Sec. 280G(b)(3). 17. Transferability. All or a portion of the nonqualified options to be granted to a Participant may, in the discretion of the Board or committee, as the case may be, be on terms that permit transfer without consideration by such Participant to (i) the spouse, children or grandchildren of the Participant ("Immediate Family Members"), (ii) a trust or trusts, or to a guardian under the Uniform Gift to Minors Act, for the exclusive benefit of such Immediate Family Members, or (iii) a partnership or other entity in which such Immediate Family Members are the only partners, provided that (x) the stock option agreement pursuant to which such nonqualified options are granted must be approved by the committee, and must expressly provide for transferability in a manner consistent with this Section, and (y) subsequent transfers of transferred Options shall be prohibited except by will or the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of each agreement and Section 9 hereof the term "Participant" shall be deemed to refer to the transferee (however, the events of termination of employment, if any, set forth in the agreement and the obligation to pay withholding taxes shall continue to apply to the transferor). Incentive Stock Options shall be nontransferable except by will or the laws of descent and distribution, and may only be exercisable during the Participant's lifetime, by the Participant. 18. Stock Option Price. The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted. As to nonqualified options awarded to executive officers whose compensation may otherwise exceed the deduction limit of Section 162(m) of the 7 33 Code, if the option price per share is not less than the Fair Market Value of the Common Stock at the date of the grant, such options shall be deemed to be "qualified performance based compensation" under Code Section 162(m)(4)(C), and shall be administered in a manner consistent with that section. 19. Exercise of Incentive Stock Options. No Incentive Stock Option shall be exercisable at any time after the expiration of ten (10) years from the date of grant. Otherwise, the Board, or a committee appointed by the Board, will set the option terms and exercisability schedule. The total fair market value (determined as of the date of grant) of stock with respect to which ISO's (whether granted under this Plan or under any other agreement or plan of the Company or any of its subsidiaries) are first exercisable by a Participant in any one calendar year shall not exceed $100,000. In the event that the Participant's total ISO's exceed the $100,000 limit in any year (whether due to acceleration of exercisability under Section 16 above, miscalculation, error or otherwise) the amount of ISO's that exceed such limit shall be treated as non-qualified stock options. The ISO's granted earliest (whether under this Plan or any other agreement or plan) shall be applied first to the $100,000 limit. In the event that only a portion of the options granted at the same time can be applied to the $100,000 limit, the Company shall issue separate share certificate(s) for such number of shares as does not exceed the $100,000 limit, and shall designate such shares as ISO stock in its share transfer records. EX-10.H 5 1998 DIRECTOR STOCK PLAN 1 34 EXHIBIT 10(h) HARTE-HANKS, INC. 1998 DIRECTOR STOCK PLAN 1. Purposes. The purposes of the 1998 Director Stock Plan (the "Plan") are to (a) attract and retain highly qualified individuals to serve as directors of Harte-Hanks, Inc. (the "Company") and (b) to increase the Non-Employee Directors' (as defined below) stock ownership in the Company. 2. Effective Date. The Plan shall be effective as of May 5, 1998, subject to the approval of the stockholders of the Company. 3. Participation. Only Non-Employee Directors shall be eligible to participate in the Plan. A "Non-Employee Director" is a person who is serving as a director of the Company and who is not an employee of the Company or any subsidiary of the Company. 4. Election to Receive Stock In Lieu Of Eligible Cash Fees. Subject to the terms and conditions of the Plan, each Non-Employee Director may elect to forego all or a portion of the cash compensation otherwise payable for services to be rendered by such Non-Employee Director during the calendar year and to receive in lieu thereof whole shares of Company common stock (rounded upward or downward to the nearest whole share), as determined in accordance with Section 6 hereof. Elections shall be made in increments of 25%, 50%, 75% or 100% of such compensation. An election under this Section 4 to have cash compensation paid in shares of common stock shall be valid only if it is in writing, signed by the Non-Employee Director, and filed with the Corporate Secretary of the Company. Common stock to be received by a Non-Employee Director pursuant to such director's election shall be distributed to the director as soon as practicable after the end of each calendar quarter. 5. Cash Compensation. For purposes of the Plan, cash compensation shall mean the Non-Employee Director's annual director's fees, but shall not include a Non-Employee Director's expense reimbursement. 6. Equivalent Amount of Stock. The number of whole shares of common stock to be distributed to a Non-Employee Director in accordance with such Non-Employee Director's election made under Section 4 above shall be equal to: (a) the amount of the cash compensation which the Non-Employee Director has forgone during that calendar quarter in exchange for shares of common stock, divided by (b) the closing price for the common stock as reported by the New York Stock Exchange (or any exchange on which the common stock may be then listed) on the last day of each calendar quarter, or, if no shares of common stock were traded on such date, on the next preceding date on which the common stock was traded. 7. Shares Subject To The Plan. All shares of common stock to be used for purposes of the Plan shall be treasury shares, that is, shares previously issued and outstanding which have been reacquired by the Company and have not been canceled. The shares of common stock issued to a Non-Employee Director pursuant to the provisions of the Plan may not be sold for at least six months after having been acquired, except in the case of death or disability of the Non-Employee Director. The total number of shares of common stock issuable pursuant to the Plan is 200,000. 8. Nonassignability. No rights under the Plan shall be assignable or transferable by a Non-Employee Director other than by will or the laws of descent and distribution. 2 35 9. Construction; Amendment; Termination. The Plan shall be construed in accordance with the laws of the State of Delaware and may be amended or terminated at any time by action of the Board, provided, that the stockholders of the Company must approve any increase in the number of shares of common stock issuable under the Plan and provided further that the Plan may not be amended more than once every six months other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. EX-11 6 STATEMENT REGARDING COMPUTATION OF NET INCOME 1 36 EXHIBIT 11 HARTE-HANKS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (in thousands, except per share data)
Three Months Ended June 30, In thousands, except per share amount 1998 1997 - ----------------------------------------------------------------------------------------------------- BASIC EPS Income from continuing operations .................................... $ 17,010 $ 10,640 Income from discontinued operations .................................. -- 5,705 -------- -------- Net Income ........................................................... $ 17,010 $ 16,345 ======== ======== Weighted-average common shares outstanding used in net earnings per share computations ..................... 73,541 74,558 ======== ======== Basic earnings per common share: Continuing operations ........................................... $ 0.23 $ 0.14 Discontinued operations ......................................... -- 0.08 -------- -------- Net income ...................................................... $ 0.23 $ 0.22 ======== ======== DILUTED EPS Income from continuing operations .................................... $ 17,010 $ 10,640 Income from discontinued operations .................................. -- 5,705 -------- -------- Net Income ........................................................... $ 17,010 $ 16,345 ======== ======== Shares used in net earnings per share computations .................. 77,212 77,664 ======== ======== Diluted earnings per common share: Continuing operations ........................................... $ 0.22 $ 0.14 Discontinued operations ......................................... -- 0.07 -------- -------- Net income ...................................................... $ 0.22 $ 0.21 ======== ======== Computation of shares used in net earnings per share computations: Average outstanding common shares .................................... 73,541 74,558 Average common equivalent shares - dilutive effect of option shares ................................ 3,671 3,106 -------- -------- Shares used in net earnings per share computations ................... 77,212 77,664 ======== ========
Six Months Ended June 30, In thousands, except per share amount 1998 1997 - ---------------------------------------------------------------------------------------------------- BASIC EPS Income from continuing operations .................................... $ 31,115 $ 16,608 Income from discontinued operations .................................. -- 9,754 -------- -------- Net Income ........................................................... $ 31,115 $ 26,362 ======== ======== Weighted-average common shares outstanding used in net earnings per share computations ..................... 73,511 74,410 ======== ======== Basic earnings per common share: Continuing operations ........................................... $ 0.42 $ 0.22 Discontinued operations ......................................... -- 0.13 -------- -------- Net income ...................................................... $ 0.42 $ 0.35 ======== ======== DILUTED EPS Income from continuing operations .................................... $ 31,115 $ 16,608 Income from discontinued operations .................................. -- 9,754 -------- -------- Net Income ........................................................... $ 31,115 $ 26,362 ======== ======== Shares used in net earnings per share computations .................. 77,170 77,566 ======== ======== Diluted earnings per common share: Continuing operations ........................................... $ 0.40 $ 0.21 Discontinued operations ......................................... -- 0.13 -------- -------- Net income ...................................................... $ 0.40 $ 0.34 ======== ======== Computation of shares used in net earnings per share computations: Average outstanding common shares .................................... 73,511 74,410 Average common equivalent shares - dilutive effect of option shares ................................ 3,659 3,156 -------- -------- Shares used in net earnings per share computations ................... 77,170 77,566 ======== ========
EX-21 7 SUBSIDIARIES OF THE COMPANY 1 37 EXHIBIT 21 RESTRICTED SUBSIDIARIES OF HARTE-HANKS, INC. As of June 30, 1998
State of % of Stock Name of Corporation Incorporation Owned - ------------------- ------------- ----------- DiMark, Inc. New Jersey 100% DiMark Marketing, Inc. Pennsylvania 100%(1) Direct Market Concepts, Inc. Florida 100% DMK, Inc. Delaware 100%(2) The Flyer Publishing Corporation Florida 100% Harte-Hanks Data Technologies, Inc. Massachusetts 100% Harte-Hanks Delaware, Inc. Delaware 100% Harte-Hanks Direct, Inc. Delaware 100% Harte-Hanks Direct Marketing/Baltimore, Inc. Maryland 100% Harte-Hanks Direct Marketing/Cincinnati, Inc. Ohio 100% Harte-Hanks Direct Marketing/Dallas, Inc. Delaware 100% Harte-Hanks Direct Marketing/Fullerton, Inc. California 100% Harte-Hanks do Brazil Consultoria e Servicos Ltda. Brazil 100%(3) Harte-Hanks Limited England 100%(3) Harte-Hanks Market Research, Inc. New Jersey 100% Harte-Hanks Partnership, Ltd. Texas 100%(7) Harte-Hanks Pty. Limited Australia 100%(3) Harte-Hanks Response Management/Boston, Inc. Massachusetts 100% Harte-Hanks Response Management Call Centers, Inc. Delaware 100% Harte-Hanks Response Management Europe Belgium 100% Harte-Hanks Shoppers, Inc. California 100% Harte-Hanks Stock Plan, Inc. Delaware 100% H&R Communications, Inc. New Jersey 100%(2) HTS, Inc. Connecticut 100% Information for Marketing Limited England 100%(5) Marketing Communications, Inc. Missouri 100% Mars Graphic Services, Inc. New Jersey 100%(4) Mercantile Software Systems, Inc. New Jersey 100% Northern Comprint Co. California 100% NSO, Inc. Ohio 100% Potpourri Shopper, Inc. California 100% PRO Direct Response Corp. New Jersey 100%(2) PSP&D, Inc. Delaware 100%(6) Select Marketing, Inc. Texas 100% Southern Comprint Co. California 100% Sutton Industries, Inc. Delaware 100%
(1) Owned by Mars Graphic Services, Inc. (2) Owned by DiMark Marketing, Inc. (3) Owned by Harte-Hanks Data Technologies, Inc. (4) Owned by DiMark, Inc. (5) Owned by Harte-Hanks Limited (6) Owned by Sutton Industries, Inc. (7) 99.5% Owned by Harte-Hanks Delaware, Inc. .5% Owned by Harte-Hanks, Inc. EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 57,572 170,408 117,641 4,098 6,107 374,399 179,648 91,316 714,541 103,583 0 0 0 75,430 516,152 714,541 364,479 364,479 271,333 304,245 7,520 0 129 53,204 22,089 31,115 0 0 0 31,115 .42 .40
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